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Rob Beardsley oversees acquisitions and capital markets for Lone Star Capital and has acquired over $100M of multifamily
real estate. He has evaluated thousands of opportunities using proprietary underwriting models and published the number
one book on multifamily underwriting, The Definitive Guide to Underwriting Multifamily Acquisitions. He has written over
50 articles about underwriting, deal structures, and capital markets and hosts the Capital Spotlight podcast, which is
focused on interviewing institutional investors.
“Have you been thinking about your intentions and where you want to go?” – [Mike]
“Being able to harness the power of delayed gratification is one of the keys to success” – [Rob]
“Network, and don’t be afraid to ask questions because the people that want to seem smart and not ask questions, they’re just not going to learn” – [Rob]
“Can you find your courage and go step outside your box, do something different that’s going to help forward your business?” – [Mike]
“Underwriting is, in my opinion, the most important component of any investing because all underwriting is valuation and we need to know and be able to value what we’re buying” – [Rob]
“Move very fast, take a lot of action but do your due diligence slowly, make decisions slowly” – [Rob]
[03:10] Introducing our guest, ‘Rob Beardsley’, from Lone Star Capital, to discuss the power of Networking, Underwriting, and Capital Markets as they correlate to multi-family investing.
[04:01] Rob describes himself personally and professionally in one word; Pursuit.
[04:51] An overview of Rob’s background.
[06:50] The Marshmallow Test
[09:24] Discussing his journey in the institutional market
[12:40] About Networking Marketing
[15:45] Did you always do institutional financing from the first deal?
[18:40] Discussing Underwriting and Due Diligence.
[24:00] Rob’s Insider secret
[25:48] What should someone be looking out for today, as an investor coming into the marketplace?
[27:30] Do you see treasury or Cap rates going up over the next period?
[34:45] Rob’s advice for new investors
[35:01] How to contact Rob
Buy Rob’s book on Amazon, ‘The Definitive Guide to Underwriting Acquisitions’, and get the underwriting model package with it.
Also, get a free Underwriting model package by visiting the website.
Mike: Hey everybody. It’s Mike with insider secrets.
[00:00:03] Hey, I am joined today by Rob Beardsley from lone star capital, and I am really excited about what Rob has to talk about. Rob, tell our listeners a couple of things that we’re going to discuss today?
[00:00:15] Rob: Absolutely. So today we’re diving into the power of networking and how that applies to both your family and friends network, your syndication network, as well as more of on the institutional side of things in the capital markets. We also discuss underwriting and the importance of underwriting, whether you’re an active investor or a passive investor. And lastly we’re going to get into some really interesting stuff on the nuances of capital markets, interest rates, and how those things correlate to multifamily investing.
[00:00:47] Mike: Awesome. I’m looking forward to it. And I know that my listeners are looking forward to it too. That’s Tuesday 12 o’clock insider secrets. See you there.
[00:00:56]Kristen: Welcome to this week’s edition of insider secrets. The show that turns multifamily investing into reality. Each show we interview guests who are seasoned professionals, actively closing and managing real estate deals. Your host Mike Morawski has more than 30 years of multifamily, real estate investing and property management experience.
[00:01:18] Mike is the founder of my core intentions. And he’s been involved in over $285 million of transactions. Focuses on helping you create short term cashflow and long-term wealth. Here’s your host, Mike.
[00:01:33]Mike: Hey, good afternoon, everybody. It’s Mike, your host of insider secrets. Insider secrets is brought to you by my core intentions. So have you been thinking about your intentions and where you’re going to go? Especially with coming to the end of the year here and moving into 2021, have you been planning and thinking about some goals and more importantly, after you build that plan, having the execution behind it and how you’re going to execute.
[00:01:59]Listen, MCI invests in our client’s future. And through an educational platform and a coaching platform, we teach you how to create short-term cashflow and long-term wealth. Empowering you to execute on sound real estate investing and property management principles while living a balanced lifestyle.
