EP 225: Navigating Real Estate Cycles: Insights from TREPP’s Lonnie Hendry

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[00:00:25] [SPEAKER_01]: Welcome to The Show!

[00:00:29] [SPEAKER_03]: Welcome back to The Gentle Art of Crushing It, podcast.

[00:00:32] [SPEAKER_03]: My name is Ridesmith and I'll be the co-host today.

[00:00:35] [SPEAKER_03]: I'm really excited to have Lonnie Hendry with us.

[00:00:38] [SPEAKER_03]: Lonnie is the Chief Product Officer at TREPP.

[00:00:41] [SPEAKER_03]: He's the co-host of TREPP by our podcast.

[00:00:44] [SPEAKER_03]: He has been involved in all things real estate related for the last 20 plus years.

[00:00:49] [SPEAKER_03]: In fact, he's even teaching at Texas Tech as well.

[00:00:52] [SPEAKER_03]: Lonnie, welcome to The Show!

[00:00:53] [SPEAKER_03]: Super excited to have you here.

[00:00:55] [SPEAKER_00]: Thank you for having me on, looking forward to the discussion and big fan of The Show.

[00:01:00] [SPEAKER_00]: So thank you for letting me be against.

[00:01:02] [SPEAKER_03]: Yeah, yeah, thanks so much Lonnie.

[00:01:04] [SPEAKER_03]: I've been listening to Lonnie's Lonnie and his co-host podcast now for probably nine months

[00:01:10] [SPEAKER_03]: or so.

[00:01:11] [SPEAKER_03]: It's been something that's really helped me grow in my education in the space.

[00:01:15] [SPEAKER_03]: I wanted to expose our listeners to this one as well because it's been a really nice

[00:01:20] [SPEAKER_03]: addition to my education journey.

[00:01:22] [SPEAKER_03]: So Lonnie, if you can and can you tell the audience a little bit more about yourself

[00:01:26] [SPEAKER_03]: than just the couple of bullet points that I shared.

[00:01:29] [SPEAKER_03]: So they'll know like I do that we're talking with the true expert in the space.

[00:01:33] [SPEAKER_00]: Sure.

[00:01:33] [SPEAKER_00]: Yeah, so appreciate the opportunity.

[00:01:35] [SPEAKER_00]: So I spent 22 years or so in the commercial real estate space pretty much done a lot

[00:01:40] [SPEAKER_00]: of different activities.

[00:01:41] [SPEAKER_00]: Start off in multi-family property management and development.

[00:01:44] [SPEAKER_00]: Work for a local developer, we bought land, we got it in title.

[00:01:47] [SPEAKER_00]: We built apartments, we released them up, we sold them, we moved on to the next project,

[00:01:51] [SPEAKER_00]: managed some high-end class A properties and did some low income housing tax credit

[00:01:56] [SPEAKER_00]: section eight stuff.

[00:01:57] [SPEAKER_00]: So I had some really great practitioner boots on the ground experience with the whole development

[00:02:02] [SPEAKER_00]: process, property management process.

[00:02:04] [SPEAKER_00]: I was 19 or so when I started in that business and got hooked on commercial real estate,

[00:02:09] [SPEAKER_00]: got my real estate license, broker's license, been transacting on properties for

[00:02:13] [SPEAKER_00]: the last 15, 20 years.

[00:02:16] [SPEAKER_00]: We got it in a teaching, did some valuation work and now I work at Trepp as the Chief

[00:02:21] [SPEAKER_00]: Product Officer where it's really great.

[00:02:23] [SPEAKER_00]: I get to work with practitioners that are doing deals every day or trying to use data,

[00:02:28] [SPEAKER_00]: help enhance their business process.

[00:02:31] [SPEAKER_00]: In my experience in background as a practitioner but now at the company where we deliver

[00:02:35] [SPEAKER_00]: data products and services to the market, really makes for a really great combination where

[00:02:39] [SPEAKER_00]: I speak to language, I understand the nuances, then the academic stuff attacks is just kind

[00:02:45] [SPEAKER_00]: of my way to get back to younger folks in the series space that are wanting to start a career

[00:02:49] [SPEAKER_00]: like I wouldn't be where I am or have had the opportunity to as I've had if I didn't

[00:02:53] [SPEAKER_00]: have people plug in the me that were a little more experienced.

[00:02:56] [SPEAKER_00]: And so I live, eat, breathe, sleep, commercial real estate 247.

[00:03:00] [SPEAKER_00]: It's all I do and I love it.

[00:03:03] [SPEAKER_02]: Are you interested in real estate investing but don't know where to get started or think

[00:03:07] [SPEAKER_02]: you don't have the time or money?

[00:03:08] [SPEAKER_02]: Are you stuck in your W2 because the golden handcuffs make it hard to walk away?

[00:03:13] [SPEAKER_02]: If this sounds like you, check out impactequity.net and schedule some time to talk with

[00:03:18] [SPEAKER_02]: founder Randy Smith.

[00:03:20] [SPEAKER_02]: Randy went from Mass of Income to leaving his W2 through passive income and he can help

[00:03:24] [SPEAKER_02]: you do the same.

[00:03:26] [SPEAKER_02]: www.impactequity.net

[00:03:29] [SPEAKER_03]: Love it, love it, so that's a mouthful.

[00:03:33] [SPEAKER_03]: I'm wondering if you could jump a little bit into the education piece that you're in the

[00:03:38] [SPEAKER_03]: information that you're involved with teaching folks about how technology and commercial

[00:03:43] [SPEAKER_03]: real estate or intertwined.

[00:03:44] [SPEAKER_03]: Can you share a little bit more about that?

[00:03:46] [SPEAKER_00]: Yeah, so last year, it takes us tech we decided we're going to start offering a course

[00:03:49] [SPEAKER_00]: property technology class because in my day job at Trepp is a chief product officer.

[00:03:54] [SPEAKER_00]: As I mentioned, I'm working very closely with market participants and I'm seeing real

[00:03:59] [SPEAKER_00]: time how real estate investing, real estate ownership, real estate development.

[00:04:04] [SPEAKER_00]: All of those things are having a more and more reliance on technology that help increase their

[00:04:09] [SPEAKER_00]: speed of delivery.

[00:04:10] [SPEAKER_00]: Understand the nuances around the vacancy, understand what market rinse are, what

[00:04:14] [SPEAKER_00]: operates are.

[00:04:15] [SPEAKER_00]: Technology plays an increasingly more responsible role in their decision making and so we

[00:04:21] [SPEAKER_00]: thought for the students it'd be great.

[00:04:23] [SPEAKER_00]: These are finance students that have a concentration in real estate.

[00:04:27] [SPEAKER_00]: Why don't we marry the core financial components of modeling and underwriting deals and

[00:04:32] [SPEAKER_00]: discounted cash flow analysis with this concept of how technology is implemented at real

[00:04:37] [SPEAKER_00]: estate?

[00:04:37] [SPEAKER_00]: So what we've done is join the two together and create a course that allows our students

[00:04:42] [SPEAKER_00]: to come out of college with an understanding of how to create some Python scripts,

[00:04:46] [SPEAKER_00]: with an understanding of how to use technology in data and ways that you might not generally

[00:04:51] [SPEAKER_00]: get in the traditional college curriculum.

[00:04:54] [SPEAKER_00]: And we think it really sets our graduates apart where they can hit the ground running

[00:04:57] [SPEAKER_00]: because what we know is the best operators are using data to make decisions.

[00:05:02] [SPEAKER_00]: They're not making decisions subjectively.

[00:05:04] [SPEAKER_00]: They're making decisions based on data.

[00:05:06] [SPEAKER_00]: And if our students can pull better data, you can make better decisions and better decisions

[00:05:09] [SPEAKER_00]: usually to better outcomes.

[00:05:11] [SPEAKER_03]: Outstanding.

[00:05:13] [SPEAKER_03]: So being a student of a group commercial will state yourself,

[00:05:17] [SPEAKER_03]: I suspect that you've seen a lot of evolution over the years and the technology that's

[00:05:21] [SPEAKER_03]: available for, I mean ultimately selecting the right assets to invest in.

[00:05:27] [SPEAKER_03]: Can you talk to maybe some of the milestones that we've made we've seen during your career

[00:05:33] [SPEAKER_03]: that have really helped to speed up that due diligence process or the selection process

[00:05:37] [SPEAKER_03]: of finding assets?

