Tune in as Bob and Neil provide insight into industrial real estate as well as its relationship with current market trends in residential investment. They also share their thoughts on the continued use of bridge financing, and the cost of interest rate caps, and discuss whether capitalism can survive as a primary structure if we do not have global population growth.
Neal Bawa is a technologist who is universally known in real estate circles as the Mad Scientist of Multifamily. Besides being one of the most in-demand speakers in commercial real estate, Neal is a data guru, a process freak, and an outsourcing expert. Neal treats his $1 billion-dollar multifamily portfolio as an ongoing experiment in efficiency and optimization. The Mad Scientist lives by two mantras. His first mantra is that “We can only manage what we can measure”. His second mantra is that “Data beats gut feel by a million miles“. These mantras and a dozen other disruptive beliefs drive profit for his 800+ investors.
Welcome back to the Invest Like a Billionaire podcast and Happy Thanksgiving! This is part two of the economic panel. The best-ever virtual conference that Bob Fraser participated in a little bit ago, and the conversation was with Neal Bawa and Ben Lapidus. And if you listen to last week’s, you heard some of the great conversations that they were having talking about economic trends, and what to expect going into 2023.
What’s important for investors to pay attention to in this episode concludes that conversation. Lots of great insights. You definitely wanna listen to this, and for those that are interested in going to the best-ever conference next year, our good friends over there sent us a coupon for our listeners for 15% off tickets.
This is a conference that we really love. We’ve been going to for several years, and we’ll be there next year. And if you have any interest, we’d love to see you there and hope you enjoy this episode. Thanks so much!
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let’s go back to the short-term rental comments. So with, with the home, uh, home prices dropping, um, we have another question here.
Home builders’ sentiment in the single-family home market dropped to half of what it was six months ago. Is now a good time to be a developer in commercial real estate? And I would add, in addition to commercial real estate, BTR Build to Rent is now a good time to be a developer in either commercial or
I’ll, I’ll jump in there as well. So, um, absolutely. Um, we’ve been aggressively in the, in the industrial space and we prefer to buy existing assets and they’re very difficult to buy. The prices are very high. We’re finding, we’re actually doing industrial build a ground up, build up 350,000 square feet.
Right now we’re looking, we’re gonna be doing a lot more, and the numbers are nuts. Um, it’s cheaper to build, than to buy for sure. And, uh, so very good returns on building and, uh, and industrial is easy. It’s very short. Add to that, that the supply chain constraints are kind of lifting, and prices are, are coming down.
It’s, it’s a perfect time to be actually a developer, you know, Um, you know, especially in industrial, which is, which is shorter.
So I’ll, I’ll agree with Bob on that. So the industrial assets that I’m building are doing phenomenally well on a, the vacancy is very low. I’m getting the rents that I want, and cap rates are still very low in that, in that particular market, even though I expect them, to decompress.
So, a great time to be building industrial. Now, the question from a BTR perspective is, is mixed. So while sentiment is down, and I, I, you know, I know that market well, I have over 500 million invested into the BTI market from the development side. And I can tell you this, I’m still waiting for builders to capitulate.
I’m still waiting for landowners to capitulate. When will that happen? I’m guessing it’s Q1 or Q2 because I’ve, I’ve started to, you know, start getting more phone calls from brokers saying, Hey, there was this piece of land that you chose not to make an offer on. You know, I, I, I’m, I wanna talk with you about it.
So, my answer is, wait for about three-quarters, there’s gonna be blood. There’s gonna be blood in the streets for people that basically paid for land that’s basically built to rent land, either for townhomes or single-family homes. Uh, we’re not there yet, so I very carefully follow the big builder.
So I read Dr. Horton’s report. I read lenar, I read PTE Homes. They’re screwed, all of them, but they’re not at the point where they’re doing fire sales of the land that they put contracts on. And I think that happens in Q2, and Q3 next year. And that’s the trigger for the builders. Cause you know, Leonard doesn’t really build anything.