[00:02:18] So I want to help you develop a strong foundation on practical principles. So I’d share many of those thoughts in my newly released book, exit plan, which is your complete guide to multifamily investing and why you need an exit plan before you buy. So I hope you go to the website and pick up your copy today.
[00:02:39] If you’re looking for some direction and some guidance, shoot me an email, schedule an appointment through the website, and I’ll be more than happy to spend some time with you. All right, so enough about that. I am excited about our guest today. Friend, multi-family investor, podcast host, principal at lone star capital, Rob Beardsley.
[00:02:59] And Rob has a book too, that we’ll probably talk a little bit about today. Rob. You want to say hi real quick to everybody.
[00:03:05] Rob: Yeah. Hey there. Thanks so much for having me on the show.
[00:03:08] Mike: Yeah, you bet. I’m glad you’re here. So Rob oversees, acquisitions and capital markets at lone star capital. He has acquired over a hundred million dollars of multifamily real estate.
[00:03:18] He’s evaluated thousands of opportunities using proprietary underwriting models and published the number one book on multifamily underwriting. The definitive guide to underwriting multifamily acquisitions. He’s written over 50 articles and underwritten deal structures in capital market hosts. The capital spotlight podcast, which is focused on interviewing institutional investors.
[00:03:46] Rob, that’s a pretty impressive background. And I can’t wait to hear about your book and about some of these papers that you’ve written, but here’s, I’d like to start with. And I ask everybody this question who’s on insider secrets, says in one word, what best describes you personally and professionally.
[00:04:06] Rob: Personally and professionally, and one thing?
[00:04:08] Mike: One word,
[00:04:09] Rob: One word. I’m sure there’s some elegant thing I could come up with, but the thing that jumps out at me, I guess I would say pursuit, I’m always seeking, I’m always setting goals for myself and reaching them and then setting new bars and reaching them.
[00:04:24] And, I don’t want to just accept where I am and that’s both personally and professionally.
[00:04:28] Mike: Good for you. I think that’s great. And that’s a good goal to have. And what I always find interesting is I’m probably 38 episodes in now on this podcast. And I don’t think I’ve had two people say the same word, so that’s good.
[00:04:41] I like pursuit. That’s a good word. So Rob, why don’t we start with your backstory today? Tell us a little bit about you and how you began in your real estate career and how it all came together for you and what you’re doing today.
[00:04:56] Rob: Absolutely. So I grew up in Silicon Valley, California in a real estate family. Both my parents worked from home. They ran a residential real estate, brokerage firms selling luxury real estate in Silicon Valley. And whether I knew it or not just through osmosis, I was really soaking up a lot of real estate. Hearing phone calls, hearing deals happen all constantly, all around me, since my parents worked from home and I spent a lot of time with them.
[00:05:20]I Was learning real estate without even knowing it. And then in spite of that, I grew up in Silicon Valley. So there was a general push to go into technology and computer science and things like that, so that’s what I actually studied in college. But circle back to real estate as just my passion for investing and Wealth creation and business took over and really pushed me back into the real estate realm.
[00:05:44] And especially when I found multifamily, because I saw the struggles that my parents went through on the single family side, both the transactional nature, the busy-ness. And how there wasn’t really the ability you need to build long-term wealth, as you mentioned in the intro, whereas multi-family is in stark contrast to that.
[00:06:03] There’s really an emphasis on longterm wealth and on cashflow creation and all the things that I really believe strongly in with the foundation of delayed gratification. I strongly believe that. Being able to harness the power of delayed gratification is one of the keys to success, right? It’s the marshmallow test that they did at Stanford with six year old kids that were able to wait 15 minutes and not take the marshmallow and in turn, get two marshmallows.
[00:06:31] And that was a huge indicator of future success, more so than their SAT scores or their GPA. So I always take that story with me and I love that example.
[00:06:40] Mike: Do you know that whole story? Can you tell that a little bit?
