February 25, 2025 • 34 mins
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ed Mathews (00:00):
Greetings and salutations Real Estate
Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you so much for joiningus today.
Today is one of those timeswhen I get to meet somebody who
has a significant and formativerole in my job in terms of a
multifamily investor, and hedidn't even know it, but I've
(00:20):
been following Neil for severalyears now.
I've learned a ton from him andnow I'm excited to have him on
the show.
So Neal Bawa from Grocapitusand several other things, but
thank you so much for joining ustoday.
It's a pleasure to finally meetyou in person.
Neal Bawa (00:34):
Thanks, Ed.
Thank you for inviting me.
I'm very excited.
This is actually a terrifictime to be doing a podcast,
especially because it's thebeginning of the year, and last
year was so astonishing, sounique, so different that it's
wonderful to be able to recap itas well.
Ed Mathews (00:47):
Absolutely yeah.
The theme that I continuouslyheard throughout 2024 is survive
to 25.
And here we are.
We survived, right, yeah.
So for those folks out therewho haven't come across you yet,
why don't you tell us a littlebit about who you are and what
you do for a living?
Neal Bawa (01:02):
Sure, I'm a technologist, computer science
degree data science is mybackground had a successful tech
career in Silicon Valley, I rana technology company for 14
years.
Sold it in 2013,.
Got into real estate basicallyfor taxation reasons.
I live in Taxifornia big fattech salary 40 to 50% of my
income was going to the man andI didn't like that.
(01:23):
So I got into real estatebasically for tax benefits, I
started investing in by buildinga campus for my company and
then got into single- family.
Oddly enough, got built acampus first, then bought a
single- family and bought dozensof single families.
Continued doing that until 2013.
So for 10 years just investingin my own money and family's
money.
And then in 2013, my companywas sold.
(01:45):
I had a huge tax bill and I wastold the only way to get that
tax bill down was to become areal estate professional
investor.
We call it syndicator becausethat's the only instance in
which you can basically leverageother people's money and also
get a portion of theirdepreciation.
So I once again got into realestate for tax reasons and so
(02:06):
being full time in real estatefrom 2013, 2014 onwards so about
10 or 11 years.
I'm a data scientist, so I lookat everything from the
perspective of data and there'sa bunch of very nerdy, geeky
investors that follow what we do.
Current portfolio the size hasgone up and down.
Currently it's about 600million.
There are currently 1,200investors invested in our
projects and we both buymultifamily.
(02:28):
We also build multifamily andwe have a separate company that
builds townhomes, so webasically run three separate
businesses value-add multifamily, new construction multifamily
and townhomes.
We currently have 800 apartmentunits in construction and about
300, 400 townhome units inconstruction and we're managing
(02:50):
thousands of multifamilyvalue-add units.
Ed Mathews (02:54):
Congratulations.
That's wonderful.
So, in terms of the marketsthat you tend to play in, how do
you pick a market?
What are you looking for totarget?
Let's start with the propertiesthat you build, your
development projects.
Neal Bawa (03:08):
Sure, I can tell you that my criteria for what to
build and what to buy areactually radically different,
and I'm going to do this bygiving you an example right.
So it's always good to have anexample.
So you couldn't put a gun to myhead right now to get me to buy
a value-add multifamily in thecity of Huntsville, Alabama.
(03:29):
Huntsville is my favoriteAlabamian City.
I like Huntsville.
It actually is one of the topcities in America to invest in.
In fact, in Milken Institute'srecent 2025 listing, it was high
up in the list, and there'slots of great reasons for that.
Huntsville is easily the mostforward looking.
If I look at a 10 year horizon,it's easily the best.
I would not consider Montgomeryor any other, or Birmingham to
(03:53):
be anywhere close to thepotential of Huntsville, but
you'd have to hold a gun to myhead, and the reason for that is
this Huntsville completely lostit when it came to granting
multifamily permits over thelast four years.
They basically let anybody andeverybody permit.
They didn't really look at whatwas going on.
(04:13):
So, of any city in America ofany size, Huntsville has the
highest percentage of supplycoming in in 2024 last year and
2025 this year, which means thatthis city is most likely a wily
city in America to see massiverent declines, concessions and
(04:34):
all those kinds of things.
On the one side, you couldn'thold a gun to my head.
Now, on the other side, in theU construction, I just paid $900
for a ticket for my team thatlives in Florida to fly to
Huntsville because we think that, given the extraordinarily
strong 10-year fundamentals andthe extraordinary distress in
(04:56):
the multifamily market, this isthe right time to buy cheap land
.
So when I buy cheap land in2025, I actually won't close on
it until 2026, which means Iwon't actually bring it to
market until 2028.
So I am tracking Huntsville'sdelivery and the last
significant delivery is inmid-2026.
Let's call it end of 2026.
(05:16):
So I'll have 27 as my gap yearby 2028,.
Those extraordinaryfundamentals will take hold and
I expect rent growth inHuntsville to be at 5% or 6%.
And so I always want, when I'mcoming in for a new construction
, to be coming into a marketthat has insufficient supply,
because at that point in time,the single biggest factor that
(05:38):
affects the profitability of anew construction project is
high-speed lease up at highrents without significant
concessions, and then you justsell that sucker right there,
you don't even wait for a year.
Sure, you can optimize, butsomething could go wrong.
The market could turn, caprates could change, interest
rates could go up.
If you're at 95% and you're ata high speed, high velocity, low
(06:00):
concession lease up, sell itnow.
Right, that's Huntsville and alot of people are like, no,
let's wait for a year.
The answer is if I'm very sureabout the market supply for the
next 12 months and I'm very surethat interest rates are not
going to spike in the next 12months, sure I'll do that.
But in most cases, if I time itand I come in at a low supply
time, I'm already aboveperformance.
(06:24):
Right, because my leasingvelocity was so spectacular
because of lack of supply thatI've already gotten my second
year's rents in the first year,especially if I use concessions.
One way to do that is, even ifit's a market that's been
nominal and everybody wants torent, still, give them two
months off and charge rents thatare 10 to 15% higher than your
pro forma.
And now you've hit your 30% proforma.
(06:45):
Sure, you give two months ofconcessions.
That's fine, that's aworthwhile hit to take.
So hopefully I answered yourpoint and illustrated just how
Huntsville today is probably anincredible city to buy cheap
land in, but a terrible city todo multifamily value add for the
next 18 months becausebasically every month there's
going to be a hand grenadelobbed at you, which is another
(07:05):
200 unit property opening andanother 200 unit property
opening all the way through thefourth quarter of 2026.
So basically, you'll befighting a fire every single
month for the next year and ahalf, and so when I'm looking at
the two criteria and I'll goback and answer your question
about what the criteria are,this is how far apart they are.
Ed Mathews (07:26):
So it's fascinating.
So basically you're because youunderstand I was going to say
the 10-year plan, but actually,it's a lack of a plan in
Huntsville's case You're able tojudge when these projects will
come to market.
You're judging just I'm justtrying to break this down to the
audience and then you'rejudging the absorption rates of
(07:47):
those new delivered deliveriesand you want to hit the market
as they are leased up at 90, 95%.
Neal Bawa (07:59):
I want everything that's in supply to be leased up
before I come to market.
I don't want to compete withanybody else, right?
So I want to come in into asupply trough.
And a lot of people are like,yeah, but this is just your
estimate.
No, it's not.
I can tell you when, likeanybody else, like Ed Mathews,
when I'm projecting the future.
It's just an estimate.
I could be wrong right, andoften am.
(08:20):
But this is the one area inwhich I actually have a crystal
ball, and the reason is simplythis with multifamily, one of
the most fundamental rules andthis is very important for the
value add.
Guys, you're thinking this isfor new construction.
No, it's not.
Listen up.
What I'm saying applies equallyto value add and new
construction.
You have a crystal ball.
It's a real crystal ball and itworks.
(08:40):
Multifamily developers do notpull permits until their loan is
ready to close, because permitsare expensive, usually $5,000 a
unit, some places $10,000 aunit.