They just basically go and pay other people to build it for them. So the local builders work as subcontracts for Laar and everyone else. So those people are not hungry yet. Why? Pipeline development is a pipeline business right now. Every builder in the US is busy because they’re still developing whatever I paid them to develop last year.
It takes a while to get to that point. So my feedback is the end of next year, maybe a good time to start going to builders. They’ll be hungry. They would’ve paid on pieces of land that they can’t build on and you can strike deals with them to do build-to-rent. But I think it, it’s, it’s early days in that market.
It takes a lot of time for that market to adjust.
So a couple of terminology for some questions I’ve seen coming in. I’m just gonna go ahead and answer these. Uh uh, I’m not familiar with industrial. What does that entail? Industrial is, um, warehouses like I think Amazon, Walmart, major warehouses as well as last mile small warehouses that bring you your stuff.
So when you buy something on Amazon, it’s stored somewhere before it gets to your house. Those buildings that store that stuff. That’s industrial. It can also, And manufacturing. And manufacturing and, and manufacturing, and it can include some other niche asset classes like data centers. Just big, big vast spaces that just house data centers and, and, and other unique things like cold storage.
But industrial is the general food group, uh, for, uh, business renting that does not have people coming to an office. Uh, manufacturing, storage, data centers, what have you. Um, and what is the difference between traditional multifamily and build-to-rent? A multifamily is multiple units in one structure. Build-to-rent is typically referred to as track development of single-family units.
Um, so, uh, where, where you build it not for the purpose of selling the homes to a homeowner, but for the purpose specifically of renting that unit in that particular development. Uh, it’s just a different grade of quality when you’re constructing for the bill to rent versus selling to a homeowner. Uh, okay. Uh, one of the questions here I think is also getting answered, but I’d like to clarify.
So Selva asked, Is this a good time to get into land development where the buildable lots will be ready in two to three years? Neal, you’re saying yes, but no. Yes, because it’s almost, you’re saying in about six to nine months it will be a good time. I’m seeing similar data coming from John Burns Consulting, where, uh, the land is becoming less desirable, but I haven’t seen the shift in pricing yet being a developer ourselves.
So I’ve got a question for you, Bob, saying that you would like to, or that you are looking at development, Both of you think that this is a good time to develop. We have a peer in the storage group that is doing lots of development, just launching them like crazy in October, and November, No problem. He’s a merchant builder and he is taking on, i, I, I believe to be a fairly sizable variable rate risk, um, as a merchant builder.
So how do you finance? This development, especially in six to nine months, maybe land prices to come down faster if cap rates have only moved a point, but interest rates have moved substantially and you’re taking on this development risk as well as a lease-up risk where you do not have cash flow along the way.
How do you finance these things safely? What is the best strategy for development? I’m asking this, I wouldn’t have asked this, but I saw seven questions come in about this at the same time. There
you go. You know, again, for our calculus and industrial build, I mean we’re literally completed nine months after breaking ground, so, So interest rate is irrelevant.
It doesn’t matter what, I could pay double-digit interest rates and it doesn’t even hit, hit the bottom line, you know, I’m exaggerating, but you get the idea. Uh, the availability of capital is another matter, right? We’re seeing definitely, you know, on spec builds, we’re seeing a lot of caution coming outta the lenders.
Um, our, our model, we love local banks and regional banks, so they’re underloved and we love them. So we go, we go maintain a large network of lenders and, uh, we have on our staff a banker, an ex-banker who speaks bank and smells and smells like a bank banker. And so we tend to, we love, we love regional finance financing and these banks, others always a hungry bank out there.
And we get ’em all do a big dog and pony. We get them to compete for our business and, and, uh, we tend to get good, good deals.
Okay, well, um, my, my feedback’s very similar. Love, love, love regional banks, and that’s why you need to keep the size of the deal smaller. So, uh, you always have to understand your market.
