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Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
David Moghavem (00:18)
It's crazy what's going on, like in the world and this time and this inflection point right now in the world.
Malcolm Davies (00:23)
Yeah, I
You know, fingers crossed, you know, that's all you can ask for. But you know, like reality is like, look, ⁓ my parents live in Hawaii. My, my, you know, like I always laugh because I'm an English American, which means like nothing. Yeah. But you know, I'm still first generation. English American. So my parents are both from London. Okay. And so they came to the US. Okay. But you know, like I'm just a white.
David Moghavem (00:43)
English
first generation? Okay.
You're just a white man. It's always exciting.
Malcolm Davies (00:54)
⁓ It's not. If someone asks me once they go, what's an English American? I go, exactly. There is no such thing because I think the country started from that. at the same time, my parents, you want to be close to your family. ⁓
David Moghavem (01:09)
Are
still in, or they moved to America?
Malcolm Davies (01:12)
They moved to the American in 1968. My dad was in the semiconductor industry, did great. I grew up in the Bay Area. Nice, what part? Los Altos. Okay. So they, know, both a doctorate physics from my father. My mother worked at NASA, so I had brainiac parents. They asked me why I got into real estate. You know, I couldn't explain to them, but I loved it. But they retired in Hawaii, so it's amazing. They're in Hawaii? Yeah.
David Moghavem (01:39)
now?
22 And you go back and forth?
Malcolm Davies (01:42)
You know, we'll try to go see him. It's still five hours. Yeah, you know, I young kids too. So yeah, it is what it is
David Moghavem (01:48)
Yeah, but I think the first generation lens, like you see how you, what your parents went through and how they have to come here. It gives you like perspective, you perspective. And we feel spoiled. Like just like that. We got to be born in America and we're lucky.
Malcolm Davies (02:07)
Lucky. ⁓
yeah. I wish most Americans understood how lucky we are. Yeah. Because we're very fortunate.
David Moghavem (02:13)
That's what I was insinuating, right? Like most Americans, when you have the first generation American perspective, you realize how lucky we are. And when you travel, you travel, ⁓ Miami is still America, but you see how it doesn't feel like America sometimes because English is the second language. And you see all these people who immigrated to America and escaped communism and socialism. you're like, wow, this is a beautiful country to in.
Malcolm Davies (02:34)
working their asses
Stop complaining. Yeah.
David Moghavem (02:44)
Exactly
and just and put your head down and work hard. You know, like yeah, that's what it's about. I
Malcolm Davies (02:50)
I came up with this idea, I thought always that every American we should pay, you we spend money on a lot of things, but we should spend money to send every American for one week to somewhere else in the world. That's it. Yeah, and have them understand no matter how bad you might have it here, it's still better everywhere else. And so we should all work more, we should be closer. Yeah, exactly. Don't listen to the news.
David Moghavem (03:01)
Sucks.
Exactly,
think part of it is fear-mongering with the news.
Malcolm Davies (03:15)
That's how they make money. Yeah. So how did you get into the podcast? What was the background for you?
David Moghavem (03:20)
So pod for me, I always have conversations with different professionals and trying to understand the market, trying to just trade notes. And I also felt like I was lacking being out there. And I couldn't really find my voice on social media. would stay out of blank screen. like, what am I going to talk about right now? I felt a little bit like imposter syndrome a bit. And then I was talking to my cousin.
who is big on social media. She's not in real estate. She's doing culinary stuff. And I'm like, how did you build your brand, find your voice, start talking bit? And then her ⁓ husband's like, you know, you'd be really good at starting a podcast and you should call it Deal Flow Friday. I just ran with the name. What I've learned is try not to sweat the details too much and just go with it. You can always change the name.
Malcolm Davies (04:12)
because you can edit it, cut it, do it. You're
great, you have a great dynamic personality.
David Moghavem (04:17)
Thank you. And my angle was, listen, love hearing how you got your foot in the door and then way capital. And we'll talk about that. But I like to hear market knowledge. What are you seeing today? What are the trends today? ⁓ How can a listener listen to this week's episode and get an edge on what's happening today? Because there's so much happening right now.
Malcolm Davies (04:45)
It's like, boggling.
David Moghavem (04:47)
Such
an interesting time in the market right now.
Malcolm Davies (04:49)
I mean, I was literally in the Uber and I'm going, well, we need to do deals with folks that deals in op zones from 2020 to 2022. And I need to find out who all those deals were. And I'm on Claude and I'm like, literally, by the time I started, by the time I got here, I had not only every zip code, but every deal that's been done. So the access to information is insane. It's insane.
David Moghavem (05:13)
Yeah. Claude's insane, first of all.
I'm the uncoined AI guy of our office right now. I hold the keys to Claude and I got everyone hooked on Claude one by one. Started a small chat called the Claude Squad 5 of us. Now it's the whole team's on Claude. And it is remarkable what you can have Claude do for you. And the fact that it interconnects with our Microsoft.
And then I have a note taking app, Granola interconnects that. agendas, I say, hey, take every conversation I had this quarter and tell me like, what are some trends that you're seeing?
Malcolm Davies (05:55)
You're seeing. It's
a good one. haven't done that. It's a really good one. ⁓
David Moghavem (05:58)
Do you use granola at all? but that's like, ⁓ granola
is a note taking app. Which like note taking apps, there's a bunch of them, but this one connects with Claude. And so it knows what you're talking about and then connects it to your emails through, you know, SharePoint or Outlook. Yeah. And the fact that it's all synthesized is what's so powerful.
Malcolm Davies (06:24)
crazy part about it. It's unbelievable. mean, chat GBT is like, tell me where I should go on vacation. ⁓ Claude is another level.
David Moghavem (06:33)
The interconnectivity
of Claude is what makes it so special.
Malcolm Davies (06:36)
My
belief is that in the capital advisory or real estate world, everybody will have access to everything. And the difference is going to be 100 % the relationships. And that's what it's going to come down to. Everybody's going to have, I mean, know every lender. I'm to know every person at every lender. I'm going know every equity provider, every person at every equity provider. The most important thing is how am going to build a bond and a connection?
