True Market Thermometers, The Dynamics of Risk and Uncertainty, and Distressed Real Estate Assets ft. Andrew Cushman and Brian Burke

0:00One thing I've noticed over the past years that almost everyone says they're using AI, but when you actually look at how it's being used across a company, it's usually just a handful of people who have really embraced it. Everyone else falls back into the same old workflow. That's why superhuman go caught my attention. The problem isn't that people don't want to use AI. It's that most AI tools expect you to stop what you're doing, open another tab, start from scratch, and explain the context every single time. Superhuman go flips that around. It's an AI chat that's already up to speed right there when you need it, and it works inside the tools and websites you already use without switching apps or losing your place. It's from the makers of Grammarly, and whether someone on your team is drafting an email, summarizing a long thread, or getting ready for a meeting, the help is already there. That's what really drives adoption. When AI works where your team already works, people naturally use it. Less friction, more consistency, and more time spent on the work that actually moves the

1:03business forward. If you want to see what that looks like for your team, check it out. Find out more at superhuman.com. Hey, best overlisters. Are you looking to get more great commercial real estate content? Check out the new shows in the best ever CRE network. The next level income show with Chris Larson is about helping investors grow their income, build their wealth, and achieve financial independence through smarter investing. Multi-family insights with John Casmen takes a deep dive, a passive, multifamily investing, with practical strategies from experienced operators, syndicators, and investors. And Carson's Corner with Carson Jones explores the long game of wealth creation, covering commercial real estate, private deals, business acquisitions, and the mindset behind building wealth across generations. Check out these shows, whether you listen to podcasts, subscribe, and leave a five star of you to support the best ever CRE network we are growing, the premier community of commercial real estate investors. Welcome, best ever listeners. I am Jay Scott, and I am filling in again this week for

2:09Matt Faircloth, who is off-getting his hair and nails done again, I assume. We have a great episode today. I am bringing on two of my favorite people in the multi-family space, in the commercial real estate space, actually in all of real estate. Number one, we have Brian Burke, founder of Praxis Capital. He's been investing for 37 years, owned over 4,000 multifamily units, over 2,000 assisted living units, over a billion dollars in assets under management over the years. And second, I have Andrew Kushman, who is founder of Vantage Point Acquisitions. He's been investing for 15 years in the multi-family space, owned over 3,000 multifamily units. These guys are two of the smartest multifamily investors I know. And two of the very few people in this industry who can say they've never lost a penny of investor capital that is not investing in vice, but that just happens to be a fact as of this recording. So with that said, we're going to talk about multifamily. We're going to talk about

3:12where things have been the last couple of years, where things are today, and most importantly, where things are headed. And if you're a multifamily investor or want to be a multifamily investor, what you should be doing today to set yourself up for success in the future with multifamily investing with that said, let's welcome Brian Burke and Andrew Kushman to the show. Welcome, Andrew and Brian. How are you guys doing? I'm good, man. I'm about feeling as good as the people in pharmaceutical commercials before or after they take the drugs. Well, after I mean, that seems to be the secret to happiness, right? Get a rare disease, get the weird drug for it, and then you are happy and energetic as all get out. So I feel like we can have an entire separate discussion on going down that that path. And then when we're going to have here, but maybe we'll do that one at some point soon because that could be a fun discussion as well. A chemical engineer, not a drug rap. Well, who do you think makes all these drugs? Right. How's he going, Brian? Good. How are you?

4:12I'm doing great. Thrilled to have you guys here. Two of the smartest guys I know in this industry. And so I'm humble that you do, agreed to jump on with me. And I just want to spend some time talking a little bit about commercial, maybe we'll focus at least early on on multifamily, and then we'll kind of expand from there. But I want to talk a little bit about where multifamily's been the last couple of years, what we've all been dealing with, where things are today, where we think things are headed in the in the future. And then most importantly, what you guys are doing, what the rest of us should be doing to keep ourselves out of trouble moving forward. Let's do it. Okay. Okay. Anybody want to summarize what's happened the last couple of years? You want me to take that one. Thought you said this wasn't supposed to be a two hour show. Okay. I'll do the quick one. So for anybody that hasn't been paying attention back in 2022, March specifically, Fed started to raise interest rates and multifamily took a big tumble. Basically, Brian said it best in slides that I've seen of his and from a couple of conferences, where basically we saw 20 to 25% downturn in multifamily back after 2008. So far, after 2022, multifamily values have dropped

5:19on average 30 to 35% across the country. So literally the biggest multifamily recession in history. Brian, where are things today? Are they better? Are they worse compared to the where they were in 2022? Are we still down 35% if we come up from there? What's what's going on? Well, I kind of summarize the market as a traffic collision at a four way intersection. I mean, you've got green lights in every direction. You had rent growth. You had compressing cap rates. You had fueled with good capital and low interest rates. Easy capital and low interest rates. All lights are green. Everything collides in the middle of this intersection. You've got mangled cars and glass everywhere. So I think now what we're seeing is the patients have been extracted from the vehicles and they're loaded up in the ambulances. They haven't driven off yet. And the crews haven't yet showed up to sweep up all the glass and tow off all the cars. That's pretty much I think where the multifamily market is right now if you were to sum it up in the easiest way. Yeah. And to build on an analogy, I think the cleanup crews are all crowded around the

