Street Smart Success

With new multifamily supply coming to a standstill, occupancy rates will rise over the next few years and assets will appreciate. In the meantime, multifamily is rife with challenges in most markets. Interest rates have risen dramatically, expenses have skyrocketed, and occupancy has fallen. Despite this downward pressure, prices have still not contracted enough for experienced operators to want to acquire. Cameron Pimm, Co-founder of Stonemark Landings, is a multifamily operator who is looking to expand his current workforce portfolio into more holdings in South Carolina, Nevada and Salt Lake City. With a dearth of good deals in the 100+ unit market, Cameron is starting to look at sub-100-unit deals where there’s less competition and more inefficiency in the pricing. 

Compared to most other asset classes, Self-Storage has more resilience across different economic cycles. Self-Storage has a steadier revenue stream and low operating expense ratios that produce 70% margins. Additionally, over the last two years, very few people have moved, thereby suppressing the demand for self-storage. As a result, 12 month trailing Net Operating Incomes have suffered, and prices have come down accordingly. There’s also a shortage of self-storage facilities in many secondary and tertiary markets. Joe Downs, Co-founder of Belrose Storage, has acquired 18 Self-Storage facilities directly from sellers in the mid-Atlantic region and the Southeast, with big value-add components. Joe has consistently increased income and lowered expenses to achieve great returns for his investors. 

What happens onsite on a daily basis at apartment complexes is what makes or breaks the deal. The relationship with management personnel largely determines whether or not a tenants renew. That’s why every interaction matters. The other aspect that impacts success in running apartments is the speed and effectiveness of unit turns. Nothing bleeds a property more than delayed unit turns. These are just two reasons to bring property management in-house. Daniel Twito, Owner/Operator of InvetnJoy multifamily, owns eight properties in Dallas-Ft Worth, and has created a fully-integrated in-house management company to maximize the performance of his portfolio. 

Despite the negative media coverage, both outdoor and enclosed shopping centers in vibrant markets are viable assets to invest in and are being offered at highly discounted prices. Although the proliferation of discount stores like TJ Max, Ross, and Nordstrom Rack, combined with the Amazon effect and Covid, have put a lot of retailers out of business, there are several retail survivors who are thriving. Some of these stores are expanding rapidly and have limited options of where to open because there’s been almost new construction of malls since 2008. This is creating high demand for space and benefitting neighborhood retail centers. Andy Weiner, President of Rockstep Capital, is investing in shopping centers in solid secondary and tertiary markets that are generating great returns for his investors. 

Short term loan maturities are a death sentence in a down market, which is causing major pain for sponsors and Limited Partners. Since mid-2022, multifamily prices have plummeted as high as 40%, and transaction volume is down 80%. Class C, in particular, has taken the largest beating. Currently, lenders are giving loan extensions to sponsors who can raise more money, thereby reducing their exposure. In turn, the lenders are hoping they’ll be able to foreclose at the end of the extension, and sell the properties in a better market. Brian Burke, President and CEO of Praxis Capital, has been through several cycles, and believes that 2025 will be a transition year for multifamily. 

Finding investments with in-place double digit cash flow as a Limited Partner is rare, but one exception is Water Parks. Water Parks are a high margin business that generate lucrative returns once they achieve a certain revenue threshold. James Harhi, CEO of Innovative Attractive Management, is acquiring Water Parks and adding significant value through operational efficiency and economic scale via multi-location ownership. James has also provided advisory services to other Water Park operators, Theme Park, Resorts and Cruise Ships.

When evaluating opportunities to invest in, it’s natural to trust the person you’re investing with, especially if you know the person, or were referred. It’s critical, however, to understand all the different components of what you’re investing in, otherwise you take on undue risk. Regardless of who you’re investing with, they need to make the investment look enticing enough to attract investors, and they have numerous levers to manipulate t. the numbers, which results in an inherent conflict of interest, even with the best of intentions. Aleksey Chernobelskiy, a consultant for Limited Partners and prolific content provider, helps Limited Partners avoid the pitfalls of investing that can result in loss of hard-earned principal. 

Real Estate is a block-to-block business, especially multifamily. That’s why a highly targeted strategy is desirable when choosing an operator to invest in. Tight geographic and asset class focus mitigates a lot of risk. Michael Voulgarakis, COO of Southgate Ventures, buys class B and C multifamily properties in Seattle in the sub-middle market $10 million, 20-30 unit range from owners who’ve owned the properties 15-30 years. With longer-term ownership, there’s a likelihood that value-add opportunities exist to significantly enhance the values of these properties. There’s an abundance of these properties in Seattle, a growing market with limited supply, robust employment, and high incomes.

The hardest part of being a passive, cash flow investor is knowing who you can trust with your hard-earned money and life savings. With so many operators and opportunities, it’s difficult to know what to invest in, especially if you don’t have a lot of experience. Currently, there are many Real Estate projects in big trouble with Limited Partners losing their investments as a result of poor underwriting and execution on the part of General Partners. Pat Zingarella, CEO of Invest Clearly, is providing passive investors impartial feedback about sponsors and opportunities before they invest. Pat created Invest Clearly, a review website for Limited Partners to find General Partners and learn about them from peer reviews from other investors. 

The affordable housing issue persists in this country as homeownership becomes further out of reach for most people. One of the most viable solutions to this issue is Mobile Home Parks. Unlike common misperceptions of old, rundown parks with low-income tenants, many parks are in solid communities in great submarkets with modern amenities like pools, pickleball, kid’s play areas, and clubhouses.  They can also be great cash flowing assets for investors. Kevin Bupp, CEO of Sunrise Capital Investors, has built a portfolio of 3500 pads across17 states over the past dozen years.