All Forum Posts by: Paul Azad

 Say Waaaaht? there are many formerly Hot markets now in correction, like Austin, TX, down about 13% since summer '22, and other towns, where many people bought with 5-10% down and now under-water. And millions lost homes and all equity from 7/2006 peak until bottom of market in 2012-2013 where many areas of country lost 30-40%, my neighborhood lost nearly 50% in home values. 

Real Estate goes up and goes down too, with supply/demand. 

Has been a great investment for me and family, but you and I and everyone on Bigger Pockets are just insignificant Anecdotes and the plural of that is not AnectData. Most of the investors here are very knowledgeable and experienced and very good at what they do, but they are still a tiny sub-set of all real estate owners on Earth (billions), for those answers you have to look at larger Data sets, which academicians try to collate, but even then, still just an educated guess:

This table above shows publicly traded Equity REITs outperforming private Real Estate NCREIF property Index by 13.74% to 9.1% from 2000-2021, almost 4.6% better. The next study below from Cambridge associates looked at 942 funds from 1986-2016 data and showed around 3.9% outperformance of equity REITs over private real estate with median leverage between 54%-60% so not as high as individual house flippers but still with significant leverage:

There are many other studies in US and also by EPRA out of Europe in developed countries as well as many academic studies, https://www.nareitphotolibrary.com/m/750b587aba063147/origin...

and they mostly all agree that on the whole, on average, for the Average investor, that private Real Estate investing is statistically worse than stock market in US by about 2% and worse than buying equity REITs by around 4%, over last 20/30/50 years. 

Obviously this does not apply to everyone, but are you an outlier, or are you in the middle 87% of the one standard deviation of the curve like most of us mortals?

And what does any of the Data matter, just do what you like and enjoy, you have one life to live. I like to research and pick individual stocks to add to my portfolio, despite my knowing all the academic research that says only 3.9% of all stocks in US history produced 100% of the stock markets gain since 1801 (Hendrik Bessimbinder Arizona State 2016) and what are the odds that I can pick those few stocks in advance? I know >98% of smartest IVY League MBA money managers and Hedge Fund managers can't beat a brain damaged Chimp throwing darts at a board ie buying the index fund of the whole market, VTI, over a greater than 15 year period, (Standard and Poor's Spiva reports last 50 years) but I still pick my companies that I think can beat the market. 

Remember, we are a billion times more likely to be living in a simulation of a universe on some alien teenager's computer than living in an actual universe anyways, per the academic philosophers, (Nick Bostrom in his 2003 paper, “Are You Living in a Computer Simulation?) so just let it rip and buy that 100 unit complex in Nashville at a 3% cap rate, what could possibly go wrong? :)

Quote from @David Pike:

I just received an email this morning about Fund 2 with an update on first quarter performance. They had paused distributions in 2023. I calculated the overall DSCR to be 0.77.

1) I know Ashcroft's Fund 1 just had a 20% capital call. Based on the charts below, do you think Fund 2 investors should be expecting a capital call as well? 

2) For Fund 2 investors, would it be beneficial for Ashcroft to sell the buildings now so we can recoup some of our investment instead of the fund losing $580k/year, buying more rate caps, and having a capital call? See charts from Ashcroft below.

FROM ASHCROFT:
Based on projections, we anticipate achieving a 1.0x DSCR by the end of 2024. In the interim, we have a $4M reserve balance to cover any cash shortfall.

Debt Terms - We anticipate re-evaluating a refinance in 12-24 months, as the capital markets improve. Given current cap rate expansion, and the interest rate
environment, it would require a significant capital infusion to refinance now.

Wow this is the Ugliest table i've seen in years. Ashcrack seems to be running the ARK innovation fund of CRE-Multifamily, with every property underwater and no hope for profit anytime soon, and with highest risk loans they could find on the planet to purchase with, I guess Tony Soprano wasn't lending then.

US unemployment near all time lows and GDP stable so that means FED FUNDS rate is not constrictive so they may not need to cut rates for years, and US GVT spending quite a bit more than willing to tax, so long bong Issuance going up (2 trillion issuance projected this year) so more supply = rates go up =CAP rates go up

Capital Calls seem very likely

 Bobby, the accredited investor standard was set in 1933 then revised in 1982 to the current 1 million net worth or 300k married amounts, but to adjust for inflation they should be re-set to 3.2 million and around 700k, which would help to weed out a lot of the inexperienced investors, who as Ruth from "Ozark" would say "don't know **** about f$%k!" (i don't know why i can't bring myself to drop the f-bomb here, seems like a safe place). 

So, there is a bill working its way now through the Congress to re-adjust those accredited investor standards, but ultimately, it's as old as Caveat Emptor, the buyer must be ware. 