6:23intersection waiting to pull off the cars. Just there's a little bit of argument over how much scrap value of those cars. And then also it depends on what kind of car you were driving. If you were driving a expensive boxy safe SUV, you are in much better shape today than if you were still driving around your father's Pinto. And what I mean by that is the market is extremely bifurcated. I am seeing, you know, so we operate in Georgia, Florida, and the Carolinas. We are seeing distressed sea class properties that not only do they have the sponsors distressed, their loans upside down, on top of that, their residents are stressed because of inflation, the cost of gas, the cost of food, so delinquencies through the roof. So now you have owner distressed and resident distressed, those two make for a big problem. I have seen properties trade fully vacant, boarded up for 10, 15,000 a unit. I have not seen that since 2010 or 11. No

7:29granted, you're going to have to put 40,000 in unit into them. And if you do get someone to pay rent, you're going to need to go, you're going to need to pack heat if you drive through that neighborhood or that proper, those properties, right? So like we're not looking at that kind of stuff. So that's on the extreme end. So you know, Brian said prices are down 25 to 35%. Some of those are down 50, 60, 70%. On the other side, the multi-family guys drive in the SUVs, your class A properties and good neighborhoods and good markets that still have population growth. Some of those have barely moved. Pricing on some of those is down 10%, 15%, maybe 20 max. We've been tracking trades for, I'd say, A minus to A properties with five. And even in some cases, sub five cap rates. So in fours and it's like wait, it's like an interest rate or six and a half. They're banking on future rent growth. So it's very bifurcated. The nice kind of safe stuff that has cashflow day one is really doing pretty well. The lower end stuff is seeing a lot of distress. Occasionally, we currently have about 2000 units left in the southeast. Our lowest occupancy is 92%. We have

8:35several properties in our properties are between 100 and 300 units in size. We have several properties that are 98, 99% occupied. And operate. We're having to work a lot harder to achieve that than we did in the past. But if you're in a decent neighborhood and you've got a good management system in place, operations aren't actually that bad. So yeah. And I know Brian, you've talked before about when people ask us is this a good market or a bad market? What do you like to say? Well, there's so many different markets, right? I mean, not only do you have geographical markets that are all different, but then you have different types of real estate that are all a different phases of different cycles. And then even within the same asset class in the same location, you have different cycles where you're, you know, as Andrew mentioned, your class A is doing one thing in your class C is doing something, you know, completely different. And, you know, to dovetail onto what Andrew was talking about, we're seeing the same thing in our portfolio. Mostly all the stuff we own right now is class A, at least in the multifamily side. And, you know, strong occupancies, yes, this is all true. Where you're struggling, though, and where at least

9:38where we're struggling is we're not seeing the rent growth. We can get rent growth out of a least renewal and an existing resident will accept a 25, 35, 40 dollar increase in rent and stay another year, but getting a new resident to come in and replace, you know, replacing, you know, a vacant unit, you're not getting those rent bumps that you would see, you know, and we're seeing some cases negative least trade out, least trade out is what was the new lease relative to the previous lease, right? Positive lease trade out on existing residents, negative lease trade out or flat lease trade out on new residents and positive on existing, what am I trying to say this? Positive on renewals, but you know, not on new residents. And that's just indicative of supply and demand imbalance. I think hasn't been fully solved. Lack of pricing power out in the marketplace. You know, somebody's not going to move over 25 bucks, but they're not going to pay extra to move in. That's that I think has been the kind of the biggest obstacle lately.

10:38Yeah, from a 10,000 foot standpoint, I mean, the way I like to look at it is that commercial real estate is valued as your NOI divided by a caprate. And so if you want to know where the market's headed, you look at your net operating income and you look at cap rates, and that gives you an idea. And since 2022, cap rates have been high, relatively speaking, given where they were back in in 13, 14 through 2021, cap rates have been high because interest rates have been high. And then on the NOI side, on the operating income side, we've seen very little rank growth for a number of years. And at the same time, we've seen high inflation. And so you're seeing very little on the income side, but you're still seeing high expenses. Insurance has gone through the roof, and property taxes have gone through the roof, labor material costs just from from inflation. In general, I've gone through the roof. So basically, we're getting hit on both sides. Cap rates are high and net operating incomes aren't necessarily going up. And in some cases, are going down. So, yeah, I think you just said something really important that kind of touches on

11:40one of the, I don't want his take to call it a myth of real estate, but everyone only says, oh, inflation's great for real estate is a bit of a nuance to that supply side inflation is terrible for real estate. We want demand side inflation. So supply side inflation is your insurance costs go up, your labor costs go up, the cost of gas goes up, the cost of electricity, all of your inputs that go into your expenses, those go up, but your rent stays flat, that kind of inflation is supply side. It's terrible for real estate. The kind that we want as real estate investors in which I do think is coming probably more starting into next year for a variety of reasons is the demand side, meaning there are more people chasing fewer units. That's the kind of inflation or the government's printing money, which that's also another nuance. Well, that's actually devaluing the dollar, but hard assets increase in value, nominally, when that happens. So that's part of the, I've heard people, wait a second, thought inflation was good. It is, but it's got to be the right kind. And we've had the bad kind

