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How COVID is affecting your Multifamily Investments

August 5, 2020

Miss our webinar on How COVID-19 is affecting multifamily investments? Do you prefer to read instead of listen? You're in luck. Below you can find a full transcription of the complete webinar, complete with timestamps if you want to tune-in for a specific section. Enjoy!


0:00:00 Carl Dean: Alright, welcome everybody, uh, thank you for joining us. Looks like we've got about uh, 53 people here, so we'll kinda take our time going through the intros real quick but, uh, I'm glad you could join us. My name is Carl Dean, I work for Rockstar Capital, I've an asset management background, uh, I worked for a couple different firms in, in Dallas, now I'm down here in Houston working with Rockstar Capital, happy to be here. Uh, and I'll kinda let you guys go through and Robert, start with you, and then we'll go through Nick and Brandon.

0:00:30 Robert Martinez: Hi everybody, I'm Robert Martinez, uh, founder and CEO of Rockstar Capital Management. Uh, we started in 2011. Today we have 19 assets, uh, 3,762 units. Uh, asset value of just under $400 million, uh, little personal accomplishments. Our company has won, uh, 17 city, state, and National Apartment Association Awards. I made two-time Houston owner of the year and the country's only two-time national owner of the year. So, uh congrats, to team Rockstar, uh, we wouldn't be here without them.

0:01:02 Carl Dean: Right, Nick.

0:01:04 Nick Fluellen: Yeah, welcome, everyone, my name is Nick Fluellen. I'm a Senior Managing Director at Marcus & Millichap. I'm headquartered in the Dallas office, but, uh, we do deals all over this region, all throughout Texas, and uh, myself and my partner Bard Hoover, and then we have a very large team of... Of folks that are uh, helping us get, get deals done. So, uh, you know in my career, I've done right, two and half billion dollars’ worth of Multifamily sales, and uh, you know, we're, we're uh we're still growing, so we're uh, we're excited to be here and, uh, navigating these challenging times we are in right now, but uh, we're gonna... We're gonna be ready to... To come out together and with a bang.

0:01:50 Carl Dean: Brandon?

0:01:52 Brandon Brown: Brandon Brown, uh, Managing Partner here at LMI Capital uh, just boutique, that firm here, doing lots of uh, B and C, Multifamily apartments primarily. Uh, we do our share of A's. I've been working with Robert for quite a while as well. Uh, just, you know, doing what we do. Uh, been in the market for 20 years, uh, like I said, primarily Multifamily guys, uh, all over in the state of Texas, outside of the state as well, so, uh, looking forward to getting on the call here, talking about real state.

0:02:24 Carl Dean: Yeah, and so, you know, for those of you joining us, you know, the purpose of the webinar, obviously, you know, the title kinda says it all, how COVID is affecting your Multifamily investments. Uh, we wanted to really grab some of the key players that are on the front lines, right, you can hear everyone's opinion on what's going on in the market from their own perspective, like, whether it be buyers, investors, whatever the case may be at different meet-ups and things, but I thought to myself, you know, who are some of the top guys I know in the space of lending, in the space of selling deals, obviously in the brokerage, and then obviously management was Robert and Rockstar and investing as well.

0:02:56 Carl Dean: So um, we wanted to put something together for you guys to really understand from the front lines of what's going on here, the guys that are in the trenches every day doing deals, making things happen, right? What's the pulse on the market? We're just gonna go through some basic questions. Kinda get uh, get an idea from everybody as to... You know, how COVID has affected them. Uh, what they're seeing moving forward, maybe the silver lining in all of that, so, uh, you know, diving into just kind of the first question, and this applies to everyone just so you know, I guess what are the major ways of the, the... Yeah, the major ways that COVID has really affected your business, and obviously, you know, we know volume is down, but what are some of the other ways that, uh, that it's affected business? And we'll start with you, Brandon.

0:03:36 Brandon Brown: You know, obviously, primarily just, uh, not been in the office as much, you know, uh.


0:03:42 Brandon Brown: Uh, not shaking hands, all the events, I kinda miss a little bit of that part of the business for sure. As far as just day-to-day functions uh, everything's kind of the same in that regard, but yeah, just really more on the production side, not as much on acquisition activity, obviously, um, and... You know, in general, just you know things have just been a little bit off, otherwise, it's gotten our operating procedures normal, it has given us some time to, uh, kinda go through some of our models, you know, beef up some of the procedures and kinda be ready for when the market swings back, so I'm kind of excited about what we, were able to do on some of the housekeeping stuff that... Tough to get to, you know.

0:04:21 Carl Dean: Yeah. Nice. How about you Nick?

0:04:24 Nick Fluellen: Yeah, I mean, I think, you know, it's funny when you think about the brokerage business, and obviously the folks that are tuned into this call, likely looked at deals before it's, there is a lot of face to face contact, it's a... It's a hard business to do without, uh, without the face to face contact and so, you know, uh, like Brandon said, you know, just beefing up uh, some of our processes, being a lot more active on the phones in the time period that, that we couldn't be as active in person. Um, and, uh, you know, just trying to figure out ways to, uh, to, to gain an edge, right now, when, when you know, people are a little bit uncertain and, and I think, you know, our, for the last three, four months you know, our role really shifted from obviously selling deals when there weren't a lot of deals to be had to, to really just, uh, being an information source. And so, we... We really tried hard to, uh, to just educate people. Keep them up-to-date. I mean things change daily right now it's moving fast, and then so just... Just trying to be... Some people... Someone that our clients can call on and get the latest information and uh, you know, be a valuable resource at this point in time.

0:05:33 Carl Dean: Yeah. Robert, How about you? How is it mostly affecting the business?

0:05:38 Robert Martinez: Man, I tell you what, COVID-19 was the best thing that ever happened to us. It's 100% true. We got a chance to separate ourselves from that noise, I even like to use the expression wartime general versus peacetime general. I was there in the recession back with Brandon Brown, he and I were friends. You know, I was there when we were buying those early deals and he was telling me, you can buy this deal at $15 a door, you should do it, and I mean, I, I, you know, it was a wonderful time, but what I learned was I learned how to kill what we're gonna eat tonight. You learn how to get better.

0:06:05 Robert Martinez: And what's happened in the recent years a lot of operators, a lot of syndicators they got really fat and happy, you know, those guys that are paying for it right now, if they didn't innovate, if they didn't get better, they're gonna... They didn't try to, to improve operations, uh, virtual reality has been, or virtual tours has been a big topic of discussion. We put that in three years ago, we put that in, 'cause we knew there was a time in place that the leasing offices might not be open, that people don't wanna come to you. I didn't think it was gonna be a pandemic. I really didn't think it would be all that, but I knew there was a time when people were gonna go online, and so when people were not getting leases, right now we, were getting leases. We were able to continue to generate and convert, uh, uh, new applications, and the leases, we've actually um...

0:06:45 Robert Martinez: Uh, have leased more year-to-date this year than we did last year. And you're like, "Well, how in the, hell did that happen?" It's because everybody went online. How did Netflix find 16, 17 million people that, you know, that weren't there the month before? Because they were there. And, and now they've become the biggest player, you know. We wanted to make sure that we, were in a position that we, were gonna succeed, we, were gonna win. As a company, we stopped buying. We started focusing in on internally on what we do as a business, and we had holes in our business. We realized this is not the team that's gonna get us to where we wanna go. So during COVID-19 was a great time for me to sit down, look at my operations, and understand my strengths, my weaknesses, and make, make those hires. We made some key... While I couldn't buy any opportunities, I bought some key acquisitions in... In-house. So I got about 80, 90 years of experience that I brought into the company that was not here the day before COVID. And that's really, uh, exciting for us. We're ready for, for the rest of the year.

0:07:37 Carl Dean: Yeah, and, uh, so it seems like a kind of a general theme across the board, is it's given everybody more time to kinda look inside their business and work on kinda sharpening the pencil and fine-tuning some of the interior detail of, uh, of how the business kinda operates, so. Uh, speaking to volume, you know, what's, what's been the volume? What's the volume been like the last three months versus like so you're looking at like last year as I mean, significant decrease obviously. Um, what about you Nick? What are you seeing as far as like your, your close volume over the last three months versus last year? Oh, I think you're muted.

