Investing In Secondary Markets, With Jordan Fisher

Multifamily assets located in secondary markets can offer tremendous growth opportunities for savvy investors. But choosing the right assets in the right secondary market requires experience and a disciplined approach.

Jordan Fisher, Principal at Next Wave Investors joins the show to discuss secondary markets for multifamily, and how his company evaluates properties before acquiring and renovating them.

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Episode Highlights

  • The investment thesis for multifamily real estate in secondary markets versus primary markets.
  • What Next Wave Investors prefers about Western US markets for multifamily versus where they’re headquartered in Southern California.
  • What makes a multifamily asset a “diamond in the rough” with value that may have been overlooked.
  • How the recent interest rate hike of 75 basis points by the Fed is impacting multifamily deal flow and approaches to leverage.
  • What class B and C multifamily property types offer investors that Class A doesn’t.
  • Key characteristics that separate Class B and Class C properties from one another.
  • How to know when it’s time to exit any given multifamily asset.
  • With cap rates compressing and rent rates skyrocketing, have you found the current economic climate impacting your time horizons on current holds? Have they been accelerated or extended at all?
  • How multifamily assets in secondary markets may perform during economic recession.
  • What experiences from Jordan’s previous role as a Captain in the US Army, and founder of a digital marketing firm have contributed to his success in real estate. from your previous careers do you think have contributed to your success in real estate.

Featured On This Episode

Today’s Guest: Jordan Fisher

About The Multifamily Investor Podcast

The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.

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Show Transcript

Scott: Hello. Welcome to The Multifamily Investor Podcast. I’m your host, Scott Hawksworth. And today, we’re going to be talking about a number of things, but certainly, focusing on secondary markets in multifamily investing, and the importance of them, and the potential that they have for passive investors.

And joining me to offer his insights is Jordan Fisher, who is principal at Next Wave Investors. Jordan, welcome to the show.

Jordan: Hey, thank you so much for having me.

Scott: Well, thank you for being here. I’d just like to dive right in. So, as I said, we want to talk about, you know, secondary markets. And Next Wave Investors really focuses on, I want to get this right, acquiring, renovating, and managing multifamily properties in secondary markets. So the big question is, what’s the investment thesis for real estate in secondary markets as opposed to primary markets?

Jordan: Well, okay. So first, our company is located in Southern California, you know. David and I, we live in San Clemente, our office is in San Clemente. And when we started the company, I believe 2015, investing in Southern California, the cap rates were really low, the returns were really low, and so we decided to look elsewhere.

And the way we decided on our markets, primarily, is we were looking for something where we can access it. So we self-manage. And we don’t really want to travel to manage a property in Florida, right? Florida’s great, people talk about how it’s great, but, you know, it’s a day trip just to get there, it’s a day trip to get back.

You know, you probably got to drive…

Scott: Long car drive, certainly as well.

Jordan: Yeah. So, you know, our first markets were really, you know, Las Vegas and Phoenix, because at the time, there was a good cap rate spread, you know. In Vegas, there was still some leftover distress, even. And Tucson, there was leftover distress all the way up till 2016 about.

And we were getting properties that were maybe 50% vacant, really tough properties, but a really, really low basis. And that distress sort of got worked through, but, you know, when you’re looking in 2017, there was a good spread on the investment, right?

Where, you know, maybe you’re at by maybe four, four-and-a-half cap in Southern California, but you’d be at maybe five, five-and-a-half cap, Tucson, maybe six cap in some of these secondary markets. So we were really looking for the cap rate spread. And, you know, you make sure you also have that spread on the exit cap, right? So just because you go in with a high cap, doesn’t necessarily mean it’s, you know, amazing home run return.

But we felt like the returns were more achievable and higher than they were in Southern California. You know, and since then, you know, we’ve… We’re open to deals any place we can get to relatively easily. So we’ve expanded, we’re also doing deals in Portland, we’ve done deals in Salt Lake City. But, you know, our idea is that…you know, we’re looking for something with a reasonable cap rate going in a market that’s growing where we believe that there’s going to be population growth that’s going to continue, and we can push the rents up, do our value add program, and then sell and make a reasonable return for our investors.

Scott: Well, I love that too. That’s kind of unique because, you know, you’re the first person I’ve had on the show who’s really talked about the location, not just from sort of the numbers and, of course, population growth and those opportunities there, but on the fact of, we need to be able to get to it, we need to be able to get from our headquarters and where we’re based in order to do that.

And that’s because you’re self-managing, right?

Jordan: It’s self-managing and we’re also a little bit of control freaks, you know. You know, we’re there. I mean, we like day trips. So, you know, my business partner and I sort of separate the asset management. We also have asset management staff. But we’re traveling one to two days a week because we feel like nobody loves the property like we love the property.

