Latest / Real Investor Radio Podcast / Ep24 | IMN SFR West - Key Takeaways & Investor Insights

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Ep24 | IMN SFR West - Key Takeaways & Investor Insights · Real Investor Radio Podcast

• craig fuhr (00:04.454) Hey, welcome to real investor radio. It's Craig Fuhr and Jack BeVier coming at you. We're back home. Just visited I am in Scottsdale. For those of you who have never been it was my first time Jack. Lots to talk about there. Jack BeVier (00:17.998) Yeah, it's a great conference. It's the I am in as a conference company. They put on all kinds of business, real estate finance conferences. Uh, and back in 2013, I think, um, they started putting on a single family rental SFR conference as that industry was just starting to emerge. And they put it on twice a year, you know, back 10 years ago, we talked about this in some of the original episodes of the RIR podcast, um, it was mostly dominated by. institutional investors and folks who were, you know, just really Wall Street right when they were starting to get into the single family industry and try to figure out, is this an asset class or not? And over the years, the conference has just grown and they continue to have that particular conference twice a year. They put on a lot of other conferences as well that may be of interest to real estate investors, their website's worth checking out. I think it's imn.org. And so this SFR conference has really become like I think the biggest aggregation of folks who are professional real estate investors, lenders, vendors who are serving that SFR industry more broadly. So they cover everything from property management and operations to securitizations of rental loans. So it's really, really covers the gamut. craig fuhr (01:35.85) Yeah, I have to say as someone who's been to, as you know, my great share of not conferences, but really, you know, investor related seminars across the United States for the past 10, 12 years. This is a I think I am and for those of you who have not been and who are listening is a real step above. This is not your, you know, no, no. I'm not trying to disparage what real estate investment clubs do or what, you know, the guru class does across the United States. But this is different. This is really what I think you would say, Jack, sort of a look, everybody's walking around first of all, in jackets and suits. And so that alone sort of, you know, sort of sets a tone of professionalism. And at least the investors that I spoke with, Jack, I think there are some really fine operators there. folks who are obviously have scaled their operations. And so for those who might be trying to get to that class, I would highly recommend IAMN. This was a really top-notch event. They took up two full ballrooms to give you an idea of how many people were there. So one floor was just exhibits and booths of all the vendors and there were a ton. And then an entire ballroom where they would have full sessions and then a lot of breakout sessions as well, which I know you were a part of and Fred was a part of too, Jack. So I was hoping that we could talk about just that, you know, like what you guys learned there. You know, what did you think? We're obviously in an interesting economic times, Jack, where there appears to be some folks on the sidelines talk to a couple of guys that were like just pencils down, you know, we've consolidated, we've sold off, you know, some non performing assets. And then we were talking to folks, full steam ahead. You know, we're buying 5,000 lots here and we're buying up land and you know, there was no indication of any economic turmoil whatsoever. So what was your take? Jack BeVier (03:33.232) Mm-hmm. Jack BeVier (03:44.158) Yes, like the you know, the optimism that you tease me about each episode comes a lot, you know, a lot of it comes from listening to those folks in that room, because the people who come to those conferences are still very, very bullish on American real estate for the long term. And so you have folks who I feel like a lot of the optimism or pessimism that someone expresses has to do with the timeframe that they're thinking about, like, you know, over the course of the next 12 months, or the over the course of the next 12 or 10 years. And, um, you know, the, they have these kickoff panels. Um, by the way, we're not associated with I am in any way we get no kickback. It's just a conference that we always go to because I always get tremendous value out of it. So, you know, since we get tremendous value out of it, it's something that we wanted to talk to everybody who listens here about, um, but, uh, they kick it off with, uh, three or four keynote panels on just kind of state of the market. Um, They have a panel of a lot, very large lenders that my partner Fred was, uh, was one of the panelists on. Um, and. The, a lot of, a lot of economists. And then as you mentioned, breakout sessions that, uh, dig in more operationally or to specific topics, the fix and flip markets, um, you know, real, you know, property management operations, stuff like that. Um, so anyway, the, the kind of the larger panels that have, that tend to have more economist types on it, right? Cause people are trying to get what's the macro view. the first panel, just like there's five panelists, they're all super smart folks, like highly vested in making decisions about how to invest capital on a going forward basis. But they're not married to SFR in any way, like necessarily. But the optimism that they all express with respect to American real estate and the under supply of particularly the affordable segment of the market. Um, you know, I don't, there's not a whole lot of folks saying we're under, under supplied luxury, but in the affordable component, the, you know, uh, that, that tailwind is something that I think is really driving a tremendous amount of, uh, investor interests still on a going forward basis. And I think the conversation ends up being not is residential real estate a good place to invest or not. Everyone agrees with that. It's how do you get involved right now with interest rates as high as they are. craig fuhr (06:07.67) That was the guiding conversation. Jack BeVier (06:07.934) And how do you make the numbers work right now? Can you carry negative leverage at all? Can you carry it for a short period of time? Is carrying it for two years too long? Those are really the conversations that are being had there. So it's a little bit more nuanced, nuanced conversation about how to invest in the SFR asset class or in the residential single family asset class. craig fuhr (06:30.934) What was your takeaway with that, specifically with regards to that, Jack? Jack BeVier (06:35.39) Yeah, there are, I think that there is still some concern about low, you know, obviously there's concern about low transaction activity and there's a lot of vendors in the room, there's all the lenders in the room. So that issue specifically hurts them more. Everyone in that, I think everyone at that conference likes the asset class is very pleased with how it's performed, even in some stress tested environments and Jack BeVier (07:05.262) real estate asset classes that single family is one of the most, if not the most resilient in a downturn environment. So everyone feels like comfortable that it's a safe place to be. And so the conversation right now, I think are more focused around shifting your pipeline to you know, how many rentals are you going to add versus how much are you going to be flipping or trading? Jack