November 20, 2023 • 39 mins
MapableUSA.com: Multifamily investing can only go up because housing is always a concern, right? Well, the truth of the matter is that the multifamily and commercial real estate markets are experiencing an unprecedented level of stormy turbulence. In this podcast, Neal Bawa, the CEO and founder of MultifamilyU and Grocapitus explains the many factors wreaking havoc on this investment landscape – and how you can find the silver lining present in every storm many call “opportunity”.
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(00:22):
We want a little USA podcast wherewe put you on the map. This
is wrong. COSTUF broadcasting live fromthe Mappable US radios in Las Vegas,
Nevada, and folks, we're gonnatalking a little bit of multi family today.
It's going to be a great conversation. Grab a cup of coffee and
get ready to do that. Butbefore we do, let's introduce Vicky Hachmala
(00:44):
from the two of the Marketplace.Ricky, how you doing today? I'm
fabulous today, Ron. You know, I say this every time we do
a podcast, what the weather's likein Vegas? But you know what,
this is our time, our Vegas, all right, and this is why
we live here. This is whywe endure the summers because we're into perfect
weather. Now. Everything is beautiful. Great day, great podcast. One
(01:11):
of our very very favoritest guests ison. We're going to talk about real
estate opportunity zones, mostly multifamily,and I can't wait. So let's get
started. Let's let's do it forsure, and let's introduce one of our
favorites, Neil Bawa. He's theCEO of Multifamily You, Neil, how
(01:32):
are you doing today? Fantastic fantastic, great to be on the podcast again.
Yeah, we love having you on. We've done a number with you
before and they always get great ratings. We get a lot of people saying,
you know, made you find thatguy, and he's ours. So
that's it. But you know,and out there, you know, I
(01:56):
don't really do a lot of webinars. We've got a lot of things going
on. So before we get intothe whole topic of multifamily, can we
get a little background on you andhow you got to be where you are,
what your what your company's doing.Sure. So I'm a technologist,
geek, a nerd, whatever youwant to call it, you know,
computer science degree, data science background, and I got into real estate and
(02:20):
reverse because I was I live inTaxifornia and I was basically, you know,
I had the big fast tech joband I wasn't keeping a lot of
my money. I was making itand giving it to the man, and
sort of backed my way into realestate over a very long time, a
decade from twenty three to twenty thirteen. You know, learned real estate just
primarily as a tax benefit and thenstarted to see all of the other long
(02:45):
term, you know, wealth benefitsof real estate and after ten years,
decided maybe I should make this mycareer, so I started that in twenty
fourteen. Currently have about a thousandinvestors that have ind three hundred million dollars
with us, and we've used theirmoney to buy and build all kinds of
different assets, multifamily and built torent being the two largest categories, but
(03:09):
we've also invested in a number ofdifferent asset classes. Right and the last
time we had you on, Ithink we were talking about build to rent.
Of people that listened to that podcast, which I hope they did,
they did quite well because that isa trend that is continuing right now.
We're sitting here in Vegas as well. But you're mostly involved in multi family
(03:31):
investments, right with your syndication grouppretty much, So we buy and build
apartments, so we have a part, you know. All together our assets
are in sixteen markets in ten states, so multifamily apartments, you know,
we also build them. So webuilt apartments, we built student housing,
we've built flex industrial and office space. We've also bought and improved storage facilities.
(03:58):
But the core you're rightntinues to bemultifamily. Maybe about half of our
assets are in multifamily. Okay,that's great. Well, I'm sorry,
Ron. I was just gonna askNeil, since he's focusing on multifamily in
that over the last few years sincewe first met him, how do you
(04:20):
think multifamily has changed, and forthe better or or or for the worst.
I think it's in the last fewyears and in a more humbling way.
So people like me, and let'ssay another ten thousand of my brethren
in the industry known as syndication ormulti family syndication, I think are all
(04:45):
have less hubris, have less ego, have less you know, there's been
a little bit of a defillation inthat marketplace, and some of the things
that people have said, including myself, have not turned out to be true.
And that reduction in hubris, thatreduction in multifamily can only ever go
up, you know, because oftheir being, you know, a severe
shortage of housing. Some of thosethings have become more nuanced. So now
(05:10):
where people two or three years agomight have said, not me in this
instance, but other people have said, you know, multi family can only
ever go up because our housing shortageis getting worse. And now people say,
you know, multi family can onlyever go up in the long run.
In the short run, interest ratescan impact the prices of multifamily.
So I like that because, youknow, as a data scientist, I
(05:31):
want to be very specific and veryclear in what I say. I want
to have a bunch of caveats andasterisks that you know, attached to my
statements so that I'm as clear ascan be. And I Unfortunately, our
industry hasn't necessarily been that way.And now I'm beginning to see that.
I'm beginning to see, you know, prices a multi family come down.
(05:53):
They've come down about somewhere between fifteenand twenty five percent. There's a few
markets where they've come down even morethan twenty five percent. And on top
of that, they've they've also,you know, the expectations of rent growth
have moderated. People were putting inthree percent, four percent, five percent
into their performer. Now I'm seeingmore two percent. Some people are even
(06:15):
doing one percent rent growth. SoI think overall the industry over the last
two years, this impact of interestrates has led to the multifamily syndication industry.
Not the overall multi family industry,but the syndication part, which is
the part that we've been hearing alot about has started to mature. We
also might lose some syndicators because someof their properties might go back to the
(06:38):
bank, and that means that theyare likely to lose a number of their
investors. And you know, alot of these folks they were doing syndication.
They were technologists or doctors and theywere doing syndication on the side,
and I think a number of themwill go back to their day jobs.
So the bottom line is that forthe industry, this is a period of
(06:59):
a little bit of humble There isa period of you know, maturation where
people are maturing, they're learning moreabout what they said which may or may
or may not have turned out tobe true in the last two years.
And it's also a time when there'svery significant opportunity looking forward compared to twenty
four months ago. So compared totwenty four months ago, there's vastly more
(07:21):
opportunity in multi family today. Butwe can talk about that support well.
You know, I've observed that inregard with real estate, with that industry,
whether it's multifamily, whether it's justregular commercial residential, what it appears
(07:45):
to be that everything is relative withinthe industry. So interest rates can impact
this, and mortgage rates and availabilityand opportunity zones and lok all of these
things are relative to each other,and if one thing kind of falls off
(08:05):
the rail, it impacts everything else. And so it's very in my mind,
it's very important to be really threehundred and sixty degrees strategic so that
you can be prepared for potential situationswhere you have to adapt, because if
(08:26):
you can't adapt to what's going onin the world around you, since everything
is relative, you're never going tobe successful in whatever you do. And
I don't know, do you findthat that's more with real estate than other
industries or is that just general acrossthe board. I think it's general across
the board. But I think thepoint that you're making is you really have
(08:48):
to be nimble in real estate rightnow. Why nimble? Because before you
know, everything just works, everythingworked, prices only went in one direction,
and they were you know, andonly went in one direction. And
that's really if you look at thestory of the last six or seven years,
maybe eight years before mid twenty twentytwo. So go back seven years,
(09:09):
eight years from mid twenty twenty two, and you'll notice the prices only
went up and rents only went upexcept for a short one quarter decline during
COVID, And so what that didwas it created a sense of complacency.
You didn't need Ricky Hashmala's three sixtydegree view to survive and thrive during that
(09:31):
time, but today you do.You have to be extremely careful about what
you're doing. You have to basicallyhead your bets more right. You need
more insurance, you need more operatingbudgets, you need a lot more.
You need to be better as abuyer, better as a builder, and
you need to be better as aoperator of multifamily. Then you did,
(09:54):
let's say twenty four to thirty sixmonths ago, and that is good news.
It's good news for everybody. Thepeople that were now need to be
better and the people that were badare simply not going to be in business.
