I can actually see some surprises to the upside, and I think there will be surprises to the upside.

Even with these cap rates and these and the basis that you're seeing, a lot of people are not putting chips on the table.

You're seeing that these deals just get bid up to a point where it's like, let's just buy something stable.

The GFC was a lot worse. There was no liquidity in the market.

And in any business, in any industry, you want political certainty, and that is now backed in California.

A CD, Bitcoin, and a value at the multifamily deal.

I mean, it's hard to argue against Bitcoin. Right? But right now, like, Bitcoin, it's pretty hard to argue right now with Bitcoin.

Hi, guys.

Alright.

How's it going?

It's going okay.

Better than some, worse than others.

Yes. Okay. I think is the right way to describe end of 2024 and beginning of 2025. Can't

ask for much more than okay. Yeah.

Exactly. We're very excited to have this year year come to an end. Right? Really start moving forward with next year with everything going on.

Agreed. Agreed. Yeah. How how's your guys', Christma-kah?

Christma-kah has been pretty good.

I saw you lit the menorah.

I lit the menorah in North Bay Village. Yeah. I'm I'm friends with the rabbi over there. I went for the candle lighting, for the menorah lighting, and he walks up to me and he says, hey, Max. Do you wanna light the menorah? I said, sure. And he pulls me over. He says, okay. You're just gonna get on the steps. You're gonna say a speech. I'm gonna give you the blessings of the transliteration blessings, and that's it. I'm like, oh, is that all? So it was really fun, though. It was really nice, and, it's nice to have, a week or two off.

You've been living here for how long now?

Three and a half years.

3 years. And you're already ingrained in the community. That's right. You're a mange. Beautiful.

Thank you. Mitch, what did you do?

I actually, well, I flew back. I was in Colorado the week before, but I just flew back, on Tuesday night. So yesterday we were invited by a few families from school. We got together and it was really nice. It was a mixture of, Hanukkah at Christmas.

And we started at 3. We ended at 9 and we had, you know, a bunch of kids running around playing soccer and eating and drinking and just, you know, catching up with, you know, new families that we met living in Miami. So it was great.

Beautiful. How how's the transition been for you guys overall coming to Miami from being born and raised in LA?

I mean, it's it's been great for me. I mean, I'm obviously enjoying living in Miami a lot. And I think through, the Jewish community and especially through the school, we've met a lot of families that have recently moved to Miami from, New York, Chicago, all over the country. And, it's been great to actually, you know, go out and and and meet new people. You know, I've lived in LA my whole life, so it's kind of refreshing to go out and meet new people, but it's been great.

Nice. Nice. Max, how would you

say the same? I love it here. It's amazing. I don't think it's any secret that the post COVID call it last 5 years have not exactly been California's in the West Coast golden age. It's been a tough time there, and it's been really exciting to come here where the climate is much more pro growth and pro business, and everyone's really excited to be here and be contributing to the business community and the community, and love the schools here, love the people here.

I love how you have this great mix of beach and water as well as urban living, metropolitan living. It's very global. It's very diverse. It's an amazing place to live.

Super happy. I mean, now living here for over 2 years and you guys coaching me from the West Coast office here to the East Coast, I I would say it's amazing here. The lifestyle, the excitement, everything is just so alive here. And a lot of great from business perspective, a lot of great markets that we're that we're in, including a couple of deals that we bought this year, Bridgewater and Fieldstone, which super excited about.

Yeah, absolutely.

So let's, I guess, reflect back a little bit in 2024. What were some of the biggest surprises that you guys saw this year?

I would say the 2 biggest surprises are transaction volume probably still looks something like 2023. And I think everybody expected it to be significantly better, and it really wasn't. And that goes probably back to surprise number 2 and on interest rates. I think everybody was expecting a lot more rate cuts and a lot earlier in the year. This time last year, bonds were rallying like crazy, and I think both the 10 year and the 5 year were in the threes.

And everybody was just expecting, you know, things to kinda get back to normal, whatever you call normal, but, you know, probably have so for somewhere in the threes and things kinda getting back to normal, sellers coming off the sidelines, and just a little bit more robust of a marketplace. And those things didn't happen. Those, I think, were the 2 big surprises of 2024.

