Are you looking for distressed commercial real estate properties like apartments, self-storage facilities, hotels, and RV parks? What if there was a way to tap into the $3 trillion+ distressed commercial space in just seconds! On this episode of Note Night in America, Scott talks with Mike Haas and the team from Cred iQ who have developed an amazing tool that helps you identify distressed commercial real estate all across the country along with giving you contact information, loan and property details, and also allows you to manipulate the numbers to identify commercial real estate deals for you to target. CRED iQ is a commercial real estate data, analytics, and valuation platform that’s powered by the full universe of CMBS & Agency loan and property data. They also offer up an amazing 25% discount on their packages to the WeCloseNotes.com family by using the code WECLOSENOTES when you sign up at http://cred-iq.com/subscribe.

—

Watch the episode here

 

Listen to the podcast here

 

Understanding The Distressed Commercial Real Estate Market Through A Data Analytics Tool With Mike Haas

I’m glad to have you all here joining us. First and foremost, if you are joining us for the first time, welcome. This is a couple of years in a row that we’ve been hosting Monday night webinars. You can catch all the replays to all of them so far if you go to our YouTube channel at WeCloseNotes.tv. While you’re there, make sure you hit the subscribe button so you’re alerted to all the amazing content we put up there. Join me with over 5,600 subscribers to the channel. We’re the most active YouTube channel for note investors out there. Welcome to the show. We also have taken the last hundred episodes and turned them into a podcast so you can catch and listen to those anywhere that you listened to podcasts. Make sure to hit the subscribe button while you’re there.

All the videos are on YouTube, and you can watch all of our podcast episodes and Monday night webinars and get stuff by going to WeCloseNotes.tv and hitting the subscribe button there. The podcast is on all the podcasting platforms along with our other two rock and rolling podcasts, the 50-megawatt blow torch, the Note Closer Show with over one million downloads, and our Note Camp LIVE podcast. It’s also live out there and rock and rolling as well. There are weekly episodes being downloaded or uploaded leading up to our mid-year Note Camp Convention. We’re pretty excited about that. There are lots of great stuff going on in the industry.

It’s time to refresh your knowledge. The markets have changed over the last few years. You’ll learn a lot of good stuff. We will teach you how to find funds and flip those nonperforming notes, and how to find performing notes, both on the residential and commercial sides there for you, and show you how to take advantage of the amazing market. There are lots of distress stuff out there. You just got to know where to search. That’s part of what this episode is all about.

Friday is all about finding deals. Saturday is all about funding, how to raise private capital, how to find investors, and how to market it. Sunday is for flipping and exit strategies. We’ll be breaking it down for you guys to jump into residential notes. The ticket price includes you plus a guest. It also includes replays of the last workshop, so you can start watching that stuff. It’s a 200-plus page manual.

We’re also doing something fun. We don’t do this every workshop, but after the workshop, we will be doing four weeks of coaching calls with those that are going through the class as a four-week implementation plan for you. It’s to help you take what you learned in the class and apply it to your business and help you start finding deals, funding deals, raising capital, going out and making more money in the new year. Go to a pretty simple NoteBuyingForDummies.com. You don’t need the code. We do have the code on there automatically.

It’s a 50% discount. Tuesday after that, it drops to 40%. Thursday, it drops to 30%. Friday, it drops just to a 20% discount. Take advantage. Grab a great seat to it and start learning. Be ready to rock and roll and take advantage of what you’re going to learn over the next few weeks, and take your business in real estate to a whole new level. If you don’t think banks are selling or aren’t looking to move, trust me, they are. We’re getting more requests about what we’re buying and what we are looking to take down. It has been an interesting couple of weeks here.

We’re glad to have you here. You guys know that if I bring somebody on as a special guest, they’ve got something magical to offer you. This is saying that very much in this episode. We’ve got an amazing couple of guys on here. You probably heard from one of our special guests on here. He’s got fifteen years of experience in CMBS. That stands for Commercial Mortgage-Backed Securities, and the CRE stands for Commercial Real Estate.

He’s a previous Director at Kroll Bond Ratings. He’s a previous AVP at Morningstar in Realpoint. He is a graduate of Villanova University. We won’t hold it against him that he is a Philadelphia Eagles fan. He’s a Cofounder at CRED iQ. We’re honored to have our buddy, Mike Haas, joining us here. Let me get him on here. I know we’ve got a few folks over there at CRED iQ joining us as well. You’re going to have Shane on here too. Am I right, Mike?

That’s right. Thanks a lot, Scott. I appreciate that introduction.

I’m glad to have Shane on here too. Share a little about background, and you too, Shane, before I let you guys pull up your slides and run with it.

Thank you. Scott. I’m Shane Beeson, Head of Sales here at CRED iQ. I have been on board for about eighteen months now. I don’t need to get into my background. I can’t wait to talk to your audience about what we have going on here at CRED iQ and how we can help them.

