Recession Biggest Opportunities

[Zachary Feldman]

Hi All-

I am sure others are feeling a shifting in the tide as things continue to  be overpriced, increasing interest rates, and return metrics continually become more difficult to hit. I was hoping to get some discussion here on the biggest opportunities in Real Estate, specifically mutli-family investing during recessions and financial downturns.

If you could  go back to 2008-2010 what were the biggest opportunities for Real Estate investors and how could you have taken advantage?

If another downturn was going to take place what type of deals would you look for and how would you best prepare to take advantage of a real estate market that is crahsing?

Looking forward to all responses.

Cheers,

ZF

[Grant Rothenburger]

@Zachary Feldman MF investors still did well at that time as long as they weren't too leveraged, so that would be easy to say. But I'd go a different route and buy up a bunch of SFR because they were deeply discounted. This is also assuming that I'm going back to 2008-2010 with a boatload of cash that I can afford to lose for a few years until the market bounces back.

[Russell Brazil]

If you are waiting for the type of downturn we had a decade ago, the next one will likely happen after you are dead. That was a once in a lifetime oppurtunity. The last one before that was the great depression.

[Jeff Kehl]

@Zachary Feldman good topic. Even if it never happens I think it is good to think about as a thought exercise.

Looking back, the assets that have appreciated most are the most popular. So for me, what that means is I would go into the best neighborhoods in Atlanta and buy as much as possible. 

Same for vacation type properties. I would go to Destin and buy anything for sale. Same ski towns in Colordao.

Buy quality.

[Sam Shueh]

Get your credit score to the top tier. Have a preapproval letter ready.  Have 6 month- one year living expense in your savings.

The next recession will be a mild one. Homes do not sell quickly and some sellers have to lower price. It may be flat for a few years to a slight reduction 5-10% depending on are where you are. Past experience and results are not indicative of the future. The investors over leverage will file bankruptcy or go out of business.

[Mike Dymski]

We don't know where the top is now or how long it will last and we didn't know where the bottom was back then nor how long it would last.  It's not easy to catch a falling knife.

If there is a downturn, investors with experience and access to capital will have the best opportunity.  Figuring out which asset class will vary...all market cycles are different.

[Todd Dexheimer]

Have cash and have investors with cash ready to deploy. Make sure that you are doing things that will set you up for success by gaining trust of others, running your company well, educating yourself, etc. Right now I am in buy mode, but we are trying to remain conservative and stay in a good cash position. If you set yourself up right, then the next recession will not take you down. 

There will be opportunity during the next recession. It could be in single family, Multi-family, Industrial, retail, office, so be prepared and educated. For those that say Multi-family didn't get hit hard in 2008-2011, look back to the late 80's and try telling me the same thing. No sector in RE is bullet proof, so remain humble!

[Kevin Polite]

Just reading this today. Great article. here are some highlights that I agree with

Why this time won’t be another 2008

“Housing is such a basic need that it won’t necessarily do well, but [it will] at least truck along,” said ATTOM’s Daren Blomquist. “It may flatten out a bit, but people still need somewhere to live, so that basic need is going to cause how the housing market and particularly home prices—to continue to go up.”

today mortgage lending practices today are air-tight, whereas in 2008 they were as sloppy and risky as they’ve ever been. As a result, subprime mortgage bond issuance is a tiny fraction of it was prior to the crisis.

Lastly, the massive housing supply for sale during the collapse, pushed prices into free fall. But today, housing supply today is incredibly tight

Link to Curbed article

[Josh J.]

This is 100000% wrong. 

The S&L crisis was FAR worse in terms of CRE default rates and price declines than 2008 (I literally built a pitch deck breaking this all down last week so I have dozens of Excel models and graphs to prove this occurs every 10-15 years or so).

After the S&L crisis you had guys buying stuff like retail properties next to NYU in the West Village of Manhattan (some of the priciest real estate on EARTH) at 10%+ cap rates despite buildings having a 30% vacancy rate. 

Prices were hit alot harder in 1990 because of the RTC liquidating huge amounts of distressed properties in a really short time frame and there was no extend and pretend like in '08. The RTC is why Barry Sternlicht is a gajillionaire today, he scooped up huge numbers of properties at rock bottom prices.

