Capital Crunch or Capital Flow? The State of Syndications & The Real Estate Market

What is the state of raising funds for real estate syndications? What is the state of the market today? Mike Morawski, a seasoned investor and syndicator, shares his insights.Previous interview with Mike: https://tinyurl.com/3hjx8j3dhttps://tinyurl.com/vb6yyzznMike [email protected]://www.linkedin.com/in/michael-morawski/Subscribe to our investor list here: https://montecarlorei.com/investors/

Today we are talking about a deal we recently raised for, mostly so you can understand some of the things that happen behind the scenes and why we decided to have this be our first syndication for 2025.Read this episode here: https://tinyurl.com/2km2c2k9Why did it pass our test besides the fact that these partners have a great track record and having exited 4 deals with them?1. Low vacancy. There is a shortage of small bay industrial in the Phoenix market, people have been building large bay industrial. For the small tenants that need a smaller space, the available inventory is very low.2. Leases expiring and below market. A lot of the tenants had their lease expiring during our ownership, and the vast majority is below market, one of the largest tenants in the property with the biggest rent upside, already decided to not renew. We underwrote them not renewing a year from now, and they are significantly below market.3. IG Leases. All of the tenants except one are on industrial gross (IG) leases. We are converting all of the tenants to NNN leases. This will also increase the bottom line for our investors.4. Prohibited cost to build. Besides the market having very low vacancy, the vast majority of tenants being between 30 to 70% below market, and the leases expiring in the next 24 months, small bay industrial is cost prohibited to build. It costs more to build than the rents that you’re going to get. We are purchasing the property at a significant discount to replacement cost. The property was built in 1999 and it looks really good.5. Location. The property has freeway visibility and is right next to the freeway exit.6. Market. Phoenix is a phenomenal market. It has a 16% population growth since 2010, a job growth of 45 to 50% since 2010. The personal income tax is very low at 2.5%. They’re exploding in terms of plants, campuses, and jobs being created in the area. There is a $65 billion chip plant being created next to the property. There is a $20 billion Intel expansion. These are all creating jobs, which is always a great sign of a phenomenal market to be in.Final ThoughtsThe raise took a little bit longer than what we thought it was going to take. We did not finish the entire raise and still have a couple million to go, however, we did manage to close on the property and the couple million that we have to go is mainly for reserves, so that still needs to be finalized.Commercial Real Estate Tips Learned Recently:Turn expense into income: e.g., rent dumpster out.You can open a Senior Living home in any state if one tenant has a disability due to the ADA / Fair Housing Act.Always over-raise in case investors don’t send funds.If a deal blows up, attorney often refunds fees (to keep you as a client).When you refinance, you don’t pay taxes. This means you can cash out of a property, or get a line of credit, and buy another property without paying taxes on that down payment. Make sure you are comfortable with the LTV’s when you cash out.Interest rates are always negotiable, you can get ~0.25% interest rate break if you open a checking/savings with lender.When developing a property from the ground up, always assume that the piece of land has all of these: endangered species, wetlands, easements, utility issues, trees – until proven otherwise. This means you need to get all of these reports and surveys done (amongst many other things)) before purchasing a piece of land for development.Join our investor club here: https://montecarlorei.com/investors/

With regards to SEC exemptions and compliance, what are some of the common mistakes that syndicators make? What are potential consequences if the SEC finds out you paid a GP to raise capital? How would you structure a deal for the GP's and LP's to hold real estate forever and get infinite cashflow?  What are some of the legal challenges and opportunities in real estate investing today? Jonathan Tavares, Managing Partner of Premier Law Group shares his knowledgeAlso some great news for raising funds: an investor can now be considered accredited if they invest 200k or more in the offering!Jonathan Tavares(508) [email protected] our investor club here: https://montecarlorei.com/investors/

