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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.
John Casmon (00:17)
Why don't you bring your panel on up? I love it, I love it. Thank you, All right, good luck. All right, panel, up. We've got Andrew Cushman, David Moghavem and Rob Piersley. Guys, come up. There we go, I like that. There we go. Hey, how's it going? How's it going? Awesome, good to see you.
Alright, alright, alright. Well let's jump into it. First and foremost, hope you all are enjoying everything. That snow yesterday was crazy because I'm in Cincinnati and we had this deep freeze. So when it finally melted, I was like, awesome, done with this snow crap. Get out here, man. It just snows all day. So hopefully you guys are enjoying yourself.
David Moghavem (00:53)
You gotta come to Miami.
John Casmon (00:55)
Yeah, man, I got to do something there. ⁓ David, actually want to start with you, right? We've heard all these guys talk about multifamily investing and what's going on. From your perspective, how are you evaluating deals in 2026?
David Moghavem (01:05)
Yeah, well, thanks for having me and it's an honor to be on stage with you both. So, you know, a little bit first about Triumph Properties really quickly. We're owner-operators of value-add multifamily across the nation. And our North Star historically has always been untrended yield on cost. So what a property can become after you snap your fingers and get to the pro forma rents that you think you can achieve
⁓ over the cost of the whole project. So not just purchase price, but construction costs, renovation costs, financing costs, fees, everything, fully loaded. What's interesting ⁓ post-rate hike is that that yield on cost can be even lower than your going in cap rate. There's gain to lease, right? Instead of loss to lease, rents are going down. There's ⁓ deferred maintenance costs that your purchase price is not accounting for. And so as before,
you would think, okay, you're buying something at a three cap, but it could be a six return on cost. Now it's, hey, you might be buying something at a six cap, but it's really a day one yield net of gain to lease, net of deferred sub five potentially. So how are we evaluating deals today? We're looking at it based on conservative gain to lease, net of deferred yield that ultimately it can become. And if the deal still works and still stands on own two feet,
then we feel good about it.
John Casmon (02:38)
I love it folks,
untrended yield on call.
David Moghavem (02:41)
Because trended is with
rent growth. Trended is with ⁓ expectations of inflation. But I think that's something you can't, you can only control what you can control. And so that's where the untrended basis comes from.
John Casmon (02:54)
And you're investing across like nine different markets, right?
David Moghavem (02:57)
Yeah, we're in eight different states, California, Oregon, Colorado, Texas, Florida, Georgia, and Carolinas.
John Casmon (03:04)
So you're seeing a lot. Rob, you are primarily focused on Texas. And I know for a lot of people, when we talk about multifamily investing, many people only really hear Texas investing. So talk to us about the state of Texas multifamily. Sure.
Rob Beardsley (03:17)
you
And first off, hey everyone, my name is Rob Beards. I'm the founder and CEO of LSCRE. Since 2018, we've acquired about a billion dollars in multifamily assets in Texas, vertically integrated like you guys at Tryon. And we also have no investor losses or capital calls. So in Texas, there's been a whole lot of activity. There was a ton of interest in the Texas multifamily market in the run up, in the low interest rate environment. You know, if we were at this conference a few years ago, you probably bumped into a million
people that were investing in Texas that wanted to invest in Texas. And that's a good thing. It's a liquid market and there's a reason for it. The demand and the drivers there are very strong. So Dallas and Houston are pretty much always at the top of the country list in terms of population growth and job growth. And that gets investors very excited. However, it's true in Texas and it's true almost everywhere. Demand.
can always be outstripped by supply. Developers can build new product faster than people can move to the area, and jobs can get, you know, spinned up. So that's been a big challenge in Texas as well as across the Sun Belt. So...
Experiencing that oversupply, in particular pockets especially, is where that gain to lease, where those concessions, where your numbers get upside down. And so we've been really focused on those higher bear to entry submarkets. Because yes, you could paint, for example, Houston with a broad brush and say, ⁓ Houston, there's no zoning, and it's land forever. It's easy to build in.
