MC Companies' Plan to Buy $500 Million Of Real Estate

[00:00:00] Welcome to the Real Estate Strategies podcast.

[00:00:02] Let's get right into this episode.

[00:00:04] So we own over 10,000 apartments, 300 employees, and here's our plan to do over

[00:00:10] 500 million in transactions in the next 12 months.

[00:00:14] Welcome Charlie.

[00:00:15] Thank you very much.

[00:00:15] Can't wait to chat with you.

[00:00:17] So Charlie's our CIO.

[00:00:19] He is in charge of our strategy and, uh, you look at what, 10, 15, 20 deals a week?

[00:00:26] Yeah.

[00:00:26] Depends.

[00:00:26] I mean, it changes, right?

[00:00:28] When it's on a, in a, in a frenzied market, we were looking in 2021, 2022,

[00:00:32] you're looking at 40 deals a week.

[00:00:34] It's a little bit slower now.

[00:00:35] So we're probably analyzing 10, 15 deals a week.

[00:00:38] And by the way, Charlie bought over 30,000 units in five years.

[00:00:42] So he knows what he's doing and, uh, I think we'll hit it.

[00:00:46] What do you think?

[00:00:46] Yeah.

[00:00:46] I mean, that's the, that is, you know, when the time is right, you

[00:00:50] gotta be in the place to strike.

[00:00:51] That's the, that's the key.

[00:00:52] I, you know, I like to, to flow with where I think the best timing is to buy.

[00:00:58] And when it's the best time to buy, you just go and then you move from there.

[00:01:01] So 500 billion in acquisitions of the next 12 months.

[00:01:06] I think that's super doable based on everything that we've.

[00:01:09] So what makes a good deal versus a bad deal?

[00:01:12] You know, I think it's kind of a, I try to look at them in a financial aspect

[00:01:16] and then kind of the storyline behind it, right?

[00:01:19] There's gotta be a reason, something about the project outside

[00:01:22] of just the numbers that make you want to own this piece of real estate.

[00:01:26] Um, right.

[00:01:27] You, you run your financial model.

[00:01:29] That's kind of phase one.

[00:01:30] Make sure that based on what you're seeing in the deal, it hits return

[00:01:34] hurdles that you think a, you hit your kind of boundaries of what you want to

[00:01:40] get and then, you know, are your assumptions the correct assumptions to get you there?

[00:01:45] And this is what got everybody in trouble.

[00:01:48] Yes.

[00:01:48] So this is a key point guys.

[00:01:50] Like it's so simple.

[00:01:52] Like when you're taking money from investors, they want to return and

[00:01:56] when the property doesn't return, then obviously you haven't delivered.

[00:01:59] So it's quite simple.

[00:02:01] Yeah.

[00:02:01] It's gotta, we have to get past just what does the equity want?

[00:02:05] Right.

[00:02:05] Correct.

[00:02:05] Yeah.

[00:02:06] And that's, and that's the first piece and that's the technical and the financial

[00:02:08] piece, and then the second piece that we look at is the deal and the story that it

[00:02:12] presents, right?

[00:02:14] I think value add gets thrown around a lot.

[00:02:17] Um, but I think it can mean a lot more things than just new

[00:02:20] countertops and new cabinets.

[00:02:21] What, what is the story that makes you be able to have value creation

[00:02:25] somewhere inside of that project?

[00:02:27] It can be on a 1970s deal.

[00:02:29] It also can be on a brand new construction deal.

[00:02:30] There's value creation everywhere.

[00:02:32] So you want to walk the deal, see what the story is.

[00:02:35] Is there something about the neighborhood?

[00:02:37] Um, I'm a real big believer in right.

[00:02:39] We've all lived in apartments at some point in our lives.

[00:02:42] So it may not be in a complex that you would live in now, but how does that feel?

[00:02:46] Like what does a tenant see?

[00:02:47] Cause what you see is what they see.

[00:02:49] And that makes a difference, right?

[00:02:50] Uh, uh, 16 IRR on a deal that I'm not really madly in love with the ingress

[00:02:56] and egress, or I don't think the clubhouse is set up correctly, or I think the

[00:03:00] floor plans are pretty terrible and the units are 700 square feet, but they feel

[00:03:03] a lot smaller, like I could walk to 700 square foot units and that's why you

[00:03:06] got to be in them and one feels really great.

[00:03:09] And one feels really tiny.

[00:03:11] So it's those little pieces along the way that are the art form of it.

[00:03:15] Um, what does a consumer want?

[00:03:17] Correct.

[00:03:17] Yeah.

[00:03:18] That's so important piece.

