Syndication Investing During a Recession

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Syndication Investing During a Recession

Brian BurkePro Member
Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes

Investing in real estate during a recession makes many people feel like a long-tailed cat in a room full of rocking chairs. For others, it’s an exciting opportunity.

In my 30 years of real estate investing, I’ve seen my share of market cycles and felt the pain they deliver, but I managed to get through all of them without losing any of my investor’s money. Losing my own, on the other hand—well, that’s a different story!

Most at-risk during times like this are the investments you’ve already made. If you are invested with the right sponsor, who implemented the right structure, you’ll stack the deck in your favor for a good outcome. Thanks to recent economic events, it probably won’t be the outcome you planned for, but one that you can live with, all things considered.

But what about new investments? I’ve found that the best investments are ones made at the trough of an adverse cycle, and ones made during the initial climb back up. A notable example is when I bought 120 houses in the San Francisco Bay Area from 2010 to 2012 at the depth of the last cycle. When I sold them 5-6 years later, they had gone up in value by 2-1/2 times. That trade underscores the importance of timing. This cycle isn’t likely to duplicate that result, but it could present some interesting opportunities.

So, what about investing in a passive real estate syndication now? Making the right decision is more important than ever. That means that BiggerPockets’ launch of my new book is perfect timing (The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications). It is critical that you invest with the right syndication sponsors and in the right real estate. This book will show you how to do both.

In talking with our investors about the current state of affairs and how they are planning their investment strategy from the short to medium term, we’ve heard responses ranging from hoarding cash out of absolute fear to those who view this as a chance to take advantage of opportunities that arise from the ashes, to just about everywhere in between. Where do you find yourself on that spectrum?

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Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6y
Originally posted by @Brian Burke:

Investing in real estate during a recession makes many people feel like a long-tailed cat in a room full of rocking chairs. For others, it’s an exciting opportunity.

In my 30 years of real estate investing I’ve seen my share of market cycles, and felt the pain they deliver, but managed to get through all of them without losing any of my investor’s money. Losing my own, on the other hand—well, that’s a different story!

Most at risk during times like this are the investments you’ve already made. If you are invested with the right sponsor, who implemented the right structure, you’ll stack the deck in your favor for a good outcome. Thanks to recent economic events, it probably won’t be the outcome you planned for, but one that you can live with, all things considered.

But what about new investments? I’ve found that the best investments are ones made at the trough of an adverse cycle, and ones made during the initial climb back up. A notable example is when I bought 120 houses in the San Francisco Bay Area from 2010 to 2012 at the depth of the last cycle. When I sold them 5-6 years later, they had gone up in value by 2-1/2 times. That trade underscores the importance of timing. This cycle isn’t likely to duplicate that result, but it could present some interesting opportunities.

So, what about investing in a passive real estate syndication now? Making the right decision is more important than ever. That means that BiggerPockets’ launch of my new book is perfect timing. The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. It is critical that you invest with the right syndication sponsors and in the right real estate. This book will show you how to do both.

In talking with our investors about the current state of affairs and how they are planning their investment strategy from the short to medium term, we’ve heard responses ranging from hoarding cash out of absolute fear to those who view this as a chance to take advantage of opportunities that arise from the ashes, to just about everywhere in between. Where do you find yourself on that spectrum?

I have been in the business since 1997 and was heavy in real estate in 2009. I had several ground up projects I had just completed. I was in the process of converting the construction loans to perm financing and all lenders went dark. Not only did they go dark but they started calling the loans. I had $35 million in loans at 9% and close to $300k going out each month to keep the properties going. The Fed was nowhere to be found and there was no talk of forbearance. I was very fortunate as I had cash, great cashflow, I pulled all my equity out through the construction loans and all my loans were non-recourse and guaranteed by the entity holding the property so the lenders had to work with me. I funded all the deals on my own so no investors were at risk. Others were not so fortunate and the banks as you know were foreclosing on properties left and right. I finally persuaded the banks to extend the loans and sold through all my properties over the next two years so everything worked out but it was definitely a scary time and a great learning experience. I had never been through anything like that and didn't even know what a work out was prior to 2009. I continued to do deals and develop properties even during that period as I had cash and cashflow so even though these deals were technically in default and in work out a few other banks were still lending. 

