The world has changed over the past 2 years. When the COVID pandemic hit, people shifted from working in large office spaces into working from home, fully-remote. This has led to distortion in the real estate market as a whole. Most office spaces are left unoccupied thereby effectively reducing revenue. Limited Partners are left with a clear reason to focus on investing in housing which provides the space needed for working and living at the same time.
In today’s podcast episode we interview Michael Becker, Principal at SPI (Strategic Property Investment) Advisory, LLC. Today’s topics are focused on what excites Michael about the Texas real estate market, finding opportunities in workforce housing spaces, the biggest mistakes a Limited Partner can make and how to avoid it, and Michael’s advice for Limited Partners.
What Excites Michael About the Texas Real Estate Market
Despite the rising prices of oil, inflationary expenses, it appears as though the rental rate is steadily increasing for the 7,000 plus units that he owns. Also, to add that there is a lot of enthusiasm about the multifamily market growth which means that people are looking to do deals despite the skepticism presented above.
Finding Opportunities in the Workforce Housing Spaces
High-debt interest rates in the real estate market creates pressure on the potential homeowners and with the rent steadily increasing, people who have taken out some mortgages might be forced into refinancing or selling their properties at lower prices. Michael thinks that these dislocation opportunities lie in the workforce housing spaces wherein most people took a bridge loan option which have floating adjustable rates and are due in 12 to 18 months.
Michael further discussed how many investors are disposing Class B and C deals and acquiring Class A deals because older buildings tend to give less value due to more repairs or maintenance fees of the property and also the cap rates’ spread is too close between different deal classes. Jake further reinforced and affirmed that why should you park your money or risk on something that’s going to have problems in the long run? But since the COVID pandemic hit, offices went empty and homes became the new office. So, there is also a valid reason for deals in Class B’s and C’s since these pay a bit higher expected return than Class A deals.
A Limited Partner's Biggest Mistakes and How to Avoid it
A Limited Partner’s success highly depends on the deal, the project, the market and the sponsor but many Limited Partners only see the headline number and don’t fully take into account the risks to get those assumptions of returns. Every Limited Partner should always be conservative of their projections because at the end of the day, the actual performance is going to be better or worse than the projections. Michael also pointed out that Limited Partners should be more cautious and avoid over-leveraging deals. One of the worst things that can happen is having an undercapitalized deal that requires capital calls. However, this could be solved by having spare money on the side or having a sponsor with enough liquidity.
Michael's Advice for Limited Partners
The good thing about the real estate market is it isn’t always bad news. There is fundamental supply-demand, and demographic growth for the next decade that is exciting. Michael’s advice to investors is to not get squeezed along the way. Ultimately, proper strategy, care, good fundamental markets with population, landlord-friendly environments, right business plan with right structure, and due diligence will make sure that Limited Partners will be able to make the most out of their capital in the fabulous investment vehicle of the real estate market.
Who is Michael Becker?
Michael Becker is a Co-Founder & Principal at SPI Advisory, LLC and heads SPI’s Dallas, Texas office where he oversees all aspects of property operations, including asset management, property management oversight, accounting and taxation, capital improvement and renovation projects, and investor relations. Michael is a lifelong resident of North Texas and a graduate of The University of North Texas with a BBA in Finance.
Michael is a 15-year veteran Commercial Real Estate Banker and has originated and managed numerous portfolios of permanent and bridge loans in all major asset classes. Over the last 5 years of his banking tenure, Michael focused exclusively on multifamily properties, where he was the number one loan producer for his division at a Top 3 National lender for his last 3 consecutive years.
As a Portfolio Manager, Michael directly oversaw the management and financial performance of the countless C & B class multifamily properties with average asset value of $250M he originated loans for. As a result, he accumulated an exceedingly diverse network of suppliers, contractors, consultants, and service providers during his tenure. This gives him the ability to quickly and efficiently implement a breadth of value-added strategies for a fraction of the typical cost.
- LinkedIn— https://www.linkedin.com/in/michael-becker-spiadvisory/
- Website — https://www.spiadvisory.com/
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