All Forum Posts by: Brian Burke

@Jason Piccolo or @Ram Go, what is the loan balance, interest rate, and when does the loan mature?  Are there maturity extensions built into the loan agreement?  If so, how many, how long, and what are the covenants for qualifying for the extensions?

I get into contract in my operating company and then assign the contract to the new LLC prior to closing. There is a provision in all my contracts that permit me to assign the contract to a newly-formed entity that I control. It's a common practice and I've never had any opposition to this provision.

If you don’t have an operating company, you could get into contract in your own name and then assign it.  Consult with competent legal counsel to guide you regardless of your choice here.

@Obed Calixte The memories that bring me joy from a career perspective are the times when I've had the good fortune of delivering an above-projection return after a successful investment round trip.  Especially the ones where I had doubters saying it couldn't be done or my strategy was wrong.

What's next?  I haven't bought anything in over 3 years--instead I've been watching the multifamily market implode mostly from the sidelines, except for the thousand or so units that I still have.  What is next is getting back in the market and creating more opportunity for our clients to ride the next market upcycle.

@Scott Trench you and I don't always 100% agree on everything, but I think you nailed this one.  As you know, I sold 3/4 of my portfolio (thousands of units) right before the market tanked in 2022 and I haven't bought anything in over 3 years.  During that time I've often described the multifamily market as a traffic collision at a 4-way intersection where you had (lack of or negative) rent growth coming from one direction, and from the other directions: cap rates, expenses, and interest rates.  All lights were green and there was a pileup, leaving behind a mess of twisted metal and broken glass, and a few personal injuries to boot.

The syndicator crowd coined the phrase "survive until '25" under the hope that by 2025 interest rates would correct and their deals would be fine.  I don't expect that to work out for them.

My phrases are: End the dive in '25.  It's fixed in '26. Investor heaven in '27, and if you wait until '28 it'll be too late. '29 will be like a fine wine.  Git 'er done in 31--time to sell and take some profits.

Before "the market" can go up, it first has to stop going down.  I think that '25 will be a transition year ("end the dive in '25") for the reasons you stated--construction will fall off in Q2-3 but demand will remain...that sparks rent growth.

Interest rates:  Yes, flat to up. For those holding hope they will fall and save existing deals, don't hold your breath. Existing deals will instead be saved by NOI growth driven by rent growth--if you have the staying power to hold on long enough.

Supply:  High deliveries remain today mostly because of "hang over" from projects that are taking longer to complete than developers (and industry analysts) expected.  New deliveries are hard to get out of the ground because rents aren't high enough to support the projects at today's costs and interest rates.  Another tailwind to rent growth.  And the reason why your "tale of two halves" will play out as you described.

Demand:  This has actually been high almost all along, but rent growth hasn't materialized in response due to high levels of new supply.  That will change in 2H25 in a lot of markets.

Expenses:  Leveling off and must be accepted as the new normal.  No longer can buyers underwrite to $1,000/unit payroll and $250/unit insurance expense.  Underwrite to reality, not what you hope costs will be, because they aren't going back down.

Post-pandemic vintage syndications:  You are mostly right, Scott, that these investors are cooked.  But not all of them.  Any syndicate that over-leveraged and/or has a near-term maturity will be very challenged to survive.  Syndicates that used lower leverage points and have far-out maturities (such as 2029 or later) are likely to survive as long as they don't run out of cash to maintain the assets for longer-than-planned hold times.  For syndicates with loan maturities after 2030, they even have a shot at making a positive return, and perhaps even a decent one considering what they've endured to get there.

Kicking the can down the road:  Owners and syndicators hoping they can kick the can down the road by negotiating loan maturity extensions are likely to be disappointed.  Lenders have been accommodative for the last couple of years because they were facing a declining market with no buyers.  They didn't extend loan maturities because they were looking out for borrowers--and the moment they feel the market is strong enough for them to liquidate the asset they will foreclose and/or force a sale to recover as much principal as they can.  Be careful about feeding additional capital into syndicates with short-term loan maturities if the only plan is to negotiate lender maturity extensions for another year.  Those may not pay off.

Buyers:  There is a fine line between the first mover and the last sucker.  Finding the exact bottom isn't easy but many have said it's already happened.  I disagree--there are more tough times ahead, but as stated above there is light at the end of the tunnel and this time it's not a train.  There is a case for buying well-located solid assets that produce immediate current cash flow at reasonable leverage.  I have yet to see one of these when underwriting to today's real costs, but I think it'll happen eventually.  One thing is for certain:  The basis in 2025 or 2026 will be a better starting point than 2022.  

Yes, timing really does matter in real estate investing...