[00:06:42] Rob: Yeah. Yeah. That’s interesting. Yeah. So at a preschool, actually that my friend’s mom taught at this was a study, a very famous study where they took preschoolers and they put them in a room with a marshmallow and they came into the room and said, okay, you can have this marshmallow right now.
[00:07:01] Or I’m going to leave the room for 15 minutes. And if I come back and it’s still there, I’ll give you another one and you’ll be able to have two marshmallows. And the vast majority of kids simply just couldn’t wait, they didn’t have the patience. And they just wanted the marshmallow and so they took it, maybe immediately, or maybe five minutes while the person was gone, 10 minutes.
[00:07:22]But the kids that were able to wait. For the person to come back into the room and elected to delay their gratification in order to get two marshmallows set themselves apart. And then the study actually tracked these kids throughout their life, for the next 30 years. And they found that this test that they did here in preschool was a better predictor of these individuals’ future success, more so than their high school GPA’s or their SAT scores, what college they went to.
[00:07:52]It was really this foundational. Mindset that determined their success.
[00:07:58] Mike: Wow. That’s crazy. I didn’t ever heard that story, and I love those kinds of studies because especially when they track people for years. So that’s pretty cool and delayed gratification, what’s interesting is a lot of people don’t have it.
[00:08:09]We come from that microwave age, where instantaneously, we want something, so it’s interesting. And I like the other thing that you said too, that you came from a real estate family background. Quite the opposite for me. I had no real estate background in my family.
[00:08:24] And so it was interesting how I got so passionate about it. So I can understand though, if you’re around it and you’re exposed to it, how that would become part of your blood. I’ve talked to other people that’s been like that for them as well. So a lot of what you’re involved with, you’re involved with institutional funding and raise in institutional funds.
[00:08:46]And I’d like to hear a little bit more about that. I think a lot of our listeners sometimes think, wow, I’m going to go to the capital markets and I’m going to try and find an insurance company to invest with me. And I know when I first started doing syndications, that wasn’t the easiest road to go into.
[00:09:02] So why don’t you talk about your journey, in the institutional market and how that plays out for you today?
[00:09:09]Rob: Yeah. So like you said when people first get into the business and they start raising capital, it’s most likely via family and friends, it’s the people that know you the best trust you the most.
[00:09:21] And, we’ll invest with you on the friendlier terms. But friends and family capital usually only goes so far, right? It depends on your network and your next step would be to grow your reach, grow your thought leadership, your credibility, so that you can reach more people.
[00:09:36]But even that goes so far as well. And that is a certain special skill set. And early on my business partner and I, we really felt that our personalities and our business strategy was a better fit for partnering with sophisticated. You could call it institutional partners that had the sophistication and the wherewithal to come in and fund our projects on a meaningful basis. $2 million check, $5 million check and beyond. Which those sizes are feasible to syndicate, you could pass the hat around and raise at a 50 to $100,000 check at a time and come up with $5 million. It’s absolutely doable, but it just depends on which route you want to go down. Both are very difficult as on the syndication side, you need to have a wide network.
[00:10:21] You need to have the systems in place to be able to deal with many investors and account for them and work through all of that complexity and sales process. And then on the institutional side, they’re going to negotiate tougher with you on your fees and your deal structure. They’re going to be much more scrutinous of the deal itself and your business plan.
[00:10:42] And so you need to make sure that you have every single box checked and know the numbers like the back of your hand. So it’s just a question of which difficult path you want to go down. And like I said, early on my business partner and I, we decided that the institutional path was the path that we wanted to go down.
[00:10:57]While still not forgetting about the syndication side, because there’s always a place for that, and it’s very important. But the institutional side is where we felt we could grow the most. And so in terms of my journey down that path, it really starts just like the syndication side with networking and when I began networking, I just was out to learn and talk to as many people as possible. And through that process, I was able to learn at such a fast pace. And people ask me for advice and I always say, while networking don’t be afraid to ask questions because the people that want to seem smart and not ask questions, they’re just not going to learn.
