Why secondary & tertiary markets create double-digit returns!

On this episode of Peak Market Watch? We are excited to have Zar Haro on as a guest speaker! Peak Market Watch host and CEO of Peak Financing Anton Mattli, accompanied by this week’s co-host Abel Pacheco, will dive into what Zar is currently seeing within San Antonio, Corpus Christi, and Rio Grande Valley markets. Zar will be breaking down commercial property performances despite COVID-19 and the oil/gas slow down, how buyer interests are changing, impacts he is seeing from the changes in lending, as well as why secondary & tertiary markets make it easy for multifamily real estate investors to achieve double-digit returns!

VIDEO TRANSCRIPTION

 
00:00
more than 3.5 billion dollars welcome
00:03
tsar
00:04
hello thank you for inviting me to your
00:06
show i’m really excited to be here and
00:09
uh ready to talk about real estate and a
00:11
lot of fun things that we
00:13
we can hopefully be insightful here
00:15
shooting charlie great
00:17
why don’t you give us a brief background
00:19
about
00:20
yourself and your career in real estate
00:24
sure so i started in
00:28
real estate in 2006
00:32
i graduated from college
00:35
did an internship at marcus miller chad
00:37
unfortunately wasn’t good enough to get
00:39
hired i wasn’t slick enough i guess
00:42
and so uh i moved to new york city to go
00:45
work for
00:46
a meridian capital which is a large
00:50
mortgage broker in the northeast and
00:53
uh boy did i learn how to make cold
00:55
calls there
00:56
that was probably the thing that made me
00:58
the who i
01:00
am today is that you know no means not
01:02
yet and
01:03
100 calls a day and you know if you
01:05
network enough
01:06
you’ll talk to enough people and you’ll
01:08
get enough business so
01:11
since then i’ve i’ve moved to
01:14
back to san antonio which is my home and
01:16
i’ve been doing apartment brokerage for
01:18
the last
01:20
uh almost 15 years now
01:23
in san antonio focused on san antonio
01:26
south texas
01:28
um and i’ve done some of the most
01:32
uh you know iconic sites lone star
01:34
brewery
01:36
attributed the rim but i’m really proud
01:38
of the
01:39
accolades of our team you know they all
01:41
go celebrated with
01:43
a little the big you know one of the
01:45
things that is
01:46
important to me is to keep the ego in
01:48
check we all put our pants on the same
01:50
way and
01:51
you know that’s that’s the character
01:53
that i am is
01:54
you know everybody has a contribution
01:56
and that’s who i want to be
01:58
it’s no ego it just all helped people
02:00
learning and
02:02
people at the top and people at the
02:03
bottom yeah that’s a great to hear and i
02:06
certainly can attest to that
02:08
right i have experienced you in a
02:10
various environments
02:11
you always are a wealth of uh
02:15
of knowledge and you’re always willing
02:17
to share it
02:19
and obviously when it comes to actual
02:21
transactions you’re
02:22
very easy to work with so that’s great
02:26
so with kovi 19 still
02:30
still on everyone’s mind right and we
02:32
are
02:33
unfortunately haven’t been able to
02:37
to get a vaccine yet and we still have
02:40
some time to go
02:41
we are now roughly six months into it uh
02:45
with you being very active in san
02:48
antonio but also in
02:50
south texas uh it might be helpful
02:54
for uh for you to explain a little bit
02:56
what you have seen
02:57
in uh in a major market like san antonio
03:01
compared with uh
03:02
with uh some of the secondary tertiary
03:05
markets that you’re also very familiar
03:08
with
03:09
so that would be helpful uh to to get
03:12
your
03:14
view of that sure so
03:18
thank you for asking me that question so
03:20
i want to give everybody the
03:22
perspective of really three things the
03:25
first is
03:26
the operational level the transactional
03:29
level
03:30
and then also the uh the human element
03:34
to it
03:34
and so what we’re seeing operationally
03:38
uh across the board is most of the
03:41
properties
03:43
a b and c are feeling you know
03:46
pretty decent collections across the
03:48
board uh this month has been
03:52
a little bit challenging we’ll figure
03:53
out what that looks like
03:55
with lack of you know additional
03:57
stimulus to
03:58
some of the residents and eviction
04:00
moratoriums
04:02
but operationally things seem like
04:04
they’re
04:05
decently in line from where they were
04:08
pre-covered
04:11
there are there’s always going to be
04:13
somebody that’s going to struggle
04:14
and i think that operationally if people
04:17
couldn’t
04:18
or landlords couldn’t uh adapt
04:22
to the the new world their continue to
04:25
be
04:26
operationally challenged and those will
04:27