[00:03:19] A lot of people forget.

[00:03:20] Yeah.

[00:03:20] So two 16 IRRs aren't the same, right?

[00:03:23] They're, they're both 16 IRRs, but they're not the same.

[00:03:26] One's a better than the other one.

[00:03:28] The one's more achievable, the other one.

[00:03:29] So that's the, there's the, there's the science and then there's the art.

[00:03:32] So a lot of people threw out a value add a lot, right?

[00:03:36] And you touched on it, you know, value add.

[00:03:39] The old value add might be dead right now.

[00:03:41] Like you're not buying old stuff and, and remodeling the interiors and then

[00:03:47] jacket rates because we have a, let's talk about the supply that's hitting

[00:03:52] right now, right?

[00:03:53] Cause there's like a million units being delivered in the next 18 months, let's

[00:03:57] say all over the place, by the way, and not specifically, so you have to watch

[00:04:00] where that, where that's heading.

[00:04:02] But because of that, when you have all that supply hitting a market,

[00:04:06] it disrupts pricing period.

[00:04:08] So you're not going to buy something old or renovated and try to get something,

[00:04:12] you know, a bit, uh, you know, significantly higher rent.

[00:04:14] Right.

[00:04:15] So, however, so this is when I think like the professionals like yourself, like

[00:04:20] when you, I mean, you bought 30,000 units in five years, there's other ways besides

[00:04:27] that, what I would call the layup of the renovated interior to provide value add.

[00:04:31] Right.

[00:04:32] So we're heading into this period of time where the experienced and wise investor

[00:04:37] is going to actually deliver in a value add way that the others didn't know because

[00:04:41] you know why the market covered their butt.

[00:04:43] Yeah.

[00:04:43] And it was just a burn and it was also just a burn and turn.

[00:04:45] It's like, let's get as many of these classic units turned as fast as we can.

[00:04:50] I don't, I don't care if my occupancy dips to 80%.

[00:04:53] I'm on a floating rate loan from a bridge lender who doesn't have any markers that

[00:04:57] I need to hit in terms of that.

[00:04:59] Um, and so he was, that was just pump as much volume as you can.

[00:05:03] There's going to be mismanagement along the way.

[00:05:05] I don't care cause I'm just, I'm getting my 250, $300 rent lifts.

[00:05:09] I'm just going to turn this to somebody else in 18 months.

[00:05:11] So there was just a lot of less focus on the little things and it was just a much

[00:05:16] bigger like plow and go.

[00:05:19] That's the last three years.

[00:05:20] That's what we saw.

[00:05:21] And the, the, the frustrating piece was we were bidding on all those projects.

[00:05:26] Like guys, we were right there.

[00:05:28] Like we were full on, like we had the exact same numbers, the exact same rent

[00:05:34] rolls, talking to the exact same sellers and the exact same brokers and a lot of

[00:05:39] best and finals.

[00:05:39] I don't even know how many best compilers where we had last year.

[00:05:42] A lot.

[00:05:42] 30, 40, 50 maybe.

[00:05:44] Yeah.

[00:05:45] Crazy.

[00:05:45] What that means is there might be 30, 40 bids on something and then they get it

[00:05:50] down to, let's say five and then they, they say, you know, the dry powder, the

[00:05:54] charcoal, sharpen your pencil.

[00:05:56] Um, so we have kind of a high and a low and then, and then the next thing is, is

[00:06:00] we come in again and then of course they're putting the screws to us.

[00:06:04] They want you to sharpen your pencil into a knife.

[00:06:07] Their knife.

[00:06:07] Yeah, exactly.

[00:06:09] To stab yourself with.

[00:06:10] Yeah, exactly.

[00:06:11] Right.

[00:06:11] So then once it started going like $500,000 non-refundable, no due diligence.

[00:06:19] Oh, it's got, it got.

[00:06:20] We're like what?

[00:06:21] We saw, I saw 5 million non-refundable day one on, you know.

[00:06:28] Guys think about this.

[00:06:29] 1980s product that could have significant deferred maintenance and it was day one.

[00:06:34] And the only out was environmental title, which you got kind of through

[00:06:37] your due diligence docs right away.

[00:06:38] So let's go skip over this.

[00:06:40] What?

[00:06:41] Yeah.

[00:06:41] Well, this is what we were dealing with at the time.

[00:06:43] So, so as this, as a buyer, you have to look at these sites.

[00:06:47] So whoever did that 5 million down day one, that means as a seller, you've got 5

[00:06:52] million, you just, you can, you can actually roll that right into your bank

[00:06:56] account regardless that they perform or not.

