January 2, 2025 • 15 mins
In this solo episode of Inside The Deal Room, host Gabe Bowling dives deep into the evolving multifamily real estate market. Gabe breaks down key trends from 2024, including the impact of rising interest rates, distressed property opportunities, and lessons learned from market timing. Looking ahead to 2025, he shares actionable strategies for active and passive investors, emphasizing the importance of capital market awareness, deal underwriting precision, and staying connected with industry brokers.
If you're ready to navigate the coming wave of opportunities in the multifamily space, this episode is your blueprint.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hey, welcome back everybody to another episode of Inside the Deal Room.
(00:03):
I'm your host Gabe Boleyn.
In today's episode, we actually have a solo podcast lined up where I don't have any guest
speakers on and we get to take the time and dig deep into a specific topic, a deal, a
case study.
And in today's instance, we're going to take the time and look at the overall multifamily
market condition.
The date I'm recording this is December 30th of 2024.
(00:25):
We're going to do a quick recap on what's happened in 2024 and where the consensus is
with multifamily investors headed into 2025.
And as always, before we jump into the actual content, if you guys find any value through
listening to today's episode, all I ask in return is make sure you drop a like, you comment
what the biggest takeaway or the learning lesson was for you.
(00:46):
And more importantly, make sure you share it with a friend or two to help get this information
shared in front of more multifamily investors.
Now with that being said, let's go ahead and let's jump in.
The way that I want to structure this episode to give you guys context is I want to look
at multifamily as a whole, kind of look at the activity in 2024 comparison to the last
couple of years.
We are literally in the middle of a rapidly changing market cycle.
(01:09):
We're going through a recession.
And one of the biggest learning lessons that I've learned as a practitioner of the business
versus just somebody that's a part of it, learning it is the timing of the market that
you enter is arguably the most important thing on buying a deal to give you an example, somebody
who started in the business and bought a bunch of real estate in 2021 on floating rate debt.
(01:31):
They're not doing so hot in comparison to somebody that might be entering the business
in 2025 and picking up the same number of units.
The only difference between those individuals is the timing that they entered the market.
Now just so you can have a better context of where we're at today, I'm going to quickly
sum up the last four years and like why we're here because it's important if you only look
(01:52):
at the snapshot image of where we're at today without understanding what's happened over
the last four years, it's going to be really hard for you to understand where the market
is going.
The cycle really started to get hot, meaning touching all time highs for valuations, interest
rates were all time low, really in 2020.
The two biggest factors that happened in 2020 that kind of ignited the multifamily boom
(02:16):
in 2021 and 2022 was COVID-19 happening, which caused remote work, which is a really big
factor and I'll go into why.
And the response from the Fed stepping in and lowering interest rates to literally almost
zero, meaning people could go out and borrow money for free, those two factors put together
caused a ginormous demand for apartments, both the owners and renters.
(02:40):
So what I meant by remote work happening was everybody from New York and California that
were in their tech jobs and finance jobs were making three to 500 grand a year and living
in these high cost cities where their rents were three grand or four grand or five grand.
And what happened was COVID happened and it allowed the same workers to switch to the
work from home model, which is remote work for the foreseeable future because nobody
(03:04):
had no idea when COVID would be over.
And that whole paradigm shift with work from home has caused a giant problem in the commercial
real estate market for office buildings.
If you take out office, commercial real estate is actually doing okay.
The fundamentals are there.
Office is getting completely destroyed because of it.
So that happened.
Everybody from New York moved to Florida because they're making the same amount of money and
(03:28):
they're living in a much nicer space for half the cost.
And so all of your friends came from New York down to Florida and then California moved
into Vegas and Phoenix and Austin.
I mean, during 2020 and 21, this was when I was working at Grant Cardone's office at
the Cardone Capital raising money for all of his deals.
And I literally saw it happen from 2019 when I first started there buying five and six
(03:50):
caps and that was like overpaying at the time to when interest rates dropped to zero, September
to December of 2020 was like the absolute best time to buy deals because interest rates
had dropped to zero and the pricing hadn't yet adjusted yet for all of the demand that
was there.