be the first transactions to likely sell
04:30
if there’s no if if there’s a capital
04:33
event that needs to happen
04:35
um the market is probably a little bit
04:37
forgiving in that
04:38
regard in that if it’s operationally
04:41
challenged and there’s somebody that’s
04:42
willing to make a quick move those sales
04:45
are happening
04:46
relative to the general sales market
04:49
if it’s agency financial and agency
04:53
ready
04:53
in a location that had has been
04:57
you know a pretty decent you know
04:59
demographic location
05:01
what i’d call the 80s down the fairway
05:04
or
05:05
early 2000s down the fairway good
05:08
traditional demographics uh you’ll get
05:11
to
05:11
a very high bidding contest if there are
05:14
locations that have been economically
05:16
challenged
05:17
pre-recession that were you know a
05:19
little bit of a stretch on locations
05:22
those are having if it’s agency eligible
05:26
and they’re performing well they do okay
05:29
it’s
05:30
you know three to five bids whereas if
05:32
it’s
05:33
well located it’s 10 to 20 bids
05:37
uh the tour counts that we’re seeing
05:40
relative to uh the number of offers
05:44
is is far far down
05:47
uh i would say that you know what’s been
05:49
astonishing to me
05:51
is the number of confidentiality
05:53
agreements that we would sign on a
05:55
b deal in san antonio pre-covered
05:58
was roughly a hundred today we’re seeing
06:01
150 to 200
06:04
cas but that relational tour count
06:07
what used to be a one to one ratio so
06:10
for every
06:11
sorry one to ten ratios so for every 100
06:14
cas
06:15
we’d get 10 tours and typically 10
06:17
offers
06:19
today that’s 150 cas
06:23
uh roughly seven and a half to eight
06:27
tours
06:28
and seven and a half to eight offers so
06:31
the ratio has gone down by about 50
06:34
percent but the number of people showing
06:36
up is
06:37
is far greater a lot of a lot of people
06:40
are doing more desktop underwriting
06:42
uh before they go out to go actually see
06:45
the real estate so
06:47
unfortunately for me i’m putting on the
06:49
extra covid 15’s i don’t get to walk
06:51
around into our
06:52
properties as much but uh from the human
06:55
element the one thing that i would say
06:57
that
06:58
we’re finding is is that
07:01
two happenings there’s the reassurances
07:04
that need to happen
07:05
uh if there’s a lot of people at the
07:07
table for some reason
07:09
there’s reassurances to others that
07:12
they’re buying a deal that everybody
07:13
wants
07:14
but we’re seeing as sellers if
07:17
if somebody’s buying something off
07:19
market it doesn’t take much
07:21
to spook them away from the
07:25
you know the uh underlying covet
07:28
elements
07:29
that are in the marketplace oh i didn’t
07:31
like the way that the the inspection
07:33
went i couldn’t access all the units
07:35
well it’s covered so
07:36
i deserve a discount as the buyer pull
07:38
and so we’re seeing that
07:40
there’s plenty of failed opportunities
07:41
that are happening because it’s easy to
07:43
spook yourself
07:44
out of it but if you’re uh
07:47
reassured that you had to fight for it
07:49
for some reason it’s just like a
07:50
restaurant
07:51
that’s empty you know people don’t feel
07:54
as confident eating in a
07:55
restaurant that’s empty but if there’s a
07:56
line out the door everybody wants it
07:58
it’s just the the human element that if
08:02
there’s a bunch of people that want it
08:03
it reassures people that they
08:04
really have to have that location and i
08:06
think that’s over emphasized today
08:09
yeah that’s a very good point i think
08:11
you also brought up
08:12
another good point of uh if it’s uh
08:16
agency financiable right that the demand
08:19
is
08:20
is really strong uh i would say right
08:23
abel you probably have have seen that
08:25
too right with all the deals that you
08:28
have been recently looking at it’s a
08:31
it’s a challenge as soon as if it’s not
08:34
agency financiable
08:35
it’s really problematic and if as soon
08:38
as it’s agency financiable then everyone
08:40
jumps on it yeah yeah what uh czar that
08:44
everything that you’re saying makes a
08:45
lot of sense to me right is if the
08:47
fairway deals
08:48
80s or 2000 in their respective market
08:50
if it’s a good location
08:52
i want in and i want to go check it out
08:54
10 to 20 offers on those
08:56
or plus and then you know a little bit
08:58
further away from the fairway
09:00
well you get a little less offers the
09:02
cas
09:03
are you know like you said up and and
09:06
that makes a lot of sense for like me
09:07
personally
09:08
my wife i mean she she still doesn’t
09:10
want me to go
09:11
meet shake hands i i don’t do like
09:14
one-on-one networking right now
09:16
