Today my guest is Neal Bawa.  Neal is the founder of Grow Capitis an online multifamily investor education platform, experienced syndicator, developer and his attention to the data has earned him the moniker "The Mad Scientist of Multifamily". And in just a minute, we're going to speak with Neal Bawa about the Upcoming Multifamily Distress in the Marketplace.

J Darrin Gross

I'd like to ask you, Neal Bawa, what is the BIGGST RISK?

Neal Bawa

So I'll give you two risks that affect insurance prices, and all other forms of prices in the United States. So one is a bigger, sort of more, you know, overarching risk. The second one is, is well known to us this. So the first one is climate change, we are continuing to see devastating impacts of climate change in many markets. It is a political, you know, issue where, you know, half of America doesn't want to acknowledge what is happening in markets like Florida and Texas and many other markets, like California, for example. But insurance costs are absolutely skyrocketing. And what's interesting is that it's even happening in markets that are not as impacted. So for example, Chicago is not considered to be a market that's highly impacted by climate change. But I just renewed my insurance for a triplex that I own on Brandon Avenue in Chicago. My insurance went up 58% 58%. And I went through a very detailed process of shopping it. So the climate change, is it an evolving thing? So it's not one of those? Yeah, you know, we've had insurance almost doubled in the last three or four years. I think we're done with that process. That's a nonsensical answer. I am not seeing any evidence that we are, quote, unquote, done with climate change that we're done with the insurance hikes, there's no doubt in my mind that we will continue to see double digit insurance hikes at least into the foreseeable future. So that's really the first biggest risk. The second largest risk is to inflation. So it's not necessarily directly tied to insurance, I'm sure insurance will go up because of it. The second largest risk is that there is a now an increasing chance that the United States will get into a shooting war with China in 2027. By 2026, the Chinese navy will achieve parity with the United States by 2027, they will be stronger than us, the chances of a shooting war are high. If that happens, we could have a year with 100% inflation in a single year.

Today, my guest is DJ McClure. DJ McClure is the VP of sales and business development at National Flood Experts driving strategic growth through partnerships and tailored cost saving solutions. And in just a minute, we're going to speak with DJ McClure about innovative flood insurance solutions.

J Darrin Gross:

I'd like to ask you, DJ McClure. What is the BIGGEST RISK?

DJ McClure:

I think right now, one of the BIGGEST RISK that I see among many is the number of properties that are, you know, approaching a debt restructure, you know, there's a lot of short term bridge that for a lot of properties that's coming due. And so one or two things are going to happen, obviously, they're going to be able to, if they're able to put together the funds to structure a refinance, you know, it's likely going to be into a different loan structure or excuse me a loan program, predominantly, your Fannie and Freddie type programs being, you know, the more fixed set options in a lot of cases. And this has a dramatic increase on the flood insurance coverage requirements. And so you could take a property that's only paying maybe a few 1000, a building, and the new requirements, you know, could add and more than double or triple the cost of what they're having to pay per building.

And this isn't always something that somebody knows is coming. So if you're looking at a debt restructure and you're in a flood zone, you know, sooner than later, you want to have our team or someone look at that. Because not only could you increase the value of the property going into the refinance, which could reduce, you know, the cash in potential that may be required by being able to show that lender a higher valuation with a better noi.

But you're also avoiding that flood insurance coverage increase that would come with that. And then the other option of that being the same as if a seller or excuse me, an owner is forced to sell because the refinance is not possible. Nonetheless, that flood insurance cost is counting against that sale valuation. If you're having to sell in that scenario, you're probably already selling at a lower valuation than your business plan has at that point. So again, if the flood insurance costs can be reduced, again, that helps on that sale valuation to try and recoup as much of those investor dollars as possible.

Today, my guest is Joey Klein. Joey is the host of Tech Talk podcast or the Tech Talk podcast. Joey is a seasoned commercial real estate broker focusing on representation of corporate tenants across a range of industries. based in Atlanta, he is deeply involved in urban focused developments, and transit expansion advocacy, particularly in Georgia and the Southeast.

J Darrin Gross: 

I'd like to ask you, Joey Klein, what is the biggest risk? 

Joe Kline:

Sure.

I don't have an insurance related answer. So that's, that's good. I have to say, I do think that your industry is a very fascinating one. And I think if we had more time, I'd love to throw some of these back at you. Because insurance is a very rapidly changing industry over the past couple of years as well. I look, I think that any Anyone, anyone who makes their money solely via Commission has to constantly be thinking about risk. And if you're not, you probably won't be doing it for very long. So it is something that I think about a lot, sometimes too much. And Atlanta is as well as the commercial real estate in general, right? Unless you're in a really small tertiary market. Valdosta, Georgia, right, you kind of have to be a jack of all trades, okay, there's not enough of one food group to really, you know, feed you. In a market like Atlanta, you really have to specialize. Okay. What I've tried to do is within my special specialization, diversify, that's how I think about risk. So my specialization is that I only represent tenants, I do absolutely no work whatsoever on behalf of landlords marketing buildings. That's not to say, I don't think there's anything wrong with that there are absolutely guys I know who do both sides of it. And they do well with it. I have very simply chosen to, for that to be my line in the sand, I only do work with tennis. However, within that work with tenants, certainly since 2020, I have tried to diversify the areas in which I do work and in which I target prospects, you know, potential clients. So I was very, very heavy into, you know, sort of growth stage early stage technology companies at the start of my career, and part of that was because I enjoy spending time with those people. And part of it was because as a younger guy starting out, it's a little bit easier to get a meeting with the, you know, CEO, who's your age at a 10 person company than the managing partner at a law firm. Okay. And when 2020 came, you know, those those were some of the really hardest hit companies, not only because venture funding dried up, not immediately Of course with them. But also they were some of the ones that took the most to work. So ever since then, I have diversified who I work with right more of a focus on professional services and finance, right those are some of the biggest uses of office space recently. A A good portion of business focused on not pure industrial manufacturing, but more of flex Flex is basically the office in the back the warehouse in the front, all right. So you know I helped a large water meter company establish kind of an HQ To where they had a big office there a warehouse and manufacturing, not only was that diversified type of group that I work with, it was also extremely interesting. You know, I do some sort of pseudo hospitality work, I have a social club that I'm working with right now he wants to set up a location in Atlanta, likely it will be in an office building, but it's a different use. So my, my risk assessment has been that, while I am not trying to be a jack of all trades, in terms of just any industry out there, that it's really important, especially right now to change, not change to increase the types of people and industries that you have in your orbit.