Yeah. I think the hire for longer was a bit more of a surprise towards the second half of the year than people expected in the beginning. I think in NMHC, there was a lot of optimism last year, and people were excited for q3, q4 to come along so that it would be in a lower interest rate environment. And we saw that. We actually saw that for a little bit when treasuries were in the mid threes, and we locked on Fieldstone Glen.

But it wasn't long enough. And I think the election also, election years are always kind of weird in its own way. But I think that's what people are expecting this year. Do you think that's gonna happen this year?

You know, I do. I think that I think a lot actually, a lot of people are expecting higher for longer and still more muted transaction volume. And value is probably not to move much, but I can actually see some surprises to the upside, and I think there will be surprises to the upside. Yeah. So in the last Fed meeting, the press conference didn't go well.

As we sit here today and record this pod, 10 year treasury is at 465, 5 year's at 450. I expect both of those to be a lot lower this time next year, and I think inflation will continue to come down. I think the new government will start to cut costs and close the budget deficit. And I think with that, even though you have the tariffs and, you know, that whole thing, I think as long as the budget deficit is closed and expenditures are coming down and bonds will rally, I think we'll have a better interest rate environment.

Mhmm.

And I do think what everybody expected in 2024, a lot of that will happen in 2025. Even though the dot plot says 2 cuts, I think we'll have more.

So you think for the 2 cuts? I do. Yeah. Where do you think it's gonna stabilize at the well, I guess, treasuries. Where do you think treasuries are gonna stabilize at in 2025?

Well, I could see in 1 year from now, December 2025, I

think we'll have 3 or 4 cuts probably closer to 4, which puts the top end of SOFR at 4a half I'm sorry. 3a half because at 4a half now, it really puts it around 3a third. And if so far is at that level, and I think if the markets believe there will continue to be cuts into 2026, then I could see the 5 year and the 10 year probably being around that level. You know, 5 year probably being 3 and a third or 3 and a half, 10 year being about 375. So

you think the treasuries so right now, so for is also kind of at 4 and a half. Right?

Correct.

So you're saying in 25, you think they'll still be at the same level, but probably a little bit lower than today?

I'm saying this time in 2025, in 1 year from now, we'll have 4 cuts. I think the top end of so that puts the top end of so for 3 and a half. So if the yield curve normalizes, which it will, then that puts the 5 year probably, you know, mid mid to high, like, 35, 36, 37, and the 10 year probably 20 basis points above that.

Yeah. And one of the questions I've been asking some people is you're seeing so far now starting to be a little bit it's tied right now with the with treasuries, but maybe it's trending to be a little bit lower than treasuries. And I guess this is a good question for you, Mitch. Do you think so for dropping lower than the treasuries will change the lending environment or will it need to drop significantly more? At what point do you start seeing a shift between fixed rate financing to maybe people getting back to floating or bridge?

I think people are being very cautious with floating rate financing, especially in the last few years. I think there's been a lot of multifamily groups that utilize floating rate debt and, you know, back then when did straight caps, you could buy a 2 year rate cap for, you know, 20 basis points, 15 basis points, and they expired. Obviously, I think a lot of people wish they bought longer caps. So I don't expect a lot of borrowers to switch to floating unless you have a substantial reduction in sulfur. I think if you look back, so for back then was, you know, half percent, 60 basis points, 70 basis points.

A lot of people were borrowing that, you know, on floating rate debt because it was cheaper and you're able to get more proceeds. Here, if you actually compare side by side, you're not getting more proceeds just by going floating rate debt. So what's your what's your your upside?

Right.

I mean, people utilize floating rate debt because in our case, for example, you have clean credit payment flexibility. That was the most important. Right? Because you didn't wanna do a 10 year loan and your business plan was to buy property renovating and sell them 3 years. If you got fixed rate financing, you're locking yourself in with call protection, whether it's yield maintenance or defeasance, whatever you choose.

So I think, you know, a lot of people are going floating rate for that reason. But as of right now, you're not getting much upside by going floating rate. So you might as well stick with fixed.

Yeah. I also feel like the business plan on these deals. Pre rate, there was a lot more upside that you can bake into the business plan. Now you're seeing maybe some of that upside lesson where there's not as much rent growth as there was pre rate hike. There wasn't as much renovation upside that justified the ROI.

So I think looking back, like, the deals that we bought this year, there's a good amount of upside down the line potentially, but maybe not today. Yeah. But there's still great buys because they're at a great basis. They're at a great yield. They're positive levers day 1, and they can stand on its own 2 feet.

