The Hidden Crisis in Real Estate Nobody’s Talking About (Until Now) with Robbie Hendricks

[00:00:02] So today we're on with my good friend, Robbie. We're in the collective together, but I also invested with you guys. So I wanted to chat with you, Robbie, because you guys are busy. And a lot of people are talking about the Midwest, which is where you guys kind of live and also invest. So let's talk about what's happening to the middle of the country, because a lot of people that listen to these oftentimes are kind of focused on the coasts.

[00:00:26] Yeah, it's funny because it's like the Midwest is the hot thing right now, right? Because everyone was looking at the Sun Belt and everyone was looking all over the country. So they're like, oh, it's the Midwest now. The Midwest is the new hot spot. As if it's going through some renaissance, you know? And the Midwest has just been consistently boring for a long time, which is how long we've been here, right? We've been buying multifamily here for 13 years. And it's just been a slow and steady business for us that we understand. But we're local.

[00:00:55] And that gives us a pretty significant competitive advantage, right? But it's been funny watching all the buzz now go to Ohio and Indianapolis and Columbus and Kansas City. Those are the markets now. And oh, no, not Phoenix, not Dallas, not Fort Lauderdale, Dayton, Ohio.

[00:01:15] Well, it's funny because I look at some of the articles online, like top 10 cities to invest in. And, you know, my hometown, like Akron, Ohio is like number two on the list, which blows my mind because to your point, it's always been there. It's not really changing that much.

[00:01:31] Completely. And it's and it's really not changing that much. The only thing that's really happening in the Midwest is you're seeing like positive migration in the cities because the people in the rural towns are slowly convalescing into the suburbs and in the big cities. So we don't have the same population growth in the Midwest, like like obviously in Phoenix or in Dallas, not even close. But you are seeing little sub markets and little pockets in the Midwest that are seeing they're seeing great growth.

[00:01:57] Yeah. And I think that's what people are watching. You know, they're looking at this data and it's real data. But to your point, it's very different if if the needle's moving in Phoenix versus Columbus, Ohio. Right. Correct. Well, yeah. And it's they're just completely, completely different ways of looking at the business. Right. So you're in Phoenix and you have this unbelievable net positive migration, which is obviously your whole investment thesis. Right.

[00:02:26] It's like we have so many people coming here. They need somewhere to live. Ours, our markets in the Midwest are a lot more mature. They've been here a long time. They've been developed for a long time. We don't have the same population growth, but we have stability. It's just very different markets to invest in. And if you can't just invest here, assuming it's going to be just like just like Atlanta, you know, same thing.

[00:02:46] It's really different. Well, and, you know, it's interesting because I I talk to lots of different people in the space and the ones that are getting killed in Phoenix are the out of staters. The ones that are getting killed in some of the markets that we really know are the people that have never been there before. And so let's touch on that a little bit, because I know I've talked to you.

[00:03:10] I've invested in some of your guys's stuff personally, and you guys have also seen that it's not a local. It's not just in one or two markets. It's everywhere. You get these out of state folks in there. They're literally like I'll just give you one example. We have a property in downtown Phoenix. Well, we have a bunch of them that got built recently. It's four months free on a 12 month lease now. And you look at the buildings that are been built down there. They're all out of state companies.

[00:03:40] They don't understand because none of there's no locals that are building in downtown Phoenix. Right. Zero. You know, it's nuts. And so that's what happens when new money comes into a market. Is that going on with you? Oh, exactly. It's just funny when they think if it's Phoenix, it must be good. And they ignore the sub market component, even of hot markets like Phoenix. But it's the same thing here. We actually have a joke here that we buy from locals and we sell to out of towners.

[00:04:08] I don't. Yeah, I actually I actually you know, we've sold about half our portfolio over our careers. Right. We've bought about 3000 units, but we've sold about 1500. And we sold them in the run up of 21 and 22 because out of towners were coming into our market and they were buying C plus property at six caps. If you talk cap, I mean, they would they were they were overpaying for C property to such a degree. We couldn't even understand it. We would never buy a deal at that price.

[00:04:37] So we just took the chips off the table. And while it's hard to see your unit count go down, it's like, all right, if you guys from New York or New Jersey or Colorado, if you're going to buy these deals at this price, you you go right ahead. Yeah. So the exact same thing's happening here. And it's interesting because I always tell people it's a real it's a local business.

[00:05:00] So part of the reasons that I personally invested in your company was because you guys have been buying in that market for 13 years. That is the reason. And what happens in all these markets is that people, they go they go to some seminar or they read some magazine and they fly into town and they start convincing themselves. And every once in a while they get it right. But most of the time, my experience has been that they're paying too much and they're paying and they're buying in the wrong locations.

[00:05:29] And then, of course, they're using out of state management and all the other things that they're trying to figure out. And and then, of course, the locals swoop in and fix their problems right after all that money's gone. Exactly right. We're looking at that exact situation right now at our firm where we're going back and forth on a deal right now. It's some people from out of town. They came in to buy some some distressed product a couple of years ago.

[00:05:54] Now it's even more distressed, right, because they're out of town managing C property is hard enough or managing even B minus property is hard enough. But if you're not local, you don't know the streets, you don't know the people, you don't know the rents. You know, it's it's highly local. So, you know, so we're looking at a deal now to come in and save some people. Right. And rescue these deals like they're getting pressure put on them by the city to to to move on. Like you guys got to get out of here. And that's what happens because people just they want to play real estate.

[00:06:21] You can find affordable product in the Midwest. So it's any anything is cheaper than buying in Phoenix. Let's try there. It's going to work right by their price per unit looks good. So they go by there, but they don't realize that they're overpaying. The other thing that I just before we wrap up on this one point is this is this is real money from real people.

