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Opportunistic Deal Strategies, With Brian Burke
Opportunistic multifamily deals can provide significant returns for investors, but by their very nature come with risks. In a time of economic uncertainty, many investors may wonder if more opportunistic projects will become available in the coming months.
Brian Burke, President and CEO of Praxis Capital joins the show to share his insights on opportunistic deals, the multifamily landscape, and more.
Watch On YouTube
- What makes a multifamily deal “opportunistic” versus core, core-plus, or value-add.
- How Praxis Capital’s “Rebuild Sonoma Fund” helped rebuild Santa Rosa, California after devastating wildfires.
- Why condominium arbitrage can be a profitable investment strategy.
- What made opportunistic deals a dime a dozen after the 2008 housing crisis, and why they’re harder to find today.
- The future of opportunistic multifamily strategies, particularly amidst economic uncertainty.
- Why the sun belt is still full of multifamily investment opportunities, and at little risk of being overbuilt.
- How inflation and interest rate hikes have been impacting multifamily deal flow.
- The importance of experience to the success of multifamily syndicators, particularly in periods of economic downturn.
- What inspired Brian to write “The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications”
Featured On This Episode
- The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications (Brian Burke)
- Multifamily Braces for Another Fed Rate Hike (Multi-Housing News)
- Will increased borrowing costs dent sky-high apartment valuations? (Multifamily Dive)
Today’s Guest: Brian Burke, Praxis Capital
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.
Scott Hawksworth: Hello, and welcome to The Multifamily Investor Podcast, I’m your host Scott Hawksworth and today we’re going to be talking well, of course, multifamily.
But also opportunistic strategies and really exploring a bit of the landscape in multifamily and joining me to offer his insight is Brian Burke who is the President and CEO of Praxis Capital. Brian welcome to the show.
Brian Burke: Thanks for having me here Scott.
Scott Hawksworth: Well, thank you for being here. How’s your how’s your summer going so far?
Brian Burke: Hey you know we’re just kicking it off, but it’s really good so far, you know it’s interesting time to be in the real estate business so that always kind of keeps it interesting.
Scott Hawksworth: Yeah I would say interesting time for sure we’ve seen a lot of movement, so to speak, in real estate, a lot of changes.
A lot of economic uncertainty and we’ll dive into some of that.
But before we go into all of that, I kind of want to dive in and chat a bit more about Praxis Capital, and you know you guys have a couple approaches.
In advance of this recording I was really looking through what you guys have done, and you have two approaches, you have multifamily and then you also have your sort of opportunistic strategy.
I’m curious, how do you sort of differentiate between those two strategies can you I guess tease it out of bed, you know multifamily versus the opportunistic side.
Brian Burke: You know, probably everybody listening knows what the multifamily strategy looks like right you buy a value add apartment complex you improve it, you know optimize revenue and then at some point later on down the line you sell it.
The opportunistic platform is.
Is a little bit more well opportunistic.
we’re we’re looking for opportunity and.
So looking to mine value from places that people might not normally find value and that that could be anything from.
You know renovating single family homes that we buy at the courthouse steps at a foreclosure sale.
all the way up to picking up a field development project and finding a path out for it and in virtually anything in between so we’ve done a lot of different strategies with our opportunistic platform it’s one that I haven’t really put into place much in the last couple of years.
Because the markets just been.
kind of to good on the multifamily side to be you know scraping the bottom of the barrel for opportunistic deals, so it hasn’t been a major focus for us, but you know as the market changes it may reintroduce some of those opportunistic opportunities to come back at us we’ll see.
Scott Hawksworth: Is there, I mean is there may be a crossover because I know a lot of folks they’ll actually think of multifamily when you say opportunistic because there can be those deals out there that are.
kind of framed as such, do you find that there’s been crossover within it’s a multi family asset that is is could also be qualified as opportunistic.
Brian Burke: Oh for sure yeah I mean picture you know, like a rundown apartment complex that’s 40% occupied and.
You know, has unreadable down units, and you know, an owner that’s facing foreclosure I mean those are a scenario that isn’t painted all that often these days, but.
Certainly 10 years ago we used to see those all the time, and you know, there will be a day someday when we’ll see those again and I would consider that to be an opportunistic.
platform type of investment it’s not you know your your front of the mill multifamily play is more of a momentum play where you’re counting on the market.
As well as some light renovations and so on to execute your business plan, whereas in an opportunistic strategy you’re really doing a lot of heavy lifting to add value to whatever it is that you’re buying and we’ll see those opportunities again and certainly in multifamily as well.
Scott Hawksworth: Right, so I mean really over the last 10 years has it just been the case where.
Because the the market for multifamily has been so good and and and it’s it’s there’s been so many projects that are so successful with you know just.
The blocking and tackling aspect of things that a lot of those opportunistic type deals have just been soaked up and they’re just not really there.
Brian Burke: yeah they’re soaked up quietly you know so it’s like you know, an owner tells a friend who is immediately like oh i’ll just take that off your hands, you know so they know it doesn’t get a lot of.