2021 and 2022 were by far the hottest markets to exist up until about June of 2022 when the
(04:11):
rate hike started to happen.
That was the era where I know brokers that are on social media that brand themselves
as Joey Onecap where he literally sold a 1% cap rate to another buyer and it all happened
so fast.
There are 20 plus offers on every single deal, hard money, day one, non-refundable just to
get into the deal.
Like it was the craziest environment anybody had ever seen and you saw deals trading at
(04:34):
all time highs for pricing.
Now the biggest reason why people are in trouble today and why you see so many news headlines
saying syndicators in trouble is because during 21 when it got so competitive, fixed money
no longer was competitive enough to get the deal.
And what I mean by that is if you're a real estate investor and you're going out and you're
(04:54):
buying multifamily apartments, based on the income today, you're going to underwrite the
deal and you're going to see what bucket of money it fits to go to.
You have agency debt, you have a bank and credit union that's CNBS loans, you have bridge money
which is hard money, which is the equivalent of hard money, very expensive but easy to
get and then you have seller finance deals.
(05:15):
During 2019 and 2020 fixed debt won the deals because it's lower risk because your interest
rate is fixed the entire time.
So whenever 21 got very hot, you can no longer meet the same DCR qualifications on a fixed
rate loan that you could on a floating rate loan.
So the big difference between fixed and floating rate is on the fixed rate debt, most of the
(05:36):
time you have to cover a 1.25 debt service coverage ratio.
I mean if you're going to go buy a property and that loan that you're going to get on
the property cost $100,000 per year of principal and interest payments, the property itself
has to have $125,000 of net operating income in place to support that loan amount.
(05:56):
And so whenever it got super competitive, these deals started not hitting these qualifications
and it forced buyers to look at different debt options.
Like bridge debt, which is a variable rate option, so you carry a little bit more risk,
you can do what's called a swap into a fixed rate loan or you can buy a rate cap, which
is basically insurance for the interest rate to make sure it doesn't go above a certain
(06:18):
level.
So that's what happened.
The market got so hot, everybody had to switch over to floating rate debt, which were all
shorter term three year loans with a couple of extensions.
And so you started the project in 2021 and because of so many people moving down to Florida,
and Phoenix, and Arizona, you had the ability to raise rents by 20 or 30 or even sometimes
(06:41):
40% on these deals.
And so with the amount of upside these properties had, it made sense as the investor, even though
they had to use a different type of loan.
So hopefully that makes sense and you didn't get too confused on it.
I just vividly remember raising money for deals with fixed rate debt and then making
the switch and pivot to the floating rate debt.
I always had questions about it, but I didn't understand it the way that I do today.
(07:04):
As for the 22, 23, 24, this is when inflation becomes a very real problem for the overall
US economy.
It gets up to almost 8%, I believe, at its very peak.
And then since then, it's been pretty much a waiting game of how high our interest rates
going to be raised from the Fed.
They took the Fed funds rate from 0.05 basically free all the way up to five and a quarter.
(07:27):
So a 520% increase in about 16 months.
So from middle of 2022 all the way until mid 2024, they were just raising the rates.
And then once they hit the top of 525, we had the wait, I believe it was 10 months that
we ended up waiting for the Fed to basically signal, hey, we're good on the inflation.
(07:47):
It's coming down.
We're taming it.
Now we're waiting for the indicators that inflation is completely under control and
that we're going to be able to get it back down to the 2% target rate.
And for that to happen, we need more time and more data to come in.
So it's basically a waiting game for almost two years.
And then we have the first rate cut in September of 2024.
And now is December 30, 2024.
(08:09):
They've decreased it three times with an anticipated two more in 2025.
So hopefully that wasn't too deep.
And now you guys understand why I like to do these solo podcasts so we can take the time
and dig deeper.
So what happened in 2024?
Well first off, transaction volume is still down almost 60% from the all time high in
2021.
(08:30):
So activity has picked up in Q3 and Q4 because time is running out for all of these loans
that are going bad.