[00:06:44] Like, you know, these deals that you guys are buying now at deep discounts, somebody is losing on the other side of the equation. Right. Exactly. Yeah, that's that's unfortunately what's happening, not just here, but all over the place. Yeah, obviously we I call them the spreadsheet warriors. You know, a lot of people got into syndication the past five years. Right. They raised a ton of capital. They got over their skis. Most of them don't self-manage.

[00:07:10] And it's you can have a lot of people that are losing their money as a result of just sort of the speculation of the past few years. It's a bummer because it's a black mark on the industry. Like it's a black mark on all of us. It is trying to do it right. Exactly, because then when people lose money, they're not trying to invest in anyone else's deal either. And to your point, I never really thought of this, but because the Midwest is so inexpensive compared to the rest of the country, you probably do get a lot more newer investors investing there.

[00:07:38] Because to your point, it's so much more expensive and you have to raise so much more money to invest in Phoenix. Why don't we just invest in the Midwest where we can only have to raise a fraction of that? But then what they don't realize is it doesn't grow like the West Coast. And also, Ohio has a lot of weather. There's so much weather that people don't understand. Yeah, you probably can't tell behind me, but like it's just it's already dark.

[00:08:04] Like it's already dark here. There's no sun, you know, but the weather is the weather is less of a concern here. But you're right. It's just it's cheaper to invest here. And that makes the barrier to entry lower for new people to come into the market. Like I want to play real estate syndicator now. And unfortunately, and they're good at raising capital and all these other markets. We're going to chase yield in the Midwest. And they don't realize it's a whole different animal. I mean, just like every market's its own market, much like downtown Phoenix.

[00:08:30] Like these people raise tens of millions of dollars building downtown Phoenix and no one's living there, regardless of how popular Phoenix is. Yeah. And I think the what we probably need to hammer home there is you guys in the middle of all this are doing very good deals. And then there's people also doing very bad deals right alongside of you. Same month, same year.

[00:08:55] And so it's not necessarily a Midwest thing or a Phoenix thing. It's an it's a how much are you buying? How much buying the property for? Where is it? Is it in the right location? Or, you know, how's your your equity and your capital stack? And, you know, the numbers accurate at all. There's a zillion things. It's not a Midwest thing, right? No, it's an operator thing. Yes.

[00:09:21] It's an operator thing like a lot of a lot of investors just don't realize how important the operator is. They look at this. They look at the offering like, oh, what a beautiful deal. It's oh, it's so shiny. You know, look at the IRR. Look at it. It's just so beautiful. Look at the renovations. They don't realize that, you know, someone has to execute this. And if they're not and if they're not local, I just I wouldn't I wouldn't trust them. I mean, to your point, investing in us. The reason why I invest in your deals is because you're right there. Your deals are down the street. You can go pound the pavement.

[00:09:51] You can I mean, you can McElroy can run over there and, you know, kick the tires like there's something to that. You've been investing there for so long. You know, like our office is a mile down the street from my high school. Like we know this market, like we know this market or anybody could ever know from New Jersey. Like and yet they still throw money out here like it's like it's going out of style. You know, I'll tell you a really funny story. Ross and I owned a building in Houston, Texas, and it was smaller on the small side, like one hundred and forty five units.

[00:10:20] And that's a tough size. Right. You know, when you look at payroll and everything and and we said, oh, let's spend a little bit of money and see if we can value add these. It wasn't it was like in the 2000 old built in the 2000s. So it wasn't that dated, but we said, let's let's spend a little bit of money. So we did four units and we spent about 10 grand a unit and we we tried to raise the rents. We couldn't raise the rents. And, you know, we did everything we could. We looked at the expenses and we just couldn't move the needle. Right.

[00:10:48] So we said, you know, let's let's roll this into something else. So we listed it and it it got under contract with a big brokerage and somebody put it under under contract. So now we're the seller and I am on their list. I am on the people who's buying there. I'm on their actual LP list. So I get the business plan. And what does it say? Bad operator, bad management, big value add.

[00:11:16] The rents are really under market, all that stuff. And so the point is not to not to bash anyone. I just you know, you can put anything you want in a business plan and you can you can send it out to hundreds of people. And now maybe they did fine on it. I didn't track it after we sold it, but we sold it for a lot more than we probably should have. And they bought it and they they capitalize it and they raise it.

[00:11:41] But I know from my own experience that they're not going to be able to raise rents like they said they were going to be doing the business plan. And they're certainly not going to be able to cut expenses like they said they're going to do the business plan, because I already tried that with my 30 years of property management experience. And so, you know, you're going to. And so for the for those of you out there, they're listening, they're investing in deals. You're investing in the operator. What Robbie said was right.

[00:12:08] You know, you know, when when when things are too expensive, that's the time when we pushed pause. Like you guys exited, we exited, we pushed pause for a couple of years. We didn't buy anything just like you. Right. That's right. Yeah. We we we sat on our hands. It's the hardest thing to do as an operator is to sit on your hands, especially when you have willing capital. And then that's the responsibility, you know, GPs and sponsors like us have. Right. Because people trust us.

[00:12:36] But when things are too hot, you have to sit there and just. I know it. It drives me nuts. Like I got to be honest. So especially when you have the when you have the money on your wallet and you're sitting there and you know you can buy anything and you don't. That takes discipline. Yeah. When we just had that situation a little bit recently, we and we had we walked away from a project recently that we really, really liked. Absolutely stunning project. It just would have been something that had been so great for our company as we worked to come up.

[00:13:04] It just it just got a little tight for us, you know, and that doesn't mean we couldn't have raised the capital. We could have put it together. We could have closed it. We could have just thrown it into the portfolio and crossed our fingers. But, you know, people trust that you're not going to do that. You know, that's several of responsibility to a lot of sponsors. Yeah, that's right. And that's why the LPs keep coming back after 13 years, you know. Right. Let's trust, man. And you have to honor it. You're only as good as your last deal, too. Right. Like you have to keep that same level of precision going.