0:08:09 Nick Fluellen: There we go. Uh, so it's been, uh, a, a big, you know, big shift. And, and, you know, what's interesting is we, were looking back at, at, at some of our stats and kinda looking at, at things year over year. In the first quarter last year, we had a huge finish to 2018 and a very slow first quarter in 2019. So, this year was the total opposite. We had the biggest first quarter we've ever had. We closed 17 deals. About $265 million in, uh, in volume in Q1. And then, obviously, come March... And that was actually not even just Q1, that was really... That was January and February. March rolls around, we had a couple deals scheduled to close. You know the breaks got, you know, hit and people pulled back and either dropped deals or, or pushed pause and wanted to see how things shook out. We've closed, since the start of COVID, four deals. So not, uh... You know, I mean, it was... It... Those four were scratching and clawing to the finish line. I mean, those were not easy deals to get done. We have seven in Escrow though right now, and so some of the deals that, uh, that didn't make or that, that the buyer bailed, we put some of those back together. We've had a couple that, um, uh, we've, we've been able to kind of, uh, get new buyers in, and, uh... And so now the pipeline is, is really filling up again. Obviously, we're, uh, we're just now launching deals.

0:09:33 Nick Fluellen: Um, you know, and we can, we can talk more about that in a moment. But we're, we're just now starting to relaunch deals, and, uh, the activity is, is, is tremendous. So we, we can talk more about that in a moment. I don't wanna get sidetracked. But, but the bottom line is, through the end of July in '19, we closed about $200 million worth of, of assets, which, which was 18 deals. Year to date so far, this year, we've closed 21. We're gonna close probably three, uh, three more before the end of July. So, we'll be actually up year over year, uh, through July, um, but, you know, we'll see if the, the, the back half of the year pipeline, uh, can, can catch up to, to where we ended up finishing last year.

0:10:13 Carl Dean: Yeah.

0:10:13 Robert Martinez: Our investors are hungry. Send us some deals. Rockstar investors, they need to put their money to work.

0:10:17 Nick Fluellen: And that... That and, you know, and, and, and I think that is absolutely the case. There's a lot of folks that are, uh, dying to buy deals. And so, um, you know, it's just a matter of can you get your pricing to work and can you get the debt to work, right? So.

0:10:30 Carl Dean: Yeah. What about you, Brandon?

[overlapping conversation]

0:10:32 Robert Martinez: Just in case, it's robert@rockstar-capital.com. Do not forget. Send those to me. We wanna get to Dallas.

0:10:39 Nick Fluellen: There you go.

0:10:42 Carl Dean: Brandon, what about you with the volume? You know, comparing to last year, just looking at it year over year. What's that look like?

0:10:46 Brandon Brown: Yeah, obviously the volume's, uh, off this year as a whole, just given COVID. Uh, you know, the requirements that the agencies came out with. The, uh, PI reserves along with the tax insurance. CAPEX for the full year in addition to the ongoing reserves really hurt some deals this year. Um, to echo a little bit what Nick was saying, like last year, uh, you know, Fannie and Freddie both tapped the breaks pretty hard around September, October, until they had those new allocations come out, uh, that gave them the ability, uh, over five quarters, uh, to go do the 100 billion, but they had to, you now, stick to their mission of the 33%, etcetera on the affordability side, so. Uh, you know, that really affected us a little bit towards the end of Q3, uh, early Q4 last year, uh, which then equated to, similar to what Nick said, kind of a some deals closing early in the year. Uh, but then, you know, things kinda falling off during this time. Um, during this time we have been able to close some deals. Um, it looks like we've closed in the month of June, we closed a few. Uh, in May we closed a couple. And this month we've closed one, and we're scheduled to close a couple more. So we're still able to get some deals done. Uh, we are starting to see, you know, a lot of other... A lot of lenders come back into the market today, which, you know, I know we'll hit on, but overall, you know, things have been a little bit softer over the past, uh, you know, three months as a whole.

0:12:16 Carl Dean: Yeah, and, and Robert, uh, I know you, you told us a story you walked away from a deal due to COVID obviously, so. What, what's your, what's your volume been like the last three months? Kinda touch on that.

0:12:28 Robert Martinez: Yeah, you know, COVID-19, again, was the best thing to ever happen for our company, but for my, for my fun life, for my personal life, it sucked. Yeah, we had a Disney trip planned and, you know, the, the, the day before COVID shut down, well, my kids and I, we, were supposed to go to Disney. That didn't happen. Brynn and Brian and I, we, were gonna go to Napa Valley. That didn't happen either. So I'm not too happy with Napa... With, uh, COVID. Uh, from a business side though, we had two deals that we, were chasing. One of them we had, uh, we had already in Escrow. We, we had the earnest money there. I walked away from it. I couldn't put my team at risk, just like the lenders, when, when, when things aren't stable, when they're not ready to go, they're not gonna move forward. They're gonna make it so that it doesn't look advantageous to move forward, right? They're gonna kill the deal. And that's what we had to do with one of our deals. We had to walk away from earnest money. I think it probably cost me, uh, $50,000. Uh, which was not happy. I wasn't happy about that but if, if it recovers, I'll get a chance of first right of refusal. Another deal, I was literally seconds away from wiring the Escrow over. Uh...

0:13:21 Robert Martinez: Uh, and it didn't happen for us, so, uh, I was disappointed by that. Brandon and I, we had to refinance on one of our deals, that got blown up. Now, there is a silver lining, the deal was strong, we're doing better because of COVID-19. Our virtual tours went through the roof, leasing is up. NOI is up, and now we're actually gonna wind up with what, Brandon? The better part of $900,000, a million dollars or more in proceeds which is great for our investors. So, I mean, it, it kinda worked out, it was just more of a delayed closing, uh, this 90-day closing. If we get that done this month, you know, no harm, no foul. We're gonna make a few more dollars.

0:13:52 Carl Dean: Yeah.

0:13:53 Brandon Brown: Yeah.

0:13:54 Carl Dean: So, you know, as far as... And maybe this is a more... One of the more obvious questions, right, so for people who are in this space and doing deals, they kinda understand, you know, what's making them hesitant. And, is it safe to say, you know, just the fear of the unknown is kind of what's, what's the biggest fear for sellers right now? Is that, is that really it? Just, you know, for sellers and buyers, I should say, just the fear of unknown. Would you, would you agree with that?

0:14:16 Brandon Brown: I'd say more buyer than seller, right. I mean sellers are sellers. The contracts as is, rarely do you get a financing contingency unless Nick's a great broker and can get that done. I don't know. Um, you know, we had one teed up ready to go, uh, we knew the seller, it was one of our, you know, long-time clients. Uh, our client and the seller happened to work with the same agency lender. Everything was teed up ready to go, but there was the uncertainty of what would happen to collections in July and August, and going hard with earnest money. Um, knowing that these loans are tied to the, you know, monthly collections and you're gonna be held to that along the way of the process, that buyer just isn't quite comfortable, you know moving forward. So, I'd like to hear what Nick has to say on that front. I feel like we've had that scenario come through the office a lot in the last, say, month. And, just that uncertainty of how would they be impacted during the process really is the biggest question I think for buyers.

0:15:20 Nick Fluellen: Yeah, I mean, I, I think it's, uh, it's been a really fascinating thing to watch because, you know, this hits... And Robert, I can, I can feel for you with all your travel loss, 'cause man, I, I, I was, I was literally at the slopes when it hit, and I got to ski one day and then the rest of it got all blown up so, I mean, I... And I've had a couple of other trips canceled, so, I, I, I feel for you. But uh, but, but you know this all hits, and then the world shuts down and... And... And, you know, buyers are concerned with... And sellers for that matter. Like, oh, what's gonna happen in April? Well, then April comes and it's not... It's not that bad. Right? Not nearly as bad as what everybody thought could be the worst-case scenario, and then everybody's like, "Well, that's good, people had a little money in savings. Now, what's gonna happen in May?" Oh, May was fine too. Right? And some... And a lot of properties May was better than, than April. Um, then, you know, we, we... Everybody keeps finding something to worry about. Right? So, then June. What happens in June? Now July's ending. What happens when the, uh, enhanced unemployment goes away?