When you guys reached out to me, I was so blown away by what you guys were doing. I’m not going to take any of the thunder. What I’ll do is I’ll let it go. Do you want to wait and take questions at the very end or do you want to do it as you roll through this?

We can take live fire questions. We’re happy to stop and answer anything that comes through.

Thank you, Scott, for inviting us. Mike and I are thrilled to be here. As Scott said, I’m joined by my partner, Mike Haas. He is one of our cofounders. We’re also going to be joined by Marc McDevitt, who is our Senior Managing Director of our Operating Advisor and Evaluation Division, on behalf of our other partners, Bill Petersen, who’s one of our cofounders, and Ryan Garrett, our Chief Tech Officer. Thank you for the opportunity to present all that we have going on at CRED iQ.

Let’s get to our agenda. It’s real simple. We’re finding distressed commercial real estate opportunities in every single market across the country. That’s our bread and butter. We’re offering our clients true ownership and lender contact info. That’s going to be names, addresses, up to 2 emails, and up to 4 phone numbers for owners and lenders on all the properties, value-adding off-market deals. Real-time valuation is a huge component of what we offer. Mike is going to get into that here. That is his and Bill’s bread and butter going back decades. That’s a big part of how we bring value to our clients.

We’re also going to touch on the top fifteen hottest markets for investors. Our mission statement is simple. We’re looking to be the most trusted and accurate FinTech platform, where CRE, finance and tech come together to provide unbiased, transparent, and customizable data analytics and valuations in real-time. That’s who we are and that’s what we do. These are some of the publications that we’ve been lucky enough to be quoted over the past couple of years, The Wall Street Journal, The Philly Business Journal, and Philly Inquirer. A Commercial Mortgage Alert is a huge publication in our industry. We’ve been honored to be included in a lot of their coverage every Friday that comes out as well.

Next is who we are and what we do. We are a commercial real estate data valuations and analytics company. We allow our clients to access loan, property, financial tenant, ownership and valuation data for hundreds of thousands of commercial real estate properties in every single major market across the US, including secondary and tertiary markets as well. The valuation piece is very important to what we do. That’s going to be what Mike is going to show you.

It’s interactive discounted cashflow valuation software with pre-filled assumptions from our proprietary comp technology. That’s the short version of what we do and then how we do it. This is an overview of our operation. We’re going to take all this unstructured data at the top. That’s going to be CMBS, CRE, and CLO data, the agency, the Fannie, Freddie, and Ginnie data, combined with public data, paid data, and market data.

We’re going to put that through our technology, and that’s going to turn it into actionable deliverables for our clients, property, maps, data on loans and financials, and top five tenants with lease expiration dates. We talked about the true ownership data. That’s important. Comps are a big component of our offering. We deliver that all to folks like originators, brokers, investment sales folks, and a big chunk of our client base, distressed debt investors, which is why we’re here. This slide is CRED iQ in a nutshell.

This is it. This is what Mike’s going to show you here. There are over 150,000 commercial real estate properties with loan property, tenant financials, valuation, and borrower contact info. We’re tracking a little over about $2.2 trillion in CRE loans for every property type. The top six in our world are going to be office, retail, multifamily, industrial, hotel, and self-storage. It’s going to be every market across the country updated every single month.

With that, I am going to cede the controls to my partner, Mike Haas. He is going to walk everybody through how our clients get value out of our database, generating searches based on property type, property size, loan status, and getting down to the asset level and seeing the important property level details that we talked about. With that, I will turn the reins over to you, Mike. Take it away.

Thanks a lot, Shane. As you start, you log in to CRED iQ. What you do is if you have something in mind, you can quickly search for it here. This is just a broad keyword search. If you need to browse, you can hit that. That will take you to our general search items, where we have about ten key things that you can filter for. Up here are the keywords. It’s a property name, address and city, then you have the location search at ZIP, city, county, state, whatever you want to hone in on.

In the building size, you can narrow it down by minimum and maximum size of square footage for office, retail, industrial and mixed-use. For multifamily, hotels and manufactured housing, you can narrow it down by units or keys, whatever you’re looking for. Here are the property types that our platform can handle. As you get into the property level details, you’ll see the subtypes as well. We have office, retail, multifamily, industrial, hotel, self-storage, mixed-use, manufactured housing, cooperative housing, healthcare, some land, and some other niche property types like parking and smaller ones like that.

You could search by original balance, the min-max there, and the current balance for any loans that are amortizing. This is a great way for people to look for off-market deals. We have loan information on their maturity dates. A lot of these commercial loans have a 5, 7 or 10-year balloon where when that maturity date approaches, the borrower will either need to refi or sell the property. That’s a key data point that a lot of our clients like to search for and hone in on. We also have information on the top five tenants behind the office, retail, industrial and mixed-use properties.

