By Amy Tiemann
With the current economic climate, one might wonder how to navigate it all, especially when it comes to investing. Here are a few tips and tricks I’ve learned over the years from beginning my own investing journey during the recession of 2008.
1. Find cash quickly. (It is the reason I started a multifamily fund.) There is opportunity coming. It is actually already here, if you are connected to the right people. I am working on three property restructuring deals right now and I am looking at buying properties pre-foreclosure or from the bank. In 2010, we bought our first multifamily property out of foreclosure. The process was not for the faint of heart, but can be done. With bridge loans maturing and inexperienced operators not able to refinance or sell, some will be forced to just walk away. No joke, Blackstone (yeah them, the biggest real estate investor out there) just walked away from an office property, and gave the lender the asset.
2. Get plugged into the multifamily brokers who work with lenders. Network to find them. They usually don’t advertise. Ask around. These are the brokers you need to know. And the easiest way to find them is if they have been a broker for more than 15 years. Filter from there.
3. Build your team. And it is different than you think it is.
Lenders: The lenders that you have been using in the past won’t want to touch the distressed or opportunistic deals that you will find. In the last five years, inexperienced mortgage brokers have flooded the market due to the low barriers for entry into the industry. They can’t help you, and even if they could, they don’t know how to best help you.
The past 5 – 8 years has the been the era of the bridge lender. That is no longer the case. It is now the era of the mezz lender. There will be assumptions, but they will be difficult because the appraisal will be lower than when the seller acquired it. You will have to make up the difference. Additionally, if you do purchase an asset that will qualify for a new loan from Fannie or Freddie, they are only loaning up to 55-60% leverage in most cases. A mezz or pref loan on top of that will be extremely helpful to get deals done.
Attorneys: Your real estate attorney is not who I am talking about. You will need to employ corporate attorneys more, if you choose to buy out partnerships or do any recapitalizations. With the shift in deal structures, the typical syndication attorneys you’ve been using might not be used to the deals you are going to be presenting to them today.
Property Management: The property management teams who have been dealing with assets that haven’t had to face this kind of crisis management won’t know what hit them. This is a challenging time in multifamily. In addition to dealing with this challenge, there is an ongoing property management crisis in this country. It is the one thing that people are continuing to sweep under the rug. Finding good property management companies is no longer just a problem, it is a full-scale crisis. Lots of property management companies are also trying to consolidate operations into a centralized model. This will also create havoc to the sites while that transition happens. It is a necessary step to survive the current conditions, but the transition will be difficult over the next 5-10 years.
Asset Management: I promise I will only be on my soap box for the next few sentences. ASSET MANAGEMENT IS NOT PROPERTY MANAGEMENT. It is a distinct and necessary role that property management doesn’t cover and it is the missing link for the inexperienced operators who are now failing. Ok, I’m off. Your asset management teams will now need to navigate through the exponential rise in property insurance costs, new liquidity requirements by lenders, the property management crisis, investor relations requirements, and host of other challenges as we move forward.
Acquisitions: Your acquisitions teams will think that there is nothing out there – (total BS, but they just haven’t had time to figure it out yet). You have to find properties differently. You can’t just wait for a broker blast, scroll on Crexi or LoopNet. Good news is that we have had this competitive environment for awhile and it has been honing your acquisition teams to hunt strategically. Now they just need to look in different places. Do not sit on the sidelines with the rest of the investors who are too scared to take a chance on a distressed property. There are a lot of people who are waiting. Why would you wait with them? So when it’s safe you can just compete with all of them later? You need to get in now when there are less interested or unable parties, or you can wait and I’ll buy all the good assets now.
In summary, the all of the team members you need now must have at least 15 years of experience or you are putting your investment at greater risk.
These are the things that helped me during a recession. Let this tried and true advice offer some security. Now, go boldly into your investing journey!