[00:13:33] So, Robbie, let's chat more about like tariffs and everything. Is that affecting your business at all so far? Or are you concerned about that? Well, yeah. Yeah. We're definitely concerned about tariffs. If anything, we're concerned about the way the market's reacting to tariffs just as much as we're concerned about the tariffs themselves. As it relates to tariffs themselves, yeah, I mean, steel, lumber, aluminum come from China, Mexico, Canada. So clearly it's a concern whether it comes to CapEx for us.

[00:14:02] We're not doing new construction right now, but it would definitely impact that. Right. But then we're also like looking at our CapEx budgets when we're looking at acquisitions. Yeah. We have to put a buffer on it. What's tough right now is that this might be stating the obvious. There's like a lot of cross currents right now. So it's really hard to get guidance on what's actually going on because the jury's out on whether tariffs are actually going to happen like they're happening. Now they're not happening. Now it's China, but maybe not China, maybe not computers. There's so much going on with it.

[00:14:32] It's really hard. You know, none of us banked on a trade war either. All right. We weren't sitting there like, yeah, Trump's going to do a trade war. And like, I'm not it's not political to me at all. It's I'm sure everyone thinks it's for the best of the country and that's fine, but it makes it hard for the rest of us to budget. Right. You know, but not to belabor it. But if the tariffs are going to are going to let let's say inflation and rates at the very least stay where they're at. That's just going to keep that's just going to keep housing frozen.

[00:15:01] Right. It's just going to keep everyone frozen, which is just going to make rents go up again, especially as the new supply shakes out over the course of the next year. 12 to 18 months. So I feel like I'm in a bad relationship. Yeah. I mean, what what is he going to say next? I don't know. I don't know. I don't know. I mean, what's funny is he's doing exactly what he said he was going to do. So I don't know like the we're all surprised. Right.

[00:15:28] Because we thought it was probably posturing and not really like every country in the world is going to get tariff pissed off at us. Right. And now everyone's furious at us. And again, I'm not a tariff expert. Nor am I an international diplomacy expert. So maybe this is the right move. But as it stands today, for those of us in real estate, it's very hard to find stability. Well, we were chatting about the interest rates on our live the other day.

[00:15:54] And, you know, Robbie, do you see interest rates going up or down with these tariffs? Oh, my goodness. Mike, my guess is going to end up being as good as yours. OK, so tariffs create inflation, which people people are suggesting might happen. Well, if we go back into inflation, then your only thought is they're going to raise rates, which is doom. Right. Because so many people are banking on rates coming down.

[00:16:21] You know, the survive till 25 thing in the multifamily space is becoming the what's the 2026 saying that everyone has to survive until 2026? That's going to be 2027 and 2030. Like, how long are the banks going to pretend and extend for all these people? The biggest problem with the interest rates, obviously, is the single family housing market, which puts stress on everything else. If we can't get some relaxation of mortgage rates, everyone is just going to stay in their homes. And so they're not no one's building anything.

[00:16:51] So it's just going to make the affordability issue consistently worse until this loosens up somehow. I mean, what do you I completely agree with that. And that's why I keep saying, you know, we need a balanced housing. What that means to me is people should be able to afford a home and they should be able to afford rent. Right. And then we should have some stopgaps for people that can't do both and some policy around those kinds of things.

[00:17:19] Right now, home ownership is certainly there's there. People are just struggling with being able to own a home at all. And so it's pushing people into the rental market. So they can't see it right now because so much supply has hit the market that was started a couple of years ago. And so it's keeping rents kind of flat. We're starting to see concessions. And this is just the pig moving through the Python, really.

[00:17:46] But then, as you know, Robbie, come 2026 toward the tail end of 2026 when this stuff's absorbed. 27, 28, 29, you know, the gloves are going to be off again and these renters are going to be screaming. Yeah, it's going to be a mess. It's going to be a mess because then you're going to start to hear all the rhetoric about rent control because it's inevitable that there's a supply chain or I'm sorry, a supply issue for not for single family homes.

[00:18:13] Right now, what the mortgage is double the average rent right now. It's not even insane ballpark. And unless this gets unless there's some sort of like loosening of the housing market, it's just going to get it's going to get worse before it gets better. And who knows what who knows what the politicians are going to do at that time? I have no idea. Well, and do you think that the Midwest being more affordable, do you think that that's going to continue to make it a growing market? It's certainly going to make it appealing.

[00:18:42] Right. Because at one point, people are going to have to make financial decisions. You know, you have there are there are too many markets now where rents are above 40 percent. Some markets above 50 percent of household income. It's completely unsustainable. You know, so we're out here and we're still underwriting deals where our target rents are target rents post renovation are under 24, 22 percent of household income. So that gives us a lot of room to run here.

[00:19:09] One, as it relates to just as an investment thesis, it gives us a lot of room to run in terms of making money here as investors. But at one point, people are going to look around and say, shoot, maybe I'll go to Ohio, man. Like I can get a good job there, work for a big company like Procter and Gamble or Kroger. I can buy my starter home for three hundred and twenty five grand or I can go rent a nice two bed apartment for fifteen fifty. It's going to look pretty appealing despite the snow. Yeah.

[00:19:38] You bring up a really good point. I think we all knew there was a time when like if you move to Honolulu, your rent would be 50 percent. If you if you were in New York, certainly in that ballpark, Seattle, L.A., those were always markets that people kind of knew what they got before they went there. Now, to your point, Robbie, it's creeping up everywhere. Right. Like that. Phoenix is not supposed to be that. Right.

[00:20:05] Like, you know, Las Vegas is not supposed to be that. And so they're like, gosh, I'm going to do that. I want to be in some some special location. Right. Like Hawaii, as an example. So and of course, it is a supply and demand issue there, too. Those are all supply constrained markets with high demand where, you know, there's people moving and which is why you see that kind of rent. But now it's creeping up in the burbs. Right.