You can absolutely paint the market with a broad brush like that, but we all know that markets are not that way. Markets, doesn't matter where you are, they're block by block. They're neighborhood by neighborhood. And so even within the markets that we're in, like Dallas, Houston, San Antonio, there are those pockets where there are local municipalities versus supply. There's geographic barriers, there's economic barriers, and things like that.
John Casmon (05:17)
Yeah, lots of great things there with Texas and you talked about supply a little bit. Supply is certainly one of the key factors that have impacted multifamily over the last couple of years. How are you all seeing supply impact you and your markets? Let's start with Andrew.
Andrew Cushman (05:31)
Yeah,
it's been really, oh sorry, Andrew Cushman, founder of Advanced Point Acquisitions. We started in 2011, you guys hear me? Yeah, I hear you. We started in 2011. I live in Southern California, so I'm disappointed I can't be in my shorts and flip flops right now, but all of our investments are in the Southeast US, Florida, Panhandle, Georgia, Carolinas. And like Rob, we've been very fortunate, no capital calls, no losses, we have no distressed assets, and we're gearing up to take advantage of the opportunity
coming. To get to your question, it's been very clear to us comparing the different markets that we're in that supply is probably, at least right now, even much bigger factor than interest rates in the economy and everything else. So, for example, we own property in Valdosta, Georgia. Just curious, anyone heard of Valdosta, Georgia? All right. Couple, right? So, for those of you who have heard and haven't heard of it, it's a little town.
perfectly equidistant between Orlando and Atlanta right on the freeway. We, for every quarter of the last three years on that property, we have set new records for revenue and NOI because there are zero deliveries in that market. And it's a blue collar workforce housing town. Same thing with our property in Grove Town, which is a suburb of Augusta, Georgia. Same thing with our property in Lynnhaven, Florida, which is the Panama City beach area.
On the flip side of that, we have a handful of properties that are in demographically very strong suburbs, about 45 minutes outside of Atlanta. We thought, we'll be pretty insulated from the oversupply that we saw coming in Atlanta. We were wrong. So much supply hit Atlanta, and rents got hit so hard in Atlanta, really on the concession side. You know, when you're offering one-month free rent, that's an 8.3 % decrease.
in revenue for each lease that you do that for, which effectively is a rent decrease. ⁓ So even though we're in great markets 45 minutes outside of town, the downdraft created by all that supply in Atlanta flattened those suburbs. we saw in several properties just no rent increases. And then in a couple of properties, we actually had to drop rents a little bit. We're still in the low 90s. ⁓ So it's not terrible, but it's very, very
clear that the number one factor for us was, how much new supply. And that whole thing you hear about, don't worry about it. I've got a B-class property. This is luxury A-class stuff. That is a lie. Because when that luxury A-class stuff is offering three months free rent, someone looks at your B-plus or your B-minus and even your C and says, well, forget it. I'm just going to go live in this brand new one for a couple of months, and I'll worry about it later. And then the guy, so everyone in class B loses their residence to class A.
And then what does class B do they go poach from class C and? No, you know brokers in particular won't issue the D word But then they know the people in class D move up to class C So C and D really gets hit hard so it filters down. That's it's called the filtering effect
John Casmon (08:46)
think it's one of things we have to understand, right? When I'm listening to you guys talk about it, what you're really getting at is the fact that all real estate is local, right? When we talk about multifamily investing, you could be in one market and crush it. You could be in another market and have these kind of challenges despite understanding all the data, recognizing that, hey, we've got great demand. This is a nice area. There's so many things from a local perspective that impact demand, impact the ability to push rents, that you really need to understand that. All three of you guys invest out of your backyard.
⁓ understand the local market and get that data and what are you paying attention to to make sure you understand what you should be investing in. I'll start with you, Andrew.
Andrew Cushman (09:25)
So we started remote. My philosophy is live where you love to live. I like to surf and snow ski, so Southern California, and then invest where the returns are the best. So back in 2010, we picked Georgia in the Southeast. And our goal is to be an inch wide and a mile deep. So we've been in that market ever since. When I started, in order to invest outside my backyard, I made frequent trips.
Out there probably every month every two months. I was spending a week or two traveling around looking at markets looking at properties meeting people and so that's how it starts in the beginning then ⁓ and I also part partnered with did the whole big interview process that won't go through but partnered with a local a regional property management company that I could allow me to that would allow me to integrate myself into them. So it's not truly third party. It's actually can we have a hybrid model.