 

 

This filter is very important for distressed debt investors. Because all of our data is updated monthly, we get information in real-time, whether a loan is about to become delinquent or is delinquent. Even worse, if it’s sent to the special servicer because there are major issues, it will lead to foreclosure, and then REO is the last case. Let’s run through an example here. Let’s look at Texas for our home crowd here on the show. If we want to look at multifamily building size, let’s do 10 units to 60 and apply here. That narrowed it down to about 1,100 properties.

You can sort it down on the map. Let’s do an original balance between $1.5 million to $30 million and filter it down. Each page has about 100 results on it. Now we’re looking at 700 properties all in Texas. If a loan gets added to the watchlist here, that means there’s something wrong with the property and it has now triggered the servicer’s watchlist. It has been added to the servicer’s watchlist so the servicer can keep an eye on the property, understand what’s going on, and maybe work it out before it becomes delinquent.

If we just keep everything clicked here, all of the distressed watchlist, especially service 30, 60 and 90 foreclosure REO, and apply, that brings us down to about 100 properties that fit these criteria within Texas in this loan size. You can filter it on the map. You can do a quick little hover. This little bar up here is our list view. We can see a lot more information all the way across right here. You have the address, size, property type, subtype, year bill, MSA, submarket, loan name, original balance and current balance. Here’s the status, who the originator was, and the maturity date. We just click into one of these and let it load up.

This is an example of a property I clicked in, Bennett Monarch lofts. This one is at 1910 Bennett Avenue in Dallas, Texas. This one had an original balance of $2.45 million. It originated in December 2019. The issuance LTV is 69%, originated by Sabel. The current balance is $2.367 million. It is current, 26-unit multifamily. Here’s the MSA, some markets in Central Expressway outside Dallas. It appraises at issuance for $3.55 million or $136,000 a unit at a 4.71% cap rate.

Here are some more loan terms. The interest rate is 3.9%, IO expiration date, and maturity date. It matures in 2040. Moving across here, there’s more information on each tab. In the Loan tab, there’s even more information on the loan, amortization type, loan term, and who the master servicer is. This is a Freddie Mac loan, and who the special servicer is. I’ll get into the contact information in a little bit. These prepayment terms are very important for the information on how the borrower can prepay this loan. A lot of these commercial loans have lockout periods where they’re not able to freely prepay. It’s very valuable to understand this information.

We have information on whether or not it’s distressed and what’s going on with the loan status. For this example, it is distressed. It has been added to the servicer’s watchlists because it has a low DSCR, Debt Service Coverage Ratio. It has been on the servicer’s watchlist for about a year now. It hasn’t quite transferred to the special. Here’s the payment history. We track all that and update it monthly. Here’s some juicy information straight from the servicer about the property’s performance and why it was added to the watchlist.

In this one, we’re just quickly skimming it. It looks like occupancy is strong at 100%, but it was pretty low at 73% a year before. Effective gross income has declined by 9%. That’s probably the reason for the DSCR. Moving on, click into the Property tab, here’s the valuation. This was appraised for $3.55 million. Here’s the interactive map. You can drop the little yellow guy and check out the property. We also have a partnership with Waterstone defeasance.

This is the real-time defeasance calculator, which gives you an idea of what it will cost the borrower to prepay their loan if they want it to refi or sell with an interactive date picker. Everything gets updated from our partnership with Waterstone. I’ll get into the valuation at the end here. Moving on to the financials, we get updated quarterly and annual financial statements directly from the servicer and borrower. The borrowers are required to submit their quarterly financials as a part of the loan disclosure documents.

We capture all of that and update it in real-time. This property was 73% occupied a year ago, and then it moved up to 100%. Here’s the base rent. For instance, $33,000, about $1,100 a unit. Here are all the operating expenses. You have the real estate tax. You have the insurance, utilities, repairs and maintenance, management fee, advertising, professional fees, and any CapEx. At the very bottom, we have the DSCR here. It originated with a 1.21 DSCR. It dropped to below breakeven. Now it’s still distressed at 0.67.

This is a great way to understand if a property is a value-add opportunity. Rents could be $1,200 in this market, and they’re only achieving $972. Those are the good things to look at. Here are the summary level financials if you don’t want to get into the details of it. Moving on to the comps, this is a mechanism we’ve built that pulls in all of the surrounding properties around the subject property that you clicked on. It ranks them based on relativity over to the right. We ranked them from 0 to 10, 10 being the most comparable.

This will help you benchmark your market and understand the competitive set around your property that you’re analyzing. This helps feed into the valuation model that I will get into. The Contacts tab is one of the topics. We go to great lengths to find out who the borrower, the sponsor, the owner of record, and the entity name. That’s the LLC’s address. The owner of record is the person who signed up for the LLC. We then have their address. They’re up to two emails for them and then up to four phone numbers.