And so we want to make sure that the construction goes well, goes on time, and everything’s done well. So yeah, we got to be able to get to it and that’s, you know, something… I don’t want to travel five…

Scott: Have you found that your investors really appreciate that? And it doesn’t matter what the property is, challenges arise, you know, you have to think on your feet, something may happen. Do your investors really appreciate the fact that, hey, here’s a little wrinkle, a little issue, guess what? We’re going to be getting out there, it’s going to be a day trip, and we’re going to get out there and we’re going to have boots on the ground sorting it out.

Jordan: You know, I think that we… Everyone’s doing well right now in multifamily, right?

Scott: Of course. Yeah.

Jordan: Maybe next year’s going to be tougher. We’ll see. But, you know, I think our investors trust us and, you know, we don’t market really. All of our investor base has grown just through word of mouth. And so I think… I don’t know if they get into the nuance of how much time we spend out there, and, you know, we don’t go out there and sort of like, you know, tell them about our efforts. We just give them the results.

And they have their results and, you know, I think they know we’re honest guys that are doing our best to make sure that every deal we bring them will deliver our returns. And so, you know, I don’t know if they care who’s the person going out there every week. But they know that we really do our best and we try and be very transparent, honest, and we’ve, you know, been given their trust.

Scott: A hundred percent. A hundred percent. You mentioned, you know, one of the big reasons is just talking about the cap rates sort of difference in Southern California versus some of these other markets. Are there other aspects? You know, you’re located in California, are there other aspects beyond that that sort of caused you to say, “You know what, we see this, we’re going to look Western U.S., look at some other markets beyond just looking at the pure cap rates?”

Jordan: Cap rate is just part of the story, right? You know, it really comes down to, you know, finding a deal that we believe in. And to a certain extent, you know…and we continue to look in California, right? Like, I would love to be able to do deals without getting on planes, you know? I mean, that’d be awesome.

But we just can’t get one to pencil. And so, you know, I do see, you know, people that really believe in certain markets, right? People love Phoenix. People love Dallas, right?

Scott: Oh, I hear so much about Phoenix.

Jordan: Yeah. And those are phenomenal markets. But, you know, we combine that where we actually have also to, like, love the deal. And, you know, some of the pricing in Phoenix, you know, we get beat out by a lot of money, right? And we get beat out in Dallas and we get beat out in Vegas. And so, you know, we’re more… Instead of just saying, “Well, you know, California’s got rent control and all these problems and, you know, businesses are leaving.”

You know, we’re open to California because there’s also a lot of things to like about that market. We just can’t find a deal that we think we really believe in. And to be honest, you know, even in Phoenix, we’ve been net sellers as well because it’s so hard to buy there that we don’t think that a lot of the deals make sense.

Scott: Sure. Well, you know, that’s a good point and a good segue to my next question, because, you know, on your website, you talk about finding these diamonds in the rough. And that really seems to be core to your strategy. So I guess, could you speak more to what you’re looking for? Obviously, the price has to be right, but what are some of the aspects of something where you’re like, “Wow, we found it, we have found our diamond in the rough. It’s meeting these types of criteria.”

Jordan: But to be honest, we’re actually pretty flexible about that, you know? So when we say diamonds in the rough, or our marketing folks, you know, use that cliché, you know, to me, that really means something that’s being underappreciated by the marketplace, right. So we see something in this particular asset that the rest of the… You know, in general, we’re not the only ones looking at a deal.

Even when it’s, you know, off-market or whatever. You know, there’s a broker that’s in the middle that’s shopping it privately and quietly, right? So we’re not the only guys looking, but we may see something that people don’t see. And so, you know, an example…and so it can be crazy. The typical dream, center of the strike zone value-add deal is, like, that B-class property in the A neighborhood where it’s kind of maybe ugly and it needs a paint job.

Scott: Maybe it’s a little older or something like that.

Jordan: Yeah. New signage, new paint, whatever. Yeah, that’s great. But when that comes out, people pay such a premium for that that, you know, I don’t know if the juice is really there anymore, you know. I think the seller gets the benefits of it more than the buyer. So we’ve had, like, a deal where it’s brand new but the seller was a developer out of Canada and couldn’t come see the lease-up while COVID was going on.

And so, you know, we were able to get some good creative capital and good structure where, you know, that deal did really well for us. We bought in Vegas, you know, in February of 2021. And Vegas was still like a no-go zone because, you know, hospitality, you know, it was like 30% unemployment, right?

Scott: Right. Right. There’s still questions there. Yeah.

