WS1914 Multifamily Investing in Dallas - Fort Worth | Mark Allen

In this episode, I had the pleasure of speaking with Mark Allen, co-founder and executive director at GREA. Mark has extensive experience in real estate investing, particularly in the Dallas-Fort Worth market. We discussed the state of the market in 2023 and the challenges faced by investors, such as rising interest rates and insurance costs. Mark emphasized the importance of having a long-term mindset and focusing on quality assets and locations.


He also highlighted the significance of the operator's experience and financial health in determining the success of a deal. While distress deals are not as prevalent in Dallas-Fort Worth, Mark believes it is still a good time to buy, as prices have adjusted and there are opportunities for those willing to navigate the market's volatility. We will continue the conversation with Mark in the next episode to delve deeper into the future of the market and what buyers and investors should expect.


If you want to learn more from Mark Allen and connect with him, visit his website at GREA and connect with him on LinkedIn. Stay updated with his insights and expertise in the real estate industry. Don't miss out on valuable opportunities to connect and learn from Mark!

VISIT OUR WEBSITE
https://lifebridgecapital.com/

Here are ways you can work with us here at Life Bridge Capital:
⚡️START INVESTING TODAY: If you think that real estate syndication may be right for you, contact us today to learn more about our current investment opportunities: https://lifebridgecapital.com/investwithlbc

⚡️Watch on YouTube: https://www.youtube.com/@TheRealEstateSyndicationShow

📝 JOIN THE DISCUSSION
https://www.facebook.com/groups/realestatesyndication

➡️ FOLLOW US
https://twitter.com/whitney_sewell
https://www.instagram.com/whitneysewell/
https://www.linkedin.com/in/whitney-sewell/

⭐ Be Our Guest!
We are continuously working hard to help our listeners with their journey to real estate syndication. If you think you can add value in any way to our listeners who are in commercial real estate, then we’d love to have you over.
Apply here: https://lifebridgecapital.com/join-our-podcast/

Transcript

Mark Allen: There's a couple of characteristics that I look for and I generally like. I like the folks that are the sponsors that are doing, they don't have to do a deal. They're not super fee-driven. It's like, hey, if I don't buy anything this year, I'm going to be active looking for the right deals. But if I don't buy anything, that's great. you know, make 100 offers and I get one, you know, that that's great, too. But they're active. They're in the market. They're always looking for deals. I like, you know, those that are tend to be a little bit more hands on as well and and have the experience.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, our guest is Mark Allen. He's co-founder and executive director at GREA, over 5,000 plus doors in real estate investing since 2009, involved in acquisitions, renovations, management, disposition, over one and a half billion plus in real estate, focused on multifamily owner representation. And first year as a broker, he helped broker $176 million in transaction volume, over 3,000 units. And he's been Broker of the Year, received numerous awards. His main focus is Dallas-Fort Worth. And you're going to hear him talk about that. We're going to dive into Dallas-Fort Worth and just the market in general. But he was in the military and attended West Point, served in the US Army, and led soldiers in Operation Enduring Freedom in Afghanistan. So again, grateful for our men and women who have served, which you'll hear us talk about also. But we dive into a number of things that I know you're going to learn from, from 2023, things that happened to his expectations in 2024, amongst a number of other topics. Mark, welcome to the show. Honored to meet you and have you on.

Mark Allen: Whitney, thanks for having me. And thanks for your service.

Whitney Sewell: Yeah, thank you as well for your service, Mark. Always grateful for guys and gals who have served and to be able to have you on the show, for sure. So I just thank you to you as well. Well, let's jump in. You're in a market that, man, it seems like many, many, many operators are in, and love being in, and passive investors as well, and have for a number of years now. So we want to dive into Dallas-Fort Worth, and what you've learned there, and even some of what's happened right over the last year, and maybe give a little review, get a review from you, maybe nationwide as well. But I know mostly specific to Dallas-Fort Worth, and dive into a number of things. First, why don't you talk about, I know even And not too many years ago, you were Broker of the Year and multiple awards and whatnot. But give the listeners a little bit about your focus. Because I love this. So I asked you this before we got started. And I loved like you knew the exact details of your focus and your niche, which I think is so powerful. But tell the listeners as well.