So let’s say you’re investing in new Brun Felds, which is, you know, 30 miles from San Antonio. You need to know the answer to this question. If there were three banks based in San Antonio, what is the loan amount they’re comfortable with? And size your loan to that amount. So do not build a project over that amount.
None of them will compete with you. Basically, you’ll, you’ll simply lose all of the local banks. So I’ve had projects that I’ve walked away from that were pretty lu lucrative, where I basically simply couldn’t size the project to match the local banks because I’d never want to lose that segment. And all of my, you know, you know, hits in this environment have been local banks.
Here’s one other, uh, tip, which may not work for you, but there are possibly other people listening in here that it might work for. So, One of the things that I like to do is that as I’m raising money for value to add, you know, properties, often I’ll raise funds way in advance. Right now I have millions of dollars sitting in the bank.
My, investors know I’m not gonna buy anything this quarter. I’m not gonna buy anything in q1, but I will buy something in q2, and so they’re giving me that money knowing that it’ll, it’ll get deployed. Guess what I’m doing? I’m keeping that money. In a local bank and getting them to do my construction projects.
Local banks love deposits. National banks don’t particularly care, but local banks, if you put 10 million or 20 million into a local bank, will give you inedible construction deals, absolutely crazy rates that may not even make sense to you. It’s like, how, how are they doing that? The answer is they’re really sensitive to deposits because that allows them to grow their total lending.
So, um, if you have money that basically is simply parked in a bank that you can’t really do anything else with, park it with them first, then go ask them for a loan. It makes a huge difference.
Thank you both. Uh, alright. And just a reminder, if you have more questions as we’re having this conversation, be sure to drop them in the q and a.
All right. So we, we’ve been talking about financing here a little bit and, uh, we, we covered this a little bit, but I just wanna expand the scope beyond development, what are your thoughts on the continued use of bridge financing and the cost of the rate cap?
I think Bridge is pretty, the bridge lenders have disappeared.
Right. You know, pretty much. And, and um, and so it’s, you know, that’s been the main way people are doing the high higher leverage deals. You know, cuz they’ll go up to 80%, um, LTVs, uh, in some cases. And, uh, they’re, they’re gone. So, so we’re gonna see that, you know, really massively affect, you know, the availability available capital massively affects purchasing, but, um, I, as I said, I think it’s a bug looking for a windshield.
All this, all the bridge debt financing that we had, and I’ve been sounding this alarm for two years. The bridge debt was, you know, it really is a bridge. And, you know, if something is a bridge that doesn’t go anywhere, it’s not actually a bridge, right? It, it’s a, it’s a death, it’s a swan dive and Right.
You gotta have something bridge two. And, uh, so I think the bridge is a huge problem and I think it’s going to be a huge, a huge, huge problem. Um, as it, it just blows up if they, as the rate caps are. Or the rates are higher and the debt service coverage is not there, there’s no debt service coverage anymore, which is on already marginal deals.
So we’re gonna see a lot of things blow up. And uh, and the funny thing is, of course, who’s gonna benefit is the bridge guys who basically gonna take back properties.
Well, I think Bob, they’re, they’re going to be rescued. And I’ll tell you why. Bridge comes back when interest rates start to drop. My model shows they’ll start dropping in Q3 or Q4 of next year.
So just as all of these bridge guys who’ve made crazy deals are hyperventilating, I think they’ll start to see the bridge again. Remember, the bridge doesn’t require interest rates to drop. It simply requires. The going forward prediction of rates is that they will go down or stay stable and won’t go up. The bridging market only is, is nonexistent.
As long as people don’t know how high rates will go. The moment they know that there’s a plateau and there’s a chance that they’ll go down the bridge market reappears though, it’s gonna be pretty expensive, but I’d rather take an expensive bridge loan and lose my property. But, But
you can’t, you won’t qualify for bridge because the higher interest rates, the properties will not cash anymore.