BeVier (07:32.75) build to rent is still very much a big topic there, though, that conversation really tends to dig into the issue of negative leverage, right, where you're buying you're still those assets are still trading at a six cap, say just you know, that's a very broad brush, right? But like, you know, those assets are still trading at a six cap and the debts at a seven, seven and a half. craig fuhr (07:35.874) Yes. Jack BeVier (07:57.49) And those deals are still getting done. I mean, less like last year, there were no transactions in that category happening. It was like that market came to a standstill, but those have started to happen again. Uh, some lenders have gotten creative. If, if the equity, if the, if the, if the equity is interested in buying those houses and is comfortable that they're not going to get very much of a current return for a couple of years, but that they're going to make it up on the backend through craig fuhr (08:27.054) appreciation. Jack BeVier (08:27.058) long term rent growth because we've got, you know, an increasing household formation and we're under supplied in housing. You can create, you know, you can, you can create a 10 year pro forma and look yourself in the eye, you know, with a straight face and say, Hey, yeah, I'm not going to get paid very well for the first couple of years, but we're going to continue to have rent growth over the course of the next 10 years. We're going to have an, if you're concerned about inflation, this is the place to be. And so we're going to make it up on the backend. craig fuhr (08:52.94) Yeah. Is so is the conversation there Jack when you speak of equity if so we spoke with Alex who appear on a Who will appear on an episode? I'm looking forward everyone to listen to that anyway, is The conversation there if you're forming a fund or if you're going out to equity partners LP partners And how do you how do you have that discussion? Hey? We need your money, but you're not going to get any return for the first few years Jack BeVier (09:03.075) I'm out of here. Jack BeVier (09:24.834) Yeah, I think I think it's that conversation of, you know, how American housing is a great place to be the current returns aren't great right now. So we're not going to use very much. I'm sorry, the current returns are fine. But the debt is really expensive right now. But we want to own assets for the long term. And so if you believe in that in that fundamental pitch, and you believe in an operator's ability to find good deals, then you don't want to you know, you can buy assets right now. Don't use as much leverage right now. Right? Like if the leverage is expensive right now, just don't use as much of it so that you can continue to produce a, a dividend to your, um, to your investors and then talk about that long-term, Hey, we're under supplied. We're buying it at, or, you know, at replacement costs. Like if anything is going to go up, we're going to go up and we're really downside protected in this asset class. And I feel like that's what equity investors are accentuating right now. craig fuhr (10:05.026) So can I add, go ahead please. Jack BeVier (10:21.302) is that this is a low risk thing over the course of the next 10 years. And it's got inflation and an inflation hedge to it. And the combination of those two things, right? Like in an environment right now where people aren't really sure if inflation is going to get like it's coming down, but it's not yet under fully under control. And if you're concerned about inflation over the long term, um, residential real estate with a annual mark to market lease opportunity, like we have in single family, right? We're not signing 10 year leases. we're signing annual leases. So we get to retrade that rent every year is a is a really nice profile to invest in right now. craig fuhr (11:01.054) Yeah, so the only fly in the ointment there would be stagnant rents. Jack BeVier (11:09.866) Yeah, yeah, if we have stagnant rents, but if you but if you're concerned about inflation, then rents, you know, just have historically really gone lockstep with inflation. So they're just a great inflation hedge there. I think the fly in the ointment is a recession, the fly in the ointment is your view on whether we're going to have a recession next year and how bad it's going to be and what that does to rents what that does to vacancy rates. So there are certainly Jack BeVier (11:39.834) gets off of the Wall Street Journal front page. But as, and there's others who were like, hey, yeah, we're gonna, you know, they're gonna soft land this or it's gonna be a mild recession and I'm investing over the 10 year term anyway. So again, it goes back to that, you know, that timeframe of your investment horizon as to whether, you know, you're really concerned, whether you think that recession, whether you think that potential recession makes it a bad time to buy. or not, right? Because you can't go back and once you, if you sit on the sidelines and go play golf for the next year, you can't, you know, put your sticks away and then all of a sudden buy a bunch, you know, put a years of work back in, right? Like you're just not going to have bought those houses. So, um, there is an operational constraint to sitting on the sidelines, right? That you'll, you'll own less 10 years from now if you do nothing right now, tomorrow. craig fuhr (12:31.99) I'd say, you know, spoke with a lot of investors. And as I mentioned at the beginning, it was my first time at IMN. You know, we had our, we had a Dominion booth there, financial, Dominion Financial booth there. So we spoke with a lot of folks. And I thought the general sentiment, as you sort of read the tea leaves while speaking with folks, it was this sort of, hey, we're cautious, man, but we're really taking a hard look at the numbers and how to structure these things. But... It was full steam ahead for mostly everyone that we spoke. Jack BeVier (13:05.878) Yeah, there's some there's some like, you know, there's some bias to like who shows up to a conference, right? Like the guy who's playing golf is not going to bother showing up to that conference. So everyone's there because they're active, they want to see where the cheapest debt is right. Like if you need debt right now, you want to be at that conference because every lender and they're under the sun is at that place. And you want to, you know, be able to compare notes with other operators to make sure that you're not the idiot that like, you know, is missing something that everybody else, you know, understands to be true. craig fuhr (13:22.612) Mm, sure is. Jack BeVier (13:33.062) Uh, and that's what I've always gotten out of the best thing that I've always gotten out of that conference is just talking to people at the bar, right? Like the, the sessions are good and there's some really sharp people on there. Some sessions are better than others, right? You have some sessions where people are just talking their book and like pitching basically, which is, you know, those are lame. You leave those after the first 10 minutes, but, um, but like other sessions have like a lot of high quality content. There's really, you know, the folks on the panel are actually, you know, giving their perspective and. and make, have, you know, you have like a nuanced conversation. Uh, and then the bar is like, you know, the bar and the happy hours and the networking hours, like that's where you really get the opportunity to just talk to folks in different segments, get their take on things, you know, get a couple of drinks