Fast forward to today. This is a very different environment mainly because of the moves on the part of the Fed and the Treasury. They are not going to let the banks, credit and debt markets collapse like they did last time. Especially given the fact that Neel Kashcari is largely influencing the policy makers as he had a front row see at the treasury in 2008-2009. 

The only caveat is we do not know how long this is going to last and what the real and lasting effects will be on the consumer. The longer this goes the more likely things will take longer to recover. What we do know is there are always opportunities in every economic cycle. There will be opportunities in retail and office if you have the stomach and the capital. There will likely be several multifamily properties that will take a hit if the shutdown continues into June or July. Storage will most likely weather the storm and continue to perform however new developments may take much longer to fill so there may be some opportunities there. Mobile home parks are also very recession resistant and given the unemployment benefits the Fed is backing up the states with they should continue to perform. Industrial is booming right now due to the rise of e-commerce but you need to pick your spots as the old "build it and they will fill it" doesn't work everywhere when it comes to industrial. 

Personally I am opportunistic so it's a bit too early for me to jump unless its a really compelling deal. Investors are eager. I get calls every day from people looking to deploy capital. These are relationships I've had for years and they have all been sitting on cash waiting for a time like this. What I have found is those in my network who are liquid (over $100 million) are not concerned and are ready to deploy but they are looking for much more yield than 2 months ago. I have also found that less sophisticated investors especially those who have not been through 2009 are much more conservative and are not comfortable investing in anything right now. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    we are not letting fear consume us..
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    27Reply
  • Daniel Han
    Investor · Member since 2019 · 74 posts · 70 votes
    6y

    This covid19 situation will last for a while and I expect this will result in a high unemployment rate. 

    With the unemployment rate of 15-20% with no eviction in many cities, what strategy would you deploy to be successful syndication?

    For those syndication deals that already completed, are they basically expecting a lower return?  if not losing investment?

    23Reply
  • Chris Levarek
    Real Estate Syndicator · Phoenix, AZ · Member since 2018 · 903 posts · 1k+ votes
    6y

    Congratulations on the book! Digging the cover, look forward to reading it. 

    I think those who've been challenged or faced adversity thrive in these moments. This is just another time historians will discuss for years and we get to experience the massive change in our world/economy front and center.

    I am taking action to be best positioned to seize opportunity when the dust settles. Taking this time to learn, listen and be ready.

    18Reply
  • Eric Johnson
    Lender · Chicago, IL · Member since 2016 · 653 posts · 313 votes
    6y

    This cycle is a good chance to adapt and overcome. Sure, there will be lots of changes, but as things continue to change, new doors open in other locations. I guess it's a matter of who moved the cheese. The cheese was in one corner, now it is in another. However, we have not fully discovered that corner yet, but it's there.

    9Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Brian Burke:

    Investing in real estate during a recession makes many people feel like a long-tailed cat in a room full of rocking chairs. For others, it’s an exciting opportunity.

    In my 30 years of real estate investing I’ve seen my share of market cycles, and felt the pain they deliver, but managed to get through all of them without losing any of my investor’s money. Losing my own, on the other hand—well, that’s a different story!

    Most at risk during times like this are the investments you’ve already made. If you are invested with the right sponsor, who implemented the right structure, you’ll stack the deck in your favor for a good outcome. Thanks to recent economic events, it probably won’t be the outcome you planned for, but one that you can live with, all things considered.