Yeah. Well, I mean, it it kinda goes back to your asking about kind of, you know, things that surprised you last year. I think for us, and I think a lot of multifamily groups, you know, operations was very challenging. And I think with inflation being as high as it was, a lot of people were obviously, you know, not renting apartments that were renovated. Right?

So you started losing kind of this bid ask premium on all of the renovations ROI. So, you know, for the first time, a lot of operators were looking when units would turn and become vacant. They weren't actually going through and spending the full renovation dollars because there was only a $50 premium. So that was your ROI. It's 3, 4, 5%.

You're not going to spend, you know, 10, 12,000 a unit to get, you know, a return like that. So I think, you know, myself, I'm personally excited for the new administration. Yep. I think there's gonna be a lot of, you know, tax cuts that are proposed that will give people a little bit more disposable income, and maybe start seeing some of that premium come back to the market. And number 2 would surprise me.

The second thing is just you would think that Max mentioned transaction volume. People, even with these cap rates and these and the basis that you're seeing, a lot of people are not putting chips on table. I, you know, I expected at least the second half of the year a lot more institutional equity groups would come back into the market, especially after seeing Blackstone go in, KKR going in. You know, you kind of would think, okay, these guys are buying kind of what they feel is at the bottom of the market, but you just didn't really see a lot of other groups step in. So I I think next year, things will change.

Why do you think that is?

It could be any number of reasons. You know, I think a lot of people in real estate had legacy deals. Right? A lot of funds, institutional opportunity funds were invested in a number of different asset classes. Obviously office being one of them and other deals.

So maybe they were getting, you know, burnt on the other deals and they only had some capital left to allocate and they just didn't think, you know, will prices go lower or is this the bottom? So I think people were just nervous about putting some chips on the table and just kind of waiting till the new administration comes in and see where interest rates are going. So I think all of us were just surprised to see the 10 year bonds go up that much, right, with the new administration coming in. But I think a lot of people were concerned that with all the new tariffs, that was the big question. Right?

Is inflation gonna go back up? So we'll see how that plays out next year.

The whole tariff thing, I don't know that it seems to me, like, the crowd is saying tariffs are inflationary, which they definitely are in the, like, very, very short term. So if a washing machine goes from a $1,000 to $1100, yes, that's an I guess that's inflationary. But at the same time, when prices on products rise, that brings down demand, which will theoretically hurt the economy because products will get more expensive and the demand for those products will go down. So the sales of those products will go down. That's more recessionary than inflationary.

And that can actually help interest rates. I don't know. I mean, we'll see what happens, but I think there's it's very hard to predict, and there are a lot of things that can make rates and our our world go in either direction. Yeah.

It's true. For sure.

I think We saw tariffs sorry. Sorry. Cut you off. But we saw tariffs during Trump 1 point o, and there was no inflation.

Right. I think a lot of people are pricing the tariffs at what what the rhetoric is, but I also think there's a lot behind the rhetoric sometimes where tariffs can be used as a negotiating tool with other countries and more as a threat than to actually be implemented day 1. Correct. So we just have to see how it plays out. Yep.

Looking forward into 2025, one of the things I guess that we were doing internally was looking at all the supply demand in migration patterns, basic metrics that we look at when assessing our markets. After looking at some of those, what are some of the markets you feel most most bullish on heading into 2025?

I'm definitely bullish on out of favor markets. I love what's going on in Atlanta. We just bought a deal in Atlanta. Strong demand. Atlanta's gonna have a lot of recovery.

People are generally pooh poohing Atlanta because of all the issues with evictions and delinquency. But if you buy good product and good markets, that's not gonna be an issue. And also, we're kind of sort of on the other side of this. Like, yes, there are certain counties that still have backup of evictions, but a lot of the counties have kind of worked through it. And it's back, you know, not to normal, but it feels like typical type of, like, blue state eviction timeline where it's 3 to 4 months.

So I think Atlanta's a super interesting market, and I like the West Coast. I mean, a lot of people, again, are, not in love with the West Coast because of the politics. But if you look what happened, election day with Costa Hawkins, for the 3rd election in a row, Costa Hawkins the repeal of Costa Hawkins did not pass by 20 plus points. And, Michael Weinstein and the AIDS Healthcare Account Foundation can no longer bring that to the ballot. So now you've got political certainty.