The borrow were overpaid.
They paid way too much and cap rates just went up too much.
And because interest rates went up to the mid sixes, high fives, cap rates are also right
there.
So their equity is wiped out and they're in trouble.
(08:51):
That's what's happening.
And we bought $30 million of deals this year and we bought them from both an emerging developer
who was in distress, who started the project and finished it and needed to sell.
And then same thing for our last deal we just bought.
It was a value add deal in Ocala.
We bought it from the seller that was in default on their loan.
They had to modify it to sell it to us.
(09:12):
So it's needless to say that there's a ton of opportunity coming and I believe we're
going to see a lot of the action in 2025 and 2026.
So kind of moving into 2025, what is actually going to change between now where we're at
today and the overall market opening up and everybody being able to go out and buy deals
and make a ton of money because that's really what people are waiting for.
(09:33):
I think with Trump entering office in January and then you seeing the policy changes that
he'll bring back, hopefully a hundred percent bonus depreciation is in is on the table.
That would incentivize a ton more investment into the multifamily business.
I'll leave you with a couple of items that you can walk away from today's episode with
tangible like what should you be doing?
What should you be watching to be most prepared for 2025?
(09:56):
Regardless if you're an active or a passive investor is you want to watch the capital
markets.
And what I mean by this is whenever you're going out and you're buying multifamily deals
or if you're investing passively, the operator is the person that's doing this.
You're going to go out, you're going to underwrite these deals and you're going to look at two
different buckets of money.
You're going to look at fixed rate debt, which is dictated over the treasuries.
(10:17):
So you're looking at the 10 year, the five year and the seven year treasury very closely.
I think the sooner that that number dips into the mid threes, the sooner you see a market
open at wide scale because people can borrow money in the fives and people can sell their
deals in the 5% cap rate range.
And for most people in 21 and 22 that are in trouble, that's actually an okay number
(10:38):
to let go of this stuff on.
So that way you can get back into the game and take advantage of all the opportunities.
So tracking fixed rate interest rates, you want to look at the treasury, right?
Today it's at 450.
It's kind of been a knee jerk reaction to the Fed doing what it's been doing and inflation
data coming in the way it has.
So today interest rates are low to high sixes, which cap rates are going to be there as well.
(11:00):
Most sellers aren't cool with that.
That's fine.
If the time limit has run out, they're just going to have to sell it and it sucks for them.
It's fantastic for us if we can get the deal awarded.
But if you want to see the market open up at a wide scale and everybody be happy, the
broker, the seller, the lender, everybody, I think you'll see a lot more activity happen
with the treasuries in the mid to low threes when you can borrow money at low or mid fives.
(11:23):
Another thing you need to watch is bridge money.
Now bridge money is the reason why so many people are in trouble from 21 to 22, but it's
fairly safe to say that everybody's in a grudge that rates should go back down over the long
term.
It's just not sustainable for the government.
The US is its biggest borrower and to pay 5% versus 4% is a massive thing.
(11:43):
So if you can make sense of the deal with floating rate debt and then still protect yourself
the same way with a swap or a rate cap, I think you could actually take a look at bridge
debt, especially with SOFR dropping down to the low fours.
Now the issue on bridge debt today and has been for the last two years is the spread,
the spread that you're borrowing the money over.
So SOFR is at four and a quarter.
(12:05):
If the spread was a point and a half, we'd be at 575 for our interest rate and that'd
be awesome.
We could do deals there, but today the spreads are four to five points because of how uncertain
the short term interest rate environment is.
And so my all in interest rate today is still in the high eights or low tens because of
the spreads.
As you have more certainty that enters the market in the short term, I believe that you
(12:28):
have more competition and turn the market for the short term loans and that should compress
the spreads that you're borrowing money over for SOFR.
So that's where I think if the treasuries continue to act the way that they are and
going up and down 50 basis points every 30 or 60 days, it's super hard to transact on
those deals with SOFR at four and a quarter.
