August Edition 2022 - View From The Fort

My son's soccer coach runs him through a drill where he sets up cones in random locations and has him "dribble" through them. He says your instincts have to handle the unpredictability of the defenders coming at you. Be ready to react by being nimble, handling defenders, obstacles, curve balls, whatever it is. You need to think on your feet. If not prepared, you will be left on the sidelines. Muscle memory will take over for those that put in the reps.

Jack be nimble, Jack be quick, Jack jumped over the rising interest rate. Right now, buyers and sellers are facing considerable challenges in closing deals, which stems from lending. While a deal may make sense once a buyer puts it under contract, lenders change term sheets, leaving the buyers to scramble. But if you have the contingency plan and network in place, you aren't so much scrambling as you are pivoting. You're handling that defender, that obstacle, that curveball, and coming out on top. Charlie Sheen would say you're winning.?

It's an oddly exciting time for Fortress Federation Investments. We have two properties in negotiations to sell and now looking at selling a third. The only problem is our operating partners, and we are only half the equation. We can assist the buyer in whatever way possible to find the necessary pieces to close. Still, ultimately the deal closing rests on their ability to be nimble and handle the defenders. Those pesky interest rates. So how have we pivoted or adjusted to be successful? Other than being aligned with some experienced and talented partners, here are some examples.

"Re-trade" can be a bad word or term when purchasing real estate. A re-trade is a renegotiation of the terms of the sale. If a buyer tries to nickel and dime a seller over some insignificant items that were properly disclosed, that buyer may risk losing the deal. They may also risk their reputation in the community. During these recent times, sellers can understand if a deal no longer pencils for the buyer due to an uptick in the cost of borrowing. In two cases as buyers, we had to go back to the bargaining table, and in each case, we negotiated justifiable discounts. This not only allowed us to close our purchase, but ultimately it resulted in better projections for investors.

We also decided to go partial recourse. This means the partners, myself included, agree to be personally liable for the loan. Most every loan you see in large multifamily is non-recourse, meaning the buyer is not personally liable, and the lender takes on most of the risk to the tune of 75% to 80% LTV (loan to value). This is why the lender sits at the bottom of the capital stack (the first to get paid). We take some risk off the table for the lender and rid themselves of their cold feet (that nearly squashed a deal) by going partial recourse. Now that they have less risk, they are more willing to adjust terms. In our case, we received a lower spread (effectively lowering the interest rate) and more proceeds (which improves returns).?

Maybe the most significant win was being allowed to escrow a reserve to cover potential shortfalls (due to interest rate spikes) instead of being forced to purchase a rate cap. A rate cap is a sunk cost; it is money gone. With a reserve equivalent to the rate cap amount, there is a strong potential that money could be returned to investors, which also improves returns.

And if you can hold the fort (or Fortress), you could see a deal improve over escrow, as has been the case with two of our deals. We already see Pro-forma rents without so much as replacing a toilet.

We're not out of the woods (this lending environment) yet. We are undoubtedly going to need to dribble around a few more cones. We embrace the challenge because, newsflash – multifamily isn't going anywhere (see article below). If we can get into good deals and project the "cones" out in front of us, it will have a happy ending. Maybe in the form of some attractive future refinancing.

On to other news...

The 5 - Oaks Investment Opportunity is Closed!

Congratulations to our investors, and thank you to our partners at LSC for the closing of the 5 Oaks, an A-class asset located in Northwest Houston. This one had some obstacles, but the operator handled each road block nimbly, and we were even able to renegotiate making the deal that much more attractive.

We obtained a low leverage loan and underwrote plenty of buffer in our reversion cap and rent growth. Combining this with a well-occupied A-class asset provides a conservative opportunity for our investors.

A special thanks to our past investors who referred their friends and family to this investment with Fortress Federation. It shows me that they have been happy with their results.

If you have an interest in investing in these types of real estate opportunities, I have included a link below where you can invest along with us??. We always have attractive offerings coming.

Appearance on the Passive Wealth For High Tech Minds Podcast

Thank you so much to Prashant Kumar for having me on the Passive Wealth for High Tech Minds Podcast. It just so happens that a good portion of Fortress Federation investors are in the tech industry, so it was a great opportunity to come on and share some knowledge.

Now I don't come up with the title of these things, and I wouldn't say it is easy to analyze a syndication deal. I will say I wholeheartedly believe apartment syndication is a much better investment option than the stock market, and we get into that.

What you will learn in this podcast?

??How should people from Technical backgrounds look for investment opportunities in their spare time?

??How hard is it to succeed in Real Estate??

??How to get associated with Good Investors in Real Estate??

??How to convince family and friends to invest in your projects in Real Estate?

??Rick Martin sharing his opinion on How investing in Real Estate is better than investing in Stock Market

This podcast is not available on itunes, so below is a link to Spotify. It's a great conversation; I hope that you'll give a listen.

Multifamily Investing News

Multifamily investing isn't going anywhere. It is sad to say for the housing crisis, but I don't see supply catching up to demand. Some say it will take a decade, while others say 20 years. And even then, people will still require a roof over their heads. Read the results from an article below. Given that we invest in Texas and Florida, I was happy to see these two of the three states that make up 40% of all future demand.

Commissioned by the?National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA), Hoyt Advisory Services and Eigen10 Advisors conducted research on apartment demand throughout the nation. As rental needs grow due to shortages and affordability, the industry is pressed to build 4.3 million new apartments by 2035.

"The U.S. has undergone tremendously difficult conditions that have fundamentally altered our nation’s demographics, but one thing remains certain—there is a need and demand for more rental housing," says NAA president and CEO Bob Pinnegar. "Put simply, we do not have enough housing. The U.S. must build 3.7 million new apartments just to meet future demand, on top of a 600,000-unit deficit and loss of 4.7 million affordable apartment homes. It is time to reverse course after decades of under-building, and instead pursue responsible and sustainable policies that will not only meet this demand but address the missing middle and loss of affordable housing stock."

Thank you for making it this far. If you have interest in any current or future opportunities, let's set up a time to talk : ?? We can talk shop and what your goals are.

Until next time. Thanks.

Rick

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