Mark Allen: Yeah, sure. So Mark Allen with GREA, Global Real Estate Advisors. We were formerly with a big company called Greystone, and we broke off beginning of 2022 and launched GREA. Ironically, we're called Greystone Real Estate Advisors internally at Greystone. So that's kind of where the name came from. And four-letter domain is difficult to come by. So GREA was available for a pretty cheap price. But all that being said, I grew up in Orlando, Florida, and made my way here to Dallas through the military. I went to West Point US Military Academy and then ended up in the Army. And my last duty station was in Killeen, Texas, Fort Hood, which is now Fort Cavazos. Today, I'm specifically focused on multifamily BNC class, specialize in the $5 to $30 million space. That's really my focus. A lot of my clients are either private investors or syndicators, most of those who are raising retail equity.

Whitney Sewell: Yeah, no, it's great to know people like yourself, especially if you are focused in Dallas area, Dallas-Fort Worth. We need somebody like yourself on our team, no doubt about it. Well, let's jump right in and maybe we begin with last year, maybe like a review of 2023 and multifamily sales, some things around what you saw happen and give us some details of how it played out and maybe even some lessons learned from working with some of your operators.

Mark Allen: Yeah, challenging environment. Dallas-Fort Worth, fortunately, like even taking a step back, I moved to Dallas to take a job with a software company based out of Newport Beach, California. And I think it's common for military folks, when you get out, you're just like, very generally, you know, I don't know what I want to do. So there's a lot of folks will go to grad school to kind of figure it all out. Or it's just broad. I want to get in sales. I want to stay in operations, whatever the case may be. So I did that for a little bit and found myself in Dallas-Fort Worth. And I was also a real estate investor, primarily single family. And at a certain point, I wanted to go scale up and go multifamily. So I met some folks here, and they convinced me to come to the dark side, to the broker side. I already had my real estate license. And I think about that. And I had no idea, I like multifamily, but I didn't explore other asset classes. I didn't explore other jobs within multifamily, whether it be asset management or acquisitions. I did go to a local seminar here of one of the mentors or mentorship groups here in town that has kind of the ecosystem. So learn a little bit about that, consider that maybe, but I feel fortunate for ending up in Dallas Fort Worth and specifically in the multifamily asset class because there's probably no better place on earth to be a multifamily broker or that asset class in this market. So anyways, yeah, 2023 was a heck of a lot slower than 2022. We had a record year in 2022 as far as multifamily sales go, and that's GREA across the board, but specifically in this market. We were the poster child across sales volume for all asset classes here in DFW, but specifically multifamily. And a lot of that is just, you know, I mean, for the same reasons, a lot of folks are investing in some of the other, you know, growth, Sunbelt states, because we had incredible supply demand fundamentals. I think we're still delivering, you know, this year, 32,000 units are under construction. When you look at a percentage of our entire inventory, that's just a little bit over two percent. You've got markets, for example, in Austin. Austin, they have about the same number of units under construction. However, it's closer to about nine percent of their inventory. Here in DFW, we can easily absorb that. Seems like every other week you have some company, even as the economy has maybe slowed down a little bit, You still have companies announcing relocations and expansions here in the Dallas-Fort Worth Metroplex. We have a lot of land, like our infrastructure set up to where we can bear the growth. There's been a lot of not only growth to the north, but also to the southern, eastern, and western suburbs, not hindered as like a Phoenix market where you have mountainous regions and you can't expand as far. So anyways, generally, 2023, we saw kind of, I guess you could consider potentially peak rates. As we had a 10-year treasury yield reach up to I think it hit 5% at a certain point and then has kind of dwindled back down to sub 4% and then looks like today over 4%. So a lot of volatility. It's been up and down, but generally in 2022 we saw the Federal Reserve decide to start hiking rates and as they drag the short end of the yield curve up, you know, the long end of the yield curve, which matters for us real estate investors as well, specifically for multifamily, because a lot of times we're borrowing with a corresponding spread over the over the spread over the corresponding treasury yield. So with higher interest rates, you know, that really cooled off the sales market. and created kind of a bid-ask spread, which is commonly heard in the news. And generally, you know, sellers are, you know, it's like kind of frustrating as a broker because, you know, you see where the terminal rate is and you expect rates to continue rising, and you're trying to guide sellers and tell them like, you know, take the deal, take the deal, take the deal, but You know, they won't take the deal and then they wait and they actually drop their price and they're just chasing. I guess maybe you heard the term chasing a falling nine. So that's kind of what's been happening. Specifically, headwind here, I mean, through most coastal states, but specifically Texas with all the losses, insurance. Insurance is a big headwind. So average increases probably north of 30% here. One of our larger line items outside of taxes and payroll, and property taxes being another big topic here in Texas, specifically in some of the major counties in Austin, Houston, and Dallas. So, you know, taxes, insurance is both the headwind. And then we have kind of last year for the first time, you know, you heard, probably saw a lot in the news about negative rent growth. So we just had slowing revenue growth. Unfortunately, I think we fared better than a lot of markets like Nashville, you know, Phoenix, so on and so forth that had, you know, negative rent growth. a lot of concessions in those markets. Like I said, our supply demand fundamentals are really strong here in Dallas-Fort Worth. So because of that, I feel like we fared better than a lot of other markets. But generally, I think too, you probably see in the news about negative rent growth, and that includes articles in Dallas about negative rent growth. But you kind of have to break that out too, because I mean, each sub-market is going to be a little bit different. And then also the asset quality, 60s and 70s vintage may be completely different than brand new construction or even a late 90s vintage property. Here in DFW, we still see workforce housing rent growth in the positive territory closer to about 3.5 percent. That's just something else to take a look out for any sponsors or operators out there that are looking for deals. You know, don't just take the headlines that it's, you know, take it with a grain of salt, because, you know, the devil is in the details or in the data.