0:16:20 Nick Fluellen: Uh, you know, and, and then you look ahead and you have, uh, from a sellers standpoint, Um, you're, you're probably worried about a buyer now, uh, getting... Getting good debt. They, you know, they know the challenges that are out there on the debt side. How do you raise equity in this environment? I mean, are you getting a great deal? Of course, equity is out there, but... But they're not dying to pay pre-COVID aggressive prices right now when they have to escrow a lot more money with the lender. Um, and so, you know, I think it's just the combination of, of uncertainty in operations, debt, equity, uh, and uh... And then, if you really wanted to, uh, throw something else in, you know, we, we have this, uh, little election coming up here in... In a few months and that just adds more uncertainty.

0:17:02 Nick Fluellen: So, you know, there's been a lot of talk from, from my clients they're saying, "Hey, when's the... When's the time to go?" Uh, and I wanna sell this, this year, for whatever reason, whether it's... That's what my business plan is, you know, I'm in the promote, I wanna... I wanna kinda cash in, I'm worried about, you know, the political landscape, uh, moving forward. Whatever reasons. Uh, my interest-only is burning off, or I just, hey, look, a new buyer can get a sub-three interest rate on a loan. So, it seems like, uh, there are some, there are some really positives there, but... But at the end of the day, it's like, man, there's still a lot of volatility and there's still a lot of things that, that people are, are nervous about.

0:17:39 Nick Fluellen: And you know what? My biggest clients aren't really all that nervous about it. You know, they're out there buying deals, just like Robert said, "Hey, we wanna buy deals, we've... We've geared up, we've made improvements internally, we're ready, we've got money and we're ready." And, I think that is starting to be the sentiment out there, but uh, but thus far, you know, those have been the big concerns for people, is, is literally every variable in the transaction, the other thing, when this whole thing started, that the property taxes were coming out. So everybody was wondering, am I gonna get some property tax relief? Oh, and by the way, insurance costs have skyrocketed, so. I've got property taxes going up, I've got insurance cost going up, I'm having trouble raising equity. Then, I'm having to escrow all this money, I'm not sure about the operations moving forward, so, it's like the perfect storm of five, six, seven different things that, that have made the deals complicated, and uh, I think those variables are starting to, to get a little bit, uh, more in-focus, uh, moving forward. Or, or, or people are just getting impatient, tired of not buying deals.

0:18:38 Carl Dean: Yeah.

0:18:39 Nick Fluellen: And uh, and maybe a combination of both, but, but I, I think deals are about to start happening again.

0:18:45 Carl Dean: Robert for you, what, what's been like the biggest concern from a buying s... S... Standpoint, selling, Re-Financing? I mean what's, what's been your troubles and issues?

0:18:53 Robert Martinez: Yeah, you know, Nick, you're a smart guy, I mean, you've taken all my talking points away. Alright, that, that, that's exactly it from the buyer side, right? 'Cause it's all about the NOI. Revenue minus expenses equals NOI. And what that NOI is, is that, that, that based on the cap rate is what I'm gonna pay... Well, if collections are down, that means my NOI is going down. That means I'm over-paying for something, right? If, if expenses are going up like taxes and insurance that weren't going up before, now I have lower NOI. Again, I'm over-paying. The big fear for buyers is that they're gonna buy something today that will be worth less next week...

0:19:25 Carl Dean: Mm-hmm.

0:19:25 Robert Martinez: Next month, when the next turn, the next turn, turn of, uh, rent's due, right? July is the last month of the exten... Of the enhanced extended benefits for unemployment. What happens next month? Is it, is it... Are they gonna stop paying? Or, is everyone just gonna go back to work? You know, I, I don't really know, right? I know a lot of people were making more money staying home than what they were, uh, working before. So there's a lot of uncertainty umm, now, the caveat to it is though, is that the riverboat gambler in everybody is coming out, capitalism's coming out. I got money, I got money, I gotta get it to work. Well, as Nick said when the rates are coming down, "Hey, I might be a buyer right now. Yeah, I can't get rates like that before COVID, now they're really, really low." The problem is a lot of these guys though, that they're tied up to the bonds on the sales. They're, they're, uh... What do you call it, Brandon? They're, they're pre-pays or they're, they're yield managers or whatever that... The, uh... The fees is, is going up. You know, the, that they would... The deal we wanted down in South Texas that I walked away from, he, he doesn't wanna lower his price right now than at what he was... Than what he sold to, what he was gonna sell to me back in March, even though his collections are down because his defeasance has gone way up. And he doesn't like...

0:20:30 Carl Dean: Right.

0:20:31 Robert Martinez: "Well, I'm gonna lose money now. I, I, I can't give you a better discount. I know it's not worth what it was before, but my defeasance has gone up." So there's a lot of factors that affect the buying process that were not there the, the day before COVID, but if rates keep falling, man, and I mean to tell you what? Necessity is the mother of invention. People will find a way to do deals, or you can refinance your own deals. I mean, we, we got a deal with Brandon, we're gonna refinance this month and return, you know, the lion's share of all the equity back. Uh, we've got a couple other deals that are turning that we might even buy back ourselves, buy, buy our old investors out and then put new investors in because those are deals that we know and, and the, and the, the, the, the interest rates are so low. It makes sense to do it.

0:21:08 Carl Dean: Yeah.

0:21:08 Robert Martinez: Five years, IO, you're gonna pay three and a quarter? Done.

0:21:12 Carl Dean: So for some of the people who may be watching who are more, you know, beginner, intermediate investors or maybe just past investors, could you kind of, or uh, could one of you try to touch on it in more detail what, what you mean with the defeasance fee? So obviously, that's a, that's a, that's a basically a fee you have to pay if you sell the deal too early, or whatever the case may be. Could you explain that in a little bit more detail?

0:21:31 Brandon Brown: Yeah, I mean in a nutshell, it's basically making sure the lender, when they securitize the loan, it's basically just a guarantee to the people that buy it, that they're gonna get that interest. That's essentially what it is.

[overlapping conversation]

0:21:42 Carl Dean: So the longer you pay on it, the let, the more it goes down?

0:21:45 Brandon Brown: Yeah, they're gonna get that interest, no matter what. I mean, if your... If your no rate, for instance, is 4%, and there's five years left in the loan, they're gonna look at what the remaining term of treasury is, which is the five-year treasury, which is probably, what? I don't know, 40 basis points or something right now, maybe 20 basis points. So you've got a pretty big delta there. Well, that delta is essentially your penalty, year over year, for five years remaining, pretty punitive. You can kind of figure the math out if you're looking at three and three quarters over five years...

0:22:17 Carl Dean: So, so it's...

0:22:17 Brandon Brown: That's essentially the basic way to explain it.

0:22:21 Carl Dean: Is that what caused his, his defeasance fee or yield maintenance, whatever it was, is that what caused it to, to increase?

0:22:27 Brandon Brown: Correct, because even in Robert's scenario on a Re-Fi, uh, the 10 year... You know, the treasury is dropping the delta between your current interest rate on your note and the remaining term of treasury that gets wider. The wider that gets, the penalty goes up.

0:22:45 Carl Dean: Gotcha.

0:22:45 Brandon Brown: Umm, yeah. So, it's, it's kind of double-edged sword that yeah, we, were looking at a 4.25 rate, now we're at a 3.25 rate on our new loan but our pre-payment penalty went up. So you just have to run the math to figure out the, the return.

0:23:04 Carl Dean: Okay.

0:23:04 Brandon Brown: And when, when, you know, when you're, when you're home free and, you know, on a refinance like Robert's with five years IO, you get home free pretty quickly.

0:23:11 Carl Dean: Okay.

0:23:12 Robert Martinez: Yeah, and the bank always gets its money, Carl. There's, there's always no doubt.

[overlapping conversation]


0:23:14 Carl Dean: Yeah, no, no. I'm just, I wanna make sure everyone understands that. Basically, in a nutshell, it's...

[overlapping conversation]

0:23:16 Robert Martinez: It's not worth debating.

0:23:19 Carl Dean: It's the delta between your interest rate and where the five-year or 10-year, whatever is, and it's, you know, as that goes down, that increases your margin, so you, you pay more. So I just wanted to make sure that now we're clear...

0:23:28 Brandon Brown: Yeah, yield maintenance is just making sure they get their yield, basically.

0:23:32 Robert Martinez: Their money. They make sure they get their money.

