Archives for May 2023

Multifamily Investors Interest Rate Pain with Neal Bawa – CRE PN #407

Neal Bawa 0:00

So your average syndicator buys 10 properties, right? I think what’s not obvious in the industry is that three or possibly four of those properties are already underwater, because they already had these floating loans. And these floating loans went up, they hit their cap, some of them didn’t have a rate cap, so they still going up. And the ones that have hit the red cap rate caps usually been set to like 8%, or something like that. And so at, so they’re at the rate cap there, they’re still the rate cap companies helping them with their mortgage payment. But still, their portion of mortgage payment means they’re still illiquid. Now. Then there’s the bigger problem. Banks are realizing that your rate cap may be expiring sometime next year, let’s say it’s, or this year, maybe it’s maybe it’s August this year, October this year. So guess what more and more banks are doing at this point, Darren, they’re calling you and saying, Hey, we’re seeing that that rate cap is going to cost you about $700,000 When you get it and we require you to get that rate cap in October unless you’re selling your property. And even if you’re selling your property, even if you have plans to sell your property, look, we can’t do anything about this. We want you to start escrowing 50 to $70,000 a month for you to buy that rate cap when it comes up in October.

Announcer 1:14

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J Darrin Gross 1:35

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

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Today my guest is Neal Bawa. Neal is the founder of Grow Capitus, an online multifamily investor education platform. He’s also an experienced syndicator developer, and his attention to the data has earned him the moniker the Mad Scientist of Multifamily. And in just a minute, we’re going to speak with Neal about the Feds Gambit with rising interest rates and their impact on commercial real estate.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network and while you’re there and please subscribe. With that I want to welcome my guests back to CRE PN Radio radio. Neal Bawa, Welcome back.

Neal Bawa 3:31

It’s great to be back Darrin interesting times so interesting conversations.

J Darrin Gross 3:36

No that’s that’s always a guarantee with you. But definitely the the times are a changin before we jump into the conversation if you could take just a minute and share with our listeners a little bit about your background. Sure.

Neal Bawa 3:51

I’m a data science technologist, successful tech career successful tech exit. I work with about 900 A little over 900 fairly nerdy data driven investors a lot of them from Silicon Valley, and I buy and build properties across the US in 10 states and 16 metros portfolio is about a billion dollars. And we are agnostic to any particular asset class, but the largest portion of the portfolio currently is multifamily. both new construction and value add

J Darrin Gross 4:25

Got it. And you said to agnostic, have you how far have you strayed from the multifamily?

Neal Bawa 4:35

In my mind very far and sometimes people don’t quite get this so you know, I’ve I’ve done townhomes for sale. I’ve done for plexes for sale I’ve done for plexes for rent, I’ve done built around communities, which are very different from a standard multifamily community have done other asset classes like industrial self storage, student housing, and I’m still missing one or two

J Darrin Gross 5:00

All right. Well, it’s it’s I think it’s, you know, good to kind of test the other stuff there and and get a feel for how they play and and get to know those different asset classes. That’s great.

Neal Bawa 5:13

Yes. So I certainly don’t suffer from the grass is greener on the other side problem?

J Darrin Gross 5:18

Yeah, you’re, you’re mowing on both sides, I get it. So, Neal, it’s been a little while since we last spoke, you’ve been very kind with your time and coming on the program here, multiple times. And I think the last time we talked this, probably about a year ago, when when we were kind of working through COVID, things were still good, there was kind of the sense that the Fed was working to slow inflation. And there, the expectation was the interest rates were going to be pushed upward. And that that the fear was there was going to be a crash. And here we are, today, we’re we are recording this in February of 2023. We’re clearly feeling the effects of or the interest rates have been pushed up. And inflation has not necessarily been is not under control just yet. The fear of of, you know, a looming recession is still, you know, evidence. And there’s plenty of evidence of that. I mean, and so I guess my my first question to you is, is the the landscape sits before us right now? What is your just immediate sense of things, just with respect to the multifamily marketplace?

Neal Bawa 6:55

What I would say is that the market is not doing a very good job of adjusting to its new reality. So I feel like there is this sense of, you know, we’ve had goods for so long, right, the last eight years have been so good. And every time something bad happens, something changes it, like, for example, COVID was actually a very positive change for the multifamily industry, just when we felt like all the cash flow is getting squeezed out. COVID comes along, and then the Fed, you know, showers all this money and interest rates go to zero. And you know, it’s party time again, actually, the biggest party of all time, and multifamily was in 2021. And so something always comes along and Bails us out. But I feel like there’s no evidence at this point that there is something that is going to bail out the industry. But I still see too much of a party like atmosphere, I don’t see acknowledgement, either of the fact that today, you can’t really buy a value add property with significant cash flow, I mean, 1% 2%, you know, sure, technically, that’s cash flow. But I think that if your property is producing four or 5% cash flow, you’re probably being a little aggressive with your underwriting, because I don’t think that that actually exists. And so when you’re in a situation where you’re buying, you’re a cash flow industry, you’re a cash flow asset class, and you’re cash flowing at one or 2%, or 3%. And 40%, of all buildings purchased in the last four years, are either just breaking even or bleeding, then the sort of attitudes that I see in podcasts and conferences, needs to be adjusted. So my answer to Darren is, the industry is in a process of adjustment and not doing a very good job so far.

J Darrin Gross 8:46

Yeah, no, I have my own mind, I’ve kind of thought that it’s, it’s that transition phase between where we were, and the expectations that things are going to go back, or the kind of the reality, you know, where we really are, and that change in reality. And I think the only thing that, that that, you know, cures at his time, you know, it takes time for people to realize the marketplace to realize that what was is not anymore. This is the new reality. And

Neal Bawa 9:24

Well, I think what helps is having open discussions, because there’s people that are going to listen to this podcast that I think will have a slightly changed point point of view. If there were 90 people or 200 people on 200 podcasts having this conversation, then that pivot to reality would just go faster. It takes time. Yes, but it you know, that takes less time. And I think that that’s why having these kinds of conversations is even more critical than the sort of conversations that we’ve been having on this podcast for the last two or three or four years.

J Darrin Gross 9:55

Ya know, and I wonder to this Does the conversation and the reality accelerate as the the financing that one has in place expires and has to reset? And does that not necessarily, you know, either force a sale or force a refinance or kind of that recalibration happens when we’ve just come out of some very low interest rate terms, those who were looking to refinance probably locked in and a pretty good, pretty good rate. They’ve got some runway to work with. But those that are, are coming up on an expiring term, or you know, are looking to sell or have to refinance. They’re facing a different reality. And wondering if if your thoughts on on as they transfer or transfer, you know, go through that, that transfer. If that doesn’t kind of cement for more people that the new route, what the new reality is,

Neal Bawa 10:58

It’s beginning to cement it. The problem is there’s no education around what to do. Right. So I have yet to see a course. And you know, most indicators today did not go through a college education course, they didn’t go to Utah University’s real estate program. They basically went to a weekend course or a five day course and then signed up for some kind of mentorship and they became syndicators. That’s the standard path, right? So you look at that, and you look at the curriculums of all the gurus and it’s good. I mean, the stuff that’s being taught there, you know, underwriting stuff like that, what to look for in property, excellent stuff. But there’s never any chapter on what happens when debt takes your property underwater, because that scenario really didn’t exist for the last eight years. So nobody ever wrote a chapter. Nobody ever recorded a podcast, nobody ever had a conference session on it. And so the problem isn’t that people don’t understand the issue. The problem is that there are very simple, straightforward, somewhat painful fixes that people are not aware of, because no one has ever provided any kind of education. And this isn’t necessarily true of, you know, people speaking at the NMHC conference, because those folks have gone through 2008. And they understand what what are the things that they need to do? But but the syndication industry, the vast majority of us were doing this, including myself, in 2008 2009 2010. Right? Luckily, in my case, I had a property where I got education, forced education, and but I look at what people are doing today. And I tell them, you know, look, the problem isn’t just what Darren described. So what you described is, there’s a bunch of properties that basically have to be refinanced and made refinance, all of a sudden those properties will go from either breaking even or making some money to just losing money. $50,000 $100,000 a month. Yes, that’s the case. But let’s talk about what is already happening. And that’s, that’s, that’s what I really want to focus on. So if you bought, let’s say you’re a regular syndicator, you know, you have a regular portfolio you like most of us believe that bridge loans or floating loans are better than, you know, being locked into a loan for 10 years, right, nine out of 10, syndicators, were using some kind of floating debt, because they wanted access to, you know, extra money from the bank for rehabbing their property. So you’re like us? Well, then, in the last three years, 2020 2021 and 2022, and maybe a little bit in 2023, these three years, let’s say you bought 10 properties. So your average syndicator buys 10 properties, right? I think what’s not obvious in the industry is that three or possibly four of those properties are already underwater, because they already had these floating loans. And these four floating loans went up, they hit their cap, some of them didn’t have a rate cap, so they’re still going up. And the ones that have hit the rate cap, the rate caps usually been set to like 8%, or something like that. And so at, so they’re at the rate cap there, they’re still the rate cap companies helping them with their mortgage payment. But still, their portion of mortgage payment means they’re still illiquid now. Then there’s the bigger problem. Banks are realizing that your rate cap may be expiring sometime next year, let’s say it’s, or this year, maybe it’s maybe it’s August, this year, October this year. So guess what more and more banks are doing at this point, Darrin, they’re calling you and saying, Hey, we’re seeing that that rate cap is going to cost you about $700,000 When you get it and we require you to get that rate cap in October, unless you’re selling your property. And even if you’re selling your property, even if you have plans to sell your property, look, we can’t do anything about this. We want you to start escrowing, 50 to $70,000 a month for you to buy that rate cap when it comes up in October or August. And so now all of a sudden, you are bleeding already. And now you’re bleeding because you have to put another $50,000 in and we’re not at the peak yet because I at this point, it’s pretty much guaranteed that the Fed will raise interest rates once in March once in May and once in June. So there’s still another point seven five increase He’s. So if you have a $20 million loan point seven 5% is basically $150,000 more a year in interest, which is $12,000 more a month. So guess what’s going to happen? In July, you’re going to be bleeding $12,000, more than you’re bleeding today. But today, if you’re putting that bleed in from your pocket, imagine how you’re going to feel putting in an additional $12,000 a month in July. And you might say, Yeah, but it’ll get better. Here’s the problem. Nobody has spreadsheets on this, I’m looking to create the industry’s first spreadsheet on actually showing syndicators, what their cash flow will look like in the next 24 months based on their own projections based on their own assumptions. I’m telling you that property, if it’s bleeding $100,000 today, and it’s going to be 120 $12,000, in July, is still going to be bleeding $100,000.09 months later, does that mean it needs a million dollars of cash? And that understanding of what to do when you have this kind of situation is completely missing? That’s the problem. You know, you asked this question on your app. Sorry, I’ll get back to you. But you asked this question about risk, right. The number one risk today is not interest rates, and it’s not inflation. The number one risk today is complacency.

J Darrin Gross 16:19

Yeah, no, I think that that’s, that is, you know, you’re spot on. And in the end, I think it’s a necessity that changes the mindset, and you know, the action, or it creates the action. And until you have that, if if, you know, people keep thinking they’re gonna hang on, or they’re going to be able to or things are going to change? Are they telling their investors that, you know, we’re, you know, we’re expecting this to change here? And in the third quarter are mean, how are they? How are they positioning that because eventually there’s, there’s going to be a change, either they either, you know, they lose the property, the the interest rates do do go down, and they’re able to refinance out of it? Or, or, or what else can they do?

Neal Bawa 17:09

It will be very useful if you’re saying those things to investors that interest rates may go down for you to actually project it. So one of the things that we do, and we give this out to anybody that wants it, by the way, we create something called the Grow capitalist interest rate tracker, and it tracks all of the usual stuff. So you know, where Sofer where spreads? You know, where’s the overall number, which is so far plus the spread? Where do we think the inflation is going to be in the next 12 months? Where do you think the Feds gonna be? The truth is, whether you’re Goldman Sachs or Merrill Lynch, or you know, you’re one of the big guys, if you read their stuff, everybody thinks the Fed might cut by 25 basis points, or 50 basis points sometime in November or in December. And if you’re lucky, it might be 25 basis points in November and 25 basis points in December. How much is that going to help you that property? That’s cat that’s bleeding? $100,000, that’s going to be bleeding $112,000, in June or July? Well, that’s still going to be bleeding by $88,000. If those that half point reduction did happen. So in January, how is your situation going to be a lot better than it is in July? Right? And, and then July, August, September, October will all look the same, they will all look more painful? And so my big question is, how can you stay with a straight face to your investors, that things are going to get better with existing properties? When the most basic math and you know you’re a syndicator? You do very complex math and do it quite well. So clearly, you don’t have any shortage of math people. Why? How do you say this? How do you say it with a straight face? I think it’s absurd. And I think that everyone has these properties. I’m one that’s very straightforward saying I have these properties. There’s nothing that I did that in any way changed. My problem, that problem that I’m describing. What I’m saying, though, is I’m extremely proactive, on buffering up cashflow for my properties, extremely proactive, raising more equity, getting more loans, doing everything that’s needed. Because, you know, and I have a monthly meeting with my team. We don’t talk about anything else. We don’t talk about the property. We don’t talk about asset management, we just talk about this property stability. And every month, we open a spreadsheet, we play with it, we tweak it based on what our beliefs are at that point, right of where interest rates are going to be over the next 18 months. And how this property is liquidity is going to get affected if you’re not doing that religiously. And by the way, we were doing it weekly. Eventually you get to the point where monthly is fine. If you’re not doing this, it’s your job right now, for God’s sake to be doing this with an existing property. And here you are underwriting 30 new properties every week, making three offers a week and buying a property every three months and that property has the same exact problem.

J Darrin Gross 19:56

Let me ask you this because you’re the as a data scientist here, the the data that you’ve been kind of referring to and a lot of the syndicators that, that are, you know, relatively new to this asset class, I mean, you know, the 2008 crash created an opportunity for a lot of people to get in and get get some, you know, properties that were that were in distress. And so, if you are looking at your, your current properties and trying to bolster them so that you can, you know, make it through this situation here. Are you looking to other historical points, where the interest rates and you know, the, the investment environment was similar? Or are you basically just taking your, your, what you have now, and seeing what you can do to to, to bolster your, you know, your position so that you can make it through?

Neal Bawa 20:59

Um, it’s a good question, I think it’s a very good question. As I think about it, the answer is, we don’t need to go back and look at history. 2008 was extremely unusual, it was a worldwide equity crash, a worldwide liquidity crash. We have no liquidity problems in the US economy today of any kind that I can think about. There’s massive amounts of debt and massive amounts of equity available, everybody wants to lend everybody wants to invest. The problem is that the interest rates are so high, that you basically effectively can’t make a property cash flow, if you invest, if you put that into it, if you put equity into it. So the our situation is vastly superior to 2009. The problem is complacency. And the problem is because like, you know, I asked this question, I’m gonna not gonna mention names. But a recent conference conference, you know, somebody called the conference, I said, Where’s your sessions on teaching people about all this stuff? Cash calls? recapitalizations, you know, bargaining with lenders? What are the things you say to your investors? You need to be teaching people how to do this, because this is what they need to know. And they said, Yeah, but there’s no distress right now. And my question is, you realize your conference is only held once in a year 12 months from now will be too late to teach people. Because the distress basically effectively starts this quarter. And you might say, why this quarter? Well, the answer is, when did interest rates go up? Right. So you know, in March, it was a quarter point increase, nobody cares. In May, it was a half point, nobody cares. And then after that, we have 475 basis point bombs, right, going to October, and then a 50. basis point bomb in December. So three and a half basis point increases happened in the second half of last year. Well, how could there be distressed in the second half of last year, interest rates were still going up. Now they’ve gotten up to the point where in January, you’re like, Oh, my God, I’m noticing losing a lot of money. And but you have reserves, you can put some money and you can raise some equity. So no distress, q2, same thing will happen. You know, we will put more money in the won’t be any distress, you’ll push something back, you’ll take money from your rehab reserves to three now you’re getting seriously worried because you’re like, Man, this thing gets keeps getting worse. By q4. The whole industry is like, oh my god, bad stuff is happening in q1, I think next year is the peak of when properties are going back to the bank. So if you’re having a conference in February next year, who are you going to help?

