Multifamily investing webcast kevin bupp
- Eur/usd analysis forexprostr
- 2 Окт, 2012
- 3
We all have a unique ability that seems incredible to others. The trick is figuring out what it is that you are particularly good at and using those strengths to craft the processes and systems that capture wealth. Laubscher to discuss the best investment opportunities out there, the reasons why people struggle financially, and his advice around collapsing your financial plan to achieve financial freedom through multifamily investing. Today I am joined by Tom and Tim Black of Napali Capital to discuss their journey in real estate, with a specific focus on the passive investor.
Listen and learn why multifamily is the best choice for passive investors, the returns a passive investor can expect, and the staggering tax benefits of the platform. But if you work with Nighthawk Equity, my partnership with Mark Kenney, you can leverage our reputation to secure that critical first deal. But my guest today, Damion Lupo, can vouch for the fact that a quality team is an investment that will save you millions in the long run.
Once he decided that multi-family was the route he wanted to take, Joseph committed to doing whatever it took to secure his first deal—despite the roadblocks he faced during that two-year journey. Kevin, what are your thoughts on what's going on today with a lot of new syndicators raising a lot of money, taking down deals with very low margins, where they have to flawlessly execute or the deal doesn't work? Are you seeing a lot of risky deals being taken down out there? Kevin Bupp: It's hard to define what a risky deal is.
I think the riskier aspect of any deal, whether it's good or bad in our eyes, is the actual sponsor and their expertise, and what their own personal balance sheet looks like, or the company's balance sheet. Can they weather a potential storm, or is it really just the LPs money that's at risk here and really there's nothing much at risk for the individual sponsor?
And so what does a track record look like? Does it go back prior to ? How did they weather that storm? So again, it's really hard to say what's a risky deal or not a risky deal. I would say that I love multifamily, but we know that the margins have been incredibly thin for many, many years now, and there's lots of bridge debt out there. There's lots of floating bridge debt. And I think that the riskier component of all this, aside from just the bridge debt, are the C class assets.
There's a certain point in time, and the argument from the sponsors, at least over these last two years, especially in the C class stuff, is that rents will continue to follow inflation. So rents have seen historical increases over the past two years, but there's a certain point in time, Ash, where tenants simply can't afford it. They simply can't afford to pay their rent. So when do we hit that ceiling, first and foremost?
And if we hit that ceiling at some point during that bridge period, where they're trying to execute their business plan, then how does that impact their ability to tie perm debt on, or to even exit out of that asset before that bridge debt comes due?
So that's really where I think the big risk lies, and a lot of it is really going to boil down to the expertise of the individual sponsor and their team of how they can weather any potential hiccups that come their way. Break: [] to [] Ash Patel: I love when you said, "Look at the balance sheet of the sponsor. Very important. Kevin Bupp: And if whatever is on our balance sheet is only attributed to some sponsor fees that they just collected on that deal from the capital they raise, and that's truly their nest egg - everyone has to get started somewhere, right?
And so I'm not going to say that's a bad thing. It should be a reason for potential concern. Dig a little deeper, get to better understand who that sponsor is, and get comfortable with them, and assume the worst. Assume that times are going to be turbulent. This is if you're talking to some sponsors now, just know that times are going to be turbulent. I don't care what asset class you're in, there's going to be turbulence over the next couple of years, and who knows how long; it's already rearing its ugly head in a very significant way right now.
And so just be overly cautious and dig deeper than what you might have had to do three, four years ago. Ash Patel: Great advice. Kevin, I knew you as the multifamily guy and the mobile home guy, and today I read car washes, parking lots, self-storage, medical office. Give me that evolution. How'd you get into all this? You know, Ash, we like to take a very strict focus, a very siloed focus on our own business as GPs.
So that, historically, for the last decade at least, has been manufactured housing communities. So we became experts in that space, and that's all we did as far as on an active level. I've always said that it's really hard to be everything to everybody, meaning that, okay, we buy manufactured housing, we buy multifamily, we buy self-storage, we buy all this stuff and we operate it internally, and this is our team.
And that's challenging to do. Each one of those assets have some carryover skillsets, but a lot of them have their own unique nuances as well, and it's really hard to be the best to everybody or to every asset class. And so again, we've always focused on manufactured housing. Recently, we stepped into the parking sector - again, a very, very boutique niche asset class, very fragmented in nature, which is what attracted us to it, and also not very operationally intensive based on how we have our business model set up.
