Taylor Avakian
why are these guys buying everything they can see in
September 24, 2024 · 1 hr 13 min
Mastering Real Estate in 2024: LA & NYC Trends You Can't Ignore
With Mark Silver — Real Estate Investor
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What this conversation gets into
In this episode, Taylor Avakian and Mark Silver dive deep into the multifamily real estate market, sharing their journey from NYC to Los Angeles.
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Episode show notes
In this episode, Taylor Avakian and Mark Silver dive deep into the multifamily real estate market, sharing their journey from NYC to Los Angeles. Learn how they turned obstacles into opportunities, navigating through regulations, rising expenses, and shifting market dynamics. Whether you're new to real estate or a seasoned investor, this conversation reveals insider strategies on capitalizing in today's complex market. Discover how Section 8 housing, value-add projects, and long-term outlooks can enhance returns in the LA multifamily market. Chapters: 0:00 - Introduction to the LA Multifamily Market 3:15 - From New York to LA: Mark's Real Estate Journey 12:45 - Navigating Regulations and Rent Control in Los Angeles 20:30 - The Power of Section 8 Housing & Value-Add Projects 30:55 - Insider Tips for Real Estate Investors in 2024 and Beyond On a more personal note, I'm so excited we just posted our very first episode! Thank you for listening. I also want to thank my friends and partners who helped make this happen. Mark Silver, first and foremost, for pushing me to start this podcast and keeping the conversation engaging and fun. Really special to kick this off with you. I also wanted to thank our friends from Henry AI (https://www.henry.ai/). Henry helps investment sales brokers, like myself, more easily build BOVs and OMs so I can focus on what matters — providing value to apartment owners and investors. #RealEstateInvesting #MultifamilyRealEstate #LosAngelesInvesting #Section8Housing #PropertyInvestment #TaylorAvakian #MarkSilver #CommercialRealEstate Never miss an episode! Subscribe on your preferred platform and rate our show ⭐⭐⭐⭐⭐: 🍏 Apple Podcast: https://podcasts.apple.com/us/podcast/no-vacancy-with-taylor-avakian/id1768889293 🎧 Spotify: https://open.spotify.com/show/79sXiqLJFdwhIqWvSmH25A?si=c308c1d321804704 📺 YouTube: https://www.youtube.com/tayloravakian Visit us at 🌐 thegroupcre.com Connect with us on social: X: @TAYVAY_ IG: @Taylor_Avakian FB: https://www.facebook.com/people/Taylor-Avakian-CRE-Broker/61557266265091/ LI: https://www.linkedin.com/in/tayloravakian/
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Episode transcript
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0:00–10:00
Mark Silver
Los Angeles bought over 100 buildings a couple years out here I know other clients at that point in time who started copying what you guys were doing because you're having such good success you have to always evolve it moves so quickly now one of the biggest frustrations we had was Finding debt R moves are not impacting how people are borrowing money still you know what there's a better way to do debt
Taylor Avakian
welcome to No Vacancy where I share conversations with LA's top multif family owners investors and Visionaries I'm your host Taylor vacan the founder of the group SI and I specialize in the sale of apartment buildings in Los Angeles on this show we cut straight to what matters Market insights and real world strategies straight from LA's multif family icons to help you navigate one of the most complex real estate markets in the world Southern California enjoy I'm here with my guest Mark Silver Mark do you want to introduce yourself tell the tell the world what you do why you're in this chair yeah I'm happy to uh thanks for having me Taylor of
Mark Silver
course I focus on multif family I've been doing it for almost two decades now uh just a quick story on us we started buying real estate when I was 21 years old in New York City kind of haphazardly we kind of fell into the business I had my business partner at the time telling me that his clients were making a bunch of money by buying value ad multifam and he said we should buy some I said that's crazy he said we'll figure it out somehow we bought our first 260 units in the Lower East Side of Manhattan just did it I don't know why we did it maybe we were you say 260 units 260 units was your first one was our first one um it was only $7 million if you could believe it really yeah so the Lower East Side back in this
Mark Silver
is 20072 2008 was not was not gentrified were they was was New York like was it going up cuz 2007 was like when the market was kind of hot and then 2008 happened and it started so was I like to look at real estate in segments and cycles and that was definitely a upswing cycle like it started probably Circa 2004 2005 but until the great financial crisis it was hot um but there were some areas of New York City just like all over the country that just hadn't been touched yet and the low east side of Manhattan which is like blow B in that area um just hadn't been touched so we we bought these units they were completely dilapitated didn't really know what we were going to do with it did a tremendous value at business plan and then we came to Market and
Mark Silver
the recession hit and we were like oh my God we're going to lose everybody's money we're going to lose Uncle Tom's money and cousin Saul and Grandma's CU that's how we raised our money we were 21 years old so we asked everyone we knew which basically our friends and family and friends and family first deal and one of the ways we kept heads above water is that in New York City you pay a broker to actually rent your apartment so it's like a real estate action of buying a house but it's just to rent an apartment like leasing agents like leasing agents um and it's expensive yeah like you're paying 15% of the annual rent to a broker and depending if it's a good Market or a bad Market the owner or the renter pays it so in the great financial crisis the owner was paying it so we
Mark Silver
a couldn't afford to pay the broker to rent our Apartments which we desperately needed to do jeez and then we didn't like the Brokers that were representing us so we said you know what we'll do the brokerage we'll pay ourselves the fee we'll be better than whoever was doing it and it really snowballed and we became one of the largest brokerage Platforms in the country um and definitely in New York City
Taylor Avakian
because that's what B you know when I when I did my due diligence when I looked you guys up I was like okay who's bold like let's look into this and then the first thing that came up was this New York brokerage like leas in shop and I'm like what why are these guys buying everything they can see in Los Angeles and like crushing it in LA and it kind of threw me for a loop and then obviously we we met and talked about it but so that's how that's the the impetus of how you guys it was by it was by by you had to do it
Mark Silver
there was no chance or Choice there was no choice um we always wanted to buy real estate but we saw this need in the market for young guys that didn't have a 300 unit really Mega complex of A+ real estate needed leasing Brokers to really help them rent their Apartments wow and in New York City you had it's it was really a Have and Have Not Market meaning that the big buildings had leasing offices in the building so they had their Brokers or leasing agents that work for the building that were leasing 300 units but there was all these buildings in New York City and in the Lower East Side and the buildings we were buying that were 20 40 80 100 units that had no leasing rep presentation we said aha there's a need here let's try
Mark Silver
to build a business model so bold New York was a leasing platform but really what it was was we would get owners to sign us up exclusively to rent their Apartments their whole building and it really changed the game because we were partnering with them to really just be their leasing Specialists got it and one building led to the next and all of a sudden we had over a th buildings that were renting in New York City area and we were basically part ING with some of the top multif family value ad guys helping them get through their business plan and it was beneficial for us cuz we were getting the revenue from The Brokerage was beneficial from them because we were only thinking about how we could rent their Apartments as quickly efficiently and at the
Mark Silver
highest price possible and it became this really big business where if you didn't have your own leasing team you were using our office and our platform to lease
Taylor Avakian
your apartments was it competitive like how did some 20-year-olds break into this was it was it an unsaturated Market was did you guys create this kind
Mark Silver
of business model like how did you as as young 20-year-olds actually break into New York City honestly I don't know how it even happened quite honestly and really is my partners did did a lot of it but I think there was two things one as I said before no one was covering the space so usually what you would end up doing is you would just hire a broker like on a one-off basis or as you as the renter would go around and I I actually did this when I moved to New York City I found some guy to show me a bunch of buildings and we found an apartment and we paid him directly that was like the typical business model and we said this is inefficient and it really isn't helping the owner because you have to have so many of those interactions constantly communicating with
Mark Silver
