💰 How to raise more capital in 2025

👋 Hello, Best Ever readers! We hope you’ve had a Best Ever holiday season. Only six more days until 2025!

In this week’s newsletter, the days of easy capital raising are over, one landlord pays big, and depreciation makes one investment irresistible.

🎁 We’re still offering FREE access to Ash Patel’s Invest Beyond Multifamily Underwriting Tool. Calculate key metrics, accurately project NOI, and make underwriting simple with the tool Ash and nearly 100 other investors rely on.

👉 Simply reply to this email with the word “Underwriting” and we’ll send you a free copy.

CRE time!

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CRE HEADLINES

💰 Landlord Pays Big: A Milwaukee landlord with nearly 9,000 apartment units has reached a $1.7 million settlement stemming from a 2021 landlord/tenant enforcement action requiring his company to reimburse tenants who paid unauthorized fees, were denied security deposits, had property confiscated, or faced illegal self-help evictions.

📈 Originations Rising: Bank CRE loan originations have shown recovery in 2024, with Q3 reaching $4.4 billion, up from Q2's $3.5 billion. While multifamily surged 76% YoY, overall volumes remain 40-48% below 2019 levels. Office sector struggles continue with 7-8% delinquency rates and $2 trillion in maturing debt by 2026.

🛍️ Retail Renaissance: Strip malls are experiencing an unprecedented revival, with foot traffic up 18% from pre-pandemic levels, 3% rent growth, and nearly full occupancy, driven by service-based, e-commerce-resistant tenants and strong suburban community ties.

📉 Insurance Dips: CRE property insurance premiums fell in Q2 2024, ending seven years of increases. The shift reflects new market pricing dynamics, with slower premium growth offset by improved underwriting margins, though relief varies by property type.

🥇 Industrial Leader: Dallas leads the nation in industrial investment in 2024, reaching $3.8 billion in the first 10 months — a $1.1 billion increase from 2023. While development remains strong with 16.5 million sq ft under construction, rapid expansion has nearly doubled vacancy rates to 8.3% (up from 4.1%), exceeding the 7.2% national average.

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HOW TO RAISE MORE CAPITAL IN 2025

The days of easy capital raising are over. Before 2022, oversized returns and investors driven by FOMO defined the market. Now, higher interest rates and market volatility have made raising capital more challenging than ever. 

“It's very difficult even if you know what you're doing,” Hunter Thompson, CEO of raisingcapital.com, said this week on The Best Ever CRE Show. “But I'll tell you, the good news is when it is difficult to raise money, that's how you get wealthy in this game.”

Years of exceptional returns have "spoiled" many LPs, or at least created unrealistic expectations. So not only have shifting market conditions created challenges for GPs when doing deals, but managing LP relationships is now a larger part of the equation than ever. 

• Case Study: When faced with a capital call on a senior living facility investment made just before COVID hit in February 2020, Thompson demonstrated how transparent communication can maintain investor trust even during a crisis.
  
  While government support initially suggested he could avoid a capital call, the prolonged impact of COVID (including restrictions on visiting loved ones) eventually made one necessary. Rather than delay bad news, Thompson kept investors continuously informed about the facility's declining cash position, sharing regular balance sheet updates and maintaining clear communication about challenges.
  
  This approach proved successful, and he received only one mildly negative response from an investor saying they might not invest again, while many others actually thanked him for his transparency. Thompson’s approach is paying off, too. That deal is now performing well and is expected to refinance in 2026, returning significant investor capital.

📣 “If you get out in front of it and lead with honesty,” Thompson said, “and if you're transparent and you lean into it and don't let bad news age, you can come out of that situation as a leader that stood up when things went wrong.”

WHAT IT ALL MEANS

For syndicators looking to succeed in this new environment, in addition to building systematic approaches to investor attraction and relationship management, maintaining an unwavering commitment to transparency and professional execution is key.

And if you’re a capital raiser who has been hit hard by recent market challenges and eroding investor sentiment, and wonders if they want to keep going, Thompson shared some encouragement:

“What some people have dealt with is that it's 2021 and they go into their first capital raise and they light half a million dollars on fire. To them, that's like getting attacked by a shark in your first surf lesson. So you're thinking, ‘Wow, this is clearly a sign that I should quit.’ 

And I get that. I'm very sympathetic to that. I know someone who — on one of their first deals — didn't even get to do the deal. They just lost $1 million in earnest money because interest rates changed the moment they put the earnest money down. 

So that's why this game messes with your mind — because it's pretty horrifying to lose investor capital. And if you went through something like that, I get it. And if you are bothered by that, you have the kind of personality that should be in this industry versus people that are unaffected by that.”

👉 Listen to Thompson’s full episode here.