12:44for real estate the last couple of years. It is, I believe in the process of balancing back out, but that's why despite inflation, it hasn't been a good couple of years. Yeah, and there's another nuance there. When we talk about inflation, the reason why inflation normally helps us as commercial real estate investors is because inflation drives wage growth and wage growth drives rent growth, but that only works when we're seeing positive real wage growth, meaning wage growth over and above inflation. And for much of the last four years, the wage growth that we've seen has been less than inflation growth. So even though workers' wages are going up relative to inflation, they're not going up and their spending power is going down, which means rents aren't going up. Yeah, the one silver lining to it is rents have declined the last several years while nominal incomes, wages have increased. So the affordability problem in the short term has improved. So when we do get back to demand side inflation, there is some room to move. One thing I've noticed over the past years that almost everyone says they're using AI,

13:46but when you actually look at how it's being used across a company, it's usually just a handful of people who have really embraced it. Everyone else falls back into the same old workflow. That's why superhuman go caught my attention. The problem isn't that people don't want to use AI. It's that most AI tools expect you to stop what you're doing, open another tab, start from scratch and explain the context every single time. Superhuman go flips that around. It's an AI chat that's already up to speed right there when you need it, and it works inside the tools and websites you already use without switching apps or losing your place. It's from the makers of Grammarly and whether someone on your team is drafting an email, summarizing a long thread, or getting ready for a meeting, the help is already there. That's what really drives adoption. When AI works where your team already works, people naturally use it, less friction, more consistency, and more time spent on the work that actually moves the business forward. If you want to see what

14:47that looks like for your team, check it out. Find out more at superhuman.com. Hey guys, if you're an active commercial real estate investor, especially a GP or a fund manager, you already know the market has changed. Capital is harder to raise, deals aren't penciling the same, and lenders are a lot less forgiving. That is why Joe and I built the best ever-inner circle. It's a private group of experienced operators, people raising millions, managing portfolios, and solving these problems in real time. Inside, we're sharing what's exactly going on right now. How people are raising capital through RIAs, finding deals done directly with lenders, and navigating challenges like floating rate debt and capital gaps. We've got members with billions of assets under management, and others who have raised tens of millions in the past year. This program is not for beginners. It's for people who are already in the game and want to stay ahead of it. If that's you, go to bestevercr.com forward slash inner circle to learn more about joining us.

15:54Part of the trouble too is that you mentioned cap rates a minute ago, Jay. That's an important piece of this because it's part of the equation for determining what the property is worth, right? And cap rates are really just a thermometer that's telling you the temperature of the market, and as the market gets hotter, the temperature, it's an inverse relationship. The temperature goes down, meaning cap rates go down, which means prices go up. But those cap rates are not only tied to interest rates, they're also tied to rent growth in a way that a lot of people don't understand, because people are willing to pay more for a growing income stream than they are for a stagnant or shrinking income stream. And what we've seen recently was shrinking income streams. And now we're starting to see stagnant income streams. And either of those two scenarios result in cap rate expansion, meaning cap rates go up, meaning values go down. So until we start to see more rent growth, we are unlikely to see cap rate compression, despite what interest rates do one way or the

16:58other. Yeah, Brian's exactly right. And that's another new one. So I think it's missed is everyone just says, Oh, cap rates fall interest rates. They do. There is a correlation there. But what actually is the bigger driver of cap rates is capital demand for whatever income stream that cap rate is valuing. And when a capital source looks at asset classes and says, Oh, multi family, this is going to grow four or five, six percent a year, I'm willing to pay more for that today. I eat a lower cap rate because that's going to generate me a higher return in the future. But for the last few years, when capital looks at it says, Oh, that income stream is going to decrease, well, you better I you better give me a deal. I can't pay much to know to get that. So it's it's a bit the interest rates are important, but they're actually secondary to what Brian said, which is capital demand and how capital values the size and safety and a few other aspects of those streams of income. Yeah. Okay. So that's a little bit about what's been going on. And I tried to tee up Brian a

17:58little bit earlier with the question of, is it a good market or a bad market? And I guess I was a little too vague, but I know you like to say it depends if you're a buyer or seller. And so if you're a seller, it's still I think safe to say that it's not a good market, especially if you bought after after 2020, 2021, 22, 23, the height of the market, things are probably a little rough right now. But the question is for buyers, is it a good market right now? Would you be recommending that people buy right now? And I know you don't have a crystal ball neither do you have a crystal ball. But what are you guys thinking in terms of what you're doing today with with multi-family? And what are you recommending for other people? Well, I'll take the unpopular approach or opinion. And I think maybe you guys will disagree with me, which will create some good banter. But I think it's not a good time to be a seller, but I also think it's not really that great of a time to be a buyer either. You know, it's a debt is more expensive. And there's a lot of uncertainty. I think the biggest issue that I have with being a buyer right now is I can't predict with any level of

19:01certainty when rent growth is going to return. How much it's going to return? What new apartment deliveries are going to look like? What interest rates are going to look like? What insurance pricing is going to do? And, you know, we're still seeing increasing vacancies. Can you know, using national data, certainly there's local markets where that's different, but using national data, we're seeing increasing vacancies, we're seeing high and consistent concessions being offered to new residents, meaning weeks or days of free rent to entice them to rent units. That's not compressing yet. We're not seeing that go away. We're still seeing it. So, to me, there's still a lot of uncertainty. When I want to be a buyer is when I've seen evidence that the bottom is clearly behind us and that we're in an uptrending market. To me, that's just a better time to be a buyer. I know a lot of people don't see it that way, but that's where I'd rather be. What you're saying is even though we might be down 35% on average across the nation, you don't