[00:05:39] [SPEAKER_00]: Yeah, it's amazing how much data is available on the market through public sources

[00:05:44] [SPEAKER_00]: if you just know where to look.

[00:05:46] [SPEAKER_00]: So sure, I mean simple searches on county assessor websites

[00:05:49] [SPEAKER_00]: of identifying the last time we properly sold what's the ownership entity that actually

[00:05:54] [SPEAKER_00]: holds titles with the property doing some searches on the county clerks website to find

[00:05:58] [SPEAKER_00]: the dev records looking on the secretary of states website to see what is that entity

[00:06:03] [SPEAKER_00]: and who does it tie back to so you can actually start building up a profile of who

[00:06:07] [SPEAKER_00]: owns the property, you can see what the latest transaction was.

[00:06:11] [SPEAKER_00]: There's a lot of other information like the advent of APIs where you can connect

[00:06:15] [SPEAKER_00]: system to system and start pulling data in.

[00:06:18] [SPEAKER_00]: It's really revolutionized consumers ability to be informed about a particular property

[00:06:24] [SPEAKER_00]: or particular market so things like trash account, a member pickups,

[00:06:29] [SPEAKER_00]: yelp reviews, all of these things that traditionally have not been considered commercial real estate

[00:06:33] [SPEAKER_00]: data points necessarily with the tools and the systems that are available now,

[00:06:38] [SPEAKER_00]: you can bring all that in and you can become much more informed around what are the

[00:06:41] [SPEAKER_00]: drivers of values, particularly the market or for particular assets.

[00:06:45] [SPEAKER_00]: So there's no shortage of availability of data.

[00:06:48] [SPEAKER_00]: There's no shortage of insights if you just know where to look and a lot of the stuff is

[00:06:52] [SPEAKER_00]: available at a marginal cost for people that just want to take the time to learn where to look.

[00:06:58] [SPEAKER_03]: Yeah, it seems like a lot of the more powerful tools that are available

[00:07:01] [SPEAKER_03]: the co-stars of the world are very expensive and hard for some of the smaller operators to

[00:07:08] [SPEAKER_03]: potentially pony up for those dollars. So it's good to hear that there's some public offering

[00:07:12] [SPEAKER_03]: or some public data that's available out there that are available for those folks.

[00:07:16] [SPEAKER_03]: So not everybody is a billion, two billion, five billion AUM organization that has the resources

[00:07:22] [SPEAKER_03]: to invest in those type of tools. Now I know when we're getting ready for the

[00:07:29] [SPEAKER_03]: podcast, you mentioned that you were actually an active broker as well.

[00:07:33] [SPEAKER_03]: So you have been like literally on the front lines looking at transactions for essentially decades.

[00:07:39] [SPEAKER_03]: So can you give the audience a sense of where we're at in the market? We all know that

[00:07:45] [SPEAKER_03]: you know the last few years have been relatively tough, but curious what you're seeing today.

[00:07:51] [SPEAKER_00]: Yeah, I think it's important to understand the real estate by definition is cyclical.

[00:07:56] [SPEAKER_00]: For a lot of investors today, they had only seen the upward trajectory of a cycle.

[00:08:00] [SPEAKER_00]: So coming out of the great financial crisis in 08, starting around 2011 or 2012, things really

[00:08:05] [SPEAKER_00]: started picking back up and up until 2020 we had only seen values go up, capreds come down.

[00:08:11] [SPEAKER_00]: Everyone was making money and it felt like a really great thing. The reality is, as I said,

[00:08:15] [SPEAKER_00]: the market cyclical is like right now we're in a little bit of the downshift where things are

[00:08:20] [SPEAKER_00]: resetting and that's not unpredictable. It's not something this should shock anyone.

[00:08:26] [SPEAKER_00]: It's a reality of the market. Things get a little overheated, things schooled down.

[00:08:30] [SPEAKER_00]: So from an academic perspective, the market goes through a cycle we will call growth,

[00:08:35] [SPEAKER_00]: equilibrium, decline and then revitalization. We're past the equilibrium probably in a decline

[00:08:41] [SPEAKER_00]: in most markets and most asset classes but that actually allows for buying opportunities.

[00:08:47] [SPEAKER_00]: One distressed assets come available by, you know, practice you're getting those deals at a discount

[00:08:53] [SPEAKER_00]: and those discounts generally translate an ability for the owner to invest capital to

[00:08:58] [SPEAKER_00]: if it's an off improved the lobby or multifamily to improve the kitchen and the bath

[00:09:03] [SPEAKER_00]: bathroom to whatever the case may be to try to drive increased value for the property.

[00:09:08] [SPEAKER_00]: So it's a necessary part of the cycle I think right now we're on the early end of the

[00:09:12] [SPEAKER_00]: distressed cycle. I think we're still very much in the headline phase of distress. We haven't

[00:09:16] [SPEAKER_00]: actually seen actual distress play itself out but that will happen and it's unfortunate for those

[00:09:22] [SPEAKER_00]: that have investments or for those that are part of those transactions but it's just part of

[00:09:27] [SPEAKER_00]: the cycle. So for people that are in the market this is definitely a risky endeavor at some level

[00:09:32] [SPEAKER_00]: because there's no guarantee. I mean the market's dynamic it changes every day. Some events are

[00:09:38] [SPEAKER_00]: bigger than the property, some events are bigger than the operator they can't control

[00:09:42] [SPEAKER_00]: but if you use data to make decisions and you you're conservative in how your approach

[00:09:46] [SPEAKER_00]: things you can try to mitigate those challenges and right now we're still early in the cycle.

[00:09:51] [SPEAKER_00]: I think there'll be more distress but I think the distress creates opportunity.

[00:09:55] [SPEAKER_03]: Absolutely and I'm wondering, Lani I've been talking with a lot of folks about and I

[00:09:58] [SPEAKER_03]: think actually heard on your podcast others. There's this transition that goes from

[00:10:03] [SPEAKER_03]: distressed seller that turns into the distressed property which then becomes like the true

[00:10:08] [SPEAKER_03]: opportunity. Can you talk about that process maybe in a little bit more detail? I've tried to

[00:10:13] [SPEAKER_03]: share that but I think you can probably do that which we're only going to put in the night

[00:10:18] [SPEAKER_00]: Sure I don't know about that but I'll try. A distress seller is someone that actually owns the

[00:10:24] [SPEAKER_00]: property they have a mortgage on it and their under the rest or distress right so

[00:10:29] [SPEAKER_00]: they can't make them mortgage or they're having trouble getting a refinance at maturity

[00:10:33] [SPEAKER_00]: or there's something that's causing distress for the property. Now the borrower has a fiduciary

[00:10:39] [SPEAKER_00]: obligation to their investors and to themselves to try to exhaust all remedies to rectify that situation

[00:10:45] [SPEAKER_00]: to get the building back to being viable to making sure it's current on the mortgage, etc.

[00:10:50] [SPEAKER_00]: The lender has the same exact fiduciary obligations to their shareholders where they're going

[00:10:53] [SPEAKER_00]: to do everything they can to make sure that they don't take back a building that they can't sell

[00:10:58] [SPEAKER_00]: minimally for the loan balance. So on the first part of this distress as you have the

[00:11:02] [SPEAKER_00]: distressed seller that effectively is doing everything they can to become a non-distressed seller

[00:11:08] [SPEAKER_00]: and if and only if they've exhausted all remedies and there's no other option then the bank

[00:11:13] [SPEAKER_00]: steps in and it becomes a distressed asset. Once it's a distressed asset, as we know,

[00:11:18] [SPEAKER_00]: bank started the business of lending money not operating assets and so they don't want to own

[00:11:22] [SPEAKER_00]: an asset. It's a liability on their books and they try to offload it. That's where the buying

[00:11:26] [SPEAKER_00]: opportunity comes in if distressed borrow or distressed owner is going to fight till the very end

[00:11:32] [SPEAKER_00]: to try to keep the property because they want to preserve their equity, they want to keep their

[00:11:36] [SPEAKER_00]: good name, whatever the case may be. When the lender steps in the dynamic shifts at that point

[00:11:41] [SPEAKER_00]: they need to proactively get that liability off their books and that creates buying our

[00:11:45] [SPEAKER_00]: opportunity for it to form buyers that can come in. You're going to buy those properties with

[00:11:49] [SPEAKER_00]: some inherent risk, you're not going to get the full due diligence, you're not going to get full

[00:11:52] [SPEAKER_00]: access. There's usually generally something that's causing the distress. It's usually not just

[00:11:58] [SPEAKER_00]: the owner or themselves sometimes it is but generally not. So you're buying a property subject

[00:12:02] [SPEAKER_00]: to all of those challenges that already exist. That's where you have to get a discount. There has to

[00:12:07] [SPEAKER_00]: be some acknowledgment of those inherent risks and the acknowledgment of those risks is generally

[00:12:11] [SPEAKER_00]: in the form of a reduced buying price. So if a property sold last time from 100 million,

[00:12:19] [SPEAKER_00]: you're not going to pay 100 million for that same distress asset in most cases it's going

[00:12:22] [SPEAKER_00]: to need to be at some discount so that you have some protection on the upside.