and you know on the on the flip side i
09:18
am
09:19
doing a lot more of these virtual
09:20
sessions i’m looking at deals and so
09:22
yeah the confidentiality agreements are
09:25
flying and you have a lot of desktop you
09:27
know underwriters right now that are
09:28
doing that
09:29
and then at the most you know maybe a
09:31
drive by an apartment complex
09:33
as opposed to calling you hey let’s go
09:36
meet and uh
09:37
let’s go tour the property so you know
09:39
the numbers make a lot of sense to me
09:41
yeah i actually like it a little better
09:44
even though the metrics are off a little
09:45
bit
09:46
yeah um it eliminates a lot of the tire
09:49
kickers
09:50
uh of actually doing the tour so
09:53
what we would find was somebody’s gonna
09:56
fly in from austin and they’ve got a
09:58
you know an acquisition person has to go
10:02
tell their boss that they saw four
10:03
properties um
10:05
to make it worth the trip but really
10:07
what they meant was to go to the ut game
10:09
on saturday so we would see that and
10:12
that’s why i’ll never take out a deal in
10:15
texas a m and
10:18
college station because every every fall
10:20
on thursdays
10:22
i’d be forced to uh spend my weekend and
10:25
you know i’m not a big fan of uh a
10:28
texas a m games but we have somebody on
10:30
our team that went to
10:32
texas a m that’s like i’m ready to sign
10:34
up for that and i said i’m sure
10:36
yeah yeah so that that’s good to hear so
10:40
so next time you you you need somebody
10:42
like my son is at texas a
10:44
m so uh i’m down there regularly
10:51
but that’s a it’s only a very good point
10:55
and then the last thing you mentioned is
10:56
absolutely anton you know agency
10:58
freddie fannie i’m like okay i’m
11:00
definitely in is stabilized
11:01
i know the you know it’s better chance
11:04
of getting some financing and
11:06
good ltv i’m like yeah let’s put an
11:09
offer as opposed to
11:10
something with a deep deep value add
11:12
right now i’m like you said a little
11:14
hesitant and
11:15
probably shying away uh for the
11:17
financing side of it and
11:18
kind of and you know what’s funny is is
11:20
that me and my partner’s
11:23
strategy is actually just the opposite
11:25
of everybody else like
11:26
our business plan hasn’t changed like uh
11:30
we typically will buy the dumpster fire
11:33
because we’re
11:34
[Music]
11:36
we like the business plan of buy the
11:38
dumpster fire
11:40
renovate it get it agency financial so
11:42
that
11:43
everybody that wants to be agency
11:45
financial
11:46
uh combined can put it on there and get
11:49
non-recourse debt and
11:50
and have that resale market but you know
11:53
our some of our partners will have
11:55
access
11:56
you know directly and you know one of
11:58
the things that people think is that
11:59
we’re the broker and
12:00
you know we always get to see the
12:02
hottest deals in fact sometimes they
12:04
they’re a little bit skeptical so we
12:07
usually
12:08
have our our partner that will invest
12:10
with them but we always list with the
12:11
other broker that send it to us
12:13
um regardless and that’s something that
12:16
we’ve uh
12:17
we’ve really stuck to is that we’ll give
12:20
it back to them i mean
12:21
unless it’s just somebody that just
12:22
can’t uh execute a
12:24
great business plan to market it we’ll
12:28
usually give it right back to them but
12:29
you know we want to encourage people to
12:31
send us those
12:33
dumpster fire deals as well yeah that’s
12:35
good to hear and
12:36
that’s also right it’s it’s good
12:38
business practice to give it to
12:40
to the broker who sold it to you
12:42
initially right
12:43
uh as long as they can perform obviously
12:46
right uh if i if i can ask one more
12:50
question to
12:51
time to keep going is sure the those so
12:53
those properties that that are the
12:55
dumpster fires right
12:56
i’m thinking okay yeah i’d normally be
12:59
able to get a bridge
13:00
loan or some kind of you know some kind
13:02
of product that i can do those more
13:04
easily
13:05
and and it has a ton of value that’s why
13:08
we like a deep value add right
13:10
uh it’s it’s a little more i don’t say
13:13
certain but
13:13
better chances than a yield play for
13:15
potentially so
13:17
how many of those like what are those
13:19
numbers for those dumpster fires are you
13:20
seeing
13:21
people trying to list them are you
13:23
seeing a bunch of people
13:24
making a bunch of offers is it those are
13:26
not the fairway deals
13:28
are those even you know coming up right
13:30
now
13:31
they come in various um in various ways
13:35
uh sometimes it’s you know we’re
13:38
tracking
13:39
you know the foreclosure list or people
13:41
that are defaulting on their loans
13:44