Wide acknowledgment that these opportunities even exist, but I remember about five or six years ago, you know broker calling me with an opportunity in Houston that was like $9,000 a unit and it’s like okay that’s an opportunistic kind of.
You know platform kind of a deal right I didn’t do it because even that was to opportunistic for.
Scott Hawksworth: You.
got your models like.
Brian Burke: yeah i’m like yeah it’s that low then it’s got a lot more problems than I have the energy to solve anymore i’m getting a little bit too old for that so you’ll have to find some younger cat to come in here with a lot more energy to lift that thing out of the doldrums.
But I mean that’s your classic example of opportunistic multifamily where.
You know you, you might strike gold on that or you might find yourself, you know just hiring a bulldozer and you know and just tearing the whole thing down and then selling the land at a loss, I mean you just you never know those could go either way.
Scott Hawksworth: Right and that’s the that’s the risk side right and and I know there’s lots of folks out there that they’re you know when they’re investing in multifamily maybe their.
Their goals they’re looking at more core core plus and then they kind of look at some of these opportunistic deals and they’re saying you know what that’s that’s not part of my risk profile I don’t want any part of that but there’s still those opportunities right.
Brian Burke: yeah and it might not be part of the risk profile anymore, you know There probably was a time in their in their lifestyle or in their career when.
They would have done those deals all day long at least it wasn’t mine but you know now as.
i’ve kind of you know, been there, done that got the T shirt I don’t need any more T shirts now I can just I can stick to something that’s a little bit easier and that’s.
that’s probably the crux of our business now is a really more you know newer multifamily less heavy lifting you know nicer neighborhoods and that sort of stuff but you know, certainly, there was a time when we spent a lot of time doing a lot of work.
Scott Hawksworth: Right, and I mean are there from that time are there takeaways that you might be able to share.
That and maybe lessons that you’ve applied to what you do today, even if it is you know less opportunistic and more just newer and and more you know standard multifamily what a lot of folks might be familiar with.
Brian Burke: This is a 20 hour long podcast right.
Scott Hawksworth: yeah I think yeah we’re doing an all day thing.
Brian Burke: yeah there’s all day all day podcast great and I have time to tell you all the stories, I think the biggest takeaway, especially when you’re looking at you know opportunistic style deals.
Is the hit ratio, and this is probably the most important lesson is some of these things will be an absolute home run, some of them will be a massive loss, some of them will just do Okay, and at the end of the day, you do pretty good.
You know you’d probably do a little bit better on a blended basis, then you might if you were just doing run of the mill core plus type stuff.
But in certain market environments, not even that you know, sometimes you know, like what we’ve seen over the last three or four years just your core and core plus and value add plays would stomp all over opportunistic deals all day long.
Scott Hawksworth: mm hmm I think that’s a that’s a really good point and and especially now kind of I guess shifting gears a little bit when we sort of look at the current economic landscape.
It seems like a lot of folks in the in the multifamily world are also looking and they’re saying okay we’ve got to look at our risk, even within.
You know, some of these more traditional plays some of these more core core plus because now you have rising interest rates, you have to look at leveraging have to look at all these other aspects is that kind of what you’re seeing now.
Brian Burke: I think if you’re not optimizing risk right now you’re really making a big mistake, you know, having lived through a lot of market cycles in the 32 years i’ve been doing this.
This is not a time to be you know treading too far out on the risk profile, you know even standard, you know.
Just regular value add multifamily business plan is should be really taking a hard look at how they’re being financed and.
What debt loads are taking on, and you know and and what areas they’re investing in and make sure that.
you’re in a strong demographic environment, in other words you’ve got a lot of people moving to the area where you’re buying not people moving away from the area that you’re buying.
you’re not financing with too high loan to value ratios are too short of a maturity on your debt those those things to really be considering very, very closely right now.
Scott Hawksworth: Right, so if someone’s out there saying, I just want opportunistic type deals, maybe they should take a take a step back and really consider the the larger landscape.
Brian Burke: Well, you know there’s some people that are really, really good at it, you know and they managed to squeeze every dime out of some really.
tenuous situations, but those are few and far between I mean a lot of these opportunistic deals end up in total disaster, so you just really got to be careful.
Scott Hawksworth: mm hmm absolutely want to dive into a few of the deals that you’ve done, you know, over time, and that practice has been involved in, because I, some of these I just think are such fascinating.
You know back stories to them, so you know i’m looking at this right here.
One project, you had is a rebuild sonoma fund, which was born out of the destruction of 5000 homes, from wildfires in Santa Rosa California well, can you tell us about that project that’s just an interesting backstory there.
Brian Burke: Well, I woke up one morning to pounding it my door when my brother in law was trying to wake us up to tell us we needed to get the hell out of our House, because there.
Scott Hawksworth: was a guy or Gal me.
Brian Burke: And when when I strolled outside and walk to the end of my street and looked left and looked right all I saw was about 10 miles of fire.