Today, my guest is Jeremy Friedman. Jeremy is with Stoic Equity Partners. And they have a portfolio of 10 Self Storage Flex Industrial assets in the southeast, totaling $48.8 million assets under management and 500,000 square feet located in Georgia, Mississippi, Florida, Alabama, and Arkansas. And in just a minute, we're going to speak with Jeremy Friedman about Why Invest in Flex Industrial Real Estate. 

J Darrin Gross  0:00  

And I'd like to ask you, Jeremy Friedman, what is the BIGGEST RISK? 

Jeremy Friedman  0:05  

But as we discussed before the call, that's actually the one largest risk item that we that does keep us up at night and that we're working diligently on at the moment is our insurance. And I think it's so this is not to be clear to your listeners, you did not prompt me for that at all this is this is our biggest risk at the moment, as we see it. We being located on the coast, the Gulf Coast of Alabama, and we have several coastal properties in Pensacola, Florida, Baldwin County, Alabama, we are being hit with tremendous increases in all of our property insurance, especially in the wind policies. And they're becoming increasingly hard to get. And to give you a couple and give your listeners a couple of examples we have we have a property in Pensacola, Florida and we put it under contract the insurance was in this was under contract and 2022. The insurance policy was $27,000 a year. By the time we closed on it in early 23. That policy had renewed to $47,000 from 27. However, we needed a new policy in the same carrier. And I will not name names with the same carrier quoted us a new policy one month after they just renewed for 47 at $72,000. I just yesterday got a quote for this year's renewal. And it will it will go to just under six figures. It's $99,000. So from 27, so quadrupling, in two years, essentially. Now, the problem at that facility is we have gross leases at that facility. Now, we have been very successful at getting the tenants to renew at significantly higher lease rates. And all we have to do is say, Hey, guys, y'all know what's going on with insurance, property taxes and expenses. This is the new rate, and they've all signed it. And so we've luckily been able to mitigate that all of our self storage facilities are gross rents, of course. So the these higher operating expenses are a drag the NOI a lot of our facilities, thankfully, our net leases, however, you know, we there's a limit to the total rents that these these tenants will pay can pay, right. So if the cam charges increased significantly, that lowers what we can get out of them for rent, or, you know, what we can attract new tenants for for rent. So we consider this an extreme risk of our industry, nationwide and all aspects of real estate commercial real estate. So this is what keeps us up at night we work with, we work with a large broker, an international broker who carries a pretty big stick. But we're still having a very hard time controlling these costs. We're working on putting together some master plans we are working on, we're exploring a captive policy that we can bring in house and manage ourselves to try to reduce the expense and and potentially be able to save money and or, you know, be able to refund money back to those certain assets after after a period of time. We see the risk is to twofold one is rate. So all of the insurers have increased their rate tremendously, but we also see it on the replacement cost side the total insured value of these properties. Because you know, we buy it at one price. And as you know, I mean we are well aware we're buying it below replacement costs. But we get in arguments all the time about what is replacement costs with our insurers and of course with coinsurance. We can't be underinsured or else that leaves us very, very vulnerable in the long run, so, you know we don't see replacement costs or construction costs coming down anytime soon. You know, so you know that part of the the insurance premium, I think is for probably all going to have to stomach. Hopefully though we can get some more competition back in these cat markets in these in these high rated higher risk markets to be able to bring the rates back down. But I think I think it you know, I think though with the replacement costs, where they are truly where they are, and where they probably will remain, it's going to be hard to get any real relief here for for a while. And I think it's all going to have to transfer through eventually to the tents and it's all going to continue to keep rolling down and held the consumers and so I mean, I think we see inflation continuing for many years, we don't see it under control by any means. And which is also why we like you know, multi tenant value and flex industrial properties where we can raise continue to push rents. So that's a long story to say insurance keeps me up at night. And, you know, what we're, how we think about it and what we're trying to do to help mitigate that risk.

Today, my guest is Christian Gore. Christian is the founder of G1 Capital Partners. And in this industry expert who have orchestrated real estate transactions worth approximately 9.5 billion across the across the United States. And in just a minute, we're going to speak with Christian Gore about leveraging AI and Machine Learning or Data Aggregation to make informed decisions about where and why to invest.

J Darrin Gross

 I'd like to ask you, Christian Gore, what is the BIGGEST RISK?

Christian Gore 

That's a great question. I would say, generally speaking, I would say geo geo political risk, that, that can significantly kind of affect what the Fed does or doesn't do. Yeah, we've, there's a lot of things going on overseas. I know we were fortunate enough not to kind of have to, you know, be involved with it daily. But there's there's significant geopolitical risks in our view going on right now. That, you know, who knows what, what what can happen, but there's a direct correlation with the Fed and kind of seeing what what they have the ability to do negatively to our business. So yeah, that would be off the cuff that that would be my, my biggest fear or risk looking forward and really in the near term in the next 12 months, in my opinion.