Jordan: Yeah. Yeah. And so, you know, we were able to get that because, you know, there just wasn’t other buyers. And so there’s usually a story on our deals where, you know, there’s something about it where there’s a little bit of hair that scares off other people, and yet we can see past it, or we see something and we’re more optimistic than the other guys looking at it.

Scott: I mean, I think that’s such a powerful strategy. And I think it’s worth noting because it’s this idea of, well, yeah, there’s numbers, there’s all of this, there’s, you know, like you were saying, oh, yeah, the class B and the class A neighborhood. But then if you can find some aspect of it, like an owner who’s in Canada and can’t, you know, be there for the lease-up because of COVID, then you can kind of…that is the diamond in the rough basically, right?

Jordan: That can be, you know. I mean, sometimes in… You know, one of the challenges of our organization is we’re not huge in every market, and yet we still self-manage. The smallest market we’re in is a city called Spokane in Eastern Washington.

Scott: Oh yeah. Isn’t that where Gonzaga is, or am I making that up?

Jordan: That is where Gonzaga is. I think that’s its only claim to fame.

Scott: Yeah, it is.

Jordan: But it’s actually a pretty cool town, you know. And it just kind of got similar, to me, like, feel of Boise, you know. It’s a mountain west town of about 600,000, 700,000 people. So it’s like a Boise or Arena or Colorado Springs. Yet everybody talks about those three markets and nobody really was talking about Spokane, and, you know…

So we got a couple of assets there. And I remember we shopped this 300-unit deal at like 110 a door. And we were not the first ones to get a look at it. But, you know, I was like… It just so it happened that the market went crazy there on the rental side, you know. I would see my neighbor’s property who would be on those variable rents, you know, programs go from 1200 to like 1600 in like 9 months.

And I was like, “This market is stupid.” And so just by being in the market, you know, you’re able to see information that the outside world hasn’t seen, you know. Yardi Matrix took like a year to catch up, you know, on how far rents got pushed. But I could see it firsthand, and so we were able to get that deal, you know. Even though we weren’t the first to look at it, we knew that that was a screaming deal where other people wouldn’t be able to appreciate it.

Scott: You know, I think that’s a good segue to my next question. And it’s really directed for, you know, our audience is passive investors. And they’re looking at lots of different opportunities. And many opportunities in markets, they may not be totally familiar with. They may not know, you know…they don’t even know necessarily where the asset is located relative to, you know, downtown towards transport, entertainment, all of that.

And you talk on your website about looking for properties that are well located. I guess, could you, I guess, speak to what makes an asset well located in one of these markets?

Jordan: Yeah, sort of. I mean, in general, you know, a good location is going to have, you know, easy access to transportation, you’re going to have some quality retail, you’re going to have decent schools. That being said, you know, that we don’t always get center of the strike zone, and so we do go into some locations that we’d rather not spend a lot of time in.

But, you know, there’s still demand for the housing there, right? So we’re usually in places and location where there’s always going to be a substantial demand because it’s either close to, you know, work, it’s close to transportation, and we’re in an area where there’s not, you know, tons of oversupply coming in.

So that’s kind of what we’re looking for, you know. You know, if you’re kind of in a suburb where, you know, there’s a ton of new stuff coming right next to you, it’s going to be… And maybe you’re half-hour to an hour outside of core, you know, work zones, you know, you could struggle there.

No one is struggling right now, but, you know, there’s going to be a time where there’s struggles.

Scott: Right. Right. And we’re going to talk a bit about sort of the economic landscape, because I think it is something that is on folks’ minds. But to kind of just put a finer point on that from a location standpoint. So for you guys, for Next Wave Investors, yes, you want to find something that’s well located, that okay, you know, there’s a lot of things that are easy to access for residents and so on, but really a lot of it is just demand-driven, and does the demand and supply support going into that area, right?

Jordan: Exactly. Yeah. I mean, it’s worked so far, you know. And, you know, a lot of times we’ll go into maybe a C class or a B-minus type of neighborhood. And, you know, there’s going to be, you know, some challenges with that demographic. And usually, you know, you have to work on maybe cleaning out some of the existing residents that, you know, maybe are doing naughty things.

But there’s still demand, you know. As soon as you kind of clean it up a little bit, you’re getting a lot of traffic all the time. And I think that’s the core to us, is that there’s going to be demand. And we feel confident that, you know, there’s going to be demand at our price point once we do our renovation.

Scott: Right. And when you do do that renovation, you can drive more demand because, you know, people in any class property, they like to live in a nice home.

Jordan: So they do, you know. That’s generally preferred.

Scott: I’m trying to make sense.

Jordan: And the ones that don’t, usually, you want to get rid of.