That’s the problem. And the debt service coverage ratio goes below or close to one. And it’s over
at that point. Yeah. Yeah. So it really depends on how much you overpaid. Right. So some of them will be able to squeeze by or put a little bit more equity in. I, I’ve been talking with a friend of mine about creating.
Equity, uh, a fund that basically finds those kinds of properties and comes in as lending to help them basically get their disc up. And, I get first access to everything on the property. So basically I’m, I’m in a senior position to all of the equity. Uh, so it’s risky, but it’s definitely not as risky as all those investors in there.
And that’s, you know, I’ll reverse it. That’s exactly right. I mean, the way you, the place you want to be in, in, in, in, when the cycle downturns are the lending side. So, so distressed debt is an ideal place to be, and we love that space. That’s where we’ve cut our teeth at Aspen and we love the distressed debt space.
And honestly, I, you know, we’re looking at it starting a kind of mass lending, right? Mezzanine lending, um, with the same thing. So we get a, we get a lean on the property and, hey, best case we get paid, There’s no problem. Worst case, we get paid. We keep the property, keep the property back, you know, So yeah.
Vulture lending, you know, but we’re nice guys. We’re just, we’re just, you know, gonna deal the cards we’ve been dealt. Yeah.
All right, so let’s actually talk about some of these financing strategies. Um, seller financing. So, I saw a post the other day that the only way to get deals done is to buy cash loan assumptions and seller financing.
So if I can get a seller to the table to say, You know what, I’ll give you 40% leverage because that is what I do not have leveraged on my side, and I will do it for you at a 3% interest rate. All I owe for five years. The value of that I would like you to put into additional basis. So if I’m going to be saving a million dollars a year in interest expense relative to what I could get with the market over a five-year period, I would like you to take 5 million and add it to the basis.
Or better yet, I’d like you to take the discounted cash flow value of that five-year, uh, interest rate delta, uh, let’s call it $3 million, and add that to your basis. Is that smart? Is that wise? Can you pay more for a lower interest rate? Uh, seller financing.
I have to pencil it out. But yeah, depending on what that, you know, what, it definitely could pencil, you know, um, you know, these, you know, interest rates are a big deal.
We’re just, you know after we’re shut, we, we said we’re no longer gonna do any more multi-family acquisition. Well now we’re doing one and it’s a 3.49% consumable Fannie Mae loan with nine years left, you know, it’s like, hello. You know you can’t, we can’t lose money on this deal. I mean, you know, so, so finance is a big deal, and seller financing is, I would absolutely negotiate with somebody in a seller, seller carryback position to get them, you know, increased basis.
You know, it’s got a pencil. But
yeah, it’s, I think it’s an Excel question, but I’d say I wanna have a way to exit them. So that’s the only thing that I’ll add to that. I don’t want them to be there until the very end. If the market improves, I wanna have a way to exit.
Well, thank you for validating my current strategy.
So I appreciate that was a bit of a selfish question. So let’s, let’s chew around the edges of some of these outstanding questions that we have here, guys. And, uh, for those who of you are, are giving us a what’s up and a thumbs up, much, much appreciative. Um, uh, Omar, Hey, what’s up? This session is way more beneficial than I expected.
I learned more than I thought I would. Thank you, Mark. This is the type of content that we like to provide at the best ever. We have nothing to sell. It’s just a lot of fun to hang out with. Neal and Bob put Hunter Thompson and John Chang on the screen and I don’t know that you get a better room than that.
So, uh, here’s, here’s another question we have. Uh, from what type of accounts do you suggest investors save money until ready to be used for real estate indications and investments? If our cash is losing value to inflation and regular checking, and savings accounts, we want our cash to be accessible when ready to.
Not a lot of choices. , you know, bank, Bank, I say that I personally, if you need liquidity, there’s only really one place to keep it, so,
Yeah. Yeah. Um, well I’m gonna disagree with that one completely. So, So the answer is Coal America. Coer has money market accounts. I get 3.6% today. Anyone can call, call Coer.
