🏦 What's behind CRE's private credit surge?

Hello, Best Ever Community!

In today’s newsletter, private credit demand soars in CRE, sustainability dominates future trends, and a multifamily investor achieves a whopping 93.5% IRR. 

This week’s newsletter is brought to you by BV Capital, a Texas-based real estate private equity company that specializes in ground-up multifamily construction deals in the state of Texas. Learn more about BV Capital here.

Let’s CRE!

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TOP HEADLINES

👀 No Bottom in Sight: The U.S. commercial real estate market is facing a continued sales decline due to high interest rates and investor caution. CRE Daily explains. 

🏢 Troubling New Office Trend: According to CoStar data, a growing number of office owners who are struggling to pay off debt are handing over their buildings to their lenders.

🤔 Did the Fed Misinterpret Data?: Economist Ed Coulson suggests the Fed has potentially misread inflation, relying too heavily on the consumer price index, which is slow to reflect changes in the housing market. 

🎁 Stabilized Market Boosts Concessions: Multifamily landlords are offering at least one concession on 30% of rental listings, the highest rate in more than two years.

📈 Joe Fairless’s Scaling Strategies: Joe revealed his secrets for scaling, goal-setting, and picking a partner in his recent interview with Jonathan Hayek on The Source of Commercial Real Estate podcast.

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CRE SEES PRIVATE CREDIT BOOM

The demand for private credit has been steadily increasing due to a combination of regulatory factors, the rise of non-bank lenders, technological advancements, and the desire of investors for diversified portfolios with potentially higher yields. To shed some light on these shifting needs, we recently sat down with Nelson Chu of Percent, a credit marketplace that provides alternative investment opportunities for retail credit investors. 

💸 Opportunity for Non-Bank Lenders: Stringent regulations imposed on traditional banks might limit their ability to provide certain types of loans or increase the complexity and cost of lending. Due to these regulations, there is an opportunity for non-bank lenders, such as private credit platforms like Percent.com, to step in and fill the lending gap. Private credit providers operate with a different set of rules and regulations, allowing for more flexibility in the types of loans they can offer.

📈 Diversification and Yield: Investors are attracted to private credit for its potential to offer higher yields compared to traditional investments. Allowing investors to choose specific deals or opt for a blended note gives individuals the opportunity to diversify their portfolios across various private credit opportunities.

💻 Technology and Market Access: Technology plays a major role in facilitating private credit transactions and making private credit more accessible to a broader investor base. Investors are looking for a user-friendly interface, transparent information, and a marketplace where they can access a variety of private credit opportunities. 

💬 “Every time the regulators step in, they watch [the banks’] activity, especially in light of Silicon Valley Bank going under,” Chu explains. “And that leads to a plethora of private credit demand because private credit in general just moves faster. So we have definitely had demand go through the roof. I think Q4 of this year will be on pace to basically do as much volume as we did in a normal year — for a full year. So that tells you sort of the velocity of growth at this point.”

👉 Listen to the full episode here.

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TAKE ADVANTAGE OF UPCOMING SUPPLY & DEMAND IMBALANCE IN TEXAS

Did you know that over half a million people have moved to Texas since the summer of 2021 — yet multifamily construction starts are down more than 70% across the state in 2023? This will create a supply and demand imbalance that to us, as investors, can mean only one thing: opportunity.

BV Capital is a real estate private equity company that specializes in ground-up multifamily construction deals in the state of Texas. A vertically integrated company, utilizing BV’s in-house construction team has allowed for historical returns beyond those of traditional value-add investments.

If you are an accredited investor and want to learn more about multifamily development opportunities in Texas, one of the nation’s fastest-growing states, visit bvcapitaltx.com. 

👉 Learn more about what's open now and what’s coming next for BV Investors. 

Sold to accredited investors via a private placement memorandum and past results do not guarantee future returns.

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SUSTAINABLE CRE: A LOOK INTO THE FUTURE

Presented by:

🌱 In the dynamic landscape of the commercial real estate market, sustainability is emerging as a key driver of future trends and investment strategies. Amidst a mix of robust demand in industrial and multifamily sectors and challenges in office and retail spaces, sustainable commercial real estate is transitioning from an optional feature to a critical investment focus.

