The Syndication Bubble Popped: Why $1 Trillion in Debt Is Coming Due

0:02Since 2012, everybody made money to about 2021. and I used to say that if you're in a multifamily business, I mean, if you didn't make money during that time, you shouldn't even be able to stay in a multifamily property. But then we saw interest rates start changing, right, and the loan-to-value changing as well. Nazar, how did you, what did that do for you from an operator perspective when, you know, everybody was buying at a five cap, selling at a four cap, refinanced at a four and now you're up at a six and you only need a 60 ltv so what was that like and how did you respond to that i mean interest rates really dictate whether you're going to build or buy um it was really easy to to develop multi-family uh when rates are low in 2020 21 and buying product at low rates when these rates reset and it's having happening right now we've got a trillion dollars that are resetting in 2026 and that I think trillion and a half in 2027 massive numbers how you're gonna refi when rates are still persistently high we look at it from the lens of in a cycle right when rates are low it's easier to borrow and build right now I'm I see deals all the time people are building to a six cap why would you do that doesn't make no sense going through all that work all through that headache building to a very nominal return so our focus is when rates are higher we'd like to buy existing product that is an issue we come in with rescue capital we come with capital to finish the deal whether it's a project that is mid construction where there's partnership problems violation removal I think that is a for us which we were always looking at it we're making money on the buy we're not riding a wave so to speak of we're buying let's say at a five cap we're thinking of selling out of four i think that's that's in way of looking at things if i had to make an analogy it's like momentum stock investing right you're riding a wave it's very different from that environment now where we are now in the interest rate cycle yeah yeah i think there's like a i think there's like a syndication bubble you know up to 2021 to three like you could you know raise capital is by snapping your fingers in the right motion right and like now it's harder so the people who really could force appreciation are the ones who are surviving and still growing and the problem is that for a lot of people you have to raise more equity than before for a 10 million dollar property because the LTV has to be different healthier for the bank and lender but also the capital you raise is harder to get raised and so I think that's like the dual challenge that is impacting a lot of people or or pref pref is available common is very hard or meds which is what you do right yeah so again anywhere in the capital stack but like rich said it's it's more difficult because now with interest rates we're stress testing testing for the exit strategy so does that exit strategy make sense i think nick put it perfectly right if you're underwriting to a four or five cap that might not be what your exit strategy is underwriting to sure and let me add to the uh syndication thing i've been in seven syndication deals and i'm having my first one where they're going to lose money and and go under and you know not a fun feeling but you know i think what we're going to see is it's going to evolve more into uh not just uh the operators but they're recalling that the the trust economy meaning you're gonna you gotta really dive deeper into who the operator is and you know they can't just based off of uh projected numbers that are pie in the sky like Like they did, you know, Richard, perfect example.

3:54You said 2021, everybody was projecting endless rental increases and endless amounts of, basically the money train was never going to end. And as we've seen, all good things come to an end. Like Warren Buffett says, you know, when the waters recede, you see who is swimming without any trunks. And in the multifamily space, there's been some ugly exposures of that, I think. And to me, that's fantastic. We didn't buy any multifamily the last five, six years. and now we are you started talking about the debt that's coming due it's like four trillion dollars over the next two to three years which is an opportunity but Richard with the families that you work with and you know etc everything was great till 2021 and so now they're getting capital calls which they never had to deal with for 15 20 minutes or 15 20 years and so how are what are families doing or how did how have they been reacting to this change because before it was just throwing money throwing money throwing money right right i mean i think john has spoken at probably eight or nine of our events and um the best comment he's ever made i think was just like even at a billion dollars and even at all their scaled up institutional capital management he wants to walk the property with the owner of the property and be able to point at something and be like, well, why didn't you guys upgrade that electrical panel?

5:15What are you doing about this obvious maintenance issue? And if they fumble and have no idea what's going on, he doesn't give them the money. And I think that that is becoming more of the best practice. There's a flight to quality. If they haven't met you in person, they're not going to trust you. If they just have a call with you and you come to one event, you're like, oh, I didn't raise$5 million from them. It's like, well, they have no clue who you are. Just give them one pager that promises great things like every other capital raiser on planet Earth that has some amazing J curve on their PowerPoint.

5:39So I think it's just a flight to quality, which doesn't mean only billion-dollar-plus groups. It means they've met you in person. Your story makes sense. They know how you force appreciation. If none of those instantly line up, then you're just kind of out because they don't know you. Yeah. I've always said the deal doesn't mean anything if you can't implement. So it comes back to who's doing that. Hi, I'm Richard C. Wilson. Our community has closed over$1 billion of transactions. We have over 16 million registered members across 100 plus LinkedIn groups. And I own billionaires.com and run Family Office Club.

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