20:04necessarily think we're at a bottom. I don't think we're at a bottom or I especially at least don't think that we can firmly call that it's a bottom and there's still uncertainty left. And remember, investing in anything is a function of risk-adjusted return, right? And the risk is higher when there's uncertainty, which means that even if we are at a bottom right now, you should be getting paid a really high premium for the risk you're taking of being unsure if we're really at the bottom. And I don't think that premium is there. We're still seeing apartment deals trading at negative leverage with 5 and a half percent cap rates and a 6 and a half to 7 percent borrowing environment. And that makes it, to me, you're just not getting the risk premium for the extra risk you're taking by investing now versus I think there's going to be a long, long halfway to recovery. Meaning that when things do get corrected, it's going to stay in an upward trend for a considerable amount of time. There's just no rush. I can just wait for more evidence,

21:10get in and still ride out a 10-year upcycle without having to take the risk of, well, is it a bottomer is next year really the bottomer, whatever, what difference does it make? Yeah, I would add a little to that and say one, uncertainty is where the opportunity, where is where and when the opportunity lies. Everyone was very certain in 2022 and we know how that worked out. So, when everyone's uncertain, when everyone's fearful, when everyone's sitting on the fence, that's the time to accumulate assets. Another thing about commercial real estate is it's not like a mutual fund where you can be like, wait, wait, wait, wait, I'm in. Unless you're just doing one investment and you're actually trying to invest in either build or invest in a portfolio, an asset trades on average every five or seven years. So, it's not like, okay, I'm just going to wait, wait, wait, okay, it's January 1st of 2028, markets going up, I'm buying 4,000 units, yeah, we're done. It doesn't work that way. Also, we just talked about how the primary driver

22:11for cap rates is capital demand and the mindset behind that capital. Once the market shifts to we are certain it's going up and all that capital is already chasing deals, that is when you get, you're in, I don't know, it's just in a second, that is when you get your biggest earn out of cap rate compression is when the capital goes from fearful to all in and that, that's when you go from there's no buyers to all of a sudden you have 30 bars. I saw this when we were after the great financial crisis when we were buying, it shifted unbelievably fast from, I used to line up properties and say, I will, you know, I'm in California, we buy in the Southeast, I would literally tell the brokers, I'll be out in three weeks, I'll drive through all your listings and then I'll get home, I mean, we just, it was like, yeah, when we get to it and then all of a sudden it was like, oh, sorry, it's under contract, oh, sorry, it's under contract, oh, the pricing has, I mean, it shifted unbelievably quick. So you can wait to that point, but now you're going to be

23:12competing with everybody else and paying those higher prices. Also, it depends on your investment timeline. If you're a two or three year investor, yeah, you probably shouldn't be doing it right now. If you're five, six, seven, 10, now's the time to be buying before you because if it does go down another 5% in the next six months or 12 months, you're not going to care 10 years from now. I have never met somebody who bought a good piece of real estate and held it for 10, 15, 20 years and then then regretted it. So it is a little bit of nuances to that. So with all that said though, we haven't found a deal we liked since last October. We are looking really hard because of all those things I just said, but to what Brian said, it still has to work on today's numbers. There's still has to be, we still have to be getting paid adequately for the risk we are taking to potentially buy right now. And we are now what? We just finished eight months since our last closing and we have not found anything that we've been able to put together a deal on and we just had our meeting earlier

24:17today and we have zero on the horizon. So you're saying it's not a good time to buy? You just said you just proved my point. Well, you have to find good, right? It's not an easy time to buy, but if you can get the right deal, then I would say it is a good time to buy. Another nuance here is I know Brian, you were talking about negative leverage and for anybody listening that doesn't really know what that means. It's basically the cost of your debt is higher than your return, higher than your cap rate. And anytime the cost of the debt is higher than your rate of return, you're in theory losing money every month. And so for a deal that's stabilized where you go in with again debt higher than cap rate, you're going to lose money. You probably can't make a good argument for why it's worth buying, but there's another way to kind of grow a property and to get around that negative leverage. And that's through repositioning. That's through taking a property that is distressed that that has a high cap rate and essentially bringing that cap rate down effectively bringing that cap rate down through reposition through

25:19through renovations management improvements. And so could we make an argument, Brian, that now may not be a great time to buy stabilized properties, but now may be a great time or a better time or even an okay time to be buying properties that have a significant amount of distress, maybe even building new construction, which to some degree is the ultimate amount of distress. You're starting with zero and you're building from ground up. Would you say any of those are a better opportunity now? Maybe if you weren't listening to my point about how renting out units at a higher price to new residents is almost impossible right now or that you're giving away massive concessions and not getting rent growth on newly-straight outs. Well, I say that in just. You know, I think that it's difficult. You know, it used to be really simple to acquire a property, put in $8,000 in carpet and countertops and new appliances and rent it to the next guy for $400 more. It's a lot more difficult to do something like that these days. Now, that doesn't mean that

26:23you can't find some run down, you know, Pinto, as Andrew put it, one of these 1970s deals and that, you know, has just been completely run down and, you know, has rents way below market and you can easily reposition it and bring rents to market with conservative assumptions. Absolutely, that, but that's not an investment strategy. It's an arbitrage strategy. It's just like flipping a house. You know, you can you can flip a house in literally any market up down or sideways. It's all just a function of buying it for one price that's lower than what you can sell it for after making specific improvements. You can do the same thing in apartments. It's just the measurement that you're using is rent, not resale value because ultimately that will drive the resale value. That's an arbitrage play. You can do those at any time if you can find them. And, you know, I would submit that this is a great time to buy some super rundown property with a long, tired landlord who has had their finger off the switch for years or decades where rents are way