(12:49):
If spreads were to come down below two, I think you can do deals there, especially if
SOFR continues to drop with the Fed funds rate, especially if there's continued decreases
in the rates.
I think it signals the certainty that we're looking for and then the spreads that you're
borrowing over is what you're going to have to look at.
Now beyond the capital markets, here's what I'll leave you with know how to underwrite
deals to an absolute T stress test everything that you possibly can from your occupancies
(13:14):
to your rents, delinquencies, people might not make as much money next year.
Like what would happen if the worst case scenario happened and make sure you're good?
Don't project interest rates going down.
Be okay with interest rates staying the same.
And if you get lucky and interest rates do go down, then you just make a whole lot of
money for yourself and the investors.
And the last one, and this is by far the most important one.
(13:36):
Notice why I saved it to the last thing, which is hang around the rim and make sure you're
communicating with the brokers.
The hardest thing today is not underwriting the deal and determining what price you can
pay for it.
The hardest thing today is actually getting the deal awarded at a price that makes sense
for you.
There's so many hungry syndicators out there right now that are trying to do deals for
their acquisition fees and they're getting a little bit too antsy.
(13:59):
And so they're overpaying a little bit more just to get the deal awarded today and they're
hoping rates go down.
They hope rents go up and there's a lot of deals that end up falling out of contract
because they can't raise the money or they put the deal under contract for too much and
they're trying to take advantage of the situation.
Both the deals that we bought this year were a product of us hanging around the rim.
(14:19):
The first deal came out in September of 2023.
They brought it out for 28 million.
The market spoke and said 24.
They didn't like it.
So they tried to take it off and then refinance it.
Treasuries went up, values went down and then we got the call saying, hey, we'll take your
$24 million.
And the second deal we closed went under contract at over $4 million.
The guy just tried to rip the seller's head off because he knew that he was in default
(14:43):
and the seller wanted to give it to the highest bidder.
It ended up falling out of contract and the broker called us to come in and save the day
at a lower price.
And so that is an overall recap on the multifamily market condition.
Hopefully you enjoyed today's episode.
And as always, if you have any questions or you need any help, just make sure you reach
out to our team.
Make sure you're a part of our free community inside the deal room.
(15:06):
Ask any questions you want.
Find the partners, find the deals, find the investors all inside of our community.
I will see you on the next one.
Be great.
Hey, welcome back everybody to another episode of Inside the Deal Room.
(00:03):
I'm your host Gabe Boleyn.
In today's episode, we actually have a solo podcast lined up where I don't have any guest
speakers on and we get to take the time and dig deep into a specific topic, a deal, a
case study.
And in today's instance, we're going to take the time and look at the overall multifamily
market condition.
The date I'm recording this is December 30th of 2024.
(00:25):
We're going to do a quick recap on what's happened in 2024 and where the consensus is
with multifamily investors headed into 2025.
And as always, before we jump into the actual content, if you guys find any value through
listening to today's episode, all I ask in return is make sure you drop a like, you comment
what the biggest takeaway or the learning lesson was for you.
(00:46):
And more importantly, make sure you share it with a friend or two to help get this information
shared in front of more multifamily investors.
Now with that being said, let's go ahead and let's jump in.
The way that I want to structure this episode to give you guys context is I want to look
at multifamily as a whole, kind of look at the activity in 2024 comparison to the last
couple of years.
We are literally in the middle of a rapidly changing market cycle.
(01:09):
We're going through a recession.
And one of the biggest learning lessons that I've learned as a practitioner of the business
versus just somebody that's a part of it, learning it is the timing of the market that
you enter is arguably the most important thing on buying a deal to give you an example, somebody
who started in the business and bought a bunch of real estate in 2021 on floating rate debt.
(01:31):
They're not doing so hot in comparison to somebody that might be entering the business
in 2025 and picking up the same number of units.
The only difference between those individuals is the timing that they entered the market.
Now just so you can have a better context of where we're at today, I'm going to quickly
sum up the last four years and like why we're here because it's important if you only look
(01:52):
at the snapshot image of where we're at today without understanding what's happened over
the last four years, it's going to be really hard for you to understand where the market
is going.