This is a great way to contact owners of properties. We also have the lender, the master servicer, Freddie Mac, and their phone number. When a loan gets transferred to the special servicer, when it’s seriously delinquent, we have contact information for them as well. Backing it up, all of this information can be PDF in a quick little eight-page property report. This last tab has a lot of loan details from origination. We have the loan purpose, the borrower type, ownership and loan amounts. There are about 150 data points here.

Backing up into the valuation section, this is a discounted cashflow analysis where you would have the ability to change anything in green under MyQ. It starts out pre-filled using the most recent financial statement to save you time with your valuations. In the upper left here is a direct cap. That’s pretty self-explanatory. It pulls in the most recent full-year net cashflow of $105,000. It applies this cap rate over here and arrives at a value of $2.1 million.

If you think the cap rate in this market is closer to $4.5 million, you can change that and see the value go up. You have the current occupancy, the weighted average effective rent, any other income, parking, laundry, anything else, and average annual rent growth. You have your market vacancy rate and then your lease-up terms. We have this model built out for all the property types. This example is multifamily. Down here are all your expense assumptions. You have the ability to override any one of these three columns.

You can type in the dollar per unit per month, the percent of revenue or the full dollar amount. If you think management fees should be 4% of effective gross income, you can update that there. You’re at $1.8 million. You might say that’s pretty low for this market. Rents are closer to $1,200, update that, and now it’s $2.5 million. You can check on the Details tab for all the cashflows. We’re completely transparent and interactive. You can see all the math behind this and say you’re happy with this valuation, default valuation at one, and hit finalize.

You then go to the Reports tab and hit download. It takes a little bit to generate. Here’s our evaluation report. It’s a little two-pager. It’s $2.5 million. Here’s the subject property information, the loan terms, your key assumptions, $1,200 in rent, parking income, average lease term, all of your expenses down here, and then all of the math behind your valuation, and all the cashflows. That’s everything for the loan level view of all these properties. If you want to do another search of a retail property that has a hobby lobby, I don’t know if you guys have them in Texas.

We got the hobby lobbies.

All these properties have a hobby lobby in them. Click in Property. It has the same setup for each property type. For the ones with tenants in them, in multifamily, we don’t get granular on the tenant side for privacy reasons. We do it for retail and commercial property types. We have the top five tenants. Here’s your hobby lobby. It’s 56,000 square feet. That’s the lease expiration date of the remaining lease term.

All of our rent rolls are reviewed quarterly. This one was last updated in September. This was a $19.5 million loan. Here’s all the contact information, lender, special servicer and the financials. This one has the base rent, expense reimbursements, and real estate taxes. With that, I’ll let Marc McDevitt run through a valuation of a property that we might not have data on. He will show you how he would approach that.

Thanks, Mike. I’m happy to be here. As Mike has alluded to and Shane mentioned earlier, the next question that comes up is if you find a property or you have a property that’s not in our database, and you still want to do an evaluation, we have this MyQ software that’s available to our clients where they can do their own valuations using their inputs. To access the MyQ software, you click the MyQ icon at the top right corner of the screen. You can see here I already have a little bit of a portfolio of valuations we’ve done in the past.

They can range from a nine-unit multifamily property to a $1.3 million CBD office building. This is my portfolio. Anytime you want to do an evaluation, it automatically saves into your portfolio. To start a new valuation, click this top right button here that says Start New Valuation. It brings you to a blank screen. To start out, you have to fill in some normal property details. We’ll start out with the name. If you have a name for a multifamily property, we can call it Carson Gardens. In building type, you can select any property type that we have here like office, hotel, retail, self-storage and multifamily. I will go with multifamily.

Carson Gardens has to be a garden-style type of multifamily complex. We’ll go in and select garden style. Building size is how many units the property has. We have come up with a random number, 170 units. You have the option here to put when the property was built. We’ll put Mike’s birthday year, 1985. The submarket is an optional field. You can put something in there, say Northwest. Origination date, if you have the information for when the loan was originated that you’re trying to underwrite, you can put that in there. We can just put in the date for now.

The next is the location. If you start typing an address or some random numbers, it will try and auto-populate for you through our mapping API. You type in an address there. I preselected this address for some multifamily property in San Antonio. You can see that the rest of the information auto-populates for you, your city-state, the ZIP code, county and MSA. That’s the basic information that you need to start. As soon as you fill in that information, you have other functionality that becomes available to you right away, which includes this Comps tab.

If you click over to this Comps tab, since you put in the property type, the size, the loan origination date, and the location, our software automatically populates all the relevant comps in our database for you. You can see we have about 25 comparable properties that you can use to help you aid in your underwriting. If you want to look at comparable rent, comparable expenses, what are the property taxes for property X 2 miles away versus a property that’s a half-mile away, and so on and so forth.