Yeah, right. That a coupleof years ago, Neil, when
prices were soaring everywhere and they said, well, you know, the way
you do is throw a dart anda map by the land and you're going
(10:16):
to make money out of it.And people thought they were geniuses about it.
So you're right now they have tobe a little bit more smart in
what they're doing. But it soundsto me from this conversation so far,
that you think we're going to belooking at a couple of down years in
multifamily and in commercial real estate ingeneral. Is that a right take?
(10:37):
I believe so, and I thinkthat it's not necessarily a bad thing.
I think it's a great thing interms of opportunity. So when I was
on your podcast in twenty twenty two, and they're all, you know,
recorded so people can go back,one of the things that I was cautioning
was that the prices are too high. I mean, basically, the assumptions
being made are too aggressive. I'vesaid this times and on many podcasts,
(11:01):
and I've definitely said it on yours. And that was maybe early late twenty
one, early twenty twenty two whenI was talking about it. And you
know, I've been wrong on manythings, but I did turn out to
be right on that one. Backin those days, I had students.
I used to teach multifamily before COVID, I don't teach it anymore. When
I used to teach it, Iused to have students and these day came,
(11:24):
you know, many of them werenew to the multi family industry,
and I watched guys. I watchedmy students by ten properties in a single
year, and I would go like, oh, wait a minute, this
is a very very expensive time.And I have to say, unfortunately,
because they weren't listening to some ofthe things that I was saying, you
know, they were drinking the koolaid. There was a huge amount of
(11:45):
money available. Three, four,or five of those ten properties are now
underwater because those properties either had norate caps, or they probably had rate
caps, but those rape caps wereexpensive and so or those rape caps were
for a short duration, so theybought a rate cap for a year,
so jesse. For those who don'tknow, a rate cap is something you
buy separately from a mortgage from aseparate company, and it basically caps your
(12:11):
interest rates, so you have afloating interest rate, and as rates go
up, your floating interest rate goesup. So let's say you buy a
rate cap at six percent. Whenyou bought the property, maybe the rate
was four. Well, it canrise all the way to six, but
if it goes beyond six, thedifference between six and your mortgage is actually
paid out by the rate cap company. But if you buy a rate cap
that's very high, or if youbuy a rate cap that's very short,
(12:35):
let's say a year or two years, then you can get in trouble.
So we at this point we havesomewhere between twenty five hundred and three thousand
properties in the United States, anaverage of let's say two hundred units,
so we're talking about sixty thousand units. These properties are probably worth, and
this is my best guess, aboutseventy five billion dollars. Well, these
properties are leading, meaning they areforget about paying the investors are paying cash
(13:01):
flow day. Each month. Youhave to put more money into these properties
just to pay the mortgage. Andso the vast majority of these properties were
purchased in late twenty twenty, allof twenty twenty one, and all of
twenty twenty two. So during thattime, the prices that were paid were
fairly outrageous. I was lucky Ibought back one of my own properties,
(13:22):
and then I purchased a single propertyat a pretty high price in a military
town, which nobody wanted to touch. My argument back then was, well,
if you're going to overpay everywhere else, I might as well get a
cheap deal in a military town anddeal with the fact that my occupancy is
going to go up and down,and I've been pretty happy with that.
At least I bought it at amuch higher price than much lower price than
(13:46):
other people were. But other thanthat, I didn't buy any buildings.
I just waited and watched because itdidn't seem real. It didn't seem like
this was the right kind of map, and we're now seeing that. So
to go back to what Ron said, am I saying that there's going to
be distress in multifamily in twenty twentyfour? Yes? I think so,
because there's three thousand properties, andI think the vast majority of those three
(14:11):
thousand they have to go back tothe bank or they have to be sold
at lower prices, you know,than they were purchased at. So I'm
going to define distress. Is itlike two thousand and eight? You know?
Absolutely not. I don't think thatthis is anywhere close to that.
Keep in mind that if every singleone of these properties was sold for zero
(14:33):
dollars, which is you know,I'm joking, that's seventy five billion that's
at risk, right where in threethousand and eight we had eight thousand billion
at risk. The total size ofthe distress in the real estate market in
two thousand and eight was around eighttrillion dollars. Obviously, not all of
(14:54):
that stuff, you know, eventuallyended up on the courthouse, you know,
footsteps. A lot of stuff gotresolved over time, which is great,
and I expect a lot of themultifamily stuff that I'm talking about to
get resolved over trial. But evenif the worst case happens and every single
one of these three thousand properties issold for you know, you know,
(15:16):
for a very small amount of money, that is still not contagion. In
two thousand and eight, we havesomething known as contagion. What prices were
affecting other prices, which were affectingother prices, which were affecting other prices.
This isn't the impact here because themultifamily industry is very large. It's
twenty million units. If every propertyis two hundred units, well, that's
(15:37):
one hundred thousand properties right Well outof the three thousand properties are at severe
risk of going back, that's aboutthree percent. So distress, yes,
problems, yes, investor money atrisk, Yes. Contagion that spreads either
to larger parts of the economy orto the rest of multifamily. No,
(16:00):
yeah, and that's and you're right, that's the big difference. But you
know, you said something that wasinteresting, Neil. It's like when you're
aware, when you have the rightknowledge for what it is that you're doing,
then you're able to recognize the opportunity. So even if if the cost
(16:22):
of real estate is elevated for whateverreason, then now you're going to have
all the potential of foreclosures and returnsto the bank, and the bank holding
properties that they don't want. Butnow here's the opportunity for the sophisticated investor
(16:42):
to get the property on a foreclosure, to pay less for it because it's
distressed only in the paperwork, notin that actual location. So now you've
through something that wasn't very good createdan opportunity. But if you don't have
the knowledge and the adaptability, youlose out altogether. You can't see it,
(17:07):
you do, though, Yeah,though I have to caution you.
I don't think that a massive percentageof these three thousand properties are going to
go into you know, courthouse styleforeclosure. And that happened right in two
thousand and eight because courthouse style foreclosureswere the only way to get rid of
millions of single family homes. Righthere, we're talking about three thousand yearits.
(17:30):
So in most cases, the bankis likely to force a sale,
meaning you know, okay, weknow, we know you're going to lose
all of your money on this,but we need you to sell this property.
So what really is likely to happenis that a bunch of these three
thousand properties are likely to come tomarket this this in the next twelve months
at discounted prices. So the bigopportunity in multifamily simply is we're getting fifteen
(17:53):
to twenty five percent discounts. Weexpect those discounts to accelerate to about thirty
percent. And when I say discount, I mean discount from peak, and
the peak was March twenty twenty two, so it was about nineteen months ago.
So from that peak we could getas much as a thirty percent discount.
Now, some people are like,yeah, but the interest rates are
high. Well, I'll address interestrates, but here's what I want to
(18:15):
say to you. If you werebuying a taco bell in twenty twenty two
versus twenty twenty three, and itsincome was one hundred thousand dollars and you
were buying it for a million today, if its income is one hundred thousand
dollars and you're buying it for eighthundred twenty percent less, why wouldn't you
buy that taco bell right? Youpay a multiple of income. My point
(18:41):
is that today the price decline thatwe have seen back fifteen to twenty five
percent price decline has nothing to dowith the properties income. It just has
to do with financing costs. Ifthe income has remained the same and you're
paying fifteen to twenty five percent less, well that is the right kind of
opportunity. That's the Warren Buffett opportunity. You're buying something when it's cheap right
(19:06):
because its income has not been affected. In fact, rents have gone up
over the last eighteen months. Theyaren't going up strongly. They're slow gradual
rent growth because you have some incrediblerent growth in late twenty twenty one early
twenty twenty two, so it's slowedto slow drastically. But if you look
at the last eighteen months, overallrents are up. When rents go up,
(19:26):
income usually goes up, even thoughexpensive and insurance are going up.
It's likely that if you look atten thousand or one hundred thousand properties in
the US and compare their income todayto what it was eighteen months ago.
