Everyone's a genius in a good market (must read article)

Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes

I have not posted on BP forums in a while but had to share this article Everyone's a Genius In A Good Market

These guys were and are one of the top syndicators in the Phoenix market. They (like many others) were underwriting purchases as late as Q1 2022 with 4 cap exits and 5%+ rent growth. Remember those days of paper $300-$500 rent bumps. Depending the source of your data, rents have deflated 5-6% in Phoenix and being on the ground and in multifamily here, I can tell you that it is very real.

I get calls all the time from limited partners that got sucked into these deals and my only advice is don't get fooled twice. Stack your cash, it will come in handy soon.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

@Serge S.

I cannot tell you how many calls I am getting from people on “what to do” because they are receiving capital calls from their syndications.

For anyone as a LP, if you are in a syndication where their is bridge lending or the rate was floating, I strongly recommend you reach out and get info on the financials and how is the asset performing

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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
This market will show who the real investors are.
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Jeremy HoldenBusiness Member
Real Estate Agent · Scottsdale, AZ · Member since 2021 · 155 posts · 90 votes
3y
Thanks for sharing Serge!
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David Bilandzija
Lender · Venice, CA · Member since 2021 · 189 posts · 132 votes
3y
@Serge S.What is your take on the inventory thesis? It feels like a widely adopted argument against possibility of a general downturn in values.
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Account Closed
Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
3y
These guys aren’t the use case for being over leveraged. They made a massive run up the last 3 years. Millions and millions of dollars were made taking on risk at pace. Why does everyone act like people at this level don’t have the sophistication to have multiple exit plans?? I don’t feel bad for guys like this. I feel bad for the people who watched the last 3 years play out from the sidelines. Can you imagine waiting on “better timing” while rents and values skyrocket? SMDH
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Serge S.
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Rental Property Investor · Scottsdale, AZ · Member since 2010 · 390 posts · 599 votes
3y
@Account Closed I agree and am not hating on those that deployed over that last number of years. I have been buying multifamily over last 5 years and very happy that I did. I saw the obvious in late 2021 and sold nearly my entire position and was out by March 2022. My issue is with the Q2-Q4 2022 + deals that were sold to investors under shady pretenses such as low cap rate exits, perpetual rent growth, unrealistic capex budgets etc. I feel that experienced sponsors know better and what is happening right now was obvious to foresee in advance. Regarding multiple exit strategies, I would not classify hope and prey or next bigger sucker as viable strategies. How much longer will there be 1031 buyers willing to put 50% down or syndicators in need of the promote willing to overlook whats not there. How much longer will lenders buy off on these pro formas? Nobody has a multifamily business model that anticipates 3 years of rates over 6% and no rent growth. I underwrite this way and can tell you that pricing needs to reset at least 30-40% to make the real numbers work.

@David Bilandzija low inventory as a driver of value is mostly in SFR. Mom and pop homeowner are stuck in 3% 30 yr fixed and have no incentive or ability to move, hence the low inventory. In commercial RE, loans are adjustable generally over 1/3/5 years and if rates do not settle and/OR rents don't increase significantly then the math simply does not work. Most of these loans are non recourse and purchased with investor money so when this happens investors will not throw more cash into the deal. This is already happening in many parts of the country, Blackstone has a large NY multifamily portfolio that is in special servicing as does Brookfield. This will play out over the course of the next two years in most multifamily markets.

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Account Closed
Investor · Phoenix, AZ · Member since 2018 · 420 posts · 388 votes
3y
You're speaking as if there NEEDS to be market scenarios that allow MF development immediately in every market. That's not the case. This is why these developers move around the country almost in packs to where the metrics do make sense at any given time. These target IRR's of 15% are long gone in a lot of markets. Rents are stagnating. Forced NOI has its limits. Pricing isn't going to reset 30-40% without some kind of pressure. Where is that coming from? If you're suggesting it's coming from debt service I would argue that there are a TON of exit strategies to mitigate debt service obligations, particularly in the short term. You know as well as I do that someone who has underwritten something of this magnitude in Q4 2022 has evaluated the downside risks of increased vacancy, lower LTV, higher interest rates, etc. You also know that anything that reached cert of occupancy in 2022 was underwritten in 2019-2020 and has experienced rent growth beyond anything they could have possibly baked in.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Serge S.
I cannot tell you how many calls I am getting from people on “what to do” because they are receiving capital calls from their syndications.
For anyone as a LP, if you are in a syndication where their is bridge lending or the rate was floating, I strongly recommend you reach out and get info on the financials and how is the asset performing
7e investments53 Reviews
Website View Page
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