in them and ask them what they're really concerned about. Right. Like that's where you get the really interesting content is after a couple, you know, a couple of vodka sodas. So that that's what we always go for is, you know, is just to see like, Hey, which way is the wind blowing? How are people feeling? Like. craig fuhr (14:26.626) What? Jack BeVier (14:33.174) Can I get some honest feedback, right? And not just whatever's being printed in the media or whatever's on people's social media pages, right? craig fuhr (14:40.598) Shout out to Amanda at Stuart Tito for applying us all with great bourbon by the way. Jack BeVier (14:46.593) Yeah, it's great. It's always much appreciated. Always much appreciated. craig fuhr (14:48.958) Yeah, exactly. She was awesome. So in those in those more private conversations, Jack, any takeaways from there? Anything that you were like, Oh, wait a minute. Can you think of anything? Jack BeVier (15:02.294) Um, yeah. Yeah. I think that, um, there are a fair number of operators who are who have pivoted to more revenue. monetization, I'd say in the current, you know, on in the near term, you're like, they're, you know, they're flipping more, they're wholesaling more, they're, they're shifted their business to more fee income based, rather than, rather than adding assets and craig fuhr (15:17.389) Can you explain that? Jack BeVier (15:30.222) you know, and adding a lot of leverage, right? Like, like, not a ton. I would say it's been a shift a little bit away from building your rental portfolio right now as the cost of debt has gone up. But a I think a confidence in real estate values enough that flipping feels much better. I mean, I had some honest conversations with some operators who were talking who were big flippers crushed it in 2021, right? Like knocked it out of the park in 2021. and then gave a chunk back in 2022. Now they didn't give it all back. They didn't give anywhere close to all of it back. Right? Like if you, if you blend those two years together, they had two great years, but it was just, you know, it was a grand slam in 2021. And then, you know, and then you get, you know, and then you struck out all 2022. Uh, and so they may have actually lost money in 2022 and their things are starting to stabilize, but nothing's easy. And so, um, That was a, that's a common story. I think where people are just, they're giving back a little bit of profits from, from that 2022 hay day and it, you know, the, and, but they want to keep the shop going because they like this business and they're, they're still good at it, uh, it's just the market, you know, knock their legs out from under room in 2022 and early 2023, but now as it's gotten harder, it's gotten less competitive, a little bit more seller capitulation. And so the. craig fuhr (16:52.641) Yes. Jack BeVier (16:55.878) cracks in the market are starting to happen and people are starting to see opportunities. No one's like, dude, I'm having a blast buying a ton of great deals, but they're starting to find stuff again. And so for the folks who are still in there, still got their ear to the ground, I heard that enough that I'm like, yeah, that's not just in... And we're seeing that in our backyard too, but that feels like a trend. That feels like a thing. craig fuhr (17:00.983) Yes. craig fuhr (17:08.514) Yes. craig fuhr (17:24.126) Well, you mentioned on a previous episode how here in Baltimore or Maryland, we should say that, uh, when you show up to an auction, there's maybe less people at the auction and even maybe less people bidding at the auction. And while it, while it, while it's not a, you know, a seismic shift, you can at least see the, you know, maybe a small trend forming. And I heard the same thing, uh, talking with folks at IMN as well, Jack, that like, yeah, Maybe we're starting to see a little capitulation. Maybe we're starting to hit a double instead of all singles all the time. Nobody, it didn't sound to me like anybody was hitting home runs, Jack. But they are starting to see a small shift in their markets in terms of competition, in terms of transactions, and in terms of abilities to find better deals. Jack BeVier (18:12.358) I think that lenders, the other thing my takeaway was that lenders are, they again, had a phenomenal 2021, a challenging 2022 because of an increasing interest rate environment. And so like, yeah, you know, it's kind of same story from a profitability point of view. And then 2023, I guess it's kind of a parallel story. where there's a lot of folks who are operating at a breakeven or barely, or like a little bit profitable, but not like, again, not, not great. Um, they're, they're keeping the lights on with the hope that enough competition is going to fall out and enough transaction volume is going to start picking up that it's worth it to work here for now. 18 months plus without making any money. Uh, so, or, you know, making less money. Uh, so, um, I think that seems to be a little bit of a trend amongst lenders as well. Again, high cost to capital affects them as much as, you know, their customers, right? They're, they're not, they're not, most lenders are, are lending much of other people's money. You know, they put some of theirs in with a bunch of other people's and that other people's money has gotten really expensive. So, uh, a lot of lenders are, you know, running, running shops that are highly levered. right? Themselves that are they're lending a lot of other people's money. So they've it's been harder for them to make money on what's left over after the other people take theirs. So I feel like that's a that's been a trend to and then man, there was a ton of vendors this time as well. I think that like an uptick I would say in the amount of vendors at the conference itself. Yeah, which I took as craig fuhr (19:59.106) What do you make of that? Jack BeVier (20:02.782) I took as I would think it's got to be a tough time to be a vendor right now. Cause like, right. Like difficult environment, lower transaction volumes, people are, you know, people, you know, they don't, they don't take on a lot of, they don't sign a whole lot of new long-term contracts with, with vendors and try, you know, try a bunch of new things in when they're tightening, when they're trying to also tighten their belt. Now, if you're, if you're an off a vendor who can offer efficiency and, uh, you know, decreasing costs. people are certainly going to be interested in that kind of thing. Um, and there's, um, you know, there's a lot of prop tech that happened. craig fuhr (20:39.134) I was going to ask you, I know you walk the floor and you even I saw that you had a chance to speak with a few vendors as well. Yeah, talk about the ones that you were particularly moved by, you know, in what they were doing. Jack BeVier (20:52.558) Yeah, I think that the conversations with vendors, the ones that were, I think, interesting or felt like they were like, had still had some momentum were those that were focused around efficiencies and operations and decreasing costs generally, right? Like trying to get those expenses down for their customers. craig fuhr (21:12.938) Anyone in particular? Jack BeVier (21:14.886) Um, no, I mean, there's all, all kinds of, you know, depending on, depending on your particular need and your market. I mean, I think that everyone in that room certainly has customers. So there's, they're fulfilling needs for, um, for lots of different folks. But, uh, so nothing like that, like was like, oh yeah, everyone was like moving towards this guy. Um, a lot of, and