So nobody in their right mindis going to spend $5,000 a unit
on a 200-unit project that's amillion dollars to pull permits
unless they're ready to govertical, unless they're
building.
That's the only.
But it'll do it.
Now, the moment they pullpermits, you know that their
(09:03):
building is going to come tomarket at the very soonest about
21 months from then.
Best case, Probably 24 monthsor 27 months.
Down the line, 18 to 27 monthsis the timeline from the time
you pull permits.
As it happens, several vendorspublish the list of permits
pulled by multifamily developersby city, by quarter.
(09:25):
That information is free andit's available from lots of
sources.
Ask ChatGPT, it'll give you acouple of sources.
Right, so you have this crystalball.
So I can just go to the lastquarter of 2024.
So we're talking here in thefirst quarter of 2025, right, I
can go to the last quarter of2024 and I can pull up this list
and I can look at all of thedifferent markets and I can look
at how many permits were pulledby that market.
(09:47):
Now, the cool thing is, the sameexcel spreadsheet also shows
you how many permits were pulledone year before that, two years
before that, three years beforethat, and I can tell you for
almost every market in the USthere's a few exceptions the
2020, the 2021 Q4 permit numberwas 50, 70, or even 80% higher
(10:11):
than the number last quarter,and if they didn't pull a permit
in the fourth quarter of 2024,.
They are not delivering abuilding in the last quarter of
2026.
So I have an actual, functionalcrystal ball and this crystal
ball tells me what delivery isgoing to be.
A lot of people on thevalue-add side have said for
(10:31):
years and have been wrongincluding myself, by the way, I
figured this out two or threeyears ago because I'm a
developer, but a lot of peoplejust simply haven't figured this
out.
This is value-add.
I'm running a Class C.
It's not affected by Classic.
Ed Mathews (10:41):
That is just a nonsensical idea.
Neal Bawa (10:43):
The market has a certain absorption number, right
.
So a market can absorb thismany studios, this many one beds
, two beds, three beds that isan absorption number.
Anyone who has access to abroker can get a costal report
for a market and it shows theabsorption number for a market
and a sub-market.
So if you just total it up andthen you total up how many units
are coming in, which is on thesame report, you can basically
tell how your rents are going tobe affected.
(11:04):
Because here's what happens.
The only thing true in thisstatement about Class Cs not
being affected by new supply,the only part that's true is
timing.
It takes about a year for ClassC to be affected.
Why?
Because when a Class A comesinto the market, the Bs first
have to drop their price becausethe A comes in and starts
offering concessions, especiallyif there's a lot of supply.
(11:24):
Right now there's a lot ofsupply in every market in the US
.
So they start offering twomonths of concession.
Right now my Phoenix property,halfway leased, falls at
Christian and Common.
You can Google it Two monthsconcession.
So what I'm doing is basicallyI'm dropping my price to the
class B levels by offering twomonths free.
So guess what happens?
Over the next three to sixmonths, all the Bs in this
market, unable to compete withme, my brand new property, will
(11:46):
drop their price right, or theywill start doing concessions, or
they'll start doing whateverthey need to, and then, six
months later, the class Cs willdo it.
So the impact is there.
It's the same impact on rentsfor class Cs as B or A.
It just takes a year to getthere.
That year has already passed,because there was a lot of
delivery in 23, a lot ofdelivery in 24.
(12:07):
So now, at the end of 2024, weare seeing a decline in
occupancy in the United Statesacross the board for A's, b's,
c's All of them have decliningoccupancy.
All of them have gone from alittle above 96 at the peak,
which was in early 2021, mid2021, to where we are today,
(12:28):
where, let's just say, it's 93%.
There's two different vendorsand the numbers are slightly
different, so we're 93.
So we're about 3% down frompeak to where we are today, and
so it's absolutely critical forpeople on the value add side to
use this completely free crystalball.
I don't think that you have tobuy any data All CoStar market
(12:48):
reports which you can get fromyour broker, because the broker
is paying for this report.
By the way, he's not doinganything wrong.
He's sending it to his clients.
He's allowed to do that.
All broker reports tell you howmuch new supply is coming into
any market or sub-market andalso, on a separate page, tell
you what the absorption of thatmarket is.
So our rule is this any marketwhere the total absorption
(13:09):
number is lower than the totalincoming supply number is going
to have issues with rents.
Why bother going into thatmarket then, when we're looking
at a extraordinary supplysituation the last two years
were extremely bizarre andextraordinary for supply Our
number one factor right now forany market in the US to go in
and buy something is what is theforward-looking two-year
(13:32):
projection?
Because the last couple of yearsrent growth has been awful.
If you look at rent growthacross the United States in the
last 24 months, we've been atmaybe 1% total for those two
years and if you're looking atSoutheast markets, they've
definitely been negative, right?
So, other than the Southeast, Ithink we're slightly positive,
but the Southeast has beennegative for the last 24 months
as a whole and most marketswithin the Southeast have been
(13:54):
negative, with Austin being themost negative, followed by
Huntsville and then a bunch ofother markets.
Denver, for example, has beenpretty negative as well.
So there's these superstarmarkets that are all negative.
So right now if I'm looking ata value add, I'm looking at
those numbers and I'll clue youin.
The two markets in the UnitedStates currently actually have
the highest projected rentgrowth are Kansas City Kansas
Never thought I'd be saying thatand Burlington Vermont Never
(14:21):
thought I'd be saying thateither.
And these two markets have veryhigh occupancy, very little
supply maybe only a few hundredunits on each side coming in and
significant population growth.
Especially Kansas City haspicked up in population growth.
It was never like top 10 in theUS.
I don't think it's top 10 inthe US right now, but certainly
accelerating in its populationgrowth curve.
So on the one side population'scoming in, the other side
nobody's building anything.
So you've got this potentialand the gap between where the
(14:45):
Southeast is now the cheap partof the United States, is not
cheap anymore, right?
So the average two bedroom rentin these cheap Southeast
markets has gone up 400 bucks inthe last three, four years.
So they're not cheap anymore.
But Kansas City looks veryinteresting and the other market
that looks extraordinarilyinteresting at the moment is
Indianapolis right.
So when I'm looking atpopulation growth versus
(15:05):
incoming supply, versus homeprice growth, they all Kansas
City looks really good,indianapolis looks really good
and typically I tend to be likeeverybody else.
I'm not in any way not subjectto following the herd.
So just honestly saying that,and I tend to invest in these
bullish, passive, fast-growingSoutheast markets, I'm not doing
(15:25):
that right now because I can'tmake any rational arguments
about investing in these markets.
I'm not saying these marketsare not going to be the fastest
growing.
Southeast is going to be thefastest growing.
I'm saying there's nofundamental benefit to buying
now when I know that many ofthese markets not all of them,
many of these markets are justgoing to continue to have hand
grenade after hand grenade ofdelivery for the next six, nine
(15:49):
or 10 months.
Oh, by then, why do I need tofight it out now?
And given that I know thatthere's not going to be any rent
growth, it's not like I'm goingto pay more nine months from
now.
I'm not.
You're probably going to pay alittle bit less, two or 3% less.
So I'm just not in a hurry tojump into Southeast markets
right now, a year from now, I'llprobably be buying Southeast
again.
Ed Mathews (16:09):
One of the things that has been happening, at
least in my part of the world,is insurance.
Right, insurance has been up onaverage, I think, 27%.
It was a number I saw, Ibelieve, on LinkedIn last week.
My numbers actually were up,depending on the building, even
more, and I'm curious about whatyou're seeing in the insurance
marketplace and how are youmanaging that increase?
(16:32):
I know plenty of owners, myselfincluded, who have zero claims
and their insurance is going upby that 20, 25% margin.
Neal Bawa (16:44):
I'm going to give you a really awful answer.
But it's very truthful, I'mmanaging it by suffering.
It's very truthful, I'mmanaging it by suffering.
I don't know of any way tomitigate insurance hikes.
We've tried all kinds of thingsaggregating insurance, things
like that.