[00:06:58] Correct.

[00:06:59] And also they haven't stepped on the property.

[00:07:01] Correct.

[00:07:02] So they've toured, well maybe they've stepped on it, but they've done a very

[00:07:05] glossy tour of like, yeah.

[00:07:07] A tour with their broker.

[00:07:09] Correct.

[00:07:10] You didn't see any of the things would actually cost you.

[00:07:11] Yeah.

[00:07:12] Yeah.

[00:07:12] Problems.

[00:07:13] Yeah.

[00:07:13] So that's what we just came out of.

[00:07:15] And unfortunately that's a lot, what a lot of people invested

[00:07:18] in during that period of time.

[00:07:20] So all that slowly changed when interest rates started to go up.

[00:07:25] Yeah.

[00:07:25] What?

[00:07:26] A year and a half ago.

[00:07:27] Yeah.

[00:07:27] And of course we're still the, you know, we're still actually trying

[00:07:32] to buy during this period of time.

[00:07:33] I mean, it's down from 20 to 25 a week, I guess, down to 10 or 15.

[00:07:38] And and so now what's happened is I think finally the sellers expectations have

[00:07:44] changed.

[00:07:45] Absolutely.

[00:07:45] Right.

[00:07:46] Oh yeah.

[00:07:46] Nonrefundable day one is no longer, it's great.

[00:07:48] And it's a great way to still go win a deal, but it is no longer, it used to be

[00:07:52] a necessity.

[00:07:53] If you didn't have it, you were not going to be awarded the deal.

[00:07:56] We had to do it many times and I hated it, you know, because basically means that

[00:08:01] you don't have a look, you know, and if there's anything wrong, like imagine,

[00:08:05] like I remember one time where we had a half a million up, let's say, um, and

[00:08:10] uh, it was refundable and, uh, we found a half a million dollar roof problem.

[00:08:15] Yeah.

[00:08:15] Okay.

[00:08:16] Well, if you're the seller and you have a half a million nonrefundable, the

[00:08:20] seller is going to say pound sand.

[00:08:22] Yeah.

[00:08:22] Right.

[00:08:23] Yep.

[00:08:23] But in this particular case, because it's refundable, the sellers

[00:08:27] willing to work and they have construct knowledge of it now.

[00:08:29] So the next time they have to, if, if it doesn't work out and either not, if they

[00:08:32] don't negotiate with you, then the next person knows about it as well, which will

[00:08:35] probably be the $500,000 hit to their purchase price.

[00:08:38] So they might as well work with you because it's what's actually happening on the

[00:08:42] property.

[00:08:43] So there's a lot of disruption in the market right now.

[00:08:46] Yep.

[00:08:46] A tremendous amount.

[00:08:47] I mean, we're hearing every day, right?

[00:08:49] I'm hearing from the LPs, you're hearing it from the brokers, you know, what a

[00:08:53] Charlie used to run acquisitions for a large company.

[00:08:56] Now he runs it here.

[00:08:57] He's our CIO.

[00:08:58] But you now are meeting with all these brokers.

[00:09:01] They've been in our office a lot the last few months, right?

[00:09:04] What are they saying?

[00:09:05] What are they seeing in the market?

[00:09:06] I think it depends on the two classes, right?

[00:09:09] The, you know, your class A versus your class B and C.

[00:09:11] So class A we're seeing a lot of product come online.

[00:09:15] And so there's some developers that just want to take their chips off the table.

[00:09:18] They're not, they're merchant builders, right?

[00:09:20] So they're not meant to hold the deal long-term.

[00:09:23] So that's most of the volume that we're seeing right now is going to be in your

[00:09:27] newer product.

[00:09:28] Not a lot of movement in the B and C space, slowly starting to come, but their

[00:09:33] values are so depressed that a lot of people can't sell.

[00:09:35] So I don't think we've had any kind of price discovery on that yet, but that wave

[00:09:40] is coming.

[00:09:41] Yeah.

[00:09:41] And so I think there'll be a ton of opportunities.

[00:09:44] I think, you know, you always want to look to de-age your portfolio a little bit,

[00:09:48] but I think there'll be opportunities along the way as well in that distressed

[00:09:52] stuff that I wouldn't want to be a long-term owner of it, but I could probably,

[00:09:55] I can take the reins of it for a couple of years, you know,

[00:09:58] work it through the course correction and then, and then dispose of it.

[00:10:01] That's one of our issues is, you know, Ross and I, you know, you, as you know,

[00:10:04] we started off by mid eighties, you know, cause we were younger.

[00:10:08] Mid eighties wasn't old when we got started.