And in any business, in any industry, you want political certainty, and that is now back in California with regards to vacancy control. So I think that's huge for the market there. And look at our portfolios. I mean, we've got, you know, we've got a pretty good lens into the West Coast businesses, the Sunbelt businesses. And right now, West Coast is doing very well.

Our portfolio is doing very well because there's no supply. And there's something to be said for being in supply constrained markets during a downturn. Yeah. Our occupancies are strong. Rent growth is ticking up a little bit.

So yeah. Sorry. You were saying?

Yeah. I was I was just agreeing with you. I think what we saw, the rate hike was a glut of supply hitting the nation. But some of the West Coast markets didn't see that as hard as some of the Sunbelt markets. And we're seeing the benefits of that today in the West Coast markets.

We're seeing places like the Bay Area, Portland, for sure, that hasn't seen the supply wave that maybe some of our Sunbelt markets have seen. So I definitely agree that there's a bullishness there. Back to Atlanta, I definitely agree with that. I think the rhetoric of delinquencies in Atlanta becoming an issue is a little bit overplayed at this point. I think you're starting to see some of those delinquency issues creep up into a lot of other markets where people are still paying premiums on the yields.

And you're getting a really good yield in something like Atlanta, you can, you know, we just bought an early 2000 deal in Atlanta, for a 6 and a quarter cap and locked in a low 5% rate. I don't know where else in the Sunbelt markets. Plus, it's a tertiary market where you can get such a good yield for great quality asset.

Yeah. Phenomenal. Phenomenal. And, also, we've got supply falling off a cliff hopefully in 25, 26

For sure.

Deliveries. I mean, that's where I would go with the crowd. You know, generally, the consensus is we'll have really strong rent growth because of supply ending, the big supply pipeline ending. The biggest supply pipeline in probably 40 years is ending, and we should have once that absorbs, we should have really great rent growth.

Mitch, what are your thoughts? Where where are you bullish on heading into 2025?

I like the suburbs in Portland a lot. I think as you guys mentioned there, you know, Portland did a great job. They're they were building so much there, and they basically put, you know, an x on new development in terms of just how many units were they're able to build. So I think Portland's doing great. All of our properties in the kind of first ring suburbs are performing great.

We're not having any operational issues there. And I still like the southeast, especially in Florida. I mean, I really like Orlando on it. I do like Miami a lot. I think there's something to be said that, you know, the insurance is still pretty high for all these properties.

Right? And you gotta assume if you look historically, insurance rates will start coming back down. More insurance companies will come back to the market. They'll get competitive again. And as of right now, you can buy some of these deals at a great basis.

You know, we used to spend 6, $700,700 a unit on insurance and went all the way up to 24, 25100. It's come back down a little bit. But if you're able to get a master policy like we were, that's even lower. So I think today, if you're able to buy a property and pay, like you said, a 6 cap going in, obviously not in Miami, but in Orlando on a good vintage deal with some kind of upside and insurances, $2,200 a unit, that's another value add you're able to capitalize on going in future.

Yeah. I think when you can buy a deal, make sense of a deal today with current insurance prices, you will get the upside down the line. When things stabilize, you don't necessarily have to underwrite that, but you know that that can come down the line once things stabilise. I think also, besides the high prices of insurance, it's the volatility. Right?

And us getting a master policy is huge. It allows us to bring stability on our deals. And I think some of these standalone policies, it's not about the price being high going in, it's about maybe this will double down the line. And you can't really underwrite that risk. But when you have a master policy, you can stabilize some of these premiums year over year.

And then there's more I think we could do with that. Right? Like, we've been talking to our insurance brokers and Mitch and I have been talking about getting a captive and forming a captive, and that will help bring down costs even further. So things will head in the right direction with insurance. Interest rates are a big part of it, as we all know.

Interest rates when the big reinsurance companies put their capital on the sidelines because they can get 5 a half percent risk free, they have to write a lot less risk, and that makes premiums skyrocket. That's what we experienced in 23 and early 24. And now it's you know, with rates coming down, it's easing.

Yeah. I think one of the topics that insurance plays a role to is the type of vintage, deals that will be bought. There's some older vintage deals that might be a little bit harder to ensure. And you're seeing a lot of sales today being more on the core core plus side and a little bit less on the value add side. Tryon's strategy up until probably recent years has really been buying some of the b or c type of assets and making them into a b or a minus.