 

 

At the end of the day, you can also compare values. We have appraisal values here. You can compare on a per-unit basis. You can compare cap rates as well. This Comps tab can help you fill out the rest of your assumptions. We’ll go through those quickly. We’ll say the property is 97% occupied. Coming up with a market rent, we’ll say $785 or $800. Parking income, if the property has parking facilities, you charge for that. You can say $60 a unit per year. It’s the same for laundry. If this property was constructed quite a while ago, then maybe the washer and dryer units are not in the unit. Maybe they’re in the common area, but if it’s a recent construction, then maybe the units have the washer and dryer in them, so you don’t get any revenue from that. You can make that assumption.

Other income that is ancillary income, you can put in an assumption there. For your annual records, it’s how much you are raising rents per year. We’ll say 2% for now, and then your market vacancy rates. Typically, San Antonio and primarily other common multifamily markets are around 2% to 3%. We’ll put in 2% for now. We’re doing a DCF analysis. We’re also going to have to put in some leasing assumptions. The average multifamily lease is one year.

With lease up the stabilization. This is more for value -add properties where you have low occupancy, and you need to lease up the property over a couple of years. You can usually put in 2 to 3 years. I will put in two years. Renovation costs are similar. If you have a value-add opportunity where you need to lease-up some vacant units, you want to add one-time renovation costs to those vacant units. You can do that.

Our default value is about $6,500 a unit. Renewal probability, if the tenants staying are going at the end of the year, we’ll say that’s a coin flip 50/50. For collection loss, we’ll use the standard 2.5% free rent. If it is feeling a little stingy, I’m not going to give any new tenants any concessions. We’ll put 0% there for now. Scrolling back up, the DCF projection, we’ll say it’s ten years. The terminal cap rate for San Antonio, if we’re thinking of a cap rate, is maybe 5% or so. We’ll add a little cap rate expansion over ten years, so 5.3%.

Our discount rate is usually based on each investor’s personal requirements. We’ll give a little bit of a spread there and say 6.8%. In ten years, you have to pay the broker a 2% commission. This is where you get into the nuts and bolts of the operations of the property. Going through the expenses, Mike mentioned you could enter expenses into three different options. It’s on a dollar per unit basis and on a percent of revenue basis if you want to see everything grossed up to 100% of your revenue and EGI. If you have the actual full dollar amounts, you can input that as well.

I’m going to go through real quick and put in some numbers here, and then we can see the result after we calculate the value. To switch it up for management fees, they’re usually 100% variable expense. We’ll put in 3% of revenue so we can model it as a variable expense. It’s the same as our CapEx, our replacement reserves. The last assumption is our average expense growth. I know with the inflation in high gear, that might be a little bit higher but we’ll go with 2.5%. We have all our assumptions and all input in there.

You go up to the top right here and click Calculate. You come out to a value of $13.4 million or about $78,000 per unit. To all our San Antonio multifamily experts out there, you can tell us if that is in the ballpark of what a property would look like. As soon as you have the value, you can check the individual cashflows on a year-by-year basis by clicking the Detail tab. It goes through years 1 through 10.

You could follow the occupancy individual line items with revenue expenses all the way down to your net cashflow at the bottom here. You then have the same functionality that you would if you found a property through our normal search. You can generate a property report here. That would show you the value, all your assumptions, and your individual net cashflows. What do you think of Carson Gardens for $13.4 million?

I like it.

Once you’re all set, you can name your property up here, Carson Gardens, and click Finalize. Once you go back to your MyQ portfolio, you can search for it here. Let’s see if we can find Carson Gardens. If you want to come back to it another day or a week or two later, just come back, log on, pull it up, and you have all your assumptions there. If you need to make some adjustments, you can do that and save another version of the property. Our normal functionality allows you the ability to overlay your own assumptions on every loan or database.

With this MyQ functionality, you have the ability to create a custom valuation for yourself by implementing some streamlined valuation inputs. On the itinerary, we promise that we will look into the top 15 or the 15 hottest markets for multifamily. I’ll pull up a chart here. Mike and Shane mentioned that our analysts do a lot of research, keeping track of loan originations and types of deals that are getting done in the market.

Now, we’re working on a review of 2021 loan origination and any particular multifamily originations since multifamily led the charge in 2021. After a little bit of a down year in terms of performance in 2020, multifamily picked up in terms of commercial real estate in 2021. Our final tally isn’t in yet, but it was close to almost $400 billion in loan originations last 2021 for multifamily properties. Where we want to help clients is finding out where those deals are getting done. You have your gateway markets like New York and LA, which lead almost every year in total origination volume, but we want to take a little bit of a different approach.

We wanted to adjust our focus to secondary and tertiary markets. These are the markets that might not get as much attention, but they deserve it from our perspective since these are markets that might show higher growth potential. I pulled up the chart here. You had the top fifteen secondary markets for multifamily originations in 2021. These are excluding primary markets like Dallas-Fort Worth, Houston, Chicago or Atlanta. Looking at the chart, you can see that Columbus, Ohio took the pole position. The blue bar is the total origination volume in terms of dollar amounts.