J Darrin Gross 23:33

Yeah. Right. The new buyers of the properties have gotten off.

Neal Bawa 23:38

Right. So I mean, I think that’s what’s what it is. I think the distress takes such a long time, because there’s so many steps in the process. But why are there no podcasts about cash calls recapitalisation bank management? What are the sort of things that you can do with banks, and I’m not saying I’m an expert at this, I’m saying I need that education just as much as the next guy. I’m just aware of the problem. And the fact that it’s the next 12 months, not the previous 12 months, all the stuff that’s indicators have been saying about the pain in the last 12 months. There isn’t any pain, all of the pain 100% of it starts now and goes for the next 18 months.

J Darrin Gross 24:18

Right. Right. Now. And again, I think you’re you’re spot on with the in the sense that I think today that at least my experience has been that people keep looking backwards with the expectation they’re going to be able to recognize what’s coming. And to your point is none of the syndicators that are of have no right now I’ve been through that. So how are they going to be of any value for the coming year on on how to weather the storm and how to not lose a property?

Neal Bawa 24:48

Right. And people people have been saying, I said this in a podcast last month and people are like, Why are you saying it Neil? You should just be hiding it and waiting for these people to make mistakes and pick up their properties. No, you don’t really realize I won’t be able to buy their properties in q1 next year if there’s contagion in the industry, because banks will stop lending right now. No, every bank wants to lend, right? They don’t want to lend a 70%, LTV, they want to lend a 55%. Because, you know, the DSCR is the numbers that they care about are not working, right. But otherwise, every bank wants to lend on every project. Well, what if there’s hundreds and hundreds of properties returning to the bank in q1 next year, which bank will be ready to lend to me? How is that going to be helpful to me, as an industry, we either figure out how to get over this bump in the road, because that’s really what it is. By understanding, recognizing and getting stopped for God’s sake buying properties at this point, just focus on the existing ones, so they don’t go back to the bank. That’s all they have to do. This is our job is maybe 1/10 As hard as 2009. But why aren’t we doing it? Why aren’t we having those conversations? Why aren’t you having people actively say, Hey, we’ve got to be talking about this stuff. And let’s get some education. Let’s figure out how to be better. Let’s start calling every frickin lender in the industry and saying give us six months of deferment. You did that as soon as COVID happened, where why aren’t you making those phone calls now?

J Darrin Gross 26:14

It you know, I’m curious. Do you think any of this part or maybe part of the reason why there’s not this conversation and education occurring is that most of the syndicators I mean, the the the business plan is to, you know, buy the property, renovate and sell. And her I guess rented higher ed, you know, get the get the NOI up and then exit. But But how many of the the syndicators business plan really has a whole plan with an operation to weather a storm.

Neal Bawa 26:54

I don’t think that these plans were ever built, because they were unnecessary in the last six or seven years. You know, here’s my plan on my existing properties. Make sure my investors don’t lose money. If I promised you 17 IRR. I’m sorry, that’s not my plan. If I promised you 8% cash flow, I’m sorry, that’s not my plan. Something happened that no one in the industry, not Goldman Sachs, not the Fed itself predicted a massive bomb went off. My focus right now is I want to make sure that I don’t lose your money. That is my only business plan. And if I don’t lose your money for the next 18 months, then I’ll go try and recover whatever portions of the business plan I could on a property by property basis. Don’t think about it 18 months from now?

J Darrin Gross 27:45

No, no, I think that honesty and having that frank conversation with investors, it may not be what they want to hear right now. But, you know, as we get through this, and when they get to the end of it, if you’re successful in, you know, able to do that, you will attract a whole bunch more investors from the standpoint of, you know, the, the honest, reality based conversation that was occurring with your investors, and I think that would, that’ll that’ll bode well, well, I

Neal Bawa 28:21

hope so. Because I think that that’s what is needed today, I obviously have to give up buying buildings today, I can buy buildings, you know, everyone sends emails out saying you buildings are $20,000 a door cheaper right now. $40,000 a door, I’ve got a huge deal compared to 12 months ago, when this building was $40,000 a door more? Well, you’re probably neglecting to mention that you were you know, underwriting you know, 4% interest rates a year ago, and now you’re underwriting at seven or eight or nine or even 10. Right, so that part of it is rarely mentioned. And so, I mean, I look at how I can get pencils up because I desperately want to be pencils up I haven’t been pencils up for a while. And every time I pick up my pencil, I look at data and I put the damn pencil down again.

J Darrin Gross 29:12

Yeah. In let me ask you so the you know, the the Fed sets the interest rates were they kind of the the overnight rate for banks and and, and, you know, as long as I can remember I think was Alan Greenspan back when he was kind of the first Fed chairman of note that really pushed the lower rates and in so it’s been 2020 plus years that we’ve had lower interest rates. But, but as we settle into kind of, like I see settle into, I don’t know if it’s gonna settle but I’ve heard conversations both on both sides or, you know, trying to express it both ways. Do you think that the, you know, if the market plays out like you, you’ve suggested here and that first quarter of 24 properties gone back? Naturally, you would assume that the Fed will then have to do something to kind of, you know, Goose the, the the market, do you think that the interest rates will go down because of that? Or, or do you think they’ll try and hang on to as much rain as they can?

Neal Bawa 30:32

No, I don’t think the Fed will do anything at all to help when the when this occurs, because I want to just explain the size of what will happen 1000s of properties could go back to the bank in q4 this year and q1 next year, q2 next year, right. Please understand the size of the multifamily industry. The syndication industry itself is a very small portion of the multifamily industry, people have been buying multifamily for generations there lots of people that don’t even sell them, they hold on to them for decades. And then there’s the institutional guys that are buying multifamily with hard loans and 10 year fixed loans, and they’re just laughing at the rest of us saying, hey, my property, I’ve owned it for 10 years, it’s got another 10 year fixed loan. So as a portion of the multifamily industry, the syndication industry is fairly small, and as a portion of the syndication industry, that properties that are actually going to be distressed enough to go back to the bank, that’s still very small. And then multifamily itself is a small component of the overall real estate industry, the single family industry is larger. And then the real estate industry is only a small component of the economy. In 2008, it wasn’t a real estate crash, all liquidity dried up in every single part of the economy. So compared to what happened in 2008, what could happen and may not happen, right? I could be wrong, and there may not be that distress next year. But let’s say that there is distressed, we’re looking at dollar numbers that are maybe 1% of what the Fed had to deal with in 2008. Why would they change track, when bad stuff happens in the economy all the time, the Fed didn’t change track when when Twitter laid off, you know, 7000 people or when Facebook laid off 11,000 people, the Fed actually pointed out to people that unemployment in the tech sector has risen in the last four months, even though big companies are laying laying off people, the small ones are hiring them, because they didn’t have access to those people before. So point is, the Fed doesn’t really react to things the way that the market would like them to react, they look at the economy as an overall picture. And within that, if there’s a sector that’s distressed, they’re not going to jump in to help that sector easily.

J Darrin Gross 32:34

Yeah, that’s interesting, as you kind of lay that out, you know, just thinking back about the oh eight. And how big that was. I mean, it wasn’t just, you know, commercial real estate, but, you know, all real

Neal Bawa 32:47

thing. The entire economy was in severe distress because of a complete lack of trust, complete lack of liquidity. We don’t see anything like that today. They just, I don’t see a scenario in which there’s a Fed chairman, that’s going to vote to start dropping interest rates to help 1000 multifamily properties in a in a country that has millions of them.

J Darrin Gross 33:08

Right, right. Do you think this could potentially, you know, reduce this, the the numbers of syndicators just based on, you know, the sexy investment of real estate, non performing, as well,

Neal Bawa 33:26

as there’s 100% chance that there’s going to be less indicators 18 months from now than they are today, there’s 100% chance. The problem is these people don’t know how to speak to their investors. So there’s still people doing sessions where they don’t talk about this stuff. And I’m actually, I’m guilty of that too, myself, right. But I’m planning over the next three months, I feel like I’ve done enough to make sure that my properties are not going back to the bank. But I feel like I need to do more sessions with my investors and just have these straight, toxic straight conversations with them about what’s happening in the marketplace, and how it’s affecting them. I think this stuff is important. And I really don’t feel I lose investors that way. They may not give me money for a property three months or six months from now. But I think that there’s appreciation that I’m right now, pencils down, I’m not looking to buy properties. I’m not looking to my I have staff on payroll that I’m paying from my own pocket, because you know, I’m not buying new properties just focused on their money, because they gave me that money. So I think that if, unless that happens in the syndication industry, I predict that there’s going to be a lot a lot less indicators. I mean, you already see brokers in the US single family brokers have dropped by about 30%. In just the last six months. The bottom dwellers just couldn’t take the fact that homes were not selling. And they went and did something else. Right. The job markets good. They got other jobs. I think we lose. I’m speculating maybe 20 to 40% of the entire syndication industry in the next 18 months. Yeah. Now and again, this isn’t this isn’t blood on the streets, right? There’s at no point have anything that I said represents Blood on the street, it just represents distress for individual properties.

J Darrin Gross 35:06

Right, right. Now just deal by deal challenge as opposed to a systemic.

Neal Bawa 35:14

You know, I don’t see a systemic problem, I do see that if 1000s of properties do go back to the bank 2024 2023, maybe or next year, 2024 may be a difficult year, especially early on in the year to get lending, where the banks are, if they’re worried about properties on their books coming back into them, it’s harder for them to lend at that point of time, because they have to deal with those properties. Today, slow down,

J Darrin Gross 35:38

right? I’m just sitting here thinking is you’re talking about the, you know, the lending environment, and just kind of this education that you’re working now, with your investors, it would seem that part of that education be kind of just more about the cycle, you know, the market cycle itself, and where the opportunities, you know, potentially will come from, or when they will come. And, you know, if you are able to weather the storm, and investors are wanting to get back in or have additional capital they want to put to you to use that that would be kind of the point for them to jump in or for you to go forward. But I’m kind of curious to on just the psychology with investors, you know, if they’re, you know, the aversion to loss, you know, the fear of losing, is so strong. And if they’re in the mindset of where if that’s what this week, your investors are, the hope is that you’re like you said, you’re able to, to not lose their their investment. So let’s say you’re successful in that, and you’re having a good conversation with them. And they feel educated and they feel taken care of by Neil. And as the cycle presents itself, there’s all these other additional properties that are that are turned back to the bank. Do you think you’ll you’ll I mean, I would assume you’ll be in a better position to raise capital from those people hand or anybody else? I mean, the I guess the the flip side is that people that lose money in the deals from the syndicators that aren’t having this conversation that are turning the deals, they’re not going to have the capital nor they’re going to want to get get back in the market, I would assume is that,

Neal Bawa 37:26

Yeah, it’s not read necessarily a good story, right? So 18 months from now, my job actually will be harder to raise money than it is today. Because those investors in my properties or other properties, haven’t seen this play out publicly. At this point of time, as I said, when I go to conferences, tell people, where’s the session on training on this? And they say, well, there’s not enough to stress Yes, for us to be doing this stuff. So stuff is in our future. And because it’s in our future, I think that 18 months from now, there’ll be investors who a have been burned, you know, with the property going back to the bank, or, you know, having to put in cash, or be they’ve been with somebody like me, and, you know, work hard, and maybe our properties are, are skating through this challenge, but they’re still not making money. I mean, I’m even for properties where I’m when I’m quite profitable, just out of an abundance of caution. I’ve told them, I’m sorry, I’m not distributing any cash, I need to just build my operating reserves, it’s your money, it’s not mine. If I don’t use it, it’s yours. I’ll, I’ll distribute it to you. Right. So since it’s not like, I’m going to sit and eat this money, it’s going to go into a bank account, it’s going to sit there for a while, sorry, but that’s what I have to do. Because my job is to manage your money. And know I see potential risks. And if that risk goes away, you’ll get your money. So so there’s people even in my database that are not particularly not happy with Neil Bauer, because they’re like, you know, I’ve this property is doing well, by now, you know, you kind of delayed cash flow during COVID. And then the cash flow came back, and now you’re taking it away from me again, I’m not quite happy. I think they understand. But they’re grumpy about it. And I think so, raising money next year is not going to be easier simply because other syndicators have burned investors. I think there’s a process where the mindset resets 2024 We’ll just muddle through 2025 I think is going to be a fine year. And we’ll do well. You know, you said Alan Greenspan was really the first guy that advocated for lower interest rates. I believe all Fed chairman in the future will advocate for lower interest rates simply because it’s okay for the US to have these high interest rates for one year, maybe even a year and a half. It’s no big deal. We’re a very strong economy. But what Imagine if interest rates were this high for the next 10 years? Do you know what that does to the interest payment on the federal debt? I mean, you have to cut every program, you have to cut military you have to cut Social Security, you have to cut, you know, job entitlement programs or unemployment. Everything’s got to be cut because you’re basically spending $300 billion extra that you weren’t paying thing before. So the political pressure from both Republicans and Democrats to keep interest rates low in the long run is extraordinary. In the short run everyone’s understanding of what the Feds doing, they understand that inflation can prevent them from being elected at the next election. So they’re like, Yeah, go ahead, do your job. Once inflation comes down to a reasonable level, there’s going to be a lot of pressure.

J Darrin Gross 40:21

Yeah. No, I definitely. It’s a interesting dynamic with the Fed. And, and, you know, have some scary times ahead of us. But I think that, you know, the wise syndicators and, you know, investors that understand the situation, the the, you know, preventing a loss is really kind of prevented, you know, prevent defense or whatever, trying to try to prevent losing is really kind of the game right now.

Neal Bawa 40:52

Yeah, and it’s not that hard, right. So if I wanted to sum this whole thing out, I don’t want to use the word scary, because I don’t think it’s scary. I think it’s just neglect. People are just not thinking about this, because they’re like, you know, it’ll get better. No, take a spreadsheet, plan out the next 18 months, and be reasonable, when you think how interest rates are going to fall, and how it’s going to reasonably affect your property, figure out how many dollars you need, and put together a plan, it’s not as many dollars as you think. You just need to look at it. Now. It’s going to be a lot harder a year from now. So you might as well look at it now. So I think this is really all about action there and not panic.

J Darrin Gross 41:32

That’s good. Hey, Neil, if we could like shift gears here for a second, but damn an insurance broker, and to have such worth my clients to assess risk, and try and determine what to do with the risk. And the three strategies we typically consider our first look to see if we can avoid the risk. When that’s not an option, we’ll see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize risk. We look to transfer the risk and that’s what an insurance policy is. And as such, I like to ask my guests, if they can look at their own situation, could be political interest rates, the Fed clients, investors, tenants, however you want to frame the question for the answer for you. But, you know, I’d like ask you Neal Bawa, what is the Biggest Risk?