David Moghavem (07:02)
podcasting so important and you started one too. How's it been for you?
Malcolm Davies (07:06)
great. I try to do one every two weeks, but we're then putting out once a month. And the reality of the idea was, how do the deals actually get done? That's why I called it On The Edge, because no deal gets done just right down the stone in the middle. It's very slight of hand of why a deal actually gets over the line.
David Moghavem (07:24)
Those nuggets are key, by the way. It's really you start talking about these little nuggets of what gets a deal over the hump, then someone can listen to that and they'll continue listening to it because they know they're getting those nuggets and they can apply it on their own.
Malcolm Davies (07:38)
It's pretty remarkable. So I had Greg Ames on, right? So I think probably had more coverage on Greg because what happened was Trammell put it out on their own 75,000 followers on their social media pages. So for me, that was incredible exposure for Wake Capital. That was interesting. But then what Greg was saying, everyone who's young was saying, what was the key to Greg's success in his career? Everybody would put everything on his desk, and he'd always get it done.
always get it done for everyone above them and everybody could rely on Greg and that was the reason why he succeeded in because when those corporate just being reliable and those corporate companies, you you have to one walk in the door with great pedigree, but you be amazing at it as you go forward. So, yeah, I don't know.
David Moghavem (08:23)
Yeah, was, it was, ⁓ I listened to part of that episode. was, was really interesting and Trammell Crowe's story is an amazing one.
Malcolm Davies (08:30)
Yeah,
you can listen to it today. They made all these mistakes in the 1980s and everybody will talk about those mistakes that were made. But they all wrote them down. They said, we won't do that again. And if you look at development today, everybody who's been kind of a ⁓ mentored by the Tram of Car ⁓ Organization, they've learned a lot of things. So for example, you'll see real estate developers today, they don't put their houses on the line. They don't put their personal statements online, but they create what they call
the Business Asset Guarantee Program, which essentially says that every single thing that I own or I am developing or my assets are on any real estate property, ⁓ as a person, I'm signing full recourse for your ability to capture all that.
David Moghavem (09:14)
Do you do that with you could get that with agency debt or like it's just relationship? Okay, okay. Yeah. So this is just for development stuff. Yeah
Malcolm Davies (09:18)
So it's like, remember development is so... Development is a...
to
get bank loans and things like that. And agency, you're still, you're able to carve out so much on agency. You know, most agency, I mean, all agency loans are non-recourse, right? Except for the carve outs. But, know, like when you say, I'm going to build this property and all of a it's deficient. Yeah. If it's deficient $10 million, and I don't know how much we want to get into the story today, but that happened to me in 2008. That's why I'm a capital advisor today. Right? Reality is it's why it's called Way because I was a real estate developer and I know what it feels like to have to raise money.
David Moghavem (09:37)
Thank you.
Malcolm Davies (09:52)
By the same time, I was deficient by $50 million. I was 33. I remember going to my wife and going, OK, we're facing bankruptcy. This is a $55 million bankruptcy.
David Moghavem (10:06)
unless you ⁓
Malcolm Davies (10:09)
I
think so. you're not a real developer as a Valve UK. Everyone chooses how they come back from their...
David Moghavem (10:15)
You got to be a cowboy to do some of these development deals. Either cowboy or build to core and just know how to go long. the merchant developer strategy is tough. It's tough.
Malcolm Davies (10:28)
And
right now everyone's feeling that pain.
David Moghavem (10:31)
Yeah, and you get no cashflow until CFO. And then by the time you get CFO, you got to flip out of it and you got to hope it's a good market. Yeah. We did a few deals, development deals in LA. Yeah. ⁓ no, we don't. We got out of it. we're co-GP with the experienced GCE. And what ended up happening was it just didn't fit our model of our cost of capital because you don't see a dollar day one.
Malcolm Davies (10:38)
You better.
David Moghavem (11:01)
Yeah, you get some GC fees and things like that, but developer fees, but there's no cashflow in the property. And then you have this unbracketed exposure to risk from the city or DWP not connecting your property. you can't budget that and time kills deals, time kills your IRR.
Malcolm Davies (11:22)
There's a reason why people are not developing in Los Angeles besides ULA. DWP is a challenge. Frankly, things like eviction, moratoriums, things that makes it very difficult. you're seeing that's the other part. We're talking about Miami and LA. One of the differences right now is just the concept of what ownership means. And so you find that capital is flowing, necessarily, they're flowing outside of California. However,
David Moghavem (11:25)
Right?
Malcolm Davies (11:51)
I think you and I both agree, no matter what, this is an engine. This engine is paused right now, but it's not going anywhere. And so the reality is this engine, it's too strong. There's too many people here, there's too many industries, there's too many opportunities, and yes, it's difficult to develop, but this means it's probably an amazing place to own apartments right now, because literally, there's maybe, except for ED1 deals, there's maybe one or two market deals that are probably getting done right now.
and it is with the likes of the travel crows of the world. It's not with anybody else. Going long. Going long. 100%. They're gonna look at what it's like in 2029, 2030. We're all talking about LA as the Olympics, so we think there's gonna be a momentum. There will be momentum. There's no question, the eyes will be on the world, we'll be on Los Angeles in 2028, and it's gonna be exciting to be here. Hopefully we'll have our act together by then.
David Moghavem (12:26)
Tough as a merchant.
Everyone's, you know, everyone's saying the Olympics is going to be the spark that turns LA around. I don't know if it's that, but it's got to be something.
Malcolm Davies (12:59)
How
about this? ⁓ I'm aware SpaceX is going to go public this year. We have a huge presence in Southern California with SpaceX. ⁓ Those are little things that will happen. think overnight you're going to find, just like in Silicon Valley and AI, the growth there, it also percolates to here. There's a constant ⁓ connection between technology and entertainment and ⁓ media. those connections will always be there. If you see today, amazingly, on the street in New York, they will definitely say,
⁓ San Francisco is back. Yeah, the Bay Area is back. Nine months ago to 12 months ago, they would all say, no, it's not back. But all of a sudden, somebody paid attention and said, well, wait a minute, this could happen. And everybody walks around Midtown Manhattan, and someone says something, and it goes out, then having a happy hour, it spreads like wildfire. And literally now everything is like, we got to be there. It's definitely on its comeback.
