Syndication Investing During a Recession

Multi-Family and Apartment Investing
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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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  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    5y

    @Jason Debono

    I would say you are wrong on every account, and you have barely understanding of what people who don't agree with you actually believe which is typical.  Why folks refuse to believe half of the country has a legitimate disagreement is probably because you don't know what other people actually think.  It is arrogant for people to say this is why you come to the conclusions you do and then dismiss those conclusions them out of hand along with some insults of coarse.  Which FYI is what is causing the division.

    Sorry everyone I'm done hijacking the thread and binging all that in here,

    0Reply
  • Tommy Brant
    Investor · Nashville, TN · Member since 2020 · 38 posts · 57 votes
    5y

    Thanks for the share, @Brian Burke. I've been investing in SFH for a couple years, and am looking to scale into multi family in 2021. I enjoyed your comments on the podcast, and read the book. I've taken a deep interest in deal syndication as this seems to align the most with my interests and skillset. (My W-2 job is a business analyst)

    Curious to know what other resources you'd recommend for improving as a deal syndicator?


    0Reply
  • Robert Shreffler
    Member since 2020 · 18 posts · 4 votes
    5y

    Back to what you mentioned, your book!  I went into it like a reference book, not starting at chapter 1.  I'm eager to make money with a ETHICAL sponsor & hoping this book points out what to look for like the questions to ask in Chap 3.

    How to handle confusion where something seems opposite to what I already have learned though? Case in point, in Chap 12:211, it says the CAP is highest for stable property! What? It's supposed to be lowest for those.

    I'm only bringing this up Brian because as I read I make notes too.  But there's a lot yet to read and absorb of your experiences.  Thanks for the affordable book!

    0Reply
  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y

    @Brian Burke

    My brothers and are loving the Multifamily space at the moment! I know this post is a bit dated but we believe there is opportunity in all phases of the market cycle! Looking forward to 2021

    2Reply
  • Jason Merchey
    Investor · Hendersonville, NC · Member since 2013 · 757 posts · 282 votes
    5y

    Ouch, apartments just took a haircut yesterday as far as new news about non-paying tenants. Perhaps it's the best part of CRE but it just got a little worse :/ But, the good news is that active, value-add strategies are expecting to deal with trouble, and that's different than a REIT, like Mid-America Apartments (MAA) because they are in the business of holding stabilized assets. Thus, for every non-payer or every eviction moratorium or every vacancy, they are sort of without any leverage, if you will. They just have to take that and cope the best they can. Since they have to distribute 90% of what they make, if they bring in 5% less in profits one quarter, that comes directly off the bottom line. Whereas with a value-add acquisition strategy, like a fund, they will be rehabbing units on the left and searching for good deals on the right. I'd rather have my chips on apartment syndications with a value-add strategy, ideally a fund which searches for dozens of deals in 2021, than an apartment REIT.

    2Reply
  • Jeffrey Donis
    Investor · Durham, NC · Member since 2020 · 1k+ posts · 691 votes
    5y

    @Brian Burke

    Great take!

    We are still looking for deals and while finding investors to invest with us has increased in difficulty I do think there will always opportunities for those who are eager enough to find them.

    We are just focusing on underwriting more conservatively - expecting less vacancy, lower rent premiums, expecting on the exit, etc.

    Good deals are harder to come by which makes it harder for us to find a deal for our investors however I would much rather miss out right now than to put my investors in a situation that would ruin our relationships. I have faith that the right deals will come and we will win them and will be able to give our investors the distributions they deserve. Eyes will remain open 👀

    Thanks!

    1Reply
  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    5y
    Finding deals has gotten a lot more difficult. Like many have said in this thread, investors are clamoring to invest in deals, but the deal that will give them what they want is hard to find. Multifamily owners are still able to sell at high prices as cap rates have continued to be depressed. The longer the eviction moratorium goes on, the more likely government assistance with rents dries up. Stay vigilant for that time and watch out for the values to crash.
    2Reply
  • Matt Aquino
    Investor · Bergen County, NJ · Member since 2016 · 32 posts · 37 votes
    5y

    I'm a believer that there's good deals and bad deals in every part of the market cycle.  If any one of us could predict when the cycles are at the top vs bottom then we'd all be rich. That's a speculative game vs the skill of picking winners and operating them the right way. Many people thought the stock & real estate markets were at their top 2, 3, or 4 years ago and its still running up. 

    I think for multifamily deals, its all in making sure the underwriting and assumptions are conservative and consider the potential risks for that specific market, asset, and business plan.  If you can underwrite it with heavy conservatism and it can still pencil out to a decent deal then you naturally will have much more room for downside scenarios (whether that be macro-market or something specific to your property/business plan).