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UNWRAP YOUR CRE SUCCESS PLAN FOR 2025

We hope you're enjoying some much-needed relaxation with family, friends, and lots of holiday cheer.

No matter how much relaxation time you get this holiday season, as CRE investors, we're always thinking about what's next. It's inevitable. A lot of change is coming in 2025, and now is the time to set yourself up for success.

The Best Ever Conference is your opportunity to jumpstart your 2025 CRE goals.

🎁 Our Holiday Gift to You 🎁

Unwrap an exclusive 25% discount on your BEC ticket when you register before December 31st. Click the button below, and use the promo code holidays25 at checkout for 25% off any ticket type*.

🔔 Ring in the New Year with actionable strategies to:

• Redesign your capital-raising approach to attract more investors and close bigger deals.

• Find sponsors and deals worthy of your capital to have a profitable 2025.

• Boost your property’s NOI to maximize returns on your portfolio.

*Discount does not apply to already purchased tickets.

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FROM BRIAN SPEAR OF SUNRISE CAPITAL INVESTORS

Smart real estate investors know that success isn't just about generating income — it's also about maximizing tax efficiency. Mobile home park (MHP) investments offer some extraordinary advantages through depreciation that other real estate investments simply can't match.

Different types of real estate depreciate on different timelines. Traditional commercial properties depreciate over 39 years, while apartment buildings use a 27.5-year timeline. Let's say you invest $1,000,000 in an apartment complex — you can deduct about $36,363 per year in depreciation ($1,000,000 divided by 27.5).

But mobile home parks? They depreciate over just 15 years. That same $1,000,000 investment now gives you $66,666 in annual depreciation deductions. That's nearly double the tax benefit in almost half the time.

Let me share a real example from my own experience:

💰 In 2023, my investment company purchased an MHP for $44,450,000. After subtracting the land value of $7,348,000, we had a depreciable basis of $37,102,000. Using standard depreciation, this would have given us annual depreciation "losses" of $1,349,163.

💸 But we didn't stop there. We brought in cost segregation specialists who found that 97% of the property (about $36 million) could be depreciated over 15, 7, and 5 years. Then, using bonus depreciation — a powerful tax incentive that allows for accelerated depreciation of assets with useful lives under 20 years — we were able to depreciate nearly $29 million in 2023 alone. This resulted in investors receiving passive losses equivalent to 135% of their invested capital on their K-1 statements.

Depreciation strategies in mobile home park investments offer a powerful way to enhance after-tax returns. By combining accelerated depreciation schedules with cost segregation and bonus depreciation, investors can create significant tax advantages that free up capital for additional investments. However, given the upcoming changes to bonus depreciation rules, the window for maximizing these benefits is closing. Investors interested in leveraging these advantages should consider acting sooner rather than later.

👉 Read Brian’s full blog post here.

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SINGLE-TENANT DENTAL BUILDING PROJECTED TO RETURN 20%+ IRR AND 2X EQUITY MULTIPLE IN 5 YEARS

Austin Hair and the team at Leaders Real Estate are projecting a 20% IRR and 2X equity multiple from this single-tenant dental building after just five years with no value-add component.

Here's how they’re doing it 👇

🏢 Property Details: This 4,000 sq ft building was purchased in March 2023. It’s a single-tenant space occupied by a dental practice and is located in Johnson City, Tennessee.

💸 Finances: The property was purchased for $600,000. The team raised $175,000 in capital and secured a $450,000 loan at 75% LTV and 7.5% interest.

💼 Business Plan: The value was created by purchasing the property at the same time that the dental tenant was being acquired by a larger dental group. The building went from being operated by a private practice to a group that is doing $300 million in business annually. They bought it at an 8.5% cap, and after the new lease was signed with the larger group it was worth a 6.5% cap. No upgrades were needed.

🍾 Results: There is a 15-year lease in place with the current tenant with 15% bumps in rent built in every five years. At the five-year mark (March 2028), the rent will be $58,650 with 10 years left. The property is currently valued at $780,000 and is projected to be valued at $902,000 after the first five-year rent bump.

At that time, LPs will have collected $26,000 in cash flow. The increased equity in the building will be $302,000. After closing costs, net sale proceeds are projected to be $299,000 with a total LP profit of $175,911, IRR of 20.1%., and a 2X equity multiple over five years.

If you have a deal you'd like to feature here, respond directly to this email with “deal breakdown.”

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FREE DOCUMENT DOWNLOAD

Ever wonder what tools a CRE investing powerhouse like Ash Patel uses to vet and stress test deals? Now, you don’t have to. The Invest Beyond Multifamily Underwriting Tool is the exact underwriting tool that Ash, his team, and nearly 100 members of their Mastermind have been using for 15 years to find and close great deals.

Simply reply to this email with the word “Underwriting” (or click the button below) to get your FREE copy.