Neal Bawa 42:30

The biggest Risk is to keep doing what you were doing before. Right now we are at a point where we need to pivot. So you know, you name three things. And so I’ll go through those three and tie them back to the biggest risk. This change right now may not be a good time to buy multifamily. In fact, I don’t want to buy multifamily until about July this year, when something known as the spread, which is a portion above Sofer is likely to to drop it might even just collapse. So I basically want to wait until that time in terms of transferring risk. Yeah, I want to go out and have my distressed fund by not buy properties, but invest money into properties. Because when I invest money into properties that are that are distressed right now have negative cashflow. I’m doing what Darren mentioned, I’m transferring my the risk from my investors to the existing investors of that property. So if they change their mind would allow me to come in as preferential money. I’m coming in ahead of them. And I’m transferring the risk of ownership of the property while I’m getting ownership of it to someone else. It’s somebody else’s risk is the GP and the LPS risk, not my LPs, their LPs. So if I can transfer risk successfully, I’m looking to do it by recapitalizing existing properties that I like nothing wrong with the property, just the interest rates are killing it. One day, the interest rates will go away and the property will do well, again, I want to own this property, but I don’t want to buy it from the market because I think that the price is too high. So when I recapitalize somebody else’s property and put my investors in pole position and transfer the risk.

J Darrin Gross 44:12

That’s an interesting strategy there. Are you finding lots of opportunities that way?

Neal Bawa 44:18

One a day early. That’s, that’s remember the distresses there. Everyone’s ashamed to talk about it.

J Darrin Gross 44:26

Right. Now, that’s, that’s, that’s good stuff. And you’re able to with your investors come in and establish a position and put some capital in and I’m

Neal Bawa 44:42

Looking to do so as I as I said in my commentary, that the peak of the distress starts in q3 this year. So right now it’s time for conversations, understanding those properties, seeing, you know what they’re doing, we’re encouraging them to do cash calls first before they recapitalize. You know, cash because if they can get by with cash calls good for them, I mean, that’s the easiest way that that’s what they should be doing. So we’re providing education at this point of time. But there may be properties where the cash calls are not successful, and they come back to us, they’ve checked off that box. And then their investors are ready for a, you know, change in their position in the equity stack, after an unsuccessful cash flow. So it’s a process. I haven’t done any yet. I’ve got, you know, two dozen properties that I’ve looked at, I think I like four. And I’m monitoring those four to see what happens in the coming months. And I’m also having conversations with my investors. This, you know, I shouldn’t be recapping any property at this point, but six months from now is different.

J Darrin Gross 45:42

Well, I have an interesting conversation for later to hear. Are you? Are you done? That sounds good?

Neal Bawa 45:48

Sure. There’s, there’s more opportunity at a time of distress, not less.

J Darrin Gross 45:53

Yeah, no, absolutely. It’s the old Warren Buffett there, you get a chance to use homeruns shorts on this kind of thing. So I like it. Hey, Neal, where can listeners go if they’d like to learn more connect with you?

Neal Bawa 46:06

Two different ways. One, I’m the only Neal Bawa on the World Wide Web. So you can just type in N e al space B Awa and hit Enter on Google and you’ll find my content and connections to me. The other one which is more formal. We have about 50 75,000 people that are current subscribers of multifamily University, the web URL is multifamily followed by you that letter U so MultifamilyU.com. We do webinars each month on these kinds of thorny topics that no one else wants to touch. We do about 20 of them a year. We just did one we had 2600 people registered about 1200 watched it live. So those kinds of events. I don’t have a podcast so you can’t listen to one but I have been on over 200 podcasts so you can go to pod chaser.com and search for my name and you’ll find a couple 100 of them.

J Darrin Gross 47:00

Awesome. Well, Neal Bawa, I cannot say thanks enough for taking the time to talk. I always enjoyed, learn a lot, and I look forward to doing it again soon.

Neal Bawa 47:11

Awesome. Thanks for having me back Darrin.

J Darrin Gross 47:13

All right. For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

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Multifamily Recession Investing with Anna Kelley – CRE PN #406

Anna Kelley 0:00

And so when we hit the peak, because when money is cheap asset values go up, if you can borrow more cheaply, you can afford a bigger house and you know, a nicer lower payment, and you’re going to go buy and invest in more things that you’re going to try to generate a return. Well, that created this asset bubble. And when values started to come down a little bit, and these loans start to reset, it became evident that many people were going to walk away from their properties upside down and declare bankruptcy. And when that happened, essentially, all of the financial institutions booked asset values went down, their ratings declined. And they many of them, you know, as you know, went under so I think there’s a lot to learn from that. The mortgage world got tighter and better. So the loans issued since then have been much more stable, fixed loans, higher credit quality, so we’re better there. But the variable debt in the commercial real estate world and the commercial lending world, I think, is still a lesson that we haven’t learned, and it could cause some future pain as well.

Announcer 1:07

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:27

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today, my guest is Anna Kelley. Ana is a former top ranked financial relationship manager for Bank of America’s private bank. She also worked for AIG for 20 years in the corporate and affluent Markets Group focused on creating products for ultra high net worth individuals, banks and institutions. Anna has been investing in real estate since 1998, and has held active ownership of a rental portfolio valued at $300 million across Texas, Pennsylvania, Florida, Tennessee and Maryland. As a sponsor, Anna seeks strong multifamily investment opportunities to help her partners and investors meet their financial goals and grow wealth on a tax preferred basis. She brings her decades of experience with both traditional investments and real estate to help others overcome fears, increase knowledge, mitigate risk, and make wise investments in real estate. Anna is passionate about creating a meaningful impact in the lives of her residence and communities. And is also a sought after speaker real estate coach and a four times Amazon number one best selling author. And in just a minute, we’re gonna speak with Anna about real estate investing through market cycles.

But first a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we’d love to hear from our listeners. Also, if you want to see how attractive our guests are, be sure to check out our YouTube channel. You can find us on YouTube at Commercial Real Estate Pro Network. And while you’re there, please subscribe. With that, I want to welcome my guest Anna Kelley, welcome to C R E PN Radio.

Anna Kelley 4:10

Thank you so much Darrin, it’s so great to be here with you today.

J Darrin Gross 4:13

I’m I’m delighted to have you and looking forward to our conversation. I gave kind of a little bit of your background there. But I’m curious if you could share any insight with listeners. Take a minute and share a little bit more insight with listeners.

Anna Kelley 4:30

Sure, so one of the things that makes me a little different than maybe some people that you’ll hear on on commercial real estate is I really didn’t get started investing in real estate. I started my career out in the financial world in the institutional investing world. And I realized very quickly working with ultra high net worth investors that if you have a lot of money to begin with, it’s pretty easy to find investments to grow your wealth pretty rapidly. As long as we’re in an upward economic cycle, but if you really don’t start with wealth, it takes a very long time to grow wealth in the traditional investing arena, investing in your 401 K and stocks, bonds and mutual funds. And so I recognized that I didn’t want to have to wait until I was 65, to create a million dollar net worth and to live on $40,000 A year after that. And so I had a very wealthy client, who, when we mentioned back in the late 90s, that we could get him a CD at about 8%, he laughed at me and said, Honey, I make way more than that on my real estate investments. And I realized that in all my training in the financial world, and investment advisory classes, and all of that, I never learned anything about real estate. And so it piqued my interest to say, I might want to check into this and see if there’s a way for me to grow wealth more rapidly through real estate. And that put me on a path of interest in real estate. But it wasn’t really until 2009, the great recession, when I worked for AIG, lost the majority of my 401 K and was told every week, we were probably losing our jobs, that I realized that, that putting my entire financial future in the hands of the stock market, retail investments, or a corporate job really wasn’t wise over the long term. And that’s what got me to really escalate my level of real estate investing to create financial freedom. And it’s the best thing that I ever did.

J Darrin Gross 6:35

Alright, I love it. Love the history there little backstory, and how you get started? You know, it’s funny, I just had coffee with a couple of investors, little Meetup group we do. And I’m based here in Portland, Oregon. And you mentioned that the, the, where you were in ’09, with AIG, and kind of the the sense of like, you know, are you going to be able to keep your job? I just learned this morning that Intel, the big chip manufacturer, has announced salary reductions for all of its workforce. And I think the front line is like 5%, management, maybe 10%. And if you’re vice president, it’s, you know, 20%. And I thought, wow, I mean, that’s, that’s not the head doesn’t necessarily jive with the, the inflation inflation, you know, you hear about wage increases is kind of the one of the things that that is, you know, hanging out there kind of thing. But yes. You know, on the flip side of that, I’m also talking with the guy who’s in sales, he said, sales are way down. So, you know, it does kind of offer an entree into kind of the the market cycle conversation I was hoping to have with you today. Absolutely. And I just kind of curious that, you know, if, if maybe the best place to start would be to maybe go back to kind of the oh nine, because that’s the most recent cratering of the market. What was what was in place at that time. And I think, you know, one of the one of the things that I’m a big believer in is that whatever the cause of it, was, has likely been tweaked. So that it won’t likely happen this time. But I think that people are looking for that, you know, like, oh, it’s gonna make everyone happy. But the reality is, is that, you know, where it comes from, isn’t always easy to identify. But the results are very similar. Right? And that, so maybe if we could go back and just kind of reset, you know, what was going on and in, you know, the capital markets, the job markets, and, you know, real estate back in the day, oh nine, and then kind of look, from there forward, and then see where we’re sitting right now, that sounds like a

Anna Kelley 9:08

Absolutely? Yeah, absolutely. I’ll say this. You know, one thing having been in, you know, really the elite areas of Bank of America and AIG and when I say that, we had a lot of information on every type of investment available to us, and where, where can we find the best returns? And how can we mitigate risk with those returns? Right, I worked at AIG. So we were in the business of creating returns and mitigating risks together as much as we could primarily through private placement, life insurance, where investors, banks institutions could park their money in just about any investment they wanted to as a private placement and put that within a life insurance policy so their wealth could grow tax free within that plan, or if you’d invested directly in a stock or you know, private place meant outside of insurance most of the time that that that’s taxable. And so, having had such great training and these, you know, increasing roles where we were looking at more and more products, I have to say, looking back that I was naive to think that I knew as much as I knew, I kind of figured if you understand investments, well, the risks are generally the same over time. And you can make a pretty informed decision based upon looking at history and looking at the things that are going well. And when I was really blindsided by, you know, late 2008, early 2009, completely blindsided by the collapse of the financial system and the real estate markets, I realized that you can know a lot about your chosen investment, whether that’s you know, multifamily, or the stock market, gold and silver, you name it. But if you don’t understand the forces that are happening in the economy that impact asset values, the impact your cash on cash return and your income, that impact interest rates, you can be blindsided, again, by anything that can disrupt asset values, interest rates, cheap debt, et cetera. So my biggest lesson from 2009 Was that it’s not good enough to know your one or two or three chosen niches, well, you really need to become a student of the economy and watch the macro economics, watch the real estate and the economic cycles and say, Are we in an expanding cycle? Is that expanding cycle likely to continue? Or other signs of it cracking and heading back down toward a decline or a recession? And what are those signs? How do we know how to recognize when things might be shifting so that we can understand that there might be new risks that could impact our returns, or even wipe out our retirement plans like, like, it happened to me in 2009. So I really didn’t study the economy at a high level before I only really studied specific investments and historical returns. So that was my biggest lesson. And since then, I’ve become a student of the economy. So I’m watch macro economics like a hawk. And I understand I watch rates, I watch what’s happening in the currency wars between countries in trade wars between countries, because all of those things, impact currency values, and ultimately impact how the Fed reacts to changes in potential global issues. Where before 2008, we really were mostly focused on national economic health. And we were focused on real estate as a major asset that had been increasing for such a long time, that I think we got lazy in the financial system. And we just assumed that things were going to continue to get better, the economy was going to be different this time it was going to continue to expand. And a lot of the signs that there was unhealth in the mortgage industry, and an asset values and in the collateral that was used, you know, for financial assets and derivatives and things like that. They assumed that things were going well, and they ignored all the negative news. So when I look back on 2008, and nine and say, How could all of these really smart, large financial institutions with well paid, you know, actuaries that mitigate risk? And you know, financial engineers that understand all this? How can all of us be so blindsided and in hindsight, you know, appear to be stupid and not know what we were doing? And the reality is that there were signs There were articles written, you know, starting in 2006, saying, beware there’s problems in the mortgage market, there’s there’s rougher worse debt worse, underwritten loans than what we think they are. And there’s way too much collateralization of that debt backing many, many, many obligations and and loans, and that if the bubble pops, things could collapse. And it did. So, you know, I think we’ve learned from that in terms of the some of the problems with the mortgage market that brought down the system was that rate, loans were easy, they were easy to get, you didn’t have to have a great credit score, you didn’t even have to prove your income. They had no dock loans, and they were filled, the economy was filled with those types of loans and variable rate interest loans where, you know, adjustable rate mortgages would reset. And so when we hit the peak, because when money is cheap asset values go up. If you can borrow more cheaply, you can afford a bigger house and you know, a nicer lower payment and you’re going to go buy and invest in more things that you’re going to try to generate a return Arne well, that created this asset bubble. And when value started to come down a little bit, and these loans start to reset, it became evident that many people were going to walk away from their properties upside down and declare bankruptcy. And when that happened, essentially, all of the financial institutions booked asset values went down, their ratings declined. And they many of them, you know, as you know, went under. So I think there’s a lot to learn from that. The mortgage world got tighter and better. So the loans issued since then have been much more stable, fixed loans, higher credit quality, so we’re better there. But the variable debt in the commercial real estate world and the commercial lending world, I think, is still a lesson that we haven’t learned. And it could cause some future pain as well.

J Darrin Gross 15:53

No, I appreciate you kind of going through that. Because, you know, that whole time with, you know, running up to, oh, 809, there were were, you know, the rates were so cheap and easy, or money was easy to get. And the fact that so many people have multiple properties or had very little skin in the game. You know, I think the the notion of, of Safe, safe loan or a safe investment from a lender perspective, lost sight of, you know, there’s no skin in the game, there’s no, you know, what’s the incentive to to make the payment? What’s the incentive to, you know, you know, keep the, you know, the home a roof over your head, right. And, you know, you know, the, the fact is, is that underwriting has tightened up significantly from then we just went through a huge wave of refinancing, where people have like locked in low interest rate, debt, fixed rate for for a long runway. But, you know, as you were saying that everything like Wayman, this is exactly what’s been playing out in the commercial here. The, you know, whether it be just in, in commercial real estate investors in general, or a whole, a, you know, crop of newer investors that found commercial real estate, that maybe just thought it was like, you know, like, oh, eight or, Oh, 607 in the residential, where you could decide to get a get a loan, you buy a fix that you sell, you buy a fix, you know, kind of that kind of thing, not to realize that or not, you know, having thought it through that, you know, what happens if, if I can’t sell it? What happens if the market changes? Right, How well am I prepared to weather the cycle? Right. And so, tell me a little bit I mean, your background and with your experience investing in a lot of the the oh, 809 crash? You mentioned it before here was the debt was not fixed, it was some sort of variable product with with less than capable buyers to absorb that change in the, the the loan. Right, you look, look at the commercial debt, and the way most commercial deals are, are structured. Do you see a parallel that’s playing out or that’s about to play out?