[00:11:34] And That’s what I did. I was willing to put myself out there, ask the questions and the people that were gracious enough to spend time with me. And, let’s say I do put a deal in front of an institutional group and I spend an hour going over the numbers and they tear my numbers apart.
[00:11:48] That’s perfect because I just learned so much in that hour. And the next time I’m going to be that much better.
[00:11:54]Mike: Boy, it is an education. Isn’t it? To go when you are first putting deals out there in front of those institutional partners. You’ve said so much here, just in the last couple of minutes that I have a ton of questions.
[00:12:06] The first thing I want to start with is the networking piece. One of the things that I teach my coaching clients all the time is team building and networking. How different from you raising money on a syndicated deal from uncle Charlie versus going to Jerry at a life insurance company.
[00:12:28] Tell me about that difference and how you get into that networking arena to find those people.
[00:12:38] Rob: Yeah. So it’s interesting in terms of networking on the syndication side. My realization or my biggest belief is that you need to create the mouse trap and you need to create a process and a funnel that those investors come to you because it’s very difficult to seek out.
[00:12:57] And it doesn’t make really much sense to seek out an investor who is going to invest a hundred thousand dollars with you. You need to instead turn it on its head and have those investors coming to you with interest in increase and building those relationships. But on the institutional side, sure a mousetrap of those would be great, but I think you need to be proactively seeking them out and going to conferences where they might be there. And keeping an eye out on the news actually is one piece of advice and something that I’ve found is I just read up on deals that are getting done.
[00:13:30]And I see the articles say, Oh, this sponsor close this deal with this bank and this equity partner, Oh, who is the equity partner, find their website, read more about them and then cold call them or cold email them. And so I do a lot of cold outreach to build these relationships. I go to networking events and just try to bump into people and put myself out there. And LinkedIn, I think is a powerful tool as well.
[00:13:55]Mike: You really got to get out of your comfort zone is what I’m hearing you say. And I think, a lot of times the average person is a little hesitant around that. And one of the things I always talk about is courage. Can you find your courage and go step outside your box, do something different that’s going to help forward your business right forward your motion? Did you always do institutional financing from the first deal or did you have to get some track record underneath you and have some units? Tell me about that.
[00:14:23] Rob: Yeah, so we did do some, we started with syndications like most people do, and I think that is the right approach.
[00:14:31]Some people think that in order for me to partner with an institutional type partner, I’m going to need to have a huge track record and all these round trips, which means, you bought something and successfully sold it. And while that is not the case, you can absolutely partner with, a family office or private equity firm on your, third, fourth deal, maybe even second deal.
[00:14:52]So I think people have a misconception that you need to be an institutionally sized platform ready to go. But it’s not really the case. And there’s a institutional type partner for every step of the way. You’ve got the smaller family offices, that’ll do your second deal and they’ll write a smaller check and then you’ve got the larger family offices.
[00:15:11] You’ve got opportunity funds. And then, like you said, the biggest players would be, insurance companies that, maybe their minimum check size is 25 or 50 million even. So it’s not Institutional investors are not just all one size fits all.
[00:15:27]There’s different types that match up with your deal profile and your sponsorship level at every step of the way.
[00:15:35] Mike: So you bring up a good point. So let’s talk about grading and I don’t even know if that’s the right term, but the graduating scale of, how do you get to an insurance company or how do you get to the Harvard teachers pension or, fund at Harvard. So where do you start? Who are the smaller institutional players and, give a run up the scale.
[00:16:00] Rob: Yeah. So I would say for those that are interested in diving into this world, and you don’t have a extremely strong track record like we discussed. You’re most likely going to start at the co GP level. And that’s where you’re going to be looking for a partner. That’s going to want to come into the deal with you as a co GP. So they’re going to have more control than just a normal LP would even the normal LPs, majority LPs are already going to have control, but still a co GP would have more control still and a better share of the economics. And they might provide additional, and they might bring other things to the table.