but those are a little harder to
13:46
accomplish because right now there’s a
13:47
significant amount of equity
13:49
still there or perceived equity the it
13:52
hasn’t fallen
13:53
operations haven’t fallen off a cliff
13:55
and the lenders are a little bit more
13:56
forgiving today
13:58
but if there’s if so where we’re seeing
14:01
the most
14:02
stress is in um
14:05
you know syndication where the operator
14:08
is getting non-recourse
14:10
financing and they’re having a hard time
14:13
doing a capital call if they kind of
14:14
under-capitalized
14:16
it so they’re not giving distributions
14:20
they’re not bleeding yet
14:23
but there’s there’s a few spots in which
14:27
they’re
14:27
they’re troubled but it hasn’t gotten to
14:31
the point where
14:32
they’re ready to just hand over the keys
14:34
yet uh if it’s
14:36
coming closer to the end of the maturity
14:38
on something like that
14:39
it’s usually something that says i’m
14:40
ready to get off the roller coaster
14:42
that’s not typically what we’re doing
14:46
we’re usually looking at you know
14:49
somebody that marketed it with their
14:51
cousin
14:52
vinnie and
14:56
and or you know somebody that’s i’m
14:59
never going to list the property ever
15:00
again
15:01
i i don’t i don’t like real estate
15:03
agents and i don’t like paying
15:05
commissions
15:06
you know a lot of times it’s okay fine
15:10
you don’t have to pay a commission um
15:13
and we’ll get it from either the buyer
15:16
or
15:17
you know in our own partnerships you
15:19
know it’s not really that
15:21
relevant to us to go buy that if we know
15:24
that
15:25
usually really hard people to deal with
15:28
end up
15:29
uh having so many people that they’ve
15:32
you know
15:33
essentially screwed over that nobody
15:34
wants to work with them and those are
15:36
kind of our favorite people to go after
15:38
is because nobody wants to go with them
15:40
and they don’t want to pay fees and
15:42
they’ve got it all figured out
15:43
they end up selling for less than what
15:46
they can actually
15:47
create value for but you know i’m not
15:50
there to preach to them
15:52
value of representation if i’m trying to
15:54
buy it from
15:55
sure yeah so for for the ones that you
15:59
are
16:00
listing yourself for not the middle of
16:02
the fairway that are
16:04
agency financiable but really the
16:06
tougher deals
16:09
where would you say the number of
16:12
of ceas would come in on those and how
16:15
many offers are you able to
16:18
get on those again considering that we
16:20
all know bridge financing is really
16:22
tough so
16:24
non-recourse financing is tough so very
16:27
often
16:28
someone needs to be willing to go with a
16:30
recourse loan maybe from a local bank
16:32
so yeah so usually the the
16:36
stuff that we like to play in is
16:39
um we’re okay with recourse
16:43
um obviously you know sometimes we’re
16:47
raising capital
16:49
but we’re not necessarily raising
16:51
capital
16:52
from you know at fifty hundred thousand
16:55
dollar
16:55
increments it’s more friends and family
16:58
raises
16:59
and so we’ve got a little bit more
17:01
invested in it
17:02
and most of the partnership has you know
17:04
a little bit more liquidity
17:06
the partnership can also you know if
17:10
if we need to have a negative feed of
17:13
that cash flow
17:14
you know it’s usually raised up front
17:16
from the investors to know that
17:19
we’re going to lose money for the first
17:20
year the hope is that we
17:22
break even but
17:25
you know it’s typically 18 months one of
17:28
the things that happens though is
17:30
i think people forget is it’s easier to
17:32
access those units
17:34
when it’s 50 occupied to actually
17:36
implement a business plan
17:37
you’ll get better contractor bids when
17:41
you can do
17:41
50 unit renovations at a time and very
17:44
quickly and
17:45
have crews come in versus uh and you’ll
17:48
hit the irr
17:49
faster versus if you’re doing 10-year
17:52
debt
17:53
and you’re waiting you know you have to
17:54
cash flow a little bit
17:56
and go wait for that one lease to expire
18:00
so you can access the unit and you’re
18:02
doing it over time
18:04
and so most of the strategy personally
18:07
that we’re doing is more fix and flip
18:10
so you know if we’re holding on to
18:12
something for 24 months we’re like oh
18:14
man this thing’s going horrible
18:16
yeah yeah and it’ll cash flow but we
18:19
usually don’t give it any distributions
18:21
for
18:22
uh really ever until the property kind
18:25
of sells
18:26
as we’re just throwing it right back in
18:28
if there’s a distribution throw it right
18:30
back into the operations
18:31
yeah tighten them up and get them agency
18:33
ready okay
18:35
very good so i think uh again obviously