[00:12:27] [SPEAKER_03]: Yeah. Thank you for walking through that. It's been you hear distressed from different levels

[00:12:31] [SPEAKER_03]: of that in distressed opportunities not always a great opportunity for the past investor because

[00:12:37] [SPEAKER_03]: there's going to be some ups and downs throughout building getting the asset out of the distress.

[00:12:43] [SPEAKER_03]: I had a project that we did earlier this year that we had took over from an operator that was

[00:12:48] [SPEAKER_03]: in significant distress. They had lost a number of different assets and I think we were at

[00:12:53] [SPEAKER_03]: 90% occupancy, 92% occupancy would be took over and over the last four or five months it's

[00:12:59] [SPEAKER_03]: dropped down to almost actually sub 50% occupancy because they just loaded it up with a bunch

[00:13:05] [SPEAKER_03]: of bad tenants that you know at hindsight we have the capitalization to renovate the units and

[00:13:11] [SPEAKER_03]: then bring it back up to par but 50% occupancy is a scary site what you're seeing that as a

[00:13:17] [SPEAKER_03]: past investor. I'm curious in those types of situations how difficult does it for an operator

[00:13:24] [SPEAKER_03]: to turn an asset around that might be taking over a highly distressed property that maybe

[00:13:31] [SPEAKER_03]: the fundamentals and the structure you know in the core major major you know the HACs and the

[00:13:40] [SPEAKER_03]: planning all of that looks good like how difficult is that for the deterrent around it is

[00:13:44] [SPEAKER_03]: it likely to turn around with an operator. Yeah so I think it's a great question and it's

[00:13:50] [SPEAKER_00]: it's a difficult one to answer in a broad fashion just because every asset is unique and every

[00:13:55] [SPEAKER_00]: market as you make and I think broadly we sometimes followed this trap of like national narratives

[00:14:01] [SPEAKER_00]: or national headlines and what we know is that real estate is a local and sometimes hyper local

[00:14:06] [SPEAKER_00]: endeavor two properties on the same street could have some completely different outcomes

[00:14:10] [SPEAKER_00]: and it's not just the operator that drives those out of them sometimes it's what was the

[00:14:14] [SPEAKER_00]: debt load when they took the property over you know to your point it's something I'll take a few

[00:14:19] [SPEAKER_00]: seconds to kind of delve into the oldest trick in the book right when you're selling a property it's

[00:14:24] [SPEAKER_00]: distressed is to try to get the occupancy the physical occupancy is highest possible so they'll

[00:14:29] [SPEAKER_00]: this property is 92% occupying well there's two components to that you have the physical

[00:14:35] [SPEAKER_00]: occupancy or or likewise the physical vacancy but then you also have the economic occupancy

[00:14:40] [SPEAKER_00]: or the economic vacancy so like the way this would work is you could have a space that on the

[00:14:45] [SPEAKER_00]: rent role shows to be occupancy let's just say an example of a warehouse there's 10,000 square feet

[00:14:51] [SPEAKER_00]: subdivided into 2, 5000 square foot base you could have it's very simple if you only have one

[00:14:56] [SPEAKER_00]: side physically occupying the other sides vacant you see this is 50% occupied super easy everyone

[00:15:01] [SPEAKER_00]: understands that but you could say we're going to have someone move into the vacant space but we're

[00:15:07] [SPEAKER_00]: going to give them one month free so in that example the properties 100% physically occupied

[00:15:12] [SPEAKER_00]: but the best the landlord can do in that instance is only collect 11 of the 12 months of rent

[00:15:18] [SPEAKER_00]: so you've created an economic vacancy of about 8.3% now just do that times however many months

[00:15:24] [SPEAKER_00]: free you get for every month or at an 8% economic vacancy even though the rent role shows physical

[00:15:30] [SPEAKER_00]: occupancy at 100% or 90% or whatever so in the due diligence process it's super important to

[00:15:36] [SPEAKER_00]: understand I get it that the physical occupancy is 90 but how much rent are recollection relative

[00:15:42] [SPEAKER_00]: to what we're we're building if we're only collecting 70% of what we're building that economic

[00:15:48] [SPEAKER_00]: vacancy is very high and that's very difficult to rectify because at that point you have a

[00:15:53] [SPEAKER_00]: minute that's physically occupying the space that's not paying as a matter of how good an operator

[00:15:58] [SPEAKER_00]: you are it's difficult to go through the eviction process to get them out of the unit sometimes

[00:16:03] [SPEAKER_00]: you have to pay to get them out like that creates a headache so let's say before we even get into

[00:16:06] [SPEAKER_00]: like the value ad part just having a full understanding of are we when we reference 90% occupancy is

[00:16:13] [SPEAKER_00]: that just physical occupancy or is that the economic occupancy if it's not the economic first question I

[00:16:23] [SPEAKER_00]: really good indication of where we're actually from a financial perspective and then just your

[00:16:27] [SPEAKER_00]: question I'm turning it around or getting an operator in there you know operators are like anything

[00:16:35] [SPEAKER_00]: else in life you could have two doctors that went to medical school and they both got a degree

[00:16:39] [SPEAKER_00]: and they're both licensed medical doctors but it doesn't mean that there's equivalent in terms

[00:16:44] [SPEAKER_00]: of their skill or in terms of how good they are at their job and the same thing pulls

[00:16:48] [SPEAKER_00]: true here in commercial real estate you get a lot of people that have thought and sold assets they

[00:16:53] [SPEAKER_00]: been in the market they understand but doesn't mean by definition they're going to be a great

[00:16:57] [SPEAKER_00]: operator and so you have to know like what's driving the distress is it is a poor management if

[00:17:03] [SPEAKER_00]: that's the case then yes someone can come in reasonably quickly turning it around if it's poor

[00:17:07] [SPEAKER_00]: management sometimes it just is poor management lack of experience lack of understanding lack of

[00:17:12] [SPEAKER_00]: relationship whatever but if those things are decent and as something external to the property if

[00:17:19] [SPEAKER_00]: physical challenges if it's road construction if it's you know other issues zoning

[00:17:23] [SPEAKER_00]: other things that have changed over the ownership's period of ownership and now new owners

[00:17:29] [SPEAKER_00]: coming in they're not going to be able to change those factors just like the previous owner was it

[00:17:33] [SPEAKER_00]: so it's hard to pay in a broad brush I would say like in the due diligence process you want to

[00:17:38] [SPEAKER_00]: ask the questions like why is this property properly struggling if you can't quantify that it's

[00:17:43] [SPEAKER_00]: going to be very hard to have confidence they're going to be able to turn it around if you can

[00:17:47] [SPEAKER_00]: quantify it to higher expenses than what the market suggests lower vacants I mean lower rental rates

[00:17:52] [SPEAKER_00]: from higher vacancy due to mismanagement you know those are things you can fix if it's something

[00:17:58] [SPEAKER_00]: external to the property that's bigger than the individual property or the ownership group

[00:18:02] [SPEAKER_00]: is going to be very difficult for anyone to turn those in right yeah you know and I'm always trying

[00:18:07] [SPEAKER_03]: to look at this from a from a due diligence standpoint from a past and investor and you know most

[00:18:12] [SPEAKER_03]: operators will say that it was it was managed go like that's the easy answer to say everything they're

[00:18:18] [SPEAKER_03]: going to swoop in there are amazing managers and you're going to be able to fix all of the

[00:18:21] [SPEAKER_03]: all the management issues that were in place but I'm trying to figure out like how do you dig deeper