different leasing Brokers it's just like so we built uh a business that wasn't even a business and we were focused on assets that weren't being focused on got it and I think we were hustling and I think one of the best things I can say is we were just trying to do business the right way we were trying to be honest we're trying to be transparent we were trying to bring a condo level style approach to renting a regular old apartment yeah and it just went Gang Busters jeez from
Taylor Avakian
that what prompted the move to go and into investing into not only New York but then jumping over the pond or the the land and going to Los Angeles so
Mark Silver
we always wanted to buy and because of the brokerage we really went into that business but we always have itch to buy again and so the way that we bridged that Gap was when we were building this brokerage up um we actually started a fund a funds which is where instead of us actually running the project we would raise funds and partner with our clients from The Brokerage to actually do deals and it really alleviated two things alleviated our itch to buy buildings because that's what we like to do and it also alleviated the concern that our clients thought we're going to compete with them because the last thing we wanted when we're building this brokerage is that our clients when we're helping them in them they would show us their underwriting before they would buy buildings oh bold's just going to go buy that building like we can't trust
Mark Silver
them as a protected service provider so it allowed us to overcome that hurdle and so we bought about 60 buildings from 2010 to about 2015 in that model and
Taylor Avakian
how many how much uh were you guys Co GPS on this were you like did structure work
Mark Silver
it was a Coe GP but they were definitely the GP yeah but it was c-e GP because we'd raise all the money we would have a slice of the GP which means we had some sort of Rights and then what we really cared about is we also controlled a lot of the parts of the business plan mostly we were Consulting marketing helping them with construction design and obviously leasing the apartments and so we were able to kind of cherry-pick some of the best deals we saw from our clients but we also had this extreme transparency that most investors don't have because we releasing the apartments yeah so at the end of the day with mul as you know Taylor if you know what you're going to rent them on a value ad project and you have pretty degrees of certainty around that and
Mark Silver
you're actually controlling it it it felt us it made us feel really good being the position we were in and I we did really well um it was a market that was just going gang busters it reminds me and I think this will resonate with some of the audience um the co markets I like to call them the co markets but they're markets that just exploded after Co that was New York City wow you know post financial crisis like rents were going up 10 20 30% a year in some areas and it was crazy and then so then how did you parlay that into Los Angeles what was happening in New York is that every year things were getting harder and it really culminated in Bill DeBlasio coming to power and when Bill DeBlasio became our mayor um there was more restrictions more regulations that were happening
Mark Silver
and doing business everyday business both in The Brokerage and buying buildings was getting harder and harder and it felt like a returns were getting
10:00–20:00
Mark Silver
lower and lower and what also was happening in New York is that because there was so much success because of that rent growth and that these buildings were coming up for sale the institutions started playing into the entire asset class so institutions used to just buy the $100 million building all of a sudden in New York they were buying the 20 30 $50 million building so when we were buying it originally basically from Mom and Pops and having little competition Blackstone KKR car like they were all in the game and so the morgins were coming down as well because there was all this institutional Capital getting into the space got it and so what really set us off was build of blasia was putting these regulations in you had city and state Council really threatening a lot more regulations on apartments we're seeing that in California right now I was
Mark Silver
going to say it's very reminiscent of what we're experiencing in Los Angeles right now but the number one thing and it's not that I don't know if we had the foresight but the number one thing that was bothering us is in the state of New York the way they do taxes is really interesting for your property taxes so in a lot of jurisdictions a lot of States they have a set formula it's called the mill rate and they have a assessed value and they either change yearly or they change over a period of time but you have a high degree of confidence or what your taxes will look like in New York in New York City specifically there's no set formula and it changes every year and the it's a guarantee that almost it's going to go up every year and so our business
Mark Silver
plan was to take a dollar of rent roll MH and take it to $3 and what happens is the rule of thumb is that 20 to 30% of your gross rent roll will be taxed as a property tax okay and so our property taxes when we took the dollar of rent roll to $3 went from let's say it was just 20% on the low end we would have a 20 cents property tax would go to 60 sense yeah and every year we were seeing this so even though we were growing and having Revenue growth and doing these things at a certain point my tax growth rate was far outpacing my Revenue growth and we said we can't keep up with this like how are we going to do it so that culminated in us saying let's get out of New York City just all of a sudden really so
Mark Silver
we ended up selling every single building that we had bought um before they changed the rent laws there was a big rent law change that happened I think it was 2018 okay um that basically uh enacted vacancy decontrol yeah which means that if you have an apartment that's an a certain class of rent regulation and it's being charged a th000 bucks it is controlled even through vacancy so even if the tenant moves out at that rent and it really changed the market in a big way and then we ended up deciding to sell The Brokerage as well because there was a lot of things that was coming Us Against The Brokerage that was making us less money and so by 2019 2020 we were basically out of New York completely um at the same time we got a call from a buddy this was probably circuit
Mark Silver
20156 when all this was going into action said hey guys come to Southern California and we said excuse me he's like yeah you guys are New Yorkers you guys are aggressive and you guys like your guys are going to do great California we're like that's really far away I was actually talking to my wife I was like Hey we're going to go to California she's like what do you know about California like it's 3,000 M away like you guys are crazy I don't know what happened but this is how we bought our first building kind of we just said okay we'll try it I say this to a lot of people because a lot of people ask me what do I do how do I do real estate I think one of our first conversations was like how do I start how do I how do
Mark Silver
grow this thing and I say that I say this to everyone just try it try one thing like try to buy a building and so taking our own medicine we bought our first building and if we didn't buy that first building I don't think we would have done anything else but when we bought that first building it was a AA moment for us because we were doing a few projects in New York and we were sitting in New York City doing those projects and we had bought this building in LA and we were not in LA and the business plan that we were doing in La was a 100 times easier sitting in New York than the projects that were across the street of us in New York and that was the aha moment of saying oh maybe this is easier maybe we can't execute it higher
Mark Silver
level yada yada yada so we went on a buying spree bought over 100 buildings in a couple years out here replicated what we did in New York City it reminded us of early New York City days because it was mostly Mom and Pops I you deal with a lot of Mom and Pops um we weren't seeing that anymore in New York we were on the second third cycle of some institution or some syndicator buying buildings and so when we came out to LA it was like oh my God this is like early 2000s late 200 saw OPP of we're buying from M pops there's tremendous value if we do a good business plan we can really change rent roll and the other thing that was just amazing to us that we just could not believe is the tax thing in
Mark Silver
California is very different from New York completely the opposite it's a proposition that maybe some of the viewers that you know but like it's called Prop 13 Y and Prop 13 says that your taxes are basically set upon purchase when you buy real estate so going back to that example that we were talking about when I take a Dollar rent roll to $3 in New York you saw that dramatic change in California if you take it a three it's still based on the dollar yeah which is amazing and we were like what so I can add all this value and I'm not going to have a insane run up in my taxes and that really is what pushes over the edge got it okay
Taylor Avakian
and then yeah I mean I remember coming in at 2018 you guys had already kind of started the process and uh all I remember cuz we would we would when we're underwriting a building we're looking at comps right and so we're trying to see like okay who's bought stuff over here who are we calling like what's the what are the numbers look like how much can I sell this building for and I remember looking in certain pockets and just being like bold Boldt bold bold bold and I was like holy [bleep] these guys are like after they're controlling and running the market and I really think a lot of people saw what you were doing and I know other clients at that point in time who started copying what you guys were doing because you're you're having such good success in that cuz you had taken the