The green line is the total number of deals or loans that were originated. The green line is the highest in Columbus, Ohio, with almost 100 deals on our database that were originated in 2021 in the Columbus, Ohio multifamily market. You can see Columbus took the pole position. Right next to Columbus is San Antonio, with more than twice as much origination volume with nearly $2.5 billion in loan originations that we tracked in 2021. That comes out to almost $30 million per loan origination.

Those are some pretty happy deals we got done in the San Antonio market in 2021. Going through the rest of the top ten, you have Indianapolis, Cincinnati, Tampa, Riverside, California, and Virginia Beach. Oklahoma City came in second in total origination volume. Those are some fairly large deals that were getting done and got done in Oklahoma City in 2021. You have Tucson and Vegas rounding out the top ten. One thing that we did want to point out is if you look to the far right of the chart, probably second to last, you’ll see non-metro Texas. This was a surprise to us.

We track about a little bit over twenty MSAs within the state of Texas. Anything that falls within the non-metro bucket is properties and locations that don’t fall within the boundaries of our traditional Texas MSAs. We did see a lot of volume in loan originations in rural Texas markets in 2021. This goes to show that some opportunities can be found outside of the traditional places where you might look. We did a little bit of a deep dive and it looked like a lot of a decent portion of the volume from that non-metro Texas bucket came from Granbury, Texas, which is about an hour outside of Fort Worth. There you had our top fifteen secondary markets for multifamily loan originations in 2021.

Somebody texted me and wondered what kind of voodoo do you have to do to get all this insider information as far as borrowers and sponsors? Do you have a team of VAs scrubbing every loan you can find out there for the most part? Is there something that you guys tap into?

A lot of our information comes right from the servicers and loan documents. We go an extra step. We have a team constantly looking at new borrowers if there’s a loan assumption. We’ll update their contact info. It’s a tough task. We have a lot of people constantly looking at it, and we have great technology that updates it very quickly.

This is cool because there are things on here that may not initially pop up, but when you guys showed sponsors, that’s a huge thing to have if you know the sponsors of all the big apartment deals in the area or you’re looking to do apartment in San Antonio or wherever. That’s huge.

We have some clients that will take our contact information, the loan amounts, and the property details and upload it into their CRM or their Salesforce, so they can manage their pipeline and be out in front of these maturity dates.

With everything that has gone over the last few years, besides the top markets, has there been anything else that surprised you as far as some of the different asset classes that are booming like self-storage? Are you seeing a big increase in hotels struggling or being modified or tweaked in a lot of cases out there to get back on track?

As soon as the pandemic hit, hotels are first to feel the brunt of it. We’ve run a market delinquency report every month. The hotel delinquency rates are around mid-20%. They’ve come down 15% since they’re out there.

There has been some recovery, but the delinquency rate amongst hotels is certainly still elevated.

What is this going to cost? Is it going to cost me an arm and a leg to do? How are people able to take advantage of your product?

 

 

First of all, before we get into that, thanks to Scott and his team for allowing us the time. We’ve enjoyed presenting for everybody. What we’ve done is create a promo code on our site that offers a pretty significant discount. We’ve done 10% before. Since I’ve been on board, we’ve done 15% here and there. We’ve never done 25%. This is a pretty special offer for Scott’s audience. The discount code on our website is all one word, WECLOSENOTES.

That will automatically build in a 25% discount off of our annual subscriptions. We’re priced on a per-seat basis at $395 a month. Without the discount, annually, it’s about $4,700. With the promo code, it’s going to knock off about $1,200 from that. The vast majority of our clients subscribe to the Ultra version of our subscription. The main reason for that is they’re getting the actual borrower and sponsor’s name, the contact info that Mike talked about on his portion, the emails and phone numbers. That’s important. A lot more exports are allowed with the Ultra. It’s $500 a month compared to a very small amount on the standard. The Ultra is the way to go for 99% of our clients.

That’s ridiculously cheap on a $395-month basis being able to tap into snowing so much stuff, not only information in your market but other markets on the distressed side of things. Is there a minimum loan amount or a property size that you guys see where your reporting cuts off or where it increased that?

Our smallest property is probably a four-unit multifamily. It will go down to about $200,000 for the smallest. We’ll have the Bellagio for $2 billion. It runs widespread.

I’m glad you brought that up because there are a lot of people who start thinking. We all know that the bank’s books are clogged up with that sub $5 million, the balance stuff and the small commercial stuff. Here’s a huge opportunity to tap into it without having to do a lot of the heavy lifting. You guys have gone out there and scrubbed that data, and been able to give people a magnifying glass to glance and X marks the spot for you to start digging.