[00:20:36] I mean, you know, it blows my mind that almost everywhere I look at for two bedroom, two bath now is about two grand. Yeah. Yeah. Right. Go ahead. Remember when it was a thousand? Yeah. Like that wasn't very long ago. No, it feels it feels like a lifetime ago. Like where was 20 to what? 2013, 2014, 2015. And all of us. I mean, I'm sure that's how it was in Phoenix, too.

[00:21:04] Around here, people were renting their two beds for 650 to 750. Yeah. And now 1500. And at one point, the income runs out, you know, and then what's next? And then what's next? Yeah, we were looking this morning on our live. I was comparing like inflation and trying to get prepared for a live this morning. And I looked, what was the value of the dollar in 2008 compared to today?

[00:21:31] And they said $1 in 2008 is $1.49 today, 17 years later. And I thought, wow, like almost 50%. Now, it's still a dollar. So if you had that dollar in your wallet in 2008 and you have that dollar in your wallet today, it's still the same $1. But it buys you 50% less. Isn't that crazy? Isn't that nuts? Crazy.

[00:21:59] It's just you feel so bad for the generation coming up. Yeah. You feel bad for them because, you know, a lot of people are asking the question, like, do you think the younger generation wants to buy homes? Like, is it still a priority for the younger generation to have homes? And I don't even know if that's the correct question. The question is, have they just given up? Like, have they just given up on homeownership? Because in their lifetime, they've seen the cost of homeownership just absolutely explode.

[00:22:30] So when you guys are buying deals right now, I know you guys are looking at lots of different markets. What are some of the key factors that you look at for a market? And we talked about operators, so that's a given. But, you know, what are the metrics that you guys like that are in your buy box? Yeah. Well, in terms of what we're looking for, you know, we're just value-add guys, right?

[00:22:54] So we're looking for deals that are just stale, poorly managed, ideally a combination of both of them, right? But, you know, in our markets here in the Midwest, we're looking for employment. So we're looking for stable employment. We want, it's all about the employment, the migration in that specific sub-market. Like we said earlier, it's a lot different than a place like Phoenix, right? Where Phoenix just has boatloads of people coming into the entire metro. Our little sub-markets are different.

[00:23:24] Like, we were looking at a deal the other week where that specific little sub-market, three-mile radius, had 8% population growth in that little sub-market. So that's where we're looking for little pockets like that, where it's irreplaceable real estate in these little pockets in the Midwest. Yeah. There's no chance for a new supply. Like I said, there's a lot of cities here in the Midwest where it's been developed. It was developed 100 years ago. It was developed back in the 40s, 50s, and 60s.

[00:23:52] So much of our multifamily here was built in the 60s. You know, back after World War II, everyone came home from the war and had babies and built apartments. So it's just a very different market in that way. So we're just looking for value-add in those little pockets. Yeah, that's very similar to what we look at.

[00:24:11] The other thing that, you know, we started looking at was we want a big, you touched on this earlier, but we want a big, big gap between the home mortgage and the rent. So as a landlord, that's what we want. So we want the step in the neighborhood to be significant steps. So like the deal that I think you invested in our Vegas deal, you know, that's in a market where the homes are two, three, four million dollars, right?

[00:24:39] So we have an apartment building there. And so the step into that neighborhood is significant, but the neighborhood's gorgeous and beautiful. And the other one that we found that's a sleeper that a lot of people don't pay a lot of attention to is the school district. But yeah, what we found is a lot of our renters, and it makes sense, you know, you have kids. I see some there in your office. And I'll tell you, you know, you've met mine.

[00:25:05] You know, when you're looking at relocating somewhere, one of the bigger issues, even over where you're working, is what schools, what districts are my kids going to be in? And are they going to get a good education from on a public, on the public side? Yeah, completely. I mean, that's, that's in terms of if we're going to buy a deal to hold for the long term, it's got to have great schools. It's got to be, have proximity to like those higher household values that you were mentioning as well.

[00:25:35] Because that's just where you want to be. And that's where the people want to be. You know, now we're, we have a little bit of a two tiered strategy, I suppose, because sometimes we will buy distressed deals in distressed areas and completely reposition those, revitalize the whole community. But those might be shorter term holds, at least for us. Yeah. Not in a market that we want to hold long term. You know, we might move, we might just fix it, you know, make it wonderful for the sub market it's in, and then move on to a greener pastures, I suppose. Yeah.

[00:26:04] And it's funny. We did that too, for a long time, as you know, and I made one huge mistake once. I'll never forget. We did all, we bought this property at such a low basis and we put a bunch of money into it. It was absolutely positively gorgeous. But the stream of people coming in never changed, right? Like, you know what I mean? We tried, we had marketing, we had this, we had all this stuff going on. We spent all this money trying to get a better quality tenant.

[00:26:32] And finally, Ross and I just looked at each other. We said, you know, you, you, you can't change a neighborhood and, and no matter what you do and you can over improve. And so I know you guys have done this very successfully and so have we generally, but I still go back. I still think of that one thing all the time. I'm like, you know, and it was a big project. It was 200, almost 300 units and they had garages.

[00:26:58] And I mean, it was, you know, it was not that even old, but it was, it was in a market that had turned and the crime and all the stuff and people, the locals knew like they were like, you know, we, we do not want to live in this part. It was gated. Like, you know, I'm, I'm trying to paint up the property was nice, but we could not get good quality people in. And eventually we just, we, we, we cleaned it up.

[00:27:24] We made a little bit of money, but we moved on because we said, okay, this, we're going to be fighting for occupancy on this. And so, so as you guys start to navigate these value ads in these, in these, you might buy a C or C minus property. You just don't want it to be a C or C minus location, right? I completely. Now we've done the C locations. That's, that's for sure. But again, those are not, we never go into those with the intention of long-term holds. Yes. Yeah.

