Are syndicators loosing their A$$?

Question

What's this I've been reading lately about a pause in distributions and capital calls?

Seems like there is blood in the water?

Maybe a good time to go fishing...

I wouldn't mind being able to pause distributions to our 500 SFH we manage and capital call our investors if/when we need money lol

Thanks

Chris Seveney · Answer

I would argue this was not a black swan event. There were plenty of red flags just like there were in 2006-2008.

1. People with zero experience getting in and making money. (this pushes prices up due to competition)

2. Government printing $5T. AGain another reason to push prices up.

Inflation was inevitable, and the investor rush would end.Also those who have been in real estate since COVID acting like they are veterans of the space and claiming any downturn is over and 2024 will be a great year for real estate honestly just look like idiots.

Chris Seveney · Answer

@Engelo Rumora

Some yes and some no.

A wake up call for many who have only been in real estate for under ten years and realize not only can they lose money, but they can get completely wiped out and those who started with say $100k investment in 2018 that made 2x are finding that not only is the $100k they made gone but also their original $100k and it will take a bit of time to recover….

Chris Seveney · Answer

@Christie Gahan

I don’t think it was, and yes some banks went under but not the entire system, Silicon Valley bank went under because they were not diverse. It was not a systemic failure but some one-offs.

While it was difficult to predict rates would jump that high that quickly, but let’s look at two factors that impact inflation

Money supply and product

1. Money supply increased by 38%.

2. The world shut down

What did you think would happen? Those are absurd statistics and since it was such a crazy wildcard - the deals I saw they were factoring in no hikes in rates. So it did not matter they were hosed either way.

Engelo Rumora · Answer

Yes indeed mate.

I probably would have fixed the rate also but "underwritten" the deal from a worst case rate scenario like I would do with SFH if financing.

I'm not versed in large multifamily deals and would love to learn more.

I think I could really do some "damage" in the field because I own and run a property management company and we run a tight ship that's very well optimized from an automation aspect and affiliate fee structure standpoint.

So my bottom line for example buying a 50 or 100 unit would be much safer/higher due to in-house PM and "working" the margin.

AJ Singh · Answer

@Engelo Rumora

I have evaluated multifamily deals but never pulled the trigger, When i see sponsors paying themselves 600k from the raising because they vetted tens of deals makes me squirm. The vertical integration also has the sponsors controlling rehab dollars from the raise and all hands in the pie.

i would rather do single or multifamily investing on my own.

Christie Gahan · Answer

I've had this discussion with my son.  On the one hand, floating rate loans are "normal" in this space.

On the other hand, when rates are at a 50 year low ... where the heck do you think they are going to go?

The "Smart Money" got the lowest rate possible ( floating) and everybody's Grandma got a fixed rate.  Now, who are the smart people ?

Maybe, the "Smart Money" was smart because they got their payday when they sold to the individual investors?

Mike Dymski · Answer

Vertical integration of management (and rehab) would definitely be a value proposition for you (and the small % of other sponsors who have it).  My favorite sponsor is vertically integrated and local their portfolio.

I also agree that historic levels (40-year highs) of inflation, interest rate increases, and government intervention is/are clear black swan events.  Banks failed from buying US Treasuries...

Engelo Rumora · Answer

Agreed

But such a hike in such a short amount of time seems a bit unpredictable IMO

Thanks

Engelo Rumora · Answer

Make sense mate

Christie Gahan · Answer

Was the inflation really  a suprise?  Every time a new round of Stimulus Checks went out, the media was full of warnings about inflation.

Are syndicators loosing their A$$?

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