The cycle really started to get hot, meaning touching all time highs for valuations, interest
rates were all time low, really in 2020.
The two biggest factors that happened in 2020 that kind of ignited the multifamily boom
(02:16):
in 2021 and 2022 was COVID-19 happening, which caused remote work, which is a really big
factor and I'll go into why.
And the response from the Fed stepping in and lowering interest rates to literally almost
zero, meaning people could go out and borrow money for free, those two factors put together
caused a ginormous demand for apartments, both the owners and renters.
(02:40):
So what I meant by remote work happening was everybody from New York and California that
were in their tech jobs and finance jobs were making three to 500 grand a year and living
in these high cost cities where their rents were three grand or four grand or five grand.
And what happened was COVID happened and it allowed the same workers to switch to the
work from home model, which is remote work for the foreseeable future because nobody
(03:04):
had no idea when COVID would be over.
And that whole paradigm shift with work from home has caused a giant problem in the commercial
real estate market for office buildings.
If you take out office, commercial real estate is actually doing okay.
The fundamentals are there.
Office is getting completely destroyed because of it.
So that happened.
Everybody from New York moved to Florida because they're making the same amount of money and
(03:28):
they're living in a much nicer space for half the cost.
And so all of your friends came from New York down to Florida and then California moved
into Vegas and Phoenix and Austin.
I mean, during 2020 and 21, this was when I was working at Grant Cardone's office at
the Cardone Capital raising money for all of his deals.
And I literally saw it happen from 2019 when I first started there buying five and six
(03:50):
caps and that was like overpaying at the time to when interest rates dropped to zero, September
to December of 2020 was like the absolute best time to buy deals because interest rates
had dropped to zero and the pricing hadn't yet adjusted yet for all of the demand that
was there.
2021 and 2022 were by far the hottest markets to exist up until about June of 2022 when the
(04:11):
rate hike started to happen.
That was the era where I know brokers that are on social media that brand themselves
as Joey Onecap where he literally sold a 1% cap rate to another buyer and it all happened
so fast.
There are 20 plus offers on every single deal, hard money, day one, non-refundable just to
get into the deal.
Like it was the craziest environment anybody had ever seen and you saw deals trading at
(04:34):
all time highs for pricing.
Now the biggest reason why people are in trouble today and why you see so many news headlines
saying syndicators in trouble is because during 21 when it got so competitive, fixed money
no longer was competitive enough to get the deal.
And what I mean by that is if you're a real estate investor and you're going out and you're
(04:54):
buying multifamily apartments, based on the income today, you're going to underwrite the
deal and you're going to see what bucket of money it fits to go to.
You have agency debt, you have a bank and credit union that's CNBS loans, you have bridge money
which is hard money, which is the equivalent of hard money, very expensive but easy to
get and then you have seller finance deals.
(05:15):
During 2019 and 2020 fixed debt won the deals because it's lower risk because your interest
rate is fixed the entire time.
So whenever 21 got very hot, you can no longer meet the same DCR qualifications on a fixed
rate loan that you could on a floating rate loan.
So the big difference between fixed and floating rate is on the fixed rate debt, most of the
(05:36):
time you have to cover a 1.25 debt service coverage ratio.
I mean if you're going to go buy a property and that loan that you're going to get on
the property cost $100,000 per year of principal and interest payments, the property itself
has to have $125,000 of net operating income in place to support that loan amount.
(05:56):
And so whenever it got super competitive, these deals started not hitting these qualifications
and it forced buyers to look at different debt options.
Like bridge debt, which is a variable rate option, so you carry a little bit more risk,
you can do what's called a swap into a fixed rate loan or you can buy a rate cap, which
is basically insurance for the interest rate to make sure it doesn't go above a certain
(06:18):
level.
So that's what happened.
The market got so hot, everybody had to switch over to floating rate debt, which were all
shorter term three year loans with a couple of extensions.
