Jaspreet Baveja 0:00
Well, I think multifamily was brought to me as an option to diversify risk. I was an active investor constantly doing active deals, flipping and buy and hold strategies. And a friend of mine at work said, Hey, listen, I’ve got an investment opportunity from a friend of mine, who I’ve known for eons and they’re an operator out here in the Bay Area, they do multifamily housing, but mostly actually student housing. And they’re doing an apartment complex here in the Bay Area walkable distance, go check it out. I’d love to get you involved. So I research to talk to another buddy of mine who had been in commercial real estate for over 10 years at the time, and said, Hey, let’s just evaluate it, figure it out. And I ended up investing as a limited partner. Since then I diversified into seven other limited partnerships, but constantly came back to multifamily as one of those core asset classes that had nowhere to go because people always need a place to live. And especially the more value add component of hey, listen, this is a pretty badly managed or pretty badly maintained asset in a up and coming area where people are changing demographics are changing, jobs are growing. And there’s a lot of value to be added. Let’s let’s focus on those where people want to be and yeah, that’s just been a class that I’ve loved since then.
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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 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 Jaspreet Baveja. Jaspreet is the director of funds strategies. And he has a BA in Management Information Systems from Florida International University and a computer engineering degree from Penn State University. He has been investing in real estate since 2013. And full time since 2019. And in just a minute we’re going to speak with just read about multifamily investing.
But first a quick reminder, if you like our show, CRE PN Radio, there’s a couple things you can do. 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 that, I want to welcome my guest Jaspreet Baveja, Welcome to C R E PN Radio.
Jaspreet Baveja 3:40
Thank you Darrin for having me.
J Darrin Gross 3:42
I’m looking forward to our conversation. But before we get started, if you could take just a minute and share with the listeners a little bit about your background.
Jaspreet Baveja 3:51
All right, well, as you can see from my background, I am from the Bay Area been here over 10 years. Now full time and route commercial real estate started in real estate back in just like Darren said 2013 single family home. Good old regular bought it for primary residence turned it into a rental. But my first intentional real estate investment was in 2017 out in Indianapolis. And since then I have done private lending and to the tune of about 300 Plus transactions as a private lender flips buy and hold Airbnbs commercial multifamily properties where we are the general partners, the operators, and so got a bright broad with you know, breadth of information there on all of those different asset classes and investment strategies.
J Darrin Gross 4:45
Sounds like you’ve done a little bit of everything there. private lending and single family and in multifamily That’s great. Yeah. So let’s let’s ask the question, How did you land on multifamily?
Jaspreet Baveja 4:59
Well, I think multi Family was brought to me as an option to diversify risk. I was an active investor constantly doing active deals, flipping and buy and hold strategies and friend of mine at work said, Hey, listen, I’ve got an investment opportunity from a friend of mine, who I’ve known for eons. And they’re an operator out here in the Bay Area, they do multifamily housing, but mostly actually student housing. And they’re doing an apartment complex here in the Bay Area, walkable distance, go check it out. I’d love to get you involved. So I research to talk to another buddy of mine who had been in commercial real estate for over 10 years at the time, and said, Hey, let’s just evaluate it, figure it out. And I ended up investing as a limited partner. Since then I diversified into seven other limited partnerships, but constantly came back to multifamily as one of those core asset classes that had nowhere to go, because people always need a place to live. And especially the more value add component of hey, listen, this is a pretty badly managed or pretty badly maintained asset in a up and coming area where people are changing demographics are changing, jobs are growing. And you know, there’s a lot of value to be added, let’s let’s focus on those where people want to be. And yeah, that’s just been a class that I’ve loved since then.
J Darrin Gross 6:23
Got it? And have you invested primarily as a limited partner then in syndications? Or how have you inserted yourself?