    But what about new investments? I’ve found that the best investments are ones made at the trough of an adverse cycle, and ones made during the initial climb back up. A notable example is when I bought 120 houses in the San Francisco Bay Area from 2010 to 2012 at the depth of the last cycle. When I sold them 5-6 years later, they had gone up in value by 2-1/2 times. That trade underscores the importance of timing. This cycle isn’t likely to duplicate that result, but it could present some interesting opportunities.

    So, what about investing in a passive real estate syndication now? Making the right decision is more important than ever. That means that BiggerPockets’ launch of my new book is perfect timing. The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications. It is critical that you invest with the right syndication sponsors and in the right real estate. This book will show you how to do both.

    In talking with our investors about the current state of affairs and how they are planning their investment strategy from the short to medium term, we’ve heard responses ranging from hoarding cash out of absolute fear to those who view this as a chance to take advantage of opportunities that arise from the ashes, to just about everywhere in between. Where do you find yourself on that spectrum?

    I have been in the business since 1997 and was heavy in real estate in 2009. I had several ground up projects I had just completed. I was in the process of converting the construction loans to perm financing and all lenders went dark. Not only did they go dark but they started calling the loans. I had $35 million in loans at 9% and close to $300k going out each month to keep the properties going. The Fed was nowhere to be found and there was no talk of forbearance. I was very fortunate as I had cash, great cashflow, I pulled all my equity out through the construction loans and all my loans were non-recourse and guaranteed by the entity holding the property so the lenders had to work with me. I funded all the deals on my own so no investors were at risk. Others were not so fortunate and the banks as you know were foreclosing on properties left and right. I finally persuaded the banks to extend the loans and sold through all my properties over the next two years so everything worked out but it was definitely a scary time and a great learning experience. I had never been through anything like that and didn't even know what a work out was prior to 2009. I continued to do deals and develop properties even during that period as I had cash and cashflow so even though these deals were technically in default and in work out a few other banks were still lending. 

    Fast forward to today. This is a very different environment mainly because of the moves on the part of the Fed and the Treasury. They are not going to let the banks, credit and debt markets collapse like they did last time. Especially given the fact that Neel Kashcari is largely influencing the policy makers as he had a front row see at the treasury in 2008-2009. 

    The only caveat is we do not know how long this is going to last and what the real and lasting effects will be on the consumer. The longer this goes the more likely things will take longer to recover. What we do know is there are always opportunities in every economic cycle. There will be opportunities in retail and office if you have the stomach and the capital. There will likely be several multifamily properties that will take a hit if the shutdown continues into June or July. Storage will most likely weather the storm and continue to perform however new developments may take much longer to fill so there may be some opportunities there. Mobile home parks are also very recession resistant and given the unemployment benefits the Fed is backing up the states with they should continue to perform. Industrial is booming right now due to the rise of e-commerce but you need to pick your spots as the old "build it and they will fill it" doesn't work everywhere when it comes to industrial. 

    Personally I am opportunistic so it's a bit too early for me to jump unless its a really compelling deal. Investors are eager. I get calls every day from people looking to deploy capital. These are relationships I've had for years and they have all been sitting on cash waiting for a time like this. What I have found is those in my network who are liquid (over $100 million) are not concerned and are ready to deploy but they are looking for much more yield than 2 months ago. I have also found that less sophisticated investors especially those who have not been through 2009 are much more conservative and are not comfortable investing in anything right now. 

    66Reply
  • Ronan DonnellyPro Member
    Investor · New York City, NY · Member since 2012 · 332 posts · 385 votes
    6y

    This downward move in the market is to some extent a relief as it had to happen at some point, and now that it has happened, opportunities will present themselves.

    From my perspective I think that things need to play out for another month or two before we can better assess how the market will be impacted and where the opportunities are. It’s a time to tighten the screws on your existing operations and hold on to you cash for the inevitable opportunities that will come. Good luck!

    [email protected]
    10Reply
  • Bobby Larsen
    Investor · Newport Beach, CA · Member since 2019 · 190 posts · 176 votes
    6y

    Equity is easiest to raise during the worst times to buy and hardest to raise during the best times to buy. There’s a little chicken or the egg there but true none the less.

