Our marketing and branding strategy from when we first started to now has changed immensely. When we first created our social media profiles and created content, we did not focus on filming content but more so creating static educational content. As you’ll see on our Instagram, most of our posts are a combination of text, images, and music. On LinkedIn we were putting out less content and it primarily consisted of creating posts for our weekly blog posts. What working with Link Creative has done is streamline our marketing process and help to narrow down how we want our brand to be perceived. Additionally, they’ve taken the stress out of creating marketing content. Thanks to LC, we’ve rolled out professionally created videos that were shot a filmed at a studio. The impact of these videos were seen right away as the first reel we published on Instagram was viewed over 5,000 times and has over 150 likes. That reel, and with every piece of content going forward, was also published on LinkedIn (30+ likes) and Facebook. 

Marketing via posting professional videos allows us to build our reputation by showcasing our knowledge, experiences, and story. More so, the videos help to shape and mold our brand image because the viewers are able to put a face to our company so to speak and see how our team is able to articulate various CRE topics. At the end of the day, anyone can create a static post using platforms like Canva, but it’s the personalized touch via the videos that people love to see. 

We just began to roll our our marketing strategy and as such we haven’t put out enough content to see if our efforts has impacted our business monetarily, but the signs are promising. With our strategy we hope to be able to educate, inspire others, gain new investors, establish a strong reputation in the CRE industry, and establish stronger deal flow. 

Your character, including your risk tolerance, patience, and interpersonal skills, influences your satisfaction with different types of multifamily investments. For example, if you enjoy hands-on work and engaging with people, a strategy involving active property management (PM) may be fulfilling. Operations of course get more complicated as you scale because their will reach a point where you will need to either build a team to vertically integrate PM or hire a third-party team. On the other hand of the character spectrum, if you prefer a more passive or reserved role, hiring a third-party PM company and managing them may be more your style. What’s important is understanding the implications of hiring a third-party PM (i.e., fees, control of an asset, etc.). Regardless of what your style is, you should play into your personality strengths and know the advantages and drawbacks of your choices.

Different strategies require varying levels of time and effort. For instance, value-add strategies that involve significant renovations and repositioning of properties demand more hands-on involvement compared to buy-and-hold strategies with stable, fully occupied properties. If maintaining a balanced lifestyle is important to you, selecting a strategy that fits within your desired work hours and personal life is essential. A strategy that demands extensive travel, long hours, or high stress may not be suitable if you value leisure time and/or family commitments.

Clear, concise, and quick communication is one of the ways that you can stand out during the best and final process. At JP Acquisitions (“JP”), we respond to the broker and seller as fast as possible while not sacrificing professionalism. The quick and sufficient responses help indicate to the broker that you’re hungry and eager to win the deal. The quick and professional responses also help alleviate work on the part of the broker because they won’t have to follow up with you (i.e., the buyer). This is the right moment to state that it’s a good rule of thumb in business to make other people’s lives as easy as possible. Strong communication skills are appreciated and make the lives of everyone easier.

I mention persistence in the title of this section because you never know if regularly checking in with the broker and seller will pay off if the deal is to fall through. Remember, just because an offer is accepted by the seller, that doesn’t mean that the deal will close with that buyer. Positioning yourself as a backup buyer by communicating with the broker could mean the difference between closing on a deal or not.

Put yourself in the shoes of someone living in an apartment with a maintenance issue. Regardless of the issue, you likely want that problem resolved ASAP and would like to be kept in the loop about when the issue will get resolved. At our properties, we provide our tenants with a time window as to when we will be able to fix maintenance requests (typically targeting 24-72hrs depending on the severity). If the request is not finished in the window we provide, we give something extra to the tenant. For example, not collecting the pet fee for that month or helping the tenant with a cosmetic upgrade in their unit that our team isn’t responsible for. The importance of clear and timely communication can not be stressed enough not only in property management but in business in general. No one likes it when others take forever to respond, they feel like they’re being ignored or not a priority. Third-party contractors should especially make it a habit to be timely and effective with their communication as not doing so could cost them a job. At JP, we make ourselves as easy as possible and trust that the people we work with do the same. If they don’t, we’ll simply find someone more competent. 