Taylor Avakian
lessons you learned in New York came in over and applied it to Los Angeles and it was like this whole new business model that was working so so well and really you were able to capitalize on that on that before anyone else so I like the theme I see in what you've done is you kind of start stuff before anyone else you kind of enter this Market test it out take what you learned other places and just like create this new niche that has never been done before I appreciate
Mark Silver
you saying that I think one of the things that really sticks with us is that and I think it should stick with a lot of people in real estate is that you have to always evolve because one thing that's happening in real estate and we're seeing this in real time real like the last couple years feels really like this it moves so quickly now so things that work three four years ago don't work today yeah and what's working today likely won't work 3 to four years ago and we should talk about some of those things yeah that's a great segue actually like one of the things we notice and it really comes out of our own just like we're practitioners like we're operating in the market like you and you as well like we see things that are inefficient doesn't work it makes us think that there's ways that we
Mark Silver
could either fix it or we should really take advantage of it that's why we started the brokerage that's why we've done a lot of the value ad multi um and it's actually why we started our debt business yeah and so when we moved out to LA and we're doing all these buildings one of the biggest frustrations we had was Finding debt and we didn't understand it because in New York City when we were working with our clients but also getting debt ourselves for our own projects super efficient super institutional there was I I felt like there was a like I view this in my brain but sometimes I'm like there's just people waiting outside to give us debt like they're just in a line in a queue Che yeah just read us a check and in La I'm like literally begging people can you just give
Mark Silver
me 50% and after experience after experience we said you know what there's a better way to do debt and we could provide a service not too different to how we did The Brokerage on helping operators like ourselves that have these business plans that aren't buying a $50 million deal our $100 million deal to really help them execute at a high level and that's why we started our
Taylor Avakian
debt business yeah and and we'll we'll dig into that a little bit later but even even pointing on that your expertise in the actual execution of deals in La gives you that further understanding which I think gives you a leg up on the debt side because you look at it from an operator perspective you look at what could go right and what could go wrong and you're able to measure those things and not just like you're not a bank right like per se you you look at that as an operator which I think gives you a competitive advantage to not only move quickly but you have a ton more confidence for your investors who are investing in this fund of like no like we're we're making sure as best as we can that whoever we lend money to
Mark Silver
like this is going to work out I think one of the things we always try to do is be brutally honest and just how that's like and we've experienced this just from when we look at deals together um but we try to do the same thing on the debt side and there's been a lot of situations where we talked to operators or their mortgage brokers and we just say the deal doesn't work and they're a little surprised to hear that it's not that I not giving you terms it's not it's like you should reconsider
20:00–30:00
Mark Silver
buying this property yeah and when we come and approach things in that manner it's more a partnership than me being the big bad lender and our you know Partners being the bar and you do what I say cuz I'm the lender like that's how I felt and I um don't want our operators feel that way so we've been able to partner with our folks which is a big word for us and I really truly believe that we're able to partner them through the business plan things change budgets change business plans change and we want to help them work through that it's been a big advantage and one of the reasons I think we've been successful on the de side but also why our borers are successful because I think we think like them we try to partner with them
Mark Silver
and inevitably There's issues in these business plans we work through it with them in a very proactive way and I think it really brings a different type of relationship than what I'm used to seeing on the dead side shout out
Taylor Avakian
suay Capital uh Link in the description um okay let's get into current day and like what's going on in the Market Los Angeles you and I both know it's a different Market it is it is completely different one of the things we talked about uh last week when we were kind of prepping for this when why when rates start to decline why does pricing not change you want to dig into that this
Mark Silver
is fascinating because in the last couple weeks rates are just moving all over the place and I think there's an OV exuberance like oh okay it's fixed like we're okay now rates are coming down we're back to where we were 18 to 24 people were waiting for this to just like winter R's going to drop drop drop drop drop and then things are going to get good and clearly it's here here's the thing and I think this is a really big point that our viewers should pay attention to and something I didn't actually know until I went to the de side um where you really have to think how people are being impacted by their decisions is how they borrow money themselves and so most people in our commercial space are borrowing money based off a sofa or prime and so
Mark Silver
when we're talking about a rate move and a lot of the rate move we're talking about is treasuries moving so treasuries depending on where you on the curve treasuries are moving on the lowend 3050 B basis points and some instances have moved over 100 basis points silver hasn't moved Prime hasn't moved by the way when we were buying all those buildings over was basically at zero it's at 5 and a qu 5 and a half and so rate moves are not impacting how people are borrowing money still so they're still just as expensive as it was 10 days ago before this massive violent rate move and I would further that by saying even when we're going to see these rate cuts which I think is now the expectation that we're going to see somewhere between a 50 to 100 basis point rate cut over the next 6
Mark Silver
months let's say that means that Sofer or prime where most of our lenders and the most of people that are doing things are basing their leverage off of and how they borrow money is only moving 50 to 100 basis points so that means that those borrowing rates are still in the high fours it's really expensive yeah and so everything's based on yield here right and so what change debt yield or any yield cap rates when you're buy buildings debt yield when you're Lending yeah and so that that bar that used to be quite low a couple years ago because we baring at zero is still up 400 500% so that's the perspective we really need to think of it will improve like things are really bad right now and some ways I feel like it's worse than 08 what so go what do you mean by that go explain
Mark Silver
why right now it's even the worse it's been 08 to me was a public debt crisis meaning that we had similar issues like there were actually similar phenomen you had a big asset bubble things changed in values this was a rate move there was other things happening in ' 08 like the subprime and other things but basically you had a violent move in valuation people were over levered and there needed to be self-correction and correction and values that caused a lot of pain in '08 that happened violently and it was public because most of the people that were holding the debt was a public debt Market crisis and a large Bank crisis since then because of Dodd Frank and other regulations all this has moved to private markets so you probably hear buzzword like private debt funds um you know syndicators like Regional Banks you know there's they're the ones
Mark Silver
who picked up the pieces after 08 they've had the same issues that we had in '08 they have more wherewithal to withstand those issues because they're not marking it in a public manner like we saw in 08 and so the pain exists but it's being held and you've heard these words like extended pretended and so people are holding on to their issues because they can but they still very much exist and it's causing a massive liquidity crisis because if you have a operator and you probably see this and maybe a lot of the deals you're selling right now or because of this you can't go get debt like so if you have a bridgeo bridge if you had a business plan that didn't work out because you were building to five cap but guess what we just talked
Mark Silver
about borrowing costs are way over than that you have major issues which is forcing people to sell forcing Banks to take back the notes but there's no financing really available for any of these issues which doesn't require a large amount of cash so cash is King right now so if you have liquidity and you can overcome those issues with liquidity you're fine if you don't you're in a world of pain and that's what we see both on the debt side and the equity side so when you're SE seeing people sell buildings it's purely because they have a debt issue and either they're being forced by their bank or they're going to lose all their Equity so they're just trying to get anything they can out right now yeah it's it's interesting because the
