For those of you guys don't know your story,
maybe you could chat a little bit about that.
But kind of mobile home investing has been your bread and butter.
And then since then, you've branched off to other things.
And I do want to talk about that, but let's talk about how you started
and where where it's evolved to sort of syndicating Mobile Home parks.
I guess it's gone on about six years now that we've actually been pushing capital
from the outside
for multiple different mobile home parks funds that that we've had now.
And so from that, you know, we've been buying other asset
classes as well, parking lots and as you mentioned,
built rents, kind of our newest initiative.
It's very different now.
You know, now it's like, you know, you're basically
you're investing against Wall Street, right?
That's it.
And, you know, I think the challenge about investing against Wall Street
is, whereas most of our investors are, you know, retail investors.
And so our blended cost of capital is significantly higher than that of
of most of these institutions.
And so, you know, they don't necessarily need to have as much of a yield.
And again, just going back to their cost of capital is much less than ours overall.
And so whereas I might find a challenge with, you know, making a
for cap work, bidding against all these big groups, not just necessarily
that they can pay more for that asset, but they're
I know the right way to put it, but their capital potentially much more accessible.
And they can also
probably get a little more aggressive than a typical buyer, you know, i.e.
us or other groups like us on the due diligence peer, they're willing to take
slightly more risk in order just to get that asset added to their portfolio.
And so they're really trying to buy efficiencies and scale
and they're willing to, you know, overlook a few key areas.
Again, you know,
where I might need 40 days due diligence or maybe even 30 to push things quickly,
they might be able to, you know, say, hey, we'll do it in 25.
But also we're going to put up a half million dollars hard from day one.
Where do you see things?
Because I just got in I just got back from a conference.
And, you know, we had a deal in escrow that we let go last week, 310 units,
a $100 million deal, and our cost of debt went up while in escrow.
You know, we had the thing we were fully packed.
We did due diligence. We did roof inspections.
We walked every unit, you know, we spent some time on it.
And then the debt markets adjusted, as you know.
And so we had to let it go because our cash flow wasn't there.
What ultimately was at seller's minds, because my guess is that you didn't
will you tell tell us, did you actually drop the deal or did
you go back and attempt a, you know, a retreat,
which we don't like to do, but no one has control over,
you know, what just occurred with the debt market?
That's a fair question.
I've been asked that. Okay.
So here's I'll give you the whole scenario.
Well, okay.
Broker pitches.
Seller
Hey, I think your deal is worth 100 million based on the activity at the time.
So let's call that first quarter
seller.
Seller puts the deal.
They got a whisper, as you know, whatever that means, right?
The whisper price and it is what it is.
So there's can you explain what a whisper whisper means
that the broker and the seller know the number.
Okay, but it but the package goes out on priced.
Okay so the the, you know, in the multifamily space
and this has been going on for years.
So we're very used to getting a deal that's on priced.
In other words, there is no listing price.
Like show me your best offer. Basically. Essentially. Right.
And so so, you know, so then that went to thousands of people,
you know, hundreds of tours, lots of conversations, 30 plus
offers, two rounds of Best and Final Four.
So we get the thing into escrow.
Now, keep in mind, this is in our backyard.
So this is a this is a a property I've been to.
This is an incredible piece of land.
Incredible property.
It's built in the nineties. It's dated.
It's $800 a month value add.
So from my standpoint, I'm like, this is awesome, $800
per unit value add times 300 plus.
It's a home run.
You know, if we can buy a crackly, right?
So we get into escrow. Ross and I put $1,000,000 up
refundable.
That's the key.
And I put a refundable up because I'm like,
the Fed is going to go they're going to, you know, they have a meeting in June.
And I said, I do not want to be behind whatever.
You know, they just raised
they had just raised rates, as you know, in May, I think it was.
And I said, I don't want to. I don't want to.
I don't know what's going to happen.
I know because they made in June and July and I don't want to be in escrow
while we're messing around and trying to figure out our debt.
So with hard money. With hard money.
So, you know, we
we go into due diligence and the thing checks out, you know, your normal stuff.
So the seller has been running pretty well. They've been spending money on it.
We there's a few things here and there, but generally it's pretty clean.
We walk all the units and the the A.I.
is pretty close to what we thought it was.
You know, which is income minus debt.
So, so now we're all locked and loaded.
And of course, you know, the last thing that has to be done is the
debt quote, right?
So now we're getting debt quotes
and our our loan to value is going down, right.
Because the capital markets so the lenders are saying
we're not going to lend you as much because of the risks that they're seeing.
And then the prices, you know, for the debt are I think you know,
I think that we originally underwrote it, you know, two months prior
to that and the call it a mid force, you know, for our for our debt.
And I think that we're up in the six range.
So now we're looking at a point to point and a half on a 70,
you know, 60, 60 to $70 million loan, which is a lot of money.