    If there’s a point in time where it’s clear which way the market is heading and those waiting to see how this plays out jump in, the discounted opportunities will be gone. With that said, for every high return opportunity, there is an equal amount of risk on the other side.

    16Reply
  • Brian BurkePro Member
    OP
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    6y

    @Daniel Han the best strategy in my opinion is to use some pretty pessimistic assumptions at least for the near to mid term.  In a lot of markets unemployment isn't the biggest problem (for the short term), unemployment benefits under the CARES act can result in many people making more money than when they were working.  The eviction moratoriums are the bigger problem--not because landlords are anxious to evict, but because it creates an unlevel playing field that leads to a problem with willingness to pay, as seen with the various rent strikes called for by some on social media and elsewhere.  In-place syndication investments are likely to achieve lower returns than expected, and I'm sure more than a few will suffer loss of principal, primarily ones that were improperly structured and managed by inexperienced sponsors.

    @Chris Levarek thank you!  I'm really proud of this book, I hope you enjoy it!  Good strategy to wait for the dust to settle.  I agree.

    @Eric Johnson so true!  It's hard to know how to value things.  I suspect it'll become more clear in the coming weeks.  Maybe that's wishful thinking?  

    @Ronan Donnelly well said.  We are hoarding cash, shifting from offense to defense by pausing evictions and doing zero-increase renewals to save NTVs.  At the same time, we are looking for opportunities but doubt we'll be able to find anything that we can transact at a price that both we and the seller would be happy with.  Like you said, in a couple of months, that may change.

    @Bobby Larsen that's a point that a lot of people completely overlook.  I can't tell you how many times I've heard someone say that they were waiting to sponsor their first syndication until there was a downturn.  They fail to realize that raising money in an adverse market is incredibly difficult.  This reminds me of when I bought all of those rental houses that I mentioned in the OP.  I struggled to raise the money to buy those--I could have bought 1,000 of them but barely raised the money to buy 100.  If raising money in a downturn were easy, I wouldn't be here right now, I'd be retired because that was a great play at the perfect time.  Still worked out well but I would have loved to have scaled it much larger.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    9Reply
  • Brian BurkePro Member
    OP
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    6y

    @Greg Dickerson man, that's my favorite post of the month.  It brings back so many painful memories of uncomfortable conversations at the dinner table, "why are we putting all of our money into these loser deals?"  The answer, of course, was because it was the right thing to do--making it through the great financial collapse without missing a single payment and without losing a penny of investor money was no small accomplishment.  But more importantly, playing the long game means that you do what is right when it's hard because your ability to grow after it's all over depends on it.  Congrats to you on taking the difficult path.  I feel like we are kin or something.

    I agree 100% with your analysis of the challenges and opportunity.  I think you are dead on.  Either that or we are both wrong.  LOL

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    14Reply
  • Account Closed
    Real Estate Investor · Waldorf, MD · Member since 2014 · 592 posts · 320 votes
    6y

    You had me thinking hard about that long-tailed cat @Brian Burke.  Didn't get it at first as I was thinking, "If the cat was in the chair with its tail coiled there shouldn't be an issue".  Then I thought, "what if it's not and but on the floor"...OUCH!!  

    I'm in the process of raising capital and looking for investors on my first syndication.  It's not easy as the gurus make it during a stable market and now it's even more unlikely during these times one would think.  I'm optimistic though!  The more time and energy applied the better the outcome.  There are still individuals looking to deploy capital just like there are people still shopping online for deals.  It's about finding where they reside online and building that trust.  Though this pandemic has interrupted other business sectors, Real Estate in the Columbus and Cincy areas where I'm investing haven't halted in terms of selling and closing on larger deals. Something to consider.

