How to prepare for what's coming in this market

[Michael Blank]

Many assets bought in the last 2 years face challenges due to floating rate debts. Rising interest rates and expiring rate caps amplify this distress.

Right now, there's a wide gap between seller expectations and buyer offers. It's hard to find deals. 

But, with distress growing, this gap will narrow, leading to major buying opportunities, often off-market. It's crucial now to connect with brokers and stay informed.

Use this time to build strong relationships with brokers. Focus on continuing your education. Read books, listen to podcasts, join communities, and work with mentors. Do what you can now so that in 3 months or so you'll be ready to make deals. 

[Evan Polaski]

While I agree that, overall, there will be a lot more distress than most people on these forums have ever seen, there are many reasons to believe there will not be any type of tsunami.  Buying opportunities, I guess, are relative. Just like what a good deal is, or too much risk, etc.

While there will be a diamond in the rough available, I believe we might see a slight discount from today's pricing, at least for good assets.  Why?

Good operators with good assets will have flexibility with lenders and fairly cheap sources of capital to help where absolutely necessary.  These assets will never sell.  They will extend or refi loans.

Marginal deals and/or marginal operators will still have a network of others in the industry. This will allow them access to one of the many pref equity funds being raised, or currently raised, that I am seeing as an LP myself.  This will be fairly expensive capital, and will allow the operator and/or deal to extend and pretend.  These deals may end up going bust anyways, but it will spread out the "tsunami" of maturities keeping pricing more stable.

Bad Operators and/or Bad Deals will go into foreclosure.  But if it is a good deal and bad operator, these are going to be picked up very quickly by relationships of the lender, a la Arbor selling to Fundamental Partners for the Applesway foreclosure.  

That leaves bad deals.  I could argue these are assets that the sophisticated buyers won't touch, regardless of price.  Generally, these will also not have much impact on market pricing because they are distressed sales of poor quality assets. 

All this being said, investing in general is not about timing the market.  If you are sitting around waiting for the right time, by the time you realize it was the right time to buy, you already missed it.  Look at the financial crisis.  Look at the mid-2020 to mid-2021 COVID deals.  Everyone was afraid of what was going to happen and waiting for prices to fall off a cliff.  Then they didn't and lots of people missed out on huge buying opportunities.

And lastly, if you read this far and you are new to real estate: if you plan on syndicating deals, please spend more than 3 months learning the industry.  Your potential investors will appreciate it.