Real estate is a very slow game. In reality, the real money doesn’t come until about a decade into your journey. At the start of running a syndication firm, you’ll probably be working a day job and grinding your free time in the afternoon looking for deals, connecting with professionals in hopes of raising capital, educating yourself, and many other things. It’s not exactly the sexy part of the game, but it’s necessary. Almost needless to say, everyone’s journey is different in the beginning. Some people start very early with little professional experience such as our team, while others worked at real estate firms and gained the resources, network, and knowledge that make things a bit easier when starting off. Regardless of the starting point, you’ll likely find yourself giving up more equity in your earlier deals than you’d like because you need to leverage others. Once you have a few deals under your belt and somewhat of a track record, that’s when you’ve found your niche or blue ocean strategy, raising capital becomes easier, and you’ve gotten into the grove of things. The money is really then made after having gone full circle (I.e., buying a property, implementing the business plan, and selling for a profit) a few times. If you’ve managed to still be in business enough to have gone full circle a few times, that’s something to be proud of.

Simply put, if you have to convince yourself to do a deal, then it’s not worth doing. If you’ve been in real estate long enough, when something feels off and your intuition is telling you so, just back away from the deal. If you’re constantly thinking about the deal and going back and forth, it’s a no. 

About a year ago their was a deal that on paper seemed to have everything that we were looking for. The rents were low, the location was good, and their was clear upside. However, we noticed that the deal had been on market for a long time and deals that have clear upside are never on market for that long. That was what tipped us off. We chose to gloss over that fact and started negotiating the purchase, but we continued to feel that something was wrong. As we got close to negotiating the purchase price, we contacted our loan officer and he informed us that a client of his had been under negotiation for that same deal and chose to back out after receiving some bad news. I acknowledge that while this example is cherry picked, we’ve spoken to other sponsors who have affirmed this habit/skill. At the end of the day, you’re better off not doing a deal at all then losing your piece of mind and stressing over something that doesn’t feel right.

There are several factors to weigh and consider before investing in your property. Firstly, let’s assume that you have the money to buy your own investment property. Whether that property is a 4 flat, strip mall, etc. isn’t exactly important. These are the questions that you should ask yourself before investing:

1. Do I know how to analyze a property conservatively?
2. Will investing in my own property provide me with the best returns as they pertain to my risk profile?
3. Do I have the time to take care of my property?
4. Do I want to be a landlord and take care of issues?
5. Do I want to become an expert in real estate and make it my livelihood?

When sponsors raise capital, they often talk to numerous individuals ranging from high-net-worth individuals to family offices to new investors. The investors that syndicators target depends on where they are in their journey of growing their business. Nevertheless, syndicators are working behind the scenes to make sure that their deal(s) is fully funded to be able to close. Since syndicators are putting in the work to find the deal, close it, and execute the business plan, they charge fees that go towards things such as covering overhead, salaries, office space, marketing, etc. I wrote a post on fees (linked here) so I won’t go into too much detail. The important fee to understand as it relates to this post is the acquisition fee. This fee is a percentage of the total purchase price (typically between 2-3%) of the deal and goes to the syndicator after closing. For example, if the purchase price of a deal is $1M and the fee is 2%, then the sponsor would raise an additional $20k from investors and collect that at closing. Thus, at a high level, the process of capital raising involves having numerous investor meetings in which the sponsor is trying to balance the needs and wants of investors all the while working to close the deal at hand.

The reason why the acquisition fee in particular is talked about in detail here is because it incentivizes the sponsor to look for deals, but there is also another reason. The sponsor fee is often used by syndicators to invest in their own deals. Taking the example from earlier, as opposed to the sponsor pocketing the acquisition fee, sponsors could leave the sponsor fee funds in the deal which in turn would be equity. As to whether using the sponsor fee can be considered truly having skin in the game is debatable to some investors and real estate professionals. As a result, sophisticated investors will ask what the sponsor’s net investment after fees is. In other words, those investors are asking how much the sponsor team is investing above and beyond the acquisition fee or other fees they collected at closing. This brings us to the crux of this post and why co-investments from sponsors aren’t as simple of a topic as it may seem.