Anna Kelley 18:36

Absolutely, I do. And, you know, because I lost so much in 2009, really, we had started a business at the height of the economy in 2007, with a significant amount of debt. And so, you know, when when everything collapsed, not only did I have to, you know, provide for our family, but part of my salary went to cover my husband’s staff expenses, because he had a new business, and then I lost most of my 401k. So I never wanted to live through that again. And so I’ve been very, very conservative as a commercial real estate investor, you know, since 2009, with the types of debt that I take on because really, most people can survive a recession or even a financial crisis that last 10 months to a year and a half, which is about how long most of them last, if they can continue to cover their debt. So your debt payment as a percentage of what your income is, through all sources, is really the thing that you’ve got to be very careful of, and if you don’t know what that debt payments is going to be into the future, when you’re at the cusp of the end of an expansion period in the economy and starting to head downward really is what I see the greatest risk to all investors regardless of what type of debt you have and what that particular asset is so specific to multifamily. Right before things started to get really crazy, I’d say before the pandemic, and even through the middle of the pandemic, most multifamily investors, which is all I invest in actively, I’m passively invested in lots of other commercial real estate. But my active investments are buying and syndicating and operating large apartment complexes, these value add deals where we buy them at a good basis, and then we increase the value, increase the rents and sell them for a profit. Typically, that process is about three years. And so the great thing before the recession is most syndicators, were using Fannie and Freddie backed mortgages. And so we got, you know, five to 10 year fixed rate loans. And those that did do bridge that they only did it when they bought properties that couldn’t pencil with Fannie and Freddie. So bridge debt, temporary debt, that’s variable rate really always has some risk. But in an expanding economy, where you think things are just going to keep expanding over the next three years, rates won’t go up significantly, we’ll be able to roll that new debt, if we have to refi or if someone buys the asset from us, they can get a low rate mortgage, then it keeps you pretty comfortable that your asset values are going to keep going up, because of the fact that the economy is going up. Well, the pandemic kind of was the first major shock that said, Wait a second, now we have all these tenants that don’t have to pay, at least the media’s telling them that the government’s not going to make them pay. And now you’ve got debt that you have to maintain, even with potentially a 3040 50% cut in income. So I thought during that crisis, while we are in in big trouble, and we got through it, and we got through it really well, because we had cash reserves. And because we had a fixed debt payment, we did not use bridge debt. So after the pandemic, I became more resolute in my decision not to do deals with any kind of variable rate or bridge debt loans, because I had experienced the pain of that during the pandemic. But what happens is we quickly forget, you know, we had this pandemic, we had a recession, the the government stimulated the economy, we had all this excess cash, and rates, you know, came down and everybody says cheap money. Surely, we’re out of it, we’re back up into expansion, we’re not going down. If we can get through this, we can get through anything. And so they they bought more property values continued to push up in commercial real estate because of the cheap debt. And essentially, most syndicators, were using bridge debt. Now, instead of the Fannie Freddie that meaning they had a year, maybe two with an extension to get the renovations done, to sell the property for a high value or to refi. And they estimated that their mortgage payments would be about the same and rates would be about the same when they had to exit. And that’s where the real risk is today. Because as you know, and all of our listeners, if you’ve been watching the news at all, you can see that we’ve had mass inflation that that many people didn’t expect. And that’s caused the Fed to raise rates at the most aggressive rate since I was a child in the 1970s. And so when you don’t think that things could get worse, you make decisions based upon the assumption that things get better. I didn’t do that. And I don’t do bridge debt, because of those lessons I learned in oh nine, because of the fear that we wouldn’t be able to pay on mortgages during the pandemic, I said, my kind of foundational, you know, debt paradigm is that, generally speaking, I don’t do bridge debt unless I have many ways to mitigate the potential for the asset value to fall cap rates to rise interest rates to rise and need to be able to afford a much higher mortgage payment.

J Darrin Gross 23:52

Yeah, no, I, I, I like your, your thought process there on, you know, locking in the debt. And also, it just, it, it’s more about you being able to weather that whatever that cycle, whatever the future is, because, you know, as we’ve we’ve kind of alluded to, and kind of look back, things happen. And, you know, while it’s it’s popular to believe that it’s just everything’s gonna go up and up and up and up, there is a limit, even though a lot of people can’t see it. It’s kind of like on a roller coaster, you can’t see the the vertical or the drop until you’re right, all the way over the top there. Right. But that it sounds like that, that for you is kind of a rule of investing period is that lock in that debt and know that you can service the debt from now, till the till the end of the loan? There’s because I kind of,

Anna Kelley 24:52

I’d say yes, but there’s always exceptions to every rule, but if you make an exception, it shouldn’t then And quickly become the rule because it worked out once or twice, right. So there are situations and I’ll use right now, for example, now we’re at the point where commercial real estate values haven’t come down significantly, yet rates have gone up significantly, and lenders have cut quite significantly the loan to value they’ll actually give you for that debt. And so it’s much more expensive to buy properties today. And so, if I were to lock in a rate for 10 years today, when I believe that rates won’t be this high for 10 years that wants, you know, the Fed has been successful, hopefully, in killing inflation. And we have a little bit of softening in the economy, the hope is that they go back and reverse rates, I’d say in the next year, I don’t count on it till 2024. But if I think rates are going to come back down, you know, even a point or two or three, I might not want to lock a rate for 10 years today with a prepayment penalty, that could be pretty stuff, this might be one of those only periods when I say, because of how high rates are today, if I think that history is gonna repeat itself, and the Feds gonna lower rates within a year or two, or we have a deep crisis or a deep recession, that will definitely necessitate them cutting cutting rates, I might go ahead and take the risk of a variable loan, because it might be actually less risky today than a fixed loan with a multimillion dollar prepayment penalty. So I’m not going to do that on all of my deals. But if I find something with a strong enough basis, Darren, and I can hold enough cash reserves that I can whether a rate going up even more, you know, after a year, and that I have enough upside in that property to really create massive income to offset potential cap rate changes or interest rate changes, then I might do a variable loan or two today. And if it’s a development, which I do, then most of your loans are variable. So you just have to find different ways to mitigate that interest rate cap insurance, things like that.

J Darrin Gross 27:03

Right. And I’m just curious with the development, it seems like that’s almost it’s a, like an entirely different animal from like a value add, and a value add, you release, you know, whatever the income stream is. And I’m assuming that you’ve got a pretty good idea what the market can bear as far as additional rents in you’ve got a little bit fewer variables there. I mean, there’s still obviously a material supply chain kind of stuff that could happen and, and, you know, create a situation but development I mean, that that to me, is kind of the the original value add, starting from a piece of dirt to something that that you know, something that sell eventually or do you do you build whatever you’re developing to to keep buying all or you know, building hold, are you are you in your developments of is it more of a for for sale,

Anna Kelley 28:01

it is really more for a sale. But the great thing about multifamily development. And again, this is very regional specific, so I only invest in markets that have extremely strong resilient economies, with lots of new companies moving in lots of jobs, the things that are going to keep an area resilient, and where there’s really minimal supply for the demand of the population growth. So when you’re in that type of market, and you know that there is a lack of housing, that there’s going to be an extra three 510 1000 people within two or three years, then you can feel pretty good about what you can get for rents, how full you’ll be able to be. And so you know, we’re we’re building those for the upside. On the positive front, you know, we do hold a lot of reserves, and we have to because again, those those loans are a bit variable, and we don’t have income coming in to service that debt. You know, which which makes it a little bit tougher. But on the positive side, we really don’t have a lot of expenses either other than the building. And so if we raise enough money and have enough money to develop the project between our capital stack our equity, private equity lenders, you know, different kinds of, of lending programs that might give us credits and things of that nature, then we can pretty well bank on what our exits going to be. Now, with that said, a typical development project, we’re developing large apartment buildings, you know, 500 to 1600 unit complexes, they’re going to take two to three years to complete and fill. And so our exit is similar to a syndication about you I deal with three years. But if the economy doesn’t give us what we want, and this is what everybody doesn’t know the answer to is where is our economy really going? So we can tell that it’s on a downward trend, we’re probably likely in a recession or very close to and will be in 2013. But if the recession goes longer than the average of 10 months, and if the recovery lasts longer than the average of 18 months for recovery, rates were right close to that three year mark. And so the beauty of development is, you know, if you have the right economic fundamentals locally where that asset is really needed to provide housing and affordable housing for people, then if we had to at that point, we would refinance and keep the property and go into a Fannie or Freddie fixed rate product. Rather than sell it if the economy didn’t give us what we thought we would have yet. And upside. We can hold that asset for a few more years, and then sell it at the optimal time during an expansion period of the market cycle.

J Darrin Gross 30:35

Love the multiple exit strategies. That’s, that’s, that’s great. wants to touch her ask you about this. So that you mentioned kind of the normal duration of like the peak and the trough. I thought I heard you say 1018 months? It? Is there a time between the top and the bottom? That’s a normal cycle. I mean, that I was that seven, eight years was kind of the the, the timeline, but I don’t know that that’s necessarily the case.

Anna Kelley 31:10

Yeah, it’s really interesting. So I’ve studied this pretty extensively, going back to all the data that’s been available since about the 1930s. Multifamily data has come a long way, since about the 80s. So some of the data prior isn’t, isn’t great. But what I can say is that in a recession, in general, on average, since they’ve been tracking since the 1920s, the average recession lasts 10 months. Now, not every recession is average, right? So 2008, clearly lasted a lot longer. And the recovery period was much longer, the average recovery period after a recession is 18 months beyond that, before you start getting back into an expansion or growth cycle. And then the average peak to trough is actually five and a half years. So from, you know, recession to recession average is five and a half years. But if you look back in the last period, since the global financial crisis, the Great Recession in 2009, we had about a 12 to 13 year exit expansion period, so much longer than the averages. But the reason for that was extremely loose monetary policy, significant monetary supply into the system to encourage borrowing to encourage investment to encourage stimulating that economy. And that that stimulus, the volume of money supply into the system, as well as the extremely low interest rates allowed us to continue to move up, up up up up, the consequence of that is the the massive amount of debt. I mean, we have a quadrillion dollar debt derivative market. So if there’s any risk that I’m a little nervous about in the next year or two, especially if the Fed does continue to raise rates is more that we have a derivatives or a credit crisis, you know, related to this debt that we’re talking about. And if that happens, and it happens, not only in the US, but globally, our recession could last much longer than 10 months. Again, it could be a deeper recession, and it could take a lot longer than 18 months to recover from. But if we don’t have a crisis, and the Fed is able to kind of engineer this miraculous soft landing, if you will, or recession may not be as deep or as long this time. And so what I’ve learned is averages help us kind of have an idea of what to look for, what direction are we heading, are we heading in a positive expansionary direction or a negative contractionary era. But then we have to look at what are all the other kind of pins that can pop the external factors that could make something much more quickly go into recession be much deeper and be much longer. And it’s infinitely more complex today than it was in 2009 2009 was infinitely more complex than I ever realized. Until then, because I didn’t understand that the entire financial system was so intertwined with credit default swaps, essentially insurance on the value of of all the other companies they were investing in. And now we’re substantially more complicated than we were there with with global trade. Globalism over this last decade has really expanded the supply chain issues, potential escalation of war with Russia and Ukraine. So those things, the health of our global alliances over overseas, all of those things can impact our economy and the health of our currency, our interest rates and ultimately our asset values in a way that we’ve never had to really think about before. And so I think there’s more risk and more things that could tip us into deeper and faster recessions in the near future than what we’ve experienced in the recent past.

J Darrin Gross 34:56

Ya know, that that you know, Free Money has a price. And it’s not always recognizable at the front end. But, you know, in insurance, I mean, this is a, a, just the thing I’m dealing with with my clients. And that is just how reinsurance has been so affected by a lot of the global stuff and, and or the the, whatever global warming or whatever, however you want to phrase it, the insurance companies are a big believer in. But the, but what I’m seeing is like, they’re setting the price, which is increasing the price to the insurance companies, which increases the price to the retail buyers. But I’m seeing now that just yesterday, I had one where the buyer, we had had a claim a couple of years ago and had to raise, the price went way up. And last year, the deductible went way up. And this year, he took even a larger, you know, to x of a large deductible. So I went from my, you know, $25,000 deductible to a $50,000 deductible, and just his kind of ability to try and reconcile that. And I guess my question is, is, you know, when, when we go through this kind of adjustment phase is 1018 months, or however long it takes for buyers and sellers to recalibrate as to what is the market, you know, as prices keep going up. There’s not likely that prices are going to come back down. I mean, that’s kind of the hope. But I think that after a point, if everybody’s been paying the price, and that’s the cost of whatever it is you’re used to buying, it’s done all of a sudden, there’s not. There’s not like an endless supply and no demand, because the market is proved out there is demand and the price to support it. So, you know, I’m kind of curious, in your thoughts on that, as far as is that part of the trough? Is that? Or are we in kind of a new territory be based on the the increase the inflationary element? You know, because I think normally when we when we think about like the cycles, I don’t know how much inflation is built into the those cycles, whereas this inflation element, does it create a new element to to? You know, I guess, take stock in or to ponder? Sure.

Anna Kelley 37:26

Yeah, it’s interesting, because typically, when you’re nearing a top at the peak, there generally starts to be either a slowing of GDP, or an increase in inflation, that kind of tips you over from peak to heading down into the trough. We haven’t seen inflation like this, really, in my lifetime. I was born in 1974. And as you know, Volcker was you know, aggressively trying to kill inflation through most of the 1970s. And so this time, and again, the complexity of our economy is so much different than what it was 40 plus years ago, that it’s really hard to to say, what’s the norm and what’s going to happen, we really haven’t had this particular type of thing that’s pushing us over the edge. I mean, some of it was clearly pandemic spending, pandemic stimulus, pandemic supply chain issues. And so when you look at inflation, there’s really four key components that the Fed looks at, and the National Bureau of Economic Research that dates recessions, they look at core goods, in a core Energy for Food and core services, and poor energy and core food went up significantly when Russia invaded Ukraine, because they’re a major exporter of energy, of fertilizer, and quite a few crops as well. And so you know, that is a piece of the inflation that over time, we’ve seen start to come down a little bit. So food was very inflated, it’s coming down a little bit. Energy prices were, you know, really massively impacted by the war between Russia and Ukraine as well. And so when you have elevated energy costs and and or elevated oil costs, that means that transporting everything is more expensive. And so goods and food are gonna go up just by nature of energy going up. But then you add the COVID, supply chain issues, and there were back logs of goods and supplies for a very long time. And when there’s a lack of supply and a huge demand that creates this massive inflation. So the good news for us is all three of those have come down quite substantially. The piece that stickier that I’m a little bit concerned with is the core services and that is things you know, that we use as day to day services, it’s eating out its restaurants, it’s doctor’s visits, it’s all kinds of things. And so essentially, those core services have a lack of skilled workers and lack of workers for the number of jobs available, which is really caused wages to go up. So wage inflation is primarily related to core services. And so that’s why the Fed is trying to now really create enough pressure and make the costs of doing business, the cost of servicing debt, the cost of borrowing higher, so that companies have no choice but to start lowering wages, and reducing, you know, demand for jobs. So they’re trying to do that to bring inflation down. And if they bring inflation down successfully, without going into a deep recession, this next cycle may not be nearly as long or as bad. The thing that I worry about a little bit, and this is again, where we really don’t have precedents is that if the war escalates, you know, Russia’s invasion of Ukraine, the US and Germany are now sending in tanks and, you know, Russia saying, this is an act of aggression, et cetera, if this gets worse than energy prices, and food prices could come back up again. And regardless of what the Fed does, what they can really control is employment and wages and the amount of our debt, but they can’t really control prices of energy and food. And so we could have an escalation of inflation again, which could keep us you know, with the Fed having to continue to keep rates up to control what they can and be in a longer period of some type of recessionary decline. And then the last thing I’ll say is that a lot of this code, both COVID, and the war with Russia and Ukraine, is causing countries to really relook at how and where they distribute really items of national security, food, semiconductors, energy. And so I think there’s this D globalization and shift to let’s bring things back on shore, that is going to have a cost to it, that could keep inflation higher for much longer than what we anticipate. And so you could have an environment, this is what I actually think we’re going to have. That’s not really in a clear place in the cycle. It’s not really a deep recession, because there’s still some growth and there’s still inflation, it’s not really a peak, like inflation. In a healthy economy. It’s more akin to stagflation, where you have this declining growth, a stagnating growth, at the same time that you have elevated inflation. And if that happens, it’s really tough for us as investors to gauge where is it going to go and for how long? How long is it going to be, you know, negative, but I tend to think that we really can’t look at history and say, based on this, this recession is going to last this long, we’ll be out of it, this quickly, rates will go back to this cap rates will be you know, here or there, because there’s so many factors that are converging at the same time to make today’s market much more inflationary. And ultimately, the only way the Fed can do that can kill it is to create stress and deflation and decelerating growth or recession for a longer period of time.