[00:18:26] [SPEAKER_03]: than that you know I hear people talk about this lease on a product process so if you're looking

[00:18:31] [SPEAKER_03]: at economic vacancy can you like literally dig down to the paperwork to take a look at the quality

[00:18:37] [SPEAKER_03]: the tenants and uncover what truly is at the core of the problem or is that something that you

[00:18:44] [SPEAKER_03]: hear people throw around and it's not really happening during due diligence I mean I think it's like

[00:18:49] [SPEAKER_00]: anything else in life you have some passive investors that just take things at face value and you know

[00:18:57] [SPEAKER_00]: for them maybe it's worked out or maybe they've had some bad experiences and they learn from that

[00:19:02] [SPEAKER_00]: I would just ask the hard questions I mean like obviously people are going to tell you and

[00:19:07] [SPEAKER_00]: create a narrative based on what they're trying to achieve like what is their objective if

[00:19:11] [SPEAKER_00]: they're objective is to acquire the property and raise some capital they're going to do everything

[00:19:14] [SPEAKER_00]: to highlight the benefits in the upside and everything else and those all may be 100% true

[00:19:19] [SPEAKER_00]: and listen I think they're more good operators than there are bad operators right I think they're

[00:19:24] [SPEAKER_00]: they're people that are trying to make a living for themselves buying properties in the

[00:19:30] [SPEAKER_00]: capital going through the process but it's not without challenges and this is you know this

[00:19:36] [SPEAKER_00]: business is a very highly competitive business with very smart people most properties have

[00:19:43] [SPEAKER_00]: multiple companies looking to acquire the property if and when it comes on market or even if

[00:19:47] [SPEAKER_00]: it's off market so the due diligence from a passive investor perspective is very important like

[00:19:52] [SPEAKER_00]: you need to ask the tough questions I want to see a copy of the trailing 12 months I want to know

[00:19:57] [SPEAKER_00]: what the line on an expense breakdown is I need to have some understanding of how to those

[00:20:01] [SPEAKER_00]: expenses compare to the broader market of a competitive set is there a track record of this type

[00:20:08] [SPEAKER_00]: of acquisition where there's a value at component and did you successfully execute on that if

[00:20:14] [SPEAKER_00]: the answer is yes that's great but then I want to follow up and say well when was that because

[00:20:19] [SPEAKER_00]: if it was when interest rates were going down and capricre going down and values by definition

[00:20:23] [SPEAKER_00]: were then increasing a lot of people did really well there like have you done something similar to this

[00:20:28] [SPEAKER_00]: and a simpler similar type of environment with similar challenges and if I can't get a good answer

[00:20:33] [SPEAKER_00]: to those things and it probably gives me a little cause for concern yeah I've really been trying

[00:20:36] [SPEAKER_03]: to dig into when I'm looking at track record and in seeing all these very very hefty equity

[00:20:41] [SPEAKER_03]: multiples with operators like digging into actual in a wide growth during their whole periods versus

[00:20:47] [SPEAKER_03]: just capricred compression growth that we saw or value that was created and what I'm finding is

[00:20:55] [SPEAKER_03]: there's not always operators are always very eager to show kind of the negative of that like it's

[00:21:02] [SPEAKER_03]: really easy to present you know 30% IRRs but like let's dig into that and see actually what

[00:21:07] [SPEAKER_03]: cause those IRRs to be so I'm curious are there questions or analysis that a past investor can do to

[00:21:14] [SPEAKER_03]: dig beyond just the power point presentation to dig into that deeper? Yeah I think I think it's on

[00:21:20] [SPEAKER_00]: the equity multiple side it was all of that return on reversion so like they bought the property

[00:21:27] [SPEAKER_00]: capricre went down values went up and there was no cash flow incremental cash flow grows over

[00:21:33] [SPEAKER_00]: the whole period they basically did they get the return on the reversion that's the case and this is

[00:21:39] [SPEAKER_00]: how you add discussion then I probably want to dig a little bit deeper than that I think as a

[00:21:44] [SPEAKER_00]: passive investor there are a couple of things that you should take upon yourself to get educated

[00:21:49] [SPEAKER_00]: on right like you should learn how to read an operating statement so if if you don't know what

[00:21:54] [SPEAKER_00]: potential growth rent is or you don't know what other income is or you don't know how to articulate

[00:21:58] [SPEAKER_00]: with the difference between an operating expense and a capital expenditure is you should probably

[00:22:03] [SPEAKER_00]: take some time and learn about those things if someone's just talking to you about multiples or IRR

[00:22:08] [SPEAKER_00]: or something else that's hard to understand and hard to define and can be manipulated you should

[00:22:15] [SPEAKER_00]: have a better understanding just a foundational element like right now you know rent grows is a hot

[00:22:20] [SPEAKER_00]: topic so like we had saw deals from 2019 to 2021 on these value-adreposition plays where people

[00:22:26] [SPEAKER_00]: are literally underwriting 10 to 12 percent annual rent growth. Well one that's very unlikely to happen

[00:22:34] [SPEAKER_00]: to even if the rent grows 10 or 12 percent that doesn't mean that it's going to flow down and

[00:22:39] [SPEAKER_00]: you're going to have a 12 percent in all I growth and expense creep is very real and the

[00:22:45] [SPEAKER_00]: reality has it costs more to operate a property today than it did three years ago so someone's

[00:22:51] [SPEAKER_00]: coming in and they're saying we're going to cut expenses by 12 percent I want to know where they're

[00:22:55] [SPEAKER_00]: going to get that savings from because taxes insurance personnel cost repairs are maintenance those things

[00:23:01] [SPEAKER_00]: are all up inflation has impacted those negatively so as a 6 percent rent growth may it equate to a

[00:23:08] [SPEAKER_00]: 0 percent in all I growth or 2 percent in all I growth because of the expense growth that's happened.

[00:23:13] [SPEAKER_00]: So if there are just some things in a diligence process where you can't make a decision just

[00:23:17] [SPEAKER_00]: off of a spreadsheet you can't make a decision just off of a PowerPoint you have to understand

[00:23:22] [SPEAKER_00]: the nuance that goes into it real estate especially on the valuation side and looking at equity

[00:23:27] [SPEAKER_00]: multiples and then you know cash out on stabilization and refile like all those things happen and

[00:23:34] [SPEAKER_00]: there's a ton of people that have success stories but at the end of the day the enterprise what

[00:23:40] [SPEAKER_00]: the turbines about you you got an inner line of category whether you do a discount cash flow in

[00:23:44] [SPEAKER_00]: a reversion or you do a single year direct cap valuation what is my inner line was my projected

[00:23:49] [SPEAKER_00]: in a line growth do I think that's reasonable do I think that can be supported by market driven data

[00:23:53] [SPEAKER_00]: if the answer is yes good if the answer is no I'm probably I hit the pause button and I'm

[00:23:58] [SPEAKER_00]: asking a few more questions and if they don't want to show that obviously that's another indicator

[00:24:03] [SPEAKER_03]: that it may not be the investment for you yeah I found recently over the last I don't know

[00:24:09] [SPEAKER_03]: six nine months or so I started asking new operators to provide their most recent investor updates

[00:24:16] [SPEAKER_03]: that they've sent whether it's monthly or quarterly and making sure that that aligns with what

[00:24:19] [SPEAKER_03]: they share during the due diligence process and surprisingly they don't always match

[00:24:24] [SPEAKER_03]: and even more surprisingly they don't always want to provide those which is a immediate red flag

[00:24:29] [SPEAKER_03]: for me that I step away from so well I know it's not all doom and gloom like you guys use the term

[00:24:36] [SPEAKER_03]: green shoots and crabgrass so can we can we talk about some positive news some positive things

[00:24:41] [SPEAKER_03]: that are going on in the space what is your your outlook for for the coming months and years

[00:24:46] [SPEAKER_00]: yes I I appreciate that because I think the doom and gloom narrative gets too much

[00:24:52] [SPEAKER_00]: headline space and the reality is if you look at the delinquency we put out a delinquency report

[00:24:56] [SPEAKER_00]: every single month so this last minute of overall delinquency rate it's just over 5%

[00:25:01] [SPEAKER_00]: offices the worst category it's like 7.99% or 7.97% yeah so in the worst of worst like we're saying

[00:25:08] [SPEAKER_00]: offices you know almost done untouchable asset right now no lender wants to make alone on

