Multifamily Real Estate Acquisitions & Operations during COVID-19!

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This Money Monday$ webinar gives you some awesome insight into how to acquire and operate multifamily real estate assets during the current COVID-19 pandemic.

(00:00):
What up, what up, what upwelcome to disrupt equity, the disrupt TV studios. You see, it’s the money Monday show I to put the graphic up later. Don’t worry about that. Not doing good, man. That’s a Monday, man. It’s definitely a Monday. Or am I a third cup of coffee? Yeah, I’ve been busy meetings meeting field day to say the least, but a lot of exciting stuff going on in our world. So absolutely. We’ll probably announce over the next couple of weeks, couple of months and kind of see you, uh, you know, what else we have to share and we will be doing this live. Facebook was having some glitches the last couple of weeks while we were doing this and it’s going to look live to the people that are, that are watching it. But, um, yeah, for those of you that want to comment, usually we love commenting.
(00:39):
We usually want people to call in as well. We’re going to have that phone number set up in the near future, but a Facebook is having some glitches, so we have to just record it and upload it, but welcome to money Mondays people. Yeah. We’re talking everything investing, not necessarily just multifamily, just real estate. We’re going to try to open this up to just a little bit of a broader market for investors. Absolutely. Save all your questions for the next show as well. We definitely will go through and answer all the live questions that we get and, you know, share any information that we can. And honestly, we want to start to probably get this figured out to start to bring on some other experts as well. So definitely figure that out here and there feature almost do almost like an interview, right. You know, in person once it’s socially distancing acceptable, right?
(01:22):
Yeah. I made sure Ben was six feet away. You know, we got the measuring stick out and keeps on, like to get closer to me and I’m like, Ben, come on, give me my space. But uh, we’re doing good. No, no. So what are we talking about today? My friend today, we’re gonna talk about acquisitions and operations. The, the meat of syndication, I’d say, all right. So our multifamily viewers, right? So there were, we’re going to today is going to be apartment complexes and, uh, you know, kind of what we’re seeing in the market in terms of buying them as well as what we’re seeing in operating them. So, uh, what do you see in front of brokers, man? You know, brokers, um, you know, a mixed bag, I think from every broker I’ve spoken to definitely acquisitions have dried up one. Broker is telling me 90% of the deals that they had in the pipeline blew up and of the remaining 10%, 90% of those are unrealistic sellers.
(02:09):
And so you basically have whatever that math is, 90 times 1.9. It is completely out of the way. And, um, you know, you have a very small, and I think it’s 0.9% of deals actually still going now just kind of dump into brokers that we, that we deal with. You, you kind of, you feel bad, right? Because I mean, obviously these are sales guys and gals and they’re trying to still make a living. And the market is essentially, you know, tightened up to a point where, you know, very, very few deals are gonna get all the way to the finish line because right. Not only is the financing piece kind of drying up or changing, but you’ve got investors that are scared. And I mean, the other thing too is just that it’s just that all the deals that are going on and pretty much had been retreated.
(02:52):
Yeah. The only one deal, I mean, I was kind of talking to a broker and he was kinda telling me that basically the, they had, you know, the seventies, eighties, constructions are deals that where they are seeing five, 10% discounts, right. One, two, $3 million, depending on the price point discounts, the newer stuff. They only saw very nominal discounts. And so one was in a, I don’t want to say the name, cause I don’t go to know who the broker was because I don’t want to share information that they wouldn’t want me to share, but you know, it was in a very popular Metro and you know, it was a new almost, I think it was a brand new build or almost a brand new build. And in that dealer said, it was like a, I mean, very, very small concession, like 1%. Yeah. And so I think, you know, the, the big equity groups out there, they’re just buying again, those guys have five, 10 year horizons. Yeah. They got a lot of these short term Mino deals they’re they are looking for the discounts and you know, ourselves included. Right. We, we were looking to buy deals that have a good pricing, you know, discount kind of relative to where they might’ve been for. Yeah. I mean, things have fundamentally changed. Right. So I think, you know, you have to be realistic, especially when you’re talking about class C and B stuff that we, we felt was already trading at a premium pre COVID now during COVID
(04:04):
[inaudible].