And so, luckily the wind shifted before it got all the way to me.
But not before it had flattened 5000 houses in the city that I live in, so the course The next thing was, I wonder if my office is still standing.
So I managed to find a back way in to get over here and found.
Our entire parking lot on fire.
Scott Hawksworth: Oh, my.
Brian Burke: dumpsters were on fire and everything but the building was still here so i’m like Okay, the office is good i’m good.
So we made it through, but literally everything around our office burned to the ground, I was a hotel directly across the street it’s gone mobile home Park, I mean you name it everything was gone and.
Like it was within know I probably took a week when investors for calling England like what are you going to do about it and i’m like i’m not gonna do anything I hate development and then.
About maybe seven or eight months later, the largest home builder in our city that had probably built at least a quarter of the homes that burned down.
came to me and said, you know hey where we got a lot of people wanting us to rebuild their houses, because we built them, the first time they want us to rebuild it for them, but we also think that.
You know we’re getting a lot of people that are asking if we would just buy their lot because they just went out.
And they thought we see an opportunity here, where we could build houses on those lots and resell them.
and make a profit, would you be interested in in working together on that and now all of a sudden, I could get into development business without having to be a developer myself and.
thought that was a really interesting opportunity to not only help the the city recover from a disaster, but also to.
get involved with the largest and best builder in town and maybe make some profits for our investors and that’s what we did, and it’s it’s been a it’s been a fun ride.
Scott Hawksworth: that’s incredible that’s incredible and you know building homes that that folks need and rebuilding you know, out of that I think that’s just.
A compelling story, especially when you look at any kind of real estate be at multifamily or not, that sort of hey bringing homes to people I think that’s that’s a really compelling thing.
Brian Burke: yeah it’s pretty cool.
Scott Hawksworth: Okay, you have another you have another strategy that you highlight around condominium arbitrage and then I want to get this right.
You targeted some assets that were built at the height of the real estate boom and oh six and oh seven but never sold, can you talk a bit about that strategy and how that can be a profitable in in terms of you know, overall, that that sort of opportunistic lens.
Brian Burke: yeah what we were doing was well you know back before the major economic collapse await oh nine, there was a lot of condominium development going on back then.
and developers were building, you know mid rise condominium towers in urban markets and.
You know, they were going to sell the units off, and you know the economy got in the way of some of these developments, and you know, some of them went into foreclosure and went back to banks and got completed by a subsequent developer, or maybe we’re already completed but.
never got a chance to sell before you know they got into trouble or or couldn’t sell I mean jeez values went down 50 to 60% in some.
riots when the when the economy tanked so they couldn’t sell some of these condominium units so whenever happening to these buildings, they just rented them out like apartments.
And yet they were fully condominium approved individual units, but they had never, never sold and we’re just rented out so we decided to get into the pizza business and by the pizza and sell the slices.
And what we would do is, we would buy the entire building.
And then we would sell off the condominium units dimensional individual buyers and, of course, you know come.
We were doing that strategy by then the real estate market fully recovered and the value of those units had had gone up tremendously so is a interesting way to finally complete what somebody started about you know 10 years earlier.
Scott Hawksworth: Right right when you’re looking at the landscape, right now, I know that there’s a lot of folks that are saying Okay, is there.
Is there another you know mini bubble or something like that that’s on the horizon, that we aren’t quite seeing we’ve seen these interest rates going up.
You know mortgage applications I don’t know have the exact statistic in front of me but they’ve been declining you know quite rapidly over the last few months.
i’m curious if you get a sense that there could be more of these types of opportunities what’s your overall take on, I guess the the real estate landscape, as it is right now.
Brian Burke: Well, I don’t think there’s going to be a ton of those kinds of things you know, in the kind of single family and condominium world.
It just depends on where the real estate’s located you know i’ll say like in a lot of the strong markets California has one strong single family resale market arizona’s another and Florida.
You know, instead of getting 20 offers on your House now maybe you get to but you’re still getting your price.
So pricing is holding up even though you know buyer interest is certainly declining that’s what we’ve seen so far, now that that could still change.
In the multifamily sector yeah there’s I think a mini bubble, but, most people have missed it already it popped in April or May.
And we’ve seen price declines of about 15 to 20% in the multifamily side between May and July, and I think they still need to come down just a little bit more, but they probably will it’s a little bit late to.
You know, to play.
That bubble if you’re trying to short the market, somehow, but it was a great you know before that it was a great time to sell and it will be a great time to buy here pretty soon.
Scott Hawksworth: yeah absolutely absolutely, and I mean I think that’s something I always probably a broken record on the show, but I talked about my overall thesis for multifamily and you know we’ve seen it it continues to be.
You know, one of the most resilient asset classes, no matter what’s happening with the economy.
And you know people need homes, and so I guess from your perspective you’re saying hey yeah that bubble may have may have already popped a bit prices have come down but it’s it’s it’s getting close to a time where there’s going to be some really great opportunities.