Whitney Sewell: Yeah, no doubt about it. Appreciate the look back there and just thinking through some of the things about 2023. And, you know, these you're talking about are a number of things there you were mentioning, but, you know, sellers wouldn't sell. Right. And then they, they're kicking themselves, right? You know, like you talked, you know, you mentioned chasing a, you know, trying to catch a falling knife or something like that. And so it's no doubt, you know, as we've been trying to buy, you know, it's been difficult, right, to find deals that make sense. And I think It's a seller still want that price they could have gotten, right, 18 months ago, right, or that they think they could have got, right, you know, or what they were told anyway. So do you see that, just that mindset changing at all, even now, you know, from, you know, or the, just the realization of, of, you know, what properties are really valued at today versus two years ago to sellers?

Mark Allen: Yeah. When we, I mean, when we have a sense of stability, when rates are stable and it seemed like it was that way last year and kind of like we had a treasury yields drop. So like April through, through maybe July, and then all of a sudden we saw the spike after that. But through that couple of month period, it seemed like that's that bid-ask spread really closed. And, uh, so I feel like anytime we have a sense of stability, um, from a deal-making standpoint, it really helps. And I would also, I'd say like, you know, generally the conversations last year for those that bought at peak pricing in 2021 or 2022, and this is going to be the same across any markets generally. I mean, here in Dallas, Fort Worth, we're seeing price adjustments from the, from the peak pricing, 20 to 50%. And that 50% may be a deal that's just not performing really well. It's 78% occupied with 10% of the rent roll delinquent. So that's going to have a bigger discount pricing because there's less demand for that kind of deal today. But generally, a lot of the conversations I was having for folks in bridge loans last year, or in 2022 rather, was, hey, I promised a 15% IRR to my investors. I really want to achieve that. I can't go with the 5% IRR, because that's what this price will return to my investors. And then the conversation transferred a little bit in 2023 to, hey, I really got to break even. I need to get my investors their money back. I don't want to have them take a loss. So it'll be interesting. And again, I, you know, even with rates dropping, I kind of put together a case study myself just to talk through with some of my some of my clients, but, you know, with proposed values coming out for the new assessed values for 2024 come out usually April, May. and then you're going to have insurance renewals. I'm hearing insurance renewals, again, averaging somewhere around 30%. If revenue is generally flat and you're not executing your value-add business plan and driving revenue growth, even if interest rates drop 75 to 100 basis points, it's really not going to help you on value because a lot of that expense growth is eating up the value there. We'll see what happens this year, what the economy does. what happens on the revenue side. Again, it's going to be market by market dependent. But generally, I would expect that values will be a little bit lower this year than last year. And then I think we start to see it pick up as it kind of rebounds on the revenue side in 2025 and beyond. So Because of that, I think we're pretty close to the bottom. It's impossible to time the bottom. So all that being said, I think it's a really good time to buy. You just have to be able to stomach the volatility. And in a competitive market like the FW, it comes with risk because we're still seeing strong terms in today's market. Most deals are going non-refundable earnest money with agency execution. And that's going to be market by market dependent, but that's what we see here.