a lot of new vendors and prop tech companies, uh, came out of the 2021 timeframe as well, right? Like that was like the hay day. for venture capital, Silicon Valley, and private equity, really venture capital, getting into the tech space for real estate. And there was a ton of new companies that were formed during that period of time. And those folks are, we've started to see the weaker of those folks fold and just kind of like fade out into the distance, but it's still a very tough operating environment for that kind of company. And if they have not yet reached profitability, they're running out of time because they're running out of cash. Right. So like if you, you know, if you built it on the come and then you were expecting 2021 levels of activity to continue to happen. Well, it has been the opposite, right. It has been just like down, down in terms of transaction volumes. So that's made it for a very challenging environment for prop hit its pro forma. And if it, if they haven't yet reached profitability, if you go back out into the venture capital market right now and try to raise more money, you're, you're taking a down round, like the valuation that you're going to get on this next, on this next deal, this next round of fundraising is going to be much lower valuation often, much lower valuation than what it was two years ago. And, uh, you know, that leads to a whole bunch of problems with like, you know, what do you tell your existing investors? How much money can you raise and at what valuation? Like is there, you know, at what point do you just throw in the towel and say, Hey, you gave it a good, you know, we gave it a good run, but I'm going to go work on something else. craig fuhr (23:15.266) Yeah. craig fuhr (23:19.614) Mm hmm. So last question with regards to sort of the overall any surprises any surprise takeaways anything that you were like, Oh, wow, that's, that's definitely something I wasn't considering before I came here. Jack BeVier (23:32.97) I didn't think it would be as well attended as it was. Yeah, so because I thought that there would be folks who were just kind of like, keep putting their heads down a little bit more. So I think that and I wonder, you know, I wonder if the conference was 45 days ago, 60 days ago, would it have been as well attended? Because certainly the drop in mortgage rates over the past two, three weeks here have injected a little bit of optimism into the room, I think, than would have been in there 30 days ago. craig fuhr (23:35.55) It was well attended. Jack BeVier (24:02.43) And so I feel people are getting a little giddy. They're getting their little like, you know, wiping their brow and, and hope, you know, think, you know, hoping and praying that the, that this is just the start of a continued decline in mortgage rates, which would be good for the entire industry, particularly from a transaction volume point of view. So, um, I guess I attributed to that level of activity and the level of optimism, frankly, to the recent news about mortgage rates, um, And again, like I said, I wonder what I wonder if it would have been nearly as optimistic 45 days ago, who knows. craig fuhr (24:36.106) Yeah. Well, I know you sat on a panel and it was regarding sort of the state of DSCR. So for the for those of you listening who are aren't familiar, which I'd be shocked if there's many but you know, we write a lot of DSCR loans here at Dominion Jack. And so you've watched that product form and grow over the last few years. And so Jack BeVier (24:44.666) Yeah. craig fuhr (25:05.867) What was your takeaways there in terms of the state of DSCR loans? Jack BeVier (25:10.178) Yeah, we had a really good conversation. I was lucky to be on a great panel of panelists. Gene Clark at Arch West was the moderator. Constructive Capital was on my panel. RCN was on my panel. And another large note buyer was on the panel as well. And they, we talked a lot about just kind of like the state of the market right now in terms of where interest rates are. know, where the securitization market is for DSCR right now and what that means for borrowers on a going forward point of view. And just kind of, you know, everyone looked, tried to look into their crystal ball a little bit as to talk about where they thought that the risks and the opportunities were. I think something that's something that we all agreed on was that the we've seen a little bit more, seen a little bit more, I guess, like, aggression from the securitization market, as rates have started to come down a little bit credit spreads in non QM securitization have started to come down a little bit. And frankly, mortgage buyers, mortgage lenders are trying to keep volumes up. And so DSCR has been a kind of a bright spot of it's really new market share, right for the non QM market. They really the bank, you know, five years ago, banks really owned this business. And I think the DSCR market has taken a lot of market share away from the local, the local lenders and credit unions, because the rates became much more competitive. And as the banks got hurt six months ago, market share has come towards DSCR lenders as the mortgage broker market has gotten educated on non-QM products, including DSCR, the distribution mechanism for DSCR loans has become much broader, right? Even two years ago, it was really a product mostly originated by private lenders. But as the broker community, the Rezzi consumer residential consumer mortgage broker community has gotten educated and been looking for volume. They have also now brought in a lot of product, you know, originated a lot of loans. And so you've got craig fuhr (27:29.794) Feels like we get calls from brokers every day. Jack BeVier (27:32.106) Yeah, absolutely. And so they're only selling to the that securitization bid, right? Like they don't have the benefit of being able to work directly with insurance companies like we do, for example. So the rates are a little tend to be a little bit higher for the broker community. But you know, if you're looking for a solution, and you know, your guy, you call your guy who did your house, right? Who did your house mortgage at 3% two years ago. And he tells you that the you know, that the DSCR rates and 9% you believe him, right? Because he got you three. So he's just you know, he's the one who's in touch with the market. craig fuhr (27:53.1) Right. craig fuhr (28:00.63) He must be my low cost provider. Jack BeVier (28:02.51) Yeah, exactly. Exactly. So a lot of product comes, you know, gets originated that way. Because you know, craig fuhr (28:07.37) I just have to stop you right there, Jack and just say it is not 9% for those of you who might be looking for a DSC airline, you could do much better. Jack BeVier (28:11.206) It's not, no. Yeah, it's been great. We've down tipped into the sevens for the first time in months, which is, I don't know, it feels good. craig fuhr (28:19.938) Oh yeah, I've been writing many loans and that's seven and a few eights to seven and a half. Jack BeVier (28:25.218) Yeah, I'm nervous too. Uh, I feel like I want to like just do some refis right now, cause I'm, I'm nervous that it's going to go back up, but you know, we'll see. Um, anyway, back to the panel. So, um, the, uh, we were talking about just how, you know, how that market has evolved, right? And, uh, there's a, there's a lot more requests for, with, with these higher interest rates that we've experienced the past three, four months, um, there's a lot more requests for low DSCR, like sub 1.0. DSCR or even as low as 0.75 DSCR