0:23:34 Carl Dean: Umm, so you both have kind of said, you know, deals have started to bounce back... You know, before I get into that question, I had a question that I was curious about. Are you seeing, umm, sellers or buyers look at deals, and when they're underwriting deals... Like, I was looking at a deal the other day and there was a significant amount of, umm, you know, collections due, bad debt, right? Because people stopped paying their rent and they're starting to take advantage of the system or whatever else. And the seller's mindset was, "Well, that's just because of COVID, that's not normal operations." And so he's, you know, trying to get me to exclude looking at that. And so, how, how are... Obviously, from a lending standpoint, you have to look at that stuff and underwrite the deal as the numbers show currently. Are you seeing people that are kind of, you know, looking past that as a buyer saying, "Well, that's, that is because of COVID and if I ran the numbers based on X, Y and Z over, you know, maybe not using a T3, maybe I use a T... You know, a T6, trending six months," are you seeing people look past that or try to get around that at all? Like the, "Oh, that's because of COVID," kinda thing, right? My numbers should be, should be X, Y, and Z, but because of COVID, I've got $40,000 of bad debt that's crushing me over the last two months? Does that make sense?

0:24:50 Brandon Brown: Sure, yeah. I mean, I'll let Nick chime in on what he thinks, you know, his conversations are with buyers or even sellers talking about BOVs, but umm, you know, on my side, it really depends on the real estate, right? I had a conversation with someone earlier today on a deal, very similar kinda, the economics were off. You know, it's 91% occupied, but it's 78% economic. That's not gonna climb with the agency lenders, really, on getting you the leverage you need, so do you like the real estate? Do you believe in the deal? And in this instance, it probably wasn't an agency kind of, go put yourself and lock yourself in kind of loan. Umm, you know, Robert and Sam and I discussed that on a handful of acquisitions over the past 18 months and he's in some floaters right now with no pre-payment penalty at sub 3% interest rates. So we have flex...

0:25:37 Carl Dean: Yeah.

0:25:37 Brandon Brown: So I think that's what I would ask in that scenario to the buyer is like, "Do you even care?" You know? Is the real estate worthy, are the rents there? If your plan's a million and a half dollar... You know, rehab anyways, then who really cares what they're doing right now and their credit loss, we can get in there. COVID's gonna go away. You're gonna be able to evict these guys. And then I just see it as Robert and his crew gets into those 30 units and flips 'em quicker, and now we got something to market quicker.

0:26:06 Carl Dean: Mm-hmm.

0:26:07 Brandon Brown: And get home free quicker. Meaning in 18 months versus 24 months, you're looking at a Re-Fi. Umm, you know, that's just, I'm a glass half full kinda guy and I, that's how I see it if it's a good piece of real estate. Go take it down.

0:26:22 Carl Dean: And then obviously you believe in the operator. But what, what about you, Nick? What, what...

0:26:27 Nick Fluellen: Yeah, I mean, I, I 100% agree with that. I think, umm, I think you have, umm... You know, I, I think like every deal is gonna p... Probably have some sort of economic, uh... You know, it's... It's gonna be off a little bit economically now, sometimes the rental income's up, but you still don't have your late fees, you still have other areas, sometimes uh, the rubs fees are down, because you know some people that aren't paying the rent are certainly not paying, paying that either. And so you know I, I think... I think our focus as brokers is, "Hey look, I want you to look at this from a five-year perspective, and at the end of the day, is this really changing what you were hoping to accomplish?" Umm, and, and, and of course everybody has a different attitude on, on how soon we're gonna come out of this and uh, and, and what that looks like. But I think if you can get a good reasonable loan today, and uh, and you still love the real estate, you still love the strategy and you still love the, the play on the deal, I think, umm, you know, I think those deals are, are, are likely to uh, to, to trade.

0:27:34 Nick Fluellen: Umm, you know the economics off on some of these ones that we're looking at, yes, they, they are off and, umm, you know I can't say with 100% certainty what the investor reaction to that's gonna be because we're, we're kinda dealing with that right now, is we are just now starting to launch some deals, but umm, I, I, I, I feel that the initial reply, just for example, on the Spring Lake deal that we just launched this week, umm, you know we've had a 150 CA's, umm, you know downloaded already, or executed already, and uh, and that's a huge turn out regardless uh, and if you look at his numbers, you know, yeah, some of the economics are off, but uh, but at the end of the day, I mean they're not off much and, and people that wanna buy that piece of real estate are, are willing to... I don't wanna say give them full credit as if uh, it didn't happen, but they're willing to chalk it up to, "Hey, yup, your leasing has still been strong, I realize you can't get rid of these folks uh, during, during this time without evictions," but you know based on how, how it's going out there, you know I feel confident if I had to pick these people tomorrow, I can get these units leased quickly and they'll give them some type of credit for that.

0:28:42 Nick Fluellen: Same thing with uh, in our underwriting on late fees, you know they have been non-existent for the last few months, we've basically taken a T12 of pre-COVID for late fees, and kinda put that in as, as the late fee number, uh, be... Because we know the late fees will just pick right back up, once, once it's past this, so it's uncharted territory you know, we're, we're gonna figure it out on the fly here and see how uh, folks are underwriting it, but I think... I think that, that makes sense in general, as long as you can get a, a decent loan. I mean at the end of the day, if you can't get it a, a decent loan, but kills your LTV and knocks you down to... From a 75% to a 65% LTV, yeah, it's gonna affect the price, but if you can get a uh, a fairly similar loan, umm, then, then I think we can still get these, these deals done at, at pretty good numbers that, that sellers would be happy with.

0:29:29 Robert Martinez: Hey Carl, like if I can jump in real quick. So I just wanna say that from, from a buying side, if what you're... What you're asking the buyer to do is to accept something less than what he would have had to accept pre-COVID and pay the same price. That's what you're asking them to do. And you're basically... You're, you're just squeezing, you're putting your, your thumb on him to see how much he's willing to take, and really that's why you're seeing it slow down, 'cause a lot of guys don't wanna... Don't want that pressure. However, if there are deals out there that are at the right corner, of the right corner, you know if there's lesser competition, it does represent an opportunity to maybe acquire what nobody else wants to acquire, right? If you think we're gonna go back to the norm by X period of time, then maybe you can pick up a couple of deals with less competition, so I want to... I want to ask Nick. Nick, are you seeing less buyers right now, or are you seeing more buyers because of the pent up demand?

0:30:26 Nick Fluellen: Well, yeah, so I, I... That... That's a great question, and, and, and I've been interested to, to know the answer to that myself. I, I think we're seeing a higher or as high CA counts. CA count 'cause people wanna look at deals 'cause they're just... They're finally happy to see a deal hit the market. My, my prediction would be that we'll have less offer activity, and the offers certainly will not be quite as high as, as they were pre-COVID. I, I think you know we could have a, you know a, 5% delta, you know I would say that's been fairly uh standard. I mean some deals more, but, but on a deal that wasn't hit as hard as, as some others, you know... A 4%-5% delta in pricing, pre-COVID till now, umm, and, and on ones that were hit a little harder more, but I, I think the offer activity will be less, I think the uh, the CA activity will be similar or, or higher, property tour activity has been good so far uh, but you know that's also kind of interesting, you wonder if people are gonna wanna even get out and walk around and be around a bunch of other people or, or what and so far that doesn't seem to be down, but, but you know we're early. So, so that's a little hard to say. But I, I would anticipate the offer activity will be less and will be a little lower.

0:31:39 Robert Martinez: Well that might lead into your next question Carl, it's like, you know because a lot of buyers, you know if we, were saying... Even though there's pent up demand, they want a deal. They want a deal on the deal, they want a discount, they don't wanna pay. We had a couple... We have a deal that we had, uh, uh, for sale, and we had a couple of offers come in recently, they're way below what the offers we... That we rejected back in February, you know, like well, who is this guy, you'd normally get, get rid of him. We're not gonna even respond to the offer, right?

0:32:04 Carl Dean: Yeah.

0:32:04 Robert Martinez: So it's one of those things where I don't know... I think every buyer wants a discount, and if the sellers aren't ready to give it up yet, then that's going to affe... That's going to affect your, your frequency in your velocity of deal flow.

0:32:17 Carl Dean: Mm-hmm.