J Darrin Gross 43:05

No, you clearly made the case for studying more than just the real estate market. I mean, there’s, there’s a lot to pay attention to a lot a lot of balls up in the air. And, you know, the hope is that they stay in the air, you know, and that there’s not a a somebody dropped the ball and, or crash kind of thing. And, and we keep this thing going. But

Anna Kelley 43:32

I think the thing, you know, the other key takeaway is that since we don’t know where these things are going, you really should be looking at your investments for more of a longer term strategy, you know, the days of value add, sell it in a year and a half or two years, because the economy’s booming, those days are over for now, you know, you’ve got to be really a resilient and very strong operator. Because if you can’t control the things that impact interest rates, which do impact cap rates and values, you’ve got to get really good at increasing noi on your assets. And you’ve got to have great debt that you know, you can basically know where your debt payments are going to be, and the reserves and the wherewithal to hold properties longer. So that if we don’t bounce back in two years, like we you know, have in the past, that you are very resilient and that you can hold these assets and wait several more years to have that kind of growth that we saw before to really boost asset values. So you know, there has to be a little bit of a shift from value add as the norm to more value add with the longer hold period, generate cash flow while you’re holding it and have have much more stable assets with stable debt until we can kind of see when we’re close to being on the other side of of this pain.

J Darrin Gross 44:53

No, no good. Good stuff there. Hey, Ana, if we could like to shift gears here for a second. By day, I’m an insurance broker. And as such, I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. And that’s not an option, we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize, then we look to see if we could transfer. And that’s what an insurance policy is. And as such, I like to ask my guests if they can look at their own situation. Could be clients, investors, the economy and political? How are we you would frame your situation and and what you would consider to be the biggest risk? And again, for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you Anna Kelley, what is the Biggest Risk?

Anna Kelley 46:00

I think the biggest Risk right now is not knowing how high inflation might get for how long and how that might impact both the interest rates over the next decade and cap rates over the next decade. And so with that risk comes a few things that we really have to look at. One, as we talked about is what kind of debt are you putting on your properties? So the question is, when you when you’re trying to create value for a commercial asset, you’re really focused on noi, and you’re focused on on the cap rate. And so these things that that we can’t control are these factors that impact interest rate and cap rate? And so we have to look at what can we control? What risks can we control? Since we can’t transfer that risk? It’s going to be what it is, what can we do to mitigate some of that risk, one of the things is investing in really strong, resilient markets, right? If you’re investing in a class C property and a Class C town with not a whole lot of good jobs, industry, diversity and not population growth, you know, more demand than there is supply, you’re going to really struggle. So if you want to mitigate risk, you need to be in areas that still need way more product than what there is demand for towns that have lots and lots of jobs so that if some businesses or industries get really hit hard, they’re still resilient, and there’s elevated wages and affordable, affordable living in those areas. So the market in which you invest is critical. And then the other thing is, you need to be able to control your expenses, what other expenses can you cut, or make sure that they’re fixed for some period of time, so that they’re not an additional variable that could impact your noi, and bring your value down as a nature of that? And so, you know, an insurance answer is basically, where do you invest? So I’ll give an example. I’m from Texas, and I’m from from Houston, and Houston has had a significant flood risk over the last couple of years because of hurricanes in certain areas of the city. Now, it’s a 10,000 square mile major metro. So Houston is extremely large. And there’s pockets that do not have flooding, and that are much less risky. Well, I want to buy assets there, because if I buy in an area that has had some flooding, I wouldn’t be surprised if my insurance goes up another 30 or 40%, like it has over the last couple of years. So you’ve got to get really good at where are my expenses? And where can I invest and what assets are going to give me the best outcomes, given all of the uncertainty to increase my noi to bank on where I can increase my noi by increasing income and cutting expenses. While I can’t mitigate, you know, the interest rates and the cap rates that we ultimately have.

J Darrin Gross 48:56

Yeah, now that that is very, very wise, of you to, you know, consider the flood zone of seeing the flood maps get redrawn multiple couple times here lately. And it’s usually a surprise to anybody that’s trying to refinance or are a

Anna Kelley 49:14

huge difference in asset values, especially in commercial real estate. So it doesn’t impact single family as much. But if you’re looking at something commercial, and your expenses go up, you know, 10%, it’s it’s hard to make that up, you know, unless again, you’re in an area where you can kind of name the rents or you can continue to increase rents to keep up with the increase in expenses. And that’s where location of your investments is extremely critical.

J Darrin Gross 49:38

Yeah, absolutely. Jana, where can listeners go if they’d like to learn more or connect with you?

Anna Kelley 49:45

Great, so you can find me on social media at Anna Kelly Rei Mom on Facebook, LinkedIn and Instagram. And if you are an accredited investor looking for multifamily opportunities in this market, where we also make a meaningful impact on the lives of our communities. You can find me on my website there at GreaterPurposeCapital.com.

J Darrin Gross 50:03

Awesome. Aana Kelly. I cannot say thanks enough for taking the time to talk today. I have enjoyed it immensely. I’ve learned a lot, and I look forward to doing it again soon.

Anna Kelley 50:16

Thank you so much for having me.

J Darrin Gross 50:18

Announcer 50:38

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How Real Estate Investors Can Leverage Virtual Assistants with Greg Brooks – CRE PN #405

Greg Brooks 0:00

Whether you need scale within your you know your accounting department your AP your AR your your your vendor management we handle a lot of work like that we do you know customer service work especially within our property managers right running their their maintenance lines, leasing inquiries, you know 24/7 Call coverage we do a lot within the customer service realm and then obviously the sales side as well and I think especially within our investment, real estate investor side of our business specifically commercial a lot of our clients leverage our virtual talent for for the sales side, someone who can kind of work that pipeline and help them raise a fund or have consistent communication with potential investors as well as the underwriting component of that.

Announcer 0:44

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you are an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:04

Welcome to commercial real estate pro networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today’s program is sponsored by Building Insurance and Risk. When you invest in real estate. It pays to work with a real estate investor protection specialists to protect yourself and your investment from catastrophic loss. The experts at building insurance and risk focus on real estate investor protection. They provide you with multiple insurance coverage offers and a side by side coverage comparison. To learn more, go to Building Insurance Risk.com.

Today, my guest is Greg Brooks. Greg is a partner in Rocket Station and oversees everything, business development, and marketing. Greg is the National Director of Business Development at rocket station, an outsourcing company that helps real estate businesses hire experienced virtual assistants. And in just a minute, we’re going to speak with Greg about improving your process with virtual assistants.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment. We’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe without a warm welcome my guest, Greg Brooks, welcome to CRE PN Radio.

Greg Brooks 2:58

Yeah, thanks so much for having us, Darrin, looking looking forward to the conversation.

J Darrin Gross 3:02

Likewise, before we get into it, if you could take just a minute and share with the listeners a little bit about your background.

Greg Brooks 3:10

Yeah, no, definitely. So we were very entrepreneurial entrepreneurial company. That’s kind of been my background, I was your kind of typical college graduate graduate with my MBA, and did the seven jobs in nine years trying to figure out what I wanted to do personally. So I’ve done everything from kind of I’ve owned, I’ve owned a couple of restaurants, I worked in the military resale channel, invested in real estate myself, and eventually landed here with my partners at at rocket station. So we’re the number one virtual staffing company to the real estate industry specifically. So we specialize in everything from commercial as well as residential property management, the brokerage side of the business all the way through to the investing side of it, and we’ve got just over 2200 team members overseas in the Philippines that work right alongside our our real estate clients every day.

J Darrin Gross 3:59

Awesome. Well, let’s let’s get into this. I’ve had some experience with virtual assistants, and I’m sure anybody listening to this has been touched or, you know, called or contacted or had some sort of a, an interaction that was created by or, or, you know, started by or somehow affected by a virtual assistant. What are some of the reasons why someone would would look to engage a virtual assistant?

Greg Brooks 4:37

Yeah, I mean, I think definitely the main reason a lot of people look initially into the virtual assistant space is the price point, right? You can kind of leverage the fact that you know, especially if you’re here in North America, you know, the dollar goes a lot further. And there’s very talented well educated skilled professionals all over the world that you know, you can have them work for you in this new digital working world that we all live in for a fraction of the cost of what it would, you know, potentially cost you to have them hire somebody, you know, in your local market or, or here stateside. So I think that’s the initial reason somebody’s looking for it, I think especially in the investing space, especially on the commercial space, right, you do have, you know, large enterprise level companies, which they’re looking to kind of subsidize their their workforces, and there’s always so much work to be done. And finding scalable, affordable talent is tough in any market, you know, across the US or Canada. Or if you’re, you know, the kind of side hustle investor, right, where maybe you’re doing your first syndication deal or raising your first round of funds. I mean, there’s so much that goes into that as well. And finding that really good virtual assistant that can really help you while maybe you’re working your nine to five job or while you’re trying to wear you know, the 50 different hats that you have to wear. I think a lot of people realize through through, especially through COVID, where we all kind of were virtual assistants in some capacity at one time or another that we do a lot of work a lot of commerce these days, especially in the real estate space, on our phone, on our computers, you know, on our different digital marketing channels. And you don’t necessarily have to be sitting in a traditional office to be able to do that. So, you know, through services like ours, we help our clients find real estate, specifically trained virtual talent that’s been evaluated, so that they can, you know, they can leverage it, whether they’re looking to hire at scale, you know, hundreds of team members, or they’re looking to make that first part time hire, you know, to help them raise their first fund for a syndication deal. We kind of help cater the talent, the skill sets of the VA to match where they are within their business journey.

J Darrin Gross 6:39

So what are some of the keys to having a successful experience with a VA,

Greg Brooks 6:47

For what we find and kind of how we’ve structured what we do, it all comes down to process, right, we’ve all been employees, I’m sure lots of us have hired people, what we find is the success between a successful hire or the difference between a successful hire and a not successful hire, sometimes it comes down to it being the wrong person, sometimes it’s not the right time or not the right fit, but what we find so often is it comes down to the clarity within the process within the role within the scope of work, you want that person to plug into, you know, especially just at the price point of VAS A lot of people think that VA is kind of a magic button, candidly, a lot of companies in this space, we’d been guilty of it kind of sell VA services as this, you know, the that was Easy button right from those old staples commercials. And it’s not, it’s a person, you need to give them clarity, you need to outline what you want them to do, you need to set realistic expectations. And as the business owner, you need to have at least a basic grasp on how to do it yourself so that you can train and onboard and hold this person accountable. So what we find is like the the implementation, the thoughtfulness within the process, within the clarity of what they’re going to do, is usually where you know, a lot of people struggle. And I think that’s true of hiring people in general, whether you’re hiring them into an office, or you’re hiring somebody, even maybe they’re virtual, but they’re in the same city as you, like it’s giving that clarity to the person so that they know what you want them to do how you want them to do it, that’s always the toughest part. Because for most entrepreneurs looking to hire, they don’t exactly have, you know, a lot of free time to sit there and plan and map and document, right, there’s usually a lot going on, that’s why you’re hiring in the first place.

J Darrin Gross 8:26

Yeah, I’m kind of chuckling inside because I think so many times the small business owner is somebody that was successful, somewhere else, and decided to go out on their own, and they know how to do it, but maybe not necessarily communicated to others. And so when they hire bring on people they don’t, the others don’t necessarily have the same level of success. And there’s this disconnect is I don’t know why that guy can’t, you know, that person can’t figure it out, it works, you know, this works great for me, kind of thing and that that communication, you know, the breaking it down as to what we do here and how we do it and why we do it is so key there. What are can you describe kind of a scope of of services or the skill set that you know, a va might be a good fit for?

Greg Brooks 9:21

Yeah, definitely. And I’ll give kind of two examples here. I mean, there’s talent all over the world, every corner that can do probably anything that you need done in your business, right, whether that’s you need graphic design, whether you need a great salesperson to go you know, reach out to potential investors and raise a new fund, whether you need someone with more technical abilities to you know, manage your data or maybe do some underwriting for you. When the term VA so often kind of gets discounted where people you say virtual assistant and they think of like, oh, you can, you know, order my groceries for me online and answer some emails and it’s like it kind of it kind of goes to the traditional like admin assistant, the The scope of virtual assistants that we deal with and we place with our clients, they truly are virtual professionals, our company, I mean, it’s very intentional. So if you’re watching on YouTube, it’s rocket station virtual staffing behind me because it’s, it’s an individual that has a specific skill set that truly is a professional and that when leverage correctly when screen correctly, when trained correctly, can do anything within your business that you need them to do what where we specifically play, we do a lot on the business operations, sales, marketing and accounting standpoint. So like whether you need scale within your you know, your accounting department and your AP, your AR, your your, your vendor management, we handle a lot of work like that. We do, you know, customer service work, especially within our property managers, right running their, their maintenance lines, leasing inquiries, you know, 24/7 call coverage, we do a lot within the customer service realm, and then obviously, the sales side, as well. And I think especially within our investment, real estate investor side of our business, specifically commercial a lot of our clients leverage our virtual talent for for the sales side, someone who can kind of work that pipeline and help them raise a fund or have consistent communication with potential investors, as well as the underwriting component of that.

J Darrin Gross 11:19

And do you find? Or is the herd the VAs you have? Are they traditionally, are they are they mostly doing inbound calls? Or is it somebody? Are they making outbound calls? Or is it more of like emails, you know, accounting, underwriting kind of things like you were describing?