loans, because with higher interest rates, it's tougher to pencil and I think investors are more, are having harder access to get liquidity. And so the DSCR loan is an easier loan to get to the table quickly. You know, we can close that in like three weeks, 30 days. And so it's, it's an easy button, so to speak, if you've got equity in your real estate for liquidity. craig fuhr (28:58.378) Yeah. Jack BeVier (29:24.01) And so we've seen an uptick, I think, over the past 60 days in those lower DSCR requests and what that means. Right. So we had a conversation about what that means. Is that a good thing? Is that a canary in the coal mine for distress, frankly, is, is DSCR originated over the past 60, 90 days, the new sub prime investor, you know, loans. And we're going to see all this stuff back at the courthouse three, four years from now. So we talked about all those kinds of issues. craig fuhr (29:52.982) Well, can I slow you down there a little bit? Because it feels like, look, if we were talking, uh, a few years ago, it was, it was the ratio of one to 1.25. And I don't think that anyone was ever going to break out of that box. You know, that felt comfortable. Jack BeVier (29:54.818) Yeah, yeah, sure. Jack BeVier (30:09.394) And the sweet spot is still 1.2 plus. Like in the insurance companies still want the 1.2 plus. If you want that good pricing, you need to be in the 1.2 plus range. craig fuhr (30:17.846) What's all the talk though of like, oh, you know, oh, we've got some, we've got some buyers who might be willing to go less, you know, like, it feels to me like the, because of the, maybe the, the economics of the deal, let's, let's see about like maybe doing a sub one, you know, I don't think we would have been having that conversation a few years ago. Jack BeVier (30:38.486) No, we wouldn't know if we wouldn't know if we couldn't have the but the you know, the lenders have gotten more aggressive, frankly. I was looking at this I was nerding out a couple weeks ago. There's this company called DVO one if you can imagine if there's a there's a company called DVO one, and they look at they look at all the remittance reports, which is the reports that the securitization trustees publish. craig fuhr (30:50.924) Alright. Jack BeVier (31:07.354) that shows the performance of each securitization. And you can get your hand on these reports. And if you're... craig fuhr (31:12.298) Got it. Which is essentially like an aggregation of the loans. Is that right? Okay, get it. Jack BeVier (31:17.75) Yeah. So you can see all the loan performance on a securitization by securitization basis. And then they split it apart based off of the attributes of those loans and try to tell you as a securitization investor, you know, the geography matters in this category and FICO matters in this category and LTV matters in this category. And like, here's the relative weights of each of those factors so that you can kind of, right. Like the idea is to make better pricing models. right? So you can price risk more appropriately. And so they really nerd out on the quantitative side on these remittance reports. And when you break apart the non QM securitizations, you look, we have seen an uptick over the past 60, 90 days in non QM securitization delinquency rates, very small, a small uptick, but like a noticeable, a small but noticeable uptick. But when you break it apart by type, you know, whether that's a bank statement loan or DSCR or the other kinds of non QM, you know, the other kinds of non QM loans, DSCR is the best performing of the non QM loans. And so as product offerings have gotten more aggressive over the past, a little bit more aggressive over the past couple years, one of the reasons they have is because DSCR performance has been so strong, and it remains the strongest of the non QM category. And so lenders feel that they're getting paid well for their very low risk that they're taking. And so they've expanded the box a little bit. So the 1.2 lender, you know, some of the 1.2 securitization lenders went to one oh, and then those guys said, Hey, everything looks still looks good. Let's drop it to point nine. Let's drop it to point seven five. Um, and put some LTV overlays on it a little bit, but you know, to mitigate their risk, but craig fuhr (32:55.916) Yeah. Jack BeVier (33:10.862) They're, they're creepily, you know, they're, they're creeping and getting a little bit more aggressive and you know, who know? We'll see, right? Only time will tell what, when they've gone too far, but certainly, right? That's human nature. They will go too far and be a little bit too aggressive at some point. But, uh, hopefully, you know, we don't kill the golden goose here and originate a bunch of crap loans and then pricing goes up for everybody. So that's what the industry wants to avoid. craig fuhr (33:36.974) Is this a category, Jack, where you can only have so much diversification in what a DSCR loan can be or do we find new products coming along? Are there any note buyers out there who are writing guidelines that feel like, oh, that's sort of a new product? Jack BeVier (33:58.722) I think on the DSCR side, because all of those end up or most of those end up in securitization, there's relative conformity. Um, because you want the thing is with the, the DSCR loans, the loan buyer wants to put those into a securitization and they want to get that securitization rated because once they get that securitization rated, they get better pricing execution. And so if they write a bunch of like new creative stuff, the securitization, I'm sorry, the rating agencies, the rating agencies will not give them the rating on those loans or say like, hey, these need to be excluded if you want a rating from us. So the rating agencies tend to be like the guardrails around new product development, at least in the rated securitization space or rated, you know, for rated products, which, you know, DSCR, that's where you get your best, that's where you get your best secondary market execution. Um, private lenders though, have certainly been doing that. Uh, there was a panel after mine that talked about more like the commercial, uh, loan structures like non recourse portfolio loans, you know, like the $10 million non recourse, you know, you're buying build to rent, you're buying build to rent properties, or you're doing a refinance of your thousand unit portfolio in Columbus. And you don't want to sign personally. And so you get, uh, you can get a loan from a a more commercial style lender. And those folks have become more creative in their structures to accommodate the higher interest rate environment in terms of, uh, incorporating interest rate caps to help make the DSCRs work on those loans, cause they tend to be non-recourse so they can't write a one-oh DSCR like it must be at least 1.2 cause they get tossed the keys if the deal doesn't work out. Um, craig fuhr (35:54.83) Sure. Right. Jack BeVier (35:57.342) And like with some like a little bit longer term, like three, you know, two or three year bridge loan structures, we've seen that kind of creativity in those balance sheet lenders, um, particularly in like the larger and the larger size balance sheet lenders, um, that's where we're seeing kind of the, I would say that that's the front edge of product development right now. craig fuhr (36:17.118) Interesting. I was thinking more along the lines of like, you know, calls that we get here from, from folks that we might not be able to help. Like I've got a, you know, a 12 unit deal. I've got, you know, stuff that just