0:32:17 Nick Fluellen: One, one other thing I'll add that, that's happened on this deal is with, you know just the, the... Some of the crazy things that you've seen some of these states do during this time period, and that's been obviously interesting to follow, alright, we, we've... We've seen a couple of people come from you know the West Coast that have said, "I gotta get my money out of California into somewhere else." And so they're used to super-low cap rates out there, so they come here and maybe what... You know the cap rate that might seem a little low to people like yourself, Robert who are, who are buying you know lots of deals in Texas, you know they look at it and compared to California, it doesn't look that low, and uh, and so... I... I... We have... We've seen a few people. I literally had a call from our Palo Alto office and I had a call from, uh, our Atlanta Office, uh, of, of, you know, folks, that have a big client. It's like, "I really wanna try to move some money into Texas right now."

0:33:13 Carl Dean: Mm-hmm.

0:33:13 Nick Fluellen: So, you know, we'll see if, if they end up being, uh, players for this deal. Early in my career, most of the money came from California. And then, that kind of settled, uh, and, and, and I won't say it went away, but a lot of the local investors, uh, you know, started winning a lot more of these deals over the last five, six, seven, eight years. Umm, and so, it'll be interesting to see as, uh, as a response to how some of these states have, have, uh, maybe not been as business-friendly as others, if you see money coming in from the coast, if you see money coming in from New York and, and some of those different places that, uh, that maybe, some investors have been unhappy with, with how has this been handled.

0:33:51 Carl Dean: That makes sense.

0:33:51 Brandon Brown: Good point.

0:33:53 Carl Dean: Yeah. So, you know, it sounds like the deal flow is starting to pick back up. I know both of you, uh, have kind of mentioned that it's, it's, you know, you're starting to see more deals. You're starting to see more people want to Re-Fi or, you know. Obviously, in my email, I can tell that there's, there have been some pick up in, in deal flow. Uh, is that kind of across the board? You agree with that point? You, you're starting to see it kind of pick back up as far as, you know, people willing to sell a deal or we're trying to get a Re-Fi done?

0:34:18 Brandon Brown: I agree. Definitely, in the last three weeks, each week, there's a little bit more, you know, more, more and more momentum and I guess you could say. Umm, a lot more people, you know, wanting to kick the tires on looking at properties or, uh, you know, it's our pipeline here specifically. I know we've got, you know, several Re-Fis that have kinda come in over the past week or so. As they kinda look at their P&Ls like Nick was mentioning and April was fine, May was fine, June was fine. We're still leased in July doing fine. And so, they wanna go ahead and take a stab at it and see what could happen and...

0:34:56 Nick Fluellen: Yeah, yeah. I mean I would say, you know, we, we just launched this one deal. We literally have a DI at this time, a new listing up today. We literally have a deal scheduled, uh, to launch in each of the next four weeks. I got a couple that have a student component so we're waiting to get a little closer to fall uh, but, but the lease-ups already been going really, really well on those deals. Umm, so, so that the plan on those would be early August but we have, we have a deal that we're launching next week. This one that we sent it today we'll be launching in two weeks. And then, we have another one, you know, the, the following week after that so, we, we, we'll have four straight weeks with, with launching at least one deal and then, we have a couple other ones in works that we're, that we're trying to figure out the timing on so, yeah, I think it'll pick up. Obviously, the, the wild card will be if, uh, you know, if Texas decides to shut it down a little bit, uh, for a little while again. You know, that, that could be a hiccup obviously, but, uh, you know, at this point, umm, you know, that, that's... Uh, we, we're certainly hoping that it doesn't happen.

0:35:57 Carl Dean: Yeah.

0:35:57 Robert Martinez: Hey, Nick, are, are you seeing buyers 'cause I haven't made an offer yet? Are you seeing buyers, putting the condition where if there is another shutdown or a COVID-19 event that, "Hey, I want my earnest money back"?

0:36:08 Nick Fluellen: I fully expect to either A, see that or B, see some sort of, uh, performance mechanism that I, I don't think, umm, you know, I... You know. Well, we, we, I don't think people are gonna get financing contingency still, uh, you know. Some will ask, I'm sure but I doubt the ultimate winner is gonna have, have a lot of contingencies but I do expect that, that'll be something that people ask for it, which is A, either my due diligence gets extended if, if there is some sort of mandated, uh, you know, stay-at-home, uh, you know, or shelter in place-type of order. Uh, it gets extended by whatever however many days I had left when that happened or, umm, or, you know, or I have the, the right to terminate or, or right to extend the contract or, or something along those lines but, yeah, I, uh, I, I haven't seen it yet but I, I'm not gonna be at all surprised.

0:37:00 Nick Fluellen: I do see... And actually, the last two deals we, we closed which were both bought by the same buyer, umm, initially in his LOI, it was accepted. That was... Hey, our timeline didn't start... We were... During, it was during shelter in place so my timeline doesn't start until they say, "Yeah, the shelter in place has been lifted," but before we got it, the contract signed, it was lifted. So, it didn't end up coming into play but I, I fully expect this to be more of, more of that type of, of language, especially right now with, with some of our cases on, on the rise here.

0:37:31 Carl Dean: Yeah. Robert, this might be a good question for you. It just came in here in the comments or question box, and it's, it's specific to, uh, Congress talking about kind of lengthening the period for, you know, preventing evictions. And, I, you know, I, I talked with some investors that, that have said, "Look, these, you know, people, there are people taking advantage of the system, you know." It's more or less on these C class deals where they're very, uh, you know, the, the demographic is very much like service industry-related type of, uh, you know, tenants and, uh, you know, some of them are, just can't pay and others are taking advantage and they just, they've, they've got kind of, you know, tenants not paying their rent and it's just kind of a growing pain. Uh, do you see this becoming more of an issue and, and do you think you could really squeeze some people out of, you know, a comfortable position with their, with their assets?

0:38:20 Robert Martinez: Yeah, you know, I, I think it's a, it's a lot to answer there. I think we're very fortunate to be in Texas versus a lot of other blue states, which, you know, they're making a sign like, "Rent, rent-free forever," and, "No Evictions ever." In Texas, I think it's gonna be a little bit harder hand but until you pull off the pacifier from the baby, we're not gonna go back to the norm, simple as that. You know, you've gotta say, "We're not gonna take care of you anymore." Nobody took care of nobody during the recession. That's when my career was born during the recession. That's when I was buying deals with Brandon Brown, who was there when I started Rockstar. And buying them at $15,000 a door, right? Until they take the pacifier out of everybody's mouth, we're not gonna get better. Uh, now, also, I'm not gonna live on rumor. One of the things that we did during, during, uh, the shutdown was that, we made sure that we control the narrative. We made sure that we soft called, warm called all of our investors. I mean, yeah, well, for our investors ... Warm called... Soft called our investors but also, our, our, our residents and let them know that help was coming. Here's real information. I didn't want them getting their information from Facebook. I didn't want them getting their information from, from, uh, Instagram or, or, or, or from their mom who got their information from aunt Ruthie, you know.

0:39:24 Robert Martinez: I wanted to make sure that we gave them the right information so we could control the narrative. I think it's very very important because there's a lot of misinformation going around. I don't want my residents ever thinking that this is gonna last forever. I want them understanding that they have an obligation to pay their rent. And if they... And we are collecting on that. And if they don't pay, we're going to have to go through what the legal contract between us and them says, "I'm going to provide quality housing. I'm going to make sure basic services exist, water, a roof over your head, and cold air condition. You're going to pay your rent." It's a very simple thing because that's the same agreement I had with Brandon Brown, the vendors they... That they all work with, I pay my mortgage, they lend me the money. Very simple, the best, best business partner in the world is the bank. If you, if you, if you understand all that they wanted to get paid while I'm in the same boat, we have an agreement. So you just need to control the narrative within your residents and not let them run wild and think that they're not going to pay rent.

0:40:18 Carl Dean: Yeah, and you're... So you're saying in... 'Cause I'm, I'm obviously aware of what we did behind the scenes, but like sending out emails to all the tenants and having the office manager call them and kind of work through those problems and be a little sympathetic and empathetic towards their situation. And it kind of encourages them to continue paying the rent and do all they can to, to stay in good terms.