Taylor Avakian
deals that we're selling right now at least in Los Angeles like sub four million bucks because you can buy those all cash those are the deals that are getting done and what's interesting is because all properties kind of pricing moves together right and so even the expensive properties that are you typically require debt versus the ones you can buy all cash the people who can buy all cash are benefiting from the fact that those cap rates are going up as well so they're getting five and a half six six and a half seven cap deals that if you buy that all cash you're getting a 7% return right like that is significant compared to when they were buying three and a half four 4 and a half% cap rate deals and they I mean from a long-term business plan like they increased the rents every year you know expenses
Taylor Avakian
they kind of keep maintained right like they're able to take advantage I think of the market and Warren Buffett you know be greedy when others are fearful and fearful or when others are greedy they can actually take advantage of the pricing because they have so much
Mark Silver
cash if I had more cash I'd be buying more real estate we tend to be a buyer and as a syndicator and people who depend on other LP Capital to buy we really look for positive ARB in our leverage I think that's a big buzzword for people
Taylor Avakian
that are looking to deal can you go into positive ARB because you were mentioning that to me about how when
Mark Silver
you're negative ARB and the actual drag that it has on your cap rate can you explain that yeah so just going back to one thing you were saying um I don't see a lot of seven cap deals I mean I think I would buy some of those so maybe we need to talk after this podcast on how to find some of those oh man I've been outed yeah um but uh I think cap rates for those cash deals actually are in the low fives maybe maybe mid fives like for 95% of the deals for sure and the and the problem is so previously negative R was a big deal and so negative R means that your cap rate that you're buying a building at and the financing rate you're getting your debt is negative so if you were buying two three years ago I was buying you were selling three
Mark Silver
caps all day right and we would get leverage like Bridge programs that were based off Prime and silver uh that were pricing at 5 six% the difference was once we executed the business plan and we got the cap rate back to five or six we could refinance out at a heavy positive ARB at 3% and that was the business plan and that's why it worked what's happened today is that financing depending on which bucket you're looking at is 6 S8 I mean we could keep going yeah um and so if that cap rate and let's say it's five just say that's a good deal in this market and maybe it is um you have a negative ARB going in which is not too different than a few years ago but the main is when you go look to refi it still may be a
Mark Silver
negative R there's no massive cushion of a couple hundred basis points between where you build your yield and to where you can do the takeout financing which is where a lot of the juice and a lot of the Comfort comes from when you're buying these buildings yeah and so I loved what you said actually cash is King because you don't have that pressure to do that you have no negative ARB up front you have no pressure to eventually take that negative or so what we were talking about is when you buy that five cap and let's say you want to get some sort of meaningful leverage and meaningful leverage to me is anything over 60 65% yeah that means you're pushing into what Sunday and other bridge players do that means at best you're at 8 eight and a half so you're taking a two to 300
Mark Silver
basis point at best spread which is negative and bringing that cap rate down MH because you're spending cash that you don't have to NE negatively affect your cap rate so actually your cap rate eventually
30:00–40:00
Mark Silver
is going to go down because your yields lower than what you're actually borrowing out um so you're a race against the clock and it really is more a market play yeah where you're really hoping that these rates come way down so we can have more wider spread to make sure we can get some more normal debt to get back to that positive ARB so that's a long complicated way of saying rates need to come way down and you have to have a lot of faith in the system if you're going to buy by buildings with cap rates with negative AR and hoping to take that out in the next 12 to
Taylor Avakian
24 months great explanation and I think uh I learned a bunch from speaking to you regarding that because it's never you know Brokers we have a different perspective about it what what's interesting um to when I'm thinking about pricing in today's market right like we go and try to sell a property for five five and a half cap what's even harder and I think is actually
Mark Silver
what's causing the 70% decline is the pressures that are outside of our control but not necessarily even rates which is like the regulations that are happening in Los Angeles because that external
Taylor Avakian
pressure breeds uncertainty and when you don't know what is going to be what's going to happen in 6 months 12 months now what is it 3 months away for this November vote four months if and we were talking about that about New York vacancy control right that is on the ballot in Los Angeles and so if you're buying properties that you guys are buying 20s 30s 40s 50s 60s built 1960s built buildings and those are capped at you know 3% to four 5 6% rent increases per year now imagine your business plan in in 2017 2018 2019 where you can't increase the rents when someone leaves that that that crushes any sort of opportunity for Value ad in Los Angeles because like you said there's still
Mark Silver
80% of the properties are owned by Mom and Pop landlords that have not raised rents every year and and they they're not trying to chase an IR yield right they own invest M for different purposes and so maybe they haven't tried to actually execute and keep up with
Taylor Avakian
everything that's going on today I think more of them that I talk to are considering being a little more because of what's happening with insurance and expenses and stuff where they're like I
Mark Silver
paid triple what my insurance was so they're they're starting to understand it but even then there's so many rents that are still below Market that if one law passes the wrong direction like everything's out the window and you just bought a building that is you lost 30% of value on what I think it's it's a fascinating time uh I think one of the things that people love about California real estate is the supply demand Dynamics there's over there's a ton of demand and a limited amount of Supply it's really hard to build here it's really expensive there's really no density and so people love buying here because a lot of other locations in the United States that's not true and we're seeing pressure in those markets we the word were using is those Co markets and those Co markets are under Supply demand pressure right now the arizonas
Mark Silver
the texases the um Nashville's of the world um but in turn the reason people love that is when they buy a building in California it's one of the few markets that really has a massive uh lost to lease meaning that if you bought a building and you may not be able to achieve this immediately but I think one of the consensus is that this is a long-term hold there's a long-term value here because of the supply demand Dynamics we're just talking about but also I'll be able to achieve a lot higher rent eventally if they take that away a lot of the reasons people buy in California and a lot of the inherent value that we were just talking about here evaporates and that gives everyone a lot of pause right now and it should give people a lot of pause so there's
Mark Silver
no surprise there's been a tremendous slowdown a wave just from the market on on that because I'd want certainty if in election that's going to change the value of building and then when you do see transactions happening because we were talking about this the other day you're seeing really high cap rates and maybe one of the reasons you are selling some six a half seven whatever cap rates um is because in order to take that risk right now you really need a above Market average cap rate to take on that risk so if let's just play like a game uh if for whatever reason prop 33 passes and vacancy control is enacted by the city of La and other markets what is the business plan cuz New York had the same issue like what is there a business plan what do you do the answer is I
Mark Silver
don't know yeah um but I can tell you something interesting just from our experience in New York because we were still doing brokerage and obviously is still very involved Rock uh rents skyrocketed so what would happen is that you basically have Frozen a large portion of your in ventory that will never turn and so the portion of the inventory that has been turned or that is not regulated will go Gang Busters because the the supply is constra the supply will be even further constrained I don't know the exact statistics and they may have changed but when we first got into the market in California in La about 80 plus% of the market was rent regulated meaning it has some rent stabilization because of the ab482 law I think it's in the 90s now yeah but that law is different from what we're talking about here um but
Mark Silver