Brian Burke: fundamentals of the market are really good you know the residential.
property is in demand.
Rentals are in demand there’s.
In some markets, not enough apartment units for the number of people who are moving into town or needing to get apartment units and so those fundamentals are strong you know what’s been challenged, is of course borrowing costs are higher interest rate caps costs more.
There was an emotional premium on prices that came in about middle of last year and into the first quarter of this year that was causing buyers to pay exorbitant prices for multifamily assets and.
That music kind of stopped at that party and now, people are realizing Oh, we actually have to buy based on fundamentals in numbers that actually work.
Well, the you know the numbers from six months ago don’t work anymore.
And it’s time to reprice those but fundamentally the you know the it’s a good sector to me in but you know they they can still experience price fluctuations when things like borrowing costs fluctuate and when rent growth, reduce you know starts to reduce that’s going to have an impact.
Scott Hawksworth: yeah i’m actually in terms of rent growth, you know we’ve had just incredible rent growth at the start of 2022 here.
You know, over over q1 and I was actually reading an article recently that was talking about, you know as it peaked and it was.
pointing out how you know, on several markets we’ve seen you know those prices those run start to that growth starting to slow is that what you’re you’re seeing I mean, where do you see rent growth as it is right now.
Brian Burke: yeah red road has been crazy and it can’t stay crazy forever, so I looked at 150 major markets across the country and in 2022 there were.
Over 100 of those markets were forecast to have double digit growth being over 10% annual rent growth for 2022 in 2023 forecasts that number was 36.
So there’s a lot of markets that were above 10% that are going to drop below there were some that were above 20% are probably going to drop a lot.
And that was a forecast that I saw that came out about two months ago, well, I would say that if if you were to see that same forecast come out today.
You would see even fewer markets that are going to be in that double digit growth and the reason I believe that to be the case is there still a demand a strong demand for for Rentals but.
In, especially in markets that have seen a rapid increase over the last you know, a couple of years there’s only so much that people can take and in the beginning.
rents were the only thing going up, and so you would have a lot of wage growth.
You would have people moving from higher income areas still to lower income areas yet bringing their higher income job with them, because their jobs, suddenly became portable.
And that gave them tremendous buying power to come in and reprice the rents in the markets, they were moving into.
And there was a lot of runway in rats I mean lower wage here we’re seeing massive wage growth, you were seeing pushes for $15 minimum wage up from $7 in some areas that’s like a doubling of income.
And so, when you see that kind of massive wage growth there’s a lot of disposable dollars that can be allocated to housing costs.
And that’s what happened and that resulted in tremendous rent growth and that that worked until it doesn’t and when it stops working is when gas prices and food prices and clothing prices and everything else start to compete for those surplus dollars, because they’re all going up to.
It gets to be a point where those people can’t tolerate any more increases in rent they just don’t have the extra dollars, you know it’s getting eaten up.
In all their other expenses and you know now that other expenses are competing against rent growth you’re going to see a slowing of rent growth.
Scott Hawksworth: Do you see kind of speaking of rent growth, I know a lot of it also was focused around a lot of class a properties.
saw a lot of that that growth there have you seen folks renters saying okay Well now, these.
Are you know I have absorbed all of this, all these rental increases now it’s actually time i’m actually going to be looking for something that might be qualified as a class B, you know type of property and almost downgrading as a result is that something that’s kind of happening.
Brian Burke: i’ve never really seen downgrading you know I hear about it all the time, you know, everybody wants to say oh classy properties are the best because in an economic collapse, the class a moves to be the be moves to see see stays full in a is empty.
wisdom right yeah that’s it was I don’t have no idea where these people come from it say that or if they’ve been in business.
long enough to actually have seen an economic collapse because I have not witnessed that in in all of the economic downturns that i’ve been in and there’s been a few in 32 years i’ve been doing this.
I have always seen classy get hit the hardest because it’s always the lowest wage here that seems to suffer the worst and yeah We saw this in the coronavirus pandemic right.
who got laid off from their job, all the hotel and food workers and entertainment workers and people that worked at amusement parks, I mean anything that was.
In the lower wage sector was all on furlough.
And so they got hit massively and you know poor stop paying rent and you, you, you would see like in a portfolio of a balanced portfolio of multifamily you’d find your a tenant’s we’re still paying your beach as for paying pretty good but you’re seeing was like no one was paying.
Scott Hawksworth: Right it just went on the cliff.
Brian Burke: that’s how that’s how it was in oh 809 I had a see property, then I used to joke that half the units were empty and the other half weren’t paying.
And that was because you know when when the jobs all got lost.
You know about half of the people were like i’m out and they skipped and left the unit empty and and pretty crappy condition, I might add.
And then the other half didn’t have the money to pay so you know they were just skipping you along for rent staying until the Sheriff showed up so.
I haven’t seen this phenomenon of downgrading usually what you see is your class a tenants they they value their credit rating, and so they don’t skip out they pay.
