WS1915 What Top -Notch Operators Do Differently | Mark Allen

Welcome back to the Real Estate Syndication Show! I'm your host, Whitney Sewell, and today we continued our insightful conversation with Mark Allen. We delved into the current state of the market, looking ahead from 2023 to 2024, and discussed the strategies top-notch operators are employing to navigate these times.

Mark shared his experiences investing with a seasoned operator in the Dallas-Fort Worth area, emphasizing the importance of choosing the right sponsor and understanding micro-locations. He highlighted the operator's extensive background, ranging from mortgage brokerage to owning properties across various markets, and how this experience has been crucial in weathering market downturns.

We also touched on the challenges buyers face today, such as interest rate hikes and changing equity appetites. Mark recounted a personal story where a deal was affected by such market shifts, underscoring the volatility and unpredictability in the current environment.

For passive investors, Mark's advice was clear: education is key. He urged investors to become well-informed to effectively conduct due diligence on both the deal and the sponsor.

On the brokerage side, Mark discussed the importance of data and being proactive in marketing properties. He shared his disciplined approach to work and life, including his morning routine and the struggle to balance technology with family time.

Lastly, Mark opened up about his personal commitment to giving back, particularly through mentoring a young man from a lower-income background, and how this aligns with his values and desire to make a generational impact.

For those interested in connecting with Mark or learning more about his work, he can be reached through LinkedIn or the GREA.com website.

Thank you for tuning in, and don't forget to like, subscribe, and share the Real Estate Syndication Show with friends. Stay informed and empowered in your real estate investments, and I look forward to bringing you more valuable conversations in our upcoming episodes.

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Transcript

Mark Allen: probably the best way to market it. For us, it's like we don't believe in just passively email blasting it out and expecting people to, oh, hey, look at this deal, let me focus on it. A lot of times we're battling either like in a hot market, we're battling like 50 other deals on the market. Or right now it's like we're battling a bunch of overpriced deals and it's like, no, you really need to focus on that. It's difficult to do through email.

Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we are back with our guest, Mark Allen, continuing the conversation. And, you know, we dove into a number of things yesterday, even the the 2023 review and thinking about, you know, 2024, what to expect. But we're going to continue the conversation. And whether you are a buyer or seller or potential buyer or seller, right, or passive investor, you're going to learn a lot from Mark today. Maybe speak to some of the Some of the things you see top-notch operators doing, right? You're underwriting so many deals, and maybe you could even start there. Like what you see even in the underwriting that people are focusing on or doing well versus some that are not, or how they were even prepared for, maybe that's a better topic, how they were prepared better for this type of downturn or environment that we're in versus 18 months ago.

Mark Allen: I think some of the items that I mentioned, I invested with a local group here in Dallas, Fort Worth, and they buy in some various markets across the country. They've owned in Houston, San Antonio, all the Texas metros, they also own in Tennessee. Generally, the sponsor's got a lot of experience. He's been doing this for 40 years. He started as a mortgage broker and then took some of the income that he was making, bought some small properties in San Francisco. you know, years ago, and then, you know, has has scaled up. And I think, you know, with his kids, I think has got a little more into syndication and has done taken institutional equity. So he's got a lot, he's got a varying range of experience for all the way from Class A institutional quality, $70 million plus assets down to class C properties built in the 60s and lower income areas. And frankly, because of that, it's been a favorable market. He's riding the wave with interest rates down and appreciation of property, especially getting in early in California. So he's generated a lot of wealth and had a lot of liquidity and as kind of later stage in life. But so that's one thing I know if a deal is going wrong, he's going to be able to kind of step in first. He does self-manage. They have a few thousand units. He's got a great team, all the way from property management players to the asset management team. The people are stellar and really sharp. Just you know, institutional level experience on the asset management side. Not that you need that, but I'm sure there's things you learn from a very high level that are beneficial at the institutional level with all the resources and information and, you know, quality of folks that you have at HUNE. You know, so those would be a couple of things. And like I said, location isn't At least for me, I think sponsor first over location. I wouldn't say micro-location, probably more like macro-location. I'd go into some smaller markets in Tennessee with them or whatever the case may be, just because I know they're a good operator, but you also have to look at the micro-location. Income level schools, how walkable or close to, you know, amenities and, you know, if it's workforce housing maybe public transportation or whatever the case might be so there's so many things you can look at. And you can honestly get overwhelmed, but I think, you know, from a very high level, I think sponsor, you know, number one, and micro location number two. But along with, you know, an experienced qualified sponsor, you know, the fees are probably a little bit higher. Is it worth the fees? You know, when you look at today's environment, I think so.