You'll see that there's an uptick ingeneral in general if you average amount.
So you're in a situation where theindustry itself is doing well. Occupancy is
(19:48):
close to ninety five percent, soninety four point whatever, ninety four point
six, ninety four point seven,which by historical levels is excellent. People
have a good amount of money.Unemployment under four percent, but you're still
getting if fifteen to twenty five percentdiscount on an asset, and you're only
getting it because interest rates are hot. And I tell people this, I
(20:11):
tell people this weekly. If youbelieve that interest rates whether you're buying single
family or multifamily, right, ifyou believe that these interest rates will be
the same eighteen to twenty four monthsfrom now, you shouldn't buy anything realistic
at all, exactly right. Itis nlieve that that is counter productive.
(20:36):
When you're saying that, you're probablyalso the same person that was just buying
everything inside in early twenty twenty two, not paying any attention to the fact
that things were overpriced. Right,So you you believed in the hype of
twenty twenty two, and now you'rebelieving in the hype of twenty twenty three.
The hype of twenty twenty three isinterest rates will never go down.
(20:56):
The hype of twenty twenty two wasmulti five family and single family will never
go down. Both of those whowere hyped these are not These are not,
you know, statements that are scientificin nature. They're not statements that
are prudent. So when people todaysay interest rates will not go down,
they're basically saying the same thing asreal estate will always go up. Neither
(21:19):
one of these statements has any basisin truth. The Federal Reserve itself,
which is the only party in theUnited States that controls interest rates, is
clearly publishing a document called a dotplot. They updated every time they need
and the dot plot clearly so thoseinterest rates going down in twenty twenty four
and twenty twenty five. Please googleFederal Preserve dot plot. Okay, yeah,
(21:48):
we'll do that. And you know, we've been talking about interest rates
a lot and neo, but whatis about what about inflation? What's what's
inflation's will in this? So we'reduring us in November, you know,
twenty twenty three December twenty twenty threetimeframe. And I can tell you this,
the last thing that people should beworrying about today is inflation. What
(22:11):
you should have been doing is worryingabout inflation when inflation started rising, which
was a Q four of twenty twentyone, and continued to rise in early
twenty twenty two, and the FederalReserve was very very slow to act.
Right, they said inflation is transitory. Well turned out they were extremely wrong,
and they ate fromble Cross. WhatI like about the FED is even
(22:33):
when they're wrong, they accept theirfault. They're not like our politicians were
never wrong. The FED said wewere wrong, and now we have to
raise rates much quicker because we werewrong. So that's what I like about
the FED. You know, noone expects the FED to be rock stars
or scientists. If you're that smart, you're probably not working in the government.
(22:55):
Right, But they were collected.They raised rates today today. Why
has the FED not raised rates inthe last meeting? What about the meeting
before? What about the meeting beforethat? They're holding rates because they believe
that they've done enough, and theywant to see more evidence that they've done
(23:17):
enough before they can say we're goingto start lowering rates. So anyone and
everyone should have been worrying about inflationsince Q four of twenty twenty one,
even before the Fed was worrying aboutit, And you should have been warning
about inflation until about four or fivemonths ago. If you go back and
look at there's many different ways ofinflation. There's one called that many different
(23:37):
types of inflation. There's something knownas core inflation, something on as PC
inflation. There's even other forms ofinflation that the Federal Reserve uses, and
you can find those on the webby googling what measures of inflation does the
Federal Reserve track? By all measuresof inflation that the Federal Reserve tracks,
inflation is a down and b continueto decline. Right, It's a little
(24:02):
bumpy because that's the nature of oureconomy. You can see brief upticks in
inflation in certain areas, but overallit's down. Also, employment numbers are
down. The United States was atone point producing five hundred thousand jobs,
then four hundred, then three hundred, then two hundred, now about one
(24:22):
hundred and fifty thousand jobs a month. Because one of the key ways to
reduce inflation is to reduce employment.When you reduce employment, less people are
employed, well demand comes down.So my question is, once again,
if you're data driven, why weren'tyou worried about inflation at the end of
twenty twenty one? And if you'redata driven, then why are you worried
(24:44):
about inflation today? The Federal Reservebeat the economy into a pulp to reduce
inflation, and they were successful.And by the way, the head has
always been successful. They have raisedinterest rates nine times since World War Two
and they have killed inflation nine times. Now, I do want to point
out then in the nineteen eighties theystopped too soon and inflation went back up,
(25:07):
so they had basically they had todo it twice. Now because of
that and because your own power usesthat mistake in the nineteen eighties in his
examples, that's why the Fed's weighing. Why hasn't the FED cut interest rates
when inflation is down? The answeris they don't want it to go back
up. So they're sitting there andwaiting and a lot of people are like,
(25:29):
yeah, but that means inflation couldgo back up. No, imagine,
imagine what the FED has done inthe last twelve months as a five
hundred pound weight. Actually I'm goingto call it five hundred and fifty pounds
because it's five and a half percent. Basically, imagine a five hundred and
fifty pounds weight that the FED hasplaced on the chest of the economy,
(25:51):
and obviously that brings the economy toits kniees. Now, the FED isn't
adding any more weight. They startedwith one hundred pounds, then they went
to two hundred pounds, three hundred, five hundreds. Today that five fifty.
But that weight of five hundred andfifty pounds is still on the chest
of the economy, and the economyis still on its neeze, right,
So by doing nothing, the factis still putting a tremendous amount of downward
(26:14):
pressure on the economy because the fivehundred and fifty pounds are still there.
Yeah, well, I know,yeah, I get effected greatly on inflation
wherever I step on the scale andweigh myself. That's right. Yeah,
that was the volu yesterday. Solet's not talk about weight. But you
(26:37):
know, it goes back to theinitial observation that this is why you have
to be aware of the relativity ofeverything going on, so that you are
able to deal with it, ableto recognize it, able to take advantage
of it when you can, butalso allow the economy to kind of fix
(27:02):
itself without too much involvement from artificialsources like the FED, or like the
bank rates or like you know,all of the potentials. It still comes
down to be aware, be knowledgeable, know what you're doing so you can
recognize when things are bad and goodand do what needs to be done.
(27:26):
Be educated. That's that's what wedo. Yeah, and I want to
give you an example of how relativethings are. Let me let me finish
this start you know, you know, multifamilies fifteen to twenty five percent reduction,
other asset classes like office even greaterreductions. Single family in the last
(27:47):
twelve months up one point eight percent. So the single family market has seen
interest rates go from twenty four monthsago from three point zero two to seven
and a half. So mortgages havemore than doubles two and a half times,
which means that the interest portion ofyour mortgage payment is now two and
(28:10):
a half times. But what happensto single family homes? They go up
one point eight percent in the sametimeframe that multifamilies are down twenty you know,
fifteen to twenty five percent. It'sall relative, not everything. Not
everything behaves the same way. Thereare different factors at play in every different
(28:30):
part of the real estate market,right. So today, I mean,
I'm in awe of the incredible strengthof the single family market, the fact
that it hasn't crashed. There area million YouTube videos that you can find
in the last twelve months, allpredicting the doom in the single family market
when rates even go up to fivepercent. Today they're at seven and a
half percent, and we are seeingthe market do great, right, and
(28:53):
it's not going up gangbusters. Infact, my forecasters will probably go down
five sixty seven percent. It shouldgo down side six seven percent. A
little bit of steam coming out ofthe single family market. It's not a
bad thing. It's a good thing. It's a normal it's a normalization thing,
right, just like it has happenedfor multifamily. There should be a
lot of steam being taken up.But I'm in awe of just how well
(29:15):
the single family market has performed,and it shows just how strong the desire
for people is to continue buying singlefamily homes even when mortgages are two and
a half times more expensive well andrent. I don't know about other cities,
but in Vegas to if you can'tget a mortgage to buy a house,
(29:37):
a single family house, and youhave to now go into looking to
rent. I mean, the rentsin Vegas are outrageous for what you get.