These are money market accounts. They’re 30-day liquid, and they do not put that money into stocks or bonds. What they do is, and I have tens of millions of dollars with them, and actually, it’s paying for that entire site project is being paid for with 3.6 million on, you know, 50 plus million. So, uh, it’s, it’s an, it’s, it’s an amazing product, and I, I think that you should look at it, They actually break it up into $249,000 chunks and put them at different banks.
Why 2 49? Because 250,000 is F D I C insured. So they put them at different banks and they give you a list of all the banks that they’re spreading this money out to. So check it out. Coer Money Market, 3.6% as of last. Hot and it’s gonna go up to 4.1. By the way, it’s gonna go up to 4.1 on December 6th, cuz the Fed’s gonna raise by 50 basis points and com.
America’s gonna raise it by 45 voices. Points with that last 10 bps obviously being their spread.
And Marcus, uh, is offering same-day liquidity, uh, at 3%, which is a Goldman Sachs bank. Uh, Barclay’s Capital has something similar, I think Capital One. So we’re, we’re starting to see savings rates above 3%. I, I
see a question.
So no spelled Coer. C o m E R I c. AErica, not Coal America.
All right, so we got one or two more here. We’re just gonna bang through ’em really fast. Um, why sell? Another question mark. Why sell on the rate is at its. Would you mean things are kind of crazy during a recession, so you don’t wanna sell? This was during your presentation, Neal, So this was at the end of your presentation.
You made a comment, why sell when the rate is at its lowest? You had said, um, when things are kind of crazy during a recession, so you don’t wanna sell. I dunno
if you recall. Um, well, during a recession, firstly, it’s, it’s not a great time to sell. So I’m, I simply won’t sell until there are bear-bullish people in the marketplace.
So I’ll just hold. So my goal is not to sell any assets from now until June 2024. I build detailed models and I shared them in my presentation, uh, and I change those models every month. By the way, one thing I’m not is I’m not looking to predict the marketplace. I’m looking to learn from it and change because one thing I know is I’m always wrong, But if I keep listening to the market every month and changing my model, then I have a good shot of being right at the end.
So the short answer is I’m not looking to sell. So if I, if I implied that that was incorrect, I’m, I’m looking to hold every asset that I can until June 2024.
Awesome. Thank you for that, Neal. So, uh, let’s hit one more topic while, while we’re here. Um, demographics, uh, at, at the end of the day, that’s still a huge, huge issue.
It doesn’t matter if you’re in a recession or not, if you’re, if you’re investing in commercial real estate, you need to be paying attention. So, um, what are you guys looking for in the demographic data? You’ve alluded to some that core markets are a little bit scarier now than secondary markets, but what, other demographic trends are, are, are kind of your guiding lights right now?
I mean, we’re, we’re looking at, obviously we, we favor, you know, pro-business states, you know, let’s, or red states if you will, obviously. Um, and, and we’re looking at demographics. We’re looking at higher income demographics, which again, can weather, weather, uh, inflationary kinda storms better than, than the lower income demographics.
Those are kind of our two driving factors and, we love the Midwest. Uh, so because of just great, just simp, always great, steady, any economics.
Different, you know, feel for us. Um, so I, um, I also like high-income markets. For example, I’d take New Brun Felts, which is a small town over San Antonio, even though San Antonio’s a much larger market because new, new Brunel is $20,000, uh, higher income on average.
So I tend to, you know, it’s easier to get rents and, and rent inflation there, but I am extreme. Massively, extraordinarily worried about demographics in the United States world, that the world’s demographics are truly ft. But, the US demographics, while being one of the strongest in the world, are still problematic.
So, you know, population growth in the last two years has been 0.2%. It’s kind of hard to keep long-term inflation up when your population growth is slowing. And, and that’s why I’m afraid of the Midwest. I think the best deals are in the Midwest, and if you know what you’re doing, you can make lots of money.
