All Forum Posts by: Spencer Gray

@Sean Banilivy We have looked at this strategy recently with the amount of distressed hotels for sale. We were pursuing a project where we believed the basis was low enough that a substantial renovation could occur and still have our all in cost be significantly below replacement, and even below the average $/unit for apartments in the market. This provides the potential opportunity to achieve strong returns while keeping rents somewhat affordable. 

We ended up not aggressively pursuing the deal as it was an auction and we weren't able to complete adequate due diligence in order to essentially close with cash within 30 days.

 I would second Hands-Off Investor by @Brian Burke . 

@Jeff G. @Matt Aquino

@Matt Aquino

This is a recent example, this happened about two weeks ago.

We have been looking at several markets in South Carolina and wanted to make some inroads with the local (Cushman) broker. 

We asked our local (Cushman) broker who we have a great relationship with to see if they could make a warm intro - which they were happy to do.

Then when we were discussing a deal we told the broker we would like to fly out and see the deal, but more importantly meet with him. He said it wasn't necessary and that we could fly out if we had the deal under contract. We flew out anyway, toured the market, and met with the broker - almost no other non local buyers did that. 

Now he can put a face with a name, knows who we are, and knows that we're serious. 

If you can't fly out. Stay in regular communication, check in every few weeks. 

@Senate Eskridge Absolutely. The 2019 BPCON was a good time, even better if 2021 happens and is in New Orleans. 

We are seeing similar issues in other states as well (Midwest and Southeast specifically). 

Most deals we underwrite don't pass a DSCR test of 1.25 and therefore cannot be leveraged at our typical 70-75% LTV.

There are still deals out there, you just have to go through and underwrite more than ever to find one. 

As the economy continues to open up, vaccines are rolled out and people are more comfortable getting together, one thing I am excited about is to start attending real estate conferences and networking events again.  

While many have kept going on virtually, others have just began to host in person events again.

Are you planning on attending any in person or virtual events/conferences this year?

Which events are you looking forward to?

I would take a look at Indianapolis. 

@Roy Mitle 

Interest rates have been rising for the last 6 months, they have been falling for the past 5 decades and have oscillated up and down during that path downwards. 

We have to keep in mind interest rates are still incredibly low by historic standards. 

As @Evan Polaski mentioned, interest rates certainly affect all investment returns - some more than others. 

What hasn't been mentioned is that the reason why rates (and really only longer maturity rates, short term rates are still near 0%) are rising, and that's inflation. 

Apartments outperform in inflationary environments as rental growth historically outpaces inflation - which is why rental real estate is considered an excellent hedge against inflation. 

While we may see multiple reduction/cap rate decompression, top line revenue and NOI growth will grow at a faster rate, which is the numerator in the value equation (NOI/Cap Rate = Value), so we will likely see prices continue to rise or at least stay flat. In other words, yields (cash-flow) will increase.

We will see a spike of inflation and higher rates, although still historically low, for a year or so before rates continue their trend downwards. 

There is far too much sovereign debt outstanding which can't be sustained in a higher rate environment. The central banks of the world will ramp up their buying of long maturing bonds to bring rates down. 

Technology and automation will continue to be a major deflationary force that will also temper long term inflation and keep rates relatively low. 

The investment thesis into multifamily is as strong as it ever was, homeownership is increasingly unaffordable, construction delays due to the pandemic will further add to supply constraints - increasing absorption rates, occupancy, and rent growth. 

The best time to buy MF was in the last decade, the next best time is right now. 

@Marco Cepeda The best way is to be persistent in communicating with brokers. As long as you are respectful of their time, staying in regular close contact is key.

You never know when a broker will just happen to get a listing/deal and if you are in regular contact and ask "anything coming out soon?" they'll most likely let you know if they have something in the works. 

They might not be able to give you all the details but if you respond with something like "well if it is close to hitting my criteria (restate criteria) we would be interested, would the seller be open to a pre-emptive offer?" 

Keep following up "as soon as the financials are ready, send them over and we'll give you some quick feedback, I don't need the full OM."

Giving quick feedback is a great way to add value to a broker, because even if they don't think you will win the deal, your thoughts on the price/deal will either confirm our deny the brokers own assumptions and will give them insight into what other buyers are going to ask. 

And then make actual offers. If a deal comes to market that hits your criteria and you don't make an offer, the broker may think you're just kicking tires. 

If your offer is not going to win the deal and below the whisper, call the broker and explain your underwriting and say: "These are our assumptions and this is where we are, if that price is going to put off the seller we don't have to submit, but if it's not going to offend the seller and you would rather have more offers we would be happy to put in an LOI."

Now the broker can say they had X offers on the deal, which usually makes them look good assuming there were enough offers in the whisper strike zone. And you never know, the broker may have gotten over their skis and your offer may actually be competitive. 

Those are fire cap rates @Steve S. . Is it distressed or does the seller have no clue where the market is? 

If you share some more details such as purchase price, # units, market, etc other/I may be able to point you in the right direction.