[00:27:53] So you can do, you can do it, but you really have to know what you're doing, right? To be, you have to be in and out. Yeah. Well, that's, you know, that's how we cut our teeth. You know, we cut our teeth on the tough stuff, like the tough, tough stuff because we had no money. So you have to start somewhere. Yep. Our first deal was an 11 unit, $190,000 deal in just the worst part of the city. And, but that's, but we made it the best, the best 11 unit in the worst part of the city. And then we moved on and we kept trying to grow, you know? Yeah.

[00:28:22] And I think it's important that we bring up those kinds of stories because everybody looks at, you know, the things we're doing today and they're like, oh my gosh, like you guys are always picking winners or whatever. It's just not the case. Like we, you know, we, we've got some thick skin from the stuff that we've done and where we've been and mistakes we've made. Right. Exactly. You know, it's sometimes, you know, you'll have an investor ask you like, well, they'll ask us. They won't ask you. You, you have the reputation, right? They'll ask me like, oh, are you sure you can manage this B property?

[00:28:52] Like, are you sure you guys can handle those tenants? And I just show them pictures of our properties from 10 years ago. Like, look, I mean, like we've, we've seen dead bodies, man. Like we can handle, we can handle the, the moms. Like I assure you compared to where we started, you know? Yep. No, it's just, it's, it's, it's part of the progress that we make. Right. But it's also good that you started small because I think sometimes people try to start too big, right?

[00:29:19] They try to start with a hundred unit building and they can raise money online. So they feel like they can do that. And then they get over their head. I think that happens. I think that happens a lot. I think it's sort of in vogue to tell new people to go just buy the biggest deal you can, which I just think is crazy. Like start small. So your mistakes are small. You go out there and you make a million dollar mistake. You know, you can, you can bury yourself before you even start.

[00:29:45] Why not cut your teeth on a fourplex, you know, go, go start with, start with a single family, figure out if you're good at managing tenants, you know, start with that. There's no rush. That's the whole reason why we're doing real estate because it's the long game. So, and you've seen all the people that tried to get rich in real estate over the last five years and they're in trouble. Now, when you do property management, you learn a lot too, right? Because you can get the numbers correct all you want, but you still have to manage the tenants.

[00:30:16] So was there anything that specifically that you guys learned with property management from the beginning until now? I think the big thing about property management is it's its own business, right? You can't, you can't like moonlight as a property manager, especially if you're going to build an actual multifamily portfolio. But even if you're doing single families and you're going to go out there and get 10, 20, 30 single families, you can't just part-time manage your real estate portfolio. And eventually you're going to have to build a company if you're going to self-manage.

[00:30:45] It's easy when you start, if you have a 10 unit or 20 units, you can just kind of piece it together yourself. You can kind of lease yourself, maybe have a part-time handyman, but eventually you're going to need systems. Eventually you're going to need to scale the company up and too many people just see like, I don't want to call them gurus. I'm not trying to be disrespectful to anybody, but I feel like there's this now confluence of professional capital raisers and deal buyers rather than real estate operators.

[00:31:15] So in some of these people, they're so dependent upon a third-party manager to manage their business plan for them. It's very scary. And it's why a lot of them have struggled. That's, that's, I got in my soapbox about that, Danielle. A little bit, but, but yeah, we've learned a lot from property management. And the biggest thing is that you have to take it seriously and treat it like it's a business because it's its own business. And I'll just add a couple of things.

[00:31:39] You know, what, what, what we are seeing and what is factual is that people got online and they, you know, they're big, big, let's say influencers online and they raised money typically for someone else. And so the first mistake is raising money with your reputation and handing it over to somebody that has a deal. That's mistake. Number one, mistake.

[00:32:06] Number two is they don't actually consider the property management until sometimes the end. In other words, they're, they're like, oh yeah, yeah. Yeah. You know, like, like Robbie said, they're, they're a third party. Well, we all know that those are two huge risks because one, the deal might be a deal that the, that no property manager could ever manage their way out of.

[00:32:34] Like it could have just been bought in it incorrectly. Um, maybe the bad debt, maybe the inherited debt, maybe it's just bad location, whatever. So the actual deal is stuff. And we just kind of beat that topic already. But the next piece is if you're, if you hire a property manager, it's like, um, it's like going to a doctor the first time and, and, you know, uh, for something that, you know, it's new to you and you're it's, you don't even know what to ask them.

[00:33:04] Um, and so that's the other thing. They, what they do is they hire a third party. Um, but they don't know what to look for. They pretend like they do. They walk the property. They do the thumbs up at the end of the day. They actually don't know how to manage a building. Um, they don't know what to ask. Um, you know, they don't know how to manage, uh, uh, the leasing or the man, uh, the manager or the, or the maintenance staff or, or, you know, any of those things they don't know. So they're completely in the dark.

[00:33:33] Um, the only thing that they've done is raise money online and hand it over to somebody else who also doesn't know. And that's, what's actually my opinion. That's what's creating the opportunities right now. Um, property management is a pain in the butt. Um, you know, it is, it is a, well, Daniel, you know, it does not make me money like period. Like there's 90% of your time. It takes 90% of my time.

[00:34:00] It's a net net business, but I like it because like today I walked down the hall. I sit down with the director of management with Shannon and I have a direct conversation with her about a lease up or something like that. And I can move the needle immediately for investment that I made. Um, and for all our investors. So that's why I like it. But otherwise you might as well just be raised a bunch of money and turn it over to a financial planner because you're doing the same thing.

[00:34:29] You really don't know what you're going to get. And it's scary. It is scary. It's scary because you're, you're, you're trusting someone else to execute your business plan. So it's like, it's really easy to sit on your computer and get out your Excel and underwrite this beautiful deal. And like, oh, they could probably get a little more rent or, oh, they could probably do this. And then you hand it to this property management company. Like, Hey, these are the rents you need to get, get out there, you know? And, uh, it's not that simple. Property management's hard. It is.