You know, you got a sixhundred square foot studio apartment that may
be brand new, but you're payingfifteen hundred dollars a month in rent for
(29:57):
it. It's like, what,that's crazy? And we had that.
That's where the opportunity is. Thegap between the gap between the starter home
mortgage. You know, the monthlymortgage came in on a starter home,
the cheapest home they can find,and that the equivalent rent is the highest
(30:19):
in history in the last twelve months. It's so today it's one thirty dollars.
It briefly was over eleven hundred dollars, but on average, looking at
the entire country, that gap isover one thousand dollars. Historically, even
in the craziest part of the twothousand and six boom, that number never
went up above seven fifty. Sotoday it just doesn't make sense to buy
(30:44):
the people that are buying are theones that want to buy and are able
to buy, but everyone that justdoes not have the income to buy.
Because remember the higher this gap,the more difficult it is to qualify,
right because you're you're, you know, you need about three we x the
income to qualify. So if you're, you know, getting a five hundred
thousand dollars mortgage and it's at eightpercent, that's forty grand. Add in
(31:07):
insurance, add in the principle.Now you need to have income three times
whatever that number is. And whatwe've done is in the last three years
since COVID started, the average increasein salaries needed to buy that starter home
in the United States, the averageincrease in three and a half years eighty
(31:29):
eight percent. So your salary neededto be eighty eight percent higher than the
day before COVID. It needs tobe eighty eight percent higher today to buy
that same starter home. And inthree and a half years, people's salaries
have only gone up about sixteen percent. And that means that we have now
marooned about eight to twelve million middleclass families who never will buy. They
(31:52):
are forever renters. And that's whatI'm that's the market that I'm addressing.
I feel like it's a tragedy.I feel like, oh my god,
the government should be doing something aboutthis. But I'm not in politics.
My job is to make money formy investors, and I'm saying to them
today the market has calmed down.This is good because values make more sense,
and today there's these acounts of all. Right, well, before we
(32:15):
end this podcast, I do haveone last question, based on what you
just said. What's the status ofthe new construction in multi faimily at that
point? Are the new product beedsthough? Right now? What are you
seeing on that? There's the slowdownbecause construction costs have gone up a lot
in the last three years, interestrates have gone up, and loan the
(32:37):
values have gone down. Thus multisonly values are dropping. So we are
seeing it reduction in new construction.I would say perhaps thirty percent down,
perhaps forty percent down. There aren'texact numbers, right you know that are
easily available, and that doesn't meananything for incoming supply today, because today's
(33:00):
coming supply was you know, theystarted working on it back in twenty twenty
one. But when you slow downmultifamily by thirty percent today, then you're
going to have a supply gap.You're going to have a supply hole in
twenty twenty five or twenty twenty six. So when the investors tell me when
do you think the multi family marketcould boom again, my answer is twenty
(33:20):
twenty six, because we are rightnow digging a supply hole with reduced apartment
construction, and that means that intwenty twenty six, rents could go up
significantly in that timeframe. So youknow, I don't expect that to happen
in twenty twenty four because interest ratesare still going to be high at twenty
twenty four. Okay, excellent now, So in other words, now in
(33:42):
your if somebody just pulls you outof the blue and says Neil Bauer,
I want to get I want toget into the market somehow, I'm you
know, what do you tell themthey wouldn't want to invest in your projects?
Or what's what's your What do youtell a perspective investor in issues?
You sit back, you I tellthem I didn't buy much in twenty twenty
two or twenty twenty one. Thenthey can look at the data purchase of
(34:04):
my properties and today I'm in agreedy motive. Right, I follow Warren
Buffett. He says, be careful, be you know, be careful when
others are greedy. Be greedy whenothers are careful. Right, So,
you know, fearful. Sorry,So today everyone's fearful because of what they're
seeing in the marketplace. And I'mgreedy. So I'm buying properties. I'm
(34:25):
not building a lot of properties rightnow. I've actually paused a bunch of
my projects, but I am buyingas much land as I can because land
today is explored and early, cheap, interesting. I'm wondering if you is
that around the country. So Iwould say some of the most boom markets,
(34:46):
you're seeing land prices down forty percent. In some of the other markets
you might not see the price evendown by forty percent. But the terms
have changed. You know, intwenty three two, you had you had
one hundred and twenty days to closeon land. You can easily negotiate eighteen
months. She's not buying it foreighteen months, but you're working on it.
(35:07):
Okay. Well now, now,the last thing, Nell is if
somebody's listening to this podcast and wantsmore information, wants to get a hold
of you somehow, what's the bestway to do that. The best way
really is to engage with us tolearn more about what we do, and
that is at MULTIFAMILYEU dot com.So Multifamily followed by the letter you dot
com. We do webinars. Theretwelve webinars a year. About twenty five
(35:30):
thousand people attend those webinars. Vickyactually attends all of our webinars, so
I see her all the time,and you know, I'm not sure about
Ron, but I know if hedoes, and you know, that's the
right way to engage and to learnabout our data, right. It's a
fascinating process. We talk about lotsof interesting things. We talk about things
(35:52):
beyond real estate. We talk aboutoil, we talk about, you know,
what's happening in the capital markets,what's happening in the banks. So
it's a lot of very interesting,fun information presented in an you know,
engaging fashion. And we spend aboutthirty seconds in each of those presentations telling
you about our projects. And soat that point, if when any of
those projects looks interesting, you canjoin us. Otherwise, just tune out
(36:15):
for those thirty seconds and go backinto the into the webinar. When we
when we continue forward. That's theright way. So multifamilye dot com and
you have one coming up on Thursday, that's right, Yep, have a
webinar coming up. Yeah, Imentioned the last podcasts that we did with
you. I really I am likeaddicted to your little location magic thing.
(36:37):
I think that's one of your bestones. And I have the whole Excel
spreach. It's like so much fun. It's like, what are you doing?
It really break? That's what Iwould really really recommend everybody fail to
attend. And honestly, you know, you look at the name of the
Multi Family University. This is acollege education. If you really want to
(36:58):
go to school from real estate,I don't even think you can do that
right, And no other than areal estate there was little schools here and
there. But I see a lotof real estate agents working for Starbucks these
days. Neil, you know thatthey shout they should they should have paid
attention to our rebinars. But yeah, it's a lot of very thought provoking
(37:22):
information and it's very highly actionable.We provide very specific action items that you
can do and can engage in,and so join us at multifamily dot com.
You'll learn a lot of interesting things. Uh, there's no subscription,
there's no upsell. You cannot buythe education. There's no fees. Will
never charge you for a recorded event. They're always free. You know.
(37:43):
Our education is always meant to befree. And you know Ron and Vicki
Hasby have been coming for years andthey know this. You know we've been
publishing education on the web for abouta decade. Was that better? All
right? I think you before weclose this out, you have an ask,
questions or a comment for Neil.Well, you know what I'd like
(38:05):
to say, Ron is the reasonwe love Neil and love him as a
guest on our podcast is because hehas information that's valuable. And if you
are interested in the real estate industryin the market, Neil is your absolute
source for that knowledge because he willteach you what you need to know to
(38:28):
be successful in whatever it is thatyou're doing. Use Neil as a resource
because he will help you be successful. That's why we love you so much,
Neil, because you're so special.Thank you so much. I truly
appreciate what you said. Thank you, yes, and we appreciate you.
(38:49):
Neil. Thanks so much for takingtime out and being a guest on the
show. Vicki, thanks for cohosting this episode, and folks, you're
listening to the Mappable USA podcast atMAPPABLEUSA dot com. Go to our website
scroll down you'll see all our syndicationsources. Just pick the one you like
best and subscribe and you'll never missanother one of our podcasts. If you're
going to be a guest in theshow, like Neil us today, there's
a guest tab there. Fill thatout. We'll see what you can do
(39:12):
about getting you on the show.And if you like what you heard,
send us an email at info atmappable USA dot com or just leave a
comment on whatever page you listen tous on right now. So thanks for
listening, thanks for her support.We'll see you next time another mable USA
podcast. Have a great Meek everyone,
We want a little USA podcast wherewe put you on the map. This
is wrong. COSTUF broadcasting live fromthe Mappable US radios in Las Vegas,
Nevada, and folks, we're gonnatalking a little bit of multi family today.