It makes small differences, butoverall we're getting
slaughtered, and so the approachthat I've taken is a rather
(17:05):
radical one.
There are 323 MSAs, or metros,in the United States that are
basically 90% plus of ourpopulation, and I've started to
rank each metro by thecombination of property taxes
and insurance, because it's notjust insurance, it's also
property taxes, right.
So what we've started to do istraditionally, like everybody
else, we would rank populationgrowth, income growth, job
growth, right, that's whateverybody does.
(17:27):
Now what we've done is we'vetripled our weightage as we rank
cities.
We rank cities every month.
We publish this data.
I have this real estate trendspresentation that I do in early
February that about 2,000 peoplewatch and that those rankings
are visible once in a year.
We provide them for free.
You'll notice that my weightageshave changed.
So does this in any way benefitmy existing portfolio?
(17:52):
No, taking it in the ass, sir.
But does it affectforward-looking?
Yes, we've simply tripled theweightage that we assign to
property taxes and insurance.
So a city or metro or statethat has lower property taxes
and lower insurance now rankssignificantly higher.
So I can give you some examples.
(18:12):
Property taxes and lowerinsurance now ranks
significantly higher.
So I can give you some examples.
As a result of this, texas hasgone from being at the top of
our list to being in the secondhalf of the list, not quite at
the bottom.
Florida has gone from being atthe top of our list to being in
the sort of bottom second half.
So we have a bunch of othermarkets.
New Jersey is at the verybottom because it has the
highest property taxes andpretty high insurance as well.
(18:33):
So we're looking at this andbasically saying, okay, what are
the states that still give usthe job growth, population
growth, home price growth andincome growth?
Right, the four key factors Atthe same time have a low
combination of property taxesand insurance and we're
investing in them.
So North Carolina Raleigh is agood example of a market that
Milken ranked at number one.
(18:53):
I currently rank it as the bestmarket in the United States.
Raleigh was my market of theyear for 2024, a year ago, when
I was doing real estate trendspresentation.
I didn't pick it this year, butit's definitely at the top of
the list.
It's unquestionably a marketthat is benefiting from the fact
that multifamily syndicatorafter multifamily syndicator is
saying I don't want to deal withthe ridiculous property taxes
(19:16):
in Texas or the ridiculousinsurance in Florida and now I
have a place that has decentproperty taxes and decent
insurance.
They're not low.
If you want to go low propertytaxes, low insurance, your
answer is go to Nevada, right,arizona, nevada are low property
tax, low insurance, and soyou've got both of those there.
They don't have the potential ofRaleigh, right.
(19:37):
And notice, I'm not sayingNorth Carolina, because I don't
think Charlotte has the samepotential or Wilmington has the
same potential, or Greensboro orSalem have the same potential.
I think Raleigh is trulyextraordinary and it also offers
decent property taxes, decentinsurance.
So that's the answer to yourquestion.
I'm doing a lot of things on aforward-looking basis so that I
don't get hit again, but for myexisting properties I have no
(19:59):
magic bullets and I don't thinkanybody else has one either.
Ed Mathews (20:03):
I was hoping so.
You mentioned you have apresentation, a webinar coming
up, and it's something that I'veenjoyed every February since I
discovered you a couple of yearsago, so can you tell the folks
about that?
Neal Bawa (20:15):
Sure.
So throughout the year we gatherdata.
We're a bunch of nerds thathave a channel in Slack and
usually there's six or sevenposts a day from our industry,
and they come from the fact thatwe are subscribed to every
newsletter that you can possiblyimagine, and then some.
And then, of course, there's abunch of products that we pay
for, so we get access to paidnews from them, and so what we
(20:38):
like to do is we like to takedata and we like to put it
together for our investors, andwe do that four times a year for
people that are our investors.
They get access to this amazinginformation, and we do that on
a quarterly basis.
We call it the investor clubwebinar, so it's only for the
investors.
Then, once a year in February,we take all of the data, we put
it together.
It's an insane amount of data.
It's 50 plus reports, it's 200newsletters and then, starting
(21:01):
mid-December, we start collatingit and then at the end of
January, we start doing practicepresentations and then we do a
public presentations in February.
We do it on our platform.
We do it on three different IRAcompany platforms.
I've been presenting for thosefor a long time and then we do
it at two or three conferences,and so the goal is to have an
(21:21):
extremely attractivepresentation that, in a 60
minute timeframe, wouldbasically give people a very
good look at what is actuallyhappening in the industry.
So, for your subscribers thatare watching on video, I'm going
to basically give them a two ortwo to five second view of what
(21:45):
I'm going to be presenting inthe next few weeks.
You're looking at this is a 55slide presentation, so, as you
can imagine and I'll stopsharing now as you can imagine
it covers the economy.
Where we think the Fed is, do wethink that there's a soft
landing?
How did the United States doversus other economies, both
from a GDP and a dollarperspective?
(22:05):
So we cover all of that.
And this is, by the way, thefirst year where all news has
been good news, because everyyear there's mostly bad news and
a little bit of good news.
But here the dollar crushed it.
The US led all economies in theworld, whether developed or
undeveloped, and we actually hada very nice soft landing, which
I wasn't expecting.
Obviously, I was expecting arecession, and so the soft
(22:28):
landing did occur.
Our job creation for the yearwas 180,000.
Any year where you create180,000 jobs in a month.
I will take that year, yay.
And this was a year whereinterest rates were
astonishingly high.
Normally, you get no jobcreation whatsoever in years
like that.
If you go back and look at thenine instances where the Fed has
raised interest rates sinceWorld War II, it just completely
(22:49):
kills the job market, right?
Well, none of that happened.
And at the beginning of theyear World War II it just
completely kills the job market,right?
Well, none of that happened.
And at the beginning of theyear, inflation was over
beginning of 2020, it was in thefives, having been in the nines
six months before that.
So it went from nines to fivesto 2.6% at the end of the year,
and so we managed to also reduceenergy prices by 7.1% and we
managed to increase consumerspending by 3.1%.
It's like these numbersactually almost don't jive.
(23:12):
You don't get all of thesethings happen together, but it
did happen.
Am I an economist?
I don't know.
I'm somebody that can presentthe data and leave it to people
to make their own thoughts.
And then the second section goesinto single family.
So we talk about all of thesingle family trends.
What happened in single family,where the big winners losers,
things like that.
And then, of course, we go intoour realm, which is multifamily
.
So we'll spend 15 or 20 slideslooking at what happened in the
(23:34):
next year.
What are people saying aboutnext?
What happened last year?
What are people saying aboutnext year?
Good and bad, talk about caprates and prices distress,
what's happening withdelinquency.
So we'll do charts on what arethe delinquency levels.
Are they ticking up?
Are they staying stable?
So we'll talk about all of thaton the multifamily side.
And then, of course, in thiscase we usually have a segment
or two.
(23:54):
That's the unique segment.
And this year's unique segmentis Trump.
Right, we've got to address theelephant in the room, and so we
have a section that basicallytalks about what the challenges
on the Trump side could be.
And then the last section, whichis the most entertaining, which
is what people really come for,is city picks.
For the last 12 years that I'vebeen presenting this, I've been
(24:16):
picking a best city in the USand a you can call it a runner
up, but it's like up and comingcity.
Last year, raleigh was pickedas city of the year and
Indianapolis as up and coming,so we'll see what happens this
year.
So we picked that at the veryend and because I go through
seven different city graphs.
So these are seven differenttop 10 graphs from different
(24:37):
sources that point out someinteresting cities, and then
people see patterns and then, ofcourse, I pick my two and then
I get an absolute avalanche ofquestions on a hundred other
cities that I didn't cover.
Remember 323 metros?
I probably covered 30.
And so it usually goes on forlike 45 minutes just to
basically talk about why Ididn't pick Grand Rapids,
michigan, or why I didn't pickso-and-so city.
Ed Mathews (25:00):
You just called their baby ugly right.
Neal Bawa (25:03):
So it's pretty aggressive where people are like
, oh, you're completely wrong,it's okay.