[00:16:37] Like they’ll sign on a loan for you as well. Whereas, a true institutional LP, like a family office, or, like a pension that you mentioned, they’re not interested in taking risk by signing on debt, but a co GP very well might. So a co GP is a great place to start because they can provide more for you when you have less to bring to the table. And they’re willing to partner with less experienced sponsors. And a co GP can come in the form of a family office or a family office that may only have 50 or a hundred million in investible assets. And then there are private equity firms and also there are groups that our sponsors or have been sponsors and now they have graduated. They no longer want to operate assets, own assets directly and operate them on a day-to-day basis. And now they’ve grown up into more of a capital provider and they’re seeking these co-GP opportunities and finding local sponsors to execute the business plan.
[00:17:34] And they can provide the capital advise on the capital market side of things and things like that. So that would be the step one, the co GP.
[00:17:43]Mike: What’s really interesting is that there’s different pockets in that whole arena. It’s just like raising a syndicated private equity, family and friends first, and then uncle Charlie and you grow from there. So it’s interesting how that whole world really operates. Hey, can we shift gears for a minute? I know that one of your skillsets is underwriting and due diligence. And let’s talk about that. How does that play a big part in what you’re doing? I know you’ve written a bunch of articles and a book on it.
[00:18:16] Why don’t you just let loose and give us some of your secrets?
[00:18:21] Rob: Yeah, absolutely. So underwriting is, in my opinion, the most important component of multi-family investing of really any investing in because all underwriting is valuation. And we need to know and we’d be able to value what we’re buying, so that we know, are we paying the appropriate price? Are we getting a good deal? And are we appropriately factoring in all of the risks and are we being adequately compensated for those risks via an appropriate return premium? So that’s where I love to spend my time and love to do my thinking.
[00:18:55] And so that’s underwriting at a high level and then bringing it back down to earth, underwriting really is taking all the numbers associated with the investment. And that would be, the operating income, the operating expenses, your debt assumptions, your capital expenditures plan and your sale assumptions.
[00:19:14] You need to roll that up into cash flows and a total return metrics to be able to make those high level decisions that I just discussed. One thing that I’d like to share about underwriting is the fact that a lot of people that are new or that are on the passive side, they really feel like they need to leave underwriting up to the pros and that they don’t want to dive into that world. And so that was the big reason why I wrote my book, “The definitive guide to underwriting multifamily acquisitions”, because I wanted to make underwriting accessible to everybody. And so I looked at the market and saw that nobody had ever written a book that was just a very straightforward, no frills step-by-step guide to underwriting.
[00:19:55] And so that’s exactly what my book is. To write the book, I really just pulled out my underwriting model. And I looked from top to bottom at every single input and assumption, and then I just wrote about it. My model was my table of contents and I just was able to, go down the list and write about every single input in how I approach it.
[00:20:16] Mike: Funny how that mapped out. Huh?
[00:20:19] Rob: It worked out perfectly.
[00:20:19] Mike: So what do you think the most basic mistakes are that your typical investor will make in their underwriting process? What did they overlook the most?
[00:20:30] Rob: Yeah. So definitely want to address that, but tongue in cheek, the first mistake is that they aren’t underwriting at all.
[00:20:38] So that would be number one, and that’s mostly on the passive investor side. Because part of my book is preaching that even if you are a limited partner, you should still have a grasp of the numbers. You don’t have to maybe do your own full underwriting, but you should still at least be able to review the underwriting.
[00:20:54] Maybe make a few tweaks and assumptions that you might have that differ. But that would be number one, but then diving into the actual underwriting process. Classic, I would say a classic mistake that affects the numbers substantially is the the stabilization assumptions. So often we’re talking about value-add deals here, and a huge component of a value add deal is how quickly you can implement the business plan.
[00:21:20] Because the business plan is taking rents from, A to Z. And if you do that in six months, That’s going to have a major effect on the numbers versus you getting from A to Z on the rents in 18 months or 24 months. And so I think generally speaking people are aggressive in both how quickly they’re going to implement their value-add plan and what economic occupancy they’re going to maintain through that period.