[overlapping conversation]

0:40:36 Robert Martinez: The worst thing you can do is put your head in the sand like an ostrich. And many people are doing that. And they're just waiting for this to pass. And they're just letting whatever God says is gonna happen, happen. That's not how it works. We have thought, we have free will, pick up the phone, talk to your residents, pick up to the phone, talk to your, your investors, and keep the lines of communication occurring. I think one of the great things that COVID-19 is a... Has started was more communication. I mean, I've been on more webinars in the last 90 days than I can, uh, you know, in, in the last uh, 13 years of, of my career, and this is gonna continue. We're gonna continue to do webinars. You know, whenever you have a big event like this, it breaks old habits and it starts new ones. And I think we're going to be doing a lot more communication like this, but you've got to communicate.

0:41:18 Carl Dean: Mm-hmm.

0:41:18 Robert Martinez: Communication is the key to life. Tell me what you need, tell me what you want and let me see if I can do it for you. If you don't communicate, you, you, you're gonna be at zero.

0:41:25 Carl Dean: Yeah. All right. So, so now some of the questions really, really for you Brandon, uh specifically is, you know, uh obviously lenders are looking at this environment a little differently. How are they underwriting deals differently than they were before?

0:41:41 Brandon Brown: Yeah, I mean, as far as the actual underwriting of the properties, it's still kind of the, the same. The impact is what we're talking about, where, you know, typically, we're underwriting rental collections on a T3 and we're looking at other income and rubs on a 12-month basis. Of which, it's really like we're getting nine months' worth of credit for what should be 12 months right now, right? They are trying to sell that story on, uh, properties has kinda been tough. Umm, there's a little bit of an impact there. Umm, you know, depending on lenders, depending on the program, whether it's a small balance world or uh, large loans with the agencies. There are some, uh, cash-out refinance, for instance in Houston with Freddie SBL, they want to be at a 70% level and a higher DCR than they were post-COVID or pre-COVID. But you know, it just kind of depends from, from deal to deal.

0:42:33 Brandon Brown: Uh, I would say that in general, you know, leverage is off a little bit, just as a whole in the market, whether it be from life company to bank, to, uh, you know, agency and a whole I guess. You know, just from the standpoint of... Of a higher price coverage ratios being required. It's a case basis that too, right? The sponsorship plays a role in a lot of things, too. Umm, for instance, we have a, uh, a, a, a deal we've shopped to some banks, and the banks' comments are, "I'm at 65 or 70%." Now, if it's an existing customer, we're going to be at our typical 75% loan to cost like we normally would because we have a history there and then, you know, they're an existing customer. So that's, that's really kind of all the impact that I see from an underwriting standpoint. Obviously, there's a refocus on the collections and what's happening, you know, with COVID. But I mean, I know Robert's properties pretty well obviously, and we, we know we've seen a lot of other, uh, of our legacy clients assets during this time and checking in with them and looking at their properties. And, and everybody's doing pretty darn well if you're a decent operator with a capitalized property. Umm, in a lot of instances collections aren't off, but they're actually up, it's, it's impressive.

0:43:48 Carl Dean: Yeah, So what about, uh, like, uh, acquisition financing for a stabilized deal versus like a value add? What are you seeing as far as the difference?

0:43:56 Brandon Brown: Yeah, I mean, on the acquisition side, obviously for something stable, if we're looking at the agency, you have that 12-month P&I to consider. Umm, and the way I look at that is, if Robert said, "Hey, I, you know, I have to raise this extra million dollars for the P&I." Well, I also know Robert's business plan pretty well and the improvements that they like to go do on an asset. And we all know that doesn't happen in the first six to 10 months anyways, that a lot of those projects happen in month 10 or 12 or even 14 for that matter. Umm, especially when it comes to maybe interior stuff. So the way I look at it is, yeah, we're going to bring that money to the table today. But with the release provision changing to basically six months out, looking at month seven, eight, nine, we're confident we can get it in month nine. Well, there's some rehab dollars we have available, give the rest back to the group, put the rest on the operating account. Whatever we need to do, but l... Look at it, I've got to raise extra equity, look at it as, "Actually that's part of my rehab fund potentially that I'll get back, in, you know, in nine months." That's on the stabilized side.

0:45:02 Brandon Brown: On the, on the bridge side. It's, it's kind of like my scenario earlier where yeah the economics are off, but who cares? I'm looking at what it's going to be. And Nick made a good comment about... We're looking five years down the road, right? Not cash on cash for 2020, who cares. We're looking at that five-year IRR and what we're really going to give to the investors. So on that front, the impact has really been the non-recourse bridge debt. Umm, the CLO market has all but gone away. Uh, there are groups that are still doing some non-recourse debt. Umm, some is cheaper than others. Some is a little bit more expensive and basically, they're just pricing it higher. They're going to put it on their balance sheet and then they'll go sell that paper at some other time when that market's back.

0:45:48 Robert Martinez: So that's what... Oh, I'm sorry Brandon.

[overlapping conversation]

0:45:49 Nick Fluellen: I think that acquisition financing.

0:45:51 Robert Martinez: Yeah, Carl, what I was gonna say, so for everybody listening. You know, the bank is the largest investor in the property. Right? They own 65% of the deal, they own 75% of the deal, they own 80% of the deal depending on what the leverage was. All they're doing is trying to safeguard the property. All they're trying to do, it may be a little less return, but they're just trying to make sure the deal survives. That's all they're doing. And I think if you... If the syndicators or the investors can, can understand that message, yeah, maybe the ROI's a little bit less, but you've improved the financial health of that deal so much more right now. And, and, I could say that the guys who are getting hit the hardest right now are getting... And, and, and Brandon knows this and Nick knows this, are the guys that bought their deals in the last 12 months. That are going through that rehab phase, that are... That they were assuming X collections that took out the 80% LTV, right, or the 75% LTV. Those are the guys getting hit, hit the hardest right now because, you know, the NOI went south, and now taxes are going up and the insurance is going up and it just... Everything's going against them. So all the banks are doing is just safeguarding the investment.

0:46:51 Carl Dean: Mm-hmm.

0:46:51 Robert Martinez: It's not always fun to watch, but if you understand it, you get it.

0:46:54 Carl Dean: So... But o... Obviously, you're going through... Like a Re-Fi right now, so that's, that's something that's obviously a possibility. Correct, Brandon? Like, do you wanna Re-Fi right now in this market?

0:47:03 Brandon Brown: Oh, absolutely. No, we have quotes right now, the, the... The, the only, the only negative is just the asterisk of having to put up the P&I that you'd get back at a later time.

0:47:13 Carl Dean: Mm-hmm.

0:47:14 Brandon Brown: That's the only asterisk. Otherwise, you know, you're, you're, you're low three, low-low three, on this one where there's five years of interest-only on a cash-out Re-Fi. I mean it's... The market's there for the right, for the right deals and the right sponsors. Um... Th the, the capital's great. I mean the, the... Great money available, um... For qualified deals. And to hit on what Robert was saying, I think the properties that are gonna be struggling are the guys that stretched and overpaid two years ago and had some sort of agency or CMBS debt with a couple of years of IO and the IO's gone right now. And P&I's gone. And maybe they didn't capitalize it like Robert would, they didn't change out HVAC, they didn't do those things mechanically. And now the boilers are going out and things aren't working right, and they don't have the capital to, to sustain. Those are the opportunities, and I'm sure those are the guys that Nick's watching on the Trepp report to see if they're late on their payment for July or not.

0:48:12 Robert Martinez: Hey, hey guys. Breaking...

[overlapping conversation]

0:48:12 Brandon Brown: 'Cause the... The seller...

[overlapping conversation]

0:48:14 Robert Martinez: Breaking news. Breaking news, Brandon. This a new subject for you. One of the investors who's watching just said, "FYI, HISD just announced virtual learning, starting September 8th for six weeks. October 19th, parents can opt-in to continue online or start fade to fade... Face to face." So now you have everybody's kid home until the middle of October. Whoo.

0:48:36 Brandon Brown: Oh my God. I'm not gonna go home today. My wife's gonna freak out.


0:48:40 Carl Dean: So...

0:48:40 Robert Martinez: So Nick, Nick, How do you think that, that affects you, man, when you know that, that, that, uh, school? Right. Online learning. I know that you were looking at it... The... We were looking at in the South Texas is by a major university. Right? Now, these students don't even have to be there in town, they can be at home. Let's say they live in the Valley, let's say they live in San Antonio or in Houston and they were going to school there. Now they don't have to go, which means they don't have to sign the lease contracts, and if it's optional, that means it pretty much canceled your fall leases. How's that gonna affect everything?