It's going to be a great conversation. Grab a cup of coffee and
get ready to do that. Butbefore we do, let's introduce Vicky Hachmala
(00:44):
from the two of the Marketplace.Ricky, how you doing today? I'm
fabulous today, Ron. You know, I say this every time we do
a podcast, what the weather's likein Vegas? But you know what,
this is our time, our Vegas, all right, and this is why
we live here. This is whywe endure the summers because we're into perfect
weather. Now. Everything is beautiful. Great day, great podcast. One
(01:11):
of our very very favoritest guests ison. We're going to talk about real
estate opportunity zones, mostly multifamily,and I can't wait. So let's get
started. Let's let's do it forsure, and let's introduce one of our
favorites, Neil Bawa. He's theCEO of Multifamily You, Neil, how
(01:32):
are you doing today? Fantastic fantastic, great to be on the podcast again.
Yeah, we love having you on. We've done a number with you
before and they always get great ratings. We get a lot of people saying,
you know, made you find thatguy, and he's ours. So
that's it. But you know,and out there, you know, I
(01:56):
don't really do a lot of webinars. We've got a lot of things going
on. So before we get intothe whole topic of multifamily, can we
get a little background on you andhow you got to be where you are,
what your what your company's doing.Sure. So I'm a technologist,
geek, a nerd, whatever youwant to call it, you know,
computer science degree, data science background, and I got into real estate and
(02:20):
reverse because I was I live inTaxifornia and I was basically, you know,
I had the big fast tech joband I wasn't keeping a lot of
my money. I was making itand giving it to the man, and
sort of backed my way into realestate over a very long time, a
decade from twenty three to twenty thirteen. You know, learned real estate just
primarily as a tax benefit and thenstarted to see all of the other long
(02:45):
term, you know, wealth benefitsof real estate and after ten years,
decided maybe I should make this mycareer, so I started that in twenty
fourteen. Currently have about a thousandinvestors that have ind three hundred million dollars
with us, and we've used theirmoney to buy and build all kinds of
different assets, multifamily and built torent being the two largest categories, but
(03:09):
we've also invested in a number ofdifferent asset classes. Right and the last
time we had you on, Ithink we were talking about build to rent.
Of people that listened to that podcast, which I hope they did,
they did quite well because that isa trend that is continuing right now.
We're sitting here in Vegas as well. But you're mostly involved in multi family
(03:31):
investments, right with your syndication grouppretty much, So we buy and build
apartments, so we have a part, you know. All together our assets
are in sixteen markets in ten states, so multifamily apartments, you know,
we also build them. So webuilt apartments, we built student housing,
we've built flex industrial and office space. We've also bought and improved storage facilities.
(03:58):
But the core you're rightntinues to bemultifamily. Maybe about half of our
assets are in multifamily. Okay,that's great. Well, I'm sorry,
Ron. I was just gonna askNeil, since he's focusing on multifamily in
that over the last few years sincewe first met him, how do you
(04:20):
think multifamily has changed, and forthe better or or or for the worst.
I think it's in the last fewyears and in a more humbling way.
So people like me, and let'ssay another ten thousand of my brethren
in the industry known as syndication ormulti family syndication, I think are all
(04:45):
have less hubris, have less ego, have less you know, there's been
a little bit of a defillation inthat marketplace, and some of the things
that people have said, including myself, have not turned out to be true.
And that reduction in hubris, thatreduction in multifamily can only ever go
up, you know, because oftheir being, you know, a severe
shortage of housing. Some of thosethings have become more nuanced. So now
(05:10):
where people two or three years agomight have said, not me in this
instance, but other people have said, you know, multi family can only
ever go up because our housing shortageis getting worse. And now people say,
you know, multi family can onlyever go up in the long run.
In the short run, interest ratescan impact the prices of multifamily.
So I like that because, youknow, as a data scientist, I
(05:31):
want to be very specific and veryclear in what I say. I want
to have a bunch of caveats andasterisks that you know, attached to my
statements so that I'm as clear ascan be. And I Unfortunately, our
industry hasn't necessarily been that way.And now I'm beginning to see that.
I'm beginning to see, you know, prices a multi family come down.
(05:53):
They've come down about somewhere between fifteenand twenty five percent. There's a few
markets where they've come down even morethan twenty five percent. And on top
of that, they've they've also,you know, the expectations of rent growth
have moderated. People were putting inthree percent, four percent, five percent
into their performer. Now I'm seeingmore two percent. Some people are even
(06:15):
doing one percent rent growth. SoI think overall the industry over the last
two years, this impact of interestrates has led to the multifamily syndication industry.
Not the overall multi family industry,but the syndication part, which is
the part that we've been hearing alot about has started to mature. We
also might lose some syndicators because someof their properties might go back to the
(06:38):
bank, and that means that theyare likely to lose a number of their
investors. And you know, alot of these folks they were doing syndication.
They were technologists or doctors and theywere doing syndication on the side,
and I think a number of themwill go back to their day jobs.
So the bottom line is that forthe industry, this is a period of
(06:59):
a little bit of humble There isa period of you know, maturation where
people are maturing, they're learning moreabout what they said which may or may
or may not have turned out tobe true in the last two years.
And it's also a time when there'svery significant opportunity looking forward compared to twenty
four months ago. So compared totwenty four months ago, there's vastly more
(07:21):
opportunity in multi family today. Butwe can talk about that support well.
You know, I've observed that inregard with real estate, with that industry,
whether it's multifamily, whether it's justregular commercial residential, what it appears
(07:45):
to be that everything is relative withinthe industry. So interest rates can impact
this, and mortgage rates and availabilityand opportunity zones and lok all of these
things are relative to each other,and if one thing kind of falls off
(08:05):
the rail, it impacts everything else. And so it's very in my mind,
it's very important to be really threehundred and sixty degrees strategic so that
you can be prepared for potential situationswhere you have to adapt, because if
(08:26):
you can't adapt to what's going onin the world around you, since everything
is relative, you're never going tobe successful in whatever you do. And
I don't know, do you findthat that's more with real estate than other
industries or is that just general acrossthe board. I think it's general across
the board. But I think thepoint that you're making is you really have
(08:48):
to be nimble in real estate rightnow. Why nimble? Because before you
know, everything just works, everythingworked, prices only went in one direction,
and they were you know, andonly went in one direction. And
that's really if you look at thestory of the last six or seven years,
maybe eight years before mid twenty twentytwo. So go back seven years,
(09:09):
eight years from mid twenty twenty two, and you'll notice the prices only
went up and rents only went upexcept for a short one quarter decline during
COVID, And so what that didwas it created a sense of complacency.
You didn't need Ricky Hashmala's three sixtydegree view to survive and thrive during that
(09:31):
time, but today you do.You have to be extremely careful about what
you're doing. You have to basicallyhead your bets more right. You need
more insurance, you need more operatingbudgets, you need a lot more.
You need to be better as abuyer, better as a builder, and
you need to be better as aoperator of multifamily. Then you did,
(09:54):
let's say twenty four to thirty sixmonths ago, and that is good news.
It's good news for everybody. Thepeople that were now need to be
better and the people that were badare simply not going to be in business.
Yeah, right. That a coupleof years ago, Neil, when
prices were soaring everywhere and they said, well, you know, the way
you do is throw a dart anda map by the land and you're going
(10:16):
to make money out of it.And people thought they were geniuses about it.