And so you started the project in 2021 and because of so many people moving down to Florida,
and Phoenix, and Arizona, you had the ability to raise rents by 20 or 30 or even sometimes
(06:41):
40% on these deals.
And so with the amount of upside these properties had, it made sense as the investor, even though
they had to use a different type of loan.
So hopefully that makes sense and you didn't get too confused on it.
I just vividly remember raising money for deals with fixed rate debt and then making
the switch and pivot to the floating rate debt.
I always had questions about it, but I didn't understand it the way that I do today.
(07:04):
As for the 22, 23, 24, this is when inflation becomes a very real problem for the overall
US economy.
It gets up to almost 8%, I believe, at its very peak.
And then since then, it's been pretty much a waiting game of how high our interest rates
going to be raised from the Fed.
They took the Fed funds rate from 0.05 basically free all the way up to five and a quarter.
(07:27):
So a 520% increase in about 16 months.
So from middle of 2022 all the way until mid 2024, they were just raising the rates.
And then once they hit the top of 525, we had the wait, I believe it was 10 months that
we ended up waiting for the Fed to basically signal, hey, we're good on the inflation.
(07:47):
It's coming down.
We're taming it.
Now we're waiting for the indicators that inflation is completely under control and
that we're going to be able to get it back down to the 2% target rate.
And for that to happen, we need more time and more data to come in.
So it's basically a waiting game for almost two years.
And then we have the first rate cut in September of 2024.
And now is December 30, 2024.
(08:09):
They've decreased it three times with an anticipated two more in 2025.
So hopefully that wasn't too deep.
And now you guys understand why I like to do these solo podcasts so we can take the time
and dig deeper.
So what happened in 2024?
Well first off, transaction volume is still down almost 60% from the all time high in
2021.
(08:30):
So activity has picked up in Q3 and Q4 because time is running out for all of these loans
that are going bad.
The borrow were overpaid.
They paid way too much and cap rates just went up too much.
And because interest rates went up to the mid sixes, high fives, cap rates are also right
there.
So their equity is wiped out and they're in trouble.
(08:51):
That's what's happening.
And we bought $30 million of deals this year and we bought them from both an emerging developer
who was in distress, who started the project and finished it and needed to sell.
And then same thing for our last deal we just bought.
It was a value add deal in Ocala.
We bought it from the seller that was in default on their loan.
They had to modify it to sell it to us.
(09:12):
So it's needless to say that there's a ton of opportunity coming and I believe we're
going to see a lot of the action in 2025 and 2026.
So kind of moving into 2025, what is actually going to change between now where we're at
today and the overall market opening up and everybody being able to go out and buy deals
and make a ton of money because that's really what people are waiting for.
(09:33):
I think with Trump entering office in January and then you seeing the policy changes that
he'll bring back, hopefully a hundred percent bonus depreciation is in is on the table.
That would incentivize a ton more investment into the multifamily business.
I'll leave you with a couple of items that you can walk away from today's episode with
tangible like what should you be doing?
What should you be watching to be most prepared for 2025?
(09:56):
Regardless if you're an active or a passive investor is you want to watch the capital
markets.
And what I mean by this is whenever you're going out and you're buying multifamily deals
or if you're investing passively, the operator is the person that's doing this.
You're going to go out, you're going to underwrite these deals and you're going to look at two
different buckets of money.
You're going to look at fixed rate debt, which is dictated over the treasuries.
(10:17):
So you're looking at the 10 year, the five year and the seven year treasury very closely.
I think the sooner that that number dips into the mid threes, the sooner you see a market
open at wide scale because people can borrow money in the fives and people can sell their
deals in the 5% cap rate range.
And for most people in 21 and 22 that are in trouble, that's actually an okay number
(10:38):
to let go of this stuff on.
So that way you can get back into the game and take advantage of all the opportunities.
So tracking fixed rate interest rates, you want to look at the treasury, right?
Today it's at 450.
It's kind of been a knee jerk reaction to the Fed doing what it's been doing and inflation
data coming in the way it has.
So today interest rates are low to high sixes, which cap rates are going to be there as well.