Scott: Right. Those aren’t your ideal. Understand. Exactly. Exactly. Okay. I want to take a look at sort of the landscape here because we’ve alluded to it a few times here, and it’s been great times for multifamily.

And I know I’m still very passionate about the opportunities that multifamily has. I don’t think that the housing shortage is going to evaporate and that’s regardless of the economic landscape. But, you know, the Fed recently raised rates by another 75 basis points. And, you know, they’ve signaled a willingness to raise them some more.

I’m just curious, how is this impacting deal flow and your approach to leverage when you’re managing your current assets or looking to acquiring new ones?

Jordan: That’s a great question. First, you know, up until maybe January, right? Our entire industry was really driven by the debt funds. Where everybody was financing with, you know, the three-year floating rate bridge loan. And…

Scott: Get that bad boy stabilized, and then…

Jordan: Yeah. Yeah. You saw it. And, you know, we did the same thing, the difference a little bit. And it’s always been driven mostly by my business partner David, is we got really, really aggressive rate caps. And so we were just throwing… I was like, you know, “This is just throwing money away. You know, is never going up, it’s going to stay at zero till the end of the time.” And he was like, “Well, let’s cap it at 50 BPS. It doesn’t cost much.” So we’re capped and we’re good. But, you know, I suspect that… You know, it’s been a dramatic, dramatic change in just like four, five months, right? And I suspect that there are going to be some sort of properties where maybe they…the minimum caps, I think, were like two and a quarter.

And so if your spread was like three and a half, you could be by August paying close to 6% on your loan. And, you know, your model probably said you’d be at 3% or something, or 3.5%.

Scott: Right. You’re busy there going, “Can we raise rents?”

Jordan: Yeah. And so I do think, you know, that’s going to have an impact, you know. There’s going to be, I think… We haven’t seen any sort of distress, but I think there’s going to be some motivated sellers that are like, “Can we sell? We’ve pushed rents 20% and we’ve pushed NOI 30%, maybe this isn’t a home run, but let’s take a single knot and let’s get out of this deal because who knows if we’ll be able to refi and it’s going to be challenging servicing our debt.”

Scott: Right. Right.

Jordan: And for us, when we’re going in now and looking at deals, we’re still financing some of our deals with those sort of facilities. But we need really high confidence. We’re not maxing out leverage. We never really did max our leverage, our structure’s usually like 70% of purchase price plus CapEx, which gets you like 72%, 73% of cost.

And, you know, we’re probably taking that down a notch because it’s harder to get the max leverage debt anyways. You know, they kind of want it going in debt yield. And so in Oregon right now, Oregon’s probably the easiest place for us to do a deal. At least it has been the last.

Because going in cap rates are a little higher. They’re like 4.4, 4.5. I think it’s not an investor darling like it used to be. I think maybe largely because there’s rent control. But because there’s some going in debt yield, we’re getting, like, either fixed-rate financing at 60% to 65% loan to cost, or there’s some floating rate, but it’s at maybe a spread of 200 BPS instead of 350, 400 BPS.

So that’s kind of how we’re structuring deals a little bit. A little bit less octane. But, you know, we can still… It’s really key for us that we’re able to sleep at night, so we’re not going to do a deal where we have anxiety, where we think that there’s a chance that we’d have to make an unhappy phone call to investors. So, you know, maybe…

Scott: So if anything if I were to sum it up, and correct me if I’m wrong, really there’s more of a focus of, well, let’s maybe be a little more conservative with debt and just make sure that we’re covering our bases?

Jordan: Yeah, that’s exactly. We’re being a little more conservative with that. And, you know, we’ve raised our exit caps because I do think that higher debt cost is going to make higher exit caps, you know, a reality. But, you know, if the deal works with our new debt structure and higher exit caps, we’re still buyers because just like you said, I don’t think the housing shortage is going away anytime soon.

Scott: Right. And kind of back to what we were talking about earlier, I think there could be more of a creation of those diamonds in the rough that we were talking about from this where, you know, folks are out there and saying, “Oh, you know what, I think we’re going to just take that single,” like you were talking about, and maybe that creates opportunity for folks like yourself.

Jordan: I feel like it will. I mean, you know, we… I don’t know in our entire history if we’ve ever actually won a call for offers. Like, almost all of our deals have been off-market, which, you know, is privately market and whatnot. And so we’ve competed in call for offers. And last year, I mean, honestly on a $30 million deal, I think we got outbid by $5 million, you know. And so we’re still…tend to be getting outbid right now, but it’s by a much smaller margin.

So we’re getting, I think, closer to where, you know, there’s a little less aggression, a little less competition. And, you know, I think there’s going to be some opportunities for us to do some more deals maybe later this year or next year.

