You’re always