[00:21:47]Because if you’re assuming to renovate 20 units per month, but you only have, 150 units. How are you going to maintain 95% occupancy? And people get crossed up in some of those assumptions.
[00:22:00]Mike: I think it’s interesting what you said early on that the biggest mistake people make is they don’t underwrite at all. And, I honestly have to tell a story, that the first deal I ever did, and I tell this all the time is I didn’t underwrite the deal at all. I took the seller’s word for rents being undervalued and how I could push the rents. And if I did this work and how I could return it, the place, and none of it was true.
[00:22:27]So I buy a bag of bricks and it was a nightmare. And I quickly became a don’t wanter and had downloaded the thing a couple of years later. You are right people, especially their first early on deals. That’s how people learn is they go, Oh my goodness, I should’ve done a better job in underwriting this or done this. But I think that your book is probably one of those books that investors need to pick up before they start doing heavy investing, lot of the heavy lifting. Like my book, I wrote exit plan because I’ve spent hundreds of thousands of dollars on coaching and training over the years and people teach you how to get in a deal, but nobody teaches you how to get out or why to get out, so the same thing.
[00:23:10] So we’re on the same track on that. Hey, listen to show’s called insider secrets. Part with a couple of insider secrets from the multi-family space today that you have learned over your time in the business.
[00:23:26]Rob: I would say maybe this isn’t a secret, but what I strongly believe in, and I touched on this earlier was networking. And so I believe that the real estate business is a sharing business. People don’t want to keep secrets in this business and people don’t view, not always, but often people don’t view each other as competitors, but actually as collaborators, because there’s so much partnership that goes on in real estate.
[00:23:49] And so I think, as my secret would be, you need to take maximum advantage of that. People are willing to, look at the show that we’re on right now. People are willing to share their secrets in this business. If you call me up, I’m happy to speak on the phone with you. And, you can ask me questions and I’m going to answer them.
[00:24:05] And so I think that’s true for you as well and true for many other people in the business that if you don’t take action, you might just assume, Oh, they’re too busy for me. Or, why would they want to talk to me and things like that. But that’s exactly how I started. I just started, like I mentioned, cold calling and cold emailing people who, if I didn’t want to take action, I would just rationalize to myself that they’re too busy for me or that, they don’t want to deal with me.
[00:24:28] So to taking action, just like anything is huge.
[00:24:31] Mike: Yeah. And it’s just the best way to build your network is just pick the phone up and call somebody and reach out to somebody on LinkedIn or something. And if you do that every day to one person, your network grows, but so does your knowledge and that knowledge becomes very powerful for you, especially if you are good at execution.
[00:24:50]Listen, the world’s kind of a crazy place. I think the last few months of this year (2020) , we have seen things shift and change, and we really not sure where things are going to go, but what should somebody be looking out for today as a investor coming in the marketplace?
[00:25:10] Rob: As an investor coming into the marketplace? There’s a lot to look for, but I would say, look at the ten-year treasury yield. Because that’s a good indicator of just general yields for at least the US and right now we actually, despite all the craziness that’s going on and the fact that cap rates are so low and pricing is so high, we still have a pretty attractive spread between the US ten-year treasury yield and multi-family cap rates. And so you want to keep a close eye on that because whenever those get too close to each other, let’s say the treasury yield is 1%, and the cap rates are 3%, that’s too tight and it’s way too tight. But right now we’ve got a little more of a buffer there.
[00:26:01] And from that angle, things are more attractive, but if the ten-year treasury starts to run up, it goes to one and a half, it goes to two be very careful and watch for cap rates to expand. And so I would say that’s a general “where we are in the cycle” type of thing to evaluate, whenever you can get in where the spread between the 10 year and cap rates are closer to, 500 basis points or 5%, I think you’re in really good shape.
[00:26:29] And look out for that dynamic. That’d be my first one.
[00:26:32] Mike: It’s interesting, I saw last week I thought that the tenure went up like point 95 and it looks like it’s going to creep up. Would you think that over the next period of time, it’s going to creep up, do you see that treasury going up and do you see cap rates going up as well?