Quote from @Dominic Mazzarella:

I would ask this, when raising capital for a real estate syndication, what strategies have you found most effective for building trust and credibility with first-time passive investors? Are there specific tools, presentations, or approaches that help them feel more confident in taking that first step? Thanks!

Dominic, I've found that participating on BiggerPockets forums, appearing on podcasts, and speaking at conferences have built trust with first-time passive investors when those forum posts, podcast discussions, and conference presentations show my experience, track record, and market knowledge to those reading, listening, or attending.

This doesn't mean "selling from the stage", but instead, sharing actionable, useful information that I've gleaned from my many years of experience and from my own research.  Being a subject matter expert, not because you are forcing it, but because you simply ARE, shows through, and investors are rightfully attracted to that.

Quote from @Sanjay Bhagat:

A investor in syndication invest in the person more than the deal. But in the end/exit , the deal tends to be more important.

Sanjay, this is a phrase I'm often repeating on podcasts, in my book, and here in the forums:

A good sponsor can deliver the best possible outcome in the face of adversity, and a bad sponsor can screw up a perfectly good real estate deal.  

Sponsor quality far surpasses the "deal", assuming a qualifying criteria for a "good sponsor" is that they don't buy crappy real estate deals to begin with.

Having said that, if a great sponsor is offering a deal you don't like for some reason, don't invest in it--just wait for the next one.  Conversely, don't invest in a deal you really like if it's run by a subpar sponsor.  The syndication graveyard is filling up with those this year.

Quote from @Sanjay Bhagat:

1) Should I hire a third party accountant to interpret the deal sponsor track record for due diligence? If yes then what should his/her credentials should be and "approximate" cost?

2) Get the sponsor accountant/CPA/CA to certify the sponsor result? 

I don't recommend it unless you can find a CPA who really understands the syndication space.  A better approach is to network with other experienced passive investors and review the offering together.  This helps you because you'll learn from the more experienced investor, and you can help the other investor by making them aware of a deal they perhaps hadn't seen.  PassivePockets is a great place to do this as well as live events such as BPCON every October.

Just as important as networking is education.  Read the forums here on BP and on PP.  Take the PassivePockets passive investing course (free when you join I think).  Read The Hands-Off Investor.

Important to keep in mind here in late 2024:  The market has been in a down cycle for the last three years.  There's no proof it's even bottomed yet.  The market isn't going to take off and leave you behind tomorrow--you have time to take this slow and learn, observe, and review offerings without making an investment until you are ready.  There's no rush.  And when you decide to act, don't put it all in one deal or even with one sponsor.  Spread your risk around because even your best due diligence won't eliminate all risks.

@Sanjay Bhagat BiggerPockets doesn't do this, but it's sister website, www.passivepockets.com does.  They have a sponsor directory where sponsors can upload their track records and slide decks.  Keep in mind this is sponsor-provided material, not something that the site discovered through research, nor verified.  But it's a start.

While track record is very important, learning how to interpret a track record is just as important.  You could view a sponsor's history and look at the returns shown on their track record, but without context it's meaningless.  Are the returns gross or net?  Are they projected or realized?  Were the entry and exit points contained within an overall bull market?

Things to look for are how long the sponsor has been in business.  Did they suffer loss of principal during down cycles (or even up cycles for that matter).  Is their current portfolio distressed, or was the majority of their current portfolio purchased at the peak of the market, indicating that they might be in distress in the near future.  What financing structure do they use--max LTVs and loan maturities.

One thing that is especially misleading are your questions 2 & 3.  Comparing what was promised to what was delivered lacks context.  There are plenty of sponsors that projected high-teens returns five years ago and delivered in the forties three years later.  It was more lucky than good and says very little about the sponsor's abilities.  Conversely, sponsors might have projected mid-teens in 2020 and deliver a zero when they sell in 2025.  That doesn't make them bad, per se, it is just a very difficult market right now.  You'll learn more about the sponsor by learning how they handle an adverse market, and how they survive it, than by comparing projected vs actual without context.

@Jonah Gunalda you fit the profile of a large segment of the passive investing community--someone who has a good income from something they are really good at, and would like exposure to real estate in their investment portfolio without distracting them from that very vocation that put them in the position to make such an investment in the first place.

There probably isn't a "typical" profile of folks who do not and would not invest in syndications.  In my experience, there are several avatars here.  Active real estate investors who can't get comfortable not being in the driver's seat, people who just don't like real estate as an investment, those who can't get comfortable with the risks, those who just don't understand syndicate investments, those who have heard bad things about this type of investing from others, and people who have invested in syndicates and experienced bad results.

@Jonah Gunalda sponsor selection is critical—if you are investing with first-class sponsors you’ll mitigate one of the biggest risks in the syndications space.

Start with this book.  Also check out BiggerPockets sister site for passive investments: www.passivepockets.com