What are the pros and cons of office, retail, and industrial? What should your real estate agent do for you as a buyer? How to get over fear in real estate investing? Trinity (Trent) Herrera, commercial director and real estate consultant of Black Tie Real Estate, shares his insights.Read the entire episode here: https://tinyurl.com/4dzzaartThe pros and cons of officeProfessionals need an office, so it's a staple in downtown areas. A stabilized office can fetch a premium. Some of the most expensive and impressive buildings in the world are office buildings. The cons are that we have a lot of office vacancies, and we have more work-from-home opportunities post-COVID, which completely turned the office upside down in some cities, counties, and towns. We have many cities with a lot of impending office vacancies. However, as another pro, I'm hearing about a lot of discussion about multifamily conversions and turning these office buildings into high-quality multifamily units, which also serve a need. The singular scariest thing about offices as products is being left responsible for the building. If it's 30% vacant or more, that's the single most frightening thing.The pros and cons of retailThe cons we're talking about here are the opportunities. What scares us are often the opportunities. While the scariest part of an office could be holding the bag, paying the property taxes on a building that's assessed for what it's worth is a little frightening. But when you lease it, when you hold and plan correctly, you have a good team, and you have it for 10 cents on the dollar because it's been vacant, it's a whole different story.If you want to be extremely safe, you'll put your money in a savings account. If you want a slightly higher risk, you put in a retail triple-net tenant that will give you the mailbox money, but it's at 5%. It goes for everything.The pros and cons of industrialThe biggest pro for me is that there has been a recent focus on the domestic industry. We have a lot of local infrastructure being built around US-based industries, such as manufacturing, warehousing, new Amazon distribution, data centers, and OpenAI Stargate. A lot of money is being invested in it. There is this sentiment that each country should be able to manufacture its products, and I think we're sensing that now. Hopefully, we continue to see this trend.Americans love buying things. The same reason that retail works is why the industrial works. So much industry is built around shipping products, getting them from A to B, warehousing for Amazon, etc. Even if people stop going to the retail store, Amazon is always going to need warehouses. There will be many companies providing other forms of distribution and accessory services to Amazon. As long as Americans love buying stuff online or in person, the industry will likely remain strong.And then there's opportunity. There are a lot of small towns, especially here in Texas, that have 100 to 300,000 people, where you can buy quality industrial for 30 dollars a foot. If you can tolerate a hold and lease it up in a year or two, those deals can be had all day, and there are lots of more stabilized national credit tenant deals to be had. There are all sorts of things that can be found with a propensity for appreciation.Trent [email protected] Join our investor club here: https://montecarlorei.com/investors/

What should be your acquisition targets and goals as an investor? What are the pros and cons of different asset classes? What should your real estate agent do for you and what should you do as an operator? Trinity (Trent) Herrera, commercial director and real estate consultant of Black Tie Real Estate, shares his knowledge.Read the interview here: https://tinyurl.com/54p9jcvmHow should people decide their acquisition targets?This is incredibly unique to each person. What's your appetite? Is it residential or commercial real estate? Let's assume it's commercial real estate. Each economist, economics professor, person who studies economics, and person who works in finance or retail is part of a cycle. Every city, block, town, county, state, and even country is in a different cycle of everything all the time. It is chaos.One of my favorite topics to talk about is the concept of the three-body problem. When you have one item, it is easy to predict what that item will do. It could be a planet, a financial entity, or a person. When you have one variable, it's very easy to calculate. When you have two variables interacting with each other, it starts to get a little harder. But when you have three or more, you start to reach an incalculable level of complexity. When scientists study planet orbits or ask whether this asteroid is going to hit us, they're always calculating a three-body problem. And we have this with real estate in so many ways. It is this chaotic complex, constantly orbiting, always spinning, and shifting off its orbit. It is truly the epitome of a three-body problem, in the sense that it is so vastly complex. It's extremely hard to time.Most brokers don't bring the math with them.No, they don't. And it's a big gripe of mine because I work with my peers in the real estate world every day, and as soon as you get to any level of sophistication in commercial real estate, you're crunching numbers pretty hardcore. When you have a fiduciary responsibility to somebody to protect their wealth and their money and make money for them, how can you do that if you can't deeply understand the math? It's one of my cardinal sins in the commercial real estate practice. As an agent, you should understand math and be able to explain it to everybody.And my wrap-up on acquisitions: find a good partner, stay away from sizzle and hot. You want to be cold in your thinking and logical, knowing your asset types and your "why." This is partly what you're looking to your sponsor for, and part of the relationship you have with your sponsor. The appetite your sponsor has will have a bearing. If you're doing LP or investments like that, then you're going to want to work with a sponsor who has deals that you like.Trent [email protected] Join our investor club here: www.montecarlorei.com/investors