[00:26:52] Or do you see cap rates staying where they’re at? Because I know that right now cap rates, are probably four and a half. So we really have a compression on that right now.
[00:27:02] Rob: Yeah, last week, the treasury did spike, like you said, because on the positive news of the vaccine, right? So bond traders get excited that Oh, vaccine is coming, well we don’t have to be invested in treasury. We can take more risks and we can invest in equities. Basically bond prices go down because people are trading out of them. Stock prices go up because people are shifting into risk assets.
[00:27:24] And that’s where you saw the yield on the tenure go up. I think I don’t see us being able to push much beyond that high that was seen on the positive news. It’s retraced some back into the eighties this week. And when you look at global yields in comparison to the US tenure, there’s $17 trillion of negative debt out there, negative yielding debt.
[00:27:47]So our tenure at 1% or 80 bips, Is very attractive in comparison. So that’s keeping a lid on the tenure from running away. And then in terms of cap rates, there’s in my opinion, a psychological floor for cap rates. Where even though debt and the tenure have gone down substantially and as you can get financing today for 3% or less in many cases, cap rates haven’t really moved in lockstep with that reduction in interest rates. And I think that’s because investors have hit a psychological wall where yes, the spread is attractive between your cost of capital and your cap rate, but people just can’t rationalize, solving for a 4% exit cap rate.
[00:28:30]They just can’t do it. So I think we’re at a unique point. As you said, cap rates are almost as low as they can get in my opinion. And we’ve seen that happen because we’ve seen some proof of that because cap rates should have gone down as the interest rates have gone down but they haven’t .
[00:28:48]Mike: There’s some markets you can’t, it’s hard to get a deal to pencil. And, some of the big money is going in there. They’re buying those deals, even knowing that they can’t get them in a pencil. And I think you answered one question that I had, which was, it looks like the debt markets around 3% on financing, where’s the private equity market at in the midst of all this.
[00:29:09] Rob: Do you mean for private debt?
[00:29:10] Mike: Yeah. So not on the debt side, but on the equity side, what is your typical, equity investor looking for in the midst of, where treasuries are today and where debt money’s at today?
[00:29:22] Rob: Yeah that’s a great question. So I think this is where the trouble lies for many of us. In my opinion, there’s just a fundamental disconnect between the available returns in the market, right? The average return that a multifamily deal is selling for and what equity is seeking in terms of projected returns, especially on the institutional side. Because all these funds have been raised, these value, add funds and institutional side have been raised with the stated objective to achieve, call it a 15% net return or a 16% net return. And, those levels of return are extremely difficult to find today because we just have zero rates all across the world. We’ve got a, where is the yield? Where’s the return?
[00:30:08] And unfortunately these institutional funds haven’t adjusted their return expectations enough, in my opinion, to really account for the available returns and the structural changes in the capital market. There is a disconnect there. And then to take it a step further, there’s a disconnect on the core plus side of things.
[00:30:27] And so what core plus means is investments that are taking less risk than value add – value-add would be renovations, bumping, rents, a more opportunistic business plan and core plus would be focused on a better location, better asset quality and more focused on cashflow rather than total return.
[00:30:47] And so the problem here is because we do have an attractive spread between cap rates and debt. You can actually manufacture pretty attractive core plus returns in certain instances, but an attractive core plus return is still below the absolute return threshold for a value add investor. To give you an example, I know I might be losing some people to give you an example.
[00:31:10] If I’m a value investor who wants a 15% net return and you present me a core plus opportunity. It’s just a home run. It’s a great location. It’s a newer asset and it’s cash flowing at, 9% with total returns of let’s say 12. Hey, it’s a great core plus deal, but I’m a 15% return investor. I’m not going to do it.
[00:31:32] And so that’s the disconnect.