doesn't fit the box. And I'm wondering if there's any talk amongst like, you know, how do we capture that business too? You know, because there's a lot of that. I mean, there's a, there's just a ton of that stuff. Jack BeVier (36:36.387) The. Yeah, the. Yeah, the, the multi, like the, you know, small multifamily is a relatively under, under supply or underserved market, I'd say, because it's the end of this, it's this in between where it doesn't fit into the rating agencies, models of a DSCR loan. So they don't want to, you see, you don't get very good pricing. Uh, you know, so you, so you don't get the best pricing because of the rated securitizations. But then if it's, but you can also go Freddie Mac multifamily loan, right. But. No one really wants to work on a $600,000 like Freddie Mac, you know, Freddie Mac's originators don't really want to work on a $600,000 loan. So you get stuck in this no man's land, where if you if someone's willing to do that, they're going to charge you for it, right? Like you get higher pricing for it. And yeah, that's an issue, right? Like it should, and it should translate to lower asset values, right? In that middle ground, right? And that 12, you know, 10 or 11 to You know, 11 to 30 units are tougher to finance because they just don't fit in any anyone's fat. They're not, they're no one's fastball. And so you'll find folks and banks frankly, are like the ones who they're, they're the balance sheets that have financed those. Um, and view it as, Hey, I'm, you know, I'm, I get to charge an extra 50, 75 basis points. And it's really the, you know, it should be a DSCR loan or it should be a, a Freddie Mac multifamily loan. craig fuhr (37:56.29) forever. Jack BeVier (38:06.254) but it doesn't really fit in either bucket. So I get the charge you an extra 75 points and the bank feels good, right? About doing that. So that area of the business has been really kind of like left behind a little bit as banks have become more reluctant to lend on commercial real estate, including residential multifamily. And so I do think that middle ground there is the, they're the ones that are like on a relative basis, still the most underserved. craig fuhr (38:33.646) Do you see that as an opportunity for, yeah. Jack BeVier (38:36.698) I see as an opportunity for banks to like, to write some really high quality CRE paper, but they're the only, you know, frankly, they're the only ones with the balance sheets and the cost of capital to be able to, to serve that market right now. Like your, your private lender market, like, yeah, I'll, I'll do it for you. You know, right. I'll do it for you at 12%, but like no one wants to hear that, right. They want to, they want an 8% loan because that's the appropriate pricing, frankly, right? Like that's what it should cost given that risk. Um, but the banks are the only ones who really still have the cost of capital and the S and a small enough and frankly, a distribution network, right? They're, they're loan officers. They have loan officers who can do a $700,000 loan profitably. craig fuhr (39:19.598) It's a very local business though. You're not taking deals from all over the country there. Jack BeVier (39:21.558) Yeah, exactly. Jack BeVier (39:26.018) Yeah. You could, you could, I could, you could see a, someone coming in and being like, Hey, I'm going to go take this. Right. Like, it's, it's a list that you can pull off the public record, but you'd, you know, it's the kind of thing where you'd go raise $500 million of equity and say, I'm putting together a program and we're going to go do a securitization. I'm going to do enough of this. We're going to do our own securitization of this product. Um, and no one's, you know, I don't, to my knowledge, please, you know, if someone knows about a lender that I don't know about, um, who this is their fastball, this kind of like, you know, 10 to 30 unit multifamily, you know, hit us up in the comments and shoot me an email. Uh, but, uh, I don't know of anybody who's really stepped up to try to own that space. craig fuhr (40:07.522) We'll look forward to the Jack Bevere business plan on that space by episode 25, yeah. Jack BeVier (40:10.85) Yep, absolutely. Hey, yes, speaking of which, we're raising a new fund. It's about 10 to 30 unit multifamily. If anybody wants to invest in our new fund, we just decided to do it three seconds ago. It's gonna be a great opportunity. It's a very underserved market. I just gave you my whole thesis. I'm gonna have to write it down. craig fuhr (40:16.838) News flash. craig fuhr (40:28.086) and it was all facts. So any other takeaways? And then I want to shift to one last thing, it's might be a little bit of a curveball for you if you if you knew nothing about it. But any other takeaways from the panel? DSCR panel? Jack BeVier (40:41.326) Um, yeah, I mean, a point that I made that I thought landed well was, um, because the DSCR market is still, uh, there's maybe like 10, maybe 15 loan buyers and each of them have their own opinions of underwriting guidelines. They, uh, yeah, everyone's, everyone's different. There's very little conformity there. Um, the, it, that re and, and at different points in time, they are more or less aggressive. craig fuhr (40:57.835) Oh, they do. Jack BeVier (41:09.882) than each other and it moves right like depending on the news or depending how the you know the head of investment committee felt the week before the pricing for each of those loan buyers moves over time, as do their guidelines. And so if you if a borrower is working with a particular originator, and that originator is tied to one source of capital, you're only getting a look at one of those 15 programs. craig fuhr (41:09.997) Mm-hmm. craig fuhr (41:39.774) Yeah, can I break that? Can I break that down a little bit? So if we get a call from an investor who wants to do, you know, I've got 15 units, I want to put it all into one loan, DSCR loan, we have access to how many no-pires, Jack? So 10 folks that we can throw that loan out to and chances are that we know, you know, before we get the loan, which one's probably going to be the best. Jack BeVier (41:39.814) or one of those 10 programs. Yeah, sure, sure. Jack BeVier (41:57.937) We have about 10 MLPAs in place, yeah. craig fuhr (42:09.938) which one or two will be the best fit. However, what Jack is saying is that there are originators out there who have access to only one note buyer. And if the guidelines for that note buyer are rigid, that's a box that you're either going to fit or you're not. And so I think what you're saying is that, again, finish the point. Jack BeVier (42:20.45) Yeah, one or two of those, yeah. Jack BeVier (42:37.57) Yes, exactly. So like if you're you know, if you go to your guy, and he's got access to one program, and you're slightly outside of that guy's fastball, well, you're going to get charged a bunch more for the fact that you're a 1.18 DSCR, right? Or whatever the case is, or your FICO is 715 instead of 725. And so what we the way we've set it up is that we work with basically the entire market. And so when a borrower comes to us and gives us their scenario, we plug that into basically a huge Excel spreadsheet, which aggregates all of the guidelines and all of the pricing for all 10 of those loan buyers and spits out, Hey, at 75% LTV, you should go with this program at 70% LTV. You should go with this program and here's pricing at 65% LTV. You should go with this program and here's pricing. So we give borrowers, it's basically an ECMA best execution model of figuring out