If they can’t afford it they’ll get a roommate they’ll double up or they’ll just move out leave the unit in decent condition generally.
and move in with family or friends and that sort of stuff so that’s more what I see, then, you know it’s hard to see a class a tenant who’s become a customer those amenities move into a classy building you just don’t see that happen.
Scott Hawksworth: Right right, and I mean that makes sense to me when you sort of lay it out that way because I just think about just general human nature.
And it’s like well actually now I don’t want the Nice workout room and and these nice elevators and i’m going to go, you know to a property that doesn’t have any of these amenities right.
Brian Burke: Right yeah and you know, and I don’t mind hearing a few gunshots at night, you know as long as the bullets aren’t coming through my window, you know, nobody says that.
Right right they just don’t do that they’ll say like oh geez I can’t afford this anymore, I have a friend that’s looking for a place, you know I got enough extra bedroom.
i’ll have them rent that will split the rent and we’ll get to stay here and it’ll cost me less they’re more likely to do that.
Scott Hawksworth: So I guess from your perspective, do you think you know we we still have, I think there’s still.
A lot of economic headwinds that we’re facing here, do you think that class C is going to have some maybe tougher times on the horizon, and you know they’ll they’ll they’ll come through it, but that might have a bit more of a tougher outlook.
Brian Burke: I think actions speak louder than words we’ve sold our entire class C portfolio and everything we own house built after 2000.
Scott Hawksworth: There you go.
I think actions do speak louder than words when you put it that way.
So so very much, so I think that’s part of your strategy that kind of ties into what we’re talking about where hey there’s still those opportunistic.
You know deals out there, but but maybe it’s one of those things where it’s a it’s a bit tougher to to fully have the same kind of faith when we’re in this sort of uncertain situation right.
Brian Burke: It always requires more work and any opportunistic.
deal requires a lot of work because that’s really what’s pushing it right, I mean they’re opportunistic for a reason, they need a lot of health and human input.
To bring that property from where it is now to where it’s supposed to be it’s a lot of effort, and if you for one moment take your hand off the steering wheel vehicles, leaving the roadway and you may or may not be able to control it to get it back in your lane.
Scott Hawksworth: You know, Brian I think that’s such a good point too, especially as we we do look at what’s happening now, I know.
A lot of folks have had trouble even just getting in terms of the workforce when they’re when they’re doing you know even just general value add and having trouble finding the workforce, depending on the market.
trouble with materials and some things just taking longer you know the supply chain disruptions all of that that kind of feeds into it, if you have this deal where you know it’s it’s predicated on getting that work done and bringing that building up to what you want it to be right.
Brian Burke: 100% yeah it’s that is absolutely true you you nailed it I couldn’t say it any better.
Scott Hawksworth: All right now I wanted to ask you about this, because this was another opportunistic project that I saw on your site and.
failed developments and the example you had was 180 unit condominium project in Arizona.
Can you can you talk about just the general completely failed development and what what transpired there.
Brian Burke: yeah this was still another leftover from the from the 2008 economic collapse, this was a developer that around oh five or six bought a property in in Arizona got a fully entitled for 180 unit condominium development completed, I think it was about.
12 or 24 of the units and partially completed like a dozen or two dozen more.
And had all the infrastructure done like curb gutter sidewalk underground utilities, the entire hundred ad unit project fully complete just no vertical structures, except for those units that were completed or partially complete.
You know, economic collapse happens now he can’t finish building as construction on times out.
They go into foreclosure the lender takes it back the lender operates it by renting out the completed units they even went so far as to finish out the under partially completed units.
To you know, to make them rentable and then they owned it for about four or five years until Finally, the fund that.
That had taken this back was liquidating and they this was the last property and they had to get rid of it, so they sold it for like nothing.
And so we bought that with the intent of doing you know, one of three things we would either develop it out and rent it and own it as an apartment complex and we’d have 180.
townhome style units, they were about 1800 square feet with a two car garage you know they’re really nice build for rent units or the other, alternative would have been.
To just simply you know sell the whole project off or we could build out all the condo units and sell the condos one, at a time.
So we didn’t know exactly which strategy was we were going to employ and when we bought it in the very beginning, although we had a favor towards just letting the market, improve even more than selling the entire project.
But we explored everything, and you know we kind of know the construction costs were and everything and just it was going to be.
A headache to build it out and more of a headache than, then I really wanted to do so, instead, we just opted to sell the whole project well I probably a month after we bought this deal, it was announced that a major.
Corporate event was happening, where an electric car manufacturer was going to be locating their.
Plant in this town, this is a city of like 50,000 people and now all of a sudden, they were going to get like 3000 very highly paid engineering jobs.
As well as several other major employment announcements that were made for other businesses locating to this area.
And it was just going to completely transform this whole area and.
So we waited about I think it was two or three years for a lot of that to play out, and then we put the whole project on the market and sold it and did really well on that so.
We didn’t even really have to touch it we just kept the units rented out and sold the whole project to the next guy who is planning on building it all out and doing all that construction.