[00:10:11] Right. Yeah. But now that stuff, cause we're holders, you know, it's,

[00:10:14] it's getting older and, and we've turned it a couple of times.

[00:10:17] We refinanced and cashed out a few times. And, and, um, you know,

[00:10:21] and, and you know, it's, it's just time.

[00:10:24] It's time to move it into some of the newer product, right? Correct.

[00:10:27] And so it's also a good time to be selling some of that stuff because right now

[00:10:33] the market's kind of in flux, right? Yep.

[00:10:36] And especially if you have product like, like ours,

[00:10:38] I would say we own a lot of product that we've been long-term owners of.

[00:10:41] So we have fixed rate debt on it.

[00:10:43] So when we are selling because we want to de-age our portfolio,

[00:10:47] we think this is an opportunity to maybe move it into newer product at a better

[00:10:51] basis than you've ever seen in, or you haven't seen in a very long time.

[00:10:54] And when the, when the market rebounds, that stuff will rebound quicker.

[00:10:58] But we, I think, you know,

[00:10:59] it's an opportune time for maybe move some stuff that you're not actually

[00:11:03] distressed on, right? Because when the distressed stuff comes,

[00:11:06] your story of, Hey, really long-term ownership, quality run product,

[00:11:10] that gets lost in the shuffle of all the distress and you get taken,

[00:11:14] you're decently, you're really well run, decently maintained like 80 stuff,

[00:11:18] right. That's like just solid,

[00:11:19] really good product will get lost in that shuffle and you'll lose your pricing

[00:11:23] power when you're in the mix with a bunch of junk deals.

[00:11:26] Right. That's true. Yeah. As, as you start to see this stuff being repriced,

[00:11:30] we're already seeing well below replacement costs.

[00:11:34] Yes. Right. That's where the opportunity that's again, in our,

[00:11:37] in our plan to get to the 500 million, a lot, I mean,

[00:11:41] a vast majority of that 90% of that is moving,

[00:11:43] is taking advantage of institutions are not quite back in the market yet.

[00:11:48] They're not,

[00:11:50] they want to see a little bit more stability just because they've got 400 bosses

[00:11:54] and nobody wants to be the one that like to them,

[00:11:57] they don't lose anything by like, Hey, we missed, we, we,

[00:11:59] if they miss the bottom and they catch it when it's 20 grand up,

[00:12:02] that's better for them and their careers than buying it.

[00:12:05] It goes down 10 and then goes back up. Right.

[00:12:07] If you can be a private buyer who's got a lot more flexibility and runway,

[00:12:11] you can take advantage of opportunity to get deals that you normally right in a,

[00:12:15] in a frenzied market, you'd have no,

[00:12:17] you have no ability to get it cause they're coming in with a seven IRR all cash

[00:12:21] close in 10 days. Right? So this is a,

[00:12:23] we see it as a really unique opportunity for private buyers to come in and take

[00:12:27] advantage and buy this really well built quality product. Um, because we,

[00:12:32] you know, we're looking at,

[00:12:33] we don't need to make our money in the first three years. It's, we,

[00:12:36] we see we can make a significant profit for our investors in the second half of

[00:12:40] that investment period.

[00:12:41] That's the cool part about this business. You know,

[00:12:44] they're more like a cruise ship, you know, moving along and they're hard.

[00:12:47] It's hard to stop. Also hard to start. Correct.

[00:12:50] Where we're more like a speedboat. Correct. We're coming in and, yeah. And, uh,

[00:12:54] but there's a window, right? Like you might start off for a while,

[00:12:58] but then after a while and the cruise ship will just, yeah, right, right.

[00:13:02] So there's a little bit of a window here where there's disruption.

[00:13:05] There's disruption with loans.

[00:13:07] There's this disruption with equity and property management.

[00:13:11] Now let's talk about that.

[00:13:12] Cause I think the next two years are just going to be horrible for property

[00:13:16] management. Yeah. You know, a lot of trading out deals, you know,

[00:13:20] we're already starting to see it. I was,

[00:13:21] I met with a guy this morning actually and uh, at the gym I saw him and he's like,

[00:13:26] Oh my gosh. Like you think about it,

[00:13:28] if a developer or a lender is losing a deal or let's say a lender is taking it

[00:13:33] back or developers losing a deal,

[00:13:34] they're going to a third party management company.

[00:13:37] So the third party management companies are going to be really busy.

[00:13:40] They're already starting to get busy because the last thing the letter is going

[00:13:43] to do is say, Hey, you've defaulted. Um, you know,

[00:13:46] you go ahead and manage us through this tough, tough time. Right? Yeah.