my thought process is that rents will absolutely go through the roof there'll be lines on through the door if you have a renovated unit for a market because the business plan of buying buildings fixing them bringing value to them by yeah doesn't happen anymore gone why would you spend money if you can't change your rent um so in some ways it's terrible in other ways it could be a benefit um I hope it doesn't happen yeah because one of the things we want to see is more affordable housing and I think what we've learned in the past and historically is that more regulation like this limits the supply which actually increases prices which is actually the exact opposite what I think these people want to do yeah um and so I think it's not founded in actual
Mark Silver
facts um but we'll see I don't know the answer is I don't know and that's scary cuz I'm a professional that does this and and not knowing is something I don't
Taylor Avakian
like yeah no and and I agree with you I I really do hope that people can understand the macroeconomic factors that go into play in the psychology of why investors invest because sometimes that seems to be lost in the short term comparative to the long term um we talked about something Phantom distress Market I'm very because I was dealing with this I was telling you about a uh some notes that we were trying to purchase on some some big portfolios you mentioned to me Phantom debt Phantom distressed Market can you go into why distress isn't real and they're not pricing realistically and what is
Mark Silver
that so I wrote a piece the other day I some write write pieces about what the market is and and the title of the piece was Phantom distress market and it came to mind because usually when you hear banks are selling notes banks are taking over properties that's like awesome mhm like you get excited I get excited like oh we're going to make some money are selling like they have to sell we're going to sell these properties and that means a couple things it means that the operator's Equity has been wiped right because the bank is in control so usually on average 60 70% so we've wa we've wiped 30 40% of value um and if the bank's actually doing it like looking back at the financial crisis people made a ton of money buying those Bank notes what's happened in this cycle is really interesting um when you
Mark Silver
look at what the banks lent at because of this massive change in cap rates remember we were at three now we're at five five and a half six they didn't get there on their debt yields so that means that what they lent against the property so like the net operating income over the banks actual loan gets you a debt yield that means the debt yields below where the market is today so they've lent at four debt yields four and a half debt yields five debt yields they're underwater um and so in order to it to be interesting distress we have to go a major step forward which means that they have to have take significant discounts and we saw that someone in '08 but because of what we talked about previously that these are helped by private institutions they're not publicly marked there's a little
Mark Silver
bit more flexibility they're not willing to do that on top of it in this cycle one of the reasons that they distress is the operator messed up the business plan it maybe been a syndicator that didn't know what they were doing they may have just messed up because they couldn't access the value they were wrong on their rents I could give you lots of reasons and so the reason I've been calling it Phantom distressed is the excitement of what would should be is is distressed because banks are taking it over and The Operators are distressed it's fully distressed the values aren't that interesting they need to come way down and even when they come down maybe it looks like a regular Market deal but it's a regular Market deal with a ton of hair and issues and it's hard to
Mark Silver
do because the business plan wasn't done that's just not interesting so you're pitching me basically a deal that may be Market We could decide what Market is has a ton of hair and operational execution risk that's not like that's why I call it Phantom distress it's distress with no upside of distress yeah and it's an interesting market and we're seeing a ton of it it's super interesting when talking with these these lenders because I think uh the private debt Capital really took
Taylor Avakian
off from the last you know five seven
40:00–50:00
Taylor Avakian
years and so you're right a lot of those are the the people who are taking back these properties and it's interesting because I wasn't around in 20072 2008 so I didn't see what who The Operators were it feels like to me that those debt funds are almost of the opinion that they're willing to hold on and try to execute the business plan because they're not willing to sell below par for their investors and there's still time left over whatever fund that they have so they would rather go and try to execute that value ad business plan which happened for whatever reason than sell below par which we were talking about the deals are Market at their
Mark Silver
par right at where they sometimes way below just to be at Market it depends and so they got to think about not only
Taylor Avakian
you know their Returns on that individual deal but their reputation how are they going to get more Capital like all these people are raising money from different places and they need to have a good reputation is someone who performs and so if they're going to lose a bunch of money on these deals they would rather wait it out and try to figure figure it out to at least at least get par but ideally execute some sort of
Mark Silver
business plan and like that's the sentiment above most of these deals so I agree with you it's like we were we're hearing you know interest rates going up properties are coming back as a broker I'm thinking oh man I got to go become friends with these these debt you know Brokers or these these debt uh funds like they're going to have to be selling they're goingon to have to do it and lo and behold I talk to them and they're like yeah you know like I just think we're going to try to execute this business plan or we're going to wait a little bit or like we're going to see if rates come down like there there's not this pressure
Taylor Avakian
it doesn't feel like there's actually this pressure that I think 0809 there
Mark Silver
was that actual pressure and I think the real impetus behind this is people are scared to death for selling at the bottom and letting up happened and because this is what happened in 0809 they were they were forced to sell assets that I'm sure they didn't want to sell at 60 cents on the dollar just making up some numbers here in what 24 36 48 months sometimes they're back to Power and then a lot of instances it ran up even further and so I don't think I and I understand this actually we're at we feel like we're at the bottom or like values have definitely something's happening here that maybe they're not going to go that much further down especially if rid start changing so if You're A lender and you have the ability to hold on like I would hate to be
Mark Silver
the lender that's selling at 60 cents on the dollar that in two to three years you're back to poor that's a tough pill to swallow so I understand their position and I think it's cemented in what happened in 08 post crisis but that's goes to this Phantom distress Market that like the distress if it's there isn't attractive and is very um unwilling to change hands at the price that I think it needs to change where do you see opportunity then right now where where is the opportunity with everything going on I think we hit one one nail on the head if you have cash right now and you can buy higher yields like and you have a longer term Outlook like some people have 12 24 36 month outlooks but if you have a 5 to 10 year outlook with cash and you can buy in core markets
Mark Silver
and La is a core Market San Diego is a core Market New York like there's core markets out there that don't have Supply demand issues and other things you're winning mhm um and so cash is King right now and and a lot of those core funds core funds meaning that they usually just do lower returns with a lot of cash are having a field day like they this is their moment to shine um I think you need to be particular I do think you can take advantage of the market right now and so there are distress sellers we've talked about that during our conversation today um so if you're able to have Capital to take advantage of it I think you are going to be in a good position as long as the Dynamics behind the deal are actually accurate like you're not buying a fake cap rate um
Mark Silver
a lot of markets I feel like have fake cap rates La I don't think is one of those markets I think you have a lot of certainty behind revenue and expenses and then you also uh have the ability to just go into different asset classes and different value at business plans that we're seeing like a lot of the things we see on the debt side right now are really interesting like there's a huge push to Affordable right now and that's a really interesting business plan and a lot of the deals we see on the debt side have some affordable tint to it and and what's happened over the last couple years is that a lot of the Section 8 rents in the market are actually above market rate rents meaning that if I went to go lease a one-bedroom at a market rate tenant I'd get 1,500 but if I
Mark Silver
used a Section 8 voucher meaning that the Section 8 rent um is done by the municipality sets it and the Tenant brings to the voucher I get 2,000 bucks so all of a sudden a lot of the business plans I think you sell a lot of these plans as well are all aort uh all of a sudden being switched to Affordable that's really interesting there's ad laws that we know in California a lot of the business plans that we see have a tremendous push of adding density which is great because we need more housing um and is really interesting because you're actually adding True Value to your building so if you can buy real estate right now and either have that longer term view where you don't have to really be at the whims of this negative