Jaspreet Baveja 6:33
Yeah, so I started off as a limited partner, like I said, in about seven or eight transactions, but since then I have transitioned to the general partner side. So fair wins capital investments to where I am now. A is a company where we are operators. So we are the ones that are the lead sponsors who are going out and finding the deal, putting the EMD down and Negotiating the prices, and figuring out the loan signing on the loans, raising capital, doing the actual asset management. So we are the lead sponsors at Fairewinds. Capital investments for multifamily investing.
J Darrin Gross 7:08
Gotcha. And, as such, do you have a particular asset, or investment strategy that you guys employ?
Jaspreet Baveja 7:17
Yeah, the investment, the value add strategy, like I was talking about where up and coming neighborhoods where assets are not as well maintained, their property management isn’t really doing as good. They aren’t keeping up with the rental increases, they aren’t keeping up with amenities being brought on, let’s say package lockers are a big thing. Now because everybody’s ordering. Online, they would like to have a dedicated spot where they can go and have their packages delivered away from theft, and have some level of credibility, okay, that package was delivered, it’s going to be here on site safe, ready to receive it. Or providing areas where, let’s say the washer dryers have cards or phone Bluetooth apps, things of that nature, where it’s just getting easier and easier to leverage amenities that may already exist, but are not as comfortable and not as up to date, let’s say having smart thermostats, smart locks, and one fob or one app to go from the main door of the building to the elevator to your actual apartment unit. All of those being under one, management right or to the pool access or anything of that nature, just making it easier and better for our residents. As we enter this 2020 to 2023 year, we want to make sure that our amenities reflect the time period that we’re in, have better flooring, better appliances. And so that’s that’s our game plan is to be in those neighborhoods that are seeing the change, seeing the transitions, and identifying assets that need that kind of work, pricing it accordingly. And then going in into value adding to the property to the tenants to the residents, and of course to our investors as well.
J Darrin Gross 8:55
Got it. And do you have like particular MSA as you guys invest in or what would drive sure your market selection?
Jaspreet Baveja 9:06
Yeah, so we’ve identified Texas, Florida, even Georgia, and Virginia as our primary markets. So three out of the four partners at fairland. Capital will are all originally based out of Virginia Beach area. So Virginia was the primary focus since then one of them has moved through his Navy career to Florida. So we’ve definitely got that market under our target sites. We we’ve seen the growth in Texas overall, whether it be Houston, San Antonio, anywhere else, it’s just the markets growing, rent rates are growing. The population is growing jobs are coming in from all these tech giants. So we’re just seeing a lot of growth. So we’ve identified Texas we’ve got a few 100 units in Texas already. And so yeah, those are the top four that we’re looking at. But we also have a property in Maryland, which is the you SNA with the US Naval Academy Alumni Association. So three of my partners are all, either ex or current Navy members. And so that’s a pretty, pretty close to home investment for them. And all of us just to be able to offer the Alumni Association in place where they have a triple net lease in place. And then eventually, when they do move out of there, we’ll be able to go in and convert that and change the business plan completely to say now it’s going to be a event hosting space, or a bed and breakfast space or something that’s the Navy themed event hosting location. And then, you know, we’re working with the city Governor are working with city officials working with the local sort of commercial associations to make sure that everybody’s on board, we bring as much traffic there as possible. So we’re constantly looking at adding value in any which way we can to whatever locations make
J Darrin Gross 10:53
the most sense. counted. Is there any kind of a minimum size of an asset you guys look for?
Jaspreet Baveja 11:03
Yeah, so we typically aim for at least 100 Plus units, we feel like that’s sort of the sweet spot where we can have onsite management, and see potential for growth and scale. So be able to say, alright, well, if we’re going to do landscaping, or if we’re going to do striping, restriping, the whole parking lot, at least we have that many more units where the cost gets divided across. And if the same roof can cover 48 units per building versus five, or it’s just the cost per unit then goes down, even though the dollar amounts to goes high, then it’s easier to then bring the rental rates up and to say, okay, here now we can show profits and show what value we’ve added a little bit easier across that many more units. And the risk is diversified if five tenants leave. It’s a 5% vacancy versus five out of a 50 unit building words double, you know,
J Darrin Gross 11:56
yeah. I know those numbers. That’s, that’s for sure. So with respect to investors, is there a minimum investment that he require?