Here's my rationale for notpicking your baby.
Ed Mathews (25:10):
Fair enough.
All right, neil, I have enjoyedthis.
I could listen to you talkabout this in terms of how you
view the market for, honestly,for hours.
So I appreciate all theinformation and your experience
that you're sharing.
I would like to get intoknowing you a little bit better,
and so let's hop into the finalfive.
So, neil, I'm always interestedin why executives like yourself
(25:31):
what drives them right?
Because at some point it's notmoney, right Money?
The mortgage is paid, the kids'college is paid for.
You don't want for anything interms of financial, but
nevertheless, you still get outof bed on Monday morning and you
go to work and you work hard.
So what is that?
What is your purpose?
Neal Bawa (25:47):
Achievement, I think you have to quantify it in terms
of how you help the world.
I'm an immigrant.
I love my adopted country.
These days, I think I love itmore than the people that live
here, given all the stuff onsocial media, which I stay away
from, but I adore this country.
I think it's the greatestcountry in the world and if I
could do something that actuallyhelps and it's quantifiable,
that's what makes me get out ofbed.
(26:08):
One of my companies is building10,000 rental townhomes.
They're not subsidized income,they are for profit, but the
incomes must be less than 85K.
All families living in brandnew three-bedroom townhomes
incomes less than 85K.
That is a colossal challengeand I didn't say I want to build
500 of them because I thinkthat's easy.
10,000 is incredibly difficult.
(26:30):
That's $2.5 billion to investand my goal is six years.
So far I'm making phenomenalprogress and I think we'll
probably get there a little bitbefore six years.
So it's achievement.
It's the ability to say, 25years from now, I'm going to
have something to tell mygrandchildren about what Neil
Bauer did and how he helped, andI think that's a very big deal.
(26:52):
So I think the one word answeris legacy.
Ed Mathews (26:56):
It is.
It is a very big deal.
So I'm always interested inexecutives and who they listen
to and pay attention to and thepeople that have helped them
along the way.
So I'm curious what is the bestadvice you ever got and who
gave it to you?
Neal Bawa (27:12):
Somebody told me that the best book, the most
important book that you'll everread, is the Miracle Morning,
and they also told me it's notthe best book you'll read, and
they told me it might not evenbe in your best five, but it
will be the most important bookthat they will ever read.
They were right on both cones.
It is not in my best books list.
(27:36):
It is at the top of my mostimportant books list because it
gave me a routine that allowedme to find my best books.
It created a structured routinethat I follow to this day,
every single day, and thatroutine allowed me to find my
best book.
My current favorite book iscalled Traction.
I use that book to reinvent mycompany and become a company
that uses EOS or theentrepreneurial operating system
(27:58):
.
There's no way I would havefound this book or any of my
other top five favorites withoutMiracle Morning.
Ed Mathews (28:04):
Yeah, Gina Wickman, and Traction is an outstanding
book.
We actually use EOS here aswell, and it started
implementing it last yearTerrific.
And you've actually answered afuture question within the
lightning rounds.
We're going.
We actually use EOS here aswell, and it started
implementing it last yearWonderful.
And you've actually answered afuture question within the
lightning rounds.
We're going to.
We're going to.
You're even being efficient.
So, thank you.
Always curious about mistakesand how, what people learn from
them, right, because Ipersonally, I don't think
(28:25):
mistakes are a problem.
I think they're an opportunity,and so I'm curious about your
perspective on a professionalmistake that you made and what
did you do about it.
Neal Bawa (28:36):
I think it's the mistake that tens of thousands
of syndicators have made.
We started to believe that caprates would never go up, and I
think that as a community, theentire multifamily community, at
some point started to believethat because the demand in the
United States was only going oneway, it's continued to increase
.
(28:57):
This somehow insulated cap ratesfrom ever going up, and I think
the lesson that we've alllearned is sure, the demand is
incredible Last year was afantastic demand year, right,
but the cap rates are in theshitter, or I should say they're
up, which is them in theshitter, and so I think the
biggest lesson that I've learnedis that cap rates have higher
(29:17):
sensitivity to interest ratethan they do to demand, and also
the accompanying lesson is caprates are also extraordinarily
sensitive to supply.
So I think at the beginning ofthis podcast I talked about all
of the things that I've changedin my criteria so that I don't
get hit again, so I won't gothrough that again.
But that was the big one and Ifelt like, in my status as the
(29:41):
mad scientist of multifamily, Ishould have known better, even
if others didn't, and so I beatmyself up over it every day.
Ed Mathews (29:49):
And thank you for doing that, because people like
me follow you religiously onYouTube and elsewhere to gain
the information that you'redreaming, and it's interesting
that I always tell my team Idon't have to be right, we just
have to get it right.
And in my case, that meanswe've made several mistakes and
along the way or misreadsomething along the way, and as
(30:11):
long as we learned from it, it'sa win.
We'll take that win.
So, neil, I'm also interestedin what success means to you.
Can you tell me a little bitabout that?
Neal Bawa (30:20):
Success means, on the personal side it's just harmony
at home, and on theprofessional side, a feeling of
satisfaction.
People like me are rarely happybecause we are very driven, but
there's this satisfaction thatwe did good, there's this
satisfaction that it was a lifewell lived.
(30:40):
That's wonderful.
Ed Mathews (30:46):
I couldn't agree more.
When you're not buildingmultifamily or on your mission
to build 10,000 townhomes, whatdo you like to do for fun?
Neal Bawa (30:52):
I like to life hack.
One of my favorite books is TimFerriss' book the Four-Hour
Workweek, the Four-Hour this,and that he's written a whole
four-hour series.
He made me realize that what'sfun for me is life hacking.
So at any given point of timeI'm running two dozen, maybe
three dozen, experiments onmyself and on my home and on all
(31:15):
other kinds of things.
I'll read out the top five listif you find it.
I think people will find itinteresting.
Sauerkraut versus kimchi versuswheatgrass is a current
experiment.
So I'm experimenting on allthree.
Sauerkraut is winning.
What will 100 sessions ofphysical therapy do to my body?
I've completed that 110sessions.
So now I've documented it.
I'm losing hair.
(31:35):
So minoxidil liquid versusminoxidil foam versus remixidil
hair vitamins, so that one issix months in Impact of locking
myself out of the snack cabinetfor one year on my weight.
That's completed.
It was seven pounds.
Will a smart bottle with anhourly LED reminder actually
improve my water retention asweighed by my smart scale?
The answer is not really.
(31:55):
So these are all experimentsthat I'm running.
I run dozens of them at anygiven point of time.
My brain needs inputs.
The best way to do that is torun life hacks.
Fascinating.
Ed Mathews (32:04):
So, Neal, it's truly a pleasure to have this time
with you.
I'm grateful for theopportunity and thank you for
all the information you justdelivered to the audience.
If people want to learn moreabout you or your upcoming
annual webinar, or anything elseabout your operations what's
(32:25):
the best way to do that?
Neal Bawa (32:27):
MultifamilyUcom.
That's multifamily, followed bythe letter U.
com.
All of our webinars arepublished there.
So we just did one on AirbnbIndustrial, we did one on the
impact of Trump.
Generally, we have about 14,000, 15,000 people that attend
these webinars and that's how weinteract with them.
We are not a hard sellorganization.
We actually don't have anysales team.
So when we do the webinars, wehave a 60 second sort of view,
(32:47):
an upcoming deal or project.
We only work with accreditedinvestors.
So of the 84,000 people thatare in our ecosystem, 1,200 are
investors.
Everybody else is there for theknowledge.
We don't have an educationalproduct.
We don't sell education.
We provide it for free.
So multifamilyu.
com is the best way to join theecosystem.
Ed Mathews (33:04):
Thank you, Neal Bawa .
Thank you so much for joiningus today.
It truly was a pleasure.
Hopefully we'll cross pathsagain at a future conference
somewhere, and in the meantimeI'd love to keep in touch.
Neal Bawa (33:15):
Sounds good.