David Moghavem (13:53)
It's the number one run growth market in the country right now.
Malcolm Davies (13:55)
So
that's going to happen down in Southern California as well. know, look, sessions are everywhere in the country, seems. You know, you look at Phoenix, you look at Nashville, you look at Austin. These are markets that got overbuilt. However, these are great markets. But then today, do they have the number of jobs that you might have in some of the core markets in the United States? And you know, I'm a big believer in Dallas, big believer in Miami, big believer in Los Angeles, big believer in San Francisco. I'm an Arizona guy, so why am in Arizona? I love it. By the way, it's a big, we're all flying out on Friday. Yeah. So this is a big You're going to go to the game? I'm going to the game.
David Moghavem (13:58)
I think so too.
Malcolm Davies (14:25)
Wow. It's going to be tough. Yeah, it's going to be tough. I've got some friends at obviously here Michigan and we've got some bets. And so you'll see that on social media after the games.
David Moghavem (14:26)
Against Michigan, huh?
Was it
I think it's special that Arizona finally got to Final Four and they were always getting stuck a lead day. They always got too excited after Sweet 16 and then would party and then like disappointing the lead day.
Malcolm Davies (14:52)
So I'm old enough to, I was at U of A when we won in 1997. It's amazing. Amazingly, I'll look back and I'll say I was watching something on social media and it was like all of us on fourth Avenue in Tucson when we won and we, was a riot. Literally cars were being turned over. People were, know, cars were on fire and I'll never forget that. And then there was a video of it last night.
David Moghavem (14:58)
really aging yourself.
Malcolm Davies (15:19)
And I was watching it going, I cannot believe we were doing that. Number two is I can't believe that was 29 years ago. And then I can't believe it's been 25 years since U of A has been in the Final Four. It's crazy. It's crazy because basketball is definitely our thing.
David Moghavem (15:32)
And you guys have always been ranked to a level where you should be there. Awesome. That's exciting. So let's go back a little bit to real estate. I'd love to hear on your end on where capital right now is getting done for deals in general. I know you work on a lot of special structures and you go throughout the cap stack, not just on the debt side, but on the equity side. So I'd love to hear, first of all, are you getting ⁓
Malcolm Davies (15:37)
It'll be exciting.
David Moghavem (16:01)
equity, situations where you have to fill for sponsors and what are the type of deals where you're seeing equity actually coming off the sidelines and getting excited.
Malcolm Davies (16:12)
So I think to getting a step back, mean, reason why I named the firm Way Capital stands for We Are You, but that was really an ode to myself when I was a real estate developer before the GFC, where I knew how hard it was to raise equity, but I knew how valuable it was to myself as a developer. So any capital advisor that came to me and said, hey, I'll introduce you to this person or I'll introduce you to that person, and those people turned out to be investors or whatever it may be, I really respected that and regarded that.
Ultimately when I came into the world when I think you and I were at GSP at the same time.
David Moghavem (16:47)
I was an intern. I remember you were a top dog and I an intern. That was my first internship.
Malcolm Davies (16:53)
I but you learned, right? You learned lot from that era. look, I loved my time there. So the reality is, though, I realized, though, that most people need to meet equity. And I walked in the door that day in 2011 and said, my business plan was I'm going to always introduce my clients or prospective clients to equity in exchange for trust, which is really what that means. The reality is that I'm going to help you grow your business. And in exchange,
you'll think about other things that we might be able to do together because we've established more of a trust that we can help each other. And so I've done that consistently for now almost over 15 years. And the reality is equity is not transactional. Equity is 100 % about the relationship and about the trust that two people or organizations have with each other. It's like all of your investors. They trust you guys to handle and be a good fiduciary to them.
And in the same accord in equity, doesn't happen necessarily overnight. So what we do is we end up making ⁓ introductions to ⁓ family offices, ⁓ RAs or ⁓ institutions or small institutions. Now today's market, would tell you the institutions are kind of harder to do business with, but the smaller family offices and smaller groups are looking at deals in a way that say, I'm going to Malcolm, can you introduce me to
you know, great sponsorship groups that would be looking at things that we're doing, like industrial, for example. And so what we're doing is we're just making introductions, not necessarily focused on a specific deal, but knowing that they're active, and then saying, hey, you know, Joe, me, John, you know, the worst cases you guys get along great, the best case, a dealer or two can come out of it, but knowing you both, I'm excited to introduce you two. Yeah. Right, so I am spending the time to vouch for you, both parties.
And it's amazing how many times something comes back and they go, oh, wait, we really enjoyed spending time together. We're going to be doing this 550,000 square foot industrial deal in Georgia. Way Capital, can you now be our debt advisor as well on this transaction? the dynamic there, happens consistently. But the reality is you never really know when the equity introduction or the process really pays fruit, bears fruit, so to speak. But I will always say that nothing's ever done in vain.
⁓ Every introduction we have ever made has helped the company by either learning more about how they're pitching, what they're doing, ⁓ but it's generated billions and billions of transactional volume for us. So it's just a huge part of It's part of our DNA.
David Moghavem (19:32)
You know, it's the right recipe. And what I'm noticing in our space is the old model of blasting out a deal, spraying and praying webinars, it's broken. And LPs are a lot smarter now. Family offices are a lot smarter now. They're not getting tricked by just something that's higher IRR on paper. so especially where capital is super selective right now, they're looking for trust and they're looking for
experienced sponsors who have gone through cycles and saying, all right, maybe there's not a deal today, but I want to stay in touch with this sponsor for when the deal comes, because I like their way of looking at the world. We see the world the same way.
