Racketeering, Collusion, and the NAR

👋 Hello, Best Ever Community!

In today’s newsletter, Ash Patel goes off on the NAR, capital raisers learn what not to do, and one multifamily investor increases his property’s value by $7 million.

This week’s newsletter is brought to you by Viking Capital, a multifamily boutique with nimble investment sourcing, structuring, execution, and asset management capabilities. Learn more about Viking Capital here.

Let’s go!

_{🗞 NO-FLUFF NEWS}
CRE HEADLINES

💰 $500M WeWork Buyback: Adam Neumann, the former chief executive and co-founder of WeWork, recently submitted an offer to buy the bankrupt co-working company for more than $500 million.

🏠 Renting Beats Buying: Renting a starter home is cheaper than buying one in all 50 states, with February marking the seventh year-over-year rent decline in a row for 0–2 bedroom properties.

📉 'New Reality' for CRE Finance: CRE lenders have responded to higher costs of capital in the market by clamping down on the amount of debt they offer to borrowers, dropping loan-to-value ratios across the board.

👷 Can’t Stop, Won’t Stop: Despite recent reports showing warehouse users ratcheting back their need for space, Prologis and Blackstone say they won’t stop building.

🧠 A.I. Threatens Office: The advent of artificial intelligence poses a potential threat to white-collar employment in offices, potentially impacting office occupancy even more significantly than remote work.

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RACKETEERING, COLLUSION, AND THE NAR

ICYMI: The National Association of Realtors announced on March 15 a proposed $418 million settlement to a longstanding lawsuit alleging that its commission practices resulted in excessive buyer fees. The key provision eliminates the 6% commission standard — "easy money" for realtors, critics say — allowing home buyers and sellers to negotiate agent fees upfront. On the Best Ever Show this week, hosts Ash Patel, Slocomb Reed, and Joe Cornwell discuss and debate the settlement and its potential impact on both residential and commercial real estate.

Come for the debate, stay for the realtor/broker horror stories.

💸 Racketeering + Collusion = Easy Money: Technology has empowered homebuyers to do their own research and due diligence, in some cases limiting or eliminating the need for a realtor. This, according to Patel, can lead to realtors cashing in on a sale for which they provided little value to the buyer, or in some cases, inflating commissions. This settlement would put an end to that. “Tell me that realtors don’t collude to get deals done and increase their commissions,” he said. “And now, the pendulum is going to swing back … I think consumers will become empowered and will be able to make informed decisions and not blow their money on an archaic system that was heavily defended by political action committees.”

🛑 Not So Fast: Reed and Cornwell, both realtors, defended their kin, debating the weight of a realtor’s effort or amount of work put into a single transaction as a value proposition to the homebuyer. “That’s where it becomes highly situational,” Cornwell says, explaining that the service a realtor brings through experience and knowledge won’t be negated by the buyer’s access to a software platform or the Internet. “What I hope for from this,” Reed added, “is that the compensation that real estate agents receive returns to being proportional or commensurate to the value they are providing to their clients.”

😔 The Biggest Losers: Widely accepted as a win for buyers and a loss for realtors, collateral damage of this proposed settlement, according to Cornwell, includes first-time and low-income buyers. It’s now going to be more difficult for no- or low-money-down buyers to buy homes, he says, as they will be more likely to go unrepresented as realtors chase larger transactions for higher commissions.

What It All Means

The NAR settlement is currently being reviewed. If accepted, it likely won’t go into effect until mid-to-late summer. It also likely won’t be the last shock to the system. First-time and low-income buyers will likely need help in the settlement’s wake. The proposition also currently doesn’t include commercial brokers, but could be a lead domino that eventually results in changes across CRE, significantly altering the real estate and REI industries as we know them. So after a long season of uncertainty and change in real estate, it appears we’re just getting started.

🎧 Listen to the full debate here.

_{💻 VIKING CAPITAL}
NEW INVESTMENT OPPORTUNITY IN GEORGIA

Viking Capital is pleased to announce their twenty-sixth investment opportunity, Dawson Forest, a prime 268-unit apartment community in Atlanta's expanding GA-400 Northern Corridor. Strategically located in Dawson County, one of Georgia's fastest-growing counties, this B asset shines in an A-rated area, surrounded by vibrant growth and economic prosperity.

Book a call to learn why Dawson Forest is the key addition to your investment portfolio as Viking Capital discusses its strategic positioning amidst Fortune 500 giants like Google, Microsoft, and JP Morgan, fueling a robust job market and driving tenant demand.

