Street Smart Success

Not everyone that flips single family homes ends up flipping more than 3000 of them, and not everyone that gets into multifamily acquires over 7000 units within their first five years. Gideon Pfeffer, CEO and Managing Partner at the GSH Group, however, thinks big and has gotten unusual fast traction in the multifamily space, mostly in Michigan where he resides, since 2016. Gideon has built an in-house construction arm for value-add projects and has created a strong track record in acquiring and repositioning apartments into better performing assets with greater profitability.

Everyone has a plan, but rarely do things go exactly the way we expect them to go. In multifamily Real Estate, there are so many variables when it comes to financing, interest rate fluctuations, property management, capital structure and so much more. In today’s environment in particular, there’s less margin for error with contracting rents and occupancy, higher operating expenses, and more expensive debt. Vessi Kapoulian, a newer investor, has learned a ton about all facets of the acquisitions and operations of a multifamily property from recently buying an 11 unit building earlier this year in Tampa.

After many years of a massive upward trajectory, multifamily real estate is facing headwinds, especially for older C and B class properties. In many markets, occupancy is starting to fall and rents along with it. In addition, many operators have taken on risky debt that they may not be able to service. As such, these operators may get into hot water in the upcoming months and be at jeopardy of having to sell their properties at a loss and lose their investor’s money. Jimmy Edwards, Owner and Director of acquisitions at High Five Group, has done heavier value-add projects in Dallas with conservative underwriting and debt over the past five years and done extremely well. He sold a number of properties this past year and is poised to make great acquisitions in 2023.

Many operators specialize in a specific asset class, some operators specialize in a given geographic market, but invest across different asset classes. When you focus on one geographic area, it’s easier to build out a network of brokers and other contacts that consistently funnel you legitimate off-market deals where you can make real money. Rob Anderson, President at BV Capital in Dallas, invests in Texas. BV has done mostly multifamily where they’ve gotten very high returns for investors and is currently focusing on ground up development as the cap rates and returns on existing properties have fallen in more recent years. BV also does sale leaseback industrial deals and student housing projects.

Interest rates are higher than anyone expected a year ago and they’re continuing to rise. As a result, many purchasers of multifamily properties with high leverage bridge debt will not be able to get the extensions on their loans they anticipated and will be forced to refinance at rates the properties can’t support without injecting more capital. At this point, they’ll have to reach out to their investors to request more capital or sell at a loss. Either way, the outlook is not good. Brian Burke, CEO Praxis Capital and Author of the Hands-Off Investor, has been a real estate investor for over 30 years and says the debt component of these transactions will make or break these deals and that a lot of newer operators will have to face tough choices in the months to come.

The West Coast is home to several multifamily markets but it’s becoming more onerous to be a landlord in these markets as a result of increasing regulatory restrictions. That’s why Max Sharkansky, Managing Partner of Trion Properties, is diversifying from the West Coast into the Southeast where there continues to be big migration from other parts of the country as a result of job growth, low taxes, and flexible work-from-home employment options. Even though the U.S. economy is in a state of flux and there are domestic and global uncertainties, trends continue to be in favor of growth in the South and Southeast. Trion properties has over 6000 units under management including both funds and individual assets. They’ve routinely generated annual returns in the 20% and even 30% range.

Taking a piece of land, envisioning a purpose for it, and bringing that vision to fruition is a large but exhilarating undertaking that also entails real risks. Even before you get the land entitled, you have to invest money in the zoning approval process, environmental studies, engineering feasibility, and other aspects that entail risk. Cowboy Joe Marquez has been involved in all stages of development from the initial evaluation of property to the final certificate of occupancy and everything in between on numerous real estate development projects across the United States including turnkey subdivisions, multifamily, 5,000 bed crew lodges, Gulf front condo’s, resorts, commercial buildings, mixed use, and marinas.

The biggest inhibitor to growing wealth is taxes. That’s why the best investing opportunity to-date is in Opportunity Zones where you can defer capital gains taxes plus avoid depreciation recapture, not to mention making great investments in transitioning neighborhoods with huge upside. Jimmy Atkinson, Founder of Opportunity Zone Database, created a database of over 300 Opportunity funds where investors can compare and choose different investment options when they’re coming out of a tax-deferred exchange. Jimmy also holds many online events where investors can see presentations from participating sponsors.

As interest rates have risen, prices have come down, sometimes significantly. Although sellers were initially reluctant to lower prices, they’re getting more realistic over time and concessions in the millions \ are being made on larger projects. Ryan Webster, Managing Partner of Equity Yield group, a multifamily operator with properties concentrated in the Florida Gold Coast, has been patiently making offers at prices that make sense for an investment that sellers are now responding to. The Golf Coast is a strong market with growing population and employment growth with rents that are still rising. Ryan’s investments in these markets have done exceedingly well for his investors and he anticipates more great deals in the next couple years.

90% of Alternative Investments are directly or indirectly placed in Real Estate. They can be great cash-flowing investments with high long-term appreciation. What they don’t provide is liquidity. You can’t get your money out whenever you want like a publicly traded stock. That’s why most financial advisors don’t recommend more than 20% of their client’s portfolios to be invested in alternative investments. Most advisors also don’t have as much knowledge of alternative investments as they do about traditional investments like individual stocks and bonds and fund vehicles. Stacy Chitty, Co-founder and Managing Partner of Blue Vault Partners, educates advisors on alternative investments and provides them with invaluable data metrics on which alternative investments to recommend to their clients.