Today, my guest is Ran Eliasaf. Ran is the founder and managing partner at Northwind Group. Ran founded Northwind Group in 2008. And oversees all company investment activities across its equity and debt strategies. Today Northwind group has over $3 billion in assets, assets under management. And in just a minute we're going to speak with Ran Eliasaf off about the rise of office to home conversion in commercial buildings.
J Darrin Gross
I'd like to ask you, Ran Eliasaf, what is the BIGGEST RISK?
Our biggest risk is determining the value of the collateral we're lending on? It's never a scientific answer. You can get all the appraisals, you want third parties and all of your internal knowledge. But eventually, a value of an asset is only what somebody else would be willing to pay for it as a term at a certain point in time. So we spend a lot of time on the writing and diligence thing and trying to determine what's the value and then what's our LTV, what's our loan to value. And that's where we focus most of our engine, that's the biggest risk, because if you gave a loan and you find you're at 50%, LTV, and then you realize you're at 80 or 90, then then that's that's a big problem. That's a big risk. What we do to mitigate that risk, first of all, we lower their LTV. If you know two years ago, we learned that 65% LTV, now we're more around 54% LTV to we kind of focus on asset classes that are less volatile, like residential in New York City where there's, you know, yeah, prices can shift. But the chances of, you know, the value of residential in New York dropping 50% is less likely than it is for an office building, for example. And that's where we're the biggest risk for us. And that's where we focus on.
Today, my guest is Fernando Angelucci. In the past four years, Fernando has built a real estate portfolio of over $200 million and self storage assets across the country. And just a minute, we're going to speak with Fernando Angelucci about investing in self storage.
J Darrin Gross
I'd like to ask you Fernando Angelucci, what is the BIGGEST RISK?
So I would answer that with actually there being three things that we look at in our business. So the first being compressed cap rates, the second being oversaturation of given markets, and the third being reconnaissance competition are basically competitors, they have unlimited capital. So let's let's dissect each one of those press cap rates, has been an issue in the storage space for the last 10 to 15 years. That's partially because of just the easy money policies that we've been in for last 10 years, and that capital needing a home that has yield, but then also the fact that self storage used to be kind of this ugly asset. And if you weren't getting a 15% cap rate, day one, you know, what were you doing, then all of a sudden fortune and Money Magazine start talking about it as an attractive alternative asset, and that cause this floodgate of institutional capital come in compressing all the cap rates. So because of that, it creates a very competitive acquisition environment. And it also creates an environment in which middlemen can strip a lot of upside, aka brokers, right. So one of the ways that we decided to mitigate that was to shift our business from retail, aka buying on market to off market acquisition strategies, where we're the only one at the table. And then to switch from acquiring stabilized assets to only buying value add or building self storage, where we can force a ton of appreciation. So that was one of the ways that we were able to mitigate the compressed cap rate environment. Now, recently, with interest rates, increasing at such a high velocity, we've had this mismatch between sellers and buyers, or sellers still think their facilities are worth what they were in 2021. And buyers looking ahead and and saying, hey, well, you know, my debt service coverage ratios are not gonna allow me to Buy at your price. So one of the ways that we've gotten around this is by saying, basically getting creative. If you want the price from March 2021, I want you to carry the financing at rates and terms similar to what was available to me in March 2021. So that's one of the ways that we get around the compressed cap rates. A lot of people don't realize that the price is only half of the equation, the financing around. That asset is also a huge component that basically no one ever looks at, I'm willing to buy your property at twice the going rate if you give me a 0% 30 year loan, because then I'm still paying the same amount I would have if I bought it at the going market rate with the going market capital or financing structures. So that's how we overcome compressed cap rates. The second piece is the problem of oversaturation. Because of this rush of institutional capital, you see these land grabs occurring where larger operators are trying to basically stick a flag in a market. The other piece of this is that you're seeing a lot of investors switch asset classes because of the construction costs, you know, storage produces roughly the same rent per square foot that multifamily gets. However, to build a Class A multifamily facility you're at 400 $450 a foot were to build a Class A self storage facility that gets similar rents. You're at 100 In 20, to 150 bucks per foot. So you have this, this transfer of capital and investing pressure