But, you know, for larger projects, especially new construction projects that I feel are riskier, I’m just very obsessed with going into markets with extraordinary population growth. I’m looking for five times to 10 times the US average. Five x to 10 x the US average, because I’m really worried about what demographics do to real estate prices in the 26, 27, basically three or four years from now when everyone realizes, Oh, shit, we don’t need as much housing anymore because our, the country’s demographics are so negative.
So once again, I’m gonna ask a selfish question that has nothing to do with the topics that we’re talking about today, and this is something that’s 50 years out. But here’s a question that I have,, for you two gentlemen. Can capitalism survive as a primary structure, uh, for society if we do not have global population growth, if 50 years from now we have population decline, can capitalism survive?
I’m, I’m, I’m just curious little, uh, waxing poetic here.
That’s a big question, Yeah. Um, I mean, I think it can sure it can survive, but I, I think it gets very ugly, you know, And that’s a good point. You know, because people will choose too, um, you know, they’ll, they’ll want, you know, guaranteed, you know, income, universal basic income and other kind kinds of things.
Uh, You know, and the ones are gonna be the most hurt are er, are the smaller markets, export-based markets that are, that have been driven entirely by selling their local resources overseas. And, you know, literally, these poor countries are, are gonna go to a very, you know, kind of a pre-industrial economy.
And, uh, then what happens to their, to their political structures? I mean, I think it’s all, it’s all, it’s a free for all at that point. So I think it’s, I think it’s an unequal kind of gain, right? In some nations, like America, we are actually in the best position of all nations. Um, and then other nations are gonna really hurt.
So I, I think it’s, I think you have to ask by nation. And so that question is unique for each nation,
Right. I have a slightly different answer. I mean, very, very similar thought process there, but I, I like to look at Japan. So obviously Japan negative population growth for decades. And what the Japanese did was restructured their society, number one, to serve older people, and number two, they became an export society.
So they basically started looking at fast growth nations such as India or, or you know, or the in, in the African area. I think they’re very strong in Nigeria and basically became a service economy to these fast-growing nations. So the US is extremely nimble. I find that no other country in the world is as nimble from a capitalistic perspective as us and we’ll basically find fast-growing economies.
The entire world’s population is not gonna slow down. At the same time, the African continent, if it can stay away from wars, is actually going to have a phenomenal population growth over the next 50 to a hundred years. So we can attach ourselves, to them. The second part of it is, Technology’s gonna help.
So one of the best ways in which you can actually thrive in an environment where the population doesn’t grow is if fewer people die, life extension technologies are just starting and will have a phenomenon 30-year run. I, I fundamentally believe that affluent people, you’ll be able to extend their life by 25 to 30 years.
When you do that, you overcome the effect of population. Because that person is now living another 30 years. Right. And the, in the past, they would’ve simply died. So no services would be needed. No goods need to be sold. Yeah, but are they worthy? Yeah. The question is, right? So, you know, how much, how much will they produce?
Right. You know,
they don’t. They don’t. So I think we need robotics to help. Right. So I think what will happen is we’ll have. We’re very uneven kind of problems, you know, that we will create of, you know, where are all the people that we need to sell goods to? And then all of a sudden, well, we have these older people, but then who’s gonna provide the services?
Well, now we need robotics and we need automation, so it’s gonna be extremely bumpy. But I think what happens is technology tends to fill in the gap. So you ask technology the question of where are all the people. The answer is life extension. And they, the question is, Well, who’s gonna provide the actual services?
Who’s gonna make my hamburger? The answer is, you know, my, my family owns 115, uh, Burger Kings and they’re now installing their first completely automated Burger King where the burgers are made by a machine, Right? So that, that, that’s a process, and it doesn’t happen until it becomes really, really expensive.
But you have, noticed labor costs are going crazy. So that’s when automation really starts to happen and, and, you know, take effect. And I think automated driving over the next 15 or 20 years is also gonna put about 10, 15 million people outta work. And I think they can be put to work doing other things.