Whitney Sewell: I agree. I agree. I can agree more with what you just said about the operator and then the market. And you're paying that operator for his experience, right? And you're even trusting the decision to what markets they're going into, right, in the 40 years experience like you're talking about. There's a lot of value to that for sure. Mark, what would you say is the biggest risk for even buyers today? What are some of the things that you see are killing deals other than maybe interest rates, you know, or some things they should be considering?

Mark Allen: Yeah, I was gonna say interest rates. But you know, I guess I guess it depends, like, you know, and I'm gonna say, if you're looking at folks that use JV equity, or preferred equity, I guess the risk is just equity appetite changing as the market changes and the way they price deals and look at different assumptions. I had a deal that we had a signed LOI, we're negotiating a contract, a hairy deal with a development component as well. And all of a sudden, the equity kind of backed off. Not only did interest rates go up quite a bit in whatever it was, 90 basis points in a matter of a month or something like that, a month and a half. But also just headlines with the FW rent growth negative. And some of these things started to come out, which just changes sentiment. And they say, hey, we were projecting year one just organic and rental inflation. We want to tail that back to zero for the first two years. And we want to change our exit cap rate assumptions and XYZ. So those are probably like the biggest risks and really hard to qualify up front. And generally, if you look at the most active buyers in DFW, they're syndicators. They're those who have discretionary equity and don't have one big check rider. And frankly, I mean, those are the, and they built really good reputations. They're really good at raising money. They're really good at what they do. So because of their reputation, brokers are definitely, pushing them to their sellers as top buyers. You want someone who can close in today's environment with all the volatility. So reputation is, I wouldn't say everything, but it's a big key factor in getting deals done today.

Whitney Sewell: Yeah, no doubt about it. What about sellers? Should we still sell? I know you said it's a great time to buy, but is it a great time for the sellers right now?

Mark Allen: Yeah, I mean, you know, when you look at the sellers in our market, generally, like, you won't sell unless you have to sell. Or Or generally, maybe you bought the asset 2015, 16, 17, 18, or whatever the case may be. You've implemented your business plan. I mean, there's been folks that, again, like taxes, insurance, man, it's just eating up my cash flow. And I'd rather sell it, maybe do a 1031 exchange into a higher quality asset, whatever the case may be. There's varying motivations. And you just have to figure out, I guess, if the pain point is painful enough to trade out of the property. Generally, and that probably depends on the market, because you got to look at capital inflows too. We got a lot of capital flowing into Dallas. I can put out a Class C deal and have 15 offers. I can put out a class B deal and have 25, 30 offers if the property is priced to meet the market. That's a key. There's been a lot of properties that have gone out that are just, whether the broker mispriced it or the seller has high expectations and the broker just says, well, let's see what happens with this. But if a property is priced to meet the market, and I think this is probably the case, maybe not as many offers in Houston or know, Atlanta, or maybe some other places, partial here to Dallas. But you know, generally, there's going to be good and in today's market for a properly priced property.

Whitney Sewell: What about what's a maybe a big biggest challenge in in your operations right now? Or, you know, business?