How to make sure a syndicator/operator cares about your money as an investor, what can you do to mitigate the risk of investing with a bad operator? Trinity (Trent) Herrera, commercial director and real estate consultant of Black Tie Real Estate, shares his knowledge.Read the entire episode here: https://tinyurl.com/mr4ces9cHow can a passive investor know that a syndicator/operator cares about their money?We've all looked at deals that, at the surface, the sponsor looked great, and everything was above board, and the yield was what we wanted, and it was our appetite. And something happens. And to some degree, I think that you can never, 100%, insulate yourself from a bad egg, but there are signs. We have this term in the industry, commission breath, that's always a number one red flag. Someone with a servant mindset is not going to have commission breath at all. There's no sizzle in that industry of building generational wealth, the sizzle is, we're going to build generational wealth using math and fundamentals. But when there's too much sizzle, that's a red flag.The biggest single indicator is the math and the story, and the history track record. When you have a target of an asset type or class that you're comfortable with, and when you have a track record, when you have some under your belt, it's easier to see when something doesn't look or feel the way it should in that industry. I guess I will answer that by saying the single biggest defense is sophistication and experience, and maybe even leveraging your friends, there have certainly been friends that have saved me from bad investments, just from a second look and talking through a deal.We're talking about the foundation of what makes a syndication or an investment successful, Underwriting is no joke; it's 75% of what makes a syndication work. My best clients, my best investors, all understand underwriting, and if they don't, they've hired me to help them understand it, and to walk them through it so that they can see what I'm seeing. There are so many ways that you can look at a property wrong. And I also believe that not one person should look at a property. There should be a multitude of people and aspects looking at a property, opining and giving valid, good criticism and feedback. My number one tip when it comes to foundations is to dive into underwriting and do your best to understand each deal; it takes years, and even then, there are still deals that you see and you struggle. The underwriting in the math is where you'll see if the deal is truly viable for you or not. And that goes along with the risk management side and accreditation.Each one of us has a very different life. We all live such different lives, and we all have different amounts of kids and cars and mortgages and investments, and so we all have these tolerances and knowing what those are for you through the eyes of someone like you or I, who's been doing this for a long time, is important, understanding the level you should be playing at. How much is too big a bite off for you? How are you accredited? What's your accreditation level? Those things are all guardrails that are in place to help each investor make good decisions. Each style of offering that is done is styled differently to either accept less of a wealthy and sophisticated base or not, through your underwriting and through your understanding of your life and your position, not biting off more than you can chew, and only investing money that you can tolerate losing.Trent [email protected] Join our investor club here

What is the state of syndications today? How to structure a syndication for protection purposes? Major differences between funds vs syndications and why are funds popular today? Jonathan Tavares, Managing Partner at Premier Law Group, shares his insights. Read the entire interview here: https://tinyurl.com/25hhhjsfWhat is the state of the market today? What are the IRRs looking like? Are you seeing more or fewer deals come across your desk?There has been a shift to funds in the last 6-8 mos. Traditionally, especially during COVID, a lot of clients were doing a lot of multifamily syndication. Now, granted, that's been a piece that we focused on for a long time. A lot of our clients are heavily involved in the multifamily space, but with increasing interest rates over 22 and various other factors, property taxes throughout many counties and throughout the country, going up very quickly, as well as insurance and specific markets. We have a lot of clients in various markets in Texas that have just gone crazy, places like Houston or Florida, where insurance rates have skyrocketed. It's presented some challenges for some of our clients. Instead of seeing just a straight deal with a certain percentage of debt somewhere around 70- 80%, a lot of times, there's a lot of creative financing going on to make up for that debt piece that may not be there or where those percentages of debt to purchase price may be a little bit lower than what a lot of clients were used to before.You see a lot of preferred equity. We've seen clients building out structures where, in essence, they're providing almost a debt structure to their investors too, to create a sort of debt piece as well as an equity piece in their raises. We've seen a lot of clients create funds and use their funds to come in for part of the debt piece for specific projects as well.Depending on the asset type, and I'll specifically exclude development projects, we're seeing a lot of target IRRs between 15 and 20% generally.Where do all the LLCs go for a syndication so that everyone is protected as much as they can possibly be?There's all sorts of different structures that you might use to set up a syndication or a fund and for different reasons, for tax reasons, for asset protection reasons, etc. A typical syndication structure is going to include a syndication entity, and that's typically known as the issuer entity, that's the entity that's selling securities.Why does the SEC care about what I'm doing if I'm raising capital to go buy real estate? The Supreme Court came up with a test that's called the Howie test. The SEC does an analysis to determine if you were selling securities or not, and essentially boils down to the four main tenets of the Howie test:1) Is an investor investing money? Typically, the answer is yes.2) Are they expecting some sort of return on profits? And usually the answer is yes.3) Whether the efforts are generated by someone other than the person who's investing, like some sort of promoter, or in the space we call a sponsor. In these deals, a sponsor where a GP that is raising the capital from investors. The investors are passive in the deal. 4) A common enterprise is if the investors are pooling together capital through the efforts of the GP to buy some sort of underlying investments. That's typically going to be real estate.Jonathan Tavares(508) [email protected] our investor list at https://montecarlorei.com/investors/