    I personally love to completely underwrite from scratch every single deal I evaluate.  Helps me to understand where the sponsor is making assumptions and then I can play with those assumptions to see how sensitive it is. 

    4Reply
  • Bonnie Griffin KaakePro Member
    Real Estate Consultant · Denver, CO · Member since 2021 · 666 posts · 389 votes
    5y

    "Most at-risk during times like this are the investments you’ve already made." There are ways to take some of that risk out of the investments you have already made by using the tax & cash-flow strategies available to you through cost segregation and the 2014 Tangible Property Regulations. Many restaurants and investment businesses have been saved with the injection of cash-flow that is available with these tax strategies.  

    [email protected]303-475-4459
    2Reply
  • William Costello
    Indianapolis, IN · Member since 2021 · 193 posts · 150 votes
    5y

    All great points @Brian Burke, enjoying reading your book so far. Important to build a relationship when looking to get into syndication compared to just trying to find the best property. End of the day it is a relationship business. 

    2Reply
  • Lane Kawaoka
    Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
    5y

    We acquired 4 apartments in 2020 when people were scared and now it put us to the top of the list when brokers have deals.

    2Reply
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    @Lane Kawaoka Wow congrats! What size assets were these? What are a couple things that you learned?

    What markets are you focused on now? Thanks!

    0Reply
  • Justin Goodin
    Investor · Indianapolis, IN · Member since 2018 · 1k+ posts · 756 votes
    5y

    @Matt Aquino I agree! Underwriting is crucial. It all comes down to the numbers. I think it's a great idea that you underwrite the deal from scratch when evaluating. 

    1Reply
  • Mike Lorence
    Rental Property Investor · Boca Raton, FL · Member since 2019 · 70 posts · 42 votes
    5y

    Stress testing the underwriting is key. You can do an Excel sensitivity analysis. This is helpful because Excel will graph out which input variables have the biggest impact on the output variables such as IRR, CoC, etc. We typically start with 0% rent growth in year 1 which is conservative here in Florida (Jacksonville had 4.9% rent growth in 2020). @Brian Burke - congrats on your book.  You're killing it.  

    3Reply
  • Cameron Braig
    Atlanta, GA · Member since 2021 · 493 posts · 162 votes
    5y

    @Brian Burke 

    Thanks for a great, thought provoking post. Conversations continue to be a plenty regarding market corrections/inflation risks. Investors are digging deeper in due diligence as well as reevaluating current allocations, future goals and investment timelines. One item that seems to be successful in making new investments in times like these is emphasizing the importance of investing in assets/properties that deliver cash flow from day one. Given a correction/inflation risks such a disciplined approach can help minimize downside risk and can allow for the continuation of your business plan, I.E. value-add, etc. 

    1Reply
  • Anthony Jerdine
    Developer · Miami, FL · Member since 2015 · 18 posts · 0 votes
    5y
    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 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?

    0Reply
  • Kevin O'Connor
    Specialist · Glastonbury, CT · Member since 2021 · 8 posts · 5 votes
    5y

    Great perspective. Thanks for sharing!

    0Reply
  • Ryan G Thomas
    Rental Property Investor · Tampa, FL · Member since 2020 · 4 posts · 5 votes
    5y

    @Brian Burke Congratulations on the book. I just ordered it on Audible…

    1Reply
  • Account Closed
    Member since 2021 · 217 posts · 190 votes
    5y


    "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."

    100% on board with exciting opportunity and it can't come fast enough imo.


    "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."

    Again, 100% agree.

    In contrast, right now, we are in a bubble, making this one of the shittiest times to be a buyer and get a good return, despite what ever the wannabe optimists are telling you.

    0Reply
  • Thomas Page
    Rental Property Investor · Cincinnati, OH · Member since 2014 · 22 posts · 8 votes
    4y
    Brian, I got the new book and am really enjoying it so far! Thanks
    0Reply
  • Matt A.
    Investor · St Augustine, FL · Member since 2016 · 136 posts · 126 votes
    4y

    I've been 'lurking' on this thread (and the entire BP community for that matter) for over a year now... and being a previous MF operator with our small portfolio, we decided to sell during the pandemic last fall. That in itself was a journey as we did an off-market deal with a group I met on BP. It wasn't without its challenges and took longer than expected to get across the goal line, however we also made some great contacts and still stay in touch with the new group to this day. Was "that" a recession... depends on the lens your looking through. We had a couple tenants vacate (the income went down) and that skewed the numbers... however with adversity comes opportunity. Its all perspective.