Scott Hawksworth: that’s beautiful so so all the different options and you kind of ultimately were like hey let’s just hang on and let things shake out and it worked out.
Brian Burke: Multiple exit strategies.
always a good thing to have.
Scott Hawksworth: yeah I mean is that is that something that when you go into any asset you’re kind of thinking about you don’t necessarily go in, well, we have this one plan we’re going to go this way with that you’re you try to keep things open.
Brian Burke: yeah always try to safely pretty flexible, even on a value add multifamily deal will underwrite it for a 10 year hold.
But you know who knows what the real exit plan is going to be, you know we might sell it in two years, three years, five years, we might refinance it year three and so, in your five.
You know I I people have always asked me throughout the years i’ve done a lot of different things in real estate, are you a buy and hold investor or are you a buy and flip investor, what are you.
And I created my own term where I said i’m a buy and watch investor that’s what I do I buy the asset, and then I watched the market for the most opportune time to exit and the most opportune way to exit and that’s how we that’s how we make our decisions.
Scott Hawksworth: I love that by and watch I think i’m gonna steal that.
Brian Burke: wouldn’t be the first one.
Scott Hawksworth: I like it, I like it um Okay, so I guess, I guess, one question I have as well, because we are talking about this sort of economic landscape, do you think that.
There will be more you know failed developments and and things like this, where you know, maybe folks.
You know developers out there underestimated the market, they they you know made mistakes we’ve now seen these rising interest rates, people are going to.
You know, lose control of their debt can you do you think that there will be some of these opportunities that that come up and and can present opportunities for potential acquisitions.
Brian Burke: yeah there’s those opportunities are always out there, you know there’s even in good markets, there can be a.
Few of these out there right, I mean the developer dies, and the family doesn’t want to take over and finish it or you know there’s all kinds of things that happen in life.
It create you know these various opportunities I what I don’t see happening is massive scale that we used to see, and you know after oh 809 I mean this stuff was on every street corner.
I mean right, you know getting opportunistic deals was kind of like just you know grab a net and see how many.
Of you can catch with one sweep exactly that walking direction you’ll run into one right you’ll see one right exactly now it’s not quite that same picture you got to look a lot harder and be a lot luckier but.
yeah they’re always out there there’s always something that happens and goes wrong, and I think we’ll start to see more of those at some point.
You know now, if you think about it you’ve got a lot of people that had not as much experience and development that have gotten into development of.
You know apartment complexes and so forth, because the market is ripe for that who now are faced with, maybe a little less rent growth and they are hoping for.
You know, maybe their interest on their loan went up a little higher than they ever thought it would.
And they’re running up against the deadline on getting to their occupancy targets and because of rising materials costs.
You know there’s not much meat left on this bone for them, and you know some of these guys are going to end up walking away and.
leaving their lenders to you know clean up the mess and you know the lenders don’t want to do that they’d rather just discounted and get it off their portfolio so.
I think we’ll start to see a little bit more of it, but I just don’t think we’re going to see if the scale that we saw you know what I called back in the day, which is.
Scott Hawksworth: makes me to show my age right, and I think I think overall that’s just so many lessons were learned that even, even if we are you know in this sort of.
More economic downturn landscape, I just think that the approach is a lot different and a lot of folks have gone in with just more eyes open, especially those who have memories of you know you know, eight and beyond right.
Brian Burke: yeah anybody that still has battle scars is probably going to be a little bit better off because they don’t want to repeat that experience but there’s a lot of people out there that have been in this business for over a decade that have never experienced anything but not market.
And when you’ve been doing this for a decade.
You know what you’re doing you’ve been around long enough to be fairly competent in in what you’re doing, and so you know, they can also get overconfident and and say like Okay, the next step is to go all out on this deal, you know and that’s when they get hurt.
Scott Hawksworth: Right yeah yeah yeah there, there may be that temptation of well I know this deal pushes it more than we’ve ever done before, but you know what we can do it.
Brian Burke: yeah we’ve we’ve been successful, you know.
19 times we can number 20 is going to be a massive home runs to the best do we ever did and it’s like whoops we didn’t see that coming.
Right asked me how I know.
Scott Hawksworth: exactly right, it sounds like that’s something you’ve you’ve experienced, or at least come around i’ve been very i’ve.
Brian Burke: You know I remember you know way back when you know I had been doing this for you know 10 or 15 years when oh eight hit.
And you know and i’d been doing this for 10 or 15 years I pretty much thought I knew what I was doing, and you know the market taught me otherwise.
And even though I managed to survive and I managed to not lose any investor money, I went through my own set of painful experiences getting from one side of that to the other, and you know that’s part of the rite of passage I guess.
Scott Hawksworth: Absolutely yeah you got it you got to take the lumps right.
Brian Burke: I guess so.
yeah and those and those will leave opportunities for others.
Scott Hawksworth: mm hmm absolutely I want to as we’re kind of winding down here, I do want to talk about markets, a bit I know currently you guys have many assets they’re located in the south.