Mark Allen: It probably just go, it goes back to You feel like when you're in the market too, I mean, it depends what the sophistication level of a seller, but as a broker, I'm in the market. I eat, sleep, and breathe multifamily. It's all I do day in and day out. I'm reading a lot of information, tracking a lot of data. And so again, kind of going back to the conversation where it's like, hey, I think now is the time to go because you can still, you know, it's not going to get better from here and you got a maturity coming up and you can still, you know, there's a return of capital to your investors like these conversations in 2022. And I mean, you know, again, you just you just hope that, and I get it, they're tough decisions to be made, but you hope that things will get better and they just haven't. So it's frustrating when you feel like you have all the data you're advising to the best of your ability with all the information at hand and the sellers want to go a different direction and then things don't get better and you're like, I guess hindsight's always 20-20. That's a frustrating thing. We're working just as hard right now, brokers across the country. Revenue is way down, so we're feeling the pain as well. Not that it's a frustrating standpoint, but we're working hard and we're advising to the best of our abilities and there's just less transactions happening. It's fun, and I think I've learned that over the years too. It's not all about, I like doing deals and getting deals done, but in the same respect, to me, I think the business has become more fun when I feel like I'm part of the team. And I'm part of the deal and usually I don't have any investment of capital in the sponsor's deal, but I have an investment of time of advising them over a period of time. And so to be felt like you're part of the team and you're in this like working in their best interest to try to make educated decisions or help them make educated decisions versus running on the transaction hamster wheel.

Whitney Sewell: Yeah, no doubt a big challenge. It affects the brokerage side as much as it does us, right? As the operator or trying to buy, no doubt. What about, what's your, maybe your best advice for passive investors right now? I know you mentioned the operator, the market, anything else you would add as far as, you know, them looking at deals or things they should be looking at when they're, as they're trying to underwrite or anything around that?

Mark Allen: I think it comes down to education and I'm not, I'm not in it like you are, but I know there's a lot of folks that have done really well. There's a lot of folks that want to invest in real estate that have exited companies and whatnot. They're obviously intelligent individuals. There's just a lot of nuances, I think, investing in real estate. So let's get educated so you yourself can do the due diligence. not only on the sponsor, but also on the deal as well. I think that's probably one of the biggest things is just get educated. There's so many resources out there. Of course, there's an investment of time to learn, but some of the seminars and conferences and things like that, they can be helpful. Then there's a lot of good online resources as well.

Whitney Sewell: What are some of the most important metrics that you track?

Mark Allen: In brokers, and this is probably even more important in a nondisclosure state like Texas. But data and information is key. There's a lot of data sources out there, such as CoStar, that brokers subscribe to. And again, in a nondisclosure state, there's a lot of bad data out there. So just being the boots on the ground, just trying to you know, track just a lot of data and information as far as who, which of my competitors have listed what properties? Did they, did they close the deal? Did they fail? What is their success ratio? What did the property sell for? What was the cap rate? You know, this, all this information that's collected helps me to become more valuable for my clients. So I think that and then from a, I guess, maybe a personal brokerage standpoint, you know, we're all we're always tracking our KPIs, which are, you know, probably the two most important is calls and meetings. You know, when you when you list a property, you know, probably the best way to market it, you know, for us, it's like, we don't believe in just passively email blasting it out and expecting people to, you know, Oh, hey, look at this deal. Let me focus on it. A lot of times we're battling either like in a hot market, we're battling like 50 other deals on the market, or right now it's like, you know, we're battling a bunch of overpriced deals and it's like, no, you really need to focus on that. You can't, it's difficult to do through email. So, you know, phone, phone, text, email, we use that combination. We're going to networking events. You know, that's another KPI. How often are we getting in front of people and sharing information about our listings? So anyways, those are a couple of important metrics that I track.

Whitney Sewell: Any other habits that you're disciplined about?

Mark Allen: I mean, I think most brokers generally are probably pretty disciplined folks. I think just coming from a military background and an athletic background, I've always been inherently disciplined. So I still wake up every morning at 530. I take some personal time, some reading, spiritual. I read the Bible, kind of do a daily devotion, and then I get after my workout. Now I've got little kids, so I'm just disciplining that. I think it's tough for, and I don't know if you can relate with this, but it's tougher for guys, especially those that are growth-oriented, just to balance everything in life. I feel like that's one of my big goals this year is just to be, I feel like I'm home a lot with the family. Work has gone great over the past several years. as we continue to grow the company and the brokerage business. Now that I have little kids, I think just trying to set boundaries with technology, I think that's just a reflection point. That's a big challenge for me and just being more present, more intentional with my wife and kids. Anyways, kind of deviated from your question about discipline. But yeah, generally, that's kind of my routine. I get in the office, I time block, I have time where I call, where I'm focused on the deals under contract and kind of make my rounds there. And then times when I'm kind of looking at underwritings and things like that.