Built in 1998, Dawson Forest offers investors a value-driven opportunity with the potential for average premiums of $300 or more.

Despite the rise of four new Class A properties in 2018, boasting higher monthly rents, Dawson Forest remains an affordable gem. Its prime location, near upscale retail at North Georgia Premium Outlets, ensures a lucrative investment.

👉 Book a call to learn more!

_{✍️ BEST EVER BLOG}
FROM SYNDICATIONATTORNEYS.COM

Syndicators who don't succeed in closing their deals often fall prey to one of the common mistakes new syndicators make when raising capital. These are the top mistakes that are likely to: a) cause your offering to fail, b) get you sued by investors, or c) get you investigated by securities regulators — or just plain make your life uncomfortable for the duration of a deal. 

🧑‍💼 Hiring the Wrong Attorney: You should plan to hire a Corporate Securities Attorney when you’re creating a company to pool money from passive investors to buy multifamily real estate. A Corporate Securities Attorney will form the right entities for your syndicate, draft operating agreements that are fair for your investors, but also ensure that your syndication management team remains in control and gets properly compensated for all the time and effort spent finding, acquiring, and asset managing the deal. 

💸 Closing Without Enough Capital to Execute Your Operations Plan: The most common syndication model for multifamily real estate is to buy value-add properties that can be improved through upgrades, increasing rents, and decreasing expenses. Many times, a syndicate will set a minimum dollar amount for their offering that is just enough to close on the property. You can continue to raise capital after closing, but it’s easy to get the deal closed and then let your capital-raising efforts slow down.

 🐳 Chasing Whales: Whales (just like in Vegas) are individual investors who claim they can fund your whole deal. While that may be true, the truth is that they won’t. Every new syndicator tries this at least once, erroneously thinking, “I don’t have enough smaller investors; I only need one and I’m good to go.” However, 95% of the time, they don’t come through.

👉 Discover the full list of mistakes to avoid here.

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$7M IN VALUE ADDED TO TEXAS MULTIFAMILY PROPERTY

Sam Bates and his team added $7 million to this property in less than three years and exceeded the projected IRR by 20%. Here's how they did it. 👇

🏢 Property Details: 134-unit, Class B multifamily property purchased at 91% occupancy in Killeen, TX in September 2019. 

💸 Finances: Purchase price was $11,150,000 with $3,225,000 in capital raised. 

💵 Debt Structure: Fannie Mae debt, 3.44% interest, 75% LTV.

💼 Business Plan: The team renovated 50% of the units to leave meat on the bone for the next buyer, updating flooring, paint, cabinets, and fixtures. They added a green energy program installation, a washer/dryer rental program, and a cable/internet package program. They also installed third-party property management. 

🍾 Results: They sold the property in 2022 for $18,075,000. The average annual return was 48.8%, with a 38.63% IRR and 2.22x equity multiple. Rents at the time of sale were $1,151, raised from $873 at the time of purchase. 

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

_{🌎 BEST EVER CONFERENCE 2024}
LESS THAN 2 WEEKS UNTIL BEC2024!

The 2024 Best Ever Conference kicks off on April 9 in Salt Lake City and it’s going to be 3+ life-changing days!

Founded by Joe Fairless and Ben Lapidus, BEC is unique in that it brings together qualified passive investors and sponsors to share insights, build relationships, make deals, and party.

And this year, we’re focused on making the passive investor experience even more amazing with…

• The launch of the Best Ever List: a digital directory where attendees can research and schedule meetings with sponsors before they even step foot in the conference hotel.

• A Passive Investing educational track covering topics like funds vs. deals and tax strategies for investors (check out the full program).

• Speed Networking for qualified investors.

• Opportunity to join the Left Field Investors passive investor community for a day of learning and networking.

If you're looking to propel your investing, now is the time, these are the people you want to meet, and BEC is the place.

👉 Register today with coupon code BESTEVER24 to save 25%.

_{🎓 EXPERT RESOURCES}
FREE DOCUMENT DOWNLOAD

💬 How to Approach Property Manager Conversations

One of the most important members of your team is a property management company. A property manager will obviously manage the apartment for you upon closing, but a great property manager should offer additional services. They should advise on attractive or struggling neighborhoods within your market, offer locations of prospective properties based on your business model, and even provide pro formas (projected financials) on prospective properties based on how they would manage.

👉 Download now!

🙏 Thanks for reading!

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Have a Best Ever day!

—Joe Fairless