[00:34:58] And let's talk about for a minute, like during the run where, you know, you, you know, we, we've known each other for a while and obviously you guys joined our collective mastermind. And, you know, so, you know, we've gotten to know you guys really, really well. Um, during that period of time, we weren't really buying very much. And so, but we were seeing lots of deals, right? So we would come to those quarterly meetings and we'd be talking about what, let's say something you passed on.

[00:35:26] Um, and somebody that somebody bought, we know that people bought stuff during a time where we passed. Okay. So that's knowledge. We both had the same rent roll. We both had the same financials. We both had the same debt quotes. Um, so you stick it in a spreadsheet and maybe there's some small differences, but at the end of the day, the rest is all assumptions. And, um, and so we, we passed, I'll bet you we passed on 50 or 60 deals during that couple

[00:35:55] of year period, uh, that people bought. And I think that, uh, you know, there's not enough discussion around that because those are the ones that you guys are starting to circle back on today. Would you agree with that? Absolutely. Yeah. We keep a running list. We keep a running list of all the stuff that we underwrote. And then we were nowhere near the running, not even close to best and final. And we're like, what on earth? What are you seeing that we're not?

[00:36:23] Are we, did we forget how to do this? Like, and, uh, and, but so we just keep a running list and it's going to be an acquisitions opportunity, um, for everyone in our space that played it safe and kept dry powder because, uh, opportunities are going to come, uh, from that. So, so people that are listening just need to decide on what side of the desk do you want to be on? Do you, do you want to be on the side where Robbie's waiting to see what's going to happen? Cause we already know that you overpaid, which by the way, everyone knows. Everyone knows.

[00:36:53] Everyone knows. The question is, is how long and can you hold on? Um, and, um, you know, and, and if you can't, then we'll be there to solve that problem. Happy to help. Just call me up. Just call me up. You combine that with the fact that a lot of these people took on too much debt. They, they, they levered the heck out of these things. They obviously the short-term debt thing happened and then the rates, everyone knows that whole

[00:37:22] story, what happened to everybody. But yeah, and if people don't get some relief relatively soon from rates, it could get, uh, it'd get a little dicey out there. It could be. And the other thing that nobody really talks about, and that's why I say 2025 and 26 is going to be the year of the short-term property manager because the, the, the GP is just going to continue to fire property managers and point to them, um, until they run out of that excuse. Right.

[00:37:48] Right now you could point the interest rates and some of the other things, but I know for sure that there's plenty of deals. I've seen them 75, 80% occupied in markets that are 90, you know, 95%, um, very poorly run high, high, bad debt, which means that people are skipping out. They're not collecting a lot of rent. Um, they're spending a lot of marketing costs because they can't run the buildings and they can't keep them occupied. Um, you know, and, and, and so there's all that stuff starting to show up now.

[00:38:16] And what they do, the first thing that they do is they fire the property manager. They send a letter to the LPs and they say, okay, we have a new manager in town and we, you know, they, uh, they did this. They did that. When at the end of the day, um, that, that could be true by the way, it could be that they, that they did not do a good job, but the problem is, is that they don't, they don't know how to manage them. Right. Yeah. It was funny. That was one of the biggest things not to plug you, but that's one of the biggest things

[00:38:42] I took away from your property management book and not to sound like a fan boy, but I, when I read your ABC is a property management, it's one of the first things I actually took away was one property management's hard, but two, if you don't know how to do it and you trust a third party to do it, you better learn how to manage them. You have failed. You're going to fail either way. Correct. You know, there's a lot of ways to fail when you're trusting someone else to execute your business plan. And that's what we're starting to see now.

[00:39:09] That's what we're starting to see emerge now, um, is that, and by the way, I know a lot of syndicators that started their own because they thought that was a good idea. And I was like, you guys are out of your minds like this. There's so much work and so much overhead needed to be able to run this correctly. That, um, that 3% management fee or whatever you're getting, uh, these are some larger projects. Um, you know, it's, it maybe breaks even, right?

[00:39:39] It's, it's hard. At best it breaks even. It's, it's, it's inglorious, but like we always tell, we tell our investors as, as I'm sure your investors believe the same thing. It's just, I mean, I would love to have a third party do this for me. It'd be great. You just run my property, send us all checks. I'll live on the beach. It would be great. Fly around the world raising capital, but in all reality, no third party manager is going to manage my property the same way I am. No one that cares much. They're not going to recruit as well.

[00:40:08] There's just no chance. And then it makes underwriting for me. And when we're looking at new deals so much easier that we manage in house because I can actually give accurate expenses. The fact is, I like straight shooting the people down your hall. Exactly. So it gives me so much more confidence as an investor myself that we self-manage and I can come across obviously more confident to our investors because I'm like, look, if I have to lease it, I'll go lease it. I'd rather not. Look it out there. Yeah. I'll get out there.

[00:40:37] Well, that's actually another really good point. Like my, my employees know that we're going to be owning and managing this. And, and so, so when I send them out to do due diligence and I say, you know, did you verify the rent roll? Did you go through all the leases? Did you walk all the units? Is this accurate? What is the market? Did you hit five or six or seven buildings in the area? Are these rents? Is this the right number for a one and a two and a three bedroom? And are there concessions and all those things? And if they look me in the eye and say, yes, then I remember that conversation.

[00:41:06] You know, then when I walk out there and, you know, we're at 90% occupied and I'm like, what the heck? And, you know, and then I go back to that and I said, you verified all this stuff and, you know, and, and, and that's how you manage. I'm not saying that was right or wrong. I'm just saying, but that's, that is the power of having it in house because they're also doing our due diligence. And, and that's what a lot of people made big mistakes on. Yeah, I agree.

[00:41:34] It's just, I know people romanticize real estate investing. They want to feel like it's a, it's a free lunch. Like, oh, let's buy this property. It goes up in value. The last five years or six years have really warped people's understanding of real estate. Like, you know, of course, like during 2021 properties just leased themselves. You could be the worst property manager. And there was such a shortage. Everything. We were like 98%. Well, let's keep raising rents. We must be really good at this. Like, yeah, exactly right.