27:24below market and come in and make renovations. You anytime is a good time to do that, but that's, that's not a momentum play and people confuse the two and they think that they're investing or they're doing a momentum play when really what they're doing is arbitrage. Be honest with yourself. That's, yeah, that's a good point. It is arbitrage. I mean, you know, from what 2000, I don't know what you call Brian 15 to 21. Yeah, everyone would do a quote value ad and then bump the rent 400 bucks and confuse their wonderful execution with market cap rate compression, right? Like how much of that was cap rate compression versus your actual execution? You know, I don't know. I mean, we all benefited from that myself included. But yeah, the, the, and this is no longer for us. We're not going to do the stuff Brian just talked about of buy the vacant one and renovate it and get it least out if you are doing that and you have the stomach for it, there's a lot of opportunity in that. What you got to do though is you can't say, okay, I'm going to renovate it and then increase the rent you got to underwrite that to whatever the rent is today. If it was renovated and assume

28:24that's going to stay flat for two years and then you should do the okay. Again, you got to have the stomach and the systems where our mutual friend Bruce does amazing with that kind of stuff. And every time he talks about it or like God bless you, like I'll give you the money. I'm not doing that anymore. Right. I don't know nearly as many guns as Bruce. Yeah, exactly. Okay. So we've talked a little bit about where all of this started. We talked a little bit about where we are today. I want to get into where things are headed. What you guys are doing, what other people out there listening should be doing, whether they're new investors or experienced investors. But before that, best ever listeners, let's take a quick commercial break. One thing I've noticed over the past years that almost everyone says they're using AI. But when you actually look at how it's being used across a company, it's usually just a handful of people who have really embraced it. Everyone else falls back into the same old workflow. That's why superhuman go caught my attention. The problem isn't that people don't want to use AI.

29:27It's that most AI tools expect you to stop what you're doing, open another tab, start from scratch, and explain the context every single time. Superhuman go flips that around. It's an AI chat that's already up to speed right there when you need it. And it works inside the tools and websites you already use without switching apps or losing your place. It's from the makers of Grammarly, and whether someone on your team is drafting an email, summarizing a long thread, or getting ready for a meeting, the help is already there. That's what really drives adoption. When AI works where your team already works, people naturally use it. Less friction, more consistency, and more time spent on the work that actually moves the business forward. If you want to see what that looks like for your team, check it out. Find out more at superhuman.com. Hey guys, if you're an active commercial real estate investor, especially a GP or a fund manager, you already know the market has changed. Capital is harder to raise, deals aren't

30:29penciling the same, and lenders are a lot less forgiving. That is why Joe and I built the best ever-inner circle. It's a private group of experienced operators, people raising millions, managing portfolios, and solving these problems in real time. Inside, we're sharing what's exactly going on right now. How people are raising capital through RIAs, finding deals done directly with lenders, and navigating challenges like floating rate debt and capital gaps. We've got members with billions of assets under management, and others who have raised tens of millions in the past year. This program is not for beginners. It's for people who are already in the game and want to stay ahead of it. If that's you, go to bestevercr.com forward slash inner circle to learn more about joining us. Welcome back, best-ever listeners. As I promised, Andrew and Brian, I want to talk a little bit about what you guys are doing today. Clearly, you guys are looking into somewhat the same crystal ball,

31:32but also to some degree, very different crystal balls. Let's talk about what you're focused on, where you think the market may be headed, where you're headed with respect to the market, anything else that might help the rest of us in our investing efforts. Brian. I sold out a most of my multifamily in 2022, right before the moon crashed. You weren't listening. I didn't buy any for four years, and in fact, I didn't buy anything. I wasn't really liking anything I saw in the market. I went through all this stuff in 08, 9, 10, 11 back in the last recession and saw some patterns repeating. But another pattern I saw repeating was another sector of real estate bottoming out and then subsequently recovering. It's in a different phase of the cycle. So I started investing there. It's senior housing. We're buying assisted living, skilled nursing and memory care facilities. And this has been a real, real interesting transition for me and looking at various types of real estate. It's not just me

32:36that's saying this. There was met life investment management just came out with a new chart recently showing I think it was about 18 or so different types of commercial real estate. They ranked senior housing as the number one asset class across every type of senior housing. And it's certainly been really good to us. So that's been a lot of fun. I think like what we're seeing in other sectors that I'm not doing though is, you know, met life and Green Street also did a similar analysis. Both of them ranked medical office really high. So on met life, they ranked medical office number two. Another one that's ranked really high manufactured housing is ranked number five on met life's chart. And I think manufactured housing is really just another play on senior housing. And you know, what we're seeing on the senior housing side is in the 80 plus population growing at, you know, exponentially higher than the general population across the US. Our US population is growing at a half a percent. I think it's going to be even less when the data comes out for 2026 because a big

33:42portion of that was international immigration that's kind of been shut off. So, you know, with very little actual population growth, but yet, you know, you've got 4% annual growth in the 80 plus sector and no new construction like decade low period of new construction and senior housing. That to me is just where we're focusing all of our efforts right now and probably will be at least for the foreseeable future. So I know one of the one of the things people talk about when it comes to senior housing is you're not just in the real estate game necessarily. You're also in a business and what can be a tough business. So are you guys are doing a real estate player? Are you doing, are you actually managing run the senior housing as well? Is it what's what's your strategy there and how are you structuring it? I've been in the real estate business for 37 years, Jay, and I'm not going to change now. Well, all we're doing is real estate. This is a real estate play and yeah, there is a business component to it, but it's it that's all done by professional operators that are

