All Forum Posts by: Ivan Barratt

@Kole Moore great stuff here already. Underwriting the sponsor is def the key. The list above is great too! But instead of asking a potential partner (another word for sponsor) do this instead... answer as many as you can by reading the sponsor's material. If lots of questions remain unanswered you probably have a less experienced team and may want to look elsewhere. If only a few remain it doesn't mean you have a "great one" but it's a big step in the right direction. And by doing your homework first it will also show the sponsor you're potentially good fit for them.

Remember, it's a partnership! :)

@Robert C. great observational comments!
My argument or "investment bet" would NOT include historical boom/bust markets like Bay Area, LA, NY, etc. They will likely see a "reversion to the mean" or softness for longer.

I think you are correct on the policy response preventing a depression.  2008 almost killed us. This time they're reacting much fast with an "everyone/everything" bail out. 

When investors used to ask me what kept me up most at night the answer was simple and immediate: Deflation. But then I discovered the same boogeyman keeps up central bankers as well. Now I still worry about unforeseen information that could destroy my investment thesis (that's my job as a real estate fund manager); however I no longer worry about deflation. The Fed has gone on record saying they'd rather drop money from a helicopter than allow deflation. This is great if you know the game of the wealthy and invest significantly in hard assets; most of which that produce income. It's not so great if you're in the middle class. I worry most about them. They are my friends, parents, neighbors, etc. I worry about their pensions, their way of life and their ineptitude in many cases when it comes to financial knowledge. The middle class is toast.  We will see the 1%, the 9% (upper middle class) and the bottom 90%. Truly sad but unfortunately the inevitability of history and cycles.

@Paul B. great trend to keep an eye on! My sense of it is that you'll see a regional co-op/trade agreement of North American Countries. US power knows it needs immigration. My bet is that it will continue.

@Eric Bilderback great points. I look at the eurozone and japan. Both are struggling to get inflation (Japan now for a long time). IF USA continues to struggle we'll see low interest rates and low cap rates (see 10yrUST vs ComRE cap rates going back 20 years). They're quite correlated.

When we pull out of this with a more nationalistic "north america first" stance growth and inflation will resume. At that time you'll see interest rates rise to tamp runway inflation. The good news for apartments is the operator can lock rates for long periods of time.  Inflation is good as long as you don't have to sell at any given point in the cycle. You can simply wait for your apartment rents to catch up with inflation and offset a higher cap.

remember another way to look at cap rate is the return/risk someone is willing to take for a given risk.  apartments will continue to be viewed/bought as a low risk asset class.

Re your econ outlook: a good book to read to help offset the negativity may be: "Unleashing the Second American Centruy" by Joel Kurtzman, "Four Forces for Economic Dominance."

All the best man!

 

@Blake Harris do it. Today my partner and I own 3,000 apartments via syndication and 90 employee management company. I started house hacking a duplex with an FHA loan.

@Todd Dexheimer in some ways I think you're right. Having a deal in hand currently I know I would have been outbid on previously is a good feeling. 

In case we are in "denial phase" I'm also buying more gold and keeping more cash on hand.  It's the same reason I locked in long term debt on all our assets EVEN though I knew interest rates would fall. Why some might ask? Because hedging my assumptions is being a smart investor.  Make bets on your predictions and at the same time make bets as if you'll be wrong. :)

Hope you are well my friend!

Thanks @Ryan Daigle. A bear trap shakes out the pessimists who sell or stay on the sidelines in cash only to observe the bull market continue. Due to memories from 2008 I think there's more bearish sentiment that this is "the big one." If it's not; add in 6T of printed money and we'll see a "melt up" in many assets.

I would be fearful of the opposite; the "bull trap." That would make me 100% wrong and we're in for a nasty, dark ages, depression.

I guess we'll see...    :)

Go house hack a 2-4 unit that needs rehab. Figure out how to add value. Manage the tenants and toilets. Rinse and repeat.

@Duke Giordano I get what you're saying. If that's the case in the markets you're evaluating then it's probably best to wait and see. 

What I'm referring to is the growing probability that in my market and asset class; vacancy and rents won't be affected beyond 90 days. Currently I have a deal under contract that came to us off market. 4 months ago, on the open market it likely would have been bid ~1 million over my line in the sand. Further; it's coming out of the LIHTC program and average management which equals a large value add play. Although I could be wrong I'm paid to take smart risks. As a fund manager I'd be short sighted to let this one get away by attempting to time a bottom. I'm further bolstered by a 5 to 7 year hold. My conclusion is that those who wait 6 -12 months will likely miss opportunities. Again, just speaking to my marketplace and asset class; NOT real estate in general. Also remember; yes we have to underwrite to actual trailing/current performance (this helps set a minimum/downside return) however the majority of the return comes from the ability to add value. It's what the management team, armed with fresh capital; can execute. :)

Cap Rates:

The current spread between my market cap rates (call it ~5-5.50) and the risk free rate (US10yrTreasury) (~.60)) is 440-490bps which is way fatter than the average. For the best operators debt terms will be little changed. The idea that cap rates will rise in this environment may be "painting with too broad a brush." Europe for example (who has had zero rates) has an average real estate cap rate of 3.25%. Cap rates however will rise when inflation kicks in down the road and interest rates come off the bottom. At that time smart operators won't sell. They'll wait to raise rents with inflation to offset the cap increases. Best part of multifamily is the ability to hedge against/manage debt maturity and not sell when not appropriate.

Hey BP universe and my fellow syndicators.  Excited to hear thoughts both for and against.

What happens to apartment cap rates (B/B+/A- Workforce; NOT luxury) when these assets come out of the "Covid-Recession" relatively unscathed (Theory: Most people given enough stimulus money and unemployment checks will pay for food,water,shelter first) and interest rates are zero?  Further; there will be 6 trillion in printed money; much of it hunting for safe yield.

Could this current stage be the "bear trap" before the actual big bubble referenced in the chart below?