Malcolm Davies (20:15)
I mean, no deal is ever done, in my opinion, objectively. It's done subjectively. And the reality is when you have, know, hey, I didn't do that deal because it was a untrained to yield on cost of a six and a half. Okay, then you bring him a seven. And then all of a sudden they're like, well, I need a seven and a half. What they're really saying is I don't have the trust with that group yet to.
to believe that they can execute anything that's put on that paper. Because I think we can all laugh, because at the end of the day, the IRRs and the equity multiples are all relatively similar in all packages that are put out. What is the differentiator? The differentiator is, OK, do I really get along with this individual? Do we see eye eye? Do we communicate well? Can we talk about the good, but also can we talk about, hey, this isn't going so well. How do we handle this dynamic?
And do we have the same synergies about that going forward? That's the most important part. A good sponsor is always going to help a good equity partner. A bad sponsor with a good equity partner, meaning what do I mean? Their interests aren't aligned, that can make a good deal bad more easily than anything else.
David Moghavem (21:25)
Easily. ⁓ But it's interesting on the credit side, I don't really think it's that same dynamic a little bit. I'm seeing how on the credit side, I mean, you were at Crefsey, you're seeing how spreads are tightening like crazy. And it's almost like a knife fight and getting to a point where there's so much credit and private capital out there. So what are the benchmarks on the credit side? ⁓
Malcolm Davies (21:51)
Let's be candid, right? We've been a delevered market for the last four years. So we've been deleveraging, which means obviously asset values are down 20%, 30%. Doesn't mean these deals are bad. They just mean that these deals actually have good cash flows and yields on them. And the LTVs are out of whack. ⁓ Inherently credit, meaning even equity groups are in credit today where they can actually push a little leverage and they're helping people extend out their...
their real estate assets to a longer duration and fight to live another day to recapture the equity they put into the deals in the 2021, 2022 era. So let's be candid. That's really why credit has been so strong. That's also why yields are down because nobody really has said, hey, I want to be in the last dollar equity on these deals. I want to be in credit. I want to make a mid-teen return. And they've been able to do that to date. Now, those spreads are coming in.
They're not going to be able to generate the same level of returns. Why? Because I think the market has truly started at the bottom. And every market's different. Let's honest about that. we've started at the bottom. we're starting to hear even those credit folks say, hey, maybe not a bad time to think about being in the equity. Definitely the folks that spend more time on both sides of the ledger. Now, we've never seen more debt in our markets than we have today. Like looking at Cref C, or being at MBA, or being at NMHC.
Reality is those capital providers are providing a solution. They have to compete with each other to do that. And since there's so much debt, of course, the spreads have come down. That being said, most of this that's going to happen over the next few years, in my opinion, is that we're going to see either lenders that are on deals that are over levered make decisions to ultimately sell those assets or allow for those assets to be sold. We're starting to see that already this year. That'll continue to grow, which is good for the markets.
We've really extended ourselves too far. The Extend and Pretend era went out too far. So in that sense, where will credit be? Well, nobody can be Nostradamus on where interest rate will be. I mean, we're seeing lots of volatility. Rates have picked back up a bit. answer is, think one thing we know for sure, we're not going to see the spreads be as tight as they were in 2021 and 2022. So everyone has to re-underwrite and make sure that any
debt you're assuming will be out there for you when your bridge loans come due two to three years from now, they better not be three to 4%. It's not going to be that way. And so in that sense, think the fundamentals for multifamily, think, are still very strong because it's very difficult to difficult to build everywhere. Even in markets where they built a little bit too much, they are being absorbed. And inherently, we'll see where that comes out on the other side.
Real estate is not supposed to be was between 2010 and 2020.
David Moghavem (24:45)
What a
Yeah, 10 year plus bull run.
Malcolm Davies (24:52)
Every year I kept selling myself. I had friends that became multifamily syndicators in 2017. I'm like, oh man, this is not going to go well for them. Now mind you, they were able to sell assets in 2019-20 and recover through past COVID. But the reality was it was an amazing era for particularly multifamily. It was an amazing era for hospitality. It an amazing era for industrial. All of these asset classes all have some of their different challenges.
David Moghavem (24:54)
This is the year where things are gonna shit.
Malcolm Davies (25:21)
But the reality is, I think real estate's going to get back to where it was before, which is going to be very consistent, great for depreciation. ⁓ You're going to manage the assets in a way that you know is effective. But we've been hit a lot of places. Expenses have been challenging. Rent concessions have been out there. Regulatory issues are out there. So that being said, all of that, I think, is being flushed out. And what's happening is the best of the best operators are really the ones that are left.
The folks that came in for the bull run, you know, they're kind of leaving now.
David Moghavem (25:53)
I do feel like if you're a sponsor who's surviving this, you'll get paid handsomely just showing that you have the battle scars to show. I want to get back to what you were saying on the credit side. do, and I did talk about this in my monologue how the lenders are starting to get super creative because they have optimism of where multifamily is heading. And I don't think there really is a question of
multifamily as an asset class. Yes, you're seeing expenses get higher. You're seeing concessions. You're seeing some cracks in the operation, but it's not like a huge, you know, operational distress yet. Thank God. And I hope it doesn't hit that it's all cap stack. And at the same time, you're seeing how credit spreads are tightening. It's harder for those credit funds who were hitting those returns to date, as you mentioned.
looking forward saying, we still going to hit that? No. And so what are they doing? I think they're starting to play in the hybrid, pref, mezz to hit those returns. And looking at it as almost like a dual solution to their own troubles in their books. They're saying, hey, I have an asset right now that's below our loan balance. Option A, sell and wipe and take the haircut and move on. But because they see that it's more optimistic,
They're saying we need to hit a high return. Let's give instead of 250 over SOFR on 60 LTC. Let's give it at 80. And let's give a little bit of equity too. So they're not lowering their cost of capital, but they're giving more of it on an asset that they already own familiar with. And they're saying, hey, we're solving the issue on this fund and we're getting high returns on that fund. And I think that's.