Mark Silver
AR financing Market or if you have a real business plan that's adding tremend his value at a better basis I think that's a really interesting opportunity and we're seeing a lot of it right now I think over the last 60 days things
Taylor Avakian
have started to crack yeah it's I I I completely agree with you we're we're selling a portfolio um primarily of a lot of Section 8 rents and one of the main questions people ask is is there is there a vacancy are there vacancies how many Section 8 rents are there because uh I don't I don't know if you've who came up with this term but it's they're calling it Section 8 roulette and Section 8 roulette is basically where you have a vacancy and you renovate this this unit you take an existing tenant and one of the units who's maybe has lower section 8 rent or lower rent you have them move into this newer unit because why wouldn't you you're paying the same amount of of Section 8 they are at least just the the government's covering the difference and then you have another vacant unit and you
Mark Silver
just start moving tenants around they get a better place to live the same cost and now you're increasing the noi where in properties where you can buy for 140 130 150 160,000 per unit you're getting these rents that are 2, 2500 $3,000 and it's just like wow
Taylor Avakian
you're looking at these numbers and it it it's it actually pencils the other thing you mentioned was the adus when I talk to buyers they're like I'm like hey what's your buy box like what are you looking for I'm looking for vacancies I'm looking for Section 8 and I'm looking for places to be able to build adus because you're not constrained by things that are outside of your control you can control typically you know given the the timeline but most cases if you can build an Adu you will be able to build an
Mark Silver
Adu within 12 months and so you can actually force that appreciation force that growth do that value ad per se and and that's where we're we're seeing people move to because they actually have control of what they're doing I love that term Section 8 roulette yeah Section 8 roulette funny enough we probably see 10 to 20 loans a month on Section 8 roulette and we've done that before um and it's huge benefit because at the end of the day the tenants are getting nicer apartments and you're getting more Section 8 in the door which is great for all parties so it's it's a really interesting business plan and helps all parties uh I like that term I'm going
Taylor Avakian
to steal it yeah you should it's it's a good one I I'm going to say that I came up with that but I I think I stole that from someone um so let's talk about the expenses because we were talking about how La is is typically you can kind of understand that but I think a lot of people are feeling pain in certain expenses that they haven't felt previously what has your experience
Mark Silver
been with that and how are you approaching because your guys are still buying how are you approaching that yeah so this is of the utmost importance and it is drives how we make decisions on the debt side and it needs to drive how everyone makes the decisions and when I say fake cap rates this goes into that conversation too expense ratios um are really important and what happens and you probably know this better than I do when someone's trying to sell you a building they are not articulating all their expenses that actually exist to run a building so if you're seeing a 20% expense ratio that doesn't exist remember in California 20% of the expenses should just be in taxes because they reass set upon purchase um and so we are very careful we have enough data that we know what we run our
Mark Silver
buildings at so our best buildings run in the low3s and that's because we that's your best building our best buildings um and the reason they and maybe we have some in the high 20s say low 30s and some of the reasons is because of that Revenue growth my taxes become a large a significantly lower portion of my gross they go from 20 to maybe 10 because they're capped at 2% a year because of prop uh 13 exactly but I still have all these other expenses my worst buildings probably in the high 30s to low 40s and then really bad buildings run at 50% 1920s brick buildings yeah there you go rip uh um Workforce housing communities a heavy Section 8 buildings actually do this more just Covenant restricted affordable buildings tend to run at that um and so what's also happened is away from taxes and other things there's
Mark Silver
been a big move in a lot of other sectors of our expense loads Insurance being the biggest um unfortunately I can say over the Last 5 Years every year except for one we've
50:00–1:00:00
Mark Silver
had a massive increase in our insurance um this year I think the insurance came in at a 35% increase um that is not the first time I've had that type of increase over the last couple years um we actually feel really fortunate we have a great Insurance partner yeah and it's funny because a couple years ago when this was happening I was literally pulling out my hair and I think I gave a high five this year I said 35% boom that's amazing that's crazy as it sounds and so one of the things we do when we look at markets like Texas and Florida specifically and we look at those markets is we look at the insurance expense and one good rule of thumb is historically and you probably know this too like 500 to 1,000 a unit per per year for insurance was
Mark Silver
a good rule of thumb we doing really well if you're doing sub 500 in some markets now multi multi thousand dollar like in Florida you could be like 25 $354,000 a unit like we were looking at a building to potentially purchase in Florida 26% expense ratio so immediately we had to change it yeah one of the reasons was that their insurance per unit was 650 the quotes we were receiving if we took over the property are like 3,000 a unit J that's a just on insurance that's a 8% move in your entire expense load on just one so if I had one thing to say again back to these fake cap rates you really have to take a closer look at your expenses to make sure they're accurate and
Mark Silver
that what you're what the previous owner's expenses and I'm by the way I'm not saying that they weren't their expenses will likely be different for the new owner and there needs to be a lot more due diligence done on that aspect get your insurance quotes before you
Taylor Avakian
close on a building because one thing we talk about this all the time it's like if one thing moves and again ideally you have a business plan where you have some some slack right you protect yourself you have different price exit exit points where you can increase the noi time frame but like make sure that you actually do your due diligence get a loan get an insurance quote before you closeing the building because if that comes out and it's double what you were expecting right like your business
Mark Silver
plan basically becomes five times harder yeah 100% one of the things we see is we we deal with appraisal appraisers a lot right cuz we're lenders we need appraisals they don't know anything about expenses so they really do take the owners or whoever's T12 and just act like it's Bible if you look at your appraisal and I tell look and I and you probably seen some recently like we're talking 20% expense loads it makes my job so much harder when someone says I just got into appr appraisal last year and they my pricing came in at this and I'm like well I got bad news for you
Taylor Avakian
and I got more bad news for you that is not the value of your property right like it's just you know you can't if you're using fake numbers that's not a
Mark Silver
real it's a fake value it's a fake value and it goes back into this why a lot of these debt funds and people are holding this debt are actually in a lot of trouble a lot of the syndicators that were buying big postco that don't have this experience were using really low expense ratios in the 20s yeah and so when you fix that as well and change your noi there like we're getting even more pressure on these cap rates and yields so we've been talking about the past we've
Taylor Avakian
talking about the current situation we've talking about what we're dealing with today how does 2025 and forward
Mark Silver
look like in this market it's a really tough question to answer because I've been surprised actually by two things in the last couple years I was not surprised rates went up I was fully expecting that the speed in which the rates went up shocked me meaning we basically had all the rate uh uh rate increases in like a 12 def wasn't the fastest in history it was I it shocked me actually and then I actually in because it went up so fast I actually thought they were going to control inflation and that they would have start cutting rates I would have guessed 12 to 18 months ago MH so I two big misses yeah I knew rates were going up we didn't miss that but I the the speed it went big shock and then because of that speed and because I thought
Mark Silver
oh this is going to work we're going to see a ray cut in 12 18 months wrong and one of one of the reasons that was I think a Miss at least on on my part on how I was thinking is that I forgot how much money the government was still putting into the system because of Co and other things they printed almost double what was it 10 trillion or something I don't know exact number it was a lot of trill it was a lot of trillions and they still have a lot of trillions to go that haven't been spent um and that just kept inflation really high um I was talking with some buddies about like dinners in la woo expensive can you get a lunch for less than $20 we had a lunch at Chon yeah we had three Iced Teas three salads what do