34:47in the business of providing patient care. That's their role in the process. You know, kind of the easiest parallel for me to kind of get the point across is to think about multifamily and a property management company. You know, if you have a third party property management company, you own the real estate, your management company manages the day to day, right? They hire the onsite manager, the maintenance techs. You know, they kind of run everything day to day and you know, you own the on the property and we kind of do the same thing here where we have operators that come in and run the facilities and in some cases like in skilled nursing, they'll just triple net lease the facilities from us. So we're just a triple net lease owner and in the case of assisted living and memory care, we'll operate it in a joint venture with the operator where they'll they'll come in. They'll make a capital investment alongside of us so they have stake in the outcome, but they'll operate and run the day to day activities and we just own the real estate. I know there are a lot of people out there that like that sector, the the aging population sector

35:47and I guess you nailed it on three fronts, the assisted living and housing medical office, which is also very much a play towards towards seniors and manufactured housing. What can you tell us in terms of the research you've done in areas? So for those that might be interested in getting into any of those spaces, anywhere in the country, certain parts of the country, I know with multifamily, you're going to see a very disparate success depending on where you are in the country. What are you seeing in that that sector? Yeah, well, you know, I've long been known for saying the phrase that if you want to make money in real estate, you want to follow the demographics and you want to invest where people are moving to and avoid investing where people are moving from. Well, there was a lot of population movement post pandemic to like Sunbelt states and all that stuff. So the big question we're seeing or housing is, okay, well, where are they going? Well, the beauty of this model is that I don't need people to go anywhere. All I need them to do is get older. I mean, stay put and get older because where the people are going is they're going

36:49into their 80s. You know, the baby boom was started in 1946. That was the first year of baby boom. And it went for, uh, went for 17 years. And so the first baby boomers turn 80 this year. I've got 17 years of runway of people staying put and getting older. And I can put this business into play absolutely anywhere because people are getting older in every market all across the country. I don't have to pick geographies. I can spread myself out. So I guess the good news is we in the multi-family game don't need to be competing with Brian Burke very much anymore. If there's any good news here, not for a while. And how about you? What's your take on where things are headed? What are you doing in your business? Yeah. So, you know, we're, you know, our goal is to be an inch wide a mile deep. Be really good at one thing. And that is, you know, Garden style B minus A minus multi-family in the Southeast United States. So we, you know, the last four years have really been, it's been very

37:57difficult to find anything we wanted to buy. So we found a few properties, but the majority of the time has just been really honing down operations. We took a little different approach. We sold in 2021 to and then the last one was in early 23. We sold off all the stuff that we did not want to hold through every session. We basically took that we basically called the herd. We said, okay, these are all properties. We can just sell now for a good profit that we would not want to keep for another three to five years, like maybe because of high recurring cap acts or just were done with it or whatever. And then we looked at the rest of the portfolio and said, if we had to hold the rest of these for 10 years, we would be okay with that. We said, yes, we would. So those are the ones we kept. And so what that allowed us to do is is cover all of our salaries and expenses for the last four years with the cash flow from the portfolio. So we haven't had any pressure to do deals, which has been, which has been very helpful because it's been very difficult to find them. Going forward, we have actually prepping for, you know, again, the opportunity that I see coming,

39:00it might be six months from now, it might be 12, it might be longer. We've added a second asset manager, we've hired a dedicated project manager. And again, thankfully we have the cash flow to be able to do this so that one of the mistakes that we saw a lot of operators make in the last cycle is scaling too fast. Hey, you saw the LinkedIn and the Facebook, oh, there's another 300 units, oh, 500 more, 300. And they don't have any people to run these things. And so, you know, the operations just went right down the toilet. So we've actually kind of expanded our team in advance so that when the opportunity comes, well, again, whether it's immediately or further down the road, we can take advantage of it and not suffer in operations. Exactly when that's coming, it's a, you know, kind of like Branson, it depends on your market, you know, are there another, you know, truckload of units still delivered or is that already passed? That's going to be a huge piece of it, right? And then, you know, may federal housing data said that multifamily starts dropped 42%. Now, that's very volatile data. You can't just take one month and say, hey, this is it, right?

40:00It'll be, it'll change completely the following month. But it just goes to show that if you're a developer, rising interest rates, rising material costs, rising labor costs, and geopolitical uncertainty and risk is really put a serious damper on development. So what does that do? Well, starts rapidly declining. That tilts the odds even further in favor of sustained rent growth sometime in the near future, because once we get past the current supply wave, now demand outseeds supply, even without population growth in most markets, the first thing you see, and this is where the opportunity lies, is concession burn off. That won't hit the headlines as rent growth. If you're multifamily operator and you're giving one month free, and over the course of the next 12 months, you go back to offering nothing for free. Your income just went up, you know, 8%, but your rent growth is going to be zero. It doesn't matter. Your NOI just went up big time.