How has that strategy changed heading into 2025? How do you guys see things shifting of what what Trion's trying to target today versus what our investors might perceive us targeting years in the past?

Well, look, I mean, look at the 2 deals we bought this year at Fieldstone and Orlando. I think we we are still looking for, you know, older value add deals. We're stepping away from early seventies, unless it's the seventies with good bones and actually that add a number of CapEx items completed. Right? So if you could still buy a good deal and get something, and get actually a pricing discount for it because it's older vintage.

Sure. Of course, we'll look at it. If you buy something in the high sixes. Right? But we're not gonna buy something in, you know, high fives on a seventies deal and and say, okay, we're gonna grow it to a 7.

Right? Instead, what we would do is we'd buy something like Fieldstone where you can buy it at 6 and quarter, day 1 and you still have some upside, but now you're getting a newer vintage deal. You have positive leverage. So, it all comes down to pricing. Right?

But I think overall, we're stepping away from older products because as the years move on, you're starting to see system scope, mechanical issues, you name it. And we really wanna stay in the eighties nineties, but it's harder to buy newer vintage. Sure. All of us wanna buy 4 plus, but at the same time, you have investor base that needs a certain return, and it's tougher to get to a mid teens, 16, 17, if you're buying 4 plus. So it just all comes down to price again.

That's why recently we've been bidding on so many deals, but we have a bit competitive because we're conservative in our underwriting, and we're not seeing a lot of 4 plus deals come our way.

Yep. The volatility in the bond market doesn't help either. You know, you're out there trying to bid and these 100 basis point swings, it's unheard of. I've never seen anything like it in my career, and I started in the business back in o two. And there probably wasn't much of it beforehand either other than the eighties.

I mean, this is just insane. It's really, really hard to price these assets. So one other thing I would really hope to look hope for and look forward to in 2025 is less volatility in the bond market. This is just, you know, beyond the high rates, the volatility of the rates makes this business very difficult.

Yeah. I think stability is key heading into 2025 and will allow us and other buyers and even us on the sell side to have the bid ask spread narrow to where we can actually make deals. So it makes sense. I would say another point about the all you add deals, current and current environment is it's you're seeing that it's a little bit tougher to ensure. You're also seeing that there's an uptick in delinquency and collections in some of the older vintage assets.

And so you need to get to a premium and cap rate where you're getting paid for some of that insurance risk, getting paid for some of the delinquency issues. And I think, today, you're maybe not just seeing it because it's hard for those sellers on the other side, which were also part of, capitulating to a yield that makes sense compared to where things are bought pre rate HUD. What's your guys' thoughts? You know, we buy a lot of suburban, and what we're seeing is that there's a lot of supply in the urban core today, but that's falling off a cliff nationally, some more than others. What's your thoughts on buying suburban versus urban?

And do you think there's gonna be a change in dynamic heading into 2025 of maybe an opportunity buying newer stuff in the urban core where there's a little bit more supply today, but that might be absorbed down the line?

Sure. I mean, look. We've always we own some properties in the urban core. We've owned throughout the years in the urban core here and there. Our most of our business is first ring suburb to a primary market, and we've done very, very well with that strategy, and we'll continue that strategy.

I don't think there's any need to shun the urban core, but the suburbs have just done very well. And, you know, as these Gen zers, millennials, not anymore as much. They're they've already not gotten a little older. But as the younger generation ages and they have kids and they have families and they need to move to the burbs, that bodes very well for that model. So we love that model.

We'll continue with that model. It's great for rent growth. It's great for renewals. It's just strong, stable cash flow. So, definitely don't plan on altering that much moving forward.

I mean, look, the urban core is interesting. I think it's specific by submarket, right, in terms of how much supply you have. You know, on the west coast, we've looked into buying downtown LA for a while just because prices have gone down so much. But the scary part about buying perfect core is you're seeing concessions go up so much, you know, on new buildings. Sometimes developers are offering 2 months free, you know, or 10 weeks free.

So Yeah. You have this problem where you get renters in and then, you know, you give them 2 months free and then imagine after a year, they're just gonna go to the next building and get the same concession. So it's really hard to underwrite that. When does that concession go away? Yeah.

You know?