Greg Brooks 11:40

Yeah, so we like say we cover all those bases. So we were very particular, we have a very rigorous onboarding for the VAs. And then we also have a very customizable experience that we give the client to really get a deep understanding, right, we talked about process, we like to really reiterate that we’re a process driven company, meaning we work with all of our clients to kind of flush out what is this role? Exactly? Is this inbound sales, outbound sales? Is this accounting? Is this a data management CRM specialist? Is this someone who you need help with the underwriting? Is it a marketing position, we help really take that deep dive with the client. And like you said, for that entrepreneur that used to be an employee, and is now doing it themselves and wearing 60 hats, a lot of them, it’s just, you know, you’re spinning in circles, you know, you’re, I gotta get this done, put this fire out, get over here. So we help them really, you know, slow down and understand, like, hey, if I could get five things off my plate, whether it’s because I run out of time to do it in my day, whether it’s because these are things that are pivotal to my business succeeding, or maybe it’s just things that I’m not good at, but I know needs to be done, we help our clients really unpack what those things are. And then custom match the talent based based around what the you know, the experience, you know, communication skills, salesmanship, like what that individual role is going to require for the for the eventual virtual assistant that

J Darrin Gross 12:54

they hire. And so tell me a little bit about kind of like a typical experience for somebody that’s that’s working with a VA. Does it start out like as a project as a start out kind of part time? Do they start out with a with a specific thing they’re trying to solve for?

Greg Brooks 13:18

Yeah, no, great question. So within within rocket station, we are fully dedicated, dedicated integrated virtual staffing. So that means our perfect client experience is we want your virtual assistant to look at and feel like they work for your company. So it’s strictly one on one there’s no like call center there’s no manager that relays what you need done to a to a group of people or one person, it’s all one on one our clients have a hand in interviewing and selecting the candidate they want from our pre screened pool. So we offer part time and full time we stay away from project based we find like a lot of the project based stuff we’re Our specialty is really helping our clients grow their businesses really create scalability really helped themselves remove themselves if they are a one or two person team remove themselves from a lot of the day to day and hire really talented individuals that can be a pivotal anchor within within their business. But but all all of those options exist. You know what we find is the difference between the people that are successful and not successful. It really does come down to that process piece of it right anytime you’re hiring but specifically when you’re outsourcing you know when your office is zoom when you’re communicating with a stranger that you can’t sit down in a room with and show them everything you know, whether it is a project based project whether you need some a team of people full time really being able to dive into that process and clearly scope out what you need done the expectations the KPIs around the role is really kind of what you know, what is the most important thing for anybody looking to hire virtually.

J Darrin Gross 14:48

So what are some limitations that you know having a VA present his or his or a list or anything you recognize right Up the top that a VA might present us this limitation.

Greg Brooks 15:04

So what I would say once again, speaking to kind of the entrepreneurial, you know, real estate investor, commercial real estate investor. I think so often, our clients see great results with their virtual teams, right? They maybe they hire them to just do some outbound sales or to do some underwriting work, some due diligence, some market research, and they start to try to hand off things too quickly, and try to have almost their virtual assistant run their business for them, you know what I mean? So I think what we try to get our clients to, and really the pathway we try to create for them is anything in your business that involves strategy, anything in your business that that involves final decision making, that should stay with you or should stay with local hires or executive suites, depending on how big your team is, where VAs can be right out of the gate, your first VA hire, you want it to be as impactful as possible, is really with like the day to day operational type work, right we and like I said, it kind of comes back to how VAs are kind of sold by some of the companies out there, it’s like it’s not a magic button, right? It’s somebody where there’s going to be a learning curve, they’re going to need communication, they’re going to need clarity in their role. So we find where entrepreneurs can really leverage VAs is, you know, on the operational type work. And keeping in mind, we have lots of clients that have had their VAs for four or five, six years. So those VAs roles have changed. We have clients who their VAs that were original hires with us are now managers within their teams. So there can always be that progression. But right out of the gate, you know, looking at that, we call them the $25. And under Tasks, right, the things that need to happen in the business. But you know that if you were to try to hire locally, you pay someone 25 bucks or less to do it. That’s the stuff where bas can come in and be very impactful. Right off the jump.

J Darrin Gross 16:56

No, that’s, that’s great. What about hours? You know, you mentioned the Philippines, I don’t know exactly what timezone that is, but I’m quite certain it’s not Central Time. Do they work your hours? Or do they? Or? Or is it a matter of what their task is to where they can? If they can do it on their time? Or were? How does that work?

Greg Brooks 17:24

Yeah, so we structure it to really mirror the in office experience. So to give you some background on the Philippines, and for the for the listeners that maybe aren’t that familiar, number one, the most beautiful beaches in the world highly recommend if anybody wants to do an overseas vacation, get to the Philippines. But they’re known as the nocturnal nation. So the virtual assistant experience that we’re talking about here, it’s called it’s part of a bigger industry called the business process outsourcing industry. So JP Morgan, American Express has 175,000 employees in Metro Manila, what we’re tapping into are the same resources that financial institutions that the fortune 1000 have leveraged, you know, for 2530 plus years, really, since the internet came online, it’s just now it’s more accessible, because the infrastructure over there is a lot stronger, because now we have platforms like zoom, and slack and CRMs that can be accessed through the cloud. So what how we structure most of our clients, the virtual, and a lot of the working economy in the Philippines have worked, you know, the business professionals, people with college degrees, people who manage teams, they work, you know, what’s known as the graveyard shift in the US, because they work mostly with Western clients, whether that be Europe, or, or North America. So it’s kind of a work in culture that’s flipped on their head. Part of our value prop is is we truly are kind of where we’ve truly are virtual meaning, if you think LA traffic is bad, or you’ve been through New York traffic traffic in Manila, you know, a country that’s a little bit smaller than the state of Florida, that has 160 million people in it. You know, you’re talking about working the overnight shift, and if traffic’s bad, you can be on the road for six to eight hours, roundtrip. So a big part of what we what we do is we you know, we put people into their home offices, you know, it allows them a lot more leverage their days flip, but they’re doing breakfast with the kids, getting them to school, you know, grab grabbing some sleep, doing the after school thing with kids and family, and then clocking in clocking in for work. You know, a lot of people you know, some people have questions about that for I’ll tell you just from working with, say, 1000 1000s of team members in the Philippines, it’s very normal for them. But but you do always have that flexibility depending on what you’re hiring. Like I said, we structure it because a lot of what we do is day to day operational stuff. But we do have some clients that you know, the virtual team members handle the overnight shift here in the US. So that’s a daytime shift in the Philippines. So we give that flexibility and I think for anybody out there hiring, if you’re interviewing if you’re putting job postings on Freelancer websites, make sure you are clear with with Setting, hey, this is going to be on a per project basis, I need to have very specific completion dates, or be just upfront saying, hey, I need you to cover 9am to 5pm, Central Standard Time, are you good with working? The overnight shift? It just one of those things you have to be aware of when you’re stepping into the virtual world? Because we’re not all on the, you know, the five time zones that touch the us

J Darrin Gross 20:22

know? So, this is a curiosity. I haven’t in my personal experience, asked her so are not not to this not like a sexist type of question, but I’m just kind of curious. Do you find it? Is there a is there a better performance as far as like, lead generation outbound calls? Male Voice versus a female voice? Is there any psychology there? Or Or have you found any any results that that, you know, say this or that?

Greg Brooks 21:05

No, I mean, it’s, it’s a great question. It’s something that we study very intensely. So our workforce is, it’s about 48%, male, 52% female, so we’re pretty much split right down the middle. I like to look at it on a on a per case basis, right, there’s a great, there’s great salespeople that are male, there’s great salespeople that are female, what I will say is where we see the patterns, in terms of the literally millions of hours of call data that we analyze, is specifically on the inbound and customer service side. You know, not to say a male can’t be successful in those roles. But we do find that when it comes to de escalations of calls, when it comes to NPS scoring around calls, female, you know, call agents do tend to score a tad bit higher on average than than their male counterparts. What I will say is, from the sales perspective, I’m just a big believer that that all does come down to the individual themselves, I think it doesn’t matter if you sit in Portland, OR Dallas, or Manila, or Mexico City, being a salesperson, and, and having a salesman ship about you is a very personalized skill. But as on the customer service side, we do see, you know, results a little bit favoring females, right, whether that’s on, you know, just from an experience standpoint, or whether that’s from the call, you know, what the caller wants to talk to kind of that more I don’t know, nourishing, I guess voice if you will, the customer service side, we do see a little bit more success with female female voices on the phone.

J Darrin Gross 22:34

And I, again, personal experience, I just know, I used to be a little while back and, and I remember, there were some candidates that I was having a conversation with, and, and again, it was maybe just the individuals the way they presented themselves, but I just remember, there was like a, you know, I was only listening to the call, but there was just a, in maybe it was just kind of an add on nurturing, or just like he was an add ease, kind of a thing as opposed to a somebody who’s trying to make a sale kind of thing as opposed to somebody who’s you know, engaging and, and we did really well with it, it was as an outbound lead generation kind of thing. And, you know, he worked out worked out really well. And I think the, the thing that I recognized is that when I engage in those lead generation activities myself, by the time that I actually get a viable prospect, I can be exhausted because I’ve been working through all these other activities trying to get to this one. Whereas when the, you know, the only one I’ve got to talk to is somebody who’s wanting to talk to me, it was like a whole different my energy was, you know, considerably different. I was excited to talk with them. And they were complimentary of the process and the person that set up the call and, and all that and it just it was it was literally it was just a kind of a great experience. And I’d love to have another project similar to what I was dealing with it that you know, was reasonable, we had one but I was I was impressed just in again the morning it was about offloading those, you know, that grind, if you will, you know, trying to do the outbound calls and and just have one teed up ready to go kind of thing was good.

Greg Brooks 24:26

Yeah. And that’s the type of stuff that VAs are incredible to be leveraged in within your business. You know what I mean? Like, just sales in general, right? The reason sales burns people out right, the average salesperson last last less than nine months at at a new job. I mean, it’s a grind, you got to keep the pipeline full. It’s a lot of nose, it’s a lot of phones put down and you as the business owner, who also has to number one, find time to make those calls and do that follow up and be consistent with it. But then you’ve also got to operate the rest of the business, right? It can just wear you down so that like those types of things to get that off of your plate if you don’t have enjoy I may not add in it, or it’s like, Hey, I just need someone that can consistently do this, because I can’t allocate 510 20 hours a week to it. I mean, those are the things that kind of the virtual assistant space is just really great at in terms of maximizing your time getting someone who is great at the cold calls and the outbound and can be consistent with it. So at the end of the day, you know, it all starts to kind of the ball starts to roll downhill for you, right, where now you’re starting to really see the results of that effort. And if that work,

J Darrin Gross 25:27

that’s great. You referenced $25 and under, is there a, like a cost comparison, or like a sense of what it might cost? If he were to compare, you know, domestic labor to the VA? The same task? Kind of thing? Is there a way in your, your approach to prospective clients? Is there some sort of a range or a number that you would expect it to be compared to a domestic employee? Or is it market specific? Or?

Greg Brooks 26:02

Yeah, so So to the US, the just the cost of living, and this just this goes in general to the Philippines is about 1/5, to one, six, the average. So for example, you know, a typical, you know, a $15 an hour employee that you’d hire here locally, right, that’s a four or $5 an hour employee in the Philippines, and not just in terms of compensation, that’s also kind of the the living, you know, the kind of, you know, lower middle class, middle class, upper middle class breakdown, that that’s just consistent with the with the value and cost of living in the Philippines. Right. So that’s, that’s one of the most probably rewarding things there. And that I see every single day within within our workforces, and our teams, is our pricing is it’s $10 an hour for a full time, you know, 40 hour a week virtual assistant. And I mean, from that, you know, there’s there’s a little bit of management fee that’s built in there, but from what the VA is making, you know, they’re living upper middle class lives are putting away for their kids, they’re building their first houses buying their first property, kind of everything, right that the American dream and the real estate industry has built around. Like, we’re able to provide that to our, to our virtual assistants, and we look at it as a as a triple win, right, we’re able to continue to grow rocket stations presence recruit more better individuals to service our clients, the client wins, because they have someone that for minimum wage, is doing the caliber of work of a 5060 $70,000 a year type employee. And then obviously, the VA wins right there, they’re able to provide for their family and have a stable income. And, you know, typically, with our client relationship where most of our clients have, you know, anywhere from seven to 10 Vas, they’re working in small teams, right, they’re actually talking to their boss, they’re not at American Express where, you know, their number, you know, 12,406 of 175,000, right, they’re actually working in a business and they’re having impact. And you see that passion come out in it. So like seeing those triple wins are, are really kind of what you know, I mean, that’s what gets me up every morning, and it has really allowed our company to kind of grow and flourish over the last few years.

J Darrin Gross 28:05

Now, that’s cool, the kind of more of the long term sense of things. And, you know, it’s funny, I know, obviously, Verizon, cell phone service, remember making a call, and it was very clear that there was a VA and, and great service and stuff, but I was like, you know, here’s, you know, like you said fortune 500 companies that are that are using this and and, you know, great, great skill said great customer service. And, and, you know, it’s it’s everywhere. I mean, it’s it’s again, it’s a it’s a matter of trying to contain your cost, and get the level of service that you’re trying to deliver to your clients. Makes complete sense.

Greg Brooks 28:51

Yeah. And I think just from a culture standpoint, within a company, we, I think everybody experiences this, whether you’re a solopreneur, or you work, you have an enterprise level company with 1000s of people, there’s always more to be done. Right? There’s just always more well, how can I how can I create a great customer experience? How can I create a great client experience a great investor experience, right? It takes time. So finding a way to balance like, Hey, we’re all running businesses that we want to make money in with, like paying enough people or having enough people to handle all of the work being done like that. I mean, that’s business. Right? That’s, that’s the toughest part. But what we really see from the feedback from a lot of our clients is like said, whether you are that one man or woman show or whether you’re, you know, managing the large teams is we’re able to get high level people out of doing C and D level work, like you talked about, you had great passion with actually talking to somebody that was interested in doing a deal, right, but it was the grind of doing the cold calls and trying to find that person that was wearing you out. Well, that’s the C and D level work so we can bring you someone in who’s technically more talented, who is very affordable for your business who can handle that work. So now you can focus or your teams can Focus on the A and B level work that you actually want them to do, right? The stuff that’s actually going to help the business grow or help you take on a new market or help you bring on another investment property. So that’s that’s kind of like the full cycle, what we love to see is like the virtual assistant space, the BPO space, when done correctly, it lets you invest your resources appropriately, where you can kind of have all of it right, you can have the great experience, you can have a workplace with a great culture, and you can have people slotted doing the work that you really want them to do, you know, not stuck behind a computer trying to get through their emails or catch up on calls or, you know, slog through a bunch of cold calls, right, we can actually get great people in the right seats so that everybody can level up over time.

J Darrin Gross 30:41

Now, I’m believer in it and have seen it work well. So I agree. Hey, Greg, if we could, I’d like to shift gears here for a second. By day, I’m an insurance broker. And as such, I work with my clients to assess risk, and determine what to do with the risk. And there’s three strategies we typically consider, we first look to see if there’s a way we can avoid the risk. And when that’s not an option, we look to see if there’s a way we can minimize the risk. And if we cannot avoid nor minimize the risk, then we look to see if we can transfer it. And that’s what an insurance policy is. It’s a risk transfer vehicle. And as such, I like to ask my guests, if they can look at their own situation, could be their clients, political, you know, interest rates, the market, whatever you identify, or you consider to be the biggest risk. It’s free for you to define. And again, for clarification, while I’m an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Greg Brooks, what is the Biggest Risk?