And so we had their boots on the ground and then now as we've grown we've done about 3000 units. have local asset managers are acquisitions team lives there ⁓ and so we started out. went out there and then just built a local team ⁓ overtime and then by picking an area that had still has some ups and downs. It has the right long term like multi decade demographics.
us to stay in that market through different cycles, learn how those markets perform, and get really, really good at those markets. Like you can send me a property in Atlanta. I can guarantee you there's no property that will come up for sale that we haven't already looked at two or three times. And like, it's on that street. Forget it. Right. So.
John Casmon (11:08)
I love it. Let's skip you, David, and come back to you. Let's go to Rob.
Rob Beardsley (11:12)
Sure,
I mean, if you're investing not in your backyard, you've to make it your backyard. There's no shortcut. So, kind of the things Andrew said, you have to make it your expertise. You have to really enjoy your craft. for us, it looks like frequent trips, having local boots on the ground. know, we have an amazing partner, Sam Morris on the team, who's born and raised in Houston. So, he knows all the tricks of the trade and all the right and wrong streets and things like that, that you really can't Google and find off.
With that being said, though, there are a ton of things online these days. You know, this is not the 90s. There's a ton of information that you can do to get, I would say, 80, 90 % of the way there. So that's not rocket science. All of us in this room know how to analyze, you know, income and growth and crime and school data and stuff like that. So I wouldn't say it's...
The most challenging thing to become I don't want to say expert obviously, but to understand whether it's a good location or a bad location the more challenging thing is Differentiating yourself in that market because if you're not in that market if you're not taking the brokers golfing if you are not building the local presence where the Multifamily industry the leasing agents the maintenance teams the managers if they're not dying to work for your company And you're not building that sort of loyalty you're gonna get eaten alive by turnover at the employee level which trickles down to the
⁓ tenant level. And also it doesn't hurt that I spent six months living at one of our properties in 2024.
John Casmon (12:40)
I
love it. So David, you're across multiple markets, so for you this might be a little more challenging. How do you manage to kind of understand about local market knowledge?
David Moghavem (12:47)
No, I love the analogy of making the market like your backyard. And both Andrew and Rob have said it so eloquently. It's a lot of trips. It's a lot of travel. It's hiring the right people, boots on the ground. For us, being vertically integrated, like talent on the ground is everything. And property managers is probably the most thankless job in our industry, but it's the most important. And we spend thousands of dollars with recruiters
hire our onsites, our maintenance techs, our regionals, and that's really like, you know, these business plans, they hang on a very thin thread that can break if you have the wrong boots on the ground. And so the trips, talking to the brokers, the relationships, this is a relationship business. ⁓ I'm on a flight on average like over one flight a week at this point. It's crazy with the conferences and talking to brokers, but point being, that's how
That's what it takes to get done and what Andrew said was also important leaving no stone unturned in terms of what deal you're underwriting for us when we break into a market I think it takes us over a year at this point for every market we break into because we're taking that first year Underwriting every single deal. You know, our goal is to try to find alpha in a market and to find ⁓ Asymmetric returns. So first we need to say what's market? What are the returns in this market and it's our job to figure out?
All right, what's market and where can we play to find asymmetric return? So as Andrew said, that's how it's done. Leaving no stone unturned.
John Casmon (14:25)
I love it. You have been vertically integrated in your properties across these different states. And obviously we know that property management is one of the most thankless jobs and the least profitable elements of this business. Yet you are getting into third party management now.
David Moghavem (14:43)
Why people think we're crazy so We're we're in markets that a lot of these 500 pound gorillas the gray stars the AMC's the asset livings They're being snobbish right now. They're there. They see a 70s vintage deal That's 80 % occupied and operationally distressed and like I'm not touching that I'm not wasting my time with that We own ⁓ a lot of properties in that vintage and we're outperforming our comps ⁓
learned the hard way on some of these issues and we've beefed up our staff tremendously. our talent, again, we've not just boots on the ground, but even on the back office. And so what we're doing now is we are looking at properties that are operationally distressed in our comp set and we're saying, hey, let's ⁓ manage for you. And you'll be surprised how many people are willing to work with us because we have an ownership lens for that type of asset. And so we're not just
just coming in and saying, we'll maintain occupancy. And they're like, no, we're finding solutions to their backdoor eviction problem. We're finding solutions to their concession problem. We're finding out ways for fraud detection tools. so these are points that most of these bigger, ⁓ you know, I don't want to talk smack about these bigger property management. Yeah, OK.