Yeah. And

then even in Northern California, like, you know, you saw some buildings trading at 30, 40% discounts, peak pricing in San Jose and in Oakland. And they're almost giving 3 months on a 12 month lease. And what's happening is after 12 months, the next tenant's gonna go into the next new building. So it's really tough to underwrite that. And how are you gonna, you know, what are you gonna assume?

When does that concession go away? Right? Like you gotta really understand the supply and understand when, you know, these rates will go back up. So I would love to buy an urban core. I think we've just been hesitant for that main reason.

So we haven't seen anything come across our desk where it's a great deal. You know, I'm, I've seen a lot of stuff recently in San Francisco and I love San Francisco. I used to spend a lot of time in San Francisco. And I think people who are now putting chips on table and buying some of these office buildings at, you know, couple of $100 a foot, a $100 a foot, and just paying cash for them. And eventually they're going to do great.

Right. Because people will come back to these urban core markets and you start to see some multifamily trade in urban core markets in San Francisco as well. You know? And I think that's a great play, but you just have to have the right capital and the right partner who understands and do a long term play there. They're gonna do great.

Yeah. I think one of the ideas with urban core is there's a lot of concessions that today, and you're seeing those renters that choose the concession. Right? And you have to look at the absorption numbers to see if that's gonna continue. I think you can't paint in your broad strokes.

Some markets might be struck with supply issues for as long as we can see. In some, you're seeing the absorption numbers also improving as supply has increased. But I do agree that you're seeing a little bit better absorption in the suburban markets and some of the urban ones, which we usually are connecting on much better.

Yeah, absolutely.

I wanna move to distress for a sec or maybe the lack thereof, the stress that we've seen on the sales side. I think there's been a lot of pain in the past 2, 3 years, but it hasn't really translated to distressed sales. Do you think we're gonna see any of that in 2025? Or are we has that shipped already sale, then we're starting to see workouts and maybe not seeing the distress that people hoped for.

I don't think there's gonna be some huge wave of it, but I don't definitely don't think that ship has sailed. I think that if rates continue to stay very high for much longer and we are in a very much higher for a longer period, then there's gonna be just more distress. There's just no question about it because these borrowers can't refi and can't sell if they're over leveraged. So there's gonna be distress. I it just really all comes down to interest rates, comes down to interest rates and values.

And if things start to go in the right direction over the next few months, then there's not gonna be distress. But if it's higher for longer, then there will be more distress.

Yeah. And I feel like the past couple of years when there was a distressed deal that hit the market, it just got completely bid up because there wasn't so many of those distressed deals that actually translated to a sale. There are so many other ways to save a deal besides selling it at a loss. And I think what you're finding is, you know, there was a a deal in Denver, for instance, near a trail point that sold at a lower basis, but you had a lot of CapEx issues. You had to put bridge debt financing on it, and your cost of capital just got higher and higher, and your basis ended up being what we bought Trailpoint for.

And it's like, why don't wouldn't you rather just buy higher yield day 1 and have less of a headache and to buy something at a lower basis that you're gonna be all in for? So I do think there might be, as you said, some more distress. But if there's not a whole wave, you're seeing that these deals just get bid up to a point where it's like, let's just buy something stabilized.

Absolutely. Makes a lot more sense. I I remember that from the GFC when something would hit the market that had REO in the subject line of the email, or there was some sort of distress, it would always sell at a ridiculous number because it had a great story. And people would over bid for the story, but ultimately it didn't make economic sense because you're just taking on a lot more risk for the same return.

Yeah. And I guess I think this would be helpful going back to the last downturn that I was a little too young for, but you guys were well in it. Dario and buying loan performing loans. How has this been different than back then for you guys?

Well, I think the difference is here you have mostly problems with balance sheets, capital structures, maturities, and the economy is generally okay. It's not terrible. Obviously, it's not great with inflation and affordability issues and interest rates, and that's affecting everyone in America. But back then, you had 10% unemployment, if not higher. That was the published rate.

So you had real unemployment higher than 10%. Job loss everywhere. Recession. It was a true recession. It was the 2nd worst recession in American history.

The Great Recession. And it was it was years long. And you had a because of that, you had a lot of vacancy and a lot of evictions. Rents plummeted, because the incomes just weren't there, and the economy was in tatters. So this downturn is not nearly as bad as the GFC, and it's also different in that sense.