You know, I’ll, I’ll take one more stab at this. So, so Neal brought up Japan. Japan is actually a case in point. Neal, uh, um, I mean, Ben, So, so think about this. Here, here’s a nation that has a declining working-age population, and yet, democracy is still, still in play. And here’s the primary thing they’ve done.
They’ve taken their technology, their expertise in business and management, and there, but they have no workforce. Their labor force is decreasing. What are they doing? They’re relocating their plants, for example, to the south. So they’re using US labor, US parts, and materials, et cetera, but their corporation and their leadership.
And that’s, and that’s, that’s where the future, where, where, where a lot of these countries are gonna have to go. You’ll see. You know, maybe we’ll see Africa becoming industrialized by, you know, US leadership and companies and, you know, European, Japanese leadership, uh, starting plants to utilize this workforce, this labor force that doesn’t exist in their home countries.
So it survives.
That’s some good Socratic conversation. So we actually have, a question that came out of this conversation. So as a passive investor, what periodicals should I be reading to key my finger on the pulse of the real estate market? What do you read? What do you subscribe to?
And that note, Neal, I know you kind of answered this a little bit, but you kinda put up a QR code to find out, but maybe just hit the high.
Well, I, I think that QR code will help you, you know, look at the sort of what I’m reading, but I think the one thing that I like to do, which is really easy to do, is I, I go into Flipboard and every time I read a real estate article that I like, I do not forget the one important thing.
I thumb it up. So, what happens over time is that I, as I like articles of different kinds, real estate demographics, you know, multifamily cap rates, self-storage, things like that, I keep thumbing them up, and over time, Flipboard for free does the job of basically bringing the more and more articles in. So that’s kind of a cheating tip for you.
I’ve been doing that, thumbing up for three or four years now. More than 50% of all content that comes into Flipboard every day for me is somehow real estate related. So I think that’s, that’s key. The other one that I’d like to propose for people that are multifamily folks is Yardi Matrix. I think that I have to give them, you know, kudos, uh, their monthly newsletter, which.
Comes into my email and their quarterly webinars are absolutely phenomenal in terms of understanding what’s happening, in the space. So if there’s one that you should sign up for, for the multifamily space, it’s Yardi
Matrix. And I, I’d say my number one is Wall Street Journal, free to cover, to cover every, every day.
Um, never miss, And, my second would be big, the smartest analysts out there in the planet are the big investment banks. The Goldman Sachs, the Morgan Stanleys, j JP Morgan, These guys, they are really, really, really smart. And I follow all their stuff. The best way to get their stuff for free is they’re a hedge.
So best stuff
ever. Awesome. Yeah. Yeah, I agree with that. I, I actually have a friend that forwards me all of the Goldman Sachs writeups. He’s, he’s got it set up on auto, so it comes into his mailbox and then comes into my mailbox a few seconds later. Amazing stuff, right? These guys are way beyond our capabilities.
So we have another question that’s coming here. We did not touch on assisted living, uh, housing, and pharmaceutical assets. Do you guys have opinions on those?
Again, I mean, I think it’s so assisted living. It’s very, it’s very, been very covid affected and I think a lot of people are choosing not to go into these, these facilities.
I had actually an elderly parent and we couldn’t visit him and, and, um, you know, it was horrible. And, uh, so I think, I think we, we might see a whole change in consumer choices that are not favorable. And so we do not know what a normalized world looks, looks like in assisted living. And I’m, I’m a hundred percent out and would recommend anyone to stay clear.
Yeah, I’ve been, I’ve been very bearish on assisted living before Covid, and for different reasons because I love the fact that in multifamily, we all hyperventilate when occupancy falls from 96 to 95. Oh my God, the sky is falling. I mean, their occupancy hasn’t hit 90 for the last Right? Seven years. I mean, and that had nothing to do with c I mean, it’s, it’s people are converting five-bedroom homes into assisted living.
That’s right. So they’re, they’re basically, there’s a supply side issue on the assisted living side that we haven’t seen on the multifamily side. Right. So there, there’s a real problem there. Please go look at the occupancy rates for mul for, for, for assisted living for the last six or seven years. It’s a, it’s a real problem.