There are numerous factors that influence cap rates. At the end of the day, a simple rule of thumb is that any component of a property that decreases the risk and increases the desirability of a property will decrease the cap rate and vice versa. Why? Lower risk means the chances of losing money (i.e., risk) are lower and investors pay for that. That statement is an axiom of finance. The following are some of the more common factors that affect cap rates:

1. Location: Location is a crucial factor in real estate. Properties in prime locations with high demand, good infrastructure, amenities, and proximity to employment centers tend to have lower cap rates compared to those in less desirable areas.

2. Property Age and Condition: Newer properties or those in excellent condition typically command lower cap rates because they require less immediate maintenance and renovation costs compared to older or poorly maintained properties.

3. Tenant Quality and Stability: The quality and stability of tenants, including their creditworthiness and lease terms, affect cap rates. Properties with long-term leases to reliable tenants generally have lower cap rates due to lower risk.

4. Property Size and Scale: Larger multifamily properties often have lower cap rates due to economies of scale and higher potential for rental income stability.

5. Operating Expenses: Lower operating expenses, including property taxes, maintenance costs, and property management fees, can contribute to higher net operating income (NOI) and, consequently, lower cap rates.

6. Renovation and Improvement Potential: Properties with potential for value-add opportunities through renovations, upgrades, or repositioning strategies may have higher cap rates due to the perceived risk associated with the investment.

7. Interest Rates: Changes in interest rates can impact cap rates. When interest rates rise, cap rates may also rise to maintain the desired return on investment relative to the perceived risk.

In must admit, I think that the Fed keeping interest rates in the 5% range is good for the economy in the long term and likely what is best. When rates were near 0%, inflation began to run red hot as there was so much money moving around in the economy (i.e., the velocity of money). Demand was going through the roof and companies knew that they could feed the demand through borrowing at low rates which allowed them to keep margins high. More so, people felt rich as they saw their investments in real estate, stocks, etc. sky rocket. However, all good things must come to an end. To fight the inflation, the Fed jacked up interest rates and brought the party to a halt. That brings us to today which has been colored by 11 interest rate hikes from the Federal Reserve from 2022 to 2023 and the current rate being the highest we’ve seen in over 20 years (see chart below). 

I would be lying if I thought that rates will continue to remain elevated. For that to be the case,  that would mean inflation will have persisted above the Fed’s target of 2% (last March reading was 3.48%) and the economy would have remained strong (wage growth, GDP growth, etc.). The truth of the matter is that know one really knows what will happen and as legendary investor Warren Buffet said, “There’s nobody whose predictions on interest rates I would pay attention to, even myself, even Charlie.”

All this is to say that there are somewhat drastic negative short-term effects from interest rates being at this level and the impact will only worsen if rates increase. Firstly, we will likely continue to see a heightened delinquency rate in commercial real estate loans (see Chart 2). The delinquency rate will increase if interest rates increase because as debt payments increase, the likelihood of property owners being able to make those payments decreases. Owners with fixed rate debt will be fine, but those with floating rate debt will feel the pain if rates are to move up. Secondly, the owners that are coming to the end of their loan terms will have two options both of which aren’t ideal compared to the previous lower interest rate climate. Those folks will either have to refinance for a higher interest rate or they will have to sell at what is a lower valuation to what they would’ve gotten in the past. Remember, debt isn’t the only expense that has gotten more expensive. Insurance, taxes, the cost of maintenance materials, and just about everything else are more expensive which in turn lowers cap rates and compresses valuations. Thirdly, I’m not sure when sellers will finely come to their senses and realize that they can no longer obtain the valuations they could a couple years ago. The prices that sellers are asking compared to what buyers are willing to put up is still very wide and multiple brokers we work with have confirmed that to be the case. Since most sellers are not forced to sell and can afford to ride out the interest rate market, the number of deals on the market has fallen and many sellers are opting to simply wait for better selling conditions. These effects of the heightened interest rate environment are certainly not ideal, but rather sobering and perhaps good in the long-term as I stated previously.