 I'm from TEXAS, and trust me George "Dubya" Bush (President from 2000-2009) was not motivated by helping minorities to get their first homes. GFC was due to naive/lazy nurses/teachers/cops/fire-fighters and anyone else with a pension, not deploying any Due Diligence and just letting their greedy pension managers get billions in fees to invest in crap MBS and synthetic CDOs, all else by banking and ratings agencies and real estate investors just followed like trigger/hammer/powder/bullet down the pipe. The person who pulled the trigger is solely responsible and that was the American people with pension funds that placed the investments and MADE the Market and not anyone else. 

Today idiots like at Ashcrack pay ridiculously high prices with cap rates of 3to4 then cry, "what happened" when their ENron or Pets.com share price starts to pull back 20-30%. "Inconceivable!" 

I listened to the call above, from 2 days ago and the GP when asked what he would have done differently, said "would have bought longer term Rate Caps".  Really, that's all your frontal cortex with all the reflection over the past 2 years could come up with? Really? Never occurred to you to maybe not buy at all-time highs, near lowest 10yr in recorded US history {0.31% in March of 2020}, Maybe don't use variable rate debt with short term maturity? Maybe just sit on your hands and do nothing? If I go to a car lot and the 20year old Subaru with 200,000 miles and frame damage is selling for 300K, maybe I take the frickin' BUS! 

But I must agree with Carlos' sentiments, most GPs knew exactly what they were doing and the risks they were taking with other people's money. The Ashcrock crew may not have known what they were doing, may have been as moronic as they sound on the webinar, and perhaps that is even more dangerous though less nefarious.  They also throw up a table with a "range" of exit Cap Rates from only 4-5%, R U Kiddin me. 10 yr is at 5% now and heading, by most bond experts, much higher. We have 42 years of leverage to de-risk as an economy.  So they are being wildly optimistic, and also two faced as they say many times that the multi-family market has improved in last 6 months, but that they can't sell any assets to raise capital in this horrible market so they must do the Capital call and ADD pref equity (to pay them back the 12 mil they stupidly sunk in over last 1 year, good money after bad). 

They are Un-Good at investing, swipe Left :) 

Raj from your interest alone, I have a strong feeling you can be very successful as a RE investor. You said you live in Austin, no better way to learn than directly so, there is a syndication group Viking Capital LLC, that is buying/raising for a 252 unit property in NewBraunfels, about 45 min south of Austin, watch their webinar at their website below and they have an 82 pg slide show as well, then take a 3 hour trip to go see it, walk the property, go into office ask about the units available/leasing how the market is from the office staff, look around for quality of property/deferred maintenace needed then drive the area for other competitor properties. I think they are making a risky bet w this property, buying at a 5 cap rate, loan is fixed at 5.7% and 2 new properties about to open very nearby and who knows how many in construction phase

Villas at Sundance | Investment Opportunity (vikingcapllc.com)

You are very lucky to live in Austin, fastest growing big city in country, and a micro-cosm of the global economy, this too gives you an educational edge

Thankyou for posting this link Stef, interesting discussion there and very interesting Video link to Ashcroft's 15 min webinar about 6 months ago about their predicament, WOW, they had to spend 18.6 million for 12 months of Rate Cap insurance up from 513K they spent for same insurance they got 2 years earlier, on their 9 properties, which was for 24 months not 12 months, so a 36 fold increase. I had no idea it was that bad. Mr. Roessler spends the bulk of the call hoping and praying for the FED to cut interest rates due to hopefully an impending recession. This literally appears to be their plan at that point 6 months ago. No wonder they gave 12.75% to the 48 mil pref equity bailout group. They do mention the supply strain of 33,000 new doors in Atlanta alone in '23, they don't mention the 672K new doors in '24 across country, but heavily clustered in Hot markets like where they are located. Good luck to the investors, but man o man, low likelihood of any LP seeing their money again. These syndicators took huge risks in acquiring these MF properties with the variable bridge loans with rate cap insurance in order to buy at lower cap rates than any reasonable investor with fixed agency debt could afford and apparently at LTVs approaching 80% too, in order to drive higher IRR 'projected returns" for LP investors. The people in the WSO are pretty tough on the LPs and perhaps that is deserved but I think we need to help LPs by getting GVT to increase accredited investor standards, both $ net worth, and perhaps requiring people pass a basic financial knowledge proficiency exam, just WOW, i'm sure Ashcroft isn't the only one.....

don't want to post any of those details from their Webinar until the deal is closed, wouldn't wish to scuttle/affect their deal other than they are assuming agency fixed debt at a good rate.

but they don't mention what percentage of tenants are section 8, but do say that Sponsor has specific experience in this class of MF, don't mention if they are putting any capital into the deal nor capital call provisions, they most likely specify all that in their Offering Memorandum, which i have not requested, as I didn't think the returns quite merited the risk right now. They mention a 20% common equity tranche that is subordinate to the pref equity

I'm not the sharpest tool in the shed, and if you give me a penny for my thoughts you'll get change back, but I grew up in Texas and we're grass fed on personal responsibility down here, so... 