So you're right now they have tobe a little bit more smart in
what they're doing. But it soundsto me from this conversation so far,
that you think we're going to belooking at a couple of down years in
multifamily and in commercial real estate ingeneral. Is that a right take?
(10:37):
I believe so, and I thinkthat it's not necessarily a bad thing.
I think it's a great thing interms of opportunity. So when I was
on your podcast in twenty twenty two, and they're all, you know,
recorded so people can go back,one of the things that I was cautioning
was that the prices are too high. I mean, basically, the assumptions
being made are too aggressive. I'vesaid this times and on many podcasts,
(11:01):
and I've definitely said it on yours. And that was maybe early late twenty
one, early twenty twenty two whenI was talking about it. And you
know, I've been wrong on manythings, but I did turn out to
be right on that one. Backin those days, I had students.
I used to teach multifamily before COVID, I don't teach it anymore. When
I used to teach it, Iused to have students and these day came,
(11:24):
you know, many of them werenew to the multi family industry,
and I watched guys. I watchedmy students by ten properties in a single
year, and I would go like, oh, wait a minute, this
is a very very expensive time.And I have to say, unfortunately,
because they weren't listening to some ofthe things that I was saying, you
know, they were drinking the koolaid. There was a huge amount of
(11:45):
money available. Three, four,or five of those ten properties are now
underwater because those properties either had norate caps, or they probably had rate
caps, but those rape caps wereexpensive and so or those rape caps were
for a short duration, so theybought a rate cap for a year,
so jesse. For those who don'tknow, a rate cap is something you
buy separately from a mortgage from aseparate company, and it basically caps your
(12:11):
interest rates, so you have afloating interest rate, and as rates go
up, your floating interest rate goesup. So let's say you buy a
rate cap at six percent. Whenyou bought the property, maybe the rate
was four. Well, it canrise all the way to six, but
if it goes beyond six, thedifference between six and your mortgage is actually
paid out by the rate cap company. But if you buy a rate cap
that's very high, or if youbuy a rate cap that's very short,
(12:35):
let's say a year or two years, then you can get in trouble.
So we at this point we havesomewhere between twenty five hundred and three thousand
properties in the United States, anaverage of let's say two hundred units,
so we're talking about sixty thousand units. These properties are probably worth, and
this is my best guess, aboutseventy five billion dollars. Well, these
properties are leading, meaning they areforget about paying the investors are paying cash
(13:01):
flow day. Each month. Youhave to put more money into these properties
just to pay the mortgage. Andso the vast majority of these properties were
purchased in late twenty twenty, allof twenty twenty one, and all of
twenty twenty two. So during thattime, the prices that were paid were
fairly outrageous. I was lucky Ibought back one of my own properties,
(13:22):
and then I purchased a single propertyat a pretty high price in a military
town, which nobody wanted to touch. My argument back then was, well,
if you're going to overpay everywhere else, I might as well get a
cheap deal in a military town anddeal with the fact that my occupancy is
going to go up and down,and I've been pretty happy with that.
At least I bought it at amuch higher price than much lower price than
(13:46):
other people were. But other thanthat, I didn't buy any buildings.
I just waited and watched because itdidn't seem real. It didn't seem like
this was the right kind of map, and we're now seeing that. So
to go back to what Ron said, am I saying that there's going to
be distress in multifamily in twenty twentyfour? Yes? I think so,
because there's three thousand properties, andI think the vast majority of those three
(14:11):
thousand they have to go back tothe bank or they have to be sold
at lower prices, you know,than they were purchased at. So I'm
going to define distress. Is itlike two thousand and eight? You know?
Absolutely not. I don't think thatthis is anywhere close to that.
Keep in mind that if every singleone of these properties was sold for zero
(14:33):
dollars, which is you know,I'm joking, that's seventy five billion that's
at risk, right where in threethousand and eight we had eight thousand billion
at risk. The total size ofthe distress in the real estate market in
two thousand and eight was around eighttrillion dollars. Obviously, not all of
(14:54):
that stuff, you know, eventuallyended up on the courthouse, you know,
footsteps. A lot of stuff gotresolved over time, which is great,
and I expect a lot of themultifamily stuff that I'm talking about to
get resolved over trial. But evenif the worst case happens and every single
one of these three thousand properties issold for you know, you know,
(15:16):
for a very small amount of money, that is still not contagion. In
two thousand and eight, we havesomething known as contagion. What prices were
affecting other prices, which were affectingother prices, which were affecting other prices.
This isn't the impact here because themultifamily industry is very large. It's
twenty million units. If every propertyis two hundred units, well, that's
(15:37):
one hundred thousand properties right Well outof the three thousand properties are at severe
risk of going back, that's aboutthree percent. So distress, yes,
problems, yes, investor money atrisk, Yes. Contagion that spreads either
to larger parts of the economy orto the rest of multifamily. No,
(16:00):
yeah, and that's and you're right, that's the big difference. But you
know, you said something that wasinteresting, Neil. It's like when you're
aware, when you have the rightknowledge for what it is that you're doing,
then you're able to recognize the opportunity. So even if if the cost
(16:22):
of real estate is elevated for whateverreason, then now you're going to have
all the potential of foreclosures and returnsto the bank, and the bank holding
properties that they don't want. Butnow here's the opportunity for the sophisticated investor
(16:42):
to get the property on a foreclosure, to pay less for it because it's
distressed only in the paperwork, notin that actual location. So now you've
through something that wasn't very good createdan opportunity. But if you don't have
the knowledge and the adaptability, youlose out altogether. You can't see it,
(17:07):
you do, though, Yeah,though I have to caution you.
I don't think that a massive percentageof these three thousand properties are going to
go into you know, courthouse styleforeclosure. And that happened right in two
thousand and eight because courthouse style foreclosureswere the only way to get rid of
millions of single family homes. Righthere, we're talking about three thousand yearits.
(17:30):
So in most cases, the bankis likely to force a sale,
meaning you know, okay, weknow, we know you're going to lose
all of your money on this,but we need you to sell this property.
So what really is likely to happenis that a bunch of these three
thousand properties are likely to come tomarket this this in the next twelve months
at discounted prices. So the bigopportunity in multifamily simply is we're getting fifteen
(17:53):
to twenty five percent discounts. Weexpect those discounts to accelerate to about thirty
percent. And when I say discount, I mean discount from peak, and
the peak was March twenty twenty two, so it was about nineteen months ago.
So from that peak we could getas much as a thirty percent discount.
Now, some people are like,yeah, but the interest rates are
high. Well, I'll address interestrates, but here's what I want to
(18:15):
say to you. If you werebuying a taco bell in twenty twenty two
versus twenty twenty three, and itsincome was one hundred thousand dollars and you
were buying it for a million today, if its income is one hundred thousand
dollars and you're buying it for eighthundred twenty percent less, why wouldn't you
buy that taco bell right? Youpay a multiple of income. My point
(18:41):
is that today the price decline thatwe have seen back fifteen to twenty five
percent price decline has nothing to dowith the properties income. It just has
to do with financing costs. Ifthe income has remained the same and you're
paying fifteen to twenty five percent less, well that is the right kind of
opportunity. That's the Warren Buffett opportunity. You're buying something when it's cheap right
(19:06):
because its income has not been affected. In fact, rents have gone up
over the last eighteen months. Theyaren't going up strongly. They're slow gradual
rent growth because you have some incrediblerent growth in late twenty twenty one early
twenty twenty two, so it's slowedto slow drastically. But if you look
at the last eighteen months, overallrents are up. When rents go up,
(19:26):
income usually goes up, even thoughexpensive and insurance are going up.
It's likely that if you look atten thousand or one hundred thousand properties in
the US and compare their income todayto what it was eighteen months ago.
You'll see that there's an uptick ingeneral in general if you average amount.