In the West kind of across the Sunbelt as well, and you know I talked to many different investors developers and.
there’s always a varying opinions, but so many folks are are into the sun belt may think oh there’s just such great opportunity, but then there’s other folks that say.
You know what i’m concerned about some of these markets i’m concerned about phoenix i’m concerned is going to be overbuilt i’m concerned.
You know that that there’s too much development activity happening in the sun belt, why are you still bullish on those areas, maybe, in spite of the fact that there is so much attention and interest in development happening in them.
Brian Burke: yeah well it’s a two part thing really I mean the amount of development, really is irrelevant what’s most important as the construction to absorption ratio.
Out of the units that are being constructed, how many of them are getting rented out and what we’ve been seeing is that more units have been getting absorbed and created so.
As long as the ratio stays like that then you’re in pretty good shape and you could build 100,000 units, a year in phoenix and that wouldn’t matter if there’s a million people you’re moving there.
You know, it really just depends on you know what the population movement trends look like and what the construction absorption ratio looks like so that’s certainly something that we do look at.
But I my investing thesis is great quite simple, we invest in markets where people are moving to, and we have weighed markets where people are moving from and we do that for a simple reason that.
Real Estate income real estate is driven by the amount of income that real estate produces and that income is driven by supply and demand.
And so, if you have a lot of demand for your property, because you have a lot of people moving there and your supply is constrained enough that absorption is still remaining positive.
Then you’re in a good place and versus if you’re buying in San Francisco where everybody’s leaving.
You could be in a lot of hurt and I think a lot of San Francisco landlord saw that, when all of a sudden their units are emptying out and rents were going down and.
It was getting really difficult to find people, because all those people were moving to phoenix so you know we’ve we buy in Arizona Texas Georgia Florida Alabama carolinas, these are all markets where population trends are heavily favoring you know positive.
Population growth in those markets and that’s worked out really well for us and we avoid markets like California Oregon Washington, you know these places where people are moving out of those areas to go to greener pastures.
Scott Hawksworth: And then to your point of you know, by and watch, then you kind of I assume you watch these markets and if it seems like those trends are reversing, then you maybe adjust strategy.
Brian Burke: yeah we sell and you know and we’ve you know, out of the 4000 units that we’ve bought we’ve sold 3000 of them, and probably 2000 of those were last year.
So you know we’ve you know we watch the markets and we look, for you know what do we think is going to happen, how much value, have we harvest on the markets, how much runway is left.
And we, you know we make our course corrections, based on what all those inputs are telling us and a little bit of gut feel.
Scott Hawksworth: As you look across the the current multifamily landscape and I know we’ve covered a lot of ground but are there any trends that you’re seeing that are particularly compelling to you that might be worth mentioning for folks listening.
Brian Burke: One trend i’m seeing right now is price declines, you know we’re seeing.
Probably 1510 to 15% very clear price declines in.
A lot of really, really strong markets, mostly in reaction to increase borrowing costs.
Right and a reduction of rent growth forecasts, I think that trend was probably going to continue a little bit and it’s going to present some good buying opportunities, based on some solid fundamentals in the months ahead.
Scott Hawksworth: And I guess From that perspective, do you think from the passive investment side.
keeping an eye out for some of these opportunities that there’s still a lot of great deals out there, even if we are seeing some price declines and and you know that rent growth slowing.
Brian Burke: yeah I mean there are always deals out there it’s just they’re you know they’re getting a little harder to find because, even though the price might be down 10% doesn’t mean it’s a good deal.
You know, we gotta wait to see that the numbers really shake out really well, and you know i’ve said, all you know we haven’t we haven’t.
raised any money for an acquisition and seven months because I can find no compelling reason to buy for the last seven months, a lot of compelling reasons to sell.
And we’ve been certainly doing that, but no reasons to buy.
But i’ve you know kept our investors informed all along i’m you might see something from me at any moment.
Because you never know when that right deal is going to show its head and be one where the numbers actually makes sense, even given what’s going on out there today so they’re they’re out there.
Scott Hawksworth: Absolutely Ryan you wrote a book on i’m gonna get the tight title right here the hands off investor.
An insider’s guide.
To investing in passive real estate syndications what inspired you to write that book.
Brian Burke: Well, a couple of things, one is a friend of mine lost her entire life savings investing in a passive investment.
She invested with the wrong sponsor who turned out to be a crook and basically stole all the money.
And now he’s in prison.
And she’s driving for a rideshare service to put food on the table, instead of being financially stable, I felt like if there was anything I could do to prevent that from happening to does one other person than that effort would be worth it.
The other reason is i’ve been in this business for a long time it’s given me the opportunity to talk to a lot of passive investors and.
Listen to their questions and their stories and by the questions that a lot of these people are asking I realized that.
They were asking a lot of the wrong questions and even though they were accredited investors and so called sophisticated investors and maybe even had experience investing in passive opportunities.