[00:13:49] So what do you see? That's part of the disruption that part of the reason why some

[00:13:54] of these deals are in really good shape for us to buy, I should say,

[00:13:57] or I should say bad shape, um, is because of the management.

[00:14:01] Management kind of glossed over, got glossed over.

[00:14:04] Yeah. That was part of the, that's part of the,

[00:14:06] everybody was just in this, I will value at in turn classics. Yeah.

[00:14:11] That that piece. And then there was so many, um,

[00:14:14] groups or companies that have been formed in the past five years that they saw

[00:14:21] as they were scaling,

[00:14:23] they wanted to scale with them and through property management.

[00:14:26] So you have a lot of infantile groups that have only seen from a property

[00:14:30] management standpoint, have only seen an upswing. They've never,

[00:14:33] they've never managed through anything other than wait on my rent rolls.

[00:14:36] Just don't turn $500 a unit per month.

[00:14:39] So I think that's where a lot of the disruption is going to be is you're going

[00:14:42] to get a lot of newer property management companies that are tested in ways

[00:14:46] they've been tested. So did they put the right people in the right seats?

[00:14:51] Or were they just putting people in seats because they were on this exponential

[00:14:54] growth pattern and it was just, you know, fill, fill, fill.

[00:14:58] You see it in every industry, right? It's like,

[00:15:00] that's why there was the tech dip last year.

[00:15:03] All of a sudden all these job cuts because Google and all these companies just

[00:15:06] were like higher, higher, higher, higher, higher, higher, higher salary,

[00:15:09] salary, salary. And then when there's the slowdown or there's a course correction,

[00:15:13] you've got to now,

[00:15:14] you've got too many seats and not too many too many seats or too many butts and

[00:15:18] too many seats are not the right butts and not the right seats.

[00:15:20] And so I think that'll be the biggest disruption is that you're going to have a

[00:15:24] lot of untested, unseasoned management companies.

[00:15:27] Which is the opportunity. And that's kind of what I wanted to say. So, you know,

[00:15:32] imagine you guys have all been to like a restaurants that are run really well,

[00:15:36] restaurants that are not run well. It's the same thing.

[00:15:38] So when a consumer goes in someplace to have a choice and,

[00:15:42] and that turns into higher vacancy,

[00:15:45] that turns into rents that are to market, that turns into concessions,

[00:15:49] that turns into delinquencies, that turns into unmanaged expenses.

[00:15:54] All of those things are great reasons to buy. Correct.

[00:15:59] That's the value creation outside of the generic term of value add that's been

[00:16:04] used for the last five years.

[00:16:05] So this next two years is going to be the year of property management. Yes.

[00:16:09] Because what also I'm hearing is that a lot of these lenders,

[00:16:14] you know, not with us, you know,

[00:16:16] cause we've had plenty of conversations with them.

[00:16:18] The first thing they say is, well, you know,

[00:16:22] we need to get rid of the management company or we need to turn the management

[00:16:25] company or you need to fire yourself and turn the management company.

[00:16:29] Luckily after 20 some years of doing this in our business here,

[00:16:34] we have extremely solid management company. Yes. Right.

[00:16:37] So that weathered the storm and seen all this stuff before. It's never come up.

[00:16:41] It doesn't come up because we're recognized as some of the better managers out

[00:16:45] there.

[00:16:47] It's interesting cause I would say a year,

[00:16:49] year and a half ago because we were getting deals,

[00:16:53] we started to focus on operations internally cause we said, okay,

[00:16:58] this cruise ship is, is going to be dead in the water soon. Yep. Right. Uh,

[00:17:02] the, the way the market was going, all this rent growth and all this stuff.

[00:17:05] And then the rates started going up. We started to turn inward and started to,

[00:17:10] you know, um, shore up if you will. You dug in, uh,

[00:17:14] why don't we talk about some of the ins kind of,

[00:17:16] that's kind of under the hood stuff. Like,

[00:17:19] but it's important because we said in one year we just want to be at a position

[00:17:24] where we're completely managed as best we can. I know last,

[00:17:29] I looked our, I think our occupancy for our whole company was 94.88%. Yeah.

[00:17:34] Which is why, which is for the whole company. Yeah. Right.

[00:17:38] But let's talk about some of the things we did internally cause you and I met a

[00:17:42] lot about that.

[00:17:42] Yeah. I think again, you're,

[00:17:45] when you're in that frenzied of,

[00:17:47] you're seeing such significant rent growth while you turn units, um,

[00:17:52] either just classics that are just turning over or renovating, you know,

[00:17:57] I think you're so focused on that.