[00:42:04] Oh, good at property management. And of course the last two years, as things have tightened up, it's been really good for us because it shows us where our weaknesses are. So we've been doing huge internal operations, audits and adjustments here to tighten up because we, we even, I don't want to say we drink our own Kool-Aid, but, but a little bit. I mean, when you're, you're blowing out your rent projections, you kind of start to feel like you're really good at this business when in reality, it's a very unique market. Yep. It was the market, not the, not, not us. You're right.

[00:42:32] And then, so they're like, oh, we'll rinse and repeat next year is going to be the better than last year. Right. Cause that's the way it was for a long time. But, um, boy, you know, I've been through the lows of the lows, but, uh, right now it's tough. And I, I, I'm actually grateful that the cracks are starting to show up, um, that the lenders are starting to deal with these kinds of things. And, and the LPs are starting to take notice. They're asking really good questions or better questions in there.

[00:42:58] Um, and, and all that stuff is floating to the surface now, uh, which presents really, really, really good opportunities for this next buying window. And that's what I'm most excited about because when, to your point during the time when it's running and you got rent, rent growth and all that stuff, it's covering up expense growth. Like it's covering up all these goofy things. Um, and, um, and now you, you're, you know, you got to look at both sides. You got to look at what's, what's going on with my, with my revenue, what's going on with

[00:43:28] my expenses. And, and there's a thousand levers to pull on both sides to, to try to maximize that NOI. And, and, uh, just so many people don't know how to do it. Yeah. Well, I'll ask you a question too, just since we're on here, you know, do you, knowing that you can't predict the market, do you think the bottom is in, I know it's sub market dependent, but what do you see? I mean, do you feel like, like we've gotten there? No one can call the bottom, but do you think, you know, we've seen correction in multifamily.

[00:43:56] We've seen it in, especially the hot markets have gone through their correction. I would say we even saw a small correction here. Are we done or is there, is there more to come? I, I think there's more and I'll tell you why. Well, there was a bit of a pause before Trump got into office, right? We, we know that, right? And now we've seen, you know, you know, uh, it's, it's been a very interesting Q1, right?

[00:44:21] To see, as we kind of start off this, but when I don't see big money come into the market, so, so the beginning of that, that's when I'm like, okay, you, maybe we are at the bottom, but you know, when, when huge money, and I'm talking about, you know, all the big boys, um, they're still on the sidelines, you know?

[00:44:45] So, and so when that's still here, I still think that there, I still think we're going to see some fall off, uh, from some of these debt funds, uh, some of these loan maturities, um, some of these operational issues. And I think people have tried to patch these together the best that they can. Um, and a lot of the debt that's sitting out there, especially on some of these debt funds, um, they're not even marked down.

[00:45:13] So like, let's say they take a building back from somebody, um, and they walk away, they give them the keys, I guess all the equity is gone. And so now the debt is actually having like a third party match. Right. Um, and, uh, it's sitting there, uh, and, and, you know, and so we all know that they would sell it and get that off the books if they could, because if it was worth more than

[00:45:40] the debt, they would sell it, but they aren't they're waiting. And I think everybody's waiting for these cap rates to, you know, go down and these interest rates go down. Expenses are not going down for sure. Um, so those are the two things everybody's waiting for. And so I still think that that's kind of, you know, behind the curtain. Right. Uh, and, uh, each market's a little bit different, but we're not seeing a lot of defaults and there's a lot of big, big patient money out there ready to snap into those, as you know,

[00:46:10] but, um, we're not seeing those yet. Uh, and I, I, I cannot wait for that. So if you think, so if you think all is for these debt, these debt funds, or some of these people are, they're holding the bag with losses, right? Yeah. Oh yeah. There's some art. They're not being marked to market because they're not realizing them. Right. So, so you think Trump, I mean, Trump is a real estate guy. Do you think he's aware of this, that there's this, I mean, he's aware of it, but do you think it's a priority for Trump given?

[00:46:38] He knows there's sort of a debt bomb that's waiting to go off unless what, maybe the 10 year comes down to three or that. I, for sure he knows. Right. Uh, I don't think personally, if I was to guess, you know, let, let's take a look at what a debt fund is. It's not really regulated. People can do whatever they want. It's all private money that's being raised. I don't think he cares. Like, you know what I mean?

[00:47:04] Um, but, um, now when it comes to, you know, let's say Fannie or Freddie or, you know, some of these others, probably, you know, some of the banks, uh, probably. Um, but you know, a lot of the retail and office and stuff like that, that's sitting in people's 401ks, their pensions, retirement, stuff like that. So you're not going to really see them. Uh, I don't think you're going to see the, the shakeout.

[00:47:31] Uh, and basically they're like, Oh, who cares if the 1% loses, you know, some, some money, right? Like if you're accredited and, and you take a hit, like, I don't think that, I don't think anybody cares about that for you. Honest. Um, so, um, you know, I think that's going to make its way, uh, out. I think the, the bigger issue is going to be on the consumer side, right? Like, uh, you know, call it the single family home side, which I don't see, uh, any issues.

[00:47:59] Uh, you know, we're still undersupplied, you know, the prices of homes are still going up. Uh, not, not a lot, but it's still going up, even though the number of listings is going up, the days on market's going up. You know, we're still seeing price creep up. Um, and so, um, I don't see a rental housing issue to be honest, uh, much.

[00:48:23] I, I mean, I see these small little groups like ours that have been severely impacted, uh, all over the place. Um, but I think, you know, you and I are in the greatest positions because you guys have been doing this for 13, 14 years and, you know, we've been doing it for 25 years. Um, and so, you know, we're going to be the recipient of those. Uh, that would be my guess. Yeah. Yeah.