18:38
talk about your personal investments
18:40
not not what your company is necessarily
18:43
listing but i think the message that
18:45
you’re giving here is
18:47
is still look if you are flexible
18:50
including recourse financing
18:53
you can pick up some attractive deals
18:56
by table we we see
19:00
a lot of buyers that want to because
19:02
particularly when you’re syndicating
19:04
they always want
19:05
non-recourse loans including bridge
19:07
loans
19:08
and that is all fine and dandy the
19:12
problem is that
19:13
non-recourse bridge loans uh are
19:16
much tougher to draw from right the
19:19
funds to draw from than
19:21
compared to a local bank
19:24
so our advice very often to our clients
19:27
is look
19:28
do be not that scared of a recourse loan
19:31
if you truly buy something that has
19:34
value
19:35
in the deal right obviously if you go
19:38
with maximum leverage and the bridge
19:40
loan
19:41
and you realize that
19:44
it’s a tough deal to do yes it’s
19:46
non-recourse but
19:48
you probably have to inject more equity
19:50
at some point too
19:51
and do a capital rise right one of the
19:53
things that i’ll tell people too
19:55
is is you know some people get so
19:58
fixated on the interest rate
20:00
it’s like you have 24 months that you’re
20:03
trying to
20:05
turn this around one percent per year
20:08
of higher interest rate but
20:12
is cheaper than equity and they’re
20:13
giving you much better terms but you’re
20:15
buying it so deep
20:18
that it doesn’t matter in the scheme of
20:20
it it’s
20:21
what’s the flexibility what’s the ease
20:23
of structuring
20:25
that deal um and
20:29
know that you know one thing that that
20:32
frustrates me about some of the
20:33
syndication world is
20:35
a lot of the group gurus are you know
20:37
saying safe
20:38
non-recourse but and then they
20:41
talk about these big pops at the end
20:45
but go ahead and put 10-year agency debt
20:47
on it and
20:48
while it feels good you you’re going to
20:51
go three years in oh i created all this
20:53
value
20:54
oh wait what do you mean yield
20:55
maintenance what’s that uh
20:58
and and so the you can have the
21:01
best real estate the best execution the
21:04
worst debt strategy
21:06
and you totally screw up the deal you
21:09
have to have the right debt strategy
21:11
for the right business strategy because
21:13
you can’t have it both ways yeah so
21:15
that’s a it’s a very good point
21:17
right just uh uh as an example we we
21:20
just uh
21:21
reviewed a potential refi
21:24
for for a transaction that was is
21:27
roughly two years into the
21:30
into ownership and they took out
21:33
a longer term yield maintenance loan
21:37
with a relatively high interest rate so
21:40
that loan still has around eight years
21:42
to go
21:43
their pre-payment penalty today is
21:45
almost 40 percent
21:47
of the loan balance right so obviously
21:49
that essentially kills
21:51
any opportunity uh to
21:54
to to capture the equity that they have
21:57
generated right so they
21:58
on paper that property has increased
22:01
significantly in value
22:03
but it would all go to paying the the
22:06
yield maintenance right so that’s uh
22:09
it’s a it’s a big challenge right
22:12
so one of the things that i think is
22:14
really important to know
22:16
for everybody that’s watching this is if
22:19
you’re
22:20
doing agency financing deals
22:23
lecture let the people you’re raising
22:25
from know that it’s going to be
22:26
i think seven year or five years
22:28
probably better a little
22:29
lower leverage you want that
22:31
non-recourse or a floater
22:33
but you’re looking at cash on cash
22:36
return
22:37
you know in five to seven years you know
22:39
resale
22:40
that’s a long term apartment strategy if
22:43
you’re looking at distress
22:45
you’ve got to look at really the number
22:47
one thing is the equity multiple
22:49
forget the cash flow forget everything
22:51
else because
22:52
that’s really where you’re making your
22:54
money is the equity multiple so people
22:56
get so
22:56
fixated on oh this my investors aren’t
23:00
going to like this cash on cash return
23:01
but
23:02
nobody ever bragged about the you know
23:05
six percent cash on cash return they
23:07
always brag at the end
23:09
about the equity multiple i made three
23:11
times on my money
23:12
and most of that is loaded into the back
23:14
end so
23:16
you know you’ve got to have the right
23:17
investor base so when somebody talks to
23:19
me about how much cash flow we’re going
23:20
to do and
23:21
what the distributions look like it’s
23:24
sorry we’re not going to subscribe you
23:25
to this deal
23:27
and it actually has the opposite effect
23:28
what do you mean you don’t want me