[00:17:59] A lot of stuff in that moment ends up getting third partied out cause you're

[00:18:04] just, you need, it's a, it's a, it's a time management, right?

[00:18:07] It's like where's the best use of my time.

[00:18:09] And right now the best use of my time is turning these units and going,

[00:18:12] that's what my team should be focused on.

[00:18:14] So a lot of stuff on the expense side tends to maybe get vended out a little

[00:18:17] bit. Um, you get a, and you get a little bit,

[00:18:20] your focus is not on the being as little as trim and lean as you need to be.

[00:18:25] Um, and I think that is where you,

[00:18:27] we saw that coming a little bit earlier.

[00:18:30] And so we decided immediately to start turning that inside to make sure that we

[00:18:33] were all buttoned up on that piece so that when the cruise liner comes through,

[00:18:38] we already have our life jacket on.

[00:18:39] I know the thing is, but let's talk about just a few things you did.

[00:18:43] I mean, you were on the phone with like real page and yardy and you went,

[00:18:47] you physically flew to each project. You had people go around.

[00:18:52] We shop all the markets.

[00:18:53] Well, and because we,

[00:18:54] and this is also the piece of having your in-house management,

[00:18:57] your availability to data, right? Of all the deals we're underwriting that we,

[00:19:02] you know, you save all of that. You have that. So you can say, okay,

[00:19:06] you can walk to your team and say, Hey,

[00:19:08] I have the 40 deals around you and I know what they're operating at.

[00:19:12] And we have some outliers on either side, but like, this is kind of our benchmark.

[00:19:16] This is what we're seeing in the market and either we are beating it and we can

[00:19:19] be even better or we're behind it. And this is where we kind of need to,

[00:19:22] to work on it. So.

[00:19:23] Yeah. It's almost like a, like when you're taking a test, you got,

[00:19:27] you get to see everybody else's test. Correct. I mean, cause like what he's,

[00:19:31] what Charlie's saying is let's say we have a property in Dallas

[00:19:35] and we like the market and it's doing well.

[00:19:38] We're looking at properties around it. And so we're getting data,

[00:19:42] we're getting real operating numbers, real rent rolls, real information,

[00:19:46] real rents, real concessions, real, you know, it's just incredible.

[00:19:50] So we have a pure look under the hood. Yeah.

[00:19:52] It's a pure look of being able to look at how is this property operating one

[00:19:56] block away, one mile away, two miles away. And so with that information,

[00:20:02] gosh, it's just started well over a year ago. Yeah.

[00:20:05] We started fine tuning our own stuff. Right.

[00:20:08] And I know you were on the calls, you know,

[00:20:11] dialing in and by the end of last year we wanted all our market rates exactly

[00:20:16] correct. Yes. Right. So that all happened. Yep.

[00:20:20] And so then we know our true loss to lease. In other words,

[00:20:23] the potential inside of our rent roll to be able to raise rents at current

[00:20:27] market. Yes. Right.

[00:20:28] And we've done an incredible job of being able to do that and be at the

[00:20:31] occupancy we're at, right. We were able to do that without,

[00:20:34] because we got ahead of the curve,

[00:20:36] we were able to achieve either our high occupancy. A lot of times,

[00:20:40] they're there at the cost of each other. But because we got ahead of it,

[00:20:44] we were able to have rates where we want them without sacrificing in occupancy.

[00:20:51] And it never comes up now. Like, and so obviously Shannon is just, you know,

[00:20:55] she's been on a couple of times. She's our director of management.

[00:20:58] She's just a wizard and her whole team. Right.

[00:21:03] And so now we're kind of focused on the expenses, which are a little bit of a,

[00:21:07] you know, jump ball. Well, yeah, cause you're set, right.

[00:21:10] It's set between two things. One's controllable and one's uncontrollable.

[00:21:13] There's some stuff you just, there's, there's not a lot you can do about them.

[00:21:17] Right. Your utilities, taxes, insurance.

[00:21:21] You have a little bit more of control of insurance just because where you set

[00:21:23] premiums and things like that. But so you have,

[00:21:26] there's some currents you're swimming against that are a lot harder.

[00:21:29] And then there's some that are in your control and you're swimming down current

[00:21:32] and it's just, can you do it?

[00:21:33] Right, right. So this,

[00:21:36] this long explanation is only to say this is precisely how you find value at.

[00:21:41] Yeah. So before you could say, Hey, this old, this old sled,

[00:21:46] I'm going to put some money inside of the unit.

[00:21:49] I'm going to put new appliances and paint it and do all this stuff.