Many of them just really had no idea what they were doing, and you know they were they thought they were asking the right things and doing the right things, but they really weren’t getting down to where the bodies are buried and.
I felt like I could change that, and so I started doing some research and found that there was really no were out there for these people to turn to learn what to ask and what to look out for.
When making passive real estate investments and since it wasn’t there, the only way to fix that was to create it, so I wrote the hands off of investor.
Scott Hawksworth: that’s incredible Brian could you could you indulge me what are some of maybe the wrong questions that passive investors were asking, and maybe what are what’s what’s a good right question to ask.
Brian Burke: Well, some of the wrong questions where you know what are the what are their, what are the returns.
You know, everybody was just that’s first question, they will you know what are the returns, going to be.
You know well, who knows you know and what difference does it make what number I tell you I could give you I could pick any number and and that might satisfy your question, but yet you haven’t delved into anything about how I arrived at that number.
Scott Hawksworth: Right, where where did that.
Brian Burke: Where did that come from what were the inputs that generated that output, which is far more important than the output.
So that was one of them and other one was you know how much money, are you putting in the deal.
And it was interesting to me that I would find that a lot of passive investors would make their investment decision.
Based on how much money the sponsors putting in the deal if the sponsor putting a lot of money and they’ll invest as much it’s not putting any money and they don’t invest and it’s like.
That is absolutely not the right metric to be using you know they were thinking it was way more important than it was.
And you know, while certainly it’s a fine question to ask if you invest in something just because the sponsor is putting a lot of money into it.
You could just be you know jumping off the bridge because you’re following them jumping off the bridge so.
there’s a there’s a lot better questions to ask you know as relates to skin in the game, you know there’s a lot more things that are important that how much money they’re putting in things like.
How long have you been doing this what’s your reputation like what’s the track record look like how many times have you lost investors money.
You know what kind of a brand new, you have to protect you know does anybody care if you just disappear.
Could you just you know fold up shop and come back tomorrow under a new name and nobody would be even the any of the wiser and there’s a lot of good questions to ask about.
About skin in the game and.
About returns it’s more about you know, like Where are you getting your rent COMP So what are those can I see the rent comps what is the rent growth in this market, can you show me a report that substantiates that rank road.
What income and expense assumptions are you using and how are you arriving at those numbers and can I see the historical financials you know there’s a lot of different things that.
that people should be asking, other than some of these like you know blatant I call it bright line questions like answer this right Alan best answer wrong I don’t and you know, whatever answer, they give you could just lead you down the wrong path.
Scott Hawksworth: that’s exactly right I think that’s that’s I think you gave some great examples there, and you know when I speak to investors it’s it’s it’s things like.
Okay well don’t just ask what the exit CAP rates, going to be asked how they arrived at that and it’s like oh you’re projecting that you know is that going to be the case right.
Brian Burke: Right or you know, do they even tell you what the exit CAP is going to be, or they say oh we’re going to sell it for this much well how did you arrive at that number.
What income were you using and how did you arrive at that income what caprica were using and how do you read that CAP rate and it doesn’t mean that the investors have to get into a debate or a question answer session with the sponsor.
what’s even more important is what materials to the sponsor put in front of the potential investor to anticipate all of these questions and give them an answer before they even ask it.
You know that’s the hallmark of a really.
Truly good passive investment sponsor is if they can answer all of your questions before you even ask them.
That tells you they know what they’re doing if instead you go through like you know, one of the bonus contents of the book if you order it direct from the publisher is like I don’t know 75 questions or something to ask a sponsor.
You know, you should be able to go through that whole list and answer almost every question just from the materials that they’ve been given you if you actually read them.
And you shouldn’t really have to ask the sponsor much of anything now certainly it’s fair game to ask them any questions and fill in any blanks that you feel are needed, but.
The more of those questions that they can answer without you asking the I would say the probably the more experienced or you know the the more in tune, they are to the needs of a passive investor and that’s really important.
Scott Hawksworth: 100% hundred percent Brian Thank you so much for joining me on the show today, I feel like we covered a heck of a lot of ground we talked opportunistic We talked multifamily landscape and so much more so I really, really appreciate it.
Brian Burke: was a great time thanks for having me Scott.
Scott Hawksworth: Absolutely, and before I let you go if folks want to connect find out a bit more see what the latest goings on at at practice are where can they do that, where, should they go.
Brian Burke: Go to our website for practice capital it’s practice CAP COM that’s P ra X CA P COM, you can also check out bigger pockets calm, you might find me there on the forums answering questions or.
read some of the articles i’ve written for the bigger pockets calm blog you can follow me on instagram at investor Brian Burke.
or check out the hands off investor that will pretty much take everything I know in my brain and put it into yours and that’s available bookstores Amazon or from the publisher with the bonus content at bigger pockets COM forward slash syndication book.
Scott Hawksworth: Fantastic and will of course have links to all of that, in our show notes on multifamily investor calm, so you can go there and get all those great resources thanks again Brian.