(04:04):
So we are still talking to brokers, we have to send me an LOI last week. So it will still buy if it’s the right deal. But you know, the deal we submitted on a, I think that deal what we’re at fit 20%, almost 15% less than where it traded at or where they were initially asking pretty COVID. So, you know, we’re looking for deals that it’s about 20 or heavy value adds and, you know, have a good pricing incentive to make it work. So have a good story. Right. You know, I think that that’s, that’s what it’s all about. Right. Regardless of where you’re at in the cycle, you know, can you, can you execute on that business plan and get out successfully, right. Yeah. So what kind of, what types of deals would we steer? Where are we steered clear up though? Man, am I like my multifamily? I think multifamily gonna come out of this very strong. I think obviously retail is getting, you know, hurt that people realize that the Chick-fil-A, that I’m not Chick-fil-A, but that, that, that Chili’s or cheesecake factory that you know, was trading at a nice premium of maybe a four or five cap does not need to be open to not pay their note, tear their rent to any of their properties last month. So I don’t know if you saw that, but I did not see that chick filet, I’m going to say cheesecake factory
(05:11):
Ben would have been disappointed. He was gonna say, Hey, you know, I’ve got, you know, I shouldn’t be taking
(05:15):
The factory, did not pay the rent. Yeah. And so, um, you know, but people realize that in the end of the day, people need to live somewhere and the government is very motivated to make sure people can continue to live somewhere. Yeah. Affordable housing. Right. That’s where, that’s where me and Ferris live. You know, the seventies, eighties, I think all the multifamily will come out of this strong. Right. You know, not, I mean, you’re not going to do, you’re not on a rocket ship like you were before, but in terms of, you know, relative to other asset classes, multifamily, I think cap rates are going to look good right. Compared to everything else. And so, you know, I think multifamily is where it’s at and whether it’s a, B and C, I think, you know, there’s, there’s pros and cons of each, honestly, I don’t know if one is better than the other. Right. Because right now we’re in like a funk, we’re not really in a recession because you know, the more the, because pricing has dropped off. Right. But really it’s more of a forced recession. And so, you know, you still have the A-class people that still are able to work their jobs remotely and still getting paid almost got it. So they’re still paying rents and stuff.
(06:12):
Yeah. Like it’s a, it’s a, you’re, you’re kind of just getting slammed back with a rubber band. Right. And then like once we open up, it’s just gonna, it’s just gonna be a rocket ship. Right. We’ll see what happens. Nobody really knows. I think you’re right. It was a forced, um, you know, recession or people could call it a depression. Right. Yeah. You know, it’s just, how long is that going to last and how what’s the ripple effect after that. Right. So, uh, you know, where are you thinking, do you think cap rates, you know, is that gonna, this is gonna expand.
(06:37):
I think, I think in general, I mean, across the board, you’re going to see cap rates expand. But then I think once, once that, once that solidifies a little bit, right. I expect, I do expect multifamily to compress right. From, you know, it’s going to expand and maybe compress back to where we are and maybe even do better. Who knows? Right. There is still a lot of cash out there. Right. A lot. There’s still a ton of cash out there with these bigger groups. They’re all just on the sideline waiting to see, you know, wait for things to stabilize, normalize so that cash will come back into the market. And you know, what’s going to look attractive.
(07:06):
So you got a ton of equity and what people are also talking about is debt is still cheap. Yes. They, you still have, you had a collapse earlier in the year and interest rates are still you’re buying deals. If you can get it across the finish line at three to three and a half. Yeah. Which is, you know, 12, 18 months ago, we were underwriting deals at five five,
(07:23):
But the caveat is right now, you have all of the, basically, there’s just a lot of requirements around reserves that they, you have. So that does, you know, for anyone buying a, they’ll be aware of that. It was, they did require 18 months of PNL, basically your, your, your, your debt payments, plus your insurance and your taxes. All you ask all, they changed it down to 12 months. And so before it was zero. And so, you know, let’s just kind of interesting to see what happens in that, because that, that will impact your proceeds. But if you’re buying, you know, you’re looking to buy a 60, 65% leverage anyways,
(07:52):
That’s not a problem. Yeah. Yeah. So let’s talk about operations man, during this pandemic, right. I mean, obviously acquisitions has changed. Operations has changed and obviously the change had to happen pretty quick. Right. So, you know, how the properties do.
(08:05):
Can you tell me, man, they’re doing good. They’re rocking. I mean, they’re, they’re doing fine. I guess, you know, not all properties are doing fantastic, right. Talking to other friends, people that we know, definitely people with some people are struggling. I think we’ve been very proactive in getting, you know, they’re not, we’re definitely not at where we were pre COVID, but you know, in some properties we’re doing actually very close to that in some properties. Maybe there’s a little bit of a gap, but overall, I think we it’s been going better than we expected. And there’s still work to be done to kind of get to get through this phase right through, through this downturn on the properties that still needed and kind of get them back where they are. So overall it’s going better than expected. I know we have some charts that we’ll share kind of, yeah,
(08:41):
Sure. We’ll get it. We’ll get into some numbers here. Okay.