41:01So that's what happens under the surface first. We are starting to see that in some markets. And we have one property where concessions are still kind of at their max. Several, about a third of the portfolio, they've burned off completely, and we're raising rents about another third, it's stable, and then now we have that one property. If my math doesn't add up there, we only have one property where there's still kind of the max concession. So that's under the radar rent, in a sense income growth. And then again, I don't know the exact timing. My 2026 so far feels a good bit stronger than 2025 in terms of operations and leasing and revenue. I think we'll start seeing some moderate rent growth in 2027, and then it'll all depend on how quickly does the supply demand rebalance in whatever market you're in. I think it could take a lot longer in some markets, and then also in some like again, if you're buying that really, that vacancy stuff in a bad neighborhood, you know, I'd be concerned if those people,

42:01those folks can ever really get back to being able to forward their units. It's also a lot harder to run to earn a profit on real estate and a good return on a unit that rents for a thousand versus a rent unit that rents for 2000 because that refrigerator still costs you just as much, right? But now you only have half the revenue to cover it. So so same questions you about locations. I know historically you've bought a lot in the southeast. Are you sticking basically in the same the same markets that you've been in the past? Have you considered changing markets, adding markets? What are your thoughts on on where as Brian said, population growth might be headed over the next couple of years? Yeah, so what's really interesting is I believe the US popular US is projected to switch to neutral to negative population growth sometime in the twist. And so what that means is just now and as we get into the future, we're going to have to be more and more selective about what markets you actually invest in, right? Like, you know, it's always fun to pick on Detroit. So even with Detroit declining over the last

43:02decade, a couple of decades, there are pockets that we're growing, right? People were moving there, like, you know, or collecting into the good neighborhoods or whatever. So in almost any geographical area, there's there's there's in migration and people moving. And so it just becomes more and more important to pick the growing pockets. In general, the macro trends still do favor the sunbelt. It's not as strong as it was in the few years post-COVID. It has balanced out. And then you hear some things about all people moving back to the Midwest and back to the northeast. I think that's kind of isolated. The longer term trends are still kind of generally the population is draining to the bottom south end of the bottom half of the country. And so yeah, we're still focused on, you know, the markets that are growing in the sunbelt and for us, specifically the southeast, we are looking at expanding contiguous to our existing area. I don't want to just be have a random apartment complex in Salt Lake City, Utah, because that's really difficult to manage a one-off. And operations is everything in multifamily. We are just being

44:06a little more selective when it comes to population growth and run job growth. Because like Brian said, like you've got to be where people are going, whether physically or aging time wise. Yeah, I love that. Okay. Any final thoughts for investors out there. I'm guessing experience investors probably have their plan and are executing one way or the other. But how about for newer investors out there in the multifamily space, folks that like we're thinking about investing for the last couple of years, but didn't want to try and catch a falling knife. But they're ready to jump in any good advice for them on how to break into this market, give them where things are today. Yeah, I have some. I mean, the first thing is that now more than ever operations are literally everything. You know, it used to be from say 2011 through 2021. If you bought something, you were going to be successful. You know, because everything was was working, right? You couldn't go

45:07wrong. Even the worst operators were looking brilliant. But now operations is literally everything. You have to be a good operator. You have to know how to maximize occupancy, rent growth, trade out, how to minimize expense and control expenses. You have to be really good at bringing, you know, hiring staff and bringing in the right people to run these properties because this is an operator's market where efficiency matters. It's not just market driven. Yeah, it's, I always found it interesting that if you look at the high priced coaching courses out there, they talk a lot about how to find deals. They talk a lot about how to raise money. But the one thing they never really seem to talk about is that thing that's really the most important part of this business and that's operations. And learning how to make or figuring out how to make money and make a property successful after you close on it. Yeah, I mean, the acquisition takes like two months. The operations take decades.

46:07Yeah, it's like the dog that finally catches the car. It's like, oh crap, now what do I do with this? No one taught me that. Exactly. It's not sexy. Andrew, any advice out there for those looking to break in? Yeah, if you're looking to break in as an operator, start building out, you know, start building everything out now, right? You know, start raising your capital and not literally like having people write your check, but say, hey, here's what I'm doing. Here's the plan. We don't have anything right now. Would you be interested? You know, the whole capital raising side of it. Start getting your people in place, whether that's third party property management or hiring your own, know your markets, know what kind of asset you're going to buy. Why? What is your business plan for it? And then, you know, I would say, and then whether you're planning on investing as an operator or as an LP, the biggest thing is think probabilistically. That is what got so many people in trouble in 2021 and 22 is they decided on an outcome, which was interest rates will stay low. They underwrote just

47:11to that and pulled the trigger. And very few operators said, well, what if they don't? Because the answer to that was, well, if I'm going to have a floating rate loan, it might take me out of the game. And the way to mitigate that will just get a fixed rate loan, right? So, you know, so we have properties that we bought in 21 and 22 that are doing fantastic today because of that analysis. We didn't predict interest rates when we go, I thought like I looked at the forward curve like everybody else and said, well, they're probably only going to go up 50 per 50 basis points, maybe one. But our part of our underwriting process is, well, what if they don't? We'd get screwed. Well, we just, we'll just fix it. This is the lowest rates in all time history. What are the odds? And this is that's literally the question you should ask. What are the odds that they'll go even lower? And I was like, doesn't seem like the, like seems like it's more likely to go up. We don't know why they would go up, but statistically, it seems like they would. So we fixed everything. Now that looks like genius, but we didn't know what we were doing, just like protecting against the outlier