Whitney Sewell: Wow. Awesome. It makes me think, you know, everybody's talking about distress deals right now, right. And having a distress fund or, you know, a deal fund, um, where they can hopefully take advantage of these properties that, that people are going to have to sell. I just wonder, you know, is that something you're seeing or even an expectation over the next number of months that, that operators unfortunately are in positions where they're, they're having to sell, right. Uh, you know, for, uh, their, uh, you know, their caps are expiring or whatever it may be.

Mark Allen: not as much in Dallas, Fort Worth, even versus some of the other metros. Like I saw a LinkedIn post the other day from a brokerage down in Central Texas in Austin, San Antonio. And it was one of the analysts that made the post. But essentially, I think 22% of the deals that they underwrote in 2023 were distressed. And we're not seeing anywhere close to that. I mean, I could probably count the number of deals maybe four hands, but it's definitely not that much as far as the percentage of total deals. And again, I think it kind of goes back to, I think we're seeing more distress in some of the coastal markets like here in Texas, that would be Houston, as we've seen just crazy increases on the insurance side. So that's been a definite challenge. And then we just don't deal with it as much. I mean, probably average bad debt or delinquent rent tenants that aren't paying the rent. Somewhere between the 2% and I'm going to say 5% range is probably a good range and probably obviously less on the higher quality assets. But generally for BNC class, 2% to 5%. Houston? You go to Houston, you know, I mean, there's a ton of deals that are 10% plus bad debt. So you factor in, you know, it's 89% occupied, you know, 91% occupied, you know, qualifying for agency debt from a physical occupancy standpoint. However, you know, 12% of the rent roll is delinquent, not paying rent. So definitely more challenging market there. Same thing, our Atlanta counterparts, they're saying some of those counties in Atlanta are very tenant-friendly, and it's very difficult to get some of those non-paying tenants evicted. So a lot of those deals that are underwriting, 10% to 40% delinquent rent rolls. So I think that's That's kind of the other headwind in some of those markets, and probably more specifically in markets that are more tenant-friendly. But here in Dallas-Fort Worth, we're just not seeing as much. The other thing we're kind of seeing just generally across the country, a lot of the lenders seem really willing to work with the borrowers. I think generally they'd like to see some skin in the game. They call it rebalancing the loan. You may have to bring some cash to the table to get closer to their debt yield or DSCR requirements. Easier for maybe some of the more capitalized folks, maybe a little bit more difficult for It's syndicated at raised retail equity and has investors that are invested 50,000 or 100,000, unless they have their own liquid capital. But generally, I think a lot of the lenders don't want to take back assets. So they're willing, as long as the sponsor is very communicative, And, you know, just really depends on the lender that they're willing to work out and kind of make a deal. Because I think the hope is, is that things continue to get better over, you know, the next year, year and a half. And, you know, you probably heard the term survive through 25. So I think that's that's kind of the general hope.

Whitney Sewell: You know, you mentioned this a couple of minutes ago, you said, uh, you know, you, you believe it is a, a good time to buy right now. And, you know, I just wonder, I know some of the listeners are probably wondering, well, is there really good deals out there to be had right now is, you know, it seems like they're also overpriced, you know, and, and, and nobody's really, uh, able to buy much, but, but what's your opinion or, you know, how would you answer that?