So you're in a situation where theindustry itself is doing well. Occupancy is
(19:48):
close to ninety five percent, soninety four point whatever, ninety four point
six, ninety four point seven,which by historical levels is excellent. People
have a good amount of money.Unemployment under four percent, but you're still
getting if fifteen to twenty five percentdiscount on an asset, and you're only
getting it because interest rates are hot. And I tell people this, I
(20:11):
tell people this weekly. If youbelieve that interest rates whether you're buying single
family or multifamily, right, ifyou believe that these interest rates will be
the same eighteen to twenty four monthsfrom now, you shouldn't buy anything realistic
at all, exactly right. Itis nlieve that that is counter productive.
(20:36):
When you're saying that, you're probablyalso the same person that was just buying
everything inside in early twenty twenty two, not paying any attention to the fact
that things were overpriced. Right,So you you believed in the hype of
twenty twenty two, and now you'rebelieving in the hype of twenty twenty three.
The hype of twenty twenty three isinterest rates will never go down.
(20:56):
The hype of twenty twenty two wasmulti five family and single family will never
go down. Both of those whowere hyped these are not These are not,
you know, statements that are scientificin nature. They're not statements that
are prudent. So when people todaysay interest rates will not go down,
they're basically saying the same thing asreal estate will always go up. Neither
(21:19):
one of these statements has any basisin truth. The Federal Reserve itself,
which is the only party in theUnited States that controls interest rates, is
clearly publishing a document called a dotplot. They updated every time they need
and the dot plot clearly so thoseinterest rates going down in twenty twenty four
and twenty twenty five. Please googleFederal Preserve dot plot. Okay, yeah,
(21:48):
we'll do that. And you know, we've been talking about interest rates
a lot and neo, but whatis about what about inflation? What's what's
inflation's will in this? So we'reduring us in November, you know,
twenty twenty three December twenty twenty threetimeframe. And I can tell you this,
the last thing that people should beworrying about today is inflation. What
(22:11):
you should have been doing is worryingabout inflation when inflation started rising, which
was a Q four of twenty twentyone, and continued to rise in early
twenty twenty two, and the FederalReserve was very very slow to act.
Right, they said inflation is transitory. Well turned out they were extremely wrong,
and they ate fromble Cross. WhatI like about the FED is even
(22:33):
when they're wrong, they accept theirfault. They're not like our politicians were
never wrong. The FED said wewere wrong, and now we have to
raise rates much quicker because we werewrong. So that's what I like about
the FED. You know, noone expects the FED to be rock stars
or scientists. If you're that smart, you're probably not working in the government.
(22:55):
Right, But they were collected.They raised rates today today. Why
has the FED not raised rates inthe last meeting? What about the meeting
before? What about the meeting beforethat? They're holding rates because they believe
that they've done enough, and theywant to see more evidence that they've done
(23:17):
enough before they can say we're goingto start lowering rates. So anyone and
everyone should have been worrying about inflationsince Q four of twenty twenty one,
even before the Fed was worrying aboutit, And you should have been warning
about inflation until about four or fivemonths ago. If you go back and
look at there's many different ways ofinflation. There's one called that many different
(23:37):
types of inflation. There's something knownas core inflation, something on as PC
inflation. There's even other forms ofinflation that the Federal Reserve uses, and
you can find those on the webby googling what measures of inflation does the
Federal Reserve track? By all measuresof inflation that the Federal Reserve tracks,
inflation is a down and b continueto decline. Right, It's a little
(24:02):
bumpy because that's the nature of oureconomy. You can see brief upticks in
inflation in certain areas, but overallit's down. Also, employment numbers are
down. The United States was atone point producing five hundred thousand jobs,
then four hundred, then three hundred, then two hundred, now about one
(24:22):
hundred and fifty thousand jobs a month. Because one of the key ways to
reduce inflation is to reduce employment.When you reduce employment, less people are
employed, well demand comes down.So my question is, once again,
if you're data driven, why weren'tyou worried about inflation at the end of
twenty twenty one? And if you'redata driven, then why are you worried
(24:44):
about inflation today? The Federal Reservebeat the economy into a pulp to reduce
inflation, and they were successful.And by the way, the head has
always been successful. They have raisedinterest rates nine times since World War Two
and they have killed inflation nine times. Now, I do want to point
out then in the nineteen eighties theystopped too soon and inflation went back up,
(25:07):
so they had basically they had todo it twice. Now because of
that and because your own power usesthat mistake in the nineteen eighties in his
examples, that's why the Fed's weighing. Why hasn't the FED cut interest rates
when inflation is down? The answeris they don't want it to go back
up. So they're sitting there andwaiting and a lot of people are like,
(25:29):
yeah, but that means inflation couldgo back up. No, imagine,
imagine what the FED has done inthe last twelve months as a five
hundred pound weight. Actually I'm goingto call it five hundred and fifty pounds
because it's five and a half percent. Basically, imagine a five hundred and
fifty pounds weight that the FED hasplaced on the chest of the economy,
(25:51):
and obviously that brings the economy toits kniees. Now, the FED isn't
adding any more weight. They startedwith one hundred pounds, then they went
to two hundred pounds, three hundred, five hundreds. Today that five fifty.
But that weight of five hundred andfifty pounds is still on the chest
of the economy, and the economyis still on its neeze, right,
So by doing nothing, the factis still putting a tremendous amount of downward
(26:14):
pressure on the economy because the fivehundred and fifty pounds are still there.
Yeah, well, I know,yeah, I get effected greatly on inflation
wherever I step on the scale andweigh myself. That's right. Yeah,
that was the volu yesterday. Solet's not talk about weight. But you
(26:37):
know, it goes back to theinitial observation that this is why you have
to be aware of the relativity ofeverything going on, so that you are
able to deal with it, ableto recognize it, able to take advantage
of it when you can, butalso allow the economy to kind of fix
(27:02):
itself without too much involvement from artificialsources like the FED, or like the
bank rates or like you know,all of the potentials. It still comes
down to be aware, be knowledgeable, know what you're doing so you can
recognize when things are bad and goodand do what needs to be done.
(27:26):
Be educated. That's that's what wedo. Yeah, and I want to
give you an example of how relativethings are. Let me let me finish
this start you know, you know, multifamilies fifteen to twenty five percent reduction,
other asset classes like office even greaterreductions. Single family in the last
(27:47):
twelve months up one point eight percent. So the single family market has seen
interest rates go from twenty four monthsago from three point zero two to seven
and a half. So mortgages havemore than doubles two and a half times,
which means that the interest portion ofyour mortgage payment is now two and
(28:10):
a half times. But what happensto single family homes? They go up
one point eight percent in the sametimeframe that multifamilies are down twenty you know,
fifteen to twenty five percent. It'sall relative, not everything. Not
everything behaves the same way. Thereare different factors at play in every different
(28:30):
part of the real estate market,right. So today, I mean,
I'm in awe of the incredible strengthof the single family market, the fact
that it hasn't crashed. There area million YouTube videos that you can find
in the last twelve months, allpredicting the doom in the single family market
when rates even go up to fivepercent. Today they're at seven and a
half percent, and we are seeingthe market do great, right, and
(28:53):
it's not going up gangbusters. Infact, my forecasters will probably go down
five sixty seven percent. It shouldgo down side six seven percent. A
little bit of steam coming out ofthe single family market. It's not a
bad thing. It's a good thing. It's a normal it's a normalization thing,
right, just like it has happenedfor multifamily. There should be a
lot of steam being taken up.But I'm in awe of just how well
(29:15):
the single family market has performed,and it shows just how strong the desire
for people is to continue buying singlefamily homes even when mortgages are two and
a half times more expensive well andrent. I don't know about other cities,
but in Vegas to if you can'tget a mortgage to buy a house,
(29:37):
a single family house, and youhave to now go into looking to
rent. I mean, the rentsin Vegas are outrageous for what you get.
You know, you got a sixhundred square foot studio apartment that may
be brand new, but you're payingfifteen hundred dollars a month in rent for
(29:57):
it. It's like, what,that's crazy? And we had that.