0:49:11 Nick Fluellen: Yeah, I mean I, I think that's... We've been waiting to see. I know a lot of these, uh, these deals that have universities as, as drivers are, are, you know, are concerned about that for sure. Uh, and actually leasing has been pretty strong. We've got a couple in Nacogdoches right now. Leasing's been really, really strong there, um, you know. Uh... And, and so, yeah, I don't know. Again, it's, it's like so... Some of the time, I think everybody just needs to process and figure out, "Hey what, what is plan B here?" And, and, you know, are you... If it's just a partial, uh... You know, if, if it's like you said, it's, it's some of these, you know I know that's, that's public schools, right?

0:49:47 Nick Fluellen: But I mean if some of these are partial, umm, we're gonna start the school year, let everybody, you know, let this kind of die down a little bit before we go in person. You know, it's, it's gonna be interesting to see, like, do... Do you do a half-semester lease? Do you still have to go ahead and sign the whole lease? Who, who's gonna, who's gonna bend on that? You know? Which apartments are gonna say, "Oh, yeah, no, we'll work with you." Which are saying, "Hey, no you still gotta sign the whole... You know, the whole school year." So... Yeah I don't know. It's, it's not great news. You know. I mean, there's nothing positive about that, that news. Uh, but, you know, I figured some school district at some point would, would, would take that stance, um, and, and it'll be interesting to see how the dominoes fall. I, I don't know. Uh... I don't know what the response will be to that.

0:50:29 Carl Dean: Yeah.

0:50:30 Robert Martinez: Hey, hey Brandon, let's go to Napa Valley, take the family, let's just hang out there until mid-October.

0:50:37 Brandon Brown: Learn online. They can learn...

0:50:39 Robert Martinez: That'll make my wife happy. Let's go. Nick, you wanna come? Let's go.

0:50:41 Nick Fluellen: Alright, alright. I missed my Napa... I had a Napa trip this summer too, that I missed. So, yeah, I'm, I'm with you guys.

0:50:48 Robert Martinez: I gotta pick up some more wine, I already ran out.

0:50:51 Carl Dean: You know, one of the, the common questions I get from some of our students and just... Investors in general in passing at, at... You know, some of the small meet-ups we've had and whatnot, uh... Are asking, you know, "When is, when is the right time to be standing at the start line ready to, you know, attack?" Right? "When, when do you think is, is the right time to get in here and be cash ready and start to... " You know, start foaming at the mouth, ready to buy a deal? Like, when do you think that's gonna happen? Are we gonna see an influx in Q1, is NMHC in Jul... In January gonna be, you know, time to ball out? I mean, what, what, what do you guys think as far as, you know... Nobody has a crystal ball, but if you were to say, you know, when a good time is to be ready to, to, to buy in some, you know, kinda capitalize off some of these people who may be forced to exit their deal, what, what do you think... What are your thoughts on that?

0:51:41 Brandon Brown: I think now, I think you get prepared now. I think it's one of those things, where, when you see it happening, you're kinda late to the game.

0:51:48 Carl Dean: Mm-hmm.

0:51:49 Brandon Brown: Right? I mean, have your ducks in a row now, be talking to your investors, like Robert said, umm... You know, be talking to Nick daily on what you're looking for as a, as a buyer and... Real estate's real estate, you're not buying it for, you know, 2020. You're buying it for... Is that five years, seven years, whatever it is.

0:52:11 Nick Fluellen: Well, and you know R... Robert alluded to, you know, "Hey, I, I started my business after the recession," right, or during the recession, even then, and, and look, if I, if I were to name the top 10, you know, multi-family owners over the last, you know five, 10 years, you know, most of those guys really got going after the last downturn, or were really active, if they were already going before, they got real, real active after that. I mean, I think... You know, we've all been sitting around saying, "Man, this market's so good, so good, so good. I can't wait for a little bit of a reset." Well, if this isn't a reset, I don't know what reset you're waiting for. I mean, you know, the, the, the, the silver lining with this reset is that, you happen to have uh, interest rates in the high twos, low threes, you know...

0:52:58 Carl Dean: Yeah.

0:53:00 Nick Fluellen: And uh, and really, the fundamentals aren't bad, you just have some, some... You know, an issue that nobody ever would have anticipated that, that we're dealing with. So I mean, I 100% agree, I, I think if you're not looking and gearing up right now, then, then you're gonna look back in, in few years and be like, "Oh man, I missed an opportunity there. I really had a chance to, to buy a, a very good deal. I probably could have gotten a little bit of a discount. I could have locked in a really, really low-interest rate, and now the market's kinda taken off again and, you know, I've, I've missed out a little bit." So yeah, I, I, I think, I think now is a, is a good time to be really, really serious about it.

0:53:37 Robert Martinez: You know, Nick, you bring up a really good point. My very first deal, I had it locked-in at 3.2. This was back in 2009, October, and I forgot, uh, it was right during the recession, and we asked for a price deduct. My business partner wanted a price deduct to 2.9, and they wouldn't do it. And that deal sat there until we picked it up again in February at the 2.9, and it's worth like $11 million today. But the question is... But the question, "Did that $300,000 really make that big a difference?" You know, holding on to that $300,000 deduct, I could've lost that deal. That's probably the second greatest deal that I own, and I almost lost it because of a couple hundred thousand dollars. So if you're thinking long-term... Right? What's a couple hundred thousand. When you're talking 10, 15, $20 million deals? It's nothing.

0:54:23 Carl Dean: Yeah.

0:54:23 Robert Martinez: Right? So it's one of those things where you have to... You have to have a little bit of cowboy in you, right? You gotta think future, you gotta think, "We're not buying it for today," as Brandon said. You're not buying it for 2020. 2020 is gonna be a giant asterisk, you know, like in the history books. We're buying it for 20 some... You know, for 2022 to 2030, you know. And so you just gotta think about those things, so I think that's a really good point there.

0:54:44 Carl Dean: Yeah, you kinda gotta see through the weeds, right? Like there's so...

0:54:46 Robert Martinez: Yeah.

0:54:47 Carl Dean: There's so much noise, so much going on with all this stuff you, you kinda gotta look past that and say, "Well, the fundamentals of this deal are pretty good." You know, we know what's happened, we know how it's affected these deals, the economy overall, etcetera, but you, you, you gotta be able to see through the weeds, see the potential, like you said, right? That's what lenders are looking for, they're looking for the potential, they are looking for security and knowing that this person can pull off what they say they can. Uh, and if you can see through the weeds, I think there's some really good opportunities out there for a lot of people. Umm, you know, that's, that's, that's it for the questions I have, guys. Is, is there anything that you guys wanna add? I mean, I know you, you kind of hinted, Nick, on the, on the silver lining, and I think, you know, we're kinda talking about it right now, right? It's... Interest rates are really low. There are definitely some opportunities out there where you might be able to get a deal little cheaper than you could, um, and, and that may continue for the next six months, right? Where it's... You know, this is, this is a good buying opportunity for those who are serious about it, umm, and any other silver linings or anything else you guys wanna mention?

0:55:42 Nick Fluellen: Yeah, I'll mention one other thing, I mean, yeah. Look, first of all, yeah, less competition, slightly lower prices, interest rates, you know, being at historical lows... I mean, great, you know, that, that's all really, really positive. I think for, for one of the things that we've realized during this time is we, you know, have had time to kind of take a, a step back and look at, at our business as a whole is, is, "How many other fairly large markets are around us, not just in Texas, but even in surrounding states that really aren't being covered that much?" And we've had a few experiences where we happen to have a client down there that we've been able to sell a deal there. And so that is, what we've really done is, is beefed up, uh, our secondary markets team during this time.

0:56:29 Nick Fluellen: And so it's not just East Texas, Central Texas, West Texas, but, you know, New Mexico, Oklahoma, uh, you know, Arkansas, Louisiana, even on into some parts of Mississippi and, and all the way up to Omaha, Nebraska, and so all that to say is, is we're really, really excited about just other opportunities independent, uh, of, of these major markets that, that we've both done really well in. And so those, those opportunities aren't gonna cease by any means, but I, I think we're, we're... You know, I think the silver lining for us has been just being able to kinda dig into some new areas, new opportunities, uh, for, for people looking for cash flow and just get solid real estate and, and good, and good markets, so I think that's gonna be a really good thing for, for our team moving forward and for our, our clients and I... Investors moving forward, who may at various points in time feel like DFW is overheated, Houston's overheated, Austin's overheated, you know, just give people some other options, uh, and opportunities to look at some of these other markets.