    4Reply
  • Evan Polaski
    Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    6y

    Great post @Brian Burke.  I agree with most of the comments here, and while not my own, was working in capital raising right out of college in 2007 right into 2009.  While the cause, and I think a bit of the outcome will differ, the ride is similar to the early days of 08/09.  One week, you are on the phone daily, all day talking with investors.  The next week you have 3 calls.

    I am just anxious to see how quickly the bid/ask spread that is currently in the market takes to start closing again.  Buyers need to come from hyper-conservative UW to maybe just conservative.  And sellers need to feel a little more pain, burn through reserves, etc to bring prices down. Each party has understandable reasons to be where they are right now, but the longer it takes to close this spread, the longer every will be sitting on the sidelines.

    Is it just me, or does everyone feel like this slow down started 9 months ago already? :)

    6Reply
  • Scott Mac
    Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes
    6y

    There will be some good deals coming up (and probably some great deals), the question is how many.

    I suspect there will be some good opportunities (for a short time) on both coasts as CAP Rates adjust and we start to see the effects of this thing.

    Those opportunities will have to be balanced out against the current (and unknown future) rent controls those areas are famous for.

    The rent control issue, since it's dispersed and unconnected, one area is different than another, which is different than another, and so on, will probably need a Federal Solution prohibiting it if it's to be solved. (keeping the local self serving or ignorant of the results of this, politicians from damaging the housing supply in their areas by letting them turn to into slums).

    This industry (like firearms) is not without friends in Congress--but the case would have to presented to them as a carefully thought out sales pitch, (probably along with SWAMP money) by an industry advocate group to get off the ground. 

    This rent control business has been in place in some areas for quite a while, but as far as I know, it's never been challenged Federally.

    If it's effect on the Lending Industry could be demonstrated (not as more opportunity for them, but as creating losses for them) it would probably sail through quicker (remember they gave them bailouts in the last downturn, not us).

    Just my 2 cents.

    2Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    6y

    @Brian Burke

    It would be great to know why this crisis can use the same playbook that worked for many of us in 2008.

    That was a financial crisis caused by a dislocation in the financial system and was resolved via financial means. It largely impacted banks and housing and then spread to other parts of the economy. Unemployment at the time peaked at 12%. I recall people in tremendous financial pain but I don’t know of the 2008 crisis killing people.

    This is a pandemic driven recession which has impacted everything but not banks and housing yet. That itself is upside down and makes the application of the 2008 playbook less compelling. Unemployment is already trending higher than 2008 levels.

    Despite all this I think the one thing I see more this time is people are overly confident this will be a short term hit and opportunity is just round the corner to grab. That is not the sentiment I saw in 2008. There was a lot more fear and uncertainty among investors.

    7Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Evan Polaski:

    Great post @Brian Burke.  I agree with most of the comments here, and while not my own, was working in capital raising right out of college in 2007 right into 2009.  While the cause, and I think a bit of the outcome will differ, the ride is similar to the early days of 08/09.  One week, you are on the phone daily, all day talking with investors.  The next week you have 3 calls.

    I am just anxious to see how quickly the bid/ask spread that is currently in the market takes to start closing again.  Buyers need to come from hyper-conservative UW to maybe just conservative.  And sellers need to feel a little more pain, burn through reserves, etc to bring prices down. Each party has understandable reasons to be where they are right now, but the longer it takes to close this spread, the longer every will be sitting on the sidelines.

    Is it just me, or does everyone feel like this slow down started 9 months ago already? :)

    Actually i thought it started summer of 18 and into the fall. I even changed my REIA presentation to the pivot. and the last deal i did which was a PPM for new construction we basically paid cash.. and had no debt we only take debt on to go vertical.. so in pretty good shape if we have to wait this out a tad.. Of course my returns on the proforma would have been way higher if I had taken on debt on the land ak side..

    But we went for less return and more safety..

    I was very much like the post above IE heavily invested with banks up my grill in 08  we made it through but it was not pleasant..