[00:21:52] And I'm going to get a hundred, $150, $200 more rent.

[00:21:55] But now it's actually looking at the data.

[00:21:59] It's actually looking at the rent roll.

[00:22:00] It's actually looking at the expenses with all the data we have around it and

[00:22:04] saying, okay, inside of this, you know,

[00:22:08] mildly poorly managed property that we believe that, you know,

[00:22:12] there's all these inefficiencies that we can fix. Right?

[00:22:15] Yeah, correct. And that's how we get to our 500 million.

[00:22:17] Yeah. Yeah. So, so, um, so with that,

[00:22:20] what are some of the best value add things that you've seen from buying all

[00:22:25] those units that, that you were able to buy, uh, to be able to, you know,

[00:22:29] increase the value?

[00:22:31] Yeah. I think, um,

[00:22:35] understanding what services are out there so you can make this the best tenant

[00:22:39] experience for your residents. Um,

[00:22:43] I tend to think that you don't always have to charge for it, if that makes sense.

[00:22:47] Like there's a lot of people that just put a lot of fees on it. I mean,

[00:22:50] there's like fee heavy on all these different things that the tenant has their

[00:22:54] rent and the pisses off the tenant. They show up and they're like,

[00:22:56] you advertise your rent at 1600. But by the time I actually get my monthly bill,

[00:22:59] it's two grand. It's 1915. Ridiculous.

[00:23:03] But I think you can provide those and have that as a service, which then you are,

[00:23:08] you, there's a lot of value in like getting a renewal, right?

[00:23:10] Cause then the unit, it's just like having an employee for a long time.

[00:23:14] If you can, you, there's a value in having that person stay in that unit.

[00:23:18] So if you can provide services, you may not get it.

[00:23:21] You may be charging less than your competitors,

[00:23:22] but you have a happy tenant who wants to stay.

[00:23:25] You can slowly move their rents on them. They can keep them with the market,

[00:23:28] but you've got somebody there that you don't have a unit down for, you know,

[00:23:32] they leave that muted maybe down for a month, three weeks. That's a longer,

[00:23:35] longer, right?

[00:23:36] Yeah. Plus a concession to come in. And I think this is an interesting point.

[00:23:40] A lot of people always focus on the customer that they don't even have yet.

[00:23:45] A lot of marketing dollars, try to get people in and traffic. By the way,

[00:23:48] this is a systemic problem in most businesses.

[00:23:51] We have a whole program here for resident retention.

[00:23:55] You're better off spending money and taking care of the people that are your

[00:23:59] clients, your customers today. And, and, uh, so, you know,

[00:24:03] we're talking to them six months out before their,

[00:24:06] their leases up and literally have a whole scripted plan to try to

[00:24:11] keep them to renewal. Yeah. Right.

[00:24:14] Because a stable cashflow is better than something that's vacant,

[00:24:19] that you're trying to fill. Because when you're trying to fill it,

[00:24:21] you got to spend marketing dollars, got to spend maintenance dollars.

[00:24:23] There's oftentimes concessions given up front.

[00:24:26] So it just all falls to the bottom line.

[00:24:29] And these are all the things that you, that we can see now.

[00:24:32] They're all little nuances that most of the inexperienced syndicators just can't

[00:24:36] see.

[00:24:37] Well, and again, right? The more people that renew,

[00:24:39] that helps your occupancy stay up, which means then on the vacant units you have,

[00:24:42] you have less, I mean, it's just this step, right?

[00:24:44] It's this waterfall and cascading thing where you have really good renewals.

[00:24:48] That means you have less units available,

[00:24:50] which means that on the new rents going out,

[00:24:52] you don't have to follow the market as much on concessions. And because you

[00:24:55] don't, you're not, if you have a bunch of empty units,

[00:24:57] then you're just kind of throwing whatever you can at the wall to get butts in

[00:25:01] bed. And when you don't have that issue that helps you, right, your,

[00:25:04] your higher occupancy, which then allows you to charge a little bit,

[00:25:07] keep your rents where you need them to be, right?

[00:25:09] You're not panicking and just trying to like cut, cut, cut and slash.

[00:25:12] Right, right. So before we wrap up, there's two things I want to talk about.

[00:25:16] The first one is a limitless, as you know, we'll have our whole team there,

[00:25:21] right? You were there last year. It's going to be incredible, right?

[00:25:24] So let's talk a little bit about that.

[00:25:27] Yeah. So I went to the one last year.

[00:25:29] It was my first cause I'd just come back to MC. This was my first one.

[00:25:32] It was just, it was great.