Scott: A hundred percent. A hundred percent. I want to shift gears back to talking about property classes because you guys do focus on class B and class C properties. What do you like about those property types as opposed to class A?

Jordan: Well, mostly it’s just we’re looking for, you know, a return for our investors that we don’t see that you can really get in a class A. I mean, class A is stabilized, right? You’re just kind of buying an asset and you’re maintaining it and you hope the market does what the market does.

And, you know, we just…you’re just not going to get the same returns. You don’t have to do the same amount of work. So we buy properties where we think that there’s really a potential for us to see something and either juice the asset in some way. You know, it’s not always just with capital investments, sometimes it’s with improved management. But, you know, like that one townhome project where the guy couldn’t finish the lease-up, I mean, we’ve done brand new before, but there’s got to be like some sort of…

Scott: There has to be an extra sort of wrinkle to it.

Jordan: Exactly. Exactly. It’s got to be something creative that where we can come in and add some sort of value. And really be able to get a return that we think is worth, you know. When you do these deals, you know, people sort of… I see all the time people comparing stock market to real estate investors. I mean, sure, you know, all the deals right now are 18 months, but the reality is your investor is giving up his money.

I mean, he does not have access to that money until you seal the deal. And he could lose his job, he might get tied…you know, his kid might get into Harvard.

Scott: The capital is tied up.

Jordan: You know, that’s right, you don’t get it back, you know. So you should give them a good return in order for him to exchange it for his liquidity.

Scott: I mean, 100%. And I think that is the part of the thesis of multifamily investing.

Jordan: Absolutely.

Scott: Yep. You have to exchange this liquidity, but you have this opportunity for superior returns as a result. And so kind of leaning into that, I think that’s where I agree completely this sort of class B and class C properties can really fit into that. I kind of want to drill in too between class B and class C because I think some investors, you know, maybe there’s that question of what really is the functional difference between these two property types?

Could you just kind of break that down a bit when you’re looking at a property? I mean, are the cap rates very different? Do you find that, you know, the loads are different in terms of the lifts for renos? I’m just curious.

Jordan: So, usually, to me, and everyone’s got their own sort of, you know, definition of what a class…

Scott: Yeah. I feel like, yeah, it’s one of those things where it’s like, “Yeah, this is my personal one.” So I guess I’m asking for your personal one.

Jordan: Yeah. When I say if something is a class B, you know, I think it’s something that’s built either mid-90s to mid-2000s. So it’s something where it was really built similar to how you would build it today, and to where if you do some sort of, you know, value-add renovation program, you can actually build it and make it competitive with something that was built, you know, in the last couple years, right?

So you’re going to have purpose-built washer, dryers, and then you’re also going to have other things which, you know, maybe the residents won’t appreciate but the owners will, you know. Something like PVC piping instead of cast iron, you know. You’re not going to have…modern electric. And so the big difference… So that’s how I sort of separate them, you know.

It’s kind of, you know, something built like it would be built today. And when you get into class C, you know, in the ’70s, not only are you not going to be able to match today’s living style, right? You’re going to have, you know, maybe a galley kitchen, and you might have a seven-and-a-half-foot ceiling. I mean, it doesn’t matter what you do. You can’t turn a seven-and-a-half-foot ceiling into a nine-foot ceiling.

I mean, that’s a really tough thing to do. You know, you can try and squeeze a stackable washer dryer into some little closet or something, but you really, you know…

Scott: You are limited by what the property is.

Jordan: You are. You are. And on top of that, you’re also going to be limited on the fact that, you know, you’re going to have really old plumbing. You’re going to have… You just have to budget for, you know, unseen problems, right? Where…

Scott: Right. There are more hidden headaches potentially.

Jordan: There’s absolutely going to be surprise headaches, you know. And it usually involves a tree growing near a pipe. But, you know, that’s just the way it is. And so that’s how I define them. And you can improve, you can still make money on them and, you know, you still have an attractive product.

But it’s just a little bit different even though…

Scott: Right. The mindset shifts a little bit in what needs to be done, right?

Jordan: Yeah.

Scott: And then too, you know, just the sort of renter, maybe there’s a little difference there as well, at least going in, right?

Jordan: It can be. I mean, sometimes you have, like, those ’70s, ’60s properties in A neighborhoods. I mean, you go to Beverly Hills, there’s some pretty old C-class property. So, you know, the class of the property doesn’t always match the class of the neighborhood. So, you know, that’s different. But, you know, in general, you know, they’re… you’re not going to get the same rent on, you know, side by side, a C-class property and a B-class property.

C-class property is going to have a little bit lower rent, and so it’s going to have a little bit, you know, different demographic.

Scott: Absolutely. You target whole periods from one to seven years. And we were just talking about, you know, investors tying their capital up. How do you know when it’s time to exit?