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Roni E.Pro Member
    Specialist · Earth 2.0 · Member since 2019 · 598 posts · 271 votes
    6y

    Depending on how you look at the market we are 30 to 45 days into this cycle. Folks who own properties right now are in a Defense mode by reducing costs and stopping distributions to investors. I do think there will be a reduction in prices. Interest rates have gone, less leverage (which is a good thing as it helps you deal with tough times), and the interest reserves. I also would point out as some of us have been through cycles but not a lot. There is always a second shoe that drops or the second hit that comes with a downturn and I think this must be forthcoming. As Mike Tyson says, "Everybody has a plan until they get punched in the mouth."

    It will also be interesting to see how many owners/sponsors/syndicators go into forbearance. One thing I am noticing not a lot of people are talking about and maybe this is the legal nerd in me. In most areas evictions have been shut down for 90 days or 120 days and that even includes starting evictions. So let's say the court is shut down for 90 days this will create a very large backlog. So on day 91, you start the process from there. Let's say the court is very efficient and can knock down the 90-day backlog in 90 days so it might take a landlord 180 days or even longer to evict a non-paying tenant. 

    We are very excited as we plan to plan to make major multifamily purchases end of this year or 2021 as we believe there will be a price reset.

    Most importantly everyone stay safe and healthy.

    4Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    6y
    Originally posted by @Brian Burke:

    @Greg Dickerson man, that's my favorite post of the month.  It brings back so many painful memories of uncomfortable conversations at the dinner table, "why are we putting all of our money into these loser deals?"  The answer, of course, was because it was the right thing to do--making it through the great financial collapse without missing a single payment and without losing a penny of investor money was no small accomplishment.  But more importantly, playing the long game means that you do what is right when it's hard because your ability to grow after it's all over depends on it.  Congrats to you on taking the difficult path.  I feel like we are kin or something.

    I agree 100% with your analysis of the challenges and opportunity.  I think you are dead on.  Either that or we are both wrong.  LOL

     Thank you for the kind words. Yes brothers from another Recession! Seriously we should connect and compare notes.

    2Reply
  • Hai Loc
    Specialist · Toronto, Ontario · Member since 2012 · 2k+ posts · 891 votes
    6y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Evan Polaski:

    Great post @Brian Burke.  I agree with most of the comments here, and while not my own, was working in capital raising right out of college in 2007 right into 2009.  While the cause, and I think a bit of the outcome will differ, the ride is similar to the early days of 08/09.  One week, you are on the phone daily, all day talking with investors.  The next week you have 3 calls.

    I am just anxious to see how quickly the bid/ask spread that is currently in the market takes to start closing again.  Buyers need to come from hyper-conservative UW to maybe just conservative.  And sellers need to feel a little more pain, burn through reserves, etc to bring prices down. Each party has understandable reasons to be where they are right now, but the longer it takes to close this spread, the longer every will be sitting on the sidelines.

    Is it just me, or does everyone feel like this slow down started 9 months ago already? :)

    Actually i thought it started summer of 18 and into the fall. I even changed my REIA presentation to the pivot. and the last deal i did which was a PPM for new construction we basically paid cash.. and had no debt we only take debt on to go vertical.. so in pretty good shape if we have to wait this out a tad.. Of course my returns on the proforma would have been way higher if I had taken on debt on the land ak side..

    But we went for less return and more safety..

    I was very much like the post above IE heavily invested with banks up my grill in 08  we made it through but it was not pleasant..

    At what point would you decide to go all cash vs leverage

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    6y
    Originally posted by @Hai Loc:
    Originally posted by @Jay Hinrichs:
    Originally posted by @Evan Polaski:

    Great post @Brian Burke.  I agree with most of the comments here, and while not my own, was working in capital raising right out of college in 2007 right into 2009.  While the cause, and I think a bit of the outcome will differ, the ride is similar to the early days of 08/09.  One week, you are on the phone daily, all day talking with investors.  The next week you have 3 calls.