Malcolm Davies (27:40)
Listen, they either believe in their existing borrower to date, which is you can do it with your existing borrower. If they don't believe in their existing borrower, they bring in groups like Tryin, to be able to be there, to do that with them.
David Moghavem (27:51)
It's the latter, right? They probably don't believe in the existing borrower, but they believe in the asset. Exactly. And so they'll say, hey, short sale, creative financing for the next guy. Let's replace the old one and let's get a real
Malcolm Davies (27:55)
Zach.
And
those are lessons learned from the recovery of GFC. So when the GFC occurred and the recovery of GFC, everybody who was in asset management ⁓ or the credit guys were all saying, OK, our job is to either take a deed in lieu, foreclose, take control of the asset, go hire a receiver, go put it back in the market, sell it, recover as much money as we can. And we've done our jobs. However, what they didn't see at that point was how much money was made.
by everyone who bought those deals directly from them when they became REO. So the reason we're seeing the way that this behavior has been is the Extend and Pretend era went on and on and on. However, to your point, this is a really effective point, which is how do we get, our loans are still high relative to current market conditions, how do we get them to come in and do this deal? Well, put in a little bit of equity or even if we're below our basis,
not even actually have them put in capital, but we'll give them a sliver of the returns above, right? Participation above, let's say our loan basis. Now we'll give them fees and they'll like to operate the asset. But the reality is don't sit entirely behind, or excuse me, you're either behind them of their basis or of current basis, put the sliver in because why would you work if you don't have the opportunity on the current basis? And then what happens is like, now you get all this motivation.
David Moghavem (29:04)
participation.
Malcolm Davies (29:26)
And people are saying, I'm going to work really hard for this deal. I'm going to spend my time. And you get 20 % or 30%. They get 60 or 70 % or 80%. And ultimately, your partner's now with the existing lender on this deal.
David Moghavem (29:37)
Exactly.
Your partners. I think that's the difference where before it was black and white credit. You're the lender. We're going to borrow. We're going to do our business plan and we're going to sell it and we'll pay you off. Now it's, let's work together and let's be partners together. And you're blurring the whole cap stack now to where it's like, Hey, this is the value today. We can put this much capital behind it. We're getting creative. We'll give you some upside on the backend.
and we're in this together. I think it's a really interesting time for that reason, that this year we're seeing more of that than we've seen in the past three plus years when rates initially hiked and call it capitulation, call it ⁓ meeting the market, whatever, it's lenders now getting creative to form partnerships with proven sponsors.
Malcolm Davies (30:31)
The
difference to today is that many of the lenders that are our lenders particularly multifamily on bridge deals are unlike Also have a big equity business as well and that's the big difference right the debt funds are essential equity investors, right? They're just structured as debt. So that's the difference you Know a bank will look at it a little bit different even then, you know, they're really creative. Yeah regulated in the light. So there's a lot more
David Moghavem (30:47)
can't do that with Fanny in front of you.
The private capital.
Malcolm Davies (31:00)
Look, I think that's okay because being able to think about the real estate market in one totality, I think where we're going with real estate in general is much the same way as corporate investments are made. They're tranched. All the way, there's the AAA, it's triple Bs, all the way down, junk ratings, all sorts of stuff. Well, the reality is from zero to 100 in commercial real estate, that's today as a traditional... Okay, so from zero to 50, 60, you have a traditional lender who's conservative.
It's the agencies, but also banks and life companies and the like. And then you go from 50 to 60, up to 70 to 80. Now you're thinking about, OK, that's the debt funds, especially finance companies. And then you get to 80, 90 and above. OK, now we're going real, participating, preff and really creative stuff. But every one of those tranches is earning a different level of expected return. ultimately, it's getting easier to do that with more liquidity that understands that dynamic.
and can make it more effectively easy to do that with one capital provider versus like, I don't know, bringing in multiple parties constantly, either between an LP, a GP, syndication, you know.
David Moghavem (32:08)
All the interests are misaligned in that regard. have their own self-interest in that regard. Now it's one part of the stack that's kind of solving different returns on each part.
Malcolm Davies (32:18)
Most important part about all this though, is that everyone seems to forget that the most important part is a customer. Who's your customer in multifamily? It's your tenants. They have a great living environment. Are you managing it? Are you executing it? Do they want to pay the rents that you're charging them? Are you getting the returns for what the... It's the same thing as any business. And so at the end of the day, we talk about as an investment thesis, but if you don't operate these assets, it doesn't really matter. All these things we talk about, it's everything about execution.
David Moghavem (32:46)
Yeah, and I think that's now moving to the operational side of things. think, ⁓ first of all, how much experience do you usually dabble on the op side of some of these deals? Because you are kind of providing as a partner for your clients. ⁓ Does the buck stop on the capital side or do you also kind of work on the ops side with them?
Malcolm Davies (33:09)
So 100 % we're providing guidance. I'm adding my background just because. For sure. every developer, when they go down, we talked about before, every developer goes bankrupt, right? Yeah. Well, I went bankrupt in 2008, 2009. I always said to myself, oh, I'll go spend a couple of years in the penalty box and be a capital advisor. And then five, six years or seven years later, I'll come right back and I'll be a developer again. I think what I learned was I was really good at raising money when I was a developer. I'm really effective at raising capital for my clients.
I learned I love that part. And so that's where I spent a lot of my time. Even in my old partnership as a developer, my two business partners and I, my job was to raise the money. So I spent my time and I said, you know what, I like this, I'm not going back, I'm gonna be a capital advisor. That being said, I don't know, 50 or 60 deals, I'm a GP investor in many of them. I do act and try to provide guidance about, I learned this when this went bad, this can be done incorrectly.
think about this way or that way. Don't think about, what is always the bad, what's going to happen in the positive? What is the consequence of the negative? And those are the big things I learned from the GFC, which were, man, when things go poorly and lack of liquidity hits and you don't have any cash flow, you are absolutely toasted. it's a ⁓
David Moghavem (34:28)
This is different from that, it could things can turn around
Malcolm Davies (34:32)
It's incredibly different. Every down cycle is different. I'm getting to that middle older guy now, but the reality is you go ask the older guys and they'll tell you about the RTC era. And that was before my time. And that era was even more different because of like savings and loan and all the different dynamics that were happening there. The GFC was really violent, very fast, and it just blew up quickly. And everybody, there was no liquidity. This one has been, it's not that there's no liquidity, it's just that
know, interest rates have risen to extent. have hyperinflation on expenses. And so it's been super choppy. And so, and it's been long. mean, April 1st of 2026, I remember in early April of 2022, talking to clients because the rates have started to ticked up and they were going, wow, this is not going to be good. And so here we are four years later and we're still
David Moghavem (35:27)
Still licking our wounds, yeah.