(11:00):
Most sellers aren't cool with that.
That's fine.
If the time limit has run out, they're just going to have to sell it and it sucks for them.
It's fantastic for us if we can get the deal awarded.
But if you want to see the market open up at a wide scale and everybody be happy, the
broker, the seller, the lender, everybody, I think you'll see a lot more activity happen
with the treasuries in the mid to low threes when you can borrow money at low or mid fives.
(11:23):
Another thing you need to watch is bridge money.
Now bridge money is the reason why so many people are in trouble from 21 to 22, but it's
fairly safe to say that everybody's in a grudge that rates should go back down over the long
term.
It's just not sustainable for the government.
The US is its biggest borrower and to pay 5% versus 4% is a massive thing.
(11:43):
So if you can make sense of the deal with floating rate debt and then still protect yourself
the same way with a swap or a rate cap, I think you could actually take a look at bridge
debt, especially with SOFR dropping down to the low fours.
Now the issue on bridge debt today and has been for the last two years is the spread,
the spread that you're borrowing the money over.
So SOFR is at four and a quarter.
(12:05):
If the spread was a point and a half, we'd be at 575 for our interest rate and that'd
be awesome.
We could do deals there, but today the spreads are four to five points because of how uncertain
the short term interest rate environment is.
And so my all in interest rate today is still in the high eights or low tens because of
the spreads.
As you have more certainty that enters the market in the short term, I believe that you
(12:28):
have more competition and turn the market for the short term loans and that should compress
the spreads that you're borrowing money over for SOFR.
So that's where I think if the treasuries continue to act the way that they are and
going up and down 50 basis points every 30 or 60 days, it's super hard to transact on
those deals with SOFR at four and a quarter.
(12:49):
If spreads were to come down below two, I think you can do deals there, especially if
SOFR continues to drop with the Fed funds rate, especially if there's continued decreases
in the rates.
I think it signals the certainty that we're looking for and then the spreads that you're
borrowing over is what you're going to have to look at.
Now beyond the capital markets, here's what I'll leave you with know how to underwrite
deals to an absolute T stress test everything that you possibly can from your occupancies
(13:14):
to your rents, delinquencies, people might not make as much money next year.
Like what would happen if the worst case scenario happened and make sure you're good?
Don't project interest rates going down.
Be okay with interest rates staying the same.
And if you get lucky and interest rates do go down, then you just make a whole lot of
money for yourself and the investors.
And the last one, and this is by far the most important one.
(13:36):
Notice why I saved it to the last thing, which is hang around the rim and make sure you're
communicating with the brokers.
The hardest thing today is not underwriting the deal and determining what price you can
pay for it.
The hardest thing today is actually getting the deal awarded at a price that makes sense
for you.
There's so many hungry syndicators out there right now that are trying to do deals for
their acquisition fees and they're getting a little bit too antsy.
(13:59):
And so they're overpaying a little bit more just to get the deal awarded today and they're
hoping rates go down.
They hope rents go up and there's a lot of deals that end up falling out of contract
because they can't raise the money or they put the deal under contract for too much and
they're trying to take advantage of the situation.
Both the deals that we bought this year were a product of us hanging around the rim.
(14:19):
The first deal came out in September of 2023.
They brought it out for 28 million.
The market spoke and said 24.
They didn't like it.
So they tried to take it off and then refinance it.
Treasuries went up, values went down and then we got the call saying, hey, we'll take your
$24 million.
And the second deal we closed went under contract at over $4 million.
The guy just tried to rip the seller's head off because he knew that he was in default
(14:43):
and the seller wanted to give it to the highest bidder.
It ended up falling out of contract and the broker called us to come in and save the day
at a lower price.
And so that is an overall recap on the multifamily market condition.
Hopefully you enjoyed today's episode.
And as always, if you have any questions or you need any help, just make sure you reach
out to our team.
Make sure you're a part of our free community inside the deal room.
(15:06):
Ask any questions you want.
Find the partners, find the deals, find the investors all inside of our community.
I will see you on the next one.
Be great.
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