Andrew Cushman (16:09)
justify.
David Moghavem (16:13)
Anyone in our industry knows that no one will care more than you as an owner. And I feel like what we do as a strategy, I could talk about this for hours, but point being, we kind of partner also with these owners in managing and finding solutions.
Andrew Cushman (16:30)
God bless you, man. Third party managing class C sounds about as much fun as nude beaky.
David Moghavem (16:35)
Yeah.
John Casmon (16:36)
David
to that point I hear that and that makes sense and that sounds great But to do that to make three and a half percent and then have like what is your margins have to be super slim or something like that So I'm going back to why are you partnering with them and getting some upside like I'm having a hard time figuring out why somebody was
David Moghavem (16:54)
We get creative.
get creative. ⁓ Again, these are properties that are sometimes in our CompSet or in our MSA. They're properties that we've underwritten when the previous owner bought it three or four years ago. So we know the asset well. And here we are three, four years later, rate hikes, operational distress. And we're saying, hey, we know how to manage this. And maybe there's something down the line that we could partner in.
John Casmon (17:20)
Okay, love it, love it. ⁓ Andrew, you mentioned your hybrid model earlier, which man, ⁓ that's a creative approach. If you can figure out a way to work with an existing property management company, but you step in and search yourself as the asset manager, that alleviates a lot of those issues. How are you able to identify the right property management company to implement this business plan?
Andrew Cushman (17:42)
Yeah,
the ones that David mentioned won't do it right so you're not going to go to an asset living or a gray star or any of these big guys because you know, like you said, they're going to be like and no or they're going to be like OK, you're the owner. We send you a report and you just read that. So what we did is so again, this is going back to specially if you're getting in if you're making a market your backyard great analogy is we interview every broker. We talked to every lender. We talked to said hey if you were buying this who would
you hire to manage it. We built a list, researched them, narrowed it down to like five, did some phone interviews, narrowed it down to two. I flew to Atlanta and had lengthy dinners with the owners of those two companies. So that's key right there. It has to be a small enough company that you can meet with the owners, but big enough that they have a strong presence in the market and have some levers with vendors, suppliers, and if your manager gets sick or quits, they can pull someone and fill that spot temporarily. ⁓
advantages to working with a group that has some size. At the time, the management company we partnered with managed 3,000 units in the exact same geographical area that we were in. And we had a conversation over dinner, like, if we hire you, this is how we're going to work. We're going to run the weekly calls. Our asset managers are going to do that. We're going to provide the direction. And in a very nice way, I don't have time to explain that, we basically said, you're going to do all the paperwork and the evictions and the not fund
stuff that we don't want to do, the admin, and we're going to drive the bus. ⁓ And we found a group that agreed to it because they saw us as a partner to grow with. they've been our partners now for 15 years. ⁓ And it's worked exceptionally well for us. It's a long game. But if you find the right group, it is definitely a big lever you can pull to make out of your physical backyard investing work.
John Casmon (19:40)
I love it.
We're going to start taking questions. So if you do have questions, Kennedy and Amy are here and here. Just come up to them and they will find you and we'll get into those questions. Rob, one of the things that we were talking about before is just how you've adjusted your investing strategy. We heard J. Scott earlier talk about, hey, he would focus on value add deals right now. You've got a different take. What's that?