Mark Allen: Yeah, I mean, generally, like multifamily has been a longer term game. And I think everyone over the past couple of years got so, so used to the quick fix and flip, you know, in and out of deals in 18 to 24 months, and, you know, 30%, plus IRRs, whatever the case may be, there's that period where that was occurring. So I think And there was a lot of new entrants kind of in the market as kind of loose monetary policy and whatnot. I think just generally, yes, prices have adjusted and shifted. I think you have to have a longer term mindset. Most syndicators are running a five-year model. I think in today's market, you see a lot of folks taking five and seven-year term debt with flexible prepay structures with the agencies, Fannie Mae and Freddie Mac, because they want to be able to have the term necessary to complete their business plan. It's probably going to be slow the next at least two years. I think there's going to be a good opportunity probably between three and five years to exit We'll probably have some cap rate compression. We'll have some revenue growth between those years three and five. And those deals today at pricing at today's prices and cap rates will look nice.

Whitney Sewell: Yeah. Maybe dive in a little more to what you foresee or expect over the next six, 12 months in how buyers or even investors, past investors should be thinking about the next six to 12 months.

Mark Allen: Yeah. Well, I mean, it's tough. I mean, at least the conversation that I'm having with a lot of sponsors, you know, there, there are certain sponsors that are, are really good at raising money and they're doing it, you know, really well now. I don't know if they're, you know, you know, just I don't know if they're just network connections or whatever the case may be, but, um, It's a challenge because there's a lot of LPs that have invested in deals, and a lot of them, again, maybe are newer to the multifamily market or private placement investments, and they're not going great. They're not getting distributions. That's unfortunately, I think, going to pull some of those folks off and they'll probably never invest in a deal again. And then you have those that are getting, you know, the capital calls are occurring all over the country. So you have folks concerned about that and wanting to keep some capital on the sidelines, you know, should they need the extra liquidity for the capital call. You know, but generally, like I said, I think you have to have a longer term mindset. I think quality assets and quality locations will outperform over the long term. You know, it's helpful to have. you know, I don't care what market it is. I think, I think the operator, the sponsors, like everything, um, cause they make or break the deal. So, I mean, there's, there's a couple of characteristics that, um, I look for and I, I generally like, I don't, you know, I like the folks that are the sponsors that are doing, you know, they don't have to do a deal. Um, they're not super fee driven. It's like, Hey, if I don't buy anything this year, like I'm going to be active looking for the right deals, but if I don't buy anything, that's great. If I, you know, make 100 offers and I get one, that's great too. But they're active, they're in the market, they're always looking for deals. I like those that tend to be a little bit more hands-on as well and have the experience. The other thing I think we're learning just generally is understanding the sponsor's personal financial situation. How much liquidity they have and if there are storms that are faced, Are they gonna have the capital to come up or are they gonna go directly to the capital call? So just a couple of things to look for.

Whitney Sewell: It's interesting you mentioned like the operators, really the personal financial ability or stance or health, right? And that is definitely something that should be considered by every operator. I know I've gone through cycles where I've, man, I really wanna invest in some deals. But it's like, man, I need to keep a certain amount of liquidity on hand at all times. Right. You know, I mean, personally, I, and, and for a reserve budget, right. Too. So we can pay our team for 12, 18, 24 months going through a time like this case, we don't do any deals, right. Or sell anything or, or whatnot. Um, uh, but like you said, too, in case, you know, we have projects that, uh, uh, that need some capital. I'd prefer not to do a capital call, right. Air funded myself. I have to, um, yeah.

Mark Allen: Yeah, benefit of being a broker, I underwrite a lot of deals and I with all the data and information I have, I can see, you know, who's operating well and who's not. And there's I mean, there's, you know, a sponsor that I've invested with that, you know, he'll. not that he's looking in tough areas, but if the right deal comes about, he'll go into lower income areas and they'll crush it. From an operational standpoint, I think that's a key that a lot of folks, and not necessarily, you could do it with third-party management. You don't need to be an owner-operator, owner-manager, but that asset management ability and the ability to manage people is key.

Whitney Sewell: I hope you have enjoyed the conversation with Mark Allen today. We are going to continue the conversation tomorrow and dive into a number of topics, even around what buyers need to be thinking about or sellers need to be thinking about and passive investors need to be concerned about when investing right now.