Jordan: That’s tough. I mean…

Scott: I’m throwing a fastball right now.

Jordan: Yeah, yeah, yeah. So, we’ve taken a lot of chips off the table pretty quickly. A lot of 18-month, 2-year holds, I think, you know, in our 7 or 8-year history, we’ve gone full cycle on, like, 25 deals. And it’s largely because we don’t hold too long. You know, I’d say to really do a value-add project, it’s going to take three years to cycle through all three, you know, maybe all of the renovation units, right?

And then maybe another year to prove out the new income, you know. But in the past, you know, since we’ve been doing this, nobody wants a finished product, you know. Everybody wants meat on the bone and to add the next layer of value add. And so, you know, people are paying us…you know, the market’s been so strong, you’re just like, “Well, we can harvest this return and, you know, give a win to our investors and put a win on our, you know, scorecard.”

But that comes with its own challenges especially when you self-manage because now we got to make sure we keep the good people and we got to find something else to buy. And we’re not always buying in the same markets we’re selling in. I mean, sometimes we are, but not always. Because we’re really a deal-specific company just looking for what the deal we believe in no matter what market it comes in.

Scott: That’s interesting. Yeah. Go ahead.

Jordan: No, go ahead.

Scott: Well, I was just going to say, so really what you’re saying is, yeah, even if, you know, a specific asset is performing well and you’re saying, “Actually, you know, it’s time to exit. Maybe we can, you know, take that win.” It’s not so simple because then you might say, “Okay, now what are we going to do? Now, where do we go with it?”

Jordan: Yeah, it’s true. And, you know, the deals come, you know. Once you’re in a market, there’s deal flow, right? You get the calls from the brokers on, you know, maybe the deals he’s shopping, not necessarily ones he’s publicly marketing. But, you know, they don’t always come right at the same time as when you’re selling a deal. And so if you’ve got great staff in Salt Lake City, you know, it’s tough to sell all your deals in Salt Lake City because what are you going to do with the staff, right?

And so we have those considerations. And then we also… It has to do with the debt, how much time do we have left on the debt? You know, are people happy with their distributions, you know? Because sometimes you buy… I mean, we do buy, you know, zero caps, right? When it’s like a distressed deal.

And it takes a while to get to distributions. And, you know, if you’ve never made a distribution and now you can give a huge win because someone’s willing to pay a big number for the property, then you can just sell. As opposed to something where people like collecting those distributions every month and maybe they don’t really want you to sell.

– Right. So I guess to that point kind of talking about, you know, general hold times, we have been seeing just cap rate compression continuing across many different markets. We’ve seen rents continue to increase really incredibly thus far in 2022. Have you seen across your assets? Is that changing things for you guys when you’re looking at it and saying, you know, maybe accelerating some of these timelines?

Are you seeing that actually happen? Are you having these kinds of considerations?

Jordan: As far as selling early?

Scott: Yeah.

Jordan: Well, we had a lot of them and we sold five. I think right now is a weird time to sell. So I think anything… We’ve sold five this year, and I think there’s a couple that are getting close to being ready to sell, but I don’t know. I don’t know if I feel like right now is the right time because I think that most of my peer group are kind of confused and, you know.

I don’t know if the demand is there right now. I mean, there’s demand. Every deal I look at, there’s other guys looking at it, and they’re all getting sold. But I don’t know if they’re getting great pricing. And you have to be a pretty motivated seller to sell into this current moment in time.

Scott: Right. It feels like there’s a lot of, you know, just, “Okay, well, what’s going to happen next?”

Jordan: Yes. Yeah. Yeah. It feels very uncertain right now.

Scott: So I guess, to that point, you know, recession. I know it’s an ugly word, but it’s on the minds of many passive investors. How do you feel about multifamily assets in secondary markets in potentially, you know, in a recession, how they may perform in such times?

Jordan: Yeah. We think about that a lot, you know. So there’s a couple of different, you know, takes on this. First is, you know, how are the assets going to perform from a renting perspective, right? You know. And I think that will really be market-by-market because, you know, what are the growth drivers of that market?

The supply coming on in that market. There’s going to be a lot of factors on that. You know, I think that is why we never…partially why we never went to, like, small markets, you know. If you’re market like Bend. Have you ever been to Bend, Oregon? It’s an amazing place.

Scott: I’ve never been. I’ve had friends who speak very highly of it.

Jordan: It’s one of the coolest towns ever, right? But it’s a town of 150,000 people or something like that. And I think it’s the highest percentage of remote workers because everybody loves it, no one wants to leave.

Scott: They want to go hike.