Whitney Sewell: Yeah, no, I love that. And I appreciate you even going in that direction. I think all of us battle with that, whether you're driven entrepreneurially or in business or in your career or not. Most people still struggle with holding the phone in front of their face, right? Instead of. Yeah. speaking to their child that's standing there in front of them, right? Me included at times. And, and, uh, uh, I've, yeah, I've had a big push on this recently. My wife has been challenging me when the, uh, especially I get home, the phone needs to stay in the office. Right. And I need to do a better job at that. Um, or even gets good, you know, like it just turn it off, right. The rest of the night or something like that. So, uh, I, I need to do a better job at that as well, but. I think it's a very common struggle. We think there's a balance. I'm not sure there is a balance, right? But man, you got to be intentional. And if you're not, man, the years go by and all of a sudden they're driving and are gone, right? Out of the house.

Mark Allen: I was going to say, I feel for you because I'm doing a land development deal with a friend of mine and my father as well. We closed the land in cash. I think we brought seven other investors into the deal. I have one that he'll touch base with me because we're going to do great. I think it's going to be a 36% IRR. We're right at the finish line here. But the timeline has been a little bit longer than expected. I get calls from him every now and then. I'm like, man, I cannot imagine being a sponsor with 100, 200, 500 investors. Whereas a broker, I generally have one to maybe three or four clients at a time with active listings that I'm talking to on a regular basis and managing. It's a challenge when you get home. Some people have, I don't wanna say more needy, but maybe a little more needy and they wanna know, hey, I just talked to you four hours ago, but what's changed? And I generally, I think at this point in my career, I've been trying to be a little more selective on who I work with. So try to work with people that are aligned value-wise and business-wise.

Whitney Sewell: Makes a ton of sense. Now, I appreciate you sharing that as well. It's definitely helpful. No doubt about it to be aligned in those ways. So even with your investors, if possible, right, because they are going to have questions that, man, a development deal, if somebody says 12 months, I usually think, okay, they meant 36. That's what they meant. That's what I tell myself. But Mark, what would you say, you know, or how do you like to give back?

Mark Allen: I mean, probably the biggest thing over the last few years just with the crazy busyness of brokerage has been more monetarily than time. We are pretty involved in our church. It's a benefit that our church is right across the street from our neighborhood, especially with a two-year-old and four-year-old. Um, but, uh, you know, generally it's, it's through different organizations. I'm, I'm part of a organization called mercy street, uh, for the past, I think six years now. And it's basically a West Dallas organization, kind of Southwest Dallas where it takes kids from. Just lower income families, a lot of them don't have father figures. So it's similar to like big brothers, big sisters, but it's through a local church here, a partnership with a local church. So I've had a mentee for quite some time and I've started in fourth grade, now he's in high school. I think just naturally as time has gone by, they move further in South Dallas, I move further north and kids and stuff like that. I used to see them like every other week and now it's just a few times a year, but it's good with technology and staying in touch. Get back through Mercy Street and then there's a handful of different organizations both nationally and locally. that I give to us as well from a charitable perspective.

Whitney Sewell: Yeah, I appreciate you giving back in that way. We all need mentors, right? Mentoring, and especially young men and ladies, no doubt about it, but appreciate you spending that time with us. time, right? It's an investment, and it could change generations, right? You know, just helping that individual at such a young age. So thank you for that, Mark, and grateful for your give back to us through this series. I know we'll do a couple shows here out of this, and just grateful for your time. and talking through, I know, mostly Dallas-Fort Worth, but even just the market in general in 2023 to 2024, what to expect, what you expect, and distress deals to conversations with lenders and good time to buy and tips for sellers and buyers and passive investors. So we've covered a lot. Mark, thank you again. And how can the listeners get in touch with you and learn more about you?

Mark Allen: Yeah, best way is either through LinkedIn, GREA.com. Feel free to visit the website to get in touch with any of the team members or look at the properties we have for sale. You can reach me via email mark.Allen at GREA.com. That's MARK.ALLEN at GREA.com.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.