[00:25:13] [SPEAKER_00]: nobody wants to go work in them at 7.7% the link we see for that asset class is still less than 8%

[00:25:20] [SPEAKER_00]: which means 92% plus of the properties are making them mortgage management so I missed all of

[00:25:25] [SPEAKER_00]: this headline gloom the reality is most properties are performing just fine most operators are still

[00:25:31] [SPEAKER_00]: paying the mortgage on time most assets are still you know maintaining value or some asset

[00:25:37] [SPEAKER_00]: classes are still growing in value so I would suggest like don't don't make decisions based on

[00:25:43] [SPEAKER_00]: what the headlines say try to get into your local market and understand the nuances of those

[00:25:47] [SPEAKER_00]: fundamentals and I think in doing that you'll see there's a lot more green shoots than there is

[00:25:52] [SPEAKER_00]: cracker ice even though the cram brass right now is getting the headlines because

[00:25:56] [SPEAKER_00]: offices forever have been a very safe investment you've seen a lot of institutional capital

[00:26:01] [SPEAKER_00]: flow into suburban urban offices and lately maybe some suburban office where people love

[00:26:08] [SPEAKER_00]: having office investments there are 95% occupied in the urban cores they were occupied by

[00:26:12] [SPEAKER_00]: credit tenants it was a really great investment and we just had this huge behavioral shift

[00:26:17] [SPEAKER_00]: for people don't go to the office anymore at least at the scale that they used to and so that asset

[00:26:22] [SPEAKER_00]: classes in a little bit of disarray but even in the worst of wars right now I think the distress

[00:26:26] [SPEAKER_00]: will get above 8% is supposing it's a day for cent today 92% of the mortgages are still paying

[00:26:32] [SPEAKER_00]: so I think from that perspective there's a lot of really good activity in our business where we

[00:26:36] [SPEAKER_00]: practice the CBS market just to give some perspective in 2023 year to date so January through September

[00:26:44] [SPEAKER_00]: there's about 26 billion dollars worth of CNBS issuance if you look at what's been done today

[00:26:50] [SPEAKER_00]: in 2024 or January to September not even through the full month there's 72.12 billion of issuance

[00:26:58] [SPEAKER_00]: so it's some multiple more than what it was last year and we haven't seen the fed cut rates

[00:27:02] [SPEAKER_00]: we haven't seen anything really to stimulate the market place this is really just been

[00:27:07] [SPEAKER_00]: issuance growth if we get a favorable cut from the fed here in September and we stimulate the

[00:27:15] [SPEAKER_00]: market a little bit you're going to see that be even stronger in the fourth quarter so I think this

[00:27:19] [SPEAKER_00]: narrative of dry powder on the sidelines way too we hit the bottom like I don't believe in the

[00:27:24] [SPEAKER_00]: bottom like I think the reality is the market just abs and flows every day there's opportunities

[00:27:28] [SPEAKER_00]: in up markets there's opportunities in down markets so if you're an investor out there find

[00:27:34] [SPEAKER_00]: some properties that have good upside that have good strong fundamentals that the operator can show

[00:27:39] [SPEAKER_00]: you their track record show you why they think their value thesis will play out with data and if

[00:27:44] [SPEAKER_03]: they can do that there's plenty of opportunities out there and we've already seen some pretty big

[00:27:49] [SPEAKER_03]: players make some big moves on large transactions over the last 60 days or so so that tells me that

[00:27:56] [SPEAKER_03]: if the big money set on the sidelines is starting to move or at least hinting at moving then now it

[00:28:02] [SPEAKER_03]: we're not completely at the bottom but it should be rounding back up here shortly in all

[00:28:06] [SPEAKER_03]: all things are pointing their direction for what I've seen so yeah I mean I think I think not

[00:28:10] [SPEAKER_00]: was standing some you know global challenge or geopolitical trouble or whatever the market

[00:28:15] [SPEAKER_00]: seems to be bouncing back and it's just an interesting dynamic where you have some people that would

[00:28:22] [SPEAKER_00]: say those really big players they kind of create the narrative around the market so they're hoping

[00:28:26] [SPEAKER_00]: by deploying those capital large capital stores and buying large reads, surviving large multi-family

[00:28:32] [SPEAKER_00]: assets or whatever they're trying to stimulate and be a catalyst for the market I think there's

[00:28:36] [SPEAKER_00]: some truth to that if you're a large enough player you actually have the ability to kind of move

[00:28:41] [SPEAKER_00]: the needle a bit with your activity right so they talk to the book and then they go out and place

[00:28:45] [SPEAKER_00]: some capital hoping that others kind of follow them into the market but I do think with the fed

[00:28:52] [SPEAKER_00]: saying in December last year like hey we're done with the rate hike cycle we're setting ourselves

[00:28:58] [SPEAKER_00]: up for some rate cuts now we're going into an election cycle once that's all settled and once

[00:29:03] [SPEAKER_00]: the rate cuts come in I think you're gonna see a lot of stabilization real estate can work in high

[00:29:08] [SPEAKER_00]: interest rate markets it's not like we've never had an error of high interest rate in the 80s

[00:29:12] [SPEAKER_00]: interest rates were significantly higher than they are now commercial properties still traded

[00:29:16] [SPEAKER_00]: your transaction still happened where the market's really slowed down is when there's a bunch

[00:29:21] [SPEAKER_00]: of uncertainty and I think we're past that part I think now we've stabilized a kind of a historical

[00:29:25] [SPEAKER_00]: norm for rates and they're gonna come down a little bit with fat action and I think you'll see

[00:29:30] [SPEAKER_00]: a strong fourth quarter and I think 25 is setting up to be a really good year for CRM I mean

[00:29:35] [SPEAKER_00]: the one positive takeaway for the market broadly is just that even with all the distress you

[00:29:40] [SPEAKER_00]: look at COVID you look at them shutting down everything hotels going to zero actually can

[00:29:44] [SPEAKER_00]: see overnight you look at the office in the paradigm shift there on the whole loan losses investors

[00:29:51] [SPEAKER_00]: being completely wiped out it's still a very very small percentage of the overall ecosystem

[00:29:57] [SPEAKER_00]: was CRA so it can prove in itself to be a reliable investment is proven itself to be a resilient

[00:30:03] [SPEAKER_00]: investment class and I think that you'll consider it continue to see that type of trajectory

[00:30:08] [SPEAKER_00]: for commercial real estate over the next 10 15 20 50 years like I'm I'm all CRA all day every day

[00:30:15] [SPEAKER_00]: it's going to be your and be hard for us to help me understand how and why people would go away

[00:30:19] [SPEAKER_00]: from commercial real estate I think for the past of folks though it's imperative especially given

[00:30:24] [SPEAKER_00]: when we're at a cycle that you ask the right question as you dig a little bit deeper

[00:30:29] [SPEAKER_00]: you try to make folks that are gonna take your money a little bit uncomfortable and you see

[00:30:34] [SPEAKER_00]: how the reaction is because right now that's where we are a lot of people are uncomfortable the

[00:30:39] [SPEAKER_00]: rent growth that they underroats not there the expenses that they hope to cut didn't get cut and it

[00:30:44] [SPEAKER_00]: doesn't mean that they're bad offerings like I know you mentioned Randy like some of their

[00:30:47] [SPEAKER_00]: you know investor updates maybe didn't match what the the presentation said when they were

[00:30:51] [SPEAKER_00]: raising the capital that by itself to me the market is dynamic like you have to understand that as a

[00:30:57] [SPEAKER_00]: past investor like that's their pro forma that's their best guess so it's not a guess but that's what

[00:31:04] [SPEAKER_00]: their best in the process of activities going to be on the front end of the deal it doesn't

[00:31:10] [SPEAKER_00]: mean that it always plays out that one but what I was saying let me let me clarify if I could

[00:31:15] [SPEAKER_03]: though as well like I wasn't saying investor reports matching their performance investor reports

[00:31:21] [SPEAKER_03]: matching what they were verbally sharing with me so I have to say that is the

[00:31:25] [SPEAKER_00]: research of the real life research. Yeah yeah yeah but does the match what they say in all instances

[00:31:31] [SPEAKER_00]: not good yeah I think you have to understand as an investor just because the performances that

[00:31:38] [SPEAKER_00]: one they had anticipated doesn't mean that they're a bad operator it may mean that we're