0:57:28 Carl Dean: Yeah. What about you, Brandon?

0:57:31 Brandon Brown: Yeah, same thing, I kinda mentioned it earlier, just you know, having actually, the time to kinda take a breath, take a look at, you know, your internal procedures, processes or models, umm, you know, I know that uh, our team has really beefed up our uh sales comps, you know, talking with appraisers, trading information, just all that data that really helps us a lot of times, you know, make the deal work, uh get few more dollars, whatever it may be, uh, and then also just kinda take a step back and look at the market. Umm, you know, I tell the young guys in the office that, you know, I started in uh early 2001 in the business, and then 9/11 hit. And it was kind of a bummer in a way, but at the same time, the principal of the firm, he said, "You know what, it's a great time to call people because they're gonna take your call."

0:58:25 Carl Dean: Mm-hmm.

0:58:25 Brandon Brown: And I think the same thing now, you know, a lot more people are willing to just hear what you have to say, and Nick hit on that earlier, just, you know, he's not selling a lot of deals, but just being a resource, you know, uh, someone in the market that just kind of, "Here's what's going on," they wanna hear from me on, "Hey, what are you hearing from other guys that own property?" So it's been, yeah, a silver lining. It's been able to just, you know, make, make those connections again, and take a step back, take a look at the market as a whole, um, and I, I'm, I'm still very bullish. I think fundamentals are great like Nick said...

0:59:01 Carl Dean: Yes.

0:59:01 Brandon Brown: Despite, uh, what's going on.

0:59:03 Carl Dean: Yeah, I, I, I, I think for, for passive investors too, you know, the, the fact that, you know, uh... The, the way the banks are underwriting these deals and making them put you know 12 months expenses or whatever, you know, in escrow, I think it gives you know, a little bit more sense of stability for some of the passive investors knowing that, you know, the operator that they're buying that you're investing with, right? They're a little bit protected, right, they kinda have training wheels on because the lenders and how they're underwriting right now, so it kinda gives them a little more confidence and knowing that, you know, this person took out enough money and set enough money aside, in case something happens. What do you think, Robert?

0:59:38 Robert Martinez: Yeah, you know... Yeah, I wanted to add, you know when I did my first deal in 2010, I pay 6.25% interest rate, six and a half, six and a quarter, and the fundamentals of deals today are so much better than back then, you're talking half, at three and a quarter. At three and a half. So if you're ready to take advantage of that, now is a good time to invest in the right spots, the right location with the right syndicator, now's a great time to invest, but if you're not ready, now's an also another great time to educate yourself. To find some education and so you can be ready. I'd, I'd love to ask Nick and Bran... Uh, Brandon, when they think that those big deals are gonna come when those forbearance, you know, just things just start to kick in you're looking at another six to nine months, you know maybe up... Maybe upwards of a year before those guys that took a forbearance, right, are, are gonna have to make a decision. Do I pay back the forbearance or do I sell the deal, right? Though it's gonna be all those guys that bought in the last 24 months that weren't able to make their desk service, but if you wanna be ready, now is a great time to, to ed... Educate yourself, to find a mentor. Hey at Rockstar Academy we launched a new site that gives you a chance to take videos, watch it by me, watch how I analyze deals, how I look at the deals or even get personal mentoring. Carl, you said we have one guy left, right? One spot left.

1:00:45 Carl Dean: Yeah.

1:00:46 Robert Martinez: For, for a one-on-one coaching, uh, uh, the, the, the inaugural class. I'll introduce you to Brandon Brown, you get to sit down with Nick, Nick. You'll get to sit down with all the other brokers and we'll talk and try to find you a deal and get you going so you can look at those deals when they come due in the beginning of 2021. Nick, what do you think about that man? Do you think you're gonna see a lot of deal flow in the... In Q1, Q2?

1:01:06 Nick Fluellen: Yeah, yeah, I do. And I, I think if you didn't have enough money to keep your deal out of forbearance, then I don't know why all of a sudden, you're gonna have enough money you know, six, nine months later to, to, you know, bail yourself out. I mean, I think it's uh, I think, generally speaking, that's, that's a sinking ship, and, and somebody is, is probably, you know, at some point, will give up and just punt and move on down to the next deal and, and you know, let somebody else re-capitalize the deal and take it over or stuff. I'm sure some will save it, but I do, I think that, that will be uh... You'll see a wave of, of those deals coming at some point.

1:01:40 Robert Martinez: Hey, Brandon, if people were to contact you at LMI Capital, would you be able to provide for them a list of those guys that, that took the uh forbearance bonus?

1:01:49 Brandon Brown: Uh...

1:01:49 Robert Martinez: Do you have access to that? Is that public record?

1:01:54 Brandon Brown: That's a good question. I mean, if it's a uh, if it's a, if it's in a, if it's an agency loan or a CMBS Loan, I'm not sure if Trepp's following that or not. Umm, there are sources that databases that follow those payments and P&Ls and, and it's all public record because it's a securitized deal, uh, if they took a forbearance, I am assuming those people would have that note as well. I think…

[overlapping conversation]

1:02:16 Robert Martinez: Umm. Well, Brandon, I am going to follow up with you on that because I wanna know then if that list exists.

1:02:21 Brandon Brown: Yeah, look, I think that you know, the main question here really is, right, is when are these deals coming, and I think early next year, there's gonna be a lot of this, there's going to be... The forbearance has gone away, there's going to be... The P&I kicked in after the interest only went away, the property is not capitalized. They're... You know, they're starting to bleed a little bit and there's gonna be opportunity... I'm looking at one now, I can't quite talk about, it's in Central Texas, and it's a scenario where someone has struck a deal to you know, basically buy the property a little bit above the note, umm, because the guys that are on the note have been working with that lender to, you know, give them the time to make this sale and so this person is gonna be buying it at about a million dollars or so less than it traded in 20, what? Uh, 18, I guess.

1:03:11 Carl Dean: Wow.

1:03:11 Brandon Brown: So starting to kinda see some of that start to play out.

1:03:14 Carl Dean: Interesting, interesting. So, uh, Brandon, where can, where can people find you if they wanna get more information uh, so, share your website if you would, and then your and then your, your email, if that's...

1:03:25 Brandon Brown: Yeah, website's easy, yeah, and this website's easy, lmicapital.com. On there, there's a button you can click, it's just you know, info@lmi. It comes to me and my business partner. Uh, and, that's, that's the easiest way to, to get in touch with us.

1:03:40 Carl Dean: Nick, how about you, bud?

1:03:41 Nick Fluellen: Yeah, so our, our team website is multifamilyadvisors.com, uh, multifamilyadvisors.com, and then my uh, email is my name, nick.fluellen@marcusmillichap.com.

1:03:57 Carl Dean: Okay. And uh, obviously, you can always visit theapartmentrockstar.com. Sign up for our email list, our passive investor list or check out some notification stuff, so...

1:04:06 Robert Martinez: Yeah, if you... Yeah if you wanna send me an email directly, Nick, I hope you're writing this down, it's a robert@rockstar-capital.com. Let me know if you wanna invest with the other Rockstar investors or Nick if you heard that email, you can send me some your best deals, so I can use Brandon. He's sourced every one of our loans, so I wanna keep that stream going.

1:04:23 Nick Fluellen: You got it.

1:04:23 Robert Martinez: Uh, but also if you need some uh, some apartment education videos, find us at apartmentrocks... I'm sorry. Yeah, find us at uh, apartmentrockstaracademy.com.

1:04:31 Carl Dean: Yup. Cool. Thanks, guys. I really appreciate everybody's time and uh, I hope everybody got some value out of this, if you've got any questions, reach out to anyone that's uh, that's here on the webinar.

1:04:39 Robert Martinez: Hey, Nick, BB, thank you very much, it was great to see you guys.

1:04:42 Nick Fluellen: Thank you, guys. Keep going.

1:04:43 Brandon Brown: I enjoyed it. Everybody be good.

1:04:45 Carl Dean: Thanks, everybody.