coming from different asset classes. And that's causing a drop year over year and in the sort of supply index numbers. So the one way to mitigate this is the importance of underwriting and getting third party feasibility studies to make sure that you're not wearing rose colored glasses, and to truly deep dive into hyper specific markets where you're looking at all of the competition and a five mile radius and seeing if this area is saturated, versus the five mile plot down the road. And then the last piece, of course, is is the REIT competition, they have basically unlimited capital that is needed deployed, they've raised a lot of equity, a very cheap cost, they've raised a lot of debt that is long term at very cheap costs. And typically, they have a longer investment timeline than some of the smaller counterparts, you know, when they're investing in 30 year horizons, I'm usually investing on five to 10 year horizons. So that means that they can usually stick it out and drop flags in a market that right now doesn't make sense. And they're willing to lose money on because when the population moves in, they can take and be the first ones to take advantage of that. So there's a few ways to get around this, you know, the first is to avoid, you know, downtown primary markets, you know, don't build in downtown Miami. And as opposed to doing that, go to secondary or tertiary markets, or go to the, you know, the suburbs, or the exurbs of some of these primary markets, or even some of the rural areas around these primary markets like we are. So that's one piece. And then the second piece of the competition is if you can't beat them, join them. So that's one of the strategies that we employ, in which these REITs they do not have the bandwidth, nor do they want to waste the manpower on negotiating one deal. But if you do all that legwork, and you bring them a 20 property portfolio, now it makes sense for them to use all that manpower to underwrite and see the feasibility of that. So there's the, this, this aggregation that is occurring right now in our industry that's causing a lot of opportunity for those that are willing to play along bet that feeding chain, if you will.
Today, my guest is Mason McDonald. Mason is a former hospital CEO turned full time land flipper that utilizes his profits to invest in commercial real estate. And in just a minute, we're going to speak with Mason about how you can profit from land flips.
I'd like to ask you Mason McDonald, what is the BIGGEST RISK?
Mason McDonald 34:58
Yeah, um, I expect my answer to be a little different than what people might expect. I mean, I was the CEO of a psychiatric hospital. So in terms of a risk management perspective, there's, you know, in terms of over regulation and high risk, there's about, that's about as high risk of an environment as you could ever imagine. But for me, the greatest risk that I have is, I fail at this entirely and have to go get a job again. So, you know, me being my own boss, and, you know, getting to live life on my own terms. And having financial and geographical freedom, the biggest risk for me is I fail, and I have to go get a job again, which is what 99% of the population already does, because the margins in this business where if I set my Buy Box criteria based on market data, which is what's available to everyone at 50% or less, I could liquidate and get all of my money back all of my investors money back and be able to walk away, but that's not going to happen, you know, or should it happen, it's not the end of the world. But yeah, the riskiest thing to me is ever having to get a job again. So maybe not not exactly the answer, you know, that that's expected or wanted, but that's what it is for me.
Today my guest is Henry Stimler. Henry is the Executive Managing Director of global commercial real estate at the firm Newmark, whose team financed 4.4 billion in deals in 2022 alone. Henry's core focus is origination and brokerage in large multifamily debt and equity transactions. And in just a minute, we're going to speak with Henry about the impact of the current economic factors on the commercial real estate industry. And we'll drill down into multifamily housing.
J Darrin Gross
I'd like to ask you, Henry Stimler, what is the BIGGEST RISK?
I think the biggest risk is not doing, I think more is lost by inactivity than activity. The biggest killer of deals is time, time and dalliance and not getting it done. So I'm a very big believer in that you have to jump in. Right, you have to be all the way in you can't be you can't be partially pregnant. And you have to have conviction in your decisions. And if you don't have conviction, that's the biggest risk. If you are Wofully. If you don't, if you want to buy it, if you don't know how you're going to run it. That's the biggest risk to me. So when I see clients who are unsure, who are not confident their decision, I see that as a red flag, I think you've got to make moves move quickly. That's the best way to mitigate risk. If you see a deal that you like them make sense. You got to move quickly, one to wrap it up to to get the right debt in place, rate, lock your debt, take that risk off the table and move quickly. So that's what I see as the biggest risk is not having conviction in your decisions and not having the gumption to go forward and get it done.