Jaspreet Baveja 12:09
It’s deal specific, if we have, you know, I know many other guests have spoken about the 506, B versus five or six C’s indications and SEC exemptions and stuff. But overall, it depends on what kind of investment strategy we’re going after depends on what the size of the asset is the raises. And it’s been anywhere from 20,000 to 50,000. So far, and it may go up to 100,200 50,000. In the future, who knows, but it’s just it all, it all sort of grows with your investor base, and how much faith and trust people have in you and your business plan and your ability to deliver. So it gets easier to raise higher amounts per person. As you’ve done more and more syndications and more and more full cycle deals.
J Darrin Gross 12:56
And you mentioned that you participated in I think it was seven as a limited partner. And now you’re as a general partner, how many deals have you seen go full, full cycle
Jaspreet Baveja 13:08
as a limited partner one so far as a general partner, a couple of them so far.
J Darrin Gross 13:15
Okay, so your general partner, you’ve been able to turn those pretty fast. What we were
Jaspreet Baveja 13:20
just we were just trying to leverage the market the way it was, right? If you bought right we added value, we turned some units and we listed it right away, just to gauge the market and then the offers came in higher than we expected. So just made way more sense to return on investors capital return 40 something percent IRR to the investors and go do more deals rather than just continue to go through our business plan, even though we could see was adding value. It just was more favorable to return the money and get a higher IRR to our investors sooner.
J Darrin Gross 13:54
And were you able or what was the whole time on those? The ones that you turned earlier?
Jaspreet Baveja 13:59
I guess I’d say within two years. Oh, so
J Darrin Gross 14:03
perfect. You You made the you got the long term capital gains and and that’s perfect. I was thinking for a minute like maybe you you got in there and six months later, it’s like I’ve seen I’ve seen some you know, it’s funny is an insurance broker. I’ve had clients that have insured it and they’ve introduced me to the, to the buyer, we get insured next thing another sell and I’m like, wow, you know, and you know, so it’s just the market dynamics have been pretty crazy here as of late.
Jaspreet Baveja 14:33
I think it’s all changing now especially. Yeah, no, I
J Darrin Gross 14:35
was gonna say it’s no longer recording in September of 22. Things are changing, as I say. So. So let’s talk about that. You mentioned the members on your team. We’ve talked a little bit about some of the the capital the marketer in what do you have? What’s your sense of where things are going. Given all that’s in play with interest rates and, and just the kind of the status of the market.
Jaspreet Baveja 15:12
I think it’s, it’s all going to be in a cascading effect. If people let’s say bought in 2019, or 2020, with bridge debt that was going to expire in two years or three years. And their plan was to be at a pretty high valuation, as the market was continuing to go up, cap rates will continue to compress. And the interest rates will stay low. Those those operators and that those teams are in for the biggest shock, because now valuations have at least stabilized if not already started going down in most markets, interest rates have gone double of what they were before when they got into these debt structures. So their loan assumptions on what the refinances loan to value ratios, actual money cash out, they were going to get and return to their investors or sale prices, has all changed so drastically, that I think those operators are unfortunately in for the biggest rough spot to now be in the spot and their business plan to say okay, well, we’re ready to refinance, let’s go out and find some good long term financing and hold this property. And now all of a sudden, they’re coming back with you know, instead of a three to 4% rate, they were expecting another hearing six to 7% rates, that that definitely throws your business plan in for loop. Their valuation was supposed to be, let’s say 20 million on the refinance. But now it’s all of a sudden hitting 16 million, because cap rates have, you know, gotten expanded again, rates have gone up. So it’s, I think those people are going to hurt the most. And so over the next six to 12 months, you’re going to see a lot of those properties hit the market to say okay, well, let’s just get out of it as soon as we can without having to refinance and hold it without having to put more money down on a refinance rather than getting money out. And