Rob Beardsley (20:04)
Yeah, I love that everyone sees the market differently and there's many ways to make money. From our perspective, we feel like it's very difficult to be successful with value add when you're swimming against the tide. So you really need a rising market when rents are going up and occupancy is going up to make the value add easier. So when you're coming in there and spending money on unit renovations, it's not in vain and you're actually getting those rent increases that you hoped for. And right now, if you look at a lot of deals right now, I call them fail.
value ads. So the seller or the owner is trying to sell them. And the broker package will say that it's a value add opportunity. You can finish what the owner started. And basically the ownership took 20 % of the units or something and renovated them and are proving out some sort of increase. But if you really analyze the rent roll, you'll see that the vacancy is clustered in those renovated units. You'll see that there's loss to lease on those. So they're really not getting the true bump that they're advertising. So if you look at it from that
perspective and then Based that against the actual cost to renovate which has only gone up over time your ROI is not there so And then that's nothing to sales also about the time and risk associated, right? It's gonna take time and a lot of effort It's a lot of work to do value at anyone who's done that and manage a renovation project It's a big big big project. So we like the option of actually buying core plus assets in today's environment We think that the basis is strong today and where we are in the cycle is at
that we're gonna ride up with the market. And so I feel like one of the misconceptions of the previous market cycle was that buying value-add multifamily was a great investment. And it was. I'm not saying it wasn't. It's just, was it the value-add that made it the great investment, or was it the market cycle that drove all values up? It was almost like the junkier the property you bought, the worse location you bought.
David Moghavem (21:59)
the more excited
you got.
Rob Beardsley (22:00)
The
it appreciated, the more it did well, right? It was a perverse market. Now we've unwound that. And I'm not saying the market won't get crazy again. It will. But in today's market, we're in a sane situation where, you know, A's are four caps to just overgeneralize. B's are five caps, and C's are six caps, right? It wasn't that way. There was no dispersion before. Everything was a two cap. So now in this environment, you can really actually differentiate yourself by in those very high quality assets. We're not afraid of even class
C properties, but we will not touch Class C locations. That's where we don't think the risk is worth the reward.
David Moghavem (22:38)
I want to ⁓ add something there. So I think it's important to define some of these. agree with Rob. This is the lowest ROI market we've ever seen in terms of getting a unit, turning it, and trying to bank on a rent bump to justify your NOI. We're seeing none of that. In fact, we're seeing NOI kind of go down. ⁓ But there is a capital dislocation we're seeing right now where if a property doesn't check every single box, you're getting
a widening of yield beyond the risk that you're taking in some cases. And so like where we like to play is kind of this sub-institutional where it's not a class C, but it might not be the class A that checks every box because the capital flows that are chasing that class A is really compressing yields to a level where it's hard to compete and get to your return. So we like the sub-institutional, maybe a 90s or early 2000s.
Maybe there's institutional owners in the comp set that used to this pocket used to be institutional But for whatever reason they're going to the shinier new property and if we're comfortable with the cash flow today Worst case scenario your coupon clipping and it's standing on its own two feet best case scenario You get some cap rate compression if the market starts to rebound and that becomes an institutionally ⁓ qualified asset to buy
Andrew Cushman (24:03)
I had
some book this so many of us in this room got started in class C. did myself as well. There's going to be some great opportunities, especially to get an incredibly low basis coming in class C. But keep in mind that class C always looks way better on a spreadsheet than it does in real life. You buy a distress class C. You are basically taking on the same job as the guy who empties pot porta potties right you're dealing with crap all.
Day long that's all it is now if you're willing and able to do that you can make a ton of money But if you're my advice to people getting started or kind of in the mid level area is you got a choice or our business model now is if we have a choice between a class C and a class B and all other things are basically equal We would go with class B all day long when I look back at the last 3,000 units that we've done over the last 15 years our class B stuff Not only had better returns, but had it with less risk and less headaches
So keep that in mind when you're looking at two spreadsheets and one's class B, one's class C, and you're like, this one's only 80 a door and this one's 120. What I like to say is that the grass is always greener over the septic tank.
John Casmon (25:17)
I love it. Do we have any questions? I don't know where Kennedy and Amy are.
David Moghavem (25:23)
I've heard two
strategies. ⁓
John Casmon (25:26)
Andrew, you've mentioned you go out to third party property management group to manage all of your property. As we all know, property management is key to making things fly.
Andrew Cushman (25:28)
and get a.
David Moghavem (25:32)
and
Andrew Cushman (25:34)
David
you're more
David Moghavem (25:40)
on the area where the owner of a management property is out and third party.