For investors, this shift is more than an environmental statement; it's a strategic imperative. Embracing green building practices, eco-friendly construction, and smart technologies is not just about sustainability, but also about enhancing asset value and aligning with evolving market preferences.

👣 Embracing Eco-Friendly Practices: Sustainable buildings not only help in reducing carbon footprints but also offer economic benefits. They tend to have lower operating costs due to energy efficiency, attract premium tenants who are increasingly environmentally conscious, and often command higher rental rates and property values.

🗝 A Key Factor in Property Value & Demand: Sustainable buildings often result in lower utility costs, reduced maintenance expenses, and improved occupant health and productivity, which are attractive features for potential tenants and buyers. As a result, these properties tend to have higher occupancy rates and can provide a competitive edge in the market.

💡 Green Building Certifications: Green building certifications, such as LEED (Leadership in Energy and Environmental Design), BREEAM (Building Research Establishment Environmental Assessment Method), and WELL, play a pivotal role in enhancing the appeal of commercial properties. These certifications serve as a benchmark for sustainability and are a visible testament to a building's environmental performance.

💬 “For investors, adapting to these changes involves staying informed about the latest sustainable technologies and practices. Embracing these innovations can offer a competitive advantage, as properties equipped with cutting-edge sustainable features are likely to be more attractive to tenants and buyers.”

👉 Read the full article for more. 

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A 93.5% IRR? HERE’S HOW HE DID IT

Patrick Grimes created $9.5 million worth of value on this property in nine months with 93.5% IRR. Here's how he did it. 👇

🏢 Property Details: 288-unit Class B asset purchased in Jacksonville, FL, in March of 2021. All units were non-renovated, brown, classic style with rental comps for renovated units in the area achieving above $300-per-month rent premiums.

💸 Finances: Purchase price was $27.5 million with $12 million in capital raised. $20.5 million bridge loan with 3.65% floating interest rate, three-year term with two one-year extensions. 80% LTV + 100% CapEx.

💼 Business Plan: Heavy value-add — appliances, plumbing, electrical, flooring, kitchens, lighting, paint, HVAC replacement, landscaping, and upgraded community amenities. Average rent pre-renovation was $862. Projected average rent post-renovation is $1,085.

🍾 Results: Sold in December of 2021 for $37 million. Projected returns were 18% IRR, actual returns were 93.5% IRR. Created $9.5 million in value in less than a year. 

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

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Unlike most gifts, this one is an investment in yourself…and your family’s future! Because at BEC 2024, you’ll get access to the insights and people to build your network and your net worth, including:

📈 Diverse speakers and sessions tailored to you: From an economic summit and keynote from Joe Fairless to specialized tracks and a Passive Investing Day by Left Field Investors, you’ll be able to learn about the topics that matter most to you. Check out the agenda here. >>

🤝 Networking Events for Meaningful Connections: Connect with like-minded individuals at our networking events, designed to help you find accountability partners and mentors. Your network is your net worth, and the Best Ever Conference is where these valuable connections are waiting to be made.

🐝 A Buzzing Marketplace: More than 80 carefully vetted sponsors will all be in one place so you can learn about potential offerings and shake hands with potential partners.

💡 The Verivest Best Ever Pitch Slam: 16+ contestants will take to the main stage to pitch their next opportunity to you and an expert panel, with hundreds of thousands in prize money on the line. (Interested in pitching? Apply here.)

🌐 An Online Database for Better Economics on Deals: Even before you land in SLC, you’ll get access to a database of potential deals from our sponsors, Pitch Slam contestants, and operators in attendance. Deep dive into the economics before meeting anyone face-to-face.

So don’t delay: Register today to secure your seat at the best rate. 

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FREE DOCUMENT DOWNLOAD

⏳ Should You Sell Your Apartment Community Early?

One of your ongoing asset management duties is to frequently analyze the market to estimate the current as-is value of your property based on the market cap rate and your current net operating income. This document will help you determine if it makes sense to sell your apartment deal before your initially projected sales date.  

👉 Download now!

🙏 Thanks for reading!

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Wishing you a Best Ever day!

—Joe Fairless