I’m sure we’ve got some folks who are blown away here. I got a message here, “We’re blown away.” Somebody asked why they thought Oklahoma City did so well. The big thing is that you have a lot of people invested in Dallas. I didn’t want to pay Dallas prices that went to Oklahoma City and bought a lot of stuff there.

Mark, I don’t know if you want to weigh in on that, but I was talking to a guy who’s looking for apartments in the Metroplex in North Texas. That was one of the markets that he’s focused on. It’s a secondary market, but it’s still a pretty big MSA when it comes to this part of the country. There’s a lot of value in some of those secondary and tertiary markets getting outside some of the Dallas and Houston’s and Philadelphias of the world.

If you’re within an hour, if you’ve got boots on the ground or you could put people in there, it’s worth going outside a little bit. As you said, Mark, you were surprised that rural Texas still has a lot of stuff there. Granbury is on the path of progress. You probably look a lot down in the valley too. That’s on the path of progress. Everybody needs a place to live, and affordable housing is still one of those things that are needed by everybody.

If you add back in all the primary markets, Dallas would be number three. There’s a lot of competition. Sometimes it pays to venture out and find deals a little farther out.

These things are able to allow for you to do a lot of the upfront work versus having to jump on a plane and go take a look at it. Steven asks a question, “Are mobile home parks and/or vacant property zone for multifamily included in your database by any chance?”

The mobile home would be under manufactured housing. We don’t have vacant land. We do have land, but that’s under a land lease in a central business district under a skyscraper. We have quite a bit of manufactured housing of about 5,600 properties.

That’s huge, 5,600. These are RV parks, I would be willing to bet since these are individual properties.

These are parks.

Can you do a quick search there? Let’s do multifamily at ten units or greater just to get a rough number.

That’s 741 times 100.

That’s 7,400. Let’s do the 10 to the 100 sizes because that’s the question I get all day long from people, “I’m looking to buy distressed commercial apartment loans at under 100 units.” I’m like, “Okay.” That’s still 3,100 of them across the country. That’s crazy. That’s freaking awesome, guys.

We have a ton of 4 units to 20. There’s a lot there.

Those are still popping up under Freddie and Fannie. What’s the primary reporting for those? I wouldn’t think you see a lot in California there, but what’s in Chicago?

Back to this list, this is 133 pages times 100. That’s 130,000.

Dimitri asked the question, “Do these notes have cashflow as soon as you buy?” You can see what the rent rates are coming in on these things. You can see what kind of rent rates you’re getting in occupancy, so it gives you a bit of an idea. Sean asked, “How far distressed the asset is?”

It will show you when it started missing payments. We have that full loan payment history.

Mike, we also had a question from Richard on the valuation piece, where it said coming soon. That’s going to be the base-case dark scenario.

That’s more geared towards our CMBS investor side clients, where our team of analysts is valuing the properties. They have an actual third-party opinion of the value as they go and look at it and analyze it. Now, a lot of our properties are automatically valued based on the most recent financial statement that’s pulled in. You always have the most recent appraise values too. That helps you benchmark it.

Richard asked, “Where does the rent info come from? Is that borrower reporter or a third-party servicer?”

 

 

The rent comes from the borrower’s operating statements. It’s divided by the number of units and the most recent occupancy reported. You go back into the weighted average effective rent.

It may not be exactly accurate because when you’ve got two 2s or one 1s, you’re getting an average per unit door, so you know the blending for you.

We don’t have the full rent roll for all tenants.

Dimitri asked, “How is buying a commercial note for a multifamily different from buying a single-family?” The one thing and the biggest missing piece that we discussed there is oftentimes when you’re buying commercial notes, you may not get the rent rolls or the rent rates. You’ve got to be Sherlock Holmes and go out and find a lot of this stuff. This is why we brought these guys on here because this is awesome, the fact that they provide a lot of stuff to help you highlight and locate these things.

Every county and state in the country is different in how they report their lis pendens or their notice of default and stuff like that. In some states, they don’t report the notice of defaults like they do in other places. This takes a lot of the work out of finding commercial deals because they’re all right here for you versus on the residential side, where you still got to reach out to banks and see what’s available. Banks are a lot more lenient. I will tell you this on moving their commercial debt than they are in their residential debt.

You got to realize these aren’t going to be government-backed like Freddie and Fannie do on the residential stuff. That’s why they’re financed at $0.60 to $0.70 on the dollar, and then you’ve got people bringing 20% to 30% down. They’re not going back to insurance. That’s why you see a lot of these things hitting the hot list or the watchlist because they want to get on top of these as much as possible to avoid the defaults. The minute you start having your rents and cap rate go down, hence the value of that property goes down. Lenders do not want to see that at all.

I clicked into an example. It had a foreclosure sale not too long ago, and then an REO auction took place in November. The property is under contract. They have to get rid of it.