[00:49:05] I'm disagreeing. I mean, I, as based upon what I've seen there, you don't see them as active right now. And I, I'm not an expert on the institutional investment side of things, uh, obviously, but, um, I'm not sure if they're just sitting there with dry powder waiting to act or if they're licking their wounds. Like, I, I, I'm not really sure what they're doing, but I do know that if they're on the sideline and that there is going to be a little window here for moms and pops, people like,

[00:49:31] honestly, people like our firm to go out there and find either, you know, whether it's institutions buying single family homes or institutions buying big multifamily deals, they're, they're slowing down and that's going to provide an opportunity, especially for people that really understand their market. Understanding your local market is the greatest competitive advantage you can have because there's just, there's just no one from Manhattan. That's going to know your little, your little pocket, like you will. All right. So I think that's opportunity.

[00:49:57] We were just looking at a deal here recently that I think in any other universe would have been just scooped up, scooped right up by an institution. They would just shove it in their portfolio and just never think about it again, but it actually like kind of trickled down to regular people like us, you know, because they're, they're sitting on the sidelines right now. So I think, I think there's going to be an opportunity here. And then I think one way to look at this too, Daniel is what is the debt market you look like?

[00:50:26] And so right now I think you're going to find not much more than 60% loan to value, maybe 65. Right. And that's a really good barometer on the equity markets. And so the, the, what that signals to me is that the, the big guys, cause that's where they're playing right now is, is on the loan side. Um, they're, they're being super conservative.

[00:50:53] They're still, they still have money out there, but when you start to see that get up into the seventies, even past the eighties on the debt, um, that's when actually, you know, we start to see, um, more issues, I think. Um, so that's another good way to look at is not just the equity, but also on the debt. Speaking of LTVs, I'll just ask a question to you, cause I'm sure you've heard about this discussion of, um, taking, uh, the agencies private. Yeah.

[00:51:22] I'm not sure how many times you've talked about it on here yet, but I'd really love to hear your thoughts because if, if that happened, there would, the escape hatch for all these people to get cheaper agency debt would go away. And you just wonder, is that even, is that real? And I don't, I was actually having this conversation with Charlie today. Um, you, you know, so, uh, that's definitely being discussed.

[00:51:46] Uh, you know, we just did a deal that as you know, 35 year amortization, uh, we, we got our, we, we locked our, our 10 year at four. Um, and you know, so we, we, you know, a week later, we look like a bad move and a week, a week after that, it looked like a great move, you know? So, I mean, you can, you can, you could take a look at these things all you want, but our, um, you know, our, our active rate is still in the low fives, um, you know, five years

[00:52:16] IO. So I don't know how a private group can compete with that kind of, those kinds of terms. Maybe they can. Um, but gosh, the, the only thing better than 35 year am is HUD, which is also government and that's 40, um, which, you know, we're doing a HUD deal right now, a two 21 D4. Uh, and so, um, those longer, uh, terms are good. Um, and, and so that is interesting.

[00:52:42] Um, you know, the guy that used to run Pulte, uh, is in, is, is, uh, uh, that, that's who Trump, uh, appointed to take a look at this. So he's a real estate guy. I think that's good. Uh, but, um, you know, I think that is an excellent discussion for later, but I don't know yet what that would mean. And it was just, can you imagine how hard that would be to unwind that? Is it the amount of people that were banking on a, you know, five, a 5.5% refi?

[00:53:11] And now it's seven. It would blow up half the deals that have happened the past couple of years. Right. And we, we just, we just, um, got some quotes on a, on a Fannie deal and it was, you know, five and a quarter. Yeah. And then we're, and now we're looking at a distressed C deal. Obviously the agencies won't touch it. So we're looking at bank debt and that's up at like six and three quarters and seven. I mean, it's nine day difference. So that's actually what I'm talking about. You know, like exactly right.

[00:53:39] I mean, we're, we're, we're doing deals in the low fives. A lot of people don't realize that, especially if you're in the single family space, uh, you know, we're in the mid to low fives all day long right now on, but now low loan to value. Like, what are you getting on that? Are you under 60 or right around 65? 65. Yeah. 65. Yeah. So, you know, as you know, um, that's about as high as you're going to get. Yeah.

[00:54:04] And, and, uh, you know, when it moves an extra, you know, uh, up to 75, then, then you probably almost, but just lowers your cost of capital going in. But it also, you should start taking a look. That means that the banks are economy is probably a little better and the banks are loosening up, um, you know, some of the requirements. Yeah. Yeah. The local lenders, the local banks, they'll go a little higher, at least around here. They'll, they'll give us a 75, uh, loan to cost. That's excellent. Yeah.

[00:54:33] We're not seeing anything like that. Well, we have a pretty good track record here, you know? Yeah, you do. Yeah. No, I'm telling you that, you know, you bring up another really good point. Like, um, those local relationships and a track record are the reason. Um, you know, so we do have a couple of local banks that, you know, we could probably get loan to cost, um, and, and get that up a little bit. But, um, um, uh, one more reason to know, uh, to know local people when you're doing local

[00:55:03] deals is on the financing side. Without a doubt. Yeah. It's, it's a big competitive advantage for sure. Yeah. Well, thanks Robbie for joining us today. Um, where can people get ahold of you? Um, we just, you know, our website is vrec.com. That's V-R-E-C.com. Or I just, I tweet. I do like, I get on Twitter. So my. Yeah. If you want to say hi on there, it's actually Robert Hendricks is my, uh, my username.

[00:55:32] A-T-N-D-R-I-C-K-S. Got it. Come say hi. Yeah. Come say hi. That's a good way. If you guys are interested in getting on his deal list for the Midwest, um, they're, they're your group. Trust me. So, uh, Robbie, I appreciate your time, man. Thank you so much. Rob talking shop, Ken. I appreciate it. Good to see you, Danielle. Yeah. Give the best to the family. Will do. Thanks, man. Bye.