John Casmon (25:42)
Nobody managed to like. Do you see?
Andrew Cushman (25:45)
conflicts
John Casmon (25:50)
versus
hiring somebody that's an expert in property management. Expert.
David Moghavem (25:57)
So the question is, ⁓ to rephrase, is getting a third party manager to manage our portfolio versus or us managing someone's property?
John Casmon (26:13)
The question is, do you see a conflict in self-managing versus hiring a third-party manager to come in and manage your assets?
David Moghavem (26:20)
⁓
Do you want to go first?
Andrew Cushman (26:22)
I don't know
if there's necessarily conflict. I would keep in mind also that caring doesn't always equal competence, right? If mice, you know, I take my son to the doctor and they're like, hey bad news good news He's got a brain tumor, but you know, we can get it out and it's benign Just we just need to do the surgery and then we schedule I'm not gonna walk into the OR that day like hey doc I care about him more than you let me do this right not gonna that not a good idea and candidly when we're looking for acquisition
We love self managed properties because there's a lot of them that are very poorly managed ⁓ with that said. You know self-management makes sense if you can build the team in the systems to do it right because then you then you you pair caring with competence you have to have both in order for it to work and that's where that's where can go wrong is if you don't have both of those that you know these guys have both that's why it works there's a lot of other people in this room that have both and it works.
⁓ So there's not a show. I don't see a conflict and then you know where conflict happens and Going on the other end of the spectrum is if you hire third-party property management And they are not aligned with your goals or how you operate that's where conflict comes into comes into place I'll give you a real-world example I've bumped into this even with our long-term partner right like a new regional come in the property management World has a mentality of we want to present everything nicely
and positive to the owners. Like, everything's going great. Don't look behind the curtain. It's all fine. And so we've caught a couple of times where a manager or a regional will be instructing the property manager, hey, talk to me first before you talk directly to the owners. we're like, uh-uh, uh-uh. You will get fired if you do that. So there can be some conflict, but there's ways to eliminate it. Yeah.
David Moghavem (28:18)
I agree that the alignment is different with a third party where they don't want to lose your business as a third party manager. So they'll just make sure that everything is fine and rosy. they're looking at the financials differently too. Like we're looking at it from an owner lens. So it's not just about occupancy. It's not just about, ⁓ there's more to it. It's maybe getting rents and capturing loss to lease if rents are going up or maybe it's ⁓
solving a backdoor eviction issue. And so it's not about just maintaining a ramping up occupancy if it's bad credit tenants. So I think self-managing, there's a little bit more of an alignment there.
John Casmon (28:59)
glad that
many property management companies are good at one thing and not the entire suite of driving value. We had a third party management company. They were excellent at pushing rents. mean, they push rents way further than I would have been comfortable with. They also put in tenants who were less than savory and within 60 days were evicting some of these people. And guess what? The way our agreement was set up, they got paid twice because they were taking that first month's rent with leasing. So you go back to that alignment of interest where if you don't get paid when I get paid, ⁓
at the business the same way. So they don't really care because they're going to refresh that. And we had to sit down and talk to them to say, this won't happen again. you guys, someone moves out because they didn't pay rent, we're not paying you. You're on the hook for that. But you have to align that interest because that can be really challenging.
Andrew Cushman (29:44)
And I had two quick lease. we haven't done this, I know people who have. If you're using third party and you want alignment and you structure your operating documents well, you can give them a small piece of equity interest, your economic interest in the property, so that if it does really well, both annually and when you sell it, they benefit as well. That helps with alignment. And then what sometimes get lost in the third party versus self-management is the most important piece of this is the asset.
The property manager who sits there and runs the asset day to day. They have a bigger impact than any of the rest of the stuff that we are talking about. Don't make the mistake of buying a $5, $10, $50 million asset and then trying to hire the cheapest property manager to sit there. That is the one place where you want to overspend and a great property manager can turn a so-so deal into a good one and a bad property manager, I'm talking again the person sitting in the office every day, can take the most amazingly underwritten
the best basis, the most deal, best deal you've ever seen and run it into the ground. So that is the key person in all of this.
Thanks for sharing this.