Greg Brooks 32:01

For me, I think it’s the pace of how quickly technology is changing how quickly global workforces is changing. And I think it’s a risk, especially in the real estate space, for those that are still trying to operate the same way they were in 1995, or two, even 2005, or even 2015. What we’ve seen a lot both on the technology side, obviously, US servicing on the staffing side, providing a virtual option. I mean, just like everything, the decisions that you have to make as a business operator are just accelerating, you have to make them faster, there’s a new software and new technology, a new tool, a new resource out there every second every trade show every corner. So having an effective way to vet those to find the ones that are going to work for your business and are going to fit, but then also getting people on boarded into them and changing existing policies and procedures and processes and weigh the ways that you operate to be more efficient, it takes a ton of human capital. So that’s something that I see I know, even just within our company, you know, in a short time becoming as big as we are, you know, that that that the evolution of technology and say a lot of the podcasts that I listened to AI is kind of the word of the here already, you know, 25 days into January. And I think that puts a lot. I mean, it puts a lot of risk on the owners in terms of making the right choices, finding the things that are going to last and actually take you to the next level and which of the things are kind of fly by night, you know, not not as good as as advertised. So I see ICT technology and then that globally expanding workforce, you know, really becoming something that especially in the real estate world, people need to be aware of and be talking about consistently, in order to make sure that you don’t get left behind because I guarantee your competitors. They’re making sure they’re not going to be left behind either.

J Darrin Gross 34:04

Oh boy, do I know that I’m talking to Mr. Slow ski. This as far as the adopter of these things, but you know, it’s it’s definitely a changing world. fast pace. That’s good. Hey, Greg, where can listeners go? If they would like to learn more connect with you?

Greg Brooks 34:23

Yeah, definitely. I encourage anybody to check, check out our website RocketStation.com If anybody say is looking for a VA wants to talk processes, best practices, looking to hire. So I’ve made my calendar available at Discovery.RocketStation.com We’d love to have a quick little 30 minute chat. See where you’re at see if it’s the right time to hire a virtual assistant. kind of understand what your needs are. So yeah, rocket station.com or book a call with us at Discovery dot rocket station dot com.

J Darrin Gross 34:55

Well alright. Well Greg Brooks, I can’t say thanks enough for taking the time to Talk today. I’ve enjoyed it. I learned a lot, and I look forward to doing it again soon.

Greg Brooks 35:06

Thanks so much Darrin, you have a good one. All right.

J Darrin Gross 35:09

For our listeners. If you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow. That’s all we’ve got this tweak till next time. Thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 35:28

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Cap Rate and Interest Rate Relation to Value with Edward Ring – CRE PN #404

Edward Ring 0:00

From call it 1980 Through through the early 2000s All apartment buildings were bought with negative leverage. Leverage was always the price of debt was always higher than than the cap rates are very frequently a higher than the cap rates. And people got used to figuring out how to how to buy real estate with that kind of debt environment if you had equity just buy with equity because why would you pay a lender you know you know, we get to the later part of the 90s and now all of a sudden you know, early 2000s Now we’re talking about leverage cost of debt that’s actually lower than your cap rate. So you walk into a project and the more debt you can put on it, the higher return your equity is going to get that’s how the math works. And so everybody got pretty excited about using that call it certain read about when I got into the business so read read around 2002 You know borrow it 4% Or four and a half percent and buy a property that has that’s thrown out for five and a half percent. And why yield that feels great.

Announcer 1:22

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you are an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross 1:42

Welcome to Commercial Real Estate Pro Networks CRE PN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio.

Today’s interview is sponsored by Building Insurance and Risk. When you invest in real estate it pays to work with a real estate investor protection specialist to to protect yourself and your investment from catastrophic loss. The experts at Building Insurance and Risk focus on real estate investor protection. They provide you with multiple insurance coverage offers and a side-by-side coverage comparison. To learn more, go to BuildingInsuranceRisk.com.

Today, my guest is Edward Ring. Edward founded New Standard Equities in 2010 and serves as its chief executive officer Edward has transacted over $2 billion of real estate over an illustrious 25 year career. And in just a minute, we’re going to speak with Edward about the relation between interest rates and cap rates.

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple things you can do to help us out. You can like share and subscribe. And as always, we encourage you to leave a comment we’d love to hear from our listeners. Also, if you want to see how handsome Our guests are, be sure to check out our YouTube channel. You can find us on YouTube at commercial real estate pro network. And while you’re there, please subscribe with Anna want to welcome my guest, Edward ring. Welcome to CRE PN Radio.

Edward Ring 3:37

Hi, thanks for having me. It’s a pleasure to spend morning with you.

J Darrin Gross 3:42

Well, I’m looking forward to our conversation. But before we get started, if you could share with listeners a little bit about your background.

Edward Ring 3:51

Sure, I I’ve been in the multifamily real estate space since 2002. I was working for another company for about eight years when the great recession hit and I decided to do what I was doing for them for my own book and my own investors and you know, I was full of hubris and ignorance and just enough to keep the blinders on and the things I didn’t know about and you know enough to give me the the courage to try to do this on my own. So it’s been about 13 years now and I’ve got currently about 2000 units in my portfolio. I I do strictly value add apartment investing, and I own and operate and manage the investments with a team of course, we’re about 60 stronger so on the employee side and I stick to the markets that I know I’m in as greater see Seattle, I’m in Northern California, I’m in Southern California, and I’ve been farming Denver for the better part of about four years. So eventually, we’ll be in Denver as well. I use equity from anywhere, anywhere from Mom and Pop type investors, to large institutional equity sources, and in all parts in between family offices and whatnot. And my debt, generally speaking comes from Freddie Mac, Fannie Mae debt funds, banks, kind of whoever’s giving us the best rate at the moment in time, all nonrecourse talking about risk, I don’t want to lose my house over this stuff. I am very, very cautious. Some of my peers are more cowboys, and I tend to be very slow and steady wins the race kind of kind of character.

J Darrin Gross 6:06

No, I appreciate you sharing that kind of your background there. So you’ve been doing this long enough to see the front end and the and the kind of the back end of a cycle. I feel like a lot of people I speak with are kind of all, you know, post, you know, the the crash where everything was, you know, so low that you you didn’t really have to know anything you’ve just got in at the right price, you could write it up and, and, you know, get out and make some money. Because if my math is correct, 2013 or, excuse me, 13 I guess you were 2010. So it was kind of postcrash. Is that kind of the when you got in as far as doing it doing it on your own?

Edward Ring 6:56

Yes, exactly. Um, as far as going on my own, there was a small recession in the early 2000s 2000 123 ish. And, of course, I saw what was going on in that. And interestingly, the folks I was working with back in the early 2000s had gone through the previous downturn and recession in the end the and the, the credit crisis of the early 90s. And that was fascinating, because everybody that I learned from and my mentors and whatnot, We’re all veterans from multiple cycles. And for sure, it’s a pretty interesting time right now, because I to meeting all sorts of people who jumped into this business in 2010, or 2011. And have never really experienced what it means to sign on the dotted line, and what it means to have, you know, your credit crisis or, you know, or fundamental changes in, in the macro economy where your values can get impacted. It’s, it all looks so easy from afar, but it’s far from easy.

J Darrin Gross 8:15

No, well said. So I’m kind of curious, you know, I, when, when I have these conversations, a lot of times, what I find is that there’s a viewpoint that what happened last time that caused the crash is, you know, and this is more like a pre crash conversation. And I’m not saying we’re having her, we haven’t crashed yet, but there’s certainly been a slowdown right now. But the the want is to look to the past, and identify what caused the, the the last crash and look for those signs on the horizon for the next crash. Clearly, the the, the 90s was a credit crash, you know, you said the mentors you learned from and, and if I remember, it was not like the savings and loan kind of debacle that that kind of came on, done with I don’t remember what the circumstances were. Yeah, that’s

Edward Ring 9:19

effectively Correct. was you know, back way back then you’re talking about a a system that didn’t have really didn’t have the internet. I mean, that’s how, that’s how long ago it was. And that really that that information flow changed everything. Obviously it changed and we hear about it all the time. But when you really think about commercial real estate and and what’s going on, you went from a system where it was a weird thing to invest in an apartment building, because who knows what’s going on and what you got to fix the toilets. I don’t get it. You know, there’s a lot of ways There’s stuff out there and people are like, Oh, no, you can make money by investing with, you know, this guy from Chicago. It’s like, Oh, my God, that sounds terrible. Well, then the internet comes around. And you know, the last, the last big recession? What 2008? We talked about that in a minute. But all of a sudden, you had asset managers at banks, who were, you know, all of my peers and mentors, and people who had been around were like, oh, no, no, the banks, they don’t want to own this stuff, the banks are just going to take it on the chin. And don’t worry, you’ll buy it pennies on the dollar. Well, not so much. In 2008, there was this thing called the internet. And there were things called cameras that you can plug in, you know, put on your computer desk and take a look at the asset. And even in 2008, we had that technology. And so now all of a sudden, you have banks that are now populated with highly educated people who aren’t necessarily afraid of, of this thing called an apartment building, they’re not necessarily afraid of what they don’t know and are willing and able to jump in with two feet. So whatever it was afraid, or whatever was excited about in 2008, and nine was out, we’re gonna, we’re gonna go and make a ton of money, because banks are going to take it on the chin. And now that didn’t happen too much a little bit. Some, some borrowers and some owners really got over their skis and bought in markets that they didn’t understand or whatever. And sure, there were some losses. But cut to today. And the most fascinating conversation I had, I think was really at the front end of this thing back in, in June. And again, we don’t know where we’re all heading. I have some, I have a hunch. But back in June, I had a extremely sophisticated, very, very intelligent investor, institutional investor manages billions of dollars. And he’s literally one of the smartest people I’ve ever met. And he said to me, he pulled out of a project that we were trying to buy. And he said, Eddie, I know where this is all heading. I remember 2008 I know where this is all going. Like, really? You’re the most sophisticated guy I know. How do you know where this is heading? And he said, Yes, this total straight face and I said, Listen, I can tell you one thing for sure. One thing for sure is, it’s not going to happen the way it happened in 2008. That’s the only thing I know. In fact, nobody knows anything about anything except for no things happen in the exact same way each and every time. If they did, that’s called a crystal ball. And he would everybody would make money, I guess, or everybody would lose money. And, you know, think of a world where everything happens the exact same way every single time, first of all, but pretty boring. Second of all, that’s not the way human beings are. So now the question is, well, what’s going to happen in this next go around, and that’s where I’ve been mulling a lot recently, and kind of think through the various factors and, and, and prepare for a downturn prepare for the worst. But however, this is not 2008 2009 that was the scariest time I’ve ever seen in my life, not just as an investor, but as a sophisticated person who reads the reads the news and watches what’s going on and understands what’s happening with with credit markets, that was a really, really scary time, we were very much on the brink of an entire financial system collapse. And so if you think about that, and he cut to today, we have some inflation, we have a group in Washington dialing up the interest rates, we don’t have anything remotely close to what it looked like in 2008. And in fact, we’ve got full employment we’ve got lack of employment, we don’t have enough people to fill the jobs that we have out there. So you know, I the assure a bunch of layoffs in the tech industry right now and you know, you open up the newspaper here about somebody else laying people off but that’s actually normal. It’s a normal course of business. That doesn’t necessarily mean that we’re facing a ginormous credit crisis and everybody should run for the hills.

J Darrin Gross 14:38

No, I appreciate you kind of going through that and I’m you know, a believer like you say that whatever happened last time was now not what is going to happen this time you’re you know, that’s too easy. In a lot of it is because the the holes get fixed or like in the instance where you’re talking about the 90s where it was pre internet and now we have the internet You know that that’s a whole lot of information coming in everybody that’s available 24/7 365 as opposed to some sort of a local on the on the street kind of knowledge that, you know, may not be available to everybody. So let’s talk a little bit about, you know, kind of the, where we are now. And then, if we, you know, however it works best talk about, you know, that that that relationship between interest rates in and cap rates, because I think one of the things that, that, you know, people, historically, the interest rates read today, the mark would be doing cartwheels on the broad, kind of the broad spectrum of time. But having come from such a low interest rate environment, it’s a shock to the system. Right now, in my sense, and I guess my question to you is, do you think that the market will accept this and continue forward? Or will there be a complete stoppage? You know, and, and the recession, and then the need for the low interest rates to get the market going again?

Edward Ring 16:23

Yeah, it’s a great question. And I think that when I really like look at the landscape, and and I think about where we’ve been, and where we’re heading, first of all, there’s a couple of factors. From call it 1980, through through the early 2000s. All apartment buildings were bought with negative leverage, leverage was always the price of debt was always higher than, than the cap rates are very frequently higher than the cap rates. And people got used to figuring out how to how to buy real estate with that kind of debt environment, if you had equity, just buy with equity, because why would you pay a lender, you know, you know, we get to the later part of the 90s. And now all of a sudden, you know, early 2000s, now we’re talking about leverage, cost of debt that’s actually lower than your cap rate. So you walk into a project and the more debt you can put on it, the higher return your equity is gonna get, that’s how the math works. And so everybody got pretty excited about using that call it certain read, right, when I got into the business, so read, read around 2002. You know, borrow it 4%, or four and a half percent and buy a property that has that’s thrown off a five and a half percent. You know, and why yield? That feels great. You know, in some markets, that was a six versus a four and a half, or a seven versus a four and a half. And, you know, some markets, that’s a four and a half or a four and a half. But either way, that was everybody got used to the idea that that was part of the calculus, that would be there forever. And again, things change, and things move around. And people who are buying these things with financial engineering in mind are not looking necessarily at the proper metrics. Just because you can buy a seven cap somewhere, and finance it at a four doesn’t mean you should be buying that property. There’s a, there could be a lot of reasons why you shouldn’t be buying a property and we can talk about that in a minute. But, you know, today, last couple of years cap rates fell, because you know, the Fed cut interest rates to zero when Cap rates fell through the floorboards, and all of a sudden, people are getting comfortable at a three, three and a quarter cap. And the lower that cap rate, the tougher it is to dig out of it if you’ve you know, if something changes. And so we were very slow in 2021. And we were very cautious. I kept looking in my markets, we had a bunch of people not paying rent, and we couldn’t kick them out. And it was it was still very, very, very challenging. But we we tried our best to stick to our knitting and stick to our park discipline. And some folks may have not done that. And they bought it a three and a half cap and today they’re sitting at a four cap, maybe with some rent growth and you know, the markets are decidedly in the five and a half kind of range. All those folks are underwater. And so at some point, if they don’t have additional equity or they can’t do capital calls or Then those properties will be sold. And the equity holders will take a loss and maybe isn’t the lenders will take the loss depending on again where that property is. However, the other funny thing about today, and this is what makes me laugh every time I think about it, every single conversation I’ve had in the last nine months, is some version of the following. Oh, it’s gonna there’s gonna be a lot of opportunities out there. We’re excited. Oh, yeah. Yes, we have. We have dry powder. We’ve got billions. We have you know how much money we’ve raised billions of Okay, great, wonderful, all your dry powder well, and then I turned the conversation to their own portfolios and said, Well, what are you going to do on your own portfolios? Oh, no, our portfolio is fine. Right? So nobody, nobody’s, nobody wants to look at their own stuff is saying like, Yeah, I’m gonna get rid of my junky stuff and buy this now brand new stuff, like, you know, eight caps, nobody’s talking about that. They’re just talking about how everybody has dry powder. Well, somebody’s got to not have it, somebody has to have a deal, the clothes to sell, if nobody has to sell. And you know, it’s a little bit like the single family home market. And you want to talk differences between 2008 and 2023, the single family home market in 2008, there were tons of people with floating rate debt and tons of people that are underwater in their homes and forced to sell. And there were a lot of things well, this time around, not only has there been fiscal discipline on the part of the lender side, in the last 10 years. But now we’re coming out of this crazy time where people were refinancing their homes at two and a half 3% 4%, whatever it is, but there is no sale pressure at all in the marketplace for single family homes. Very, very little. And so now we’re just like in the multifamily spot, if people don’t have to sell, they’re not going to sell, they’re not going to sell and say, Yeah, we’re gonna sell it or nightcap, just because No, not we’re gonna hold because we don’t have to sell. Just reified. We’ve got 30 year mortgage on my house, why should I sell it, you know, that kind of thing. So I don’t know, if you can look at today’s market and say, yeah, there’s gonna be tons of deals gonna just materialize. But I can say that when the market fully resets, there will be a new cap rate, we won’t be buying in the threes anymore, we won’t be buying, you know, across the country at the same cap rate, which we can talk about that too, will be bifurcating and diversifying what we think is a good deal in Des Moines, Iowa versus Hollywood, California versus Hollywood, Florida, you know, there’s going to be a difference in all of those cap rates that we haven’t seen really in the last couple of years. And that’s driven in part by written by interest rates.