How can new investors get started in the self-storage industry? What technologies are transforming the self-storage industry? What are the biggest challenges in self-storage management? Amy Jenkins and Kathryn East, co-founders of Omni Asset Management Group, share their knowledge.Read the entire interview here: https://tinyurl.com/mrxzdtu9What are some of the biggest things that we should keep in mind with regard to evaluating a property and managing it?Kathryn: Those two can be spoken of simultaneously, when you think about it. It's generally the third-largest expense that you have, and it's the most controllable one. If you have a facility that's 120 units, and you're trying to get to a 35% ratio, but the taxes are 15% of the money that you can spend, management is what's going to go out the window. That's how that affects the underwriting side of it: the evaluating. And I find it's the same issue whenever we're reading these OM's. Pro forma is pro forma. You need to know what that property is worth today. That is the current retail value of that property. What you're doing with your pro forma or your projections is based on the history of the underwriting process and nothing else.Now, population growth helps, not being supply-indexed out to the max does help. StorTrack has now put in a whole other section where you can see where brand-new housing developments are going in the markets. That's powerful to know, especially when you're looking at facilities in a market. You do want to know where all that new housing is going. And it'll tell you if it's multi-family, single-family, or apartments.Amy: automation isn't a one-size-fits-all. You have to do that market research to ensure that the model fits that location. Do you have the right technology in place? Are you using a kiosk, smart locks, and a security system? How does that maintain that smooth transition for a tenant experience? Who's going to handle that maintenance? Who's going to handle that oversight? Is this all going to transition and improve the facility's efficiency? And ultimately, the bottom line, because we all know and understand that anybody can buy a facility, what is the end game?Kathryn: Most of the AI-generated things right now are free to use for your facilities. The question is, where do you get it? How do you know which one to use? That's why I'm excited that Amy and I are so AI-driven. I've been using ChatGPT for two years.Amy: What works for a 45 to 100 unit facility does not work for a 700 to 800 unit facility. Is there anything else that you think is important for our audience to know?Kathryn: They should be going to state association meetings or to national meetings. If you're not even in self-storage yet, you should be telling people that you're looking for self-storage. You should be broadcasting that from every place you possibly can.In the ISS (Inside Self Storage) conference this week, I guarantee you that in that vendor hall, there are going to be at least 20 vendors that are strictly AI-driven. But you don't know about it unless you start actually going out there and actively getting involved in it. Go to your local self-storage facility. Talk to the manager there. If there's no manager, call their number, see if somebody answers. Start learning the verbiage for the love of goodness. Every time I hear somebody say that they're buying a unit and I've never sold a unit, the unit stays. But make sure that when you're out there, you're telling everybody, I want self-storage. You never know who you're going to run into.Amy Jenkins<a...