23:31
and it’s just these are the deals that
23:34
we’re doing and it’s
23:35
you have to be very much these are my
23:37
terms if you’re doing distress because i
23:39
don’t want anybody calling me later
23:41
saying oh well you know where’s that
23:45
cash flow i read a kiyosaki book and
23:47
he said it cash flows king but i got
23:50
into your deep distress deal
23:52
don’t call me let’s buy your shares out
23:54
leave me alone
23:55
yeah it’s it’s a very good point right i
23:58
think it’s
23:59
again talking about the syndication
24:01
world i think
24:03
a lot of investors have been prepped to
24:06
do that
24:07
double digit cash on cash return
24:10
uh and obviously that was easily
24:12
achievable
24:13
until a few years ago because the market
24:16
moved up from
24:17
dramatically price points were still
24:20
much lower
24:22
but expecting these returns today
24:26
is for stabilized acid it’s just not
24:29
realistic
24:30
so what do syndicators do they just
24:33
come up with projections that somehow
24:36
make the numbers work on paper
24:39
uh with with significant uh
24:43
rent increases with with basic
24:46
rehab white soft rehab that is being
24:49
done
24:50
and as you probably also have seen with
24:52
your listings right or
24:54
people that you talk to owners you talk
24:56
to a lot of these deals even though they
24:58
had
24:59
cash on cash projections of six to eight
25:01
percent
25:02
in the first two years many of those are
25:05
do not have any cash on cash return
25:08
uh and some are even negative right and
25:11
it’s all driven by
25:13
creating these projections on a piece of
25:15
paper
25:16
that are not really realistic but they
25:18
had to do it in order to
25:20
first of all get into an agency loan
25:22
non-recourse agency loan
25:24
and then also come up with with a
25:27
projected
25:28
returns that allowed him to attract
25:31
passive investors
25:33
right so that’s uh that’s really in that
25:36
syndication world that’s
25:38
uh where it’s very difficult to to
25:40
achieve that
25:42
uh and when you look in in more the
25:45
institutional world
25:46
they obviously the returns are lower but
25:49
these are truly stabilized assets and
25:51
they are not coming
25:52
with these high in the sky projections
25:56
right uh so you’d be surprised it’s just
25:59
you know the at the end of the day
26:03
us is a really good broker
26:06
and even all my competitors we’re still
26:09
just searching for the
26:10
cheapest cost of capital at the the
26:12
fastest
26:14
close time and uh sometimes that
26:17
capitals 1031 exchange sometimes that
26:20
capitalist indication
26:22
um you know relationships matter
26:26
but a a solid marketing plan matters a
26:29
lot more
26:30
and i think that goes to even on the
26:32
syndication world if you have the right
26:33
marketing plan for the capital raise and
26:36
you have the right
26:37
pool that you’re that you’re investing
26:40
in
26:40
you know one of the things that um
26:44
you know you’ll see plenty of people say
26:45
oh i’m looking for this perfect deal
26:47
and then they make this perfect deal on
26:49
a piece of paper you’re
26:50
like wow you’re going to buy that
26:52
location and that deal made sense for
26:54
you because the cash on cash was
26:56
so great all right you’re an engineer
26:59
you’ve never done this before
27:01
that’s not the that that part of town
27:03
may not necessarily produce that
27:05
cash on cash you might have way more
27:07
collection issues than your
27:08
than your underwriting but like well
27:10
this is an eight cap
27:12
okay we’ll see what the operations look
27:15
like and sometimes those are the ones
27:16
that struggle the most is
27:19
you know challenging locations and if
27:21
you’re not
27:22
what i tell people is if you’re if you
27:24
come to san antonio you have to be a
27:26
good operator
27:28
you you don’t get saved by a 95
27:32
plus market or 92.93
27:36
so uh in that three percentage points
27:39
difference
27:41
you people have more choices and there’s
27:43
going to be concessions
27:44
in the market so you have to be able to
27:46
capture the traffic
27:48
have a satisfied customer in in the
27:51
other markets like dallas
27:52
austin you’re you see that they get
27:54
saved by the operational fundamentals
27:57
because you don’t have to be that great
27:59
of an operator you just have to have
28:00
apartments ready
28:01
and the deltas between uh you know b
28:04
and c or class a might be three or four
28:07
hundred
28:08
per uh asset class whereas san antonio
28:12
you’re going to have
28:12
150 to 250 between asset classes so you
28:15
have to be a really great
28:17
operator really great customer service
28:19
but
28:20
moving on to the secondary tertiary