Mark Silver
you think we spent per person three Iced Teas and three
Taylor Avakian
salads so probably five bucks for the iced tea and salad was 15 to 20 so 25 it was
Mark Silver
a $350 meal I literally almost fell out of my chair um and that's IC tea what was that a $25 gold plated I mean I I bet you it's good but holy I it was crazy but anyway $300 inflation isn't go anywhere so with that backdrop um it's hard to predict but I here's a couple things that I think will happen rates are coming down I think that's consensus and I agree with that the amount in volume and how it happens is a little unate to me because of this inflation thing um so I would I wouldn't expect more than 100 basis points and I really would think we'd probably be sticking around 50 to 75 here's the headline I don't think the asset prices improve significantly to what owners want to see what buyers where you're in the four the four cap range I just
Mark Silver
don't see it and we just have a long way to go we're talking hundreds of basis points so I I don't see that happening um I do think that because of all this pressure that you'll see more opportunities because of a lot of these people that have been waiting for things to get better inevitably they going to have to make moves they won't be able to extend and pretend forever so I think 20125 is going to be a great buying opportunity if you have the right Capital stack and you have the right mindset of this negative R positive R play so like that's exciting um in addition I think you're going to see major dislocation in markets that you have not seen before and let let me maybe just touch on that really quick what was was interesting postco is that it did not matter
Mark Silver
where in the United States you were every cap rate basically looked the same so we could have been in Prime Los Angeles or we could have been in Little Rock Arkansas and I think you're were buying the same cap rate which is kind of crazy um we and in even in those markets you saw major dislocations between pricing and rents like just to pick on Phoenix like you could have been in Mesa Arizona or Scottdale and you were seeing like 500 to, rent discrepancies between one bedrooms just because of locations and stuff what we're seeing now is that's gone away so that doesn't look like anymore like the rents are basically all the same doesn't matter where you are in Phoenix or Nashville or Atlanta like go down the list and you're starting to see a also discrepancy between the core markets like La New York San
Mark Silver
Francisco and whatever and the smaller markets around the country that saw a massive increase in values and decrease in cap rates we're seeing a quite amount of dispersion now and that's interesting that that needs to happen right like quality markets need to be trading at lower cap rates and less liquid less high quality markets see you be tray at higher cap rates you're going to see a much wider dispersion and that creates a more healthy Market of just not overall winners but actually if you are skillful and picking real estate and actually executing your business plan you should be awarded for it a couple years ago in the last couple years you're just awarded for buying things um and that's not a healthy real estate market so we're going to get back to that as well that's a great point I mean it's
Mark Silver
it's super interesting to to see that because you know we're talking with I'm talking to owners in LA and and they're like yeah where's where are people
Taylor Avakian
buying like I'm looking in Florida I'm looking in Texas I'm looking in the Carolinas I'm looking in Phoenix I'm looking in Idaho right like there's these different little pockets even Portland Oregon people are I know some investors who are going up there it's interesting to see and I've started to see a little bit with the investors who went out of California in like 2021 2022 maybe even 2020 they're bringing their money back yeah to La they're bringing their they they're realizing that the business plan that they've had and a lot of these are like family offices and stuff who've just had deep La ties their
Mark Silver
business plan that they had in La it doesn't work and those other markets and especially with everything that's changed right you can't have the same assump the same plan because it's a different it's a different execution it's a different Market different rents different different type we see that all the time and people say why don't you do this why don't you do that like it's hard to be good at one market like we were really good at New York I think we're really good at Southern California and la and when we go to our next Market we'll try to get I we will get really good at it but to be really good at 10 15 markets is really tough yeah um the big guys can do it like like the black zones of the world they have the resources and the correct capital structure
1:00:00–1:10:00
Mark Silver
I see very few syndicators that are in 15 markets crushing all 15 markets what we what we tend to see is the markets that they originated from or actually have a Edge at or the ones they outperform everything else is just Market driven um and it's not a surprise when the market turns that when you have operational expertise that is above other operators you're able to withstand a withdrawal when you're just a visitor in someone else's Market you're going to see a tremendous pullback just like everyone else and you have less Tools in your toolkit to combat that and I think that's the difference between an expert in a market and a visitor and so we have a lot of visitors in markets it's we see it too like I think you you you really need to be an expert um we see it a
Mark Silver
lot in the lending side of the business like most of our operators we lend money to have done the business plan in that location 20 30 40 50 100 times like we were looking at a loan the other day in Sacramento and didn't love the loan um but I kind of like the loan but I love the loan because the syndicator and the operator that's going to get the loan has done 100 buildings of the same business plan he's been doing it for 20 years it's his own money is he in Sacramento he's in Sacramento I know him almost guaranteed okay great and you know I'm from Sacramento right I did not know that yeah I'm from Sacramento okay we'll talk about it after oh we should talk about that after and that makes all the difference in the world to
Mark Silver
me honestly and his confidence in the business plan and doing it is at a lot higher degree of confidence than if it's just a visitor in the market who's a syndicator that also does deals in Dallas and Elena and Phoenix and this and that um that's different what what is the what is so you said edge and I'm like I think I understand what an edge is and and you can see it when you're competing against people but like what what actually is The Edge what what is that yeah great question um you don't have a edge when you're buying real estate and hiring all third parties to run your real estate so when I say you're a visitor to someone else's Market what I'm saying is that you're just hiring people to run your real estate you're a visitor because you have no actual uh ownership of your
Mark Silver
operations right and what I find with operators that are really good and that usually excel in markets is they're not visitors and most of the services they're providing to their buildings or executing their business plan is done in house with their own team their own Crews with their own management teams they've done it over and over again and that's all the difference in the world so like when there's issues you're trying to figure out from a third party who doesn't own your building has no actual skin in the game why there's an issue there's going to be issue regardless and in a down Market there's certainly going to be an issue and that's a problem and so Edge to me me means that what's your Edge like how are you doing this differently than everyone else how can you control your cost
Mark Silver
how are you controlling cost how you renting your units how you rehabing your units you're just like just to say that you have hired all third parties and done all this there's people that do it really well the level of difficulty to do it really well as a visitor is exponentially higher than if you actually have your own teams and own operational excellence so if you looking forward right you said your next Market if you wanted to create that edge in in a new market say you guys find where you want to go how do you actually build that yeah um it starts with on the ground presence so like we're for instance we're looking at a deal in Florida um we really like it it's a 7even plus cap it's 200 units it's a growth Market Insurance sucks but
Mark Silver
we're we're going to go through that um our partner is on the ground he lives 30 minutes away and so instead of me being the only GP I'll have a co-p that is on the ground that does construction that runs our own management team so like I'm not a visitor I have on the ground presence if I was doing it from California without that aspect um it's still a great deal so I think we'll be just fine cuz it's a seven cap um I wouldn't have as much confidence in my ability to execute without that so that's how we overcome it um but it's important it's important aspect how we do we're we're not afraid to say we need to bring someone else in to make sure that we have that operational excellence yeah so your advice is wherever
Taylor Avakian