That's where the opportunity is. Thegap between the gap between the starter home
mortgage. You know, the monthlymortgage came in on a starter home,
the cheapest home they can find,and that the equivalent rent is the highest
(30:19):
in history in the last twelve months. It's so today it's one thirty dollars.
It briefly was over eleven hundred dollars, but on average, looking at
the entire country, that gap isover one thousand dollars. Historically, even
in the craziest part of the twothousand and six boom, that number never
went up above seven fifty. Sotoday it just doesn't make sense to buy
(30:44):
the people that are buying are theones that want to buy and are able
to buy, but everyone that justdoes not have the income to buy.
Because remember the higher this gap,the more difficult it is to qualify,
right because you're you're, you know, you need about three we x the
income to qualify. So if you're, you know, getting a five hundred
thousand dollars mortgage and it's at eightpercent, that's forty grand. Add in
(31:07):
insurance, add in the principle.Now you need to have income three times
whatever that number is. And whatwe've done is in the last three years
since COVID started, the average increasein salaries needed to buy that starter home
in the United States, the averageincrease in three and a half years eighty
(31:29):
eight percent. So your salary neededto be eighty eight percent higher than the
day before COVID. It needs tobe eighty eight percent higher today to buy
that same starter home. And inthree and a half years, people's salaries
have only gone up about sixteen percent. And that means that we have now
marooned about eight to twelve million middleclass families who never will buy. They
(31:52):
are forever renters. And that's whatI'm that's the market that I'm addressing.
I feel like it's a tragedy.I feel like, oh my god,
the government should be doing something aboutthis. But I'm not in politics.
My job is to make money formy investors, and I'm saying to them
today the market has calmed down.This is good because values make more sense,
and today there's these acounts of all. Right, well, before we
(32:15):
end this podcast, I do haveone last question, based on what you
just said. What's the status ofthe new construction in multi faimily at that
point? Are the new product beedsthough? Right now? What are you
seeing on that? There's the slowdownbecause construction costs have gone up a lot
in the last three years, interestrates have gone up, and loan the
(32:37):
values have gone down. Thus multisonly values are dropping. So we are
seeing it reduction in new construction.I would say perhaps thirty percent down,
perhaps forty percent down. There aren'texact numbers, right you know that are
easily available, and that doesn't meananything for incoming supply today, because today's
(33:00):
coming supply was you know, theystarted working on it back in twenty twenty
one. But when you slow downmultifamily by thirty percent today, then you're
going to have a supply gap.You're going to have a supply hole in
twenty twenty five or twenty twenty six. So when the investors tell me when
do you think the multi family marketcould boom again, my answer is twenty
(33:20):
twenty six, because we are rightnow digging a supply hole with reduced apartment
construction, and that means that intwenty twenty six, rents could go up
significantly in that timeframe. So youknow, I don't expect that to happen
in twenty twenty four because interest ratesare still going to be high at twenty
twenty four. Okay, excellent now, So in other words, now in
(33:42):
your if somebody just pulls you outof the blue and says Neil Bauer,
I want to get I want toget into the market somehow, I'm you
know, what do you tell themthey wouldn't want to invest in your projects?
Or what's what's your What do youtell a perspective investor in issues?
You sit back, you I tellthem I didn't buy much in twenty twenty
two or twenty twenty one. Thenthey can look at the data purchase of
(34:04):
my properties and today I'm in agreedy motive. Right, I follow Warren
Buffett. He says, be careful, be you know, be careful when
others are greedy. Be greedy whenothers are careful. Right, So,
you know, fearful. Sorry,So today everyone's fearful because of what they're
seeing in the marketplace. And I'mgreedy. So I'm buying properties. I'm
(34:25):
not building a lot of properties rightnow. I've actually paused a bunch of
my projects, but I am buyingas much land as I can because land
today is explored and early, cheap, interesting. I'm wondering if you is
that around the country. So Iwould say some of the most boom markets,
(34:46):
you're seeing land prices down forty percent. In some of the other markets
you might not see the price evendown by forty percent. But the terms
have changed. You know, intwenty three two, you had you had
one hundred and twenty days to closeon land. You can easily negotiate eighteen
months. She's not buying it foreighteen months, but you're working on it.
(35:07):
Okay. Well now, now,the last thing, Nell is if
somebody's listening to this podcast and wantsmore information, wants to get a hold
of you somehow, what's the bestway to do that. The best way
really is to engage with us tolearn more about what we do, and
that is at MULTIFAMILYEU dot com.So Multifamily followed by the letter you dot
com. We do webinars. Theretwelve webinars a year. About twenty five
(35:30):
thousand people attend those webinars. Vickyactually attends all of our webinars, so
I see her all the time,and you know, I'm not sure about
Ron, but I know if hedoes, and you know, that's the
right way to engage and to learnabout our data, right. It's a
fascinating process. We talk about lotsof interesting things. We talk about things
(35:52):
beyond real estate. We talk aboutoil, we talk about, you know,
what's happening in the capital markets,what's happening in the banks. So
it's a lot of very interesting,fun information presented in an you know,
engaging fashion. And we spend aboutthirty seconds in each of those presentations telling
you about our projects. And soat that point, if when any of
those projects looks interesting, you canjoin us. Otherwise, just tune out
(36:15):
for those thirty seconds and go backinto the into the webinar. When we
when we continue forward. That's theright way. So multifamilye dot com and
you have one coming up on Thursday, that's right, Yep, have a
webinar coming up. Yeah, Imentioned the last podcasts that we did with
you. I really I am likeaddicted to your little location magic thing.
(36:37):
I think that's one of your bestones. And I have the whole Excel
spreach. It's like so much fun. It's like, what are you doing?
It really break? That's what Iwould really really recommend everybody fail to
attend. And honestly, you know, you look at the name of the
Multi Family University. This is acollege education. If you really want to
(36:58):
go to school from real estate,I don't even think you can do that
right, And no other than areal estate there was little schools here and
there. But I see a lotof real estate agents working for Starbucks these
days. Neil, you know thatthey shout they should they should have paid
attention to our rebinars. But yeah, it's a lot of very thought provoking
(37:22):
information and it's very highly actionable.We provide very specific action items that you
can do and can engage in,and so join us at multifamily dot com.
You'll learn a lot of interesting things. Uh, there's no subscription,
there's no upsell. You cannot buythe education. There's no fees. Will
never charge you for a recorded event. They're always free. You know.
(37:43):
Our education is always meant to befree. And you know Ron and Vicki
Hasby have been coming for years andthey know this. You know we've been
publishing education on the web for abouta decade. Was that better? All
right? I think you before weclose this out, you have an ask,
questions or a comment for Neil.Well, you know what I'd like
(38:05):
to say, Ron is the reasonwe love Neil and love him as a
guest on our podcast is because hehas information that's valuable. And if you
are interested in the real estate industryin the market, Neil is your absolute
source for that knowledge because he willteach you what you need to know to
(38:28):
be successful in whatever it is thatyou're doing. Use Neil as a resource
because he will help you be successful. That's why we love you so much,
Neil, because you're so special.Thank you so much. I truly
appreciate what you said. Thank you, yes, and we appreciate you.
(38:49):
Neil. Thanks so much for takingtime out and being a guest on the
show. Vicki, thanks for cohosting this episode, and folks, you're
listening to the Mappable USA podcast atMAPPABLEUSA dot com. Go to our website
scroll down you'll see all our syndicationsources. Just pick the one you like
best and subscribe and you'll never missanother one of our podcasts. If you're
going to be a guest in theshow, like Neil us today, there's
a guest tab there. Fill thatout. We'll see what you can do
(39:12):
about getting you on the show.And if you like what you heard,
send us an email at info atmappable USA dot com or just leave a
comment on whatever page you listen tous on right now. So thanks for
listening, thanks for her support.We'll see you next time another mable USA
podcast. Have a great Meek everyone,
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