28:22
markets
28:24
those fundamentally in south texas
28:27
actually have performed
28:28
better for us than they have in
28:32
in san antonio and the reason for that
28:34
is is that you have a very low supply
28:36
corpus christi experienced a little bit
28:38
of challenge or supply
28:40
from kind of 2012 2013
28:44
when the eagle for trail was the gold
28:46
rush a lot of apartments were built
28:48
there but it has since stabilized
28:50
and even with uh what we’re floored by
28:54
right now is we thought that oil and gas
28:55
was going to affect
28:57
the marketplace but we’ve seen better
29:00
performance at the asset level in corpus
29:02
christi than we did
29:04
pre-pandemic and i think a lot of that
29:05
has to do with
29:07
you know people’s propensity that in
29:09
those market places although
29:11
single family in san antonio is
29:13
performing really well
29:14
in those markets they don’t know if they
29:16
want to stay there forever now
29:18
so that single family backflow is
29:20
actually going into
29:22
b-class multi-family and in the rio
29:24
grande valley
29:25
you have a lot of infrastructure
29:27
projects from the government
29:29
uh as well as you know border patrol and
29:32
you know spacex and you know logistics
29:35
with the
29:36
usmc basically the new nafta agreement
29:40
you’re seeing that
29:41
jobs that are being created in those
29:43
areas are really sustainable
29:45
and in south texas is going to basically
29:47
become
29:48
a logistics hub not only for
29:51
[Music]
29:53
transport of goods in fort and export
29:55
but it’s also becoming the oil export
29:58
hub
29:58
uh regardless of where pricing is
30:02
is there’s still the consumption of oil
30:04
for plastics and
30:05
etc so it’s becoming a an export hub for
30:09
basically midland odessa and you’ve seen
30:11
a lot of the
30:12
jobs that are being created there or
30:15
really more getting the oil out of the
30:16
pipelines and
30:17
off to the rest of the world okay that’s
30:19
a it’s an
30:20
interesting point so you haven’t seen
30:22
with corpus christi that there is
30:25
obviously they are the port is somewhat
30:28
oil and gas dependent
30:30
but obviously they also have have a lot
30:33
of
30:34
import flows that go through corpus
30:36
christi too
30:38
uh so have you uh so you haven’t really
30:41
seen any
30:42
any negative well we saw performance
30:45
actually
30:45
outperformed pre-covered and we were
30:48
shocked
30:49
because the bovs that we’re looking at
30:53
these numbers are really solid how are
30:55
they performing so well
30:57
and and i think it’s just that the
31:00
nature
31:01
of the business being maybe related to
31:04
oil and gas
31:05
in some parts doesn’t have the big
31:09
uh people aren’t considering it a more
31:12
permanent
31:14
industry so their propensity to buy a
31:16
house is less
31:17
whereas when the oil and gas market was
31:19
hot
31:20
people would buy a house and you’d have
31:22
you know an oil field worker that would
31:24
go buy a house and
31:26
instead of renting an apartment so kind
31:29
of what happened in 08 was
31:31
you know people that couldn’t pay for
31:33
their houses started to move into
31:34
multi-family we’re starting to see that
31:36
yeah okay at the operational level
31:39
so in rio grande valley where would you
31:41
say
31:42
or the safe spots to invest in
31:46
obviously you mentioned spacex
31:49
some of the government projects did you
31:51
say it needs to be
31:52
close to some of these infrastructure
31:55
facilities where
31:57
where you think it would be safe to
31:58
invest in where you also
32:00
obviously when you invest in these marks
32:02
you always need to think about
32:04
uh are you able to sell down the road
32:07
right
32:08
is there a buyer in two three years five
32:11
years down the road so which which
32:14
cities do you think uh in the rio grande
32:17
valley would you say yes
32:19
there it’s a safe place to be in so
32:22
they’re all
32:23
they all have almost similar economics
32:26
so in hidalgo county which would be
32:28
mcallen edinburgh mission far you’re
32:31
going to have a little bit more related
32:33
to actual
32:34
import and export border patrol as well
32:38
as
32:40
you know health care and university
32:43
so a lot of the you know safe jobs
32:46
are there um in cameron county you’re
32:49
gonna have
32:50
some of the spacex more industrial port
32:53
type jobs that it’s gonna feel a lot
32:55
more like corpus christi
32:57
um they’re both unique in their
33:01
uh their job sets but they’re all
33:03
there’s a layer of
33:04
border dynamics there but at the end of
33:07
the day
33:08
i like all of them i don’t really if you
33:11
told me harlingen is better than
33:13