Thank you, Ed.
Greetings and salutations Real Estate
Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you so much for joiningus today.
Today is one of those timeswhen I get to meet somebody who
has a significant and formativerole in my job in terms of a
multifamily investor, and hedidn't even know it, but I've
(00:20):
been following Neil for severalyears now.
I've learned a ton from him andnow I'm excited to have him on
the show.
So Neal Bawa from Grocapitusand several other things, but
thank you so much for joining ustoday.
It's a pleasure to finally meetyou in person.
Neal Bawa (00:34):
Thanks, Ed.
Thank you for inviting me.
I'm very excited.
This is actually a terrifictime to be doing a podcast,
especially because it's thebeginning of the year, and last
year was so astonishing, sounique, so different that it's
wonderful to be able to recap itas well.
Ed Mathews (00:47):
Absolutely yeah.
The theme that I continuouslyheard throughout 2024 is survive
to 25.
And here we are.
We survived, right, yeah.
So for those folks out therewho haven't come across you yet,
why don't you tell us a littlebit about who you are and what
you do for a living?
Neal Bawa (01:02):
Sure, I'm a technologist, computer science
degree data science is mybackground had a successful tech
career in Silicon Valley, I rana technology company for 14
years.
Sold it in 2013,.
Got into real estate basicallyfor taxation reasons.
I live in Taxifornia big fattech salary 40 to 50% of my
income was going to the man andI didn't like that.
(01:23):
So I got into real estatebasically for tax benefits, I
started investing in by buildinga campus for my company and
then got into single- family.
Oddly enough, got built acampus first, then bought a
single- family and bought dozensof single families.
Continued doing that until 2013.
So for 10 years just investingin my own money and family's
money.
And then in 2013, my companywas sold.
(01:45):
I had a huge tax bill and I wastold the only way to get that
tax bill down was to become areal estate professional
investor.
We call it syndicator becausethat's the only instance in
which you can basically leverageother people's money and also
get a portion of theirdepreciation.
So I once again got into realestate for tax reasons and so
(02:06):
being full time in real estatefrom 2013, 2014 onwards so about
10 or 11 years.
I'm a data scientist, so I lookat everything from the
perspective of data and there'sa bunch of very nerdy, geeky
investors that follow what we do.
Current portfolio the size hasgone up and down.
Currently it's about 600million.
There are currently 1,200investors invested in our
projects and we both buymultifamily.
(02:28):
We also build multifamily andwe have a separate company that
builds townhomes, so webasically run three separate
businesses value-add multifamily, new construction multifamily
and townhomes.
We currently have 800 apartmentunits in construction and about
300, 400 townhome units inconstruction and we're managing
(02:50):
thousands of multifamilyvalue-add units.
Ed Mathews (02:54):
Congratulations.
That's wonderful.
So, in terms of the marketsthat you tend to play in, how do
you pick a market?
What are you looking for totarget?
Let's start with the propertiesthat you build, your
development projects.
Neal Bawa (03:08):
Sure, I can tell you that my criteria for what to
build and what to buy areactually radically different,
and I'm going to do this bygiving you an example right.
So it's always good to have anexample.
So you couldn't put a gun to myhead right now to get me to buy
a value-add multifamily in thecity of Huntsville, Alabama.
(03:29):
Huntsville is my favoriteAlabamian City.
I like Huntsville.
It actually is one of the topcities in America to invest in.
In fact, in Milken Institute'srecent 2025 listing, it was high
up in the list, and there'slots of great reasons for that.
Huntsville is easily the mostforward looking.
If I look at a 10 year horizon,it's easily the best.
I would not consider Montgomeryor any other, or Birmingham to
(03:53):
be anywhere close to thepotential of Huntsville, but
you'd have to hold a gun to myhead, and the reason for that is
this Huntsville completely lostit when it came to granting
multifamily permits over thelast four years.
They basically let anybody andeverybody permit.
They didn't really look at whatwas going on.
(04:13):
So, of any city in America ofany size, Huntsville has the
highest percentage of supplycoming in in 2024 last year and
2025 this year, which means thatthis city is most likely a wily
city in America to see massiverent declines, concessions and
(04:34):
all those kinds of things.
On the one side, you couldn'thold a gun to my head.
Now, on the other side, in theU construction, I just paid $900
for a ticket for my team thatlives in Florida to fly to
Huntsville because we think that, given the extraordinarily
strong 10-year fundamentals andthe extraordinary distress in
(04:56):
the multifamily market, this isthe right time to buy cheap land
.
So when I buy cheap land in2025, I actually won't close on
it until 2026, which means Iwon't actually bring it to
market until 2028.
So I am tracking Huntsville'sdelivery and the last
significant delivery is inmid-2026.
Let's call it end of 2026.
(05:16):
So I'll have 27 as my gap yearby 2028,.
Those extraordinaryfundamentals will take hold and
I expect rent growth inHuntsville to be at 5% or 6%.
And so I always want, when I'mcoming in for a new construction
, to be coming into a marketthat has insufficient supply,
because at that point in time,the single biggest factor that
(05:38):
affects the profitability of anew construction project is
high-speed lease up at highrents without significant
concessions, and then you justsell that sucker right there,
you don't even wait for a year.
Sure, you can optimize, butsomething could go wrong.
The market could turn, caprates could change, interest
rates could go up.
If you're at 95% and you're ata high speed, high velocity, low
(06:00):
concession lease up, sell itnow.
Right, that's Huntsville and alot of people are like, no,
let's wait for a year.
The answer is if I'm very sureabout the market supply for the
next 12 months and I'm very surethat interest rates are not
going to spike in the next 12months, sure I'll do that.
But in most cases, if I time itand I come in at a low supply
time, I'm already aboveperformance.
(06:24):
Right, because my leasingvelocity was so spectacular
because of lack of supply thatI've already gotten my second
year's rents in the first year,especially if I use concessions.
One way to do that is, even ifit's a market that's been
nominal and everybody wants torent, still, give them two
months off and charge rents thatare 10 to 15% higher than your
pro forma.
And now you've hit your 30% proforma.
(06:45):
Sure, you give two months ofconcessions.
That's fine, that's aworthwhile hit to take.
So hopefully I answered yourpoint and illustrated just how
Huntsville today is probably anincredible city to buy cheap
land in, but a terrible city todo multifamily value add for the
next 18 months becausebasically every month there's
going to be a hand grenadelobbed at you, which is another
(07:05):
200 unit property opening andanother 200 unit property
opening all the way through thefourth quarter of 2026.
So basically, you'll befighting a fire every single
month for the next year and ahalf, and so when I'm looking at
the two criteria and I'll goback and answer your question
about what the criteria are,this is how far apart they are.
Ed Mathews (07:26):
So it's fascinating.
So basically you're because youunderstand I was going to say
the 10-year plan, but actually,it's a lack of a plan in
Huntsville's case You're able tojudge when these projects will
come to market.
You're judging just I'm justtrying to break this down to the
audience and then you'rejudging the absorption rates of
(07:47):
those new delivered deliveriesand you want to hit the market
as they are leased up at 90, 95%.
Neal Bawa (07:59):
I want everything that's in supply to be leased up
before I come to market.
I don't want to compete withanybody else, right?
So I want to come in into asupply trough.
And a lot of people are like,yeah, but this is just your
estimate.
No, it's not.
I can tell you when, likeanybody else, like Ed Mathews,
when I'm projecting the future.
It's just an estimate.
I could be wrong right, andoften am.
(08:20):
But this is the one area inwhich I actually have a crystal
ball, and the reason is simplythis with multifamily, one of
the most fundamental rules andthis is very important for the
value add.
Guys, you're thinking this isfor new construction.
No, it's not.
Listen up.
What I'm saying applies equallyto value add and new
construction.
You have a crystal ball.
It's a real crystal ball and itworks.
(08:40):
Multifamily developers do notpull permits until their loan is
ready to close, because permitsare expensive, usually $5,000 a
unit, some places $10,000 aunit.