    I am just anxious to see how quickly the bid/ask spread that is currently in the market takes to start closing again.  Buyers need to come from hyper-conservative UW to maybe just conservative.  And sellers need to feel a little more pain, burn through reserves, etc to bring prices down. Each party has understandable reasons to be where they are right now, but the longer it takes to close this spread, the longer every will be sitting on the sidelines.

    Is it just me, or does everyone feel like this slow down started 9 months ago already? :)

    Actually i thought it started summer of 18 and into the fall. I even changed my REIA presentation to the pivot. and the last deal i did which was a PPM for new construction we basically paid cash.. and had no debt we only take debt on to go vertical.. so in pretty good shape if we have to wait this out a tad.. Of course my returns on the proforma would have been way higher if I had taken on debt on the land ak side..

    But we went for less return and more safety..

    I was very much like the post above IE heavily invested with banks up my grill in 08  we made it through but it was not pleasant..

    At what point would you decide to go all cash vs leverage

    for me in large part was due to my conversations with my Banker and where they wanted to be vis a vi LTV on the construction loans

    and for us to be able to ride out some heavy weather.. remember in my deals they are construction there is NO cash flow :)

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Brian BurkePro Member
    OP
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    6y

    @Account Closed I agree--it is infinitely more difficult to raise capital during uncertain times.  Sponsors that have survived cycles before have the advantage, and they also have the memories of their struggle to raise capital during their first (and perhaps even subsequent) down cycles.

    @Evan Polaski yeah, I think the bid/ask spread will take a while to sort itself out.  As a buyer I know that my assumptions are going to result in lower underwritten prices.  But as a seller, I also know that my property is still worth what I thought it was two months ago.  Or is it?  If I had to sell, I'd be forced to find out.  I think that's how this shakes out.  Most of us who don't have to sell just won't for a while.

    @Scott Mac government controls either don't produce the intended result, or result in unintended results.  Case in point, the eviction moratoriums.  They will cause deeper damage than the shutdown.

    @Sam Josh great points.  I think you are right that the same playbook doesn't apply here.  I think that some of the plays are relevant, just not all.  I do think that banks have been impacted, however.  There has been some difficulty in the secondary debt market, which is resulting in many lenders freezing originations.  I think the difference is this time the freeze will be shorter than in 2008/09 (hopefully).

    @Jay Hinrichs that's why you've survived so many cycles, and will survive this one, too.  Guys that over-levered despite you posting on these forums for years to not do that will soon see what you meant by that...

    @Roni E. you nailed it, in my opinion.  The moratoriums are going to do a lot more damage than people think.  Some say it's a 90-day to 120-day freeze.  I could see people living for free for nearly a year in some jurisdictions.  They should never have put those moratoriums in place.  Landlords don't want to evict, but consequences do need to exist in order for some people to feel compelled to fulfill their end of a contract.

    @Greg Dickerson sounds like fun, but do we really want to re-live those days?  LOL 

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    6Reply
  • Brian Ploszay
    Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
    6y

    We are in a soft market now, or call it a buyer's market. I've yet to see good deals, but it is early.  The prospects of a foreclosure wave are going to be limited.  For residential, Fannie /Freddie borrowers can get deferrals.  Foreclosures are suspended for 60 days at least.  Commercial / investment properties most likely will have limited workouts if a slowdown is due to coronavirus.

    I'm sporadically watching liquidity of lending markets and tightening of lending standards.  Weak lending would send property prices downwards.  Also will watch foreclosures filings carefully;  That tells the future.  For residential, if prices dip, we will see more properties selling as short sales.

    For syndication, you have to attract investors.  Not surprising that this has contracted.  I think it is going to be a hard sell, until we are out of quarantine because revenue has temporarily dipped.  And the multi-family deals that come across my desk have been yesterday's prices.  Be patient and wait for the right deal / moment.