brownsville and it’s better than mcallen
33:16
is better than edinburgh um i would say
33:19
that
33:19
the development pipeline is happening in
33:22
mcallen and edinburgh
33:24
for you know newer construction
33:27
but they’re all really performing well
33:30
across the board from occupancies and
33:33
decent rental growth i mean
33:35
there’s markets in in texas that people
33:38
are hoping they see around growth
33:39
they’re not seeing anything
33:40
we’re still seeing two and three percent
33:42
now growth there okay
33:44
and a lot of that has to do with the
33:45
supply but the liquidity is easy i mean
33:48
you know all of my competitors marcus
33:50
and miller chad
33:52
ara newmark arcadia
33:56
there’s just as many competitors for
33:58
brokers there and the liquidity is
34:01
very similar uh if you had asked me 15
34:03
years ago
34:04
what’s liquidity like very little but
34:07
technology is
34:08
advanced the ability to research what
34:10
these markets look like
34:11
performance and there’s a data set that
34:14
people can feel confident in
34:16
and and that’s created some additional
34:19
liquidities as well as
34:20
big crms that brokers are using now so
34:23
like the liquidity is
34:25
not a challenge but you know for people
34:27
that are looking at that first time
34:30
they’ll not go there that’s interesting
34:32
so so you
34:33
feel uh that’s that’s not just a
34:36
temporary
34:37
thing obviously a lot of with prices in
34:41
the all the
34:42
major markets major msas having
34:46
increased so much with cap rates coming
34:48
down there was only a flight to
34:50
secondary and tertiary markets by
34:53
out-of-state buyers so based on what
34:56
you’re saying you do not really see that
34:58
that is just a temporary thing but
35:00
because of technology and ability to
35:02
research
35:03
that there it’s it’s a really a shift in
35:07
the way investors are looking at these
35:10
markets and even
35:12
as prices again potentially will cool
35:15
down in
35:16
major msas and make it more interact
35:18
attractive to invest there
35:20
that you still have a buyer pool in
35:22
these secondary and tertiary markets
35:25
yeah i mean you’re looking at a 50 basis
35:27
one cap rate difference which
35:30
works for a lot of syndicators that
35:31
actually can get that cash on cash
35:33
return the ones that
35:34
like i don’t i can’t get a double digit
35:36
cash on cash return
35:38
you can achieve those in those market
35:39
places so it’s a matter of cost of
35:42
capital
35:43
and if the cost of capital is a little
35:45
bit more expensive for you as a
35:46
syndicator
35:48
but really the hot buttons are cash on
35:50
cash return
35:51
uh you can achieve those metrics in
35:53
those markets and that’s why
35:54
there’s the liquidity because that cost
35:56
of capital is not
35:58
that much different between you know
36:00
call it six to eight percent
36:02
is kind of the bogey for a lot of this
36:05
indicators
36:06
for their cash on cash returns and if
36:08
they can make eight to nine
36:11
but maybe there’s not as much perceived
36:13
upside
36:14
then you know investors are happy to be
36:17
receiving eight or nine and they’re
36:18
bragging up to all their friends about
36:19
how
36:20
great that cash money huh
36:23
yeah and and then they’re going oh well
36:27
and i
36:27
doubled my money in the end
36:31
right it’s the effect that people want
36:34
um
36:35
although that’s not the strategy that i
36:37
employed personally
36:38
but i also am not in the
36:42
uh in my personal investments i’m trying
36:45
to
36:46
i’m i’m able to kind of read the market
36:49
and see where the bids are going every
36:50
day
36:51
and have the confidence and the
36:52
liquidity of entry and exit points
36:55
yeah uh which a lot of people don’t have
36:57
i know where uh anton i know we’re at
36:59
time
37:00
pretty much right but i guess one last
37:02
question i
37:03
i have an answer if you have any from
37:04
the from rgb the whole
37:06
you know rio grande valley are you
37:09
seeing
37:10
an increased number of listings a
37:12
decrease in listings
37:14
uh same amount of deals less more
37:17
higher what’s a you know there’s some
37:20
problems
37:21
today so the marketed listings
37:26
are probably less today and that
37:28
probably has to do
37:29
with a lot of the brokers are wanting to
37:33
do it off market is they don’t want to
37:34
travel as much as they were before so
37:37
they’re trying
37:38
they can quickly get to
37:41
a bitter pool we’re actually going to
37:43
take one out cost only harlingen
37:46
next week and and that should get
37:48
launched here pretty shortly that’s
37:50
basically a value play it’s exactly what
37:52
syndicators want
37:54
but one of the things to really be