OP: I would have spent ALL my time buying distressed CRE debt because banks were giving the stuff away (I'm talking full recourse notes in non-judicial states were trading at 45% of UPB).

Also for a brief period in '09 you could bid on deals in pristine markets like the West Village in Manhattan or Buckhead in Atlanta with almost no competition. But I really would have loved to purchase some class C stuff to reposition because while A product became more attractive, C product was trading at truly amazing prices for 3 years after the crash. You would have seen wild cap rate compression and rent growth over the subsequent 6 years and acquired them at an irreplaceable basis.

[Russell Brazil]

Originally posted by @Josh J.:

This is 100000% wrong. 

The S&L crisis was FAR worse in terms of CRE default rates and price declines than 2008 (I literally built a pitch deck breaking this all down last week so I have dozens of Excel models and graphs to prove this occurs every 10-15 years or so).

After the S&L crisis you had guys buying stuff like retail properties next to NYU in the West Village of Manhattan (some of the priciest real estate on EARTH) at 10%+ cap rates despite buildings having a 30% vacancy rate. 

Prices were hit alot harder in 1990 because of the RTC liquidating huge amounts of distressed properties in a really short time frame and there was no extend and pretend like in '08. The RTC is why Barry Sternlicht is a gajillionaire today, he scooped up huge numbers of properties at rock bottom prices.

OP: I would have spent ALL my time buying distressed CRE debt because banks were giving the stuff away (I'm talking full recourse notes in non-judicial states were trading at 45% of UPB).

Also for a brief period in '09 you could bid on deals in pristine markets like the West Village in Manhattan or Buckhead in Atlanta with almost no competition. But I really would have loved to purchase some class C stuff to reposition because while A product became more attractive, C product was trading at truly amazing prices for 3 years after the crash. You would have seen wild cap rate compression and rent growth over the subsequent 6 years and acquired them at an irreplaceable basis.

 S&L crisis was regional and not national. On a national level, median price points dropped about $1500 dollars. 

[Russell Brazil]

yeah look at that huge drop in 1990. 

https://fred.stlouisfed.org/series/MSPUS

[Josh J.]

Originally posted by @Russell Brazil:

yeah look at that huge drop in 1990. 

https://fred.stlouisfed.org/series/MSPUS

That graph talks about single family. Isn’t this a multifamily forum, a.k.a. commercial real estate? 

Look again at CRE prices.

[Russell Brazil]

Originally posted by @Josh J.:

Originally posted by @Russell Brazil:

yeah look at that huge drop in 1990. 

https://fred.stlouisfed.org/series/MSPUS

That graph talks about single family. Isn’t this a multifamily forum, a.k.a. commercial real estate? 

Look again at CRE prices.

 https://fred.stlouisfed.org/series/B292RG3A086NBEA

[Josh J.]

Originally posted by @Russell Brazil:

Originally posted by @Josh J.:

Originally posted by @Russell Brazil:

yeah look at that huge drop in 1990. 

https://fred.stlouisfed.org/series/MSPUS

That graph talks about single family. Isn’t this a multifamily forum, a.k.a. commercial real estate? 

Look again at CRE prices.

 https://fred.stlouisfed.org/series/B292RG3A086NBEA

I don’t want to keep going back and forth but Real Fixed Investment doesn’t mean what you think it means. 

[Brian Ploszay]

Interesting.  The last downturn was not as severe for commercial real estate. 

The good deals were more numerous for lower quality residential real estate.  Some regions were harder hit - like Vegas and Florida.  New York City, where you are from, was more mild.

A great way to predict a future real estate crash is to see an uptick in defaulted mortgages.  Many don't see this happening.  A freeze in credit is a key ingredient to a real estate crash.

So what we may experience is a transition to a "buyer's market."  Coupled with a decrease in the volume of sales, for both residential and investment real estate.

I clearly feel it happening, but I am located in what is ranked as a below average real estate market, ranked for performance in 2019.

[Zachary Feldman]

@Josh J. Would you be willing to share this deck?