    So, back to Brian Burk's post... we have been passive as well for a number of years (while still operating our own). and watching while learning (and investing) in "better known" operators with a track record. In full disclosure we were in one of Brian's funds that just went full circle a couple weeks ago, and this too was a winner! (I wish I put more with him... were awaiting the new fund to open) This wasn't without its issues, COVID, building fire, etc. although reading between the lines of what WAS said gave us a really good picture of how a good operator operates! Being conservative in the assumptions, underwriting for the worst... this is what one SHOULD do, and interestingly one of the properties seemed to run real close to the worst. It did underscore the importance of diversity, without it I doubt that we would have seen any cash-flow (not that thats what we invest for presently), but hitting an IRR of 26+% is why we "do what we do" and take time to find guys like Brian that know what they are doing.

    So whats a recession? Id argue were in one, however without hindsight its hard to tell. The immediate might look overcast, but there are some bright days ahead with proper planning and contingencies. Know who your getting involved with - I've been approached by numerous "operators" that are really salespeople raising money for someone else (trying to get a piece of the GP in someones deal - and usually someone without a track record), that make some really optimistic projections. Look deep into whats happening and you can find numerous things that WILL go wrong. In short, Ill take conservative and realistic (singles and doubles) all the time over the home run pro-forma thats sure to crash and burn (well maybe not quite that bad, but I do like to hear 'good news' and have my team under promise and over deliver rather than make excuses for promising a huge win and delivering sub-par performance). Be realistic in your expectations, partner with experience, and chances are youll weather the recessions quite well.

    2Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    4y

    Wow, not sure how I missed this thread all this time, BP surely has a ton of content compared to years ago when I first started here on BP! Great thread @Brian Burke wish I would have seen it earlier. Positive side - I can now look back into the past of 1.5 years reading the comments from you and others (which I just completed all 10 pages of) along with many predictions and see what has actually shaken out. So with that, now that we are Dec 2021 and almost into 2022, how do you feel about some of the predictions stated vs what has taken place? I know you are continuing with acquisitions today so what, if any, edits/adjustments have you made to your underwriting and acquisition strategies compared to when this thread was started?

    To all the other syndicators and investors in this thread, what are your thoughts now that the future is here?

    Podcast Guest on Show #130
    0Reply
  • Jake Wiley
    Investor · Charleston, SC · Member since 2022 · 234 posts · 198 votes
    4y

    @Brian Burke.

    I am in the middle of your book and couldn't agree more with your sentiments about investing for a down cycle.

    BiggerPockets just asked to share what has made the most difference between your first investment and current, and my thoughts are similar to yours. I started investing in a similar market to today, where things seemed to be going up so fast, competition for deals was fierce, and finding a deal that penciled was challenging to say the least. There is always pressure to do deals, and it's easy to make some outcome bias assessments in the diligence process to help you see what you want to see to make the deal work.
    Like you, having lived through a cycle, all of my investors always received the returns they signed up for, but there are some long days and short months (days seem to take an eternity, but a month goes by in a flash from a bills are due perspective), but the lessons learned will never go away. I remember exactly how it felt to make uncomfortable calls needing more time with investors' money and working through plans B and C to make it happen.

    At the end of the day - I learned that almost anything could be done when you communicate, have good plans and backup plans, and know to stick to your investment guidelines, especially if that means you won't get the deal.

    I also learned how to pivot. In any market cycle, some strategies work, and you need to have the ability to adapt. For example, when the market was on the way down, I was able to identify properties that had something relatively minor wrong with them that didn't allow for traditional financing. The owners were unable to make any improvements. I would have that minor thing fixed and then be able to sell to a broader range of buyers for an excellent quick return. As the market started turning, actually completed the full the value add/renovation would result in nice little chunks in cash flow, and investors were happy to get their money in and out of the market in quicker turns.

    I do believe finding partners that lived through the last cycle is vital because when the going gets tough, the flakey will bail, but those that have lived through it will be able to weather the cycle but also pick up on the opportunities left by those that throw up their hands and run.

    Brian - great book and perspective!
    0Reply
  • Brian BurkePro Member
    OP
    Investor · Santa Rosa, CA · Member since 2012 · 2k+ posts · 7k+ votes
    4y

    Very well said, @Jake Wiley.  It's amazing how little you learn when things go well versus how much you learn when they aren't.  Plus the tougher lessons stick with you for a lot longer.  I remember back in the day how I'd flex every principle to get a deal to work, and contrast that to now where I feel like I'm trying harder to make it NOT work than to work.  Good deals are hard to find, bad deals are hard to exit.

    I'm glad you're enjoying the book!  For those that might not know, it's The Hands-Off Investor.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
    1Reply
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