So nobody in their right mindis going to spend $5,000 a unit
on a 200-unit project that's amillion dollars to pull permits
unless they're ready to govertical, unless they're
building.
That's the only.
But it'll do it.
Now, the moment they pullpermits, you know that their
(09:03):
building is going to come tomarket at the very soonest about
21 months from then.
Best case, Probably 24 monthsor 27 months.
Down the line, 18 to 27 monthsis the timeline from the time
you pull permits.
As it happens, several vendorspublish the list of permits
pulled by multifamily developersby city, by quarter.
(09:25):
That information is free andit's available from lots of
sources.
Ask ChatGPT, it'll give you acouple of sources.
Right, so you have this crystalball.
So I can just go to the lastquarter of 2024.
So we're talking here in thefirst quarter of 2025, right, I
can go to the last quarter of2024 and I can pull up this list
and I can look at all of thedifferent markets and I can look
at how many permits were pulledby that market.
(09:47):
Now, the cool thing is, the sameexcel spreadsheet also shows
you how many permits were pulledone year before that, two years
before that, three years beforethat, and I can tell you for
almost every market in the USthere's a few exceptions the
2020, the 2021 Q4 permit numberwas 50, 70, or even 80% higher
(10:11):
than the number last quarter,and if they didn't pull a permit
in the fourth quarter of 2024,.
They are not delivering abuilding in the last quarter of
2026.
So I have an actual, functionalcrystal ball and this crystal
ball tells me what delivery isgoing to be.
A lot of people on thevalue-add side have said for
(10:31):
years and have been wrongincluding myself, by the way, I
figured this out two or threeyears ago because I'm a
developer, but a lot of peoplejust simply haven't figured this
out.
This is value-add.
I'm running a Class C.
It's not affected by Classic.
Ed Mathews (10:41):
That is just a nonsensical idea.
Neal Bawa (10:43):
The market has a certain absorption number, right
.
So a market can absorb thismany studios, this many one beds
, two beds, three beds that isan absorption number.
Anyone who has access to abroker can get a costal report
for a market and it shows theabsorption number for a market
and a sub-market.
So if you just total it up andthen you total up how many units
are coming in, which is on thesame report, you can basically
tell how your rents are going tobe affected.
(11:04):
Because here's what happens.
The only thing true in thisstatement about Class Cs not
being affected by new supply,the only part that's true is
timing.
It takes about a year for ClassC to be affected.
Why?
Because when a Class A comesinto the market, the Bs first
have to drop their price becausethe A comes in and starts
offering concessions, especiallyif there's a lot of supply.
(11:24):
Right now there's a lot ofsupply in every market in the US
.
So they start offering twomonths of concession.
Right now my Phoenix property,halfway leased, falls at
Christian and Common.
You can Google it Two monthsconcession.
So what I'm doing is basicallyI'm dropping my price to the
class B levels by offering twomonths free.
So guess what happens?
Over the next three to sixmonths, all the Bs in this
market, unable to compete withme, my brand new property, will
(11:46):
drop their price right, or theywill start doing concessions, or
they'll start doing whateverthey need to, and then, six
months later, the class Cs willdo it.
So the impact is there.
It's the same impact on rentsfor class Cs as B or A.
It just takes a year to getthere.
That year has already passed,because there was a lot of
delivery in 23, a lot ofdelivery in 24.
(12:07):
So now, at the end of 2024, weare seeing a decline in
occupancy in the United Statesacross the board for A's, b's,
c's All of them have decliningoccupancy.
All of them have gone from alittle above 96 at the peak,
which was in early 2021, mid2021, to where we are today,
(12:28):
where, let's just say, it's 93%.
There's two different vendorsand the numbers are slightly
different, so we're 93.
So we're about 3% down frompeak to where we are today, and
so it's absolutely critical forpeople on the value add side to
use this completely free crystalball.
I don't think that you have tobuy any data All CoStar market
(12:48):
reports which you can get fromyour broker, because the broker
is paying for this report.
By the way, he's not doinganything wrong.
He's sending it to his clients.
He's allowed to do that.
All broker reports tell you howmuch new supply is coming into
any market or sub-market andalso, on a separate page, tell
you what the absorption of thatmarket is.
So our rule is this any marketwhere the total absorption
(13:09):
number is lower than the totalincoming supply number is going
to have issues with rents.
Why bother going into thatmarket then, when we're looking
at a extraordinary supplysituation the last two years
were extremely bizarre andextraordinary for supply Our
number one factor right now forany market in the US to go in
and buy something is what is theforward-looking two-year
(13:32):
projection?
Because the last couple of yearsrent growth has been awful.
If you look at rent growthacross the United States in the
last 24 months, we've been atmaybe 1% total for those two
years and if you're looking atSoutheast markets, they've
definitely been negative, right?
So, other than the Southeast, Ithink we're slightly positive,
but the Southeast has beennegative for the last 24 months
as a whole and most marketswithin the Southeast have been
(13:54):
negative, with Austin being themost negative, followed by
Huntsville and then a bunch ofother markets.
Denver, for example, has beenpretty negative as well.
So there's these superstarmarkets that are all negative.
So right now if I'm looking ata value add, I'm looking at
those numbers and I'll clue youin.
The two markets in the UnitedStates currently actually have
the highest projected rentgrowth are Kansas City Kansas
Never thought I'd be saying thatand Burlington Vermont Never
(14:21):
thought I'd be saying thateither.
And these two markets have veryhigh occupancy, very little
supply maybe only a few hundredunits on each side coming in and
significant population growth.
Especially Kansas City haspicked up in population growth.
It was never like top 10 in theUS.
I don't think it's top 10 inthe US right now, but certainly
accelerating in its populationgrowth curve.
So on the one side population'scoming in, the other side
nobody's building anything.
So you've got this potentialand the gap between where the
(14:45):
Southeast is now the cheap partof the United States, is not
cheap anymore, right?
So the average two bedroom rentin these cheap Southeast
markets has gone up 400 bucks inthe last three, four years.
So they're not cheap anymore.
But Kansas City looks veryinteresting and the other market
that looks extraordinarilyinteresting at the moment is
Indianapolis right.
So when I'm looking atpopulation growth versus
(15:05):
incoming supply, versus homeprice growth, they all Kansas
City looks really good,indianapolis looks really good
and typically I tend to be likeeverybody else.
I'm not in any way not subjectto following the herd.
So just honestly saying that,and I tend to invest in these
bullish, passive, fast-growingSoutheast markets, I'm not doing
(15:25):
that right now because I can'tmake any rational arguments
about investing in these markets.
I'm not saying these marketsare not going to be the fastest
growing.
Southeast is going to be thefastest growing.
I'm saying there's nofundamental benefit to buying
now when I know that many ofthese markets not all of them,
many of these markets are justgoing to continue to have hand
grenade after hand grenade ofdelivery for the next six, nine
(15:49):
or 10 months.
Oh, by then, why do I need tofight it out now?
And given that I know thatthere's not going to be any rent
growth, it's not like I'm goingto pay more nine months from
now.
I'm not.
You're probably going to pay alittle bit less, two or 3% less.
So I'm just not in a hurry tojump into Southeast markets
right now, a year from now, I'llprobably be buying Southeast
again.
Ed Mathews (16:09):
One of the things that has been happening, at
least in my part of the world,is insurance.
Right, insurance has been up onaverage, I think, 27%.
It was a number I saw, Ibelieve, on LinkedIn last week.
My numbers actually were up,depending on the building, even
more, and I'm curious about whatyou're seeing in the insurance
marketplace and how are youmanaging that increase?
(16:32):
I know plenty of owners, myselfincluded, who have zero claims
and their insurance is going upby that 20, 25% margin.
Neal Bawa (16:44):
I'm going to give you a really awful answer.
But it's very truthful, I'mmanaging it by suffering.
It's very truthful, I'mmanaging it by suffering.
I don't know of any way tomitigate insurance hikes.
We've tried all kinds of thingsaggregating insurance, things
like that.