(08:44):
Maybe let’s go ahead and go to that slide. Actually. It’s kind of, you know, here, you kind of see some examples, right? These are just some different properties you can see where they’re trending relative to the same point in time in March and sorry in March and as well as, you know, kind of what May’s looking like. So most of these properties may is actually doing
(09:00):
That was a surprising thing. I think both me and you thought we could, we could get into April because there’s a lot of people that worked up until probably the beginning of April. So they therefore had April rent, right. So we knew April was going to be, and it ended up being about five to 10% less right across the board may was actually a surprising thing. Cause I think both me and you, we, we got that name was going to be really tight. And I think those stimulus checks, and I think some of this rental assistance stuff that the government is trying to roll out, PPP, you know, getting people back to work and getting people employed, at least getting people a paycheck. Um, even if they don’t have much to come back to is as really helped me. And I’m hoping I’m hopeful that June will also get a little bit of a boost because of the same thing. Right. July, once again then becomes the wild card. Yeah. I mean, June, June, July, June, well, June, I’m hopeful that, uh, you know, we can come run that way a little bit,
(09:54):
Want to bet money. We’re going to have better collections in may that we did in April, even though I thought, I thought it’d be worse.
(09:59):
I think you actually might be right then. Right.
(10:01):
It also didn’t pay in April are gonna pay in may. So yeah.
(10:04):
So a lot of people are still waiting on their stimulus checks, man, you know, I don’t know, you know, for our viewers, if, if you qualify for one or if you’ve gotten one, uh, you know, we’ve, we’ve certainly heard the story from our residents that they haven’t gotten it. And I’ve heard some from, uh, personally from some friends that they haven’t gotten it either. So I think that’s actually true, but I think that that could boost, you know, maybe get people caught up from, you know, maybe April rent and may rent or they could be paying June early. Who knows.
(10:28):
That’s right. If we go back to the chart again really quick, you know, if you take a look that you’ve been really the top top right. In the middle. Right, right. Just look at the spread between may and now. I mean, it’s, it’s, it’s doing better than in March two, which is the best. Yeah. And there’s just a handful of the properties. Right. But it’s really, you know, March was a great month and all these properties and to see may just outperform that far. I mean, we were definitely surprised so far. Right. But then you have a laggard, right? Like looking at the bottom, you know, the bottom left, there’s still a little bit of a gap, right. Closing that delinquency gap. And those are deals that we were still having a cycle through the tenant base. So we kind of knew that.
(11:00):
Yeah, not all of it is, is COVID related. Right. You know, I mean, as, as a lot of our viewers are gonna know, right. We go through a big reposition, we get, you know, some of the old tenants out new tenants in raise rents, do a rehab, all that kind of is still happening. Right. So you’re going to have a little bit of disruption there and then you just throw a COBIT on there. And sometimes that’s tough, but, um, you know, so what are some of the tips that, you know, your property management team is, is doing
(11:25):
Until we operate right now, thank, you know, just having a plan and execute, right. We’ve really worked on your delinquency, understand where every tenant is that, and, you know, work with those tenants. Right. Right. Now you can’t evict even if you want to. And so it’s really, it’s kind of shortsighted to take an aggressive approach and a steady, you know, we’re talking to tenants and seeing, Hey, did you, you know, did you lose your job? Oh, you did. Okay. That’s unfortunate. Well, Hey, let’s walk through, you know, if we do ask for proof, but then figure out how can he create a win, win situation, right. Whether that’s, you know, obviously not paying rent the next two months, and then you put that on the back end of the lease or spread it out across the remainder. Right. Helping them find assistance. I mean, one thing, a lot of people don’t realize they get stimulus checks, right.
(12:03):
So telling them, and you know, we put together a bunch of resources to show tenants, all the different things that are available out there and helping educate them. So they can talk about being proactive, communicate right. Is, is huge. And I think those are the most important things. That’s the delinquency side. Then I would say on the operation side is just understanding, you know, what’s the policy with the office, what’s the policy with touring, you know, how do you keep the pilot, the doors open? I mean, we’ve actually been surprised. We were actually seeing good leasing. Yeah. And this came up on a, on a different panel that I was on last, last week and Anna Myers, who those, you know, with Gore capita, she made a very good point, which is you have a lot of couples that are basically stuck at home together. Right.