then I think people who acquired this year, I mean, even we required properties this year. If you got into with bridge debt, or at least three years of internet interest only, and extension options built in, I think you’re going to be able to write out most of this because I don’t see this going bad for you know, five to seven years continuing from now I feel like there’s going to be a dip for a couple of years, I think it’s going to come back up. So there is that risk potential as well. But I think it’s a lower risk. If you acquired this year, to then be able to ride out the next couple of years with interest only rates or long term financing. If you were able to get it. That’s that’s kind of the best place you could be
J Darrin Gross 17:39
in. Yeah, I get the debt challenges just based on interest rates and stuff. What are your thoughts on just the demand for housing and rent? Do you have any kind of opinion on that, or I think,
Jaspreet Baveja 17:58
I think the markets where the demographic changed for the better where the job growth happened, where tech industry showed up, and where there was already a strong demand that just continued to grow through COVID. Those markets, I feel like are going to continue to do the same, I don’t think that you’re going to all of a sudden see negative rent growth or negative population growth in those markets, just because rent went up or interest rates went up. I feel like the Single Family Housing may get impacted way more than multifamily. But the rents, because if people are not able to afford that same house, they were able to afford six months ago with the lower interest rate and they didn’t buy or they were, you know, priced out of the market. Because the rate, the rate was so low, but the price was so high. Now, even though the prices stabilized and it’s not continued to rise, the rates are going up. And so they are not able to afford that higher mortgage, even though the prices stay the same. And so those guys have no option but to go into a rental situation. So I think the rental demand, even if the rent rate slows down or stabilizes, I don’t think we’re going to see negative rent growth. And I think that markets with strong sort of metrics for population and job growth and such are going to stay steady and not lose a lot of valuation, just based on the fact that oh, well rates are going up. So all of a sudden values go down. You know, I think the rent rates are going to stay steady and continue to grow in most of these markets. The secondary or tertiary markets in some states definitely I think are going to get more impacted because a lot fewer people want to be there in a market like this. They they want to stay closer, okay, people are going back to work. People are going back to their offices. So they have to go back to the central business districts and bigger MSA is to be able to commute more easily which is you know, which is different than what it was a year and a half ago when everybody was going out into the boonies getting Big Lots big homes. You know, low rent rates, and enjoying the time they’re with their families and home. Now that people are going back to the offices and going back into their work, I feel like they have to come back to that central business district area and say, Alright, we’re going to, we’re going to pay the rent, because we need to go to the office, and it’s just not worth it to drive two and a half hours, each way every day to achieve that goal. So that’s at least that’s my outlook on what’s what’s happening now.
J Darrin Gross 20:27
Certainly makes sense. And I think certainly the the traffic patterns and just the, I think, some sort of a flex work, you know, is I think, probably, here, whether or not, you know, how many days people are going to the office to do the work. But clearly, I think that there’s a, there’s convenience, and there’s a, there’s a recognition of some of the are a lot of people are able to do the work remotely, but it’s still there’s a sense of need to, you know, be accessible at the, you know, the headquarters or the office or however that is and
Jaspreet Baveja 21:05
interaction during the day as well. Just me Yeah, yeah.
J Darrin Gross 21:09
No, there’s there’s definitely that and I think, Zoom fatigue is, is definitely a really, I’m, I mean, we’re talking on Zoom now, but but, you know, if I could, if we could be in person, that would be better. But the convenience of clicking a button, as opposed to, you know, private or flying on San Francisco, and Pena makes a lot of sense. That’s cool. So with your your deals that you have run full cycle, did the investors or what percentage of your investors said what’s next?