[00:31:43] [SPEAKER_00]: some tough part of the cycle and again this is where you have your comfort level your risk

[00:31:50] [SPEAKER_00]: tolerance as an investor has said I mean all investment has reached regardless of whether

[00:31:54] [SPEAKER_00]: buying a stock a mutual fund real estate whatever their sum and error risk if you got to just

[00:31:59] [SPEAKER_03]: find where your threshold is. Okay I'm curious what you're thinking I just one more question and

[00:32:04] [SPEAKER_03]: then we can we can move towards to our's wrapping this up but I'm curious about your thoughts

[00:32:09] [SPEAKER_03]: where some of these operators that did very very heavy acquisitions during 2021 and 2021

[00:32:14] [SPEAKER_03]: 2022 that there's struggling DSCRs or said one point out maybe we're seeing started to see some

[00:32:21] [SPEAKER_03]: challenges with occupancy just because of the natural market trends what are your thoughts about how

[00:32:29] [SPEAKER_03]: those investments those projects how they could potentially impact new deals that are going to

[00:32:36] [SPEAKER_03]: market today so you don't have to portfolio is said one point out but the rest is blown it out of the

[00:32:41] [SPEAKER_03]: park how confident are you that they're going to be able to perform on new assets when they've got

[00:32:47] [SPEAKER_00]: dragged of these others potentially yeah I mean I think it's it's a fair question and I think it's one

[00:32:53] [SPEAKER_00]: that goes into having a deeper understanding of the portfolio composition what is dragging those

[00:32:59] [SPEAKER_00]: properties that are not performing to him did they make some aggressive assumptions that they shouldn't

[00:33:05] [SPEAKER_00]: have made did they take on you know debt that they shouldn't have taken on and they use floating

[00:33:10] [SPEAKER_00]: rate debt not buying the appropriate rate caps to protect themselves and their investors like

[00:33:14] [SPEAKER_00]: where their decisions made and operators shouldn't make they put them in this position that's the

[00:33:19] [SPEAKER_00]: case that's problematic if they get all those things right if they took on a conservative amount

[00:33:24] [SPEAKER_00]: of leverage if they bought the rate caps if they did everything that a reasonable prudent investor

[00:33:28] [SPEAKER_00]: would do and there were just some external characteristics around the property that didn't fully

[00:33:34] [SPEAKER_00]: understand or the planning and zoning commission is playing hardball with some of their permits for

[00:33:41] [SPEAKER_00]: the renovation or if there's supply chain issues or there's things that have happened

[00:33:46] [SPEAKER_00]: impacted the property negatively that gives you a little different perspective on it then if they

[00:33:49] [SPEAKER_00]: have half their portfolio that's a positive track record you know I want to ask the same questions like

[00:33:55] [SPEAKER_00]: did these assets turn positive because of their operational abilities or did they just get

[00:34:00] [SPEAKER_00]: a tailwinds from the market and so I think and just to give some some context for that so I know

[00:34:05] [SPEAKER_00]: multi family in particular there's been a lot of talk around some syndicators and people about

[00:34:12] [SPEAKER_00]: in 1920-21 that are under water right now and there's a couple of things that I think

[00:34:18] [SPEAKER_00]: prudent investors could ask going forward is they're taking out floating rate debt right which

[00:34:23] [SPEAKER_00]: means that the rate on the interest rate on the loan can reset let's talk about that like I need to

[00:34:29] [SPEAKER_00]: understand why we're using a floating rate loan versus locking in a fixed rate loan over the term

[00:34:35] [SPEAKER_00]: there may be justification for doing that but I want to understand what the downside risk is

[00:34:39] [SPEAKER_00]: do we have the appropriate rate cap someplace what's the worst state case scenario if we have to

[00:34:44] [SPEAKER_00]: extend this into an extension option period is there administrative fee do we have to buy a new

[00:34:49] [SPEAKER_00]: rate tap like those are things that I want to have a clear understanding of before I write

[00:34:53] [SPEAKER_00]: if check to somebody if they check all the boxes and they give you good answer on that then I think

[00:34:58] [SPEAKER_00]: that's fine but what's happened is from 20 over just over the last five years in this short term

[00:35:06] [SPEAKER_00]: bridge financing marketplace you've had about $150 billion worth of lending activity most of

[00:35:12] [SPEAKER_00]: that was floating rate 24 to 36 month loan term on initial loan takeout with one two or three 12

[00:35:18] [SPEAKER_00]: month extension options the challenge with that is if you bought a property in 1920 or 21 in

[00:35:25] [SPEAKER_00]: 2023 in the first half of 24 1.1 million new apartment units were delivered from a construction

[00:35:30] [SPEAKER_00]: pipeline so your value every position of your 1970s class C property is now competing with a bunch

[00:35:37] [SPEAKER_00]: of new class A stuff that's on the market in a soft market where they're dropping their

[00:35:42] [SPEAKER_00]: rinse and the rent that you thought you were going to achieve is probably not achievable

[00:35:45] [SPEAKER_00]: the floating rate nature of that is problematic they locked in rate a regeneration at 2%

[00:35:50] [SPEAKER_00]: now with the floating rate in the adjustments if they don't have a rate captain my being 11

[00:35:54] [SPEAKER_00]: percent interest that is going to eliminate any free cash flow you have on the property

[00:36:00] [SPEAKER_00]: but just to give some perspective 150 billion 70% of that's been multifamily and

[00:36:08] [SPEAKER_00]: less than 20% of that 70% is in this distress bucket right so it's not an in-consequential number

[00:36:16] [SPEAKER_00]: but relative to the overall multifamily space it's just a rounding error and so I would just suggest

[00:36:23] [SPEAKER_00]: the people don't buy into the high-up sure in the sunbelt states there's been a lot of activity

[00:36:27] [SPEAKER_00]: no out of an experienced semester that came in there's going to be some distress like we talked

[00:36:32] [SPEAKER_00]: about in the front end of the show for the people coming in today with new capital there's going

[00:36:36] [SPEAKER_00]: to be some really great buying opportunities for some of those properties thank you for for kind

[00:36:40] [SPEAKER_03]: of bringing that full circle net that really talks to the message that I've been sharing with

[00:36:44] [SPEAKER_03]: investors as well as there there are some amazing opportunities that are either here in front of

[00:36:49] [SPEAKER_03]: this or on horizon and now I think is a good time to get some capital at work I think personally

[00:36:56] [SPEAKER_03]: I'm I'm a fan of the dollar cost averaging placing small checks in multiple markets,

[00:37:01] [SPEAKER_03]: multiple asset classes, multiple operators and deals consistently year after year after year after

[00:37:06] [SPEAKER_03]: year after year if you do that you're going to have up and down years but as a whole from a

[00:37:11] [SPEAKER_03]: real estate specific and multi family I believe is going to outperform anything that you can see

[00:37:15] [SPEAKER_03]: in any of the other markets so well honey this this has been a lot of fun you bring a new perspective

[00:37:22] [SPEAKER_03]: I felt I was a little bit over my skis by asking you to come out of the show but

[00:37:27] [SPEAKER_03]: the ultimate goal is that I'm trying to help educate the past investor and

[00:37:31] [SPEAKER_03]: certainly wanted them to get to experience what I get to experience with you guys every week so

[00:37:36] [SPEAKER_03]: maybe if you could let me tell the audience again what you guys are doing a trip what you guys

[00:37:42] [SPEAKER_00]: are doing with trip willier as well yeah that opportunity so trip by definition we're data modeling

[00:37:48] [SPEAKER_00]: in analytics firm we track the commercial mortgage max security the CRECLO and the Fanny Friday

[00:37:53] [SPEAKER_00]: Agency markets we're running into the reporting structure we get owners submitted income and expense

[00:37:58] [SPEAKER_00]: financial statements submitted to us directly from the serviceer then we build really great

[00:38:04] [SPEAKER_00]: products analytics and sites and research on top of that data so we have a lot of free data

[00:38:09] [SPEAKER_00]: if you're someone that's just looking for some newsletter or from market commentary

[00:38:13] [SPEAKER_00]: then our website is trip.com you can sign up for our newsletters we have a daily news letter

[00:38:18] [SPEAKER_00]: called the rundown where we track the transaction market we give you a big picture story every

[00:38:23] [SPEAKER_00]: morning that comes out every Monday through Friday for the products and services we have a bunch