Jordan: Yeah, they want to hike and they want to go to Mt. Bachelor and it’s awesome. You can surf the river. But, you know, what happens if employer…unemployment goes up and employers get the upper hand, and all of a sudden they’re only employing people that want to come into the office. What happens to these Bend residents, you know? I think there’s going to be some that have to move, you know? And so I think there’s going to be impacts like that where, you know, if there’s strong jobs in that market, you know…Phoenix, I think will be doing really well, right?

The whole world, you know, all the companies are still moving to Phoenix. Dallas, you know, it seems like every day a new Fortune 500 company is moving to Dallas and Phoenix. They’re opening massive offices. And Oregon’s got a lot of business expansion. So, you know, I think in those markets you’re still going to be doing really well. But I think there’s going to be other, you know, secondary markets that struggle because, you know, they’re going to be the ones losing businesses and losing residents.

And so, you know, that’s going to be a challenge for landlords in those markets.

Scott: Yeah, I think so. But, you know, one thing I always like to point out, and it’s been proven out, is how multifamily has been one of the most resilient sectors in real estate regardless of the economic landscape.

And I think that’s one of those things where, yeah, there’s going to be some markets where there’s some challenges, but at the end of the day…you know, we were talking earlier about just the general housing shortage and this mismatch between supply and demand. And so there are, unfortunately, going to be some folks, if we do have a recession or we’re already in one, that are going to take some lumps. But I think overall when we talk about multifamily, you know, the thesis is still as strong as ever.

It’s yep, well, folks need homes, right?

Jordan: Absolutely. I still worry though, you know. I’m not, everything’s going to be roses even though we’re in a recession.

Scott: Right. It’s not, “Oh, it’s all sunshine.”

Jordan: You know, I saw some data about, you know… because I think caught everyone by surprise how strong the rental market became. I mean, when I was talking about Spokane going stupid, it was crazy. Like, as soon as you put something on notice, someone’s moving out in 30 days, you would get an application that day within hours of them just going unnoticed. It was crazy.

And I think, you know, in hindsight, a lot of that, from the data I’ve seen, was the shrinking of the household size. You know, people moved out. You know, 20-year-olds, 30-year-olds moved out, right? And they’ve got their own place. And, you know, a certain amount of that can tighten back up, right? You know, people…yeah, everybody needs housing, but you know what, they can live with mom, you know. We can create a roommate.

You know, I don’t like this living with other people because, you know, I have to share the washer, dryer, or whatever. They steal my Cheerios and fart. But, you know, I could deal with it to save 500 bucks a month, you know? And so I think there could be some of that if the recession’s severe enough. Because every recession’s different, right? And I feel, like, you know, the last one with COVID, there was, you know, massive government subsidies.

But, you know, the one in 2008, I mean, people really, really tightened up. And there was a lot of vacancy even in… You know, I had properties in Southern California, a very, very strong market, and, you know, we went like 7% or 8% vacant and had to drop rents, you know, 4% or 5%.

So, you know, I respect that there can be challenges in this market and it’s not always going to be rosy. And, you know, not… Everything you do, prepare for that, except for make sure you’re running a really tight ship and you’re not over-leveraged because that possibility is real. I don’t see it.

You know, right now everything’s super, super strong and I’m not predicting it, but it’s something that I don’t underestimate, you know, that couldn’t happen.

Scott: I mean, I think that’s such a good point, Jordan, to make because, yes, yes, all the signs can be there of, yep, you know, the party’s still going, we’re all right. But you’re right in that, you know, every recession folks behave differently and it’s different. And so tightening up can happen.

And again, it can be market-specific. So Dallas can be still going gangbusters but then you look at some of these other markets around the country and there may be some markets that it just incredibly goes the other way, right?

Jordan: Exactly. So it’ll be interesting to see. I feel good about, you know, the Western markets that we’re in because there’s such demand both from a business perspective as well as, you know, populations perspective. But, you know, I’ve never…

My crystal ball is no better than anybody else’s. It’ll be interesting to see, you know.

Scott: Right. Right. Exactly. I want to ask a bit about just your background. And I think this is a great segue because you’re really talking about, you know, looking at things in a very, hey, you know, it can be great, but also being prepared. You know, you were a captain in the U.S. Army.

We were talking about that just before, you know, we started this recording here. And you also previously founded a digital marketing firm. I’m just curious about how your experiences there in those roles have really helped you in real estate and maybe some lessons you’ve applied to your investing in your acquisition of assets?

Jordan: Yeah. Yeah. I say, you know, the army, the biggest impact…that’s probably the biggest impact of my life overall, right? In the army, especially with officers and going to the U.S. Military Academy, they focus a ton on character and leader development.