I think it's been different for us. I mean, look, I do think the GFC was a lot worse. You basically had companies like Lehman Brothers completely going out of business. There was I remember there was a point in time that there was no liquidity in the market. Like if you have a maturing loan, you could not get a loan.

There was just nobody there funding deals. So you got to that point. As you, if you look at right now, even when the market turned for multifamily, especially the agencies were still there. Right? So obviously your cost of capital has gone up a lot, but there was still liquidity in the market.

So I, you can't compare the 2. For us, it's been a little bit more challenging. We own a lot more and we also had more floating rate debt. Right. And that's been the challenge because when those floating rate loans come and the interest rate caps went from 25, 30 basis points to 200, 250 basis points.

You know, it's a challenge going out and doing capital flows and raising money. So they both have their challenges, but the GFC was obviously a lot worse.

I think the lack of liquidity in the GFC during now is definitely the the glaring issue. Right? The liquidity that you're seeing today is still being deployed. It's still active here in real estate, but it's not in Sicilian sales. So I think with the wave of of distress that you saw in the GFC, maybe it wasn't all getting beat up.

And we were able to pick some really good attractive deals here because there's not as much of a wave. You gotta have to find the needle in the haystack. And that could be difficult, which we did have some sex success in, but it could be a little tough at times.

I think people just are also underwriting to deals differently. Right? I think before, like you mentioned, because of the upside, you would see people pay, you know, cap rates below kind of fixed rate financing. So now you see a lot of groups kind of focusing on more on the cash and cash aspect and less on kind of the renovation premiums and selling out a premium in year 3. Right?

People are really focused on cash on cash and more than I've seen. So people really are focusing on the in place cap rate. 1st, what is my actual rate on the loan? Right. And there has to be some kind of premium there.

So you're, you're just not seeing buyers, you know, pay premium pricing unless it's in markets like Miami. Right. That's kind of like anomaly where you're seeing, I think overall man, he's probably priced 50, 60 basis points lower than the rest of the country.

But my, yeah, Miami, you know, Miami is its own standalone market. That's graduated at this point to be another LA, New York in that regard. And it's been tough to find that yield that we've seen success in some of our other markets. I guess going back to cash flow, what what is try on heading into 2025 targeting, from a cash flow perspective and and overall IRR perspective? How's that changed?

I think we'll probably just keep underwriting to the same IRRs we've always underwritten to. I guess finance 101 tells you you shouldn't. We should be underwriting for a higher IRR, but we were never in a really, like, tight IRR business. We never underwrote to, like, a 14 gross with a 1211 net. That's just not our business.

We always underwrote to a high teens and close to a 20 gross. Tried to, you know, get kinda get to an 18, 19 as the bogey. And net mid teens, the investors, even though we wound up overperforming and always getting a lot more, always, but traditionally typically getting a lot more. So I think we'll probably stay put in terms of IRRs. We just you know, we need a little bit more cash on cash because now we're competing with JPMorgan, Wells Fargo, and Bank of America CDs and US treasuries at 4 a half percent.

So it'd be nice to get a 6% cash on cash kinda out of the gates and have that grow over time.

Yeah. And what would you, I guess, tell those investors that are looking between a CD, Bitcoin, and a value of a multifamily deal about why they invest in real estate. Obviously, completely different risk profiles, but thinkers, at least for the high net worth, you're starting to see that that's really the the decision they have. Right? So what would you tell them about why to invest in multifamily today?

There are a few reasons. If we're just framing it in the context of how an apartment building competes against CD at JPMorgan, it's very simple. A 4 a quarter percent CD is fully taxable at ordinary income. If you live in a high tax state, 4 and a quarter is actually 2 and an eighth. If you live in a low tax state, it's gonna be more like 2.8, 2.9, 3%.

So you're really not getting such a wonderful yield, whereas with multifamily, it's sheltered and you'll get 5 or 6% out of the gates sheltered. And you don't have to recapture that until you sell the asset. Significantly higher cash on cash straight out of the gates. Number 2, you're buying at a low point in the market. We're at the bottom.

We're close to the bottom. So if you factor in where interest rates are probably going, where rank growth is probably going, what that will look like on a 5 year hold, you're probably gonna make at least a mid teens IRR if you're putting your money with a good operator. So I would say those are the two best reasons why you'd wanna invest in multifamily right now. It doesn't feel good. Right?