And then of course this covid thing is a double whammy. I mean, there’s a bunch of people that do not wanna go live in those places. And I think even though I don’t think it makes any logical sense, I think C’S really gone at this point in time. But mentally they’ve been affected and I, God knows when they’re gonna snap back to saying it doesn’t matter
and add the labor shortage.
These things are having really have trouble staffing. You know, it’s, it’s a, it’s a bug looking for a windshield stay.
I did, I did see a follow-up question though. That’s very, very interesting and that’s from Lena. She said, What about 55 plus? I love 55 plus because assisted living is a hotel inside a hospital.
Well, 55 plus is neither hotel nor a hospital. So I think 55-plus adults, especially in affluent markets, is something to really, really look at. They were very expensive. They were selling for ridiculous prices, you know, in 2021. So I just stayed away. But I think that that once, once the market corrects and you see something reasonable, I think that 55 plus in affluent markets b a minus kind of assets, I think that’s amazing because you get all of the benefits on the assisted living side.
You get older tenants that stay for a longer time, but you’re not really dealing with all the legal and the legislation to, you know, feed them and make sure that they get drugs. None of that’s happening with 55 plus, even though people say 55 plus. But do you know that the average tenant in a 55-plus community is almost 70 years old?
So you get all the benefits, and you get none of the downsides.
Let’s just round out the asset classes here. Mobile homes and accessory dwelling units in places like Los Angeles. Do thoughts on those?
I like mobile homes. Uh, I just don’t invest in them by, because they’re, they’re so time intensive and they don’t scale well, that’s, that’s a challenge with mobile homes.
They don’t scale well. Um, but I think for somebody that’s starting out, it’s certainly something to look at. Um, keep in mind that a mobile homes fan tends to have delinquency problems during a recession. So you may not wanna buy one until the end of a recession, but you’ll get really good prices at the end of a recession because they would’ve been six or nine months of delinquency already affecting their net operating income, therefore affecting their prices.
So maybe at the end of the upcoming recession would be a great time to buy a mobile home park. I just find that it doesn’t scale.
There are mobile homes and there are mobile home parks. They’re very different. Very different. So mobile home parks, I actually, I actually think there’s a huge shortage and I think it’s a great time to be a mobile home park developer if possible.
If possible, going outside of, you know, uh, incorporated cities, et cetera. I’m seeing a lot of stuff that kind of short-term reish and glamping and other things that create huge, huge demand. Uh, kind of the new millennial, you know, kind of hip things. And, you know, they’ve, they’re tearing it up. So I’d be very bullish on developing anyone who wanna develop and would love to deploy capital in that, in that, in that area.
And what was your other, what was the other one?
Accessory dwelling units. Secondary structures on residential.
I don’t know how you invest in that. I think it’s,
I, It’s good for an individual investor, right? If you’ve got an, You can do that. I mean, it’s exactly
what’s the business model for someone to actually build a company on that?
I don’t know. But I think a is really great if you live in California and you have one of those older properties with lots of lands, plop as many as you want. I think that you can make lots of money. I’m, I’m just unclear on the business model.
Yeah. For an individual investor who has an Airbnb or something.
Heck yeah. Right. That makes a lot of.
There are folks who are, or, uh, getting the entitlements on behalf of homeowners and then taking a part of the ownership of the ADU at scale. Hundreds. I think it’s painful. I don’t know anybody.
Welcome to America. There’s always a way to make a buck, man.
There’s, there’s always somebody to help you do it.
Well, gentlemen, Neal, Bob, we’re gonna end it there. I wanna thank you both so much for giving us so much of your time and your attention and, wisdom this morning. Your attention to the markets and your ability to synthesize this data are unparalleled to those who hang out, in our mid-market commercial real estate space.
So, I thank you both for being here. Thank you for having the Socratic conversation. Thank you.