And they really focus on just being candid and doing the right thing. Your first summer when you’re a new cadet, you know, you’re only allowed to talk to an upperclassman with four answers, which is, “Yes, sir.” “No, sir.” “No excuse, sir.” And, “Sir, I do not understand.” And I love that.

Like, “No excuse, sir,” that takes away the air out of everybody. If someone’s pissed at you for screwing up and you just say, “No excuse,” then they’re like, “Yeah, I got nothing left to say to you if you get, you know.” So, really like just, you know, everyone makes mistakes and just sort of taking responsibility, owning up, and being candid about what happened, I think was my number one lesson.

Running the…you know, it was actually an IT services company, but our primary job was supporting digital marketing. And running that company, you know…the biggest thing I ever did right with that company was just, you know, sort of knowing, you know, who I am and my limitations. And, you know, I hired a superstar that really took the company and I got to reap the benefits of her great work because I started it, you know.

But a lot of people management and day-to-day growth and money management and, sort of, building out the importance of building out a good, clean back office that has all your books in 100% order helped us sell the company, right?

And so, you know, we really do our best. Yeah. It’s so boring, you know, doing the accounting work and making sure that, you know, it’s all done.

Scott: But that’s blocking and tackling that is so critical.

Jordan: That’s right. Blocking and tackling is so important, you know. Everything from hiring the right people to, you know, making sure that, you know, all your books are in order. And so we pay a lot of attention to that, unfortunately, because that’s not the fun part of the job.

Scott: But it matters. And I like what you’re saying too about the team because you were just talking about how, you know, when you’re looking at exits and things like that, you’re thinking about your team and you’re like, “We’ve got a great team here.” You know. It’s all working and we’ve got great people in place. I think that really does matter and especially when you’re talking about self-managed.

Jordan: It is insane, you know. If you really think about this industry, I think this industry is crazy because a lot of times you’ve got, you know, a lot of women, and they’re making maybe 30 bucks an hour managing a $20 million, $40 million asset, right?

And, you know, the discrepancy of the amount of compensation for those women and the amount of impact they have is crazy. That was actually one of the first things we learned was, you know, we don’t try and save one or two bucks an hour and get somebody cheap, you know.

We want to get awesome staff.

Scott: Of course.

Jordan: And it’s hard, you know, because, you know, when you interview somebody, you only know… And it’s actually kind of why we got into self-management, by the way, was because we wanted to have that control where you only know so much about somebody in a one-hour interview or a two-hour interview. And it’s really, really difficult to know if they give a [beep]. I mean, the give a factor is the make or break, right? Do they care? And so when we find somebody that’s competent and is honest and gives a [beep], we’re going to pay them and make sure they stay with us, and we’re going to keep them even if we don’t have any assets in the market. We’re going to find a way to keep them because we’ll eventually get assets back in that market. And that’s the person that we’re going to want to have running our projects.

Scott: I mean, that has rang true through my career in business as well. And when you do find those folks, might I call them diamonds in the rough?

Jordan: Yeah. You know, it’s so true though. I mean, they make or break it. I mean, if your property all of a sudden goes, you know, 10% vacant because you’ve got a manager that’s, you know…especially in a remote market, you know, they…

Scott: Right. Doesn’t care. Not doing what needs to be done. All that.

Jordan: They could clock in and then go to lunch for three hours, right? And all of a sudden you’re 10% vacant. I mean, that can cost you millions of dollars in value if you’re in a…you know, trying to do a sale or something like that. So it’s critical for us. And we’re lucky. I mean, we feel, like, for the most part, we’ve got an awesome team. But, you know, we go through a lot of them, you know, unfortunately, because you only know so much after one interview.

Scott: Right. That’s life, right. I mean, I think those are some really great lessons that you’ve sort of applied in some just general experience. That’s always inspiring to me when folks have sort of unique background and then they find, you know, multifamily real estate and then are bringing that, and that’s such a key part of their success in it. So I appreciate you sort of sharing a bit of your insights there.

Jordan, I want to thank you so much for joining me on the show today, offering such great insights, and really breaking down this, you know, what’s the deal with secondary markets? I think there’s still so many opportunities. Yes, there’s some economic uncertainty that we’re in right now, but, you know, if you’ve got great people, if you’re looking for those diamonds in the rough, you know, there are still excellent, excellent opportunities to be had there.

And if folks want to find out more, they want to connect with you, they want to see what you guys have going on, where can they do that, where should they go?

Jordan: Yes. So our website is just All one word. And yeah, you can find me there. This pretty face is on there so you know it’s the right website.

Scott: Absolutely. And, of course, we will have links to your site in our show notes, which you can find on our website, as well. So many ways to reach you there. So thanks again so much.

Jordan: Thanks, Scott, for having me.