48:15case that would take us out of the game. So, you know, I talked earlier about my base case is, I think in 27 to 28, we're going to start seeing rent growth. So that is our base case, but any deal we're looking at, we're not just putting that in and saying, cool, it works. We're also looking, well, what if we don't get rent growth? What if cap rates don't, I think they'll probably, my base case, most probable, I think they'll kind of stay flat-ish to maybe up, maybe down a little, that's really tough to say. But when we underwrite, we underwrite to a higher exit cap rate than today, because guess what, if they go up, hey, the deal still works. If they stay flat, we're even better than we thought in the, in my opinion, unlikely in case where they actually go down significantly, we look like freaking geniuses, right? So think that that's the one of the biggest thing is, is don't either yourself or with any operator invest based on one outcome, because if that doesn't hit your host, you've got to have a sensitivity analysis, contingencies, what if this, what if this,

49:18you know, and then well, if something happens against our business plan, is that likely outcome acceptable? Or is it not, right? So it may be a pro forma IRR 14, and then well, if this, if this doesn't work as well, now it's 12, is that acceptable? It might be. That's very different from, well, if this doesn't work, I lose on my capital. That's not acceptable, right? So there's a spectrum there. It's, it goes back to high school and college statistics, the bell curve, right? You want to look at that whole curve, including the left tail and the right tail, because those are the ones that whip you and kill you. Yeah, you made a ton of great points there. Why I just kind of want to reemphasize is just the, the assumptions that we make a lot of times that things are obvious, that something is so obvious that that we don't consider it might not happen. And a good example here is, is think back to December 2023, when Jerome Powell came out, we were at five and a half percent interest rates, federal fund rate, and Jerome Powell said, okay, I think it's now time that

50:19we, we start cutting and they did. They started cutting in, in 2024. And I think all of us assumed, or a lot of us assumed that with the Fed cutting interest rates, we would see cap rates come down. We would see mortgage rates come down. And the reality is, Jerome Powell did exactly what he said he was going to do. We've seen the Fed cut rates one and three quarters percent since, since the end of 23. But if you look at mortgage rates, mortgage rates are higher now than they were then. If you look at cap rates, cap rates are pretty much the same now as they were then. And so a lot of us got really excited at the end of 23 beginning of 24 thinking, how can rates not come down, how can cap rates not come down, how can mortgage rates not come down, how can values not go up when those things happen. And here we are three years later. And we've realized that that things didn't play out in a way that we all thought they had to have, that was so obvious at the time. And so I think it's really good when you talk about the fact that you need to underwrite the risks. And

51:19you need to say, we think this is going to happen. We're sure we're pretty sure this is going to happen. But what if they don't, is their catastrophic risk? How do we mitigate that catastrophic risk in the 1% 5% 10% chance that that thing that we don't think can happen actually does? I think the problem is is that, you know, when the traffic collision impact is so severe, that the victims are trapped inside the vehicles and have to be extricated with specialized skills and equipment, it means that the unwinding and unraveling of this whole scene is just going to take a long time for it to play out. And that's what we're seeing here. It was a severe impact. And it's going to take a lot of time to unwind this mess before everybody can come in and sweep up all the glass. Yeah, imagine all the cars backing up on each of the four ways while the emergency vehicles are cleaning up the mess. You got backups in all directions. And that's exactly how that figures into the analogy or the metaphor, but I'm sure it fits in somewhere. Well, if you go back to 2009, the great financial crisis, the multi-finally market really felt

52:27like it picked up, I'd say, 2014ish, depending on where you were. It takes it like Brian, say it takes it while to clean up this mess. It took like five, six years then. We're already four something years into this. So if five year cleanup time, we're actually almost there. Yeah, so ask me again next year if it's a good time to buy. Maybe I'll have a different answer. I hope you do. Hey, we don't have to compete with you anymore. If I ever talk to an investor, he's like, yeah, I want senior housing. Brian, you're the only guy I refer them to. So it works out great. Likewise. Likewise. Okay. You guys have been very generous with your time. Let me give back a little bit. Tell our listeners where they can catch up with you, where they can find out more about you, where they can invest with you and what you have right now for them to potentially invest in. Brian, you can find me on our website for Praxis Capital. It's PraxisCap.com PR8XCAP.com.

53:27If you want to invest with us, the only thing we're doing right now is our senior housing fund. You can learn more at investwithpraxis.com. Andrew. Yeah. If you, as my kids would say, search up vantage point acquisitions or Andrew Koshman, where the still at the top several results typically, such as vpacq.com. There's a bunch of information on there. If you're interested, yeah, I'm becoming an investor. There's a little intake form. Then we do a phone interview. Make sure we're good fit. Then you can get added to the potential list if you would like. I post currently on LinkedIn infrequently. I expect that to become frequently again. Now that ski season is over. So please, I feel free to connect with me there and I'll be doing some more best ever episodes in the near future too. Awesome. And I am Jay Scott. Anybody who wants to connect with me, jscott.com. Jscot.com. Feel free to reach out. Best ever listeners. I hope this was valuable. Thank you, Andrew. Thank

54:29you, Brian for joining us. And I assume that Matt Faircloth will be back next week. It won't obviously be as good an episode as this one, but no way. No way. But check in with him next week and see what he's got going on. Best ever listeners have a great weekend. And we. I don't think I can be your friend, Isabella said. Rebecca's stomach flipped. This is the love story of Real Hinge Couple, Isabella and Rebecca written in red by me, Tambi Dent of Hurst. Listen to the free audiobook now.