[00:38:28] [SPEAKER_00]: of different subscription options love to talk to you about that if you're interested and then on

[00:38:32] [SPEAKER_00]: trip where a podcast we're 278 episodes in we have over 1.5 million lessons we do a weekly show

[00:38:39] [SPEAKER_00]: on Thursday we've never missed a week since March of 2020 we spend 45 minutes to an hour

[00:38:44] [SPEAKER_00]: just kind of recapping the events of that week from a CRC perspective so if you haven't

[00:38:48] [SPEAKER_00]: listened to us we'd love for having to check us out we try to be educational we try to be you know

[00:38:53] [SPEAKER_00]: as funny as a couple of nerdy guys and then Hayley can be and but we have a really great report

[00:38:59] [SPEAKER_00]: we love what we do we live in the data and so we try to keep subjectivity out of it

[00:39:04] [SPEAKER_00]: and really just bring some data driven you know market insights week to week. Love it yeah

[00:39:10] [SPEAKER_03]: and what I like probably more than anything one is the fun banter that you guys have going back

[00:39:14] [SPEAKER_03]: and forth so that's great but too you guys actually list specific transactions that are occurring

[00:39:20] [SPEAKER_03]: in various asset classes all over the country and we get to hear a lot about we work in many other

[00:39:26] [SPEAKER_03]: big things that are common in the space but it's been a really nice addition to my weekly

[00:39:32] [SPEAKER_03]: listening and I feel like I just learned a time for you guys so a lot of thank you so much for

[00:39:36] [SPEAKER_03]: being on the show I do have do have a few questions I like to ask everybody before we wrap up if

[00:39:40] [SPEAKER_03]: you got just a couple minutes still okay so we talked a lot about due diligence on this one

[00:39:46] [SPEAKER_03]: and I thought you gave some really good advice there but I'm curious are there one or two or a

[00:39:52] [SPEAKER_03]: handful of due diligence questions that you think passive investors should be asking that they

[00:39:57] [SPEAKER_03]: seem to not be asking during their their wedding process. I think one thing that you can do and you

[00:40:03] [SPEAKER_00]: might get some pushback from from some of the operators is have them connect you with some of

[00:40:08] [SPEAKER_00]: the other passive investors and their other deals to get some perspective on how they think

[00:40:13] [SPEAKER_00]: that deals come right it's one thing for the person that controls an error to kind of give you

[00:40:17] [SPEAKER_00]: their spend on how things have gone good or bad it's really interesting and be interesting to

[00:40:21] [SPEAKER_00]: kind of see how other passive investors feel about those same deals for hate so if you can get

[00:40:26] [SPEAKER_00]: access to somebody that's already invested with the operator I think that's a really great way

[00:40:30] [SPEAKER_00]: to kind of get some insight into that. I think looking at the P&L or operating statement and getting

[00:40:36] [SPEAKER_00]: a familiarity with the asset is important it's one thing to look at projections it's one thing to

[00:40:41] [SPEAKER_00]: look at you know underwritten assumptions it's hard to argue with what's taking place already and

[00:40:47] [SPEAKER_00]: if you can see what's happened over the last 12 months it gives you a little bit of better

[00:40:51] [SPEAKER_00]: basis relative to how realistic do you think those assumptions are on the go for I mean like

[00:40:57] [SPEAKER_00]: I can't predict what's going to happen five minutes from now let alone five years from now

[00:41:01] [SPEAKER_00]: so I want to have some understanding of what's taking place so I at least have some

[00:41:05] [SPEAKER_00]: firm foundation of knowing what is this 10% rate growth actually mean like sometimes when you

[00:41:10] [SPEAKER_00]: see the numbers in front of you it gives you a better understanding and then any type of claim

[00:41:15] [SPEAKER_00]: that they're offering relative to operational superiority whether it's increasing rent, decreasing

[00:41:21] [SPEAKER_00]: expenses or whatever I want to have some proven track record of showcases that they've been

[00:41:27] [SPEAKER_00]: able to deliver on those cents in the past because what we know is everyone that selling says

[00:41:33] [SPEAKER_00]: your buyer can come in and increase rents and they can do this better than we did

[00:41:39] [SPEAKER_00]: to which I would respond most cases well then why hasn't your operator just done that like if it's

[00:41:43] [SPEAKER_00]: easy to change charge rents up 15% why have you guys raised the rents 15% oh we did some

[00:41:49] [SPEAKER_00]: percent of the units and now you can extrapolate that maybe maybe not like maybe you did it on

[00:41:54] [SPEAKER_00]: the 10 best or 10 percent best of units in the complex and the other side of the complex is hard to access

[00:41:59] [SPEAKER_00]: or has not as good a visibility at nighttime or as far as from the mailbox there's other things

[00:42:04] [SPEAKER_00]: that create challenges to something a new one set of standing of that so I think you know

[00:42:08] [SPEAKER_00]: those would be some highlights I think the main thing though is just educate yourself like

[00:42:12] [SPEAKER_00]: don't rely on somebody else to give you an education and commercial real estate

[00:42:16] [SPEAKER_00]: take it upon yourself to get a working knowledge you don't have to be a practitioner

[00:42:19] [SPEAKER_00]: you don't have to be a modeling expert but if you can be somebody that understands like we're in

[00:42:24] [SPEAKER_00]: a very jargon heavy industry it's very easy to kind of get lulled into well they said the EGI's this or

[00:42:30] [SPEAKER_00]: said you know whatever have a working knowledge of what those terms mean so that you can actually

[00:42:35] [SPEAKER_00]: understand when someone's telling you they expect to reduce you know recurring expenses by X or fixed

[00:42:42] [SPEAKER_00]: expenses by Y like what that actually means for you as a passive investor.

[00:42:48] [SPEAKER_03]: And then that ties really nicely the next question and other than maybe signing up for your

[00:42:53] [SPEAKER_03]: course at Texas Tech what would be some good educational resources for them to really begin

[00:42:58] [SPEAKER_03]: start to learn some of this on their own if you have a cabinet you can share yeah we are

[00:43:02] [SPEAKER_00]: you know there's there's several options I'll be like so I would say right now in 2024

[00:43:07] [SPEAKER_00]: there's never been a better time to be an investor in the sense that resources are abundantly

[00:43:12] [SPEAKER_00]: available. If you want to invest in real estate if you want to invest in anything you can get online

[00:43:17] [SPEAKER_00]: you can find a clash you can find something that can help you get educated so at track we actually

[00:43:21] [SPEAKER_00]: offer a training certification course if you want to understand valuation you want to understand

[00:43:27] [SPEAKER_00]: the MBS you want to understand the mortgage side of the equation we have a training course you can

[00:43:31] [SPEAKER_00]: sign up for there's a company called CR E analyst that does a very similar type of training course

[00:43:36] [SPEAKER_00]: there's adventures in commercial real estate those guys do a great job and their website

[00:43:40] [SPEAKER_00]: has a bunch of free stuff as I mentioned our website is a bunch of free stuff even as basic

[00:43:45] [SPEAKER_00]: is like Khan Academy which is usually you know it's anonymous with like grade level type of education

[00:43:53] [SPEAKER_00]: they have some really great videos on commercial mortgage back security and and underwriting

[00:43:58] [SPEAKER_00]: in analysis like no shortage of ways for you to get an education and a nominal cost that could

[00:44:04] [SPEAKER_03]: pay some really big dividend. Sectionable steps that the audience can take and I'm going to check

[00:44:08] [SPEAKER_03]: out your guys certification course as well. Another thing I learned here when we launched this last

[00:44:15] [SPEAKER_00]: year it's been very positive for us and it's something we're going to lean into like we

[00:44:19] [SPEAKER_00]: you know I'm a I'm a professor teacher at heart like I think sure educating folks special

[00:44:26] [SPEAKER_00]: when it comes to their money making decisions is something that we have an obligation to do and so

[00:44:32] [SPEAKER_00]: we're really leaning in I'm trapped to trying to create a more easy education type of format where

[00:44:42] [SPEAKER_00]: our podcast was kind of phase one we're like we're talking to everything we're educating you on what

[00:44:46] [SPEAKER_00]: we see from the market from our perspective with our data this is kind of phase two where we have

[00:44:52] [SPEAKER_00]: a formal class where you can sign up it's like 1214 weeks you can actually come in it's every week

[00:44:56] [SPEAKER_00]: it's online you have assignments you have a professor you yeah it's like a legitimate certification course