So it didn't really pull us away from really our core focus, still manufactured housing. But along these last 10, 15 years, there's all these other asset classes that I absolutely love. I love the underlying fundamentals of medical office. I love the underlying fundamentals of car washes and self-storage. It's just, we never wanted to venture down that path and dilute our focus. So I've got a lot of personal investments with sponsors that I've known for years that, again have long track records, and I don't want to operate their self storage, but I'll put my money with them and allow them to operate it, because I love the asset class.
So I think there's a million and one different ways to make money in real estate, and I like to have my portfolio diversified, and it's pretty challenging for me to diversify the portfolio as a GP, but I surely can do it by investing with other GPs that are masters of their craft.
Ash Patel: Out of curiosity, why is it that car washes are popping up everywhere now? Kevin Bupp: They are everywhere. I think there's reason to be concerned there as well. I live in the Tampa Bay area and the US 19 is a major north-south corridor, and there's a stretch of two miles, and there's two that just opened up and a third one that I saw a sign "Let's go for it".
In fact, they're probably within a mile and a half of each other on the same side of the road. I'm like, "How does that work? And why did the county even approve that? One's got much better ingress-egress than the other two, so my guess would be that that one does much better than the other two And is there enough population of cars that will ultimately allow all them to thrive?
But then the bigger question that I asked them -- I was talking with Dan Hanford the other week. They've got a car wash fund, and they've been buying car washes; quite a great deal over the past couple months. And I asked him, I said, "The one thing I don't know the answer to--", because these car washes weren't around; maybe some, but I think that express model car wash - it might have existed somewhere, but it wasn't like at this day, where you see them on every corner.
Pay 10 bucks at your car wash, or pay 40 bucks a month for unlimited subscription. Is that one of those budgetary items that people cut out when they cut back on spending? Do people care that much about having their car washed when they're worrying about putting food on the table? And I don't know the answer to that. So I think that's where the risk might come into play over the next couple of years with that car wash business.
Ash Patel: And what kind of returns as an LP do you see in car washes? Kevin Bupp: It's a great question. And I've only been invested in them for just about a year, and so I can only speak to what it's looked like at least over this past year, and they're high teens. They're cash flow machines if they're run correctly and the right business models behind it.
And the IRR - it's kind of hard to say at this point, because there hasn't been a capital event, but they cash-flow like crazy. But again, anything can cash-flow like crazy if it's bought right and it's bought in the right location. If you're paying a premium for it and it's in an inferior location, you're not going to be necessarily able to replicate that same performance all the time.
Thanks for sharing that. And Kevin, in my world, retail office, they revere the triple net leases, right? They think it's the easiest to manage. But when I think parking lot - man, that takes us to a whole nother level. Can you dive into some of the details of parking lot investments? Kevin Bupp: Absolutely. And it's a very interesting asset class, and it has a lot of similarities to that of what mobile home parks were, call it 10 years ago when we started buying.
Well, it's very much akin to what parking lots are. Again, you go down to Manhattan or you go to downtown Chicago, you're going to find parking garages that are owned by REITs and large institutions. But in most other prime and secondary markets, what you'll find is that they're owned by maybe other professional investors that are our size, but lots are owned by mom-and-pops, especially the surface parking lots.
You'll find that they're owned generationally by local families that have had it for 30, 40, 50 years, and it's just been a cash flow machine for them for many, many years. So that was one of the interesting aspects But the most interesting aspect for us - and again, this is kind of comparing it to mobile home parks and what we like and dislike about that asset class - was with mobile home parks, there's only a handful of professional management companies throughout the US.
Very much the opposite to multifamily, right? Multifamily - you can go to pretty much any market and find at least a handful of management companies that you can shop. Mobile home parks - not so much. And we had originally built our own vertically-integrated property management company, and as we were scaling, we considered, actually, passing it off.
There's a couple national companies in the space, in the property management side and a couple regional, and we tried three out of the five, and it was a horrific, horrible experience. So we brought it back in, and built out a much larger internal property management company, but it's a very operationally-intensive part of our business. It's not the sexy part of the business. It's there because it's necessary. With parking, what we've found is that there's an inordinate amount of parking operators throughout the US.
So operators, meaning property management companies that manage the surface lot that manages the garages. So what that meant is that we could go in and find an asset that had a value-add opportunity. And I'll give you an example of a value-add opportunity on a small lot that we bought up in North Carolina. It was a space lot in downtown historic Wilmington, North Carolina; had been bought by a local doctor. He owned some other real estate. He bought it from the bank back in It was a failed development [unintelligible And he bought it and he had his son managing the property, collecting cash.