where that situation for that. particular property fits best to give the borrower the best pricing. And it may be the case you come to us with four properties and we put you into three different programs because it's going to save you a quarter point on the rate for 30 years to split it apart. And it, you know, even with some additional, uh, closing costs, it actually makes, you know, that makes good sense. And we'll that's what our loan officers do. They counsel folks on like, Hey, we should split this up, go to, you know, two with this program, one with this other guy. and then go get you the best execution on that. And so if you're not, you know, so that's like a really important thing to do in such a heterogeneous market, right? In such a heterogeneous product, it's important to get a survey of the entire market, which in the past, if you were going to, or not in the past, but if you're going to, which is kind of serves the function of a mortgage broker, but who may hopefully is working with multiple buyers. But the mortgage brokers don't have access to the insurance company market because they're not selling the loan, they're placing it to somebody. So they only get access to the securitization products, the secondary mortgage market products. They don't get access to the balance sheet lenders, the insurance companies that are keeping this stuff on balance sheet. And so we're kind of like the best of both worlds in that when you can get a best execution quote from us, you know that you're getting the best that the entire market has to offer at that given Jack BeVier (45:03.438) point in time for your given scenario. And since we're selling directly, you don't have to work. You don't have to pay for a middleman either. And so that's, that's been our value proposition. That's why we do DSCR, you know, our, our core businesses always been fix and flip. We added DSCR because there was so much overlap between those two products. And when we built our DSCR program to be a, to be that best execution model so that we knew that we were always promising the best that the market had to offer at any point in time. craig fuhr (45:35.946) Yeah. And the only way that you can do that is, is by having that breadth of buyers who, yeah, you it would be impossible to be a top notch originator if you didn't have access to all of the buyers in the market for that, for the DSCR product. Yeah. Um, so last thing in the time that we have left and we'll just take a couple of minutes with this. So I don't want to blow your mind here, but you know, Fred sat on a shark tank, uh, Jack BeVier (45:54.018) Yeah, exactly. Jack BeVier (46:05.034) Oh, how'd it go? I didn't get to see it. craig fuhr (46:06.982) You missed something. You know, honestly, it was really interesting. They had two different scenarios. Did you happen to see the case studies by any chance? I asked Fred, I guess he may have been on the plane when I shot him a text. So they basically came out with two scenarios. There were two guys there who had portfolios, Jack, that they wanted to sell. And the one that stuck out to me that I found interesting was 255 single family properties in South Bend, Indiana. fairly close to Notre Dame. However, you wouldn't call this a student rental portfolio. Like a couple of them may have fallen into that category, Jack, but not all of them. So it was $29 million asking price for 255 single family residences. I'm just going to give you like the things that I remember this. They were the average build. The average build was $19.40. Jack BeVier (47:03.03) 85 grand a unit, roughly. Okay. craig fuhr (47:06.31) already doing the math. And so, so the they the company who owned the portfolio had put in about 1.5 million in CapEx. And what I got out of it was it was mostly roofs. A lot of properties had new roofs, and maybe a little bit of turnover, you know, we the place turned over and we put on some countertops and Jack BeVier (47:07.459) I know where this is going. craig fuhr (47:31.982) They can get the sense that anybody there was any full gut rehabs in these things. Though if you listen to this guy, these places were all bulletproof. Right. The question was, you know, he was obviously looking to sell it, you know, outright. And I think, you know, I don't know the numbers. I think it was like a seven cap. That I guess they were projecting on the, you know, for that sale price. And so the question was. Jack BeVier (47:52.634) Mm-hmm. What was the average rent? $1,000. craig fuhr (47:58.802) 1200 bucks, something like, yeah, something like that. I was maybe a thousand. I know you're gonna ask me all the questions that the sharks asked that I didn't take notes on, but so Fred was kind of sat back and listened and the guy who they were dubbing Mr. Wonderful sitting right next to Fred gave the following offer and he was very fast. I mean, jumped right in with an offer. And the offer was, okay. Jack BeVier (48:00.103) Okay. craig fuhr (48:24.158) we're not going to buy this thing outright, but we'll, we'll become a 50 partner with you on it. And, um, I don't remember the terms of the deal, but if in a scenario like that, I was, I was really shocked to see the guy step up so quickly and say, yeah, we'll do, we'll do 50 50. We'll give you this loan. Uh, you know, we'll hold the properties for another five years. We'll peel off the ones that are crap right now and, and maybe do a little revenue And so that was one of the offers that came across. And I think Fred sort of had this look on his face like, no, I wouldn't do that. So can you think of any scenario where that might be an interesting offer to jump in bed with this 255 properties? Jack BeVier (49:19.45) I mean, I think that I get where the guy is coming from, right? Like because the operator is such in, in that, in that price point, right? $85,000 house built in 1940s, $1,200 rents. Like that's like an operationally intensive business. Um, and so like, you know, you get tired after a while and managing the expense ratio is like the entire ball game. Uh, and, and your tenants, your tendency duration, your tendency duration is like craig fuhr (49:32.266) Yes. craig fuhr (49:45.838) tough. Jack BeVier (49:48.194) you know, the X factor, right? Like, do you have, do you have two to three, your tenancy duration or do you have five plus your tenancy duration? And like, if I ask you those questions, I know how, I know what the expense ratio is going to be. Like I know I got a good sense of it. So like it's a, it's a good tell, right? It's a good question. It's a good structure to ask the guy because if he's not interested in, in staying on the ride with you, well, I think, you know, you, you know, everything you need to know about how difficult it is to operate those old houses in that, you know, affordable market, uh, cause that can be a taxing enterprise and, and 300 is just enough to not be able to really afford a full team behind you where you're still getting like a lot of calls. Like it's you're, you're in no man's land, right? Like once you get five, 600, you can afford a real professionals. You can like real people, right? You can get like real people behind you at 300. It's like. craig fuhr (50:28.588) Yeah. craig fuhr (50:37.474) top notch. Jack BeVier (50:42.05) you with some assistance. And like, if that guy is not willing to like go along for the ride, like you're like, dude, I'm just inheriting your headaches, right? So I feel like it's a good, it's the right, it's the right structure to figure out to learn a lot about what you can't