[00:45:02] [SPEAKER_00]: the next phase will be taking that plus like some lie and meeting reads it's some other things

[00:45:06] [SPEAKER_00]: and maybe introducing you to some of our broader networks so you can continue to grow in your

[00:45:11] [SPEAKER_00]: knowledge of commercial real estate so I love being where we're at I think in 2024 there's no

[00:45:18] [SPEAKER_00]: excuse to not grow your network to not grow your understanding in knowledge base there's

[00:45:23] [SPEAKER_00]: there's so many resources and tools available and we love being at least a small part of that for people

[00:45:27] [SPEAKER_03]: and all right and now just a couple of quick fun questions so I'm not sure if you're a bucket this

[00:45:33] [SPEAKER_03]: guy or not but have you recently or do you plan on checking any bucket of the items off your list

[00:45:39] [SPEAKER_00]: so I will tell you I'm I'm kind of boring when it comes to this kind of stuff because I just work

[00:45:45] [SPEAKER_00]: like I work like I work like in addition to teaching a Texas tech I also teach at a community college

[00:45:50] [SPEAKER_00]: and you're a semester at home well I'm telling you I'm teaching three classes on Saturday so like

[00:45:55] [SPEAKER_00]: 9 30 oh my goodness 9 30 and 6 30 p.m. I'm teaching so but I think one of the things I want to do is

[00:46:01] [SPEAKER_00]: I want to go watch baseball game whenever stay in across the US one of the benefits of my

[00:46:06] [SPEAKER_00]: crazy travel schedule is I get to go to a bunch of different cities and I get to yeah

[00:46:10] [SPEAKER_00]: you know much of different people but in the last couple of years I really got to see some cool games

[00:46:14] [SPEAKER_00]: and some cool stadiums the last year I got to see red socks and the eighties that Finnway I got to

[00:46:19] [SPEAKER_00]: sit on the green monster a really cool deal I've been out there so I'm really sure I got to watch

[00:46:24] [SPEAKER_00]: I'm going to Texas Rangers fan we were playing the Diamondbacks there so it was just cool so

[00:46:28] [SPEAKER_00]: I would say for that like maybe just to try to check all the stadiums off on the list it's not

[00:46:33] [SPEAKER_00]: something I'll do next year but it's sure something I progressively work in charge so that's pretty cool

[00:46:38] [SPEAKER_03]: I love it my wife and I are doing the same thing and I was going to invite you if you're ever

[00:46:42] [SPEAKER_03]: in Arizona let's go grab a D-back skating but we tried to hit two or three or four year

[00:46:47] [SPEAKER_00]: adding stickers to our little sticker book so yeah it's cheap entertainment that's fun and it's

[00:46:55] [SPEAKER_00]: good if I'm traveling with the kiddos or whatever it's everyone enjoys going to a baseball game

[00:46:59] [SPEAKER_00]: get some content and some peanuts it's a pretty cool thing then you spend some time in the

[00:47:04] [SPEAKER_00]: York down too I believe right yes I'm in New York quite a bed probably at least one or two weeks

[00:47:08] [SPEAKER_00]: a month and so I've got to go to the Yankees game into a mess game into a next game like yeah

[00:47:13] [SPEAKER_00]: I'm going to take it all in next year I'm going to try to get to the US open watch some tennis

[00:47:17] [SPEAKER_00]: stuff and just the energy in New York for me even for a real steak guy I'm going to get

[00:47:21] [SPEAKER_00]: every time I fly in I see this kind of line and we have this incredible terrace at our office

[00:47:27] [SPEAKER_00]: right in Rockford Feltzer Center and you can see the buildings it's one of those things where like

[00:47:31] [SPEAKER_00]: you look at just where we're at today I don't think we could recreate New York City if we were

[00:47:37] [SPEAKER_00]: starting over today like I don't think we could build the buildings I don't think we could create the

[00:47:41] [SPEAKER_00]: density I don't think we could do all the architectural stuff I just don't think we could recreate it

[00:47:45] [SPEAKER_00]: it's one of those things that it's just a wonder of the world like it doesn't get you know there's

[00:47:50] [SPEAKER_00]: all the negative stuff about New York they got big rats kind of stinky sometimes like all this stuff

[00:47:54] [SPEAKER_00]: I see our irrespective it's that's one of one and as soon as I fly in I just the energies and

[00:48:01] [SPEAKER_00]: factious I love it so for a Texas guy I love split in time in New York it's a really really cool thing

[00:48:08] [SPEAKER_03]: I couldn't even agree with you more my wife and I just absolutely love New York so very good

[00:48:12] [SPEAKER_03]: all right final question if you had a hundred thousand dollars that you had to place

[00:48:18] [SPEAKER_03]: in the next week or so where would you place and you couldn't go with one of your buddies let's say

[00:48:22] [SPEAKER_00]: yeah so it was an I'm a multifamily guy at heart I think multifamily is that's where I

[00:48:28] [SPEAKER_00]: that's it's I understand it's the easiest investment to understand the underlying fundamentals

[00:48:34] [SPEAKER_00]: that drive value so it's not difficult to find the locations where you have net in migration

[00:48:39] [SPEAKER_00]: where you have good transportation where you have good school districts where you have easy access

[00:48:43] [SPEAKER_00]: to roadways that give people to and from work where there's retail shopping centers that are close

[00:48:49] [SPEAKER_00]: for me like all of the things that I want to use to help quantify safety security kind of upside

[00:48:55] [SPEAKER_00]: of investment very easy to do that with multifamily I would say beyond that maybe like this

[00:49:00] [SPEAKER_00]: class be in fill industrial play is a really interesting concept for me because I do think that

[00:49:06] [SPEAKER_00]: last mile distribution concept is only going to get stronger and stronger as these supply chains

[00:49:11] [SPEAKER_00]: logistics get better and more efficient you're getting Amazon not delivered daily but hourly in

[00:49:16] [SPEAKER_00]: cities I think that's a really good play so I would say one of those two options when I'm pretty

[00:49:21] [SPEAKER_00]: partial to the multifamily stuff it's easy to understand and generally speaking people have

[00:49:26] [SPEAKER_00]: time to place to live right so it's it's that's where I'd probably put the money if I find it

[00:49:32] [SPEAKER_03]: make a decision today awesome and that's why we invite you on the show because you're the

[00:49:36] [SPEAKER_03]: expert of the multifamily space so I find the same way I hold 70% of my my investment capital

[00:49:42] [SPEAKER_03]: multifamily syndication so could not agree more but Lonnie this has been great thank you so much

[00:49:47] [SPEAKER_03]: for coming on the show I really do appreciate what you guys are doing over a trip I get a tremendous amount

[00:49:52] [SPEAKER_03]: of value out of it I know all of your listeners do as well but thank you so much for being on the

[00:49:57] [SPEAKER_00]: show today yeah thanks for any I appreciate it thanks for the kind words and if any of your listeners

[00:50:02] [SPEAKER_00]: want to reach out again they can find us on on trep.com I have a profile there in my contact in

[00:50:07] [SPEAKER_00]: Zairam also on LinkedIn we're happy to help however we can but thanks for the opportunity to talk and

[00:50:13] [SPEAKER_03]: good luck on the continued growth of the show awesome thanks so much Lonnie into the audience

[00:50:18] [SPEAKER_03]: is always thank you again for joining us today we encourage you to continue your education journey

[00:50:24] [SPEAKER_03]: in the past to invest in space but more importantly than just the education we encourage you to

[00:50:28] [SPEAKER_03]: make the decision to invest in your first passive investment both Lonnie and I are convinced that

[00:50:33] [SPEAKER_03]: we will be very glad that you did and just wish that you had started that much sooner so thank you again

[00:50:39] [SPEAKER_03]: for joining us today and be sure to join us again next Thursday for another great episode thank you

[00:50:45] [SPEAKER_01]: well there you have ladies and gentlemen another episode of the gentle art of crushing it

[00:50:50] [SPEAKER_01]: it was an amazing episode we know we sure learned a lot and we hope you did as well

[00:50:55] [SPEAKER_01]: we want to take a second and thank you so much for viewing or listening to this episode

[00:51:00] [SPEAKER_01]: and please just know that we only ask for one favor and that is to make this life magnificent

[00:51:06] [SPEAKER_01]: thank you and have a wonderful day