They didn't accept credit card machines And it was like in a vibrant part of town. It was right on a signalized corner, a block away from the historic waterfront downtown. So he was doing great. And we looked at it and realized that, number one, me, I don't even carry cash half the time. I only used credit card. So I wouldn't even have been able to park there, because he would've never accepted a credit card for me.
So he's missing out on all this opportunity. And we found there was a number of operators locally, one, having the biggest presence in that local marketplace. And we put out an RFP to all three of these different operators, and we were really looking for a triple net lease. That's what we wanted. We really wanted a passive model in the parking lot space.
And ultimately, where we landed was with the biggest operator in this area. They knew the data, they knew exactly how many turns this parking lot could do on a daily basis. They had a dynamic pricing model in place, which the old owner did, so they would charge higher flat rates in really, really busy parts of the year where there was events happening, a lower rate during the solar parts of the year And they signed with us.
So kind of a win-win for us and huge value-add play, but it's a kind of a set it and forget it now. So there's a lot of opportunities just like that one in the parking sector, where they're just being mismanaged. They're not being operated efficiently. They don't have technology in place to even accept credit cards. So there's a number of those that I can speak to, but that's the attraction of that space.
It's still fragmented. And that was a small deal, but there's many other deals out there that are just like that - they're just stalling technology, having a dynamic pricing model and getting a better operator in place that can run the day-to-day that's got that infrastructure and they've got that local market knowledge Literally, that is the biggest value-add component in that space.
And there's many opportunities out there that are sitting there waiting for the picking. Ash Patel: I love that out of the box thinking. Good for you. Kevin, what is your best real estate investing advice ever? I think just really sticking to the fundamentals. I feel like that went out the window, Ash. The fundamentals have gotten thrown out the window over the past three years, especially during COVID.
Everyone kind of pulled back a little bit, March, April, May, wondering what was going to happen. And then we just saw this massive inflation take hold. And man, it's been like a rocket ship for the past year and a half. And one of the ultimate results of that are these massive double-digit rent increases over this past year and a half.
It's been absolutely insane, especially in certain markets across the country. And a lot of the prior underwriting fundamentals have kind of been thrown out the door, assuming that these double-digit rent increases are going to continue on. And I'd say, just if anything, just pull back; don't get the anxiety that there's not going to be another deal, or if you don't buy this one, "Well, I'm not going to come across another deal because this is a one in a million.
Just know that there's always another opportunity. And in fact, if anything, slow down a little bit. Don't ignore those fundamentals, and know that in times like this, it might take a while for us to see it get flushed out, but this is when the real opportunities are made. Let's talk about all the people that made the most money in multifamily over the past decade. Looking back, a lot of them - they were ready to rock and roll in , '11, '12, '13, ' And that's when, if you look at their track record, they're still buying today.
And you look at the ones they've gone full cycle on - look at the returns that they had back on those deals that they bought shortly thereafter, that last recessionary period; they absolutely cleaned up shop. So I would say, stick with the fundamentals and just be true to yourself and be willing to wait for the right opportunity to come along, because it will.
I promise you, it will. And don't overextend yourself buying something just because you feel the necessary need to go buy something, because that's what everyone else is doing on Facebook or Instagram. Ash Patel: I love that advice, and temper your expectations.
Back in '99 when that tech bubble was booming - very reminiscent of today, where I was probably in my early 20s, maybe 22 years old. I'm 46 now. So I remember everybody was investing in stocks. And if you didn't, you were an anomaly. It's like, "Hey, why are you not putting your money in the market? And again, people who have lived through a couple cycles know that that pendulum goes back and forth and things eventually will equalize.
COVID accelerated a lot of different things. It accelerated the move to suburbs, away from city centers, people traveling, working from home But my opinion - again, I think yours as well - is things tend to equalize over time. Kevin Bupp: Well, look what's happening to the city centers. Couldn't wait to leave Manhattan. In migration to Florida and all these other places from Manhattan, those people were not going back to the city. They're back in the city now.
In fact, there's more people that want to be in the city than it can actually fit in the city [laughs] and rents are at an all time highs. You're right, everything tends to equalize over the long term. And so just be aware of that and just really be cautious as we move through these next couple of months and potentially even a couple of years, as we work to really unravel what we've kind of built up here, not just even during the pandemic I don't think -- the Fed never really allowed things to market crash as hard as it probably should have during the last recessionary period, and ultimately kept pumping money into the market, and then the pandemic just accelerated that And so it could be a time for reckoning.
Who knows what the Fed's actually going to do when Time will tell, but we know that things are slowing. It's happening. Again, as we record this today, it's the 15th of June, and the Fed will announce today. They originally said it was going to be 50 bps, and then just a couple days ago they said, "Ah, it's going to be
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