you're looking for markets if you want to go outside of where you live have someone who has skin in the game who lives there and understands the Dynamics of that market being what finishes actually tenants care about how tenants find these properties how you lease them up efficiently your who's your uh handyman who is the construction crew who who are these people who actually do a good job you know live by their values because if one thing goes wrong or you have some sort of uncertainty you want to have someone who can effectively move the needle with their actions and not do it from afar but but actually in person couldn't
Mark Silver
yeah well said absolutely it could not be more important yeah it's hard running real estate's hard like it's not easy and you're seeing it with syndicators who bought all these Assets in Texas and Arizona and Nevada and they're getting wiped yeah fully wiped and maybe that was more about the than their operational excellence but if they actually executed their business plans in a timely fashion which they didn't they would have at least survived this downturn and that's the difference because time is everything in real estate so if I and I I say this in my own portfolio there's some deals that just depending on when I bought it I am way better off not because I did a better job and a couple years ago I was doing a worse job than probably what I do today but just because I finished a business plan I went to a
Mark Silver
financing Market that was really attractive like if I bought a deal in 2023 at a low cap rate M and I executed the business plan a high level but when in the financing Market I could still be in trouble yeah so like there's a lot of timing components to what we do in real estate but time is money so like when you're doing a value at business plan and we see this a lot on the lending side now actually we see a lot of these Bridge deals that were in 2ish 22 so that's two three four years ago yeah they're not done with their business plan yeah yeah which is tough like you're on a 3 to foure bridge business plan for a value ad multi that means you're probably a visitor to your Market yeah you didn't have the operational expertise
Mark Silver
the market is hurting right now you're having trouble Leasing and renovating all those things that's a troubled deal we usually say no automatically to those deals from The Lending side and there are going to be opportunities because those syndicators or operators whoever bought those deals are going to eventually have to sell and I think there's going to be opportunity for your clients and other people to actually buy that at a better basis reexecute with a better cap stack and probably be in a better Market yeah I mean for both of our sakes I do hope that happens I
Taylor Avakian
know you're doing well with the lending side of things but for for my sake at least I really hope that Things become at least just clear right there's a lot of uncertainty there's a lot of clouds I almost I I describe it when I'm talking to people is like there's this cloud of uncertainty people don't know which way the the Market's going to go if they're going to be able to execute their business plan there's just this it's a big level of uncertainty that I think people once they can get some clarity and hopefully at least in Los Angeles after this election there'll be a little bit more yeah and then with what happens with rates there'll be a little bit more and maybe prices aren't going to change significantly like we talked about but like there'll just be this you have
Taylor Avakian
a little bit more confidence in your business plan you have a little bit more like okay this is what we have to do to ex because our assumptions are
Mark Silver
they're less volatile I think it's well said like we as you said a lot of your clients are going on these other states and we may have some of those regulatory issues other issues but from an expense Revenue standpoint we're not volatile when I go to these other states the Denver the Phoenix's the Atlanta like Austin's they have volatile assumptions and I keep hearing we bought a five cap this is the greatest thing ever like did you buy a five cap are rents actually growing is your expenses right like I am weary of every time I see the syndicators whether they're on LinkedIn or wherever cheerleading their five cap or five and a half or whatever they did by the way they just probably had bought it from someone who's institutional who just sold it to them and think about that they're selling it now yeah like
Mark Silver
is it's a bad time to sell they're probably really happy that they sold that asset to you so I what you see out there isn't necessarily the greatest thing and I think I I hope one thing that people take from this conversation that we had today is that everything isn't what it appears just because someone tells you it's a six cap or someone just told you they bought the best deal in whatever City you really have to think about what actually is the situation and what are the facts and what they're presenting to you probably aren't the facts and more times than out in this market they certainly aren't mark thank you very much do you want to end on a high note or you want to should we end on a high note yeah let's end on a high note let's let's
Mark Silver
let's end on like some positive [bleep] like okay great I love high notes yeah let's do let's do that so let's talk about what's what's some good news in your life what what can we end on I have three healthy kids and a wife uh I just had my one-year-olds birthday party congratulations which was fun um my oldest is going to kindergarten wow which is scary and awesome um all at the same time I just got back from Italy which was amazing incredible and we're you know life's great like uh what we do what I do all this cuz I love it I love real
1:10:00–1:20:00
Mark Silver
estate and I love my family and I love living in California like we feel very blessed like you read the news and it looks like California's on fire and there's homeless everywhere um it's not it's a great place to live like I couldn't say better things about where we live and I my family loves it I love it um and I've been just crushing the Olympics dude crushing I just listening to a podcast on the way over here 1500 meters apparently there was some like back and forth like there was some jaw that was going on this guy was talking [bleep] to this guy and then they were doing this and then they both of them didn't end up winning some USA guy ended up winning I I was just like wow okay the Olympics are are on right now my kids are into
Mark Silver
it my 5-year-olds into it he's like USA I'm like yes it feels so good it feels good he doesn't know what he's doing but he's like USA I'm like yes the pride The Pride the pride and I'm into sports like I didn't think I was going to be into like table tennis you see those RS dude you see the guy that broke his paddle no and just so I didn't know this my business partner told me this they get two paddles for the entire tournament and I guess some very heavily favored paddle guy put his paddle on the stands and it broke and he just like wept oh I felt so bad for him I was like only in Olympics Would You Weep over
Taylor Avakian
a aatt battle La last thing um what is like one piece of advice who give to people who are watching this where they see what you've done they've they've heard your story they've seen you know the the transitions that you've made the pivots that you've made the success that you've been able to have what's one piece of advice that you'd give them who they want to start doing what
Mark Silver
you're doing and maybe they don't know where to where to start or they're struggling it's tough time in the market like what what what advice would you give them yeah um I do this pretty much every time I give advice and I think we said this earlier in the podcast just do something like doing buying deals getting involved just doing things alleviates a lot of like what am I doing um it's really hard to do anything in real estate it's hard to buy anything I don't care if it's a 400 unit building or a duplex it's both hard um so the number one thing I said to everyone is if you just do things things will happen they're usually good things as I said if you buy something it's really hard it's probably going to turn out really well and then the
Mark Silver
second thing is I I I think you got to overc communicate like you got to reach out to your network and like ask people what they're doing how I can help you it's amazing when I even when I call you like just a call like we'll just start doing things together if we grab lunch probably do a deal like I'm I'm not kidding and so like just sitting on your hands is not an option especially in this market you need to go do things and at the bare minimum you need to be reaching out to your network to see what they're doing and meeting with them to see how you can collaborate like those are the two best things I can say for anyone in the real estate market
Taylor Avakian
right now I appreciate your friendship mark this was incredible thank you for doing this dude this was great I feel like I came out of this with so much more knowledge and I hope that the people watching this are going to do this
Mark Silver
too did thank you man yeah I appreciate this was fun we we like real estate we we actually love it and obsessed some would say obsessed and uh it's a passion of ours and anyone who has a passion with real estate I love chatting about it so than we're going to we're going to do this again this is fun 100% thanks brother yeah
Taylor Avakian
Co thank you for listening to this episode if you enjoyed the podcast it would mean the world to me if you could rate US five stars on YouTube Spotify and apple podcast it really helps us get our name out there and helps us get fantastic people like our guests to share their insights and knowledge with you again my name is Taylor ven I specialize in the sale of apartment buildings in Los Angeles in Southern California and I look forward to sharing more of these conversations with you see you in the next
Mark Silver
one [Music]