ask. Right? You know what I mean? craig fuhr (50:50.102) So a couple more. craig fuhr (50:59.362) So what I find, what I thought was interesting about it was I did sense that the guy who was selling the portfolio seemed really knew his stuff, but he did seem a little tired. And yeah, a little bit. And these houses were not homogenous, Jack. They were like, you know, there was like a mansion, you know, like we would see up in Roland Park. And then there was like the little Rambler that you'd see over in Essex. And so... Jack BeVier (51:13.914) tired. craig fuhr (51:28.55) I think the 50-50 deal was still out there, but the guy was, I don't know if he was being tongue in cheek or if he was actually really serious about it. Fred did come in at the very end with an offer. I'll paraphrase. He basically came in with the Gordon Gekko Wall Street offer and it was like, I would take it and sell it all. I would sell it for the price of the parts. Start with the crappy ones that you know you don't want anyway. Jack BeVier (51:40.407) What do you say? Jack BeVier (51:52.11) Yeah. craig fuhr (51:58.166) get rid of all of those and then just basically just start peeling them up. Just start peeling them off one by one and sell the whole damn thing. Jack BeVier (52:01.004) Make your life better over time. Yeah, but. If there's a spread, right? Like if these, you know, if these are like 135 ARV or whatever, and you're offering me a great deal here at 85 grand because you know, it's a good cap rate. Uh, you know, yeah, just get in there and just start selling them off. And that's also, that's a tough price point, right? Like 135 houses. There's that's the, that's the price point where you sell it three times to an FHA buyer before it sells, you know, before it actually goes to closing. So like, that's a, it's a heavy lift. Even, you know, you've been, you've been doing it that way. craig fuhr (52:17.579) Right. craig fuhr (52:27.913) Oh yeah. craig fuhr (52:31.735) Yeah. I will say this, to sit in on that panel, for me, you know, you learn something, you should learn something in every panel that you sit in on when the guy like, you know, when you're sitting up on a panel with some other folks, there's nothing that you're not going to learn going into something like that as an audience member. But to watch them sort of pick through all of the details of two, the other portfolio I won't get into, but it was just a, it was 16 brand new houses that were built in Florida. Jack BeVier (52:35.043) if there is a spread. craig fuhr (53:04.746) And so much different right there is a very homogenous sort of there's only three separate models You could sort of break it out It wasn't a lot of heavy lifting to try to figure out that you know what it what the portfolio was that said It was a 45 minute Absolute jam-packed info session that getting back to why people should attend events like this Look if you're a guy and you've got like I've got 15 rentals in my portfolio or I've got 50 rentals in my and I'm trying to get to 100, there's no reason why you shouldn't be at something like I am in and again We're not making a dime off. In fact, I think you pay I think you pay handsomely to be a part of I am in So we're not making any money off of so yeah, I was just I was blown away by the level of The investor there I thought that the vendors there was a lot of really top-notch vendors at I am in Jack BeVier (53:44.01) You do. craig fuhr (54:00.694) The next one comes up in Miami, right Jack? Jack BeVier (54:03.358) Yeah, Miami in May, I believe. craig fuhr (54:06.038) They're twice a year. I think it's Scottsdale and then, and then Miami. I'd encourage anyone who wants to up their game, who wants to get better operationally, who wants to have access to better capital, just speak with just a better level of investors. I'd really encourage everybody to check it out. In fact, over the next few episodes, we're going to try to get on some of the attendees. There's a lot of folks who come in each year and they're recognized for Jack BeVier (54:26.351) Yeah. Enjoy. craig fuhr (54:35.702) you know, how they've grown their businesses, how they become better, they receive awards. And so we intend to try to get some of those folks on so you can hear directly from investors who were there as well. But any last takeaways? Jack BeVier (54:48.226) Yes. So we did a, um, speaking of which, so we, we brought all of our recording equipment to the podcast equipment, podcast equipment to our, um, to our room. Cause we had a room set up there as a, as a sponsor, as a vendor. And, um, we endeavored to grab a whole bunch of people and be like, dude, we'll just do a bunch of like 20 minute recordings and like, you know, we get a bunch of content. There's so many great people here. And, uh, so we set everything up and, and then the conference started. And then for two days straight, two and a half days straight, we were just talking to people constantly and going to different sessions and talking to tons of people in the hall. So we didn't, we didn't execute as well on that business plan as we could have. We'll do a better job in Miami of getting more onsite recordings, but we were able to grab a really good friend of ours, Alex Hermani from Dallas. craig fuhr (55:33.644) Yeah. Jack BeVier (55:42.79) who's a 99 capital and he had the, uh, he was nice enough to give us about 20 minutes, uh, right before he went to talk on a panel, uh, and talk about his new fund and his experience in Dallas. He's got about 300 units there and there they just, uh, he just raised a new kind of friends and family fund and he's going to start buying rentals again. He's been sitting on, he's one of those guys who's been sitting on the sidelines the past couple years, uh, because he just hasn't seen the economics be that attractive, but he's now dipping his toe back into the water. So, um, that'll be the next episode that's uploaded our conversation with Alex to definitely check that out. And all the other dozens and dozens of operators that we talked to, as Craig mentioned, we're going to, we'll, we'll get those, get a bunch of those guys on here because they've all got great stories and it's really interesting to, uh, to get their perspectives on what they're up to these days. craig fuhr (56:32.394) Yeah, I think what we discovered was when you go to this conference or conferences like it, you truly are pulled in a million different directions. And when you try to catch somebody for a drive-by, hey, come sit down for 20 minutes, it's first of all, it's even hard to find them in such a large place, much less then get them to sit down. So we'll be a little bit more intentional about scheduling in the future. But Alex is a great conversation that I hope everybody checks out. This is a guy who literally started off with one house. and has now grown to 300 plus and has now built a fund around doing the same. So please check that out. Jack anything else before we finish up? Jack BeVier (57:12.418) No, no, it's great. It was a great conference. And as Craig mentioned, I recommend anybody come to that as well. It's one that we've gone to. It's, it's the only conference that I always go to. I'll say I'll say that, right? Like I go to I go to the I am in twice a year. And I've been doing it since 2013 when they started. I still get value. craig fuhr (57:31.38) Well, that's, that's it for today, folks. Hope you enjoyed this episode regarding I am and I'm Craig Fuhr and this is Jack with here. Thanks for tuning in to real investor radio. We'll see you next time.