What are the terms for an SBA construction loan? Can you refinance from a conventional loan into an SBA loan? Is there an 100% financing option with SBA? How many SBA loans can you take? Anne Mino, Senior Loan Officer at LiveOak Bank, shares her knowledge.Read the entire episode here: https://tinyurl.com/yu5ufr49Can we get an SBA loan for development?For construction, these loans are even more attractive. We offer a 26-year term, three years of interest only. The idea there is that you'll get 12 months for your construction process. We can extend it if it's a larger project, but then two more years of interest only for your lease-up period. And then, we capitalize everything the project needs until it can pay its bills. In other words, we are going to give you an interest reserve account that will make your debt payments during construction when there's no income. We'll also figure out what the operating deficit is during the lease-up period, and we can include that in the loan. It's a very all-encompassing loan. A lot of times, when we talk about what people can qualify for, they don't realize that it's as easy to qualify for a construction loan as it is for an acquisition loan. I'm not saying it's easier to do a construction project, but you can qualify just as easily. It just comes down to, "Do you have that 10%?" because we're going to give the project everything else it needs to get to stabilization.Can we refinance from a conventional into an SBA loan?Yes, the rule is that we have to be able to reduce your monthly payment by 10%. And if there's a demand language in the original note and if it's on an unreasonable term, then it's also refinanceable. Let's say you got a hard money loan, and it was a 10-year note. It did have a low rate, and I may not be able to improve your rate, but as long as the term of that loan wasn't appropriate for real estate, which SBA would say it wasn't if it was 10 years versus 20 or 25 years, then that is refinanceable.You also have a 100% financing option. Can you elaborate on that?Yes, this is the people's favorite thing to hear. Once you own a facility and you've owned it for 12 months, you can expand either via construction or acquisition with no more money down. The rules are, first of all, you have to have owned it for 12 months, at least. If you're obtaining a 504 loan, they want you to own it for 24 months. But let's just stick with the 7(a) world rate now. After 12 months, as long as the ownership is going to match identically, and it's the same LLC.Technically, if you're doing an acquisition, let's say, you're buying the facility down the street, you can roll it into its own LLC. The ownership of the two LLCs now needs to be identical, and they need to roll up to a parent company so that it essentially is one company that owns two LLCs, identical ownership, and the ownership can't have changed. If you came to me, and six months ago, you bought out your partner, I would tell you to wait 12 months because it's going to be a 12-month look back. After all, that ownership needs to be the same. It needs to be reasonable that you're sharing branding, marketing resources, third-party management, all of those things, if it's an acquisition, and then SBA says that is technically an expansion. And then, of course, if you're adding on to an existing property, that's also an expansion. Again, after 12 months, we can do that expansion construction loan with no more money into the project. That's a great way to utilize the SBA. Take your project as far as it can go, and build a portfolio with the least amount of money.Anne [email protected]

Can you buy a property with 10-15% down payment? What are SBA loans and why do they matter? Which asset classes qualify for an SBA loan? Can you get working capital on your loan? Is there a prepayment penalty? Can an SBA loan be fixed or variable? Can an SBA loan be assumable? Can the SBA be a second loan on a property? Anne Mino, Sr Loan Officer at LiveOak Bank shares her insights.You can read the entire interview here: https://tinyurl.com/bdkvxrnrWhat are SBA loans, and why do they matter?The Small Business Administration (which is what SBA stands for) is a loan program that was established back in the early 1950s. The entire purpose of it is to help entrepreneurs access capital financing that they may not otherwise be able to qualify for through traditional channels, so through conventional lending and the primary benefits are lower down payments. Think of a 10% down payment, instead of 30 to 40%, which you might see in a conventional loan, and longer repayment terms. For anything that has commercial real estate involved, it is automatically on a 25-year term with competitive interest rates, and then it's easier to qualify. You don't have to have experience in your subject field. In other words, in the self-storage world, if you don't own self-storage. That's perfectly okay, and that's why the SBA enables us to do these loans to anybody who needs them.It's a little more painful to get, but nothing compared to CMBS loans, which everybody hates, but the numbers do have to work out the debt service. Please elaborate on the debt service and what the requirements are.These loans are considered cash-flow-based loans. In other words, we want to see that the cash flow of the business can support the debt. For example, if you're just looking for a land loan, and there is no business attached to it, that's not something that we could do under this loan program. But as long as there's a business attached to it, we're looking at the debt service coverage of that business to pay back the debt. In an ideal world for self-storage, we want to see that in year one, the business can reach 1.15 debt service coverage, which essentially means the business is making its loan payment and then about a 15% profit. And then we want to see it steadily go up from there, and we're very lucky in the regard that we can use a borrower's projections that they've put together to tell us what they're going to do with that business.Can SBA do loans for any asset class in real estate?Yes, as long as it's a cash-flowing business and it must be owner-occupied, not retail, office, they're non-applicable. If you're a veterinarian, let's say you buy a strip center, and it owns some other real estate, it is okay as long as 51% of that strip center is going to be used by your veterinary practice. Same thing with storage. Let's say you had a storage facility, and there was another retail component on the property. That's fine, and still SBA eligible, as long as the storage makes up more than 51% of the total square footage.For offices, it's the same thing. I would have to occupy office minimum of 51% of my office building. And for multi-family, which is similar to self-storage because we are the operators, would we automatically qualify?Multi-family does not, as they don't touch anything with residential real estate at all, even though multi-family is considered commercial.Anne [email protected]