[00:31:33] Mike: Okay. Yeah. And that brings it back into light. So that made a lot of sense. So thanks for that, and I know we went a little bit deep there, I think that a lot of times, especially with newer investors, you got to go a little bit deeper and expand your mind a little bit and stretch your mind a little bit and wonder, Hey, you know what, if you’re wondering a little bit about what Rob was just talking about, then pick up the phone and call them and ask them, or call me and ask me.
[00:31:58] And this is how we learn, and this is how we grow. And that’s the thing about education, right? And networking is we have to continue to ask questions because if we don’t, you stay stuck and staying stuck doesn’t help. Hey, I appreciate all the information. Let’s do this. Let’s shift gears a little bit. Go to a little bit lighter side.
[00:32:17] I know that you’re in New York. Favorite tourist attraction?
[00:32:23] Rob: So my favorite, I don’t know if it’s exactly a tourist attraction, but the best time that I’ve had was I took a jet ski tour around in the the Hudson and around the statue of Liberty. So I’ve actually never done the statue of Liberty, gone there and did the tour, but I did see it and check it out via jet ski all around, which was a really fun time.
[00:32:47] Mike: That’s cool. On a jetski. Good for you. Favorite restaurant?
[00:32:53] Rob: Favorite restaurant is one right by my apartment. It’s called Kuu Ramen and they’re famous for their spicy ramen.
[00:33:00] Mike: Nice ramen, sometimes people live on ramen noodles for a period of time.
[00:33:07] Rob: Little different kind of yeah.
[00:33:08] Mike: Yeah. Hey, your most memorable moment in the last six months?
[00:33:14] Rob: Wow. That’s tough. Most memorable moment in the last six months. Can’t remember what I did yesterday.
[00:33:21] Mike: Didn’t you just have a big vacation?
[00:33:24] Rob: You can call it a vacation, but I was just working the whole time. Yeah, I would say I did have a good time. I was in the Virgin islands and I went to loom in Mexico. Spent most of the time I called it a workation, but it was just nice to do some traveling and work with different scenery. So I’d say that’s been the most memorable.
[00:33:42] Mike: Nice, good. Any last bit of advice, you’d give a new investor?
[00:33:46] Rob: Move very fast, right? Take a lot of action as we discuss, but do your due diligence slowly make decisions slowly? So it’s this fast and slow.
[00:33:59] Mike: Nice. Good connection. Hey Rob, if people want to get ahold of you, any of the listeners want to talk to you about markets or interest rates or a little bit about your knowledge and please tell them how to get ahold of you and please tell them how they get ahold of your book.
[00:34:14] Rob: Yeah. So if you want to learn more about myself and what we’re up to, you can check out. Robbeardsley.me and there you’ll see everything that I’m up to and learn more about my company, lone star capital as well. And if you want to reach out to me directly, you can do so by emailing, email@example.com.
[00:34:35] And my book is available on Amazon would love for you to check it out. If you whether you buy the book or not, you can but if you do buy the book, you absolutely need to download the underwriting model that comes with it. So that way you can follow along step-by-step but you can do so for free as well on RobBeardsley.me.
[00:34:52]And there you can drop your email off and get an underwriting model package with some resources as well sent to you.
[00:35:00] Mike: Thanks, Rob. I really appreciate you being here today. And I know that you’ve imparted a lot of wisdom and a lot of knowledge, and that’s really important. And I appreciate that and I know my listeners appreciate it too.
[00:35:11]That’s it for today, everybody. We are here every Tuesday at 12 o’clock and we will look for, if anybody has any questions or needs anything, you can go to my website, mycoreintentions.com we will like going to have Rob’s information out there as well. If you have if you need any help with anything, don’t hesitate to reach out and remember always be networking.
[00:35:32] We’ll look forward to seeing you all next week. Thanks Rob.
[00:35:36]Kristen: Thank you, Mike, and thank you for joining us for another great episode of insider secrets as always insider secrets is brought to you by My Core Intentions. Join us on social media and visit mycoreintentions.com where you can get expert coaching on all things, multifamily investing in property management.
[00:35:54] We’re looking forward to having you back again next week for more insider secrets.