    5Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    6y

    @Brian Burke many of our investors have hit the breaks. They aren't making investments in RE right now until they see some certainty. Right now too much is in the air for most investors. When deals start to hit the market - likely 6-12 months from now, I would expect many to be ready to invest. Others will still hold out, while others will have been negatively effected and not able to invest. 

    4Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    @Brian Burke I’m looking forward to reading this book.  I wish they would have came out with this one a while back.  I started by investing with a guy at the top of the market in 2007 couldn’t have picked a worse time!  As frustrating as it was I can see now that he did a great job given the situation he was in and kept our money safe.  I understood his situation but he had lots of pressure on him.   

    I have watched a deal come out last week in my area that could have been solid 3 years ago.  It went pending today.  The buyer wanted to be the first one out the door if I were to guess I think he made a good call.  I’m hoping the market gets back to a place where I see deals happening that make sense.  The last 2 or 3 years I can’t believe how high the prices have been here in Central Oregon.

    @Brian Burkeundefined

    3Reply
  • Duke Giordano
    Investor · Passiveadvantage.com · Member since 2019 · 164 posts · 91 votes
    6y

    Hey Guys,

    Thanks for the insights you have all provided, on this new horizon and potential downturn. As a LP investor in syndication deals across asset classes, I am curios what your thoughts are in relation to what specific parameters in the future I should be paying particular attention to to know when deals start to get better? My guess is it may take some time to for the effects we are seeing today such as "eviction moratoriums, rent loss, increased economic vacancy, decreased NOI, and then decreased property value start to effect deals and parameters presented to an LP from a syndicator. In addition, as everyone has stated, there is also going to be a supply and demand effect, in that they will be less cash, or capitol available to syndicators so improved deal parameters should then follow.

    1. What parameters as an LP should we pay attention to to know when deals are getting sweater? Cap rate change, Pref change, IRR, Equity multiple, Hold time?

    2. Are there any variables that would be more indicative as to when we are getting the 2021 price on a deal, and not 2 months ago's price as this no longer exists?

    3. Are there particular asset classes, you think may have advantages or disadvantages in this market?  Multi-family as typically been resistent in a downturn, but nobody could have anticipated this degree of job loss, federal eviction regulations etc so I am not sure if in the short term (1-2 yrs) in particular MF will be recession resistent.  Obvious Office, and hospitality is going to take a hit with remote work, people not inclined to travel.  Senior housing will take a hit, as if COVID gets into one of these places, the economic decimation will be difficult to overcome.  Student housing will take a hit, as nobod is at college, at who knows with the new normal of a campus will be, once again at least in the short term so this asset class will also take a hit.  Maybe self-sorage, mobile home are better positioned.  Thoughts?

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  • Mark Allen Kenny
    Investor · New York City, NY · Member since 2016 · 155 posts · 105 votes
    6y

    @Brian Burke

    This is such a great post. I agree, it will be interesting to see what opportunities arise in the next few months.

    And I'm so excited for your new book! I pre-ordered my copy.

    Right now is such an important time (both on the passive and active side) to get educated and plan for opportunities.

    0Reply
  • Mark Allen Kenny
    Investor · New York City, NY · Member since 2016 · 155 posts · 105 votes
    6y

    @Duke Giordano

    I think you'll see higher prefs in the short-term. Even for a great opportunity, syndicators understand that investors are wary of investing right now. So they'll need to offer more favorable terms.

    I think the best thing you can do is really understand the business plan that the syndicator is proposing. If they are claiming the ability to raise rents 25% right now, that's a pretty bold claim. I believe things will stabilize in the next 2-3 months. But for deals where the exit strategy is based on GROWTH, I would be very cautious unless the syndicator has a strong track record and a compelling reason.

    It really depends on the specifics of the deal, the major employers around a property, the April/May/June/July rent rolls, etc. These are all important details that can indicate whether the proposed business plan is feasible.

    0Reply
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