(12:41):
We saw what happened to China with divorce rates increasing, well, maybe that’s all that really happened. Maybe part of the leasing is people just getting fed up. And then, you know, whether it’s, you know, spouses getting, you know, an arguments or, you know, uh, brother-in-law lives in whatever it is, but people leaving it go find their own space or maybe they need another room and you know, they’re going to make an office. So that was an interesting theory that I had not thought about, but maybe that actually is applicable to, you know, why we’re seeing the leasing. Cause at first I thought it was that maybe cause we’re open and no one else is, or most people aren’t, but that’s not true. Either. Most properties, our oldest closure though, we’re being safe. Right. It’s open in the sense of our staff comes in, but they’re safe inside. Uh, and, and people can still call and they can stop by and, and hand things through, you know, obviously a Dropbox and stuff. But, you know, I would say I’ll take the contrarian approach to that. I’d say people might be losing their jobs though, too. Right. Why would people be at least saying, well, maybe they lose their jobs. I don’t know, man. They have to move to another part of town to get another job. I don’t know. Nah,
(13:43):
[inaudible]
(13:43):
Say that. That’s just as likely as people getting divorced and moving out of the apartment too. Right. I guess the problem, I think I’d say moving costs money. Right. And you know, right now I don’t think anyone, people aren’t, I don’t think people are, you would see that in one part of a town, not to the other. Right. But I think across the board, you’re still seeing a good lacing amount. And so, you know, I’m seeing a lot more Atlanta, Atlanta has been surprising. It’s question about why. Right. So you feel like there’s just something general, that’s not region specific, that’s just causing it. Right. Maybe it’s people have money and they just, now they’re like, Hey, I’m gonna be on unemployment for the next year. And I’m going to go get my own place. Who knows? Right. Maybe the thing that we, we didn’t talk about, the unemployment is blowing the roof off of, you know, a lot of people’s incomes these days.
(14:27):
That could be actually the son that lives with the parents. But now the son’s home all day originally I was at work all day. So they never saw him. He just sleep there and leave, but now he’s home all day wants his own place. Right. So yeah. You know, it could be a lot of those kinds of him to have his own place to probably, you know, um, you know, but the unemployment, right, you’re getting in 600 bucks on top of, you know, the, the unemployment amount that you’re getting for a lot of folks, that’s a lot of money. That’s probably more money than they’re even making on a month on a weekly basis. So I think that that could also be a attributing to, you know, why we’re seeing a boost and may cause some of those unemployment benefits are gonna start kicking in. So what else are we talking about today?
(15:02):
Hey man, what else has happened in the market to get Cylon no,
(15:06):
Isn’t exciting that I’ve seen, you know, it’s, um, you know, stock market run that we’re seeing, it’s kind of weird. I’ll say that like it’s a dead cat bounce. Right. You know, where it kinda boom and bounce and then it comes back down, right.
(15:19):
It’s a technical stock trading term. You guys can look it up
(15:24):
The term, I’m just messing with you. So, you know, but I, I think that it’s, it’s obviously artificial. I think there’s a lot of, uh, you know, hope that, you know, we’re going to see. Uh, but I think that we’re going to have a little bit more pain and then hopeful that in third and fourth quarter, we start seeing an uptake, but I think really we’re talking 20, 21 at this point, you know, we might, there might be some opportunities, you know, we are gearing up to probably be able to pick up property or two or three in the fall, in the fall. So if anyone has a good property out there, let us know. We’re happy to take a look. Yeah. But, um, you know, TBD, right. I think, you know, right now it’s just been operationally by just doubling down, right. Build up cash reserves, you know, and kind of, kind of a, what’s the word they use fill up the covers.
(16:06):
Right. And kind of plan for figuring out what else to do. Right. And so, you know, how do you double down on what we have and then figure out other opportunities to continue to expand. And I think opportunities is the one word that I wanted to kind of expand on too. Right. You know, we’ll have some announcements in the coming weeks, but I think us kind of, it has forced us to really take a laser focus on our current assets. Right. But also kind of explore other opportunities. I think people, you know, they need to, they need to realize that, you know, syndication is just one thing, right? There’s all these ancillary businesses and there’s there’s opportunities to make yourself more efficient, more vertically integrated. And that’s what, uh, is kind of freed us up to do some been going at the same point on the same panel that was on one good point that came up was around right now.
(16:46):
You know what also the other opportunities are. Yeah. Right. There’s going to be a lot of businesses that have to close their doors. Right. They don’t have the cash, they don’t have the, you know, the ability to tell you, you know, stay resilient. And so really there’s opportunities in that about how do you maybe pick up some of these businesses and find the ones that, you know, there’s a good chance there to really maybe glommed together and kind of grow something more interesting. So we’re definitely, you know, we’re disrupt equity. We’re not disrupt real estate, but we’re, you know, multi-families our bread and butter and definitely looking at what else is kind of, um, you know, a good fit for us. We’re excited. So, uh, I guess check us out next Monday.
(17:20):
Yeah. No. And, uh, will, uh, will happen. Yeah.
(17:23):
Yeah. Next week we’ll bring him, definitely come with your questions, ask it. Yeah. Hopefully we’ll have this fixed and we can go out and go live stream straight up and I’ll be out here on this laptop answering questions and, you know, making Ben talk more because he doesn’t like to talk very much. Apparently I’m okay.
(17:37):
But you know, we’ll do that a little bit more reserved
(17:39):
The usual, he’s just, it’s that live streaming aspect that gets him excited. So we’ll get that going next time. Maybe we’ll get the phone calling going next time, all the time. I’ve looked into that and um, you know, definitely thank you guys for, for hopping on, so we’ll see you guys again soon.

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