[00:25:34] It was just a great people and great minds getting together to kind,

[00:25:38] to sit around and discuss what they're seeing in the world and then have great

[00:25:43] speakers that you get advice from. But just even the gap, like there's the,

[00:25:47] you go to a lot of events where the panelists are great, but like,

[00:25:49] but that's it.

[00:25:51] This is a great panelist and a great people attendees and you could learn from

[00:25:55] the attendees, but just having conversations outside of the events,

[00:25:58] outside of the speakers you have, you have, I,

[00:26:00] I learned a ton while being there.

[00:26:02] You'll bring your whole team. So you got the investor relations team,

[00:26:06] all the property managers there. We got property in Texas.

[00:26:09] It's going to be in a Jerry can put that up real quick.

[00:26:12] That's at the Gaylord Texan this year on the 29th through the 31st.

[00:26:16] So that's going to be a flipping blast.

[00:26:20] And then let's talk about at this at limitless, I think,

[00:26:24] Charlie, there's going to be a lot of discussion about what's next, right?

[00:26:29] Cause a lot of people, as Buffett says, you know,

[00:26:33] you don't see who's swimming naked until the tide goes out. Right.

[00:26:36] The tides out. Yes. Wouldn't you say?

[00:26:38] Yeah. It's it, it, well, maybe waist high.

[00:26:42] It's it's it's yeah. It's like right at the beltline.

[00:26:46] Yeah. Right. Right. So this could be interesting timing because here we are in

[00:26:49] May limitless is in August. So right now the tides at the,

[00:26:53] at the waistline and it's headed out. Yes. Right. For sure guys.

[00:26:59] So what are you seeing just moving forward?

[00:27:02] Like what does the next six months look like? What markets do you like?

[00:27:06] And we'll just wrap up there.

[00:27:07] Yeah. I think obviously the bad has a lot to do with when,

[00:27:13] I think the tide goes out no matter what the fed does. It just,

[00:27:17] it will happen quicker.

[00:27:18] It just depends on when it's going to happen and what they're doing.

[00:27:20] So they, some of the pricing in 2021 and 2022 got so high that,

[00:27:26] that even if the fed cut 25 basis points two or three times there,

[00:27:30] those people still aren't getting out. So it's happening.

[00:27:35] Like any sort of movement,

[00:27:37] it takes longer to get here than you expect it to. And then when it does,

[00:27:40] it happens quicker than you expect it to.

[00:27:43] I think there's going to be continued to be some class a that is really good

[00:27:47] product and really good locations that you're going to get at a really good

[00:27:50] basis. I think that really is the opportunity.

[00:27:52] And then this kind of the first wave of,

[00:27:55] I think the B product that was way overpaid for us. You're going to,

[00:27:59] that's what you're going to start to see.

[00:28:01] I mean we've already seen it a little bit in the last month or so uptick.

[00:28:04] Like we in the first three months of the year, we saw none.

[00:28:07] Like there wasn't an eighties deal on the market and now there's a two or three.

[00:28:11] They ran out of cash. Yeah. So it's happening.

[00:28:14] I just think you're going to start to see that wave.

[00:28:16] Now guys, just put it in perspective. So like,

[00:28:20] like a, we'll just pick on Phoenix. We might as well.

[00:28:23] What was mid eighties trading for a year ago?

[00:28:28] A year and a half. Well at the peak.

[00:28:30] So 2022 February was your peak pricing, right?

[00:28:35] That was the stuff that was,

[00:28:37] if it was just closing the end of their listing period and offers are being made

[00:28:40] in February, that was your peak peak. You were over 300,000 a unit.

[00:28:44] Okay. And right now that same product, exact same property would be what?

[00:28:51] I don't know because nothing's traded yet.

[00:28:53] High 100 high one hundreds.

[00:28:56] You're looking at really well located class a product in the Phoenix Metro at

[00:29:02] your like 300 to 290 to 300 a door.

[00:29:05] So there are the best of the best is already below is already 20 to 40 below what

[00:29:10] eighties product was trading for.

[00:29:11] So we can,

[00:29:12] we can easily say that almost everything is at least a hundred thousand a unit

[00:29:17] less. Correct. Right? Yep. That's a fact. Fact.

[00:29:19] That's where we are. Yep. Sweet. So you'll start to see that stuff happen.

[00:29:23] Oh, that's good stuff. Yeah.

[00:29:24] Thank you for listening to this episode of the real estate strategies podcast.

[00:29:29] If you liked what you heard,

[00:29:31] please give us a five star review on iTunes and let us know what you thought of

[00:29:35] today's episode. Thank you. And we'll see you next week.