It makes small differences, butoverall we're getting
slaughtered, and so the approachthat I've taken is a rather
(17:05):
radical one.
There are 323 MSAs, or metros,in the United States that are
basically 90% plus of ourpopulation, and I've started to
rank each metro by thecombination of property taxes
and insurance, because it's notjust insurance, it's also
property taxes, right.
So what we've started to do istraditionally, like everybody
else, we would rank populationgrowth, income growth, job
growth, right, that's whateverybody does.
(17:27):
Now what we've done is we'vetripled our weightage as we rank
cities.
We rank cities every month.
We publish this data.
I have this real estate trendspresentation that I do in early
February that about 2,000 peoplewatch and that those rankings
are visible once in a year.
We provide them for free.
You'll notice that my weightageshave changed.
So does this in any way benefitmy existing portfolio?
(17:52):
No, taking it in the ass, sir.
But does it affectforward-looking?
Yes, we've simply tripled theweightage that we assign to
property taxes and insurance.
So a city or metro or statethat has lower property taxes
and lower insurance now rankssignificantly higher.
So I can give you some examples.
(18:12):
Property taxes and lowerinsurance now ranks
significantly higher.
So I can give you some examples.
As a result of this, texas hasgone from being at the top of
our list to being in the secondhalf of the list, not quite at
the bottom.
Florida has gone from being atthe top of our list to being in
the sort of bottom second half.
So we have a bunch of othermarkets.
New Jersey is at the verybottom because it has the
highest property taxes andpretty high insurance as well.
(18:33):
So we're looking at this andbasically saying, okay, what are
the states that still give usthe job growth, population
growth, home price growth andincome growth?
Right, the four key factors Atthe same time have a low
combination of property taxesand insurance and we're
investing in them.
So North Carolina Raleigh is agood example of a market that
Milken ranked at number one.
(18:53):
I currently rank it as the bestmarket in the United States.
Raleigh was my market of theyear for 2024, a year ago, when
I was doing real estate trendspresentation.
I didn't pick it this year, butit's definitely at the top of
the list.
It's unquestionably a marketthat is benefiting from the fact
that multifamily syndicatorafter multifamily syndicator is
saying I don't want to deal withthe ridiculous property taxes
(19:16):
in Texas or the ridiculousinsurance in Florida and now I
have a place that has decentproperty taxes and decent
insurance.
They're not low.
If you want to go low propertytaxes, low insurance, your
answer is go to Nevada, right,arizona, nevada are low property
tax, low insurance, and soyou've got both of those there.
They don't have the potential ofRaleigh, right.
(19:37):
And notice, I'm not sayingNorth Carolina, because I don't
think Charlotte has the samepotential or Wilmington has the
same potential, or Greensboro orSalem have the same potential.
I think Raleigh is trulyextraordinary and it also offers
decent property taxes, decentinsurance.
So that's the answer to yourquestion.
I'm doing a lot of things on aforward-looking basis so that I
don't get hit again, but for myexisting properties I have no
(19:59):
magic bullets and I don't thinkanybody else has one either.
Ed Mathews (20:03):
I was hoping so.
You mentioned you have apresentation, a webinar coming
up, and it's something that I'veenjoyed every February since I
discovered you a couple of yearsago, so can you tell the folks
about that?
Neal Bawa (20:15):
Sure.
So throughout the year we gatherdata.
We're a bunch of nerds thathave a channel in Slack and
usually there's six or sevenposts a day from our industry,
and they come from the fact thatwe are subscribed to every
newsletter that you can possiblyimagine, and then some.
And then, of course, there's abunch of products that we pay
for, so we get access to paidnews from them, and so what we
(20:38):
like to do is we like to takedata and we like to put it
together for our investors, andwe do that four times a year for
people that are our investors.
They get access to this amazinginformation, and we do that on
a quarterly basis.
We call it the investor clubwebinar, so it's only for the
investors.
Then, once a year in February,we take all of the data, we put
it together.
It's an insane amount of data.
It's 50 plus reports, it's 200newsletters and then, starting
(21:01):
mid-December, we start collatingit and then at the end of
January, we start doing practicepresentations and then we do a
public presentations in February.
We do it on our platform.
We do it on three different IRAcompany platforms.
I've been presenting for thosefor a long time and then we do
it at two or three conferences,and so the goal is to have an
(21:21):
extremely attractivepresentation that, in a 60
minute timeframe, wouldbasically give people a very
good look at what is actuallyhappening in the industry.
So, for your subscribers thatare watching on video, I'm going
to basically give them a two ortwo to five second view of what
(21:45):
I'm going to be presenting inthe next few weeks.
You're looking at this is a 55slide presentation, so, as you
can imagine and I'll stopsharing now as you can imagine
it covers the economy.
Where we think the Fed is, do wethink that there's a soft
landing?
How did the United States doversus other economies, both
from a GDP and a dollarperspective?
(22:05):
So we cover all of that.
And this is, by the way, thefirst year where all news has
been good news, because everyyear there's mostly bad news and
a little bit of good news.
But here the dollar crushed it.
The US led all economies in theworld, whether developed or
undeveloped, and we actually hada very nice soft landing, which
I wasn't expecting.
Obviously, I was expecting arecession, and so the soft
(22:28):
landing did occur.
Our job creation for the yearwas 180,000.
Any year where you create180,000 jobs in a month.
I will take that year, yay.
And this was a year whereinterest rates were
astonishingly high.
Normally, you get no jobcreation whatsoever in years
like that.
If you go back and look at thenine instances where the Fed has
raised interest rates sinceWorld War II, it just completely
(22:49):
kills the job market, right?
Well, none of that happened.
And at the beginning of theyear World War II it just
completely kills the job market,right?
Well, none of that happened.
And at the beginning of theyear, inflation was over
beginning of 2020, it was in thefives, having been in the nines
six months before that.
So it went from nines to fivesto 2.6% at the end of the year,
and so we managed to also reduceenergy prices by 7.1% and we
managed to increase consumerspending by 3.1%.
It's like these numbersactually almost don't jive.
(23:12):
You don't get all of thesethings happen together, but it
did happen.
Am I an economist?
I don't know.
I'm somebody that can presentthe data and leave it to people
to make their own thoughts.
And then the second section goesinto single family.
So we talk about all of thesingle family trends.
What happened in single family,where the big winners losers,
things like that.
And then, of course, we go intoour realm, which is multifamily
.
So we'll spend 15 or 20 slideslooking at what happened in the
(23:34):
next year.
What are people saying aboutnext?
What happened last year?
What are people saying aboutnext year?
Good and bad, talk about caprates and prices distress,
what's happening withdelinquency.
So we'll do charts on what arethe delinquency levels.
Are they ticking up?
Are they staying stable?
So we'll talk about all of thaton the multifamily side.
And then, of course, in thiscase we usually have a segment
or two.
(23:54):
That's the unique segment.
And this year's unique segmentis Trump.
Right, we've got to address theelephant in the room, and so we
have a section that basicallytalks about what the challenges
on the Trump side could be.
And then the last section, whichis the most entertaining, which
is what people really come for,is city picks.
For the last 12 years that I'vebeen presenting this, I've been
(24:16):
picking a best city in the USand a you can call it a runner
up, but it's like up and comingcity.
Last year, raleigh was pickedas city of the year and
Indianapolis as up and coming,so we'll see what happens this
year.
So we picked that at the veryend and because I go through
seven different city graphs.
So these are seven differenttop 10 graphs from different
(24:37):
sources that point out someinteresting cities, and then
people see patterns and then, ofcourse, I pick my two and then
I get an absolute avalanche ofquestions on a hundred other
cities that I didn't cover.
Remember 323 metros?
I probably covered 30.
And so it usually goes on forlike 45 minutes just to
basically talk about why Ididn't pick Grand Rapids,
michigan, or why I didn't pickso-and-so city.
Ed Mathews (25:00):
You just called their baby ugly right.
Neal Bawa (25:03):
So it's pretty aggressive where people are like
, oh, you're completely wrong,it's okay.