J Darrin Gross 23:03

Yeah, it is, I love the comparison that you’re making there about, you know, in what what created the market opportunity in the in the Oh eights is that people had had the sell, they didn’t have the revenue, they had a loan being called, or the I mean, the capital markets dried up to where they they couldn’t meet their, their, their debt covenants or whatever, whatever those situations were, they were forces outside that were causing them to have to sell. Whereas again, right now, like you just described, if somebody’s got, you know, low cost debt, and their property is performing, what’s the where’s the supply of opportunity going to come from? Other than get their markets where maybe there was a overbuilding that occurred or maybe you’ve got, you know, a debt that’s that’s coming due or that has to be refinanced, or I’ve heard a couple of stories where maybe a fund has a property and because the stock market has not performed well, that they had to liquidate, to rebalance their portfolio and, and I heard about a, you know, a group that picked up a property with tenure debt that was only one year into the debt, you know, at a at a great rate, I mean, they had bring more capital than maybe maybe it would have but but, you know, I am not hearing all of the story is just yet, of all the opportunities that have been forecasted by those you’ve talked with and many others and you 90. And I mean, there is a chance that this just could be kind of a boring cycle that that is the new norm of, of business. But I guess the history books will tell us what it what it what it was, or, you know, after we have to go through it. So, let me ask you about, you know, we’ve we’ve already talked a little bit about, you know, kind of the compression, the cap rate compression that occurred, and, and I guess even going back before, like the 2000s, how, you know, debt was always more expensive to wear, you know, the way people you know, the performance of a property. I mean, it encouraged people to come with more equity than it did. Debt. Is it possible that, you know, that becomes the new norm? And if that is the case, what are your thoughts on how long it will take for the market to accept that that’s the new, the new norm?

Edward Ring 26:09

Yeah, great question, I definitely think that it is possible that that is going to rapidly become the new norm. And I think that the what, what we’re getting back to, and this is, I think, good for my business. But we’ll see. But that is that you pay a lower cap rate. A lot of times the cap rate is always a function of risk, and you’re going to pay a lower cap rate, if there’s less risk in the project. And part of that risk comes from the market fundamentals. So we’re here on the West Coast, and we get a lot of a lot of grief about our politics and a lot of grief about, you know, this, that and the other thing, but you know, at the end of the day, we’ve got a ton of jobs here, we have a ton of high paying jobs. And so if we’re buying properties, even if we have to finance them at, you know, five 6% and whatnot, we can go and buy a project at a five, four and a half 475 cap rate, even though there’s, there’s negative leverage, because we know that our incomes here are so high, and the jobs are so plentiful, and this housing supply is so limited, that we have a very good sense that we’ll be able to move that rent in place up to basically cover ourselves, maybe we’re negative leverage for a year, year and a half. But within two to three years, we might be positive leverage, if we put the right data on, so all of a sudden, that opportunity feels a little less risky. And so we’re willing to pay a lower cap rate for that particular play. Now, if you’re buying something in a different, I don’t know where other markets where your listeners are, but let’s just I don’t know, pick some market in the middle of the country somewhere east coast or something that I don’t know. But let’s pretend there’s a market that used to trade at a six and a half. And lately, it’s been a three and a half. Well, in the last two to three years that didn’t necessarily add a bunch of high tech high paying, you know, supercharged jobs. And you’re really talking about service workers and you know, retail employees and whatnot. Well, now you don’t have the fundamentals that you could then make that bet that your cap rate was that you were safe at buying a three and a half, four and a half cap rate, because you’ve been moved that cap rate up as tight as you can raise rent, all of a sudden, you’re stuck with the rent, you know, barring maybe two 3% a year or something increases, but by and large your market is your market. And all of a sudden, that feels very risky. If you’re putting on a piece of data at five and a half, and you’re buying at four and a half and you’re in a market where that that market growth is not going to happen. Now how you can actually generate enough yield for your investors or enough appreciation so that when you go to sell your project in three to five years, they’ll actually make money. So now all of a sudden, that feels a lot more risky to me. And so that going in cap rate had better be a little higher than say what you’re buying in California. So all of a sudden, you know, what we saw in the last three or four years is just a real compression of cap rates around the country to a single kind of cap rate. Oh, this is the cap rate for an apartment building. Well, now I think we’re going back to No this is a cap rate in Tucson. This is a cap rate in Los Angeles is the cap rate and northern cow and each specific pocket. Each sub market has its own risk measurements and its own risk profile and its own fundamentals. And that’s why you have to be really, really diligent and smart about what Your buying and where you’re buying?

J Darrin Gross 30:03

Yeah, I totally agree with you, I’ve, I’ve definitely come to the conclusion that, you know, the cap rate does dictate, will there be anybody behind me wanting to buy this, when I’m ready to sell, you know, if if, even when, you know, cap rates are crazy in the twos and threes or whatever, in some of your bigger metro areas, and that was felt like that the one safety, you know, piece of security that they had was that market was not going to collapse. Whereas you get somebody that’s all excited, because it’s a 10 cap, you know, or something like that. I’m gonna like, you know, the 10 cap, you better love that property, because you may own that forever, as opposed to, you know, something that’s more in a, you know, in a market with jobs, I mean, the fact that you, you know, have said jobs, jobs, jobs, that’s, that’s pretty key, because those people with jobs are the people you want in your, your property. Right. And I feel like, you know, with is cheapest capital has been for the recent past, it’s allowed investors to, I don’t say, overlooked jobs, because jobs have always been kind of that statistical point that you have to be able to identify, you know, what’s the median income? You know, what’s the, how much how much rent can your, your potential tenants afford. But, you know, with the, we mentioned, the internet will shoot, you know, the whole COVID taught us that you can work remote. And so there was this kind of this almost this thought that you didn’t necessarily need to be in the market where the job was, you could be, you know, you know, at any point. And I think that, by and large that has played out, and I think there’s a lot of people that have relocated, you know, talk to anybody that’s investing in an office space, and I’ll tell you, certainly some, some stories about that, but but, you know, again, it still comes down to jobs. And, you know, there’s got to be some sort of concentration of jobs, high paying jobs, so that you can whether you buy a property at a low cap today will be, you know, cash positive or leverage positive here in a short amount of time. And I just think that, you know, kind of what, what I’m hearing you say, and what I’m kind of picking up from, from others is just that, you know, there is a reset that’s occurring. It’s, I’m assuming, and tell me, how long do you think? Is there a timeline you think are you believe that it will take for people to accept? This is the new norm? Um, we I know, we talked about Yeah, we think it could be, but is it like a year? Is it two years? Do you think it’d be three years when everybody just kind of accepts us? Or is this just a everybody keeps looking for something different until it doesn’t happen? And then they say, Oh, I guess this is what it is.

Edward Ring 33:36

Yeah, I think, I think that we’re we, as a real estate investor, as a group are impatient. And I think I I’m a no, no, no exception to that. It’s been, as far as I can tell, since about April of last year, so we’re talking about it’s been 10 910 months now, where the Fed has really started changing the dynamics of our marketplace, you know, with their intentions, good intentions or not, whatever their whatever people feel that they’re doing. They’re doing it and they’ve moved rates so quickly, so rapidly that investors haven’t been able to find their footing. And by and large, don’t want to actually be a participant in a market where they really don’t understand what the landscape is. And I think in you know, get my crystal ball out. But if the Fed pauses or stops, decides, hey, you know, we’ve moved interest rates high enough. We’ve slowed the economy down. Inflation is back to normal. Our jobs are still plentiful. Let’s, let’s just wait and see now and see how this goes on. I think then we’re going to start getting real estate investors to, to really kind of jump back into the market, I think that if they can project what’s going to happen, they’re okay to invest, if that means to get rewarded at some point with interest rate cuts, and great, they’ll take it. But if they presumed interest rates are what they’re going to be for the next three or four years, I think people will start jumping in sooner than later. And I think helping all of this, at least in the markets that we play in, on the west coast, is that our rents are, now there’s they’ve softened up a little bit, but for the most part are holding. And if we were getting, say, $1,800, for an apartment, a year ago, we’re still getting that 1800, you know, and maybe it’s a little bit more, maybe now we’re getting, you know, 1950 if we renovate the project or something like that, so we’re actually still seeing fundamentals been in a decent shape. So if that’s the case, and we can work those higher rents through the rent rolls than our cap rates will be rising, and somebody can turn to us and a year from now and say, Hey, would you want to sell this thing at a six cap? Yeah, I’d be like, Sure, why not? I could sell it a six cap, because my basis, my cost basis is really at an eight cap now. And so if I’m selling at a sixth grade, I’m gonna do well. Now, you know, if I am forced to sell fairly, and I haven’t been able to move the rents, then well, I may be pretty upset, but I might have to sell anyway, in which case, you know, we go back to what it was, like, many years ago with, with having to sell into a market that we prefer not to be in. So

J Darrin Gross 36:56

right. Now, I think that the recognition and understanding of the cap rate, you know, obviously, it’s a market. It’s a market cap rate, like you, like you said earlier, it’s not a, a nationwide cap rate, although that’s kind of what it was portrayed as. More recently, but, but definitely each market has its own home campaign be to be intimately familiar with that, and understand the, the likelihood or the possibility of it moving, I would expect that, it’s probably wise to assume it will go up. So if you’re, if you’re getting a deal, and you have an exit strategy plan, that you you know, plan for something a little higher, you know, but or at least have a plan to be able to hold through, you know, whatever is immediately in front of us. Let me ask you, because I think this is the, you know, it’s probably a question that seems obvious to some people, but I’m always kind of curious about this. How do you see the the the commercial debt? Just the structure of commercial debt? And does it not kind of create the cycles in the market all by itself? Meaning if you have a low rate environment, and people either rush into the marketplace and buy or refinance? Does it almost create a, you know, a natural cycle for when that debts, you know, to be to be refinanced, or extinguished? Or does it present just part of the the operators? You know, Rubik’s cube that they have to solve for?

Edward Ring 38:55

Yeah, I think it’s a little of both. I think, you know, over the last 20 years, we’ve seen commercial lending, take on a very interesting characteristic. Or maybe it’s been going on more than 20 years, but for sure, I see it today that commercial lenders are really just investors. And so they’re just investing in a sub stack of the of the, of the capital in particular project, you know, with between one and 70% or 65% or so. But at the end of the day, all those folks are investing and they’ve got investors and they’re mining their ship for what they’ve promised their people and Gone are the, you know, are the days of, you know, the local bank, you know, Mr. Potter had to go get your loan, you know, that those days are so far gone that now it’s, you know, everything’s been sliced and diced into bonds and you know, that Most people have investors, and so everybody’s basically an investor. And so, and there’s a lot of creativity and investing, as we all know, there’s a lot of creativity in structuring debt. And so yes, what you’re saying is, is quite true, which is, the more creativity that lenders get, the more they’re able to offer the lower interest rate, because they are making certain fundamental assumptions that the next lenders not making, again, trying to arbitrage and squeeze out a little bit more yield for their investors and do a little bit better. So one, time for bonuses come in February, their their bosses are all happy. And you know, because home and celebrates, that kind of competition really mirrors what goes on in the operator space, where we’re going to chase apartment building with, you know, five other groups. And we’re saying, Yeah, but we think we can do XYZ, so we’re gonna pay a little bit more. Well, if we’re right or wrong, that’s kind of where the rubber meets the road. And the same exact dynamic dynamic is happening at the lender level, from at the lender level is the losses could be even higher than, say, the losses and operator level, even though it might feel like feel worse, because you know, losing all of your equity, in one deal was terrible feeling but a lender could lose the, you know, 10s of millions more, and that is a much, much larger loss to bear.

J Darrin Gross 41:30

Yeah, that’s that old saying, if you have a $5 million loan, that’s a huge problem. If you got a $500 million loan, that’s a bank problem,

Edward Ring 41:39

exactly.

J Darrin Gross 41:43

Hey, Edward, if we could, I’d like to shift gears here for a second by dam and insurance broker. And as such, I work with my clients to assess risk and determine what to do with the risk. And there’s three strategies we typically look to consider, we first look to see if we can avoid the risk. When that’s not an option, we look to see if there’s a way we can minimize the risk. And when we cannot avoid nor minimize the risk, we look to see if we can transfer the risk. And that’s what an insurance policy is a risk transfer vehicle. And as such, I like to ask my guests if they can look at their own situation. It could be their clients, investors, tenants, the market political, the Fed, how are we you would like to frame and consider the question, what is the biggest risk? And for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Edward Ring, what is the Biggest Risk?

Edward Ring 42:56

I think the biggest risk I’m facing right now is not having the patience to to get comfortable with the knowledge base that I have, and what I see on the horizon. So I’m, I’m a person that tends to slow down when other people are rushing. They want me to make a decision quickly. So I peel back and take a moment, take a pause. I do my best work when I’m thoughtful. And I assess. And I think that that’s the risk that most humans not just in real estate, but most humans face is that they are making decisions without actually understanding the fundamentals surrounding the problems that they are faced with. And I think that folks out there would, would do well to get educated, and to really make sure that they’re arming themselves with intelligence and intelligent reporting. So they understand the markets that are in they understand the risk, reward calculus, and they understand what, what they’re facing. And if they understand all of those factors and are comfortable with them, then it’s pretty easy to make the right decision or at least a decision. And time will tell if it’s been right or not. But at least you’re eliminating the one single factor that everybody has and that’s your own ignorance. If you can eliminate your own ignorance, man, you’re gonna do great.

J Darrin Gross 44:35

Now, let’s say wise man speaking there. That’s That’s good stuff there. I appreciate that. And where can listeners go if they’d like to learn more connect with you?

Edward Ring 44:49

Yeah. NewStandardEquities.com. You can send us a note I think we have info at and I think there’s investors. There’s an investor portal if anybody’s saying interested in investing with us. You just go visit our website and click around you’ll find you’ll find it pretty easily. We, you know, we’re very cautious. So it’s not like you’re gonna go and see 1000 deals like a crowdfunding platform, you know that. So it’s a couple of year maybe. So, I welcome people to, you know, hop on our site and become one of our investor members. And we’ll see what happens. Hopefully we’ll find some decent deals out there.

J Darrin Gross 45:34

And can’t say thanks enough for taking the time to talk today. I’ve enjoyed it, learned a lot. And I look forward to doing it again soon.

Edward Ring 45:42

Cool. Anytime, take care.

J Darrin Gross 45:44

All right. For our listeners. If you liked this episode, don’t forget to like, share, and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

Announcer 46:04 You’re listening to CRE PN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CRE PN Radio.