Right.
You're talking about $1,000,000 in in an additional loan cost.
Right. So so now you got to look at that.
Now, everything's checked out at this point.
And it's a heck of a value add.
But the problem is, from my standpoint, I was like, well,
you know, now the cash flow so tight
because the
cost of the the mortgage payment went up so much.
So my cash flow is way down, which means my returns
way down, which means that I can't pay as much for the project.
So right.
So all that's going on obviously
and you know, during due diligence and where we're, we're struggling
to figure out how do we keep this deal because it's a great deal.
And, you know, so we extend due diligence
for 14 days and say, listen, our debt quotes are coming in very high.
Our loan to value is very low and we need more time.
So they give us a little more time and and we just couldn't make it work.
So we went back to the seller
and or the broker and said, listen, you know, this
this is going to we don't want to insult you.
But with the new price of debt, you know,
we think this thing's going to be worth probably in the high eighties.
Mm hmm.
For the same math to work instead of 100.
So basically a 10% higher.
Does that make sense?
And of course, the seller we don't want to upset piss off the seller.
And we certainly we have a great relationship with the broker.
And and but the fact is that the debt
markets changed a lot while we were in escrow.
And and so luckily we weren't hard on the money.
The question I think a lot of people have, which
I think all of us here on this call have, is,
you know, talking about doing the typical value add business plan
where you get a bridge and then you, you know, look to execute your business
plan, get the rents up, get then open up and then put perm debt in place.
If you intend that you'll hold that property is how do you underwrite it too?
What does that net permanent debt look like?
I mean, what number do you pick?
That's it. Right now I feel like we're just pulling it out of the air.
Anyone that's buying something on a value add plan,
that's got to get a couple of years bridge you literally are just pulling a number
out of the hat.
I mean, it's not like ten basis points or 20 basis points.
It's like the variables are 100 basis points this way, 100 basis points
way, which is a fairly significant difference
when you're talking about, you know, multimillion dollar loans.
It's easy.
The the deal making sets are not making sense
when it comes time to put it in place.
So for us, Kevin,
I didn't feel comfortable putting my investors at risk
for not knowing what the interest rate would be
when I got to a permanent loan.
Yeah, now that's.
And does that change the whole value add strategy moving forward?
Well, it's interesting because I think that if somebody bought a value
add in the last couple of years and they're on these bridge loans,
then they're faced with this new exit issue, this new permanent debt issue.
And what could happen is their
everything that they've grown, the the value that they've actually created.
And I'm I believe that a lot of them have the could be wiped out
with this new permanent loan price.
Now and you're saying that because if you bought something that was worth
60 million and now it's worth 80 million, you can't get
you'd have to you need to sell it for it to cash flow potential
and then you'd have to sell it for less because of the new rates, maybe not less.
You're probably way in the money, but I don't know about a cash out refi.
Got it. Right.
So it just depends because as you know, Kevin,
the lender is going to solve to what's called a debt coverage ratio.
So a debt coverage ratio means they take a look at your enjoy
at the time, which arguably has grown through a value add.
And then they're going to put a debt
coverage ratio on it and they're going to back into their loan.
Got it.
Because basically you need to make this payment at this new higher rate
which could wipe out the money that you've added to the debt, actually.
Right. Right.
So you still might have the equity in there.
Right.
But I think the one the one saving grace might be in it.
Obviously, it's market dependent.
But, you know, just speaking to Phenix, Phenix is a phenomenal market, speaking
to, you know, pretty much any major market in Florida, Tampa, Orlando, Miami,
Jacksonville is the, you know, really the doubled.
If they bought the property two years ago, more than likely
they didn't forecast double digit rate increases, at least for a couple of years.
And so there could be some type of saving grace in there
to where that helps offset, you know, them missing the target
on whatever that permanent debt
rate or whatever that permanent debt is going to be at as far as interest rate.
But, you know, it's going to be you're
I don't like that uneasiness that that is you're 100% right.
Yeah.
The the saving grace, if there is one, is that they had fairly
significant rent growth.
Obviously, I know your company, you know, Capital Sunrise investors.
But what's the best way people can reach you?
Get a hold of you,
find out more about what you're doing because I know you're you're
doing parking lots and build the rent and you got all kinds of stuff happening.
So what's what's the best way people can reach you? Yeah.
So if you want to learn more about our company and the different initiatives
that we have going on, you can go to InvestWithSunrise.com and then
me personally, you can find me on my website.
KevinBupp.com And also I'd love to if you wouldn't mind,
Ken and Danielle, I'd love to give out a free
copy of the book that you just mentioned, just this launch.
You can sit up here on my bookshelf
if you're looking at the video cash flow investor.
I just came out about a month and a half ago.
It's for sale right now on Amazon for 1999.
But if you go to KevinBupp.com/FreeBook you can grab a
free copy of it there.