Jaspreet Baveja 21:45
I think most of them actually came back and said, what’s next? It’s all about building trust, and showing the proof in the pudding. So if you’re able to deliver or beat the promises you had, and clearly identified, like all of our investor updates clearly said, Listen, we are not some amazing operators that just had this plan forever. And you know, we delivered 48% IRR, even though we told you 18, because that was always our the way to go. And we know how to do this every single time, we clearly said, listen, the market was in our favor, we definitely were able to beat and more than double what we said we would do. Because the market was favorable. Don’t expect us on every return on every transaction. It’s just not possible. But you’ve seen the way we operate, you’ve seen our communication, you’ve seen our business plan execution, you’ve seen our photos and videos come across showing you exactly what we’re doing, what stage we’re in, and how we manage our properties. So if you want to trust us and continue to invest with us, here’s here’s the next opportunity. So that’s kind of what it took, even though it was a shorter term hold. It still allowed them to get a full view of our process or underwriting our business plan execution strategies, and just seeing how we operate as a team.
J Darrin Gross 23:06
Makes sense? In the Speaking of next deal, do you have anything in the works right now? Do you have any offers out there? Are you guys just kind of laying low right now waiting to see how the market plays out?
Jaspreet Baveja 23:23
We have offers out there. We’re constantly looking. And, you know, sometimes we change our business strategy to say okay, well now that rather than being lead sponsors, maybe we can be co sponsored with other teams that have a bigger investor base have bigger net worth a bigger assets under management. And they have gotten a considerably larger deal under contract. And they’re looking for co sponsors to be able to bring investors to the table to bring asset management experience to the table, investor relations, any of those key components that it takes to operate a business plan. We’re looking for those opportunities as well. We’ve identified a few were underwriting today, tomorrow, all the time. And constantly looking at new deals. We’ve just adjusted what we think the cap rate needs to be on as as financials, we’ve just adjusted what we think the refinance interest rates are going to be what the interest rates are going to look like when we actually close in two to three months from whenever we get under contract. So we’re just adjusting our underwriting to be even more conservative than what you’re already doing. Just to accommodate the higher risk of the rates, the LTCs number of lenders out there has gone down. It’s not that the same number of lenders, just adjusting the rates, the number of lenders out there has gone down. They’re just not willing to take the additional risk to say all right, well, we’ll just continue the business plan and keep raising rates and we’re good to go there. You know that there were some of these lenders out there and got so used to valuations just going up over the last three years consistently that when they see this slowdown and drop. They’ve just said you know what? Let’s just pause, let’s readjust our strategy, let’s figure out what we really want to be able to offer. And then they may come back to the table. But I’ve seen that on the private lending side. And on the commercial lending side.
J Darrin Gross 25:12
It is interesting when, you know, when there’s changed in the marketplace, how things adjust, and you know, what he think will happen. And in those people, you didn’t even consider those, you know, vendors you didn’t consider as potentially not being available. And I think a lot of it’s just, it’s kind of common in any situation, when there’s change, you don’t know which, which ends up or where it’s going kind of thing, kind of lay back a little bit and see where it settles. You know, because what could be, you know, what could have been a great deal six months ago, right now, it’d be a security all right now, you know, given some of the financing stuff, and I think that, you know, that, you know, one thing I do know about the real estate market is that there’s opportunity to make money in all markets. It’s just a matter of, you know, mine, right, is kind of the first thing, and that I think that’s probably one of the biggest stumbling blocks we have right now is you have sellers that are still thinking that, you know, it’s, it’s Mark early right now, yeah, March of 22, or, you know, or September of 21, or, you know, whatever. And the reality is, is that as the money gets more expensive, you know, the, the only thing that can change the the return to the investors is a price adjustment. And that’s, that’s kind of the market doing its thing. So, so I be interesting, and I think that, you know, the, the thing that’s interesting, and you kind of touched on a little bit about some of the people that are probably gonna be facing, you know, a need to exit. As you know, when you have multiple investors gathered together, there’s, you know, people want out. And, you know, a lot of times, that’s what, that’s what causes the thing to undo, or that’s you have to sell anything. So there will be transactions, there will be money made, there’ll be money, probably loss. But, you know, it will go forward.