Malcolm Davies (35:28)
And we're not quite there yet. Normally, four years later, after something that starts to happen, you start to think about, OK, I got my, I'm there. we're kind of there, but we're still going, OK, are there other things out there that we're not seeing that we're concerned about? And we can't answer that exactly. Whereas I think in previous down cycles, four years later, RTC, you were cleared. GFC, four years later, you were on your way. This one, you're not sure.
David Moghavem (35:54)
We said this on a previous spot, it's like a light switch versus a dimmer switch. And this has been more dimmer switch. It's catchy. Yeah. And I think it hits the nail on the head of how this has been such a slow bleed. now it's getting to a point where it's slow enough where we're almost like merging two forces from before it was clear cap stack distress. Now we're starting to maybe enter operational distress. Sure. What's the force that's going to cause that operational distress?
Malcolm Davies (36:00)
That's pretty good.
David Moghavem (36:24)
I think the AI force is something that before I was like, no, you know what, it's not going to replace. And I've been saying that now I'm definitely starting to see how there might be a little bit of a road bump with where AI is starting to replace some human capital, maybe not firing or laying off across the board, but companies growing without hiring people to grow with it. I think that's starting to see be a force.
Malcolm Davies (36:51)
I mean, I was talking to a student housing operator, a great personal friend of mine, and we were talking about what you're using on AI, what are the, and he's like, it was blowing my mind what he was doing with the tenants. The tenants, he's like, look, my students, or my students, but the tenants that are all in colleges and universities, they don't wanna communicate with another human. So he said, they don't wanna communicate with the human, so I created a system.
for them to create, talk to our AI people. our AI people are helping them get anything that they need. And I'm doing that without a human to respond to them. And I don't even know about the responses, but they're able to fulfill what their needs are. And in that sense, that's already starting to really happen on the operation. I mean, look, if you're 18, 19, 20 years old, you grew up in this entire era. he's seeing it in his real time on his ⁓ assets around the universities he owns. So the question is,
David Moghavem (37:33)
You're saying it's a preferred
Malcolm Davies (37:46)
as we get older and older and older into the resident perspective, how much more operationally are going to be done via AI versus, hey, the onsite property management. Are you going to go to them? Are you going to go to the totality of AI and the ether to get your solutions?
David Moghavem (38:04)
It's an interesting take how you might start to see a cultural shift of preferring AI ⁓ So we're to a point where it's not of who can do it better It's what is preference you were sure throw away Whatever is better or who what's gonna get done is what's preference and yours you're you're kind of striking a chord where maybe that era of renters that Call it, you know Jen I don't even know that Gen Z is younger than Gen Z
Malcolm Davies (38:32)
It's almost getting to think alpha. Is that alpha? I think my son is alpha.
David Moghavem (38:34)
Alpha is
So Alpha generation is doesn't want to talk to a human. No, but that's a very interesting point
Malcolm Davies (38:43)
They've grown up with DoorDash, UberEats, Postmates. They don't talk to a human when they order food and food just shows up at their door. so they're used to using the apps to get things accomplished without actually speaking to humans. I also think about it in the back. I always think about when I stay at hotel.
You know, cars at the valet, oh, I gotta call the valet, get on the phone. Now it's not, it's just like you scan it and it goes out and the car's there. I actually appreciate that personally, better than having to wait for five minutes for someone to answer the phone to pick up the car. So who knows, I think that we're gonna see a lot more of this. I think Multi itself will be on the forefront of a lot of the innovation because it's an efficient market, there's a lot of competition in the space.
But you've got to be able to be unique, and you've got to be able to give that tenant, that resident, all of the things that they want. And if they're demanding the communication to be done in that way, well, that's what you've got to do.
David Moghavem (39:43)
Yeah, we're entering a new era in the value add quote unquote of multifamily where it's less about ⁓ stone counters and cabinets and now it's like how can we address some of the other needs in this new era of technology where you can maybe incorporate some of these into the lifestyle experience.
Malcolm Davies (40:02)
mean, the concierge elements are endless. So what can you do to concierge wise that ⁓ may not cost you that much money but are really appreciated by your residents? ⁓
David Moghavem (40:11)
I
Multi needed that. Multi needed that. It was getting a bit repetitive where you would walk a unit and everything had shaker cabinets and stone counters. And everything was getting repetitive and everything was getting commoditized. Everything was looking the same. So it is exciting how in Multi there might be some new angles now where you can add value, like you said, maybe not even as capital intensive, but it will show up on the bottom line.
Malcolm Davies (40:40)
Right, and look, in bringing it back to the finance world and the like, all they care about at the end of the day is what is your trailing 12 and a lie? What are you doing to perform? Do we think you're going to get there if you're going to do a bridge facility or whatever it be or working with a lender who's wanting to eke out as much as they can out of the asset? You can provide some of these things that are very unique. You have to spend time on it.
But it is not the arms race as it used to be, The arms race was like, okay, well you got doggy wash station, well I got a doggy walk area. You have, ⁓ I don't know, a basketball court, we put a pick-up all quarter. That's what it seems like it's always turned into, regardless if the residents use it or not.
David Moghavem (41:25)
⁓ you think you're ever going to get back into development at this point? Capital advising for decades.