We’ve got a couple of students who have taken some of the smaller, I think they’re unflagged, but taking some of the 50 to 60 unit hotels that are unflagged and have struggled because they didn’t have the marketing on them but some of these flags do. It was gone and is working to convert them into multifamily or a short-term housing work with the homeless community and stuff like that in cities. Does this track property tax delinquencies or tax sale properties as well?

A lot of the properties escrow their taxes, so it’s tracking their actual loan payment. It’s not specifically property taxes.

That’s an easy thing to jump on the county and check and see if they’re on time or they’re behind too as well. If it’s escrowed, they’re not. How to pitch this to investors? You find a deal and talk about that you got a deal. You are reaching out and talking with these individuals, trying to figure out exactly what they’ll take. That’s a great opportunity on the upside. In multifamily, self-storage, and even hospitality-style hotels and all that stuff, you got a deal. There are a lot of people out there that will gobble that stuff up.

You don’t need to see as big a discount, especially with an under-managed property like you do in residential, because when you saw Mike and Mark both adjust numbers, you saw how dramatically a little bit of an increase in rent across the whole property could impact the value of the property to give it a lot of upside for things. It all comes down to finding the deals first. Here are your cheat codes for gamers out there on how to find all the distress stuff in your county, your state, or anywhere in the country for you for the most part. It’s $395 a month for a year. Is that correct?

The monthly price is higher. It’s $495, but the annual is $395. This is the quote at the annual level. If you wanted to do a monthly, it would be $495.

All you need is one deal to pay for the whole thing for the whole year for several years on that there. Is it 25% off that price?

It’s 25% off, whatever you decide.

The link for you to get signed up is easy. It’s CRED-iQ.com. Hit the subscribe button. They’ll take you over there and get rock and roll with these guys. This is such a great tool to turbocharge your commercial note business and take things to a whole different level in cash and checks with multiple commas versus one comma. Guys, this has been awesome. You guys have done an amazing job with the software and the feasibility. Working through it is very simple. It’s a lot of information, but so much valuable information. You make it easy to read. Kudos to what you’ve done here.

Thank you, Scott. In closing, there are three ways that we set ourselves apart as far as providing value to our clients. Our solutions are more affordable than a lot of others. Our solution is more interactive than others, as we recall from seeing Mike and Mark on the valuation piece where they’re changing assumptions to change values. Most importantly, our platform is more objective than others.

All of us at CRED iQ place our reputations on the line every single day to vouch for that objectivity. That’s very important to us. We’re passionate about it. That’s the value we provide to our clients. Thank you so much for the opportunity to speak to your audience about the value we bring to our clients. I would love to partner with your folks and get them the data they need to make some money.

Kudos to you. We got to give you the standing applause.

Thanks a lot.

I’m excited that you guys are on here first. I got a few other referrals for some of my folks in the multifamily and self-storage business that I’ll be making some interest to you here as well. Thank you so much for coming on the show, sharing this, and giving one heck of a discount. That’s so good. We’re looking forward to this. We’re going to be in touch with some other stuff here as well too.

Thank you, Scott.

Thanks, guys. Be safe. Everybody on here, if you guys are diving and looking to get into commercial, whether you’ve got a specific asset class, that’s a phenomenal tool. The 25% discount is blown away. You should take advantage of that. You will not be disappointed. Get signed up for that. I will walk you through some of the ways that you can use it in your note business to take your whole note business to the next level. Get signed up for it, CRED-iQ.com/subscribe. Go out and take action. We look forward to seeing you at the top. Thanks, guys.

 

 Important Links

• WeCloseNotes.tv
• Note Closer Show
• Note Camp LIVE
• Note Camp Convention
• NoteBuyingForDummies.com
• CRED iQ
• CRED-iQ.com/subscribe
• https://bit.ly/CREiQ7Day

 

About Mike Haas

Co-founder of CRED iQ, a commercial real estate data, analytics and valuation platform that helps brokers, investors and lenders uncover opportunities.

A commercial real estate finance executive with a background in valuation, structured finance, and the development of technology platforms for CRE & CMBS analytics.

Experienced with underwriting and the valuation of all major property types including office, retail, multifamily, industrial, hotel, self-storage, manufactured housing, cooperative housing, condo conversion, and land.

Specialties:
• Leading technology teams and developing new products
• Distressed debt / non-performing loan valuation
• Strategizing, developing and maintaining CMBS valuation and surveillance platforms
• Deal & loan structuring
• Structured finance analysis (CMBS / CRE CLO / SBLL / Freddie Mac / Fannie Mae)
• Debt and equity capitalization (senior debt, mezzanine, & private equity)

 

Love the show? Subscribe, rate, review, and share!

• Here’s How »

• WeCloseNotes.com
• Scott Carson Facebook
• Scott Carson Twitter
• Scott Carson LinkedIn
• Note Night in America YouTube
• Note Night in America Vimeo
• Scott Carson Instagram
• We Close Notes Pinterest