🚨 Are banks on the verge of crisis?

👋 Hello, Best Ever Community!

In today’s newsletter, we’re off and running at BEC 2024 in Salt Lake City, Neal Bawa addresses banking turmoil, SyndicationAttorneys.com helps you hold onto your money, and one investor turns an off-market deal into a $17 million value-add opportunity.

➡️ Plus: Want to promote your business to the Best Ever audience? Here’s your chance! By referring new subscribers to the Best Ever newsletter this month, you can earn a chance to win a branded blog post on our website, a dedicated branded email, and more. Learn more below!

This week’s newsletter is brought to you by QC Capital, a leading private equity investment firm specializing in the acquisition of institutional-grade multifamily and car wash assets in the southeast United States. Learn more about QC Capital here.

Off we go!

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CRE HEADLINES

🤑 Blackstone’s $10 Billion Bet: Blackstone’s $10 billion acquisition of AIR Communities — its largest transaction in the multifamily market — signals its belief that the commercial real estate market is bottoming out.

🚫 No Relief: The latest CPI data shows continued high inflation with the core measure at 3.8% annually, potentially forcing the Fed to delay expected interest rate cuts.

📈 More Office Woes: Despite hopes for a rebound, available office space in the U.S. reached a record high in Q1, topping 1.2 billion square feet amid the lingering impacts of remote work, economic uncertainty, and high interest rates.

👷 Boomers vs. Construction: Approximately 11,000 baby boomers will retire each day this year, impacting CRE construction labor and increasing demand for hospital visits, and thus, more medical office buildings.

🪦 Skyscraper Graveyard: Downtown St. Louis is trapped in a doom loop of empty offices, abandoned buildings, and declining foot traffic — a warning to other cities about their potential future if they fail to reinvent.

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ARE BANKS ON THE VERGE OF CRISIS?

On Day 1 of the Best Ever Conference this week, Neal Bawa — the “Mad Scientist of Multifamily” — shared his thoughts on whether banks are facing a crisis from the commercial real estate downturn. His key message is that while banking turmoil may create some volatility, the fundamentals of investing in multifamily residential remain compelling compared to other real estate sectors facing distress.

✂️ He expects the Federal Reserve to start cutting interest rates in the second half of 2024 as inflation comes down, despite market expectations of no rate cuts.

🏦 Around 300 smaller banks are at risk of failure this year, especially those heavily exposed to commercial real estate loans like office buildings. However, he sees minimal systemic risk to the overall banking system.

⚠️ Bawa advises avoiding loans from banks on the FDIC's "problem bank" list or those with high commercial real estate exposure, as they may become distressed and call in loans.

🏘 Office real estate is facing major distress with high vacancy rates (18.6% nationwide), while the multifamily residential sector remains relatively healthy with low delinquencies.

🕰 Bawa views the current market as a good time to buy multifamily properties, as prices have corrected 20%–25% lower and rents are keeping up with wage growth of around 20% since COVID.

💪 While some investors are concerned about inflation/recession risks, he argues that multifamily fundamentals remain strong compared to other asset classes like single-family homes where mortgages have surged much higher than incomes.

👉 Review the full recap of Day 1 of the Best Ever Conference here, and be sure to check the blog for Day 2 and 3 recaps later this week!

_{🚘 QC CAPITAL}
PASSIVELY INVEST IN CAR WASHES

Accredited investors, uncover an overlooked asset class offering lucrative cash flow. QC Capital Car Wash Fund is now offering you a chance to secure substantial cash flow in the booming car wash industry.

Why the car wash industry? 

✅ Steady Cash Flow: Benefit from a lucrative business model with consistent cash flow, ensuring stable returns on your investment. Earn up to 12% annual cash flow.

✅ Tax Benefits: Enjoy bonus tax advantages on an asset with a 15-year depreciation schedule, plus accelerated bonus depreciation.

✅ Industry Expertise: Capitalize on QC Capital’s in-depth knowledge and experience in the car wash business, maximizing your investment potential.

✅ Sustainable Growth & High Cash Flow: Invest in an eco-friendly initiative, promoting water conservation and environmentally responsible practices resulting in a high-cash-flow opportunity.

✅ Diversification: Your investment contributes to a diversified portfolio of car wash ventures, spreading the risk of your portfolio and investment.

👉 Learn more about QC Capital ​​here.

_{✍️ BEST EVER BLOG}
FROM SYNDICATIONATTORNEYS.COM

Whether you’re an active syndicator, fund manager, or a passive investor, losing money in a real estate syndication or fund is a real concern. Often, it happens due to unavoidable circumstances, such as:

• Environmental damage to a property that insurance doesn’t cover

• Real estate market cycles that cause property values to decrease

• Interest rate increases making financing less affordable for buyers

• Government rent or eviction controls that prevent eviction of non-paying tenants or limit rent increases

• Rising insurance costs, building supply costs, or labor shortages

• Tax law changes

• Zoning changes

These things are typically beyond the control of a syndicator or fund manager, although some are predictable. The best way for active syndicators and fund managers to avoid losses due to unavoidable risks is to:

🍎 Educate yourself about the risks associated with real estate, and in particular, the markets and asset classes you are considering.

⚠️ Be conservative in your projections. Assume everything you want to do with a property will cost more and take longer than you think. Keep loan maturity dates long, loan-to-value ratios low, and pay whatever it costs for a fixed rate for a longer term.

🧑‍⚖️ Learn about syndication (pooling funds from passive investors with an active asset management team) and how to comply with securities laws.

🔍 If you’re a passive investor, seek syndicators or fund managers who have a sufficient track record of owning and syndicating similar asset classes to be able to recognize and minimize these risks.

👉 Discover more ways to protect your investments here.

_{🏠 DEAL BREAKDOWN}
OFF-MARKET DEAL ➡️ $17M VALUE-ADD OPPORTUNITY

Anders Jacobson and team are working to add over $17 million in value to this property over the next five years. Here's how they're doing it. 👇

🏢 Property Details: 108-unit, Class A property purchased in December 2023 in Mount Pleasant, SC. It had been family-owned and operated for 40 years and was in amazing condition, but poorly managed. 

💸 Finances: The property was purchased off-market at a 30% discount to comps for $22.5 million, with $9.5 million in equity raised. 

💵 Debt Structure: 10 years at 6% interest, 80% LTV.

💼 Business Plan: With a CapEx budget of $2.3 million, the plan is to make interior upgrades to paint, flooring, countertops, and fixtures, as well as exterior upgrades including replacing the roof, mural, dog park, gazebo, adding new signage, and re-striping and sealing the parking lot. The plan also includes implementing in-house property management systems, with a plan to refinance around year three. They plan to hold the property long-term.  

🍾 Results: Rents at time of purchase were $1,200. They’re now at $1,750, with renovated units at $2,200. The property’s projected valuation in five to seven years is $39.7 million. Five-year LP return (without refinancing): 7% CoC, 17% IRR, 22% AAR, 2.21x.

If you have a deal you'd like us to feature, share it with us!

_{🎓 EXPERT RESOURCES}
FREE DOCUMENT DOWNLOAD

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Hope you have a Best Ever rest of your week!

—Joe Fairless