Malcolm Davies (41:31)
It's
been decades. ⁓ It's been exciting. we're, look, I just turned 50. So I literally, I will say when you turn 50, you definitely look at life a lot differently than you did before. I think where I'm going now is, you know, we've got some things we're doing in the equity markets that we're going to be announcing is exciting, but really building. So look, we're going to launch what's called Weigh Equities. so Weigh Equities is going to be a
David Moghavem (41:51)
announced it here.
Malcolm Davies (41:58)
subsidiary business that will be securities and all licensing and all the fun stuff that you need to have a real equity business. So we're excited about that.
David Moghavem (42:03)
Amazing.
This is your 50th birthday present.
Malcolm Davies (42:08)
Yeah, exactly. I think it's so important that it's so needed in the market that it's a huge component of our business that drives really the structure of finance company, which is Wake Capital. The other parts that we're doing that I'm doing is I'm really learned. I mean, I've trained a lot of people, and so I've known how to train people. And a lot of people use the things that I've trained them on, which is great. I'm continuing to do that. I'm going to do a better job at that, I think, as I've gotten older. So I've been hiring people thinking about
Hey, I've got a guy who's specific on BTR. I've got someone who's specific on hospitality, someone who's specific on land and housing. And so from a company going an inch wide, mile deep into specifics, I think that's going to be really important going forward because I think equity is looking at folks and saying, hey, are you the best at that? Yeah. I don't want to hear that you're, I've got six different things. I'm like a waiter showing up at the table. And I'm going, what would you like to do? ⁓ I've got industrial. OK, I'll do that.
They want to know that you are an expert at that. And that's where I capital will really flow into it. I think in general, I think also the, we talked about this earlier, with the world of AI changing, ⁓ really it's going to 100 % come down to the relationship, not just the relationship you as the sponsor or you as the equity or the lender has, but who and how the advisory company you're working with.
have those depth in those relationships. the most important thing that we're spending time on is being able to massively grow the depth in the relationship because I believe everyone's going to have access to everything. Yeah. You I mean, you and I talked about Claude. I mean, I can pull up any information, anything at any point. It is so simple to get access to information. Yeah. And that means lists of people. It means people that provide things. But that doesn't mean anything if there's no credibility backed behind that.
And so the credibility part is building those bonds and rapport and relationships that people will count on you to bring those people to good operators and sponsors, and then vice versa. And so to me, that's where the market's going to be really changing, especially how the advisory world thinks about it. I think our business will be different going forward. I think it'll be just as exciting, but it will be different because there's going to be a component of it saying, I look, we can create an OM in less than 10 seconds.
I mean, that's insane. 15 years ago, was like, OK, guys, let's get this thing done. Can we get it done in two weeks? Then it became a week, and we got better at it, maybe down to three days. Now it's like, OM comes in. We look at it. We think it's great. We put our underwriting quick to it. Our AIs guys do it. Next thing you know, my analysts are sending me an OM that's a way capital OM, and it's in less than, I don't
David Moghavem (44:53)
Yeah, exactly.
So you're more productive, but now what?
Malcolm Davies (44:58)
Exactly. you have to, I think what we're going to get to is people are faster. We're going to make decisions that are better. I do think that AI will help everyone make a more informed decision, but the humans still have to make the decisions about what they want to do, what they don't want to do. But I think that ability, I think people have heard me say this a lot, is deal champions. When you submit a deal to an organization, lender equity, the person on the other side is your deal champion. He is the person.
who is going to vouch for you and your deal at investment committee. So who's the most important person? That person is. That's why we want to deal champions. Absolutely. And that's where that relationship happens. So the irony, though, we've joked about this with many friends of mine in the business. Our AI guy is going to send to your AI guy, and your AI guy is going to send back to our AI guy. And then it's going to go back and forth and ping pong. And all of a sudden, it's going to clear on your end. And you're going to text me or call me.
David Moghavem (45:36)
You're deal champion. You're your inside man.
Malcolm Davies (45:57)
And then we're gonna on the phone with each other and go, look, see, we made it. We went through all the gates and then we're talking about the deal. So what does that mean? That's gonna happen extremely fast. And I think then they're gonna say, okay, how do I go down and pitch this to the investment committee? And am I gonna put my career on the line for that, your client, Malcolm, and I will give him the confidence, which is where the trust comes in, that if I'm gonna go down to the investment committee and pitch this opportunity, I wanna be sure that I can get it.
Be a fair fight, right? And that, I don't think AI is going to be able to tell you.
David Moghavem (46:30)
Exactly.
think just to phrase it in a different way, I always like to think of processes and like what the bottleneck is. And before you would hear people saying like, I don't have the bandwidth for this or that deal when there was a bunch of deals in your pipeline. Now we're seeing clearly the band, the bottleneck is the trust factor and the relationship factor where the excuse isn't, it's going to take me so long to put the materials together, underwrite the deal. ⁓ It's the
the bottleneck is who trusts you to do this deal. And that's as clear as ever now. So it's an exciting time because if you do build those relationships and you do build that trust with equity, you don't have the excuse that, ⁓ I was too busy with this deal or that deal or asset management, this, it's the real bottleneck now is do you have investors or equity or capital that will do the deal with you?
Malcolm Davies (47:29)
And by the way, this is why I believe that the superstars in this business will be even bigger superstars. And the reason for that is because the superstars are going to learn to understand what was the only thing restraining the superstars from doing more superstarring? Bandwidth. Yeah. Right. And the reality is bandwidth, if you can unshackle bandwidth, you can do a lot more for other people and provide those influences that can ultimately get someone to make a decision with the trust. Right. And I think that bandwidth being
reduced down to a point where you can get a deal in front of so many people's hands so quickly. I'll give an example. So value on multifamily deal, got a call from a great friend of mine and said, hey, our equity partner fell out. It's one week to go before we have to go hard. I mean, normally you'd say, good luck. So I said, hey, there's no way anybody's going to go hard with you in a week.
David Moghavem (48:19)
Good luck.