John Casmon (30:56)
Stories
guys, a quick question in terms of avoiding capital calls, distress deals over the last couple years. Is there anything that you guys creatively to avoid that or is it just the nature of the original basis you got in it and the debt?
Andrew Cushman (31:01)
and
David Moghavem (31:05)
done.
Rob Beardsley (31:13)
not sleep, work really, really hard. I think it's a show of, not to break our arms patting our backs here, but I think it's a show of character because in good times, your investors make money, you make money, and it's great. And then in bad times, are you showing up every day working just as hard, if not twice as hard, for no compensation? Deferring your fees, there's no promote waiting for you.
Andrew Cushman (31:15)
Yeah
Rob Beardsley (31:43)
at the end of the tunnel, and you're just still grinding every day to try to fight whatever challenges you have in terms of ⁓ supply or evictions or what have you. So yeah, I don't think there's any sort of magic. I'd love to hear if you guys have some magic.
David Moghavem (32:02)
No,
mean, getting, as you said, you said ways that we got creative. Yeah, deferring fees, you know, signing things that you probably wouldn't want to normally sign, but for the benefit of the deal, you should sign. ⁓ We've definitely gotten very creative and it's just a testament to when shit hits the fan, who are you as a person? Are you going to be the one that just lets go? Are you going to work your ass off to make sure that you can see this project
through and deliver to your promise ⁓ and your fiduciary duty as an operator.
Andrew Cushman (32:39)
So for us, ⁓ there's a couple of things. But probably the number one, patience. There were times in the last five years we went 18 months without buying a deal. But the biggest one that saved our butts is we did not see this coming either. I mean, we didn't think, yeah, the Fed's going to jack rates 525 basis points and just put a stick in the spokes of the wheel of the market. But what we did and we always do that saved us is we think probabilistically, meaning we don't bet our investments
on a single outcome or a single case. So I'll give you an example. We bought a property, $48 million acquisition in Florida, March of 21 we closed it. So pretty close to the peak. We got offered floating rate debt at like 2.5 or...
12 year Fannie Mae fixed rate debt at 3.79. At the time, everyone thought we were crazy to not go with the 2.5. Like, that's so much more money you're paying in interest. We said, well, we're going to get a 12 year loan, seven years interest only. Let's look at the, what is the most probable outcome? Right now, today, 21, interest rates are at the lowest they've been in 30 or 40 years. Probabilistically, will they be higher or lower five years from now? Well, if they're at an all time low, there's a good chance they're going to be higher.
All right. Well, what if they're higher and if we fix the if we fixed the loan and they're higher, what happens? Well, then we're paying less interest because we fixed it and we have 12 year runway. Well, that's pretty good. What's the worst case outcome and we're wrong. All right. Let's say five years from now rates are actually lower, which we didn't think would be likely but possible. All right. Well, we fixed our loan at three point seven nine. Rates are lower. That means our yield maintenance would be higher if we sold it. But that means cap rates would probably be lower. That properties be worth a lot more.
And so that would probably counteract any downside of fixing therefore we should fix this loan like it was black and white and clear Today that property still distributes double digits cash on cash it has since the day we bought it Parsely because it's a great asset in a great market But the biggest biggest piece is we are still sitting on interest only three point seven nine percent loan We didn't know this was coming We just looked at it probabilistically and that's how any investment should be evaluated not all this is what's gonna happen
But this is the base case. What if this? What if this? Look at it like a bell curve and make sure that you hedge against those tail outcomes that could take you out of the business.
John Casmon (35:07)
One other
thing I would add to that is to continually look at what's happening. I think too many people were just being optimistic and hoping things would go back to how they were and they didn't react fast enough. That's great if you can get the loan, once you have that bridge loan, you have that bridge loan. You've got to just react. Not enough people were taking precautionary steps early enough in the process, maybe halting distributions early enough, putting more money in reserves, doing whatever you needed to do to protect the asset.
number one job, protect the asset, then you take care of your investors. But a lot of people chose to keep the facade of a deal that's going great even though they were burning through money. With that said, we are out of time. I want to thank our wonderful panelists here for your time today. I know most of us will be around, so thank you for your time today.
David Moghavem (35:54)
Hey.