Street Smart Success

Although most asset classes will experience some forms of distress over the next couple years, one asset class that will be less impacted is Self-Storage. Recent prices paid for Self-Storage were less exuberant than Multifamily and other asset classes, so most operators are doing well enough to not have to sell at a discount. As an industry, Self-Storage is still mostly operated by smaller, less sophisticated operators, so opportunities to implement systems and create efficiencies translate into big potential returns for investors. Cliff Minsley, Cofounder of 10 Federal Storage, is acquiring underperforming facilities with almost no debt, thereby generating significant, risk-adjusted returns for investors. 

The multifamily sector is facing major headwinds. Not only have interest rates escalated at an unprecedented pace, but operating costs have also soared as well. In certain states, insurance costs alone have increased 100% or even more in the last couple years. With costs rising dramatically and rents plateauing, or even decreasing in some cases, there’s choppy waters that will not end well for many multifamily investors. Chris Grenzig, Owner of Jag Capital Partners, has built a vertically integrated portfolio of smaller properties in Jacksonville, Florida and is successfully navigating this turbulence in the market. Chris has not acquired a new deal in over a year because prices have not yet come down enough to reflect the realities of today’s operating environment. 

In secondary and tertiary markets in the Midwest, Multifamily prices have come down 27%-35% since the March 2022 peak and have a way to go. When distressed operators are forced to sell at a loss, the low prices they sell for create new comps in the marketplace. This is why there will be great deals over the next couple years for patient Multifamily investors. Reid Bennett, National Council Chair of Multifamily Properties for SVN International, is a top .02% Multifamily broker, and is an expert in all things Multifamily. Reid believes sellers are well advised to sell now before the market further contracts. 

It’s hard to find businesses that consistently generate profit margins in excess of 20%. One such asset class most investors don’t think about is laundromats, but they’re everywhere and simple businesses to run. Over the past couple years, Real Estate investors, in addition to others, have entered the laundromat space because of the strong cash flow and the ability to dramatically increase revenue by adding value. For starters, most laundromats lack the simple technological advances that make these facilities way easier to run and way more profitable. Jordan Berry, Owner of Laundromat Resource, has successfully operated numerous laundromats in Southern California and is now creating a fund that investors can passively invest in.

In the multifamily apartment category, Class B provides the greatest hedge against risk. Renovated Class B apartments often have many of the same amenities as Class A, but cost anywhere from $300-$500 per month less to rent, depending on the market. In a tough economy, a lot of Class A renters move down to Class B properties in order to save money, but Class B renters generally don’t move down to Class C. Lee Harris, President and CEO of Cohen Esrey, has acquired and improved 10,000 Class B apartment units since 2011.

One of the keys to success in multifamily investing is picking a market that’s not fully discovered and still experiencing a lot of growth. Another aspect of this strategy is buying B class properties with huge rental upside without having to pay a lot in unit or exterior upgrades. Christopher Stout, Principal and leader of StoutCap, has selected Northern Alabama, NW Arkansas, and Fayetteville, NC as up and coming markets that are growing, but not yet saturated with other investors. These are fast-growing markets with high rental demand and little new supply.

There aren’t too many asset classes within Commercial Real Estate right now where you can generate a strong cash-on-cash equity return plus great upside. One exception to this is RV Parks. RV Parks are where Self Storage and Mobile Home Parks were ten years ago.  There are approximately 15,000 RV Parks in the U.S. and many of them are often filled to capacity. Several of them are owned by ma and pa owners that have not maximized their true revenue potential. Robert Preston, CEO of Climb Capital, is acquiring and improving RV Parks in the sunbelt states and generating great returns for investors.

Although multifamily Real Estate has been a stable, cash-flowing asset class for the past several years, many properties are facing major headwinds. Interest rate hikes, rising expenses, and slower rent growth has presented big challenges. Despite these current market conditions, however, there’s still a significant supply-demand imbalance of housing in the U.S. that portends well for multifamily in the long run. Daniel Holmlund, CEO of Good Samaritan Capital, is helping investors seeking consistent, predictable cash flow navigate this current environment to achieve solid, conservative returns. 

If you want to invest in Real Estate, but don’t want to tie your money up for an extended period of time, a great way to do this is through non-bank private lending. When you invest in single family fix and flips in stable markets, for example, it’s a conservative way to generate high yield, consistent passive income. Kevin Amolsch, Founder of Pine Financial Group, owned several of his own single family properties before transitioning into private lending.  Kevin now has funds that lend mostly on single family homes in Denver, Washington, DC, Wisconsin and Minnesota.

Other than Class A office space in top-tier markets, the overall office building asset class remains a healthy and viable investment alternative. There are several types of office product, and most are faring well depending on the location.  Stewart Heath, CEO of Harvard Grace company, is building a portfolio of properties in the Nashville to Huntsville, Alabama, corridor, including cash-flowing office buildings. This market has seen explosive growth and offers great investing opportunities.