Malcolm Davies (48:25)
I know that I got it. said, however, you're a very reputable platform and you have a very identified deal. And I could likely, through my, we call Curate, it's our Curate equity system, I can find what I think are going to be very valuable and valid equity sources for you in a quick period of time. in literally less than three minutes, found 71 groups that I thought that would be appropriate for them. And essentially was able to directly introduce them in less than three minutes later.
Right? so in a very casual way, a very appropriate way, but not in a, you know, hey, this is aggressive at all. It's all, hey, same process. Hey, Joe, meet John, you know, blah, blah. Worst case, you know, you do a deal, whatever. And out of that, two opportune, two investors are saying, hey, this is interesting. Now they're working on an extension and maybe that happens. Maybe it doesn't. But you know what? Without AI, that's never going to happen. Yeah.
David Moghavem (49:19)
Exactly. Opens up the bandwidth. I always want to ask, as we were talking about earlier, podcast to podcast and like trading notes there, but I always like to ask a fellow podcaster, has your lens on the market evolved or changed after having these continual conversations? And what's one little nugget that in your mind has changed after having all those conversations?
Malcolm Davies (49:21)
Yeah.
I think the one nugget that I've learned by being a fellow podcaster, I think you do a great job by the way. Okay, so it's how much work or energy people do put in wherever they sit in our business. How much work and energy is to do what they do. It doesn't matter if you are a lender, ⁓ a sponsor, an equity provider, a service provider. I mean, it's all work.
David Moghavem (49:48)
Thank you. just nod.
Malcolm Davies (50:11)
And the best of the best bust their butt every day. When no one's looking and no one's seeing, the reality is they are putting in 15, 16 hour days, even with family commitments and the like. And it's how much energy they're putting into being the best of the best. So for me, I knew I put a lot of energy and effort in, but really truly that I can tell that the ones that are superstars and succeeding, they're doing the same thing on their end. And it's...
Not that it was surprising, but I always thought, oh, you're a lender. You just take the deals and you're you're always, you're intaking and you just kind of figure out which one you're going to try to do. No, it's like, it's unbelievable how much energy they're putting into the reviews. And to your point earlier, our point about bandwidth, they are reviewing a lot more deals now than they were before, which I do think that allows some of those ones that maybe they said, well, I don't want to really work on yet because of bandwidth. they're- they're- Yeah. So I think there's-
David Moghavem (51:06)
Yes
Malcolm Davies (51:08)
Pretty interesting to see how this world's kind of changing right in front of our eyes right now.
David Moghavem (51:11)
Yeah, it's a, that's one thing I noticed too, when I, when I bring on really successful peers, they're out working, they're out working, they're putting in more hours, they're working on the weekend or they're staying in late and that compounds, that starts to compound as you're in the industry for 10 years, 20 years, so on. So I, I, that was one thing that I picked up too, from just interviewing and I see it also with you and what the platform you've built.
how you've put in the hours and...
Malcolm Davies (51:43)
I mean, I remember when Tryon started. It's amazing to see the growth of the company and you guys do unbelievable things. so it's amazing because when you come out of different eras, different things start. And so things are being started today that you will see five years, 10 years from now. So that's exciting. I'm really excited. I still have as much passion about this business than I did 15 years ago. And then the first 10 years as a developer. The one thing I will say is that you get a little older, you have a little reflection.
David Moghavem (51:58)
dividends.
Malcolm Davies (52:12)
And you can start to see, how can you provide a little mentorship to the younger generation? I think what's interesting about this cycle change, Necessarily the AI and the growth. An 18 year old that walks in your office may have more value to what you're doing than somebody who's been in the business for 15 to 20 years. That's never happened. That's never happened.
David Moghavem (52:34)
With just them getting you up to speed with the new tools.
Malcolm Davies (52:37)
The
tools are running it. mean, had an 18-year-old came in the office who wanted to intern for the summer, currently in an Ivy League. And the stuff he was saying, I'm like, OK, I got to up my game here. It's unbelievable. They're just already cranking away.
David Moghavem (52:51)
to a few potential summer interns and the first thing I used to ask interns is how good is your Excel? Now I'm asking how good are you with AI and Excel? But still AI is definitely like top question for sure and seeing how we can get processes done. I'm on a mission right now to basically replace all like the entry-level like low-hanging fruit skills in our company right now that like an entry-level analyst does so.
Malcolm Davies (53:17)
So the thing I think about, everyone always asks me, is AI taking, are they gonna take all these jobs? And the answer is likely in the short term, yes. But reality is in the longer term, it's going to create more, more different opportunities, different jobs. And ultimately, just like anything else, it's gonna make us faster. We're already being faster today. And the competitive nature of all of us, we're just gonna all be faster. you know, in the old days, you know, I remember this like.
David Moghavem (53:37)
I say.
Malcolm Davies (53:45)
you know, when you first got, I got in the workforce in 1998, okay, I'm gonna totally date myself here. So you could leave an outgoing voicemail or, you know, and say, I'm on vacation for two weeks, call me when I get back. Or I'll call you when I get back. And that was totally acceptable because there was no really, mean, internet was around and you could, email was certainly there, but it was not on your phone. And so that out of office really meant something.
And so that would not be possible today. so we've had technological advances with everything. It just means that we're faster. There's no way. I mean, even this morning, I'm talking to someone in China. I got someone on a trip right now in Costa Rica, Europe. mean, it doesn't really matter where anybody is anymore. The only difference is it's like, OK, what time of day is it for them? Am I going to wake them up?
David Moghavem (54:36)
or not. So it's interesting. Malcolm, I know you have a tee time to catch, huh?
Malcolm Davies (54:41)
do. But also, most importantly, as I'm flying off on Friday to go see my cats, hopefully win the national championship.
David Moghavem (54:48)
Good luck there. it was great having you on, Malcolm, and looking forward to seeing more content that comes out on your end with your pod as well.
Malcolm Davies (54:58)
Likewise, David. Thanks for having me on. Of course. You're a rock star. ⁓
David Moghavem (55:01)
Thanks.