The Congress and President are just doing what we hired them to do, right? We tell them we want $100 bucks worth of stuff every year but we only want to pay $50 bucks for it, so they print money. When any little hiccup comes along that most of us did not financially prepare for we Demand the GuvMint do something, like my stock portfolio dropped 25% today in 10/87, so drop interest rate to Zero, thanks Maestro Greenspan, or again in 3/2000 when Yahoo.com didn't somehow grow into its projected 30 trillion dollar market cap based on its PE of 700, drop rates to Zero and keep 'em there for 22 years except for brief interludes of sanity (inflation got above 2%), or in 2008 when no one with a pension fund in America took any damn responsibility/oversight and gave their retirement funds to crooks to buy whatever ratings agency rubber stamped dogshit inverse synthetic CDO they could get a commission on, then were shocked, laying on their fainting couch clutching their pearls when the financial system reliably imploded, so drop rates to Zero again and start Monetizing/printing the debt, and now with the most predicted pandemic in history, Americans hadn't saved a damn cent so we cried to the GuvMint, send us 7 Trillion dollars now, I need a new Lambo! So we dropped rate to Zero and printed 27% of M2 global US money supply in a few months, more money than made in prior 200 years. Then 2 years later we act good golly surprised that inflation is going up, what, how did that happen? Shut-up 20,000 economists screaming at the top of their lungs for years, we can't hear the banker on our I-phone 14 super Max Pro telling me about the 2.5% variable rate Bridge Loan he can get us for 24 months to buy that 50 unit crack house, grow house, section 8, Multi-Family first time syndication I put together after my Doge coin "investment" shockingly went Tits up! 

ok , I'll settle down, but felt good to get that out

someone , anyone smarter than me once said "We have met the enemy and he is US!" The Treasury Dept is floating 1 Trillion a quarter now in bonds, because we frickin' Told them to, and that huge supply drops price and raises rates, and every year its gettin' worse, and even my math tells me the rate of change is accelerating. Bond market doesn't believe FED is fighting inflation enough, so rates rising, 'cause both core CPI and super core PCE, monthly numbers are rising since September, Yellin gave us mild reprieve with Quarterly Refunding announcement on Nov 1st when she shifted issuance to more Bills than Bonds, but now they are being forced back to more balanced issuance, more Bonds, so rising 10 yr rate again. Also FED has little to no control over 10yr, which is just the projected 10 year real GDP (2.5-2.75% today) plus the projected 10 yr inflation rate (2-2.5%) currently, and of course Cap Rates are typically 150-175 bips above that with a 9-12 month lag.

Many smart economists like Dr Steve Hanke and John Greenwood at Johns Hopkins take the opposite position that 10 yr is going down big time soon, due to M2 money supply contraction of 3.5% over last 2 years, M2 has only contracted 4 times since 1913, and every time there has been a proportional recession. 

It's all a mystery, except one fact. It's probably our fault :)

Seeing many new opportunities for us passive investor types, including "Preferred Equity funds". For example only, Wellings Capital raising 5 mil for a one property specific syndication of a purchase and value add to a Multi-family property in Baltimore Maryland built in 1948, section 8 housing. The Sponsor needing 5 mil for project in addition to the common equity raise, will be in a preferred equity position ahead of common equity and of course behind the Lender with apparently no legal recourse to foreclose property. This Tranche will get an 8% preferred return and then up to projected 14% total annual return, the 6% above the first 8 will be split 75/25. I ran the numbers for any investment below 250k and for the 3 year hold period after 1% annual management fee and 1.25% startup fee, and the profit split, comes to 10% compounded return or an 11.2% avg annual return on a 1.33 EQM on 3 years. In others experience is this return worth the risk given Multi-family environment ie supply, interest rates, project specific risks, illiquidity risk, and more specifically the Preferred Equity subordinated tranche risk (this sounds like just a Mezzanine loan without recourse). This is not a rescue type situation nor a new development type situation but rather an existing high occupancy project, but why can't a sponsor raise enough common equity?

{This is a general question on preferred equity investing not Wellings specifically, they seem like well run/professional/experienced group.}

 sorry forgot to add this table from Yardi-Matrix , shows the major MF rental markets, Austin is worst with 5.9% drop in rents and 5% new units,