Jaspreet Baveja 27:16
I think what we do to mitigate that risk is that we’ve also implemented other strategies to say, Okay, well, we may get into a leveraging some of our units that are in our properties that we own and manage to become medium term rentals for hospitals in the neighborhood, where like, we’ll, we’ll work with our onsite management and on site maintenance, but we’ll bring in a third party manager that will have the relationships with the nurses associations, or the staffing agencies or insurance agencies where they need to house residents that are displaced or have a claim. And then we’ll allow them to sort of come in and use our units, while still paying us the rent we need rather than relying solely on just long term tenants. And to say, Okay, well, we still maintained our noi or grew it because now we’re getting more money than market rent for these types of units. while still maintaining our employees on site, still getting the same returns for our investors are better returns, and lowering our risk, because these entities will have a better chance of making sure they pay the rent versus individuals who may lose their jobs or make a displace for some other reason to not be able to pay so or just choose not to pay, which is what happened a lot of COVID. So it’s just I think it’s being flexible, being agile, and being able to shift your mindset to say, well, if this is not the business plan, let’s just see what else works within the framework of what we already have to maintain our vendor wise and maintain our returns to our investors.
J Darrin Gross 29:00
Make sense? Speaking of risk, just breed by dama, an insurance broker and work with our clients to assess risk and determine what to do with the risk. And if we could like to shift gears here for a second like to ask you a little bit about risk. When I’m working with my clients, there’s there’s about three strategies we typically consider we look to see first, if we can avoid the risk, then if we can’t avoid it with it, see, there’s way we can minimize the risk. And when we cannot avoid or minimize the risk and we look to see if we can 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 clients, investors, the interest rates, political influences, however you identify what you consider to be the biggest risk. And for clarification again, 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 Jaspreet Baveja, What is the Biggest Risk?
Jaspreet Baveja 30:12
Oh, man, I think I think shifting market trends is the biggest risk, because you never know exactly when it’s going to start, you could be in the middle of a transaction when it hits you the hardest. And that makes you lose a deal. Because the market shift changed the valuation, the market shift changed the loan, the lender was willing to give you the market shift changed the rent rates you were expecting to put on your underwriting. And so it’s the overall market. Because whether the market is changing because of interest rates, or geopolitical or any, you know, natural risks like Hurricane Ian, that we have now, anything that changes the market to shift, I think is the biggest risk because that is something that is not entirely in your control. And like you said, it’s not easy. If you have an insurance claim, sure, it’s easy to transfer risk to that insurance company and say, Alright, well, that’s what we got you for, let’s file a claim. But if you have a deal that’s going south, because the property was worth 25 million when you put the offer in for 25 million, and now the market shifted, because the rent rates slowed down, and the interest rates went up. And the biggest job provider that was in the market in that particular area just decided to up and leave like Apple decides to leave San Jose for all this, you know, for some reason, that’s going to be a big market shift that you as an operator or as an investor or anything, have no control over. And so that’s going to automatically shift all your underwriting all your projections of returns. And so I think the biggest risk is the market shift, whatever the cause may be.
J Darrin Gross 31:55
No, I think that’s Well, well, but especially in today’s environment, it’s definitely reflective of what’s going on and kind of where we’re sitting. So I’ll I can just free where can listeners go if they’d like to learn more connect with you.
Jaspreet Baveja 32:10
So our company Fair Winds Capital and Investments, the website is FWC fair wins capital investments.com. And you can find out more about me any of my partners, any of our assets under management. And there’s a button there to contact us fill out a form and yeah, we’ll be in touch.
J Darrin Gross 32:30
Awesome. Jaspreet, I 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.
Jaspreet Baveja 32:40
Same here. Thank you so much for having me, man.
J Darrin Gross 32:42
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