Here's my rationale for notpicking your baby.
Ed Mathews (25:10):
Fair enough.
All right, neil, I have enjoyedthis.
I could listen to you talkabout this in terms of how you
view the market for, honestly,for hours.
So I appreciate all theinformation and your experience
that you're sharing.
I would like to get intoknowing you a little bit better,
and so let's hop into the finalfive.
So, neil, I'm always interestedin why executives like yourself
(25:31):
what drives them right?
Because at some point it's notmoney, right Money?
The mortgage is paid, the kids'college is paid for.
You don't want for anything interms of financial, but
nevertheless, you still get outof bed on Monday morning and you
go to work and you work hard.
So what is that?
What is your purpose?
Neal Bawa (25:47):
Achievement, I think you have to quantify it in terms
of how you help the world.
I'm an immigrant.
I love my adopted country.
These days, I think I love itmore than the people that live
here, given all the stuff onsocial media, which I stay away
from, but I adore this country.
I think it's the greatestcountry in the world and if I
could do something that actuallyhelps and it's quantifiable,
that's what makes me get out ofbed.
(26:08):
One of my companies is building10,000 rental townhomes.
They're not subsidized income,they are for profit, but the
incomes must be less than 85K.
All families living in brandnew three-bedroom townhomes
incomes less than 85K.
That is a colossal challengeand I didn't say I want to build
500 of them because I thinkthat's easy.
10,000 is incredibly difficult.
(26:30):
That's $2.5 billion to investand my goal is six years.
So far I'm making phenomenalprogress and I think we'll
probably get there a little bitbefore six years.
So it's achievement.
It's the ability to say, 25years from now, I'm going to
have something to tell mygrandchildren about what Neil
Bauer did and how he helped, andI think that's a very big deal.
(26:52):
So I think the one word answeris legacy.
Ed Mathews (26:56):
It is.
It is a very big deal.
So I'm always interested inexecutives and who they listen
to and pay attention to and thepeople that have helped them
along the way.
So I'm curious what is the bestadvice you ever got and who
gave it to you?
Neal Bawa (27:12):
Somebody told me that the best book, the most
important book that you'll everread, is the Miracle Morning,
and they also told me it's notthe best book you'll read, and
they told me it might not evenbe in your best five, but it
will be the most important bookthat they will ever read.
They were right on both cones.
It is not in my best books list.
(27:36):
It is at the top of my mostimportant books list because it
gave me a routine that allowedme to find my best books.
It created a structured routinethat I follow to this day,
every single day, and thatroutine allowed me to find my
best book.
My current favorite book iscalled Traction.
I use that book to reinvent mycompany and become a company
that uses EOS or theentrepreneurial operating system
(27:58):
.
There's no way I would havefound this book or any of my
other top five favorites withoutMiracle Morning.
Ed Mathews (28:04):
Yeah, Gina Wickman, and Traction is an outstanding
book.
We actually use EOS here aswell, and it started
implementing it last yearTerrific.
And you've actually answered afuture question within the
lightning rounds.
We're going.
We actually use EOS here aswell, and it started
implementing it last yearWonderful.
And you've actually answered afuture question within the
lightning rounds.
We're going to.
We're going to.
You're even being efficient.
So, thank you.
Always curious about mistakesand how, what people learn from
them, right, because Ipersonally, I don't think
(28:25):
mistakes are a problem.
I think they're an opportunity,and so I'm curious about your
perspective on a professionalmistake that you made and what
did you do about it.
Neal Bawa (28:36):
I think it's the mistake that tens of thousands
of syndicators have made.
We started to believe that caprates would never go up, and I
think that as a community, theentire multifamily community, at
some point started to believethat because the demand in the
United States was only going oneway, it's continued to increase
.
(28:57):
This somehow insulated cap ratesfrom ever going up, and I think
the lesson that we've alllearned is sure, the demand is
incredible Last year was afantastic demand year, right,
but the cap rates are in theshitter, or I should say they're
up, which is them in theshitter, and so I think the
biggest lesson that I've learnedis that cap rates have higher
(29:17):
sensitivity to interest ratethan they do to demand, and also
the accompanying lesson is caprates are also extraordinarily
sensitive to supply.
So I think at the beginning ofthis podcast I talked about all
of the things that I've changedin my criteria so that I don't
get hit again, so I won't gothrough that again.
But that was the big one and Ifelt like, in my status as the
(29:41):
mad scientist of multifamily, Ishould have known better, even
if others didn't, and so I beatmyself up over it every day.
Ed Mathews (29:49):
And thank you for doing that, because people like
me follow you religiously onYouTube and elsewhere to gain
the information that you'redreaming, and it's interesting
that I always tell my team Idon't have to be right, we just
have to get it right.
And in my case, that meanswe've made several mistakes and
along the way or misreadsomething along the way, and as
(30:11):
long as we learned from it, it'sa win.
We'll take that win.
So, neil, I'm also interestedin what success means to you.
Can you tell me a little bitabout that?
Neal Bawa (30:20):
Success means, on the personal side it's just harmony
at home, and on theprofessional side, a feeling of
satisfaction.
People like me are rarely happybecause we are very driven, but
there's this satisfaction thatwe did good, there's this
satisfaction that it was a lifewell lived.
(30:40):
That's wonderful.
Ed Mathews (30:46):
I couldn't agree more.
When you're not buildingmultifamily or on your mission
to build 10,000 townhomes, whatdo you like to do for fun?
Neal Bawa (30:52):
I like to life hack.
One of my favorite books is TimFerriss' book the Four-Hour
Workweek, the Four-Hour this,and that he's written a whole
four-hour series.
He made me realize that what'sfun for me is life hacking.
So at any given point of timeI'm running two dozen, maybe
three dozen, experiments onmyself and on my home and on all
(31:15):
other kinds of things.
I'll read out the top five listif you find it.
I think people will find itinteresting.
Sauerkraut versus kimchi versuswheatgrass is a current
experiment.
So I'm experimenting on allthree.
Sauerkraut is winning.
What will 100 sessions ofphysical therapy do to my body?
I've completed that 110sessions.
So now I've documented it.
I'm losing hair.
(31:35):
So minoxidil liquid versusminoxidil foam versus remixidil
hair vitamins, so that one issix months in Impact of locking
myself out of the snack cabinetfor one year on my weight.
That's completed.
It was seven pounds.
Will a smart bottle with anhourly LED reminder actually
improve my water retention asweighed by my smart scale?
The answer is not really.
(31:55):
So these are all experimentsthat I'm running.
I run dozens of them at anygiven point of time.
My brain needs inputs.
The best way to do that is torun life hacks.
Fascinating.
Ed Mathews (32:04):
So, Neal, it's truly a pleasure to have this time
with you.
I'm grateful for theopportunity and thank you for
all the information you justdelivered to the audience.
If people want to learn moreabout you or your upcoming
annual webinar, or anything elseabout your operations what's
(32:25):
the best way to do that?
Neal Bawa (32:27):
MultifamilyUcom.
That's multifamily, followed bythe letter U.
com.
All of our webinars arepublished there.
So we just did one on AirbnbIndustrial, we did one on the
impact of Trump.
Generally, we have about 14,000, 15,000 people that attend
these webinars and that's how weinteract with them.
We are not a hard sellorganization.
We actually don't have anysales team.
So when we do the webinars, wehave a 60 second sort of view,
(32:47):
an upcoming deal or project.
We only work with accreditedinvestors.
So of the 84,000 people thatare in our ecosystem, 1,200 are
investors.
Everybody else is there for theknowledge.
We don't have an educationalproduct.
We don't sell education.
We provide it for free.
So multifamilyu.
com is the best way to join theecosystem.
Ed Mathews (33:04):
Thank you, Neal Bawa .
Thank you so much for joiningus today.
It truly was a pleasure.
Hopefully we'll cross pathsagain at a future conference
somewhere, and in the meantimeI'd love to keep in touch.
Neal Bawa (33:15):
Sounds good.
Thank you, Ed.
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