You're getting 4%, and it feels risk free, and you look at the S and P 500 and that's ripping. Although it's probably not gonna do that again next year, it's very unlikely if you look at this for Evan, that's got daily liquidity, but, you know, multifamily is looking really, really good for the next 5 years.

I mean, it's hard to argue against Bitcoin. Yeah. But right now, like, Bitcoin, it's pretty hard to argue right now with Bitcoin. Especially with the new administration going in. But look, I think right now, most people are probably, you know, getting a little nervous about Bitcoin, just as where it's priced today at a 100,000.

And probably we'll start thinking about diversifying their portfolio. So I think that always makes sense to be diversified and have money in bonds, stocks, apartments, for sure. I think like max. Right now, it's the low point. Right?

You think the values are down anywhere from 20 or 30% wherever you are in different sub markets. And I think you're gonna start start seeing some rent growth and values will go up. So I think if you've got the ability in investing in long term fixed rate multifamily, it's a great, you know, opportunity right now, just kind of where we are in the market.

I like how the value and multifamily space has a good hybrid model of cash flow and yield through appreciation. By being the low point in the cycle, you're seeing that things can improve, and there's a path there. But if things don't necessarily improve right away, you're still cash flowing. I think some of these other alternative investments, you either have the speculative investment that's not really getting you the cash yield, or you're getting something that might have a cash field yield, but doesn't have the same appreciation. And then the tax benefits are incredible for real estate.

And I think that's where we capitalize. We do call segregation and we do a lot of things to, to the investment with the investment that allows for tax advantaged returns.

Sure. Exactly.

I guess any other closing thoughts heading into 2025?

We're

all very, very excited for the new year. More stability, hopefully. And and new government, you know, whatever that means, whether you voted for it or not, I think it's exciting to have change. I think anybody in this business definitely wants some sort of change relative to the last 4 years. So, we're really, really excited for what's to come.

I just think you're like, you know, overall, I think to this next year is gonna be better for us, just in terms of operations and, you know, transaction volume. I think we're gonna start seeing some deals that come our way. I'm always, I know walking into your office and say like, what's going on? Or max, like, we just, it just, it feels like this whole year we've been bidding on so many deals and we're just not even getting into the 2nd round or any rental just because, you know, we're trying to get a normal in place cap rate and we're just getting outbid so much. But I think this next year, I think there are going to be some transactions that go through and I think people are going to have to sell and we'll get some more deals.

So overall, I think it would just be a better year for us in terms of buying new deals. And I think the market's gonna open up a little bit in terms of rents and some of the properties we owe. And then we'll be able to start getting some of the premiums that we underwrote initially.

We've underwritten every single deal in our markets. And we have a really strong pulse and it's not for nothing, but it is telling to underwrite every deal, see where the yields are, and still take a step back and say, alright, this isn't enough right now. This isn't the yield that we need to be at to make this deal work. And I think we've been disciplined. We've been conservative.

We've always been we've been focusing on untrended returns. And I think it's important now more than ever. And I think that information that we've aggregated through this tough times is gonna pay dividends down the line when things do start to open up and there is more stability and we can quantify our decisions rather than investing in a deal that we can't protect the downside, enough. So I do think the work that we have been putting in is gonna be paying its dividends as we get out of this tough rate hike cycle and start getting into a rate cut cycle with things opening up.

I feel like we kinda have, like, our own little, like, you know, costar subset of like deals, like, you know, like in terms of underwriting deals, we probably, if you look at some markets, you could probably pull up, you know, Orlando and see like, okay, we, you know, we've been on these 40 deals, you know, between like eighties, nineties, 4 plus.

Yeah.

And then, you know, see kind of where in place cap rates are, our values per unit. I mean, it's crazy. We just it didn't even get anything. We got one deal in Orlando, one deal Atlanta, and everything else was was a head scratcher. Right?

Like, how are people paying these prices? Right?

Yeah.

And maybe we were the ones being too conservative. So hopefully that's gonna change.

Yeah. I do think we are at a point where we have our own costar, and we have LPs reaching out to us. We have brokers reaching out to us. We have other sponsors reaching out just getting data. And I think by being, but I guess by having the best pulse in the market, it's going to pay its dividends when things do improve.

And it does make sense to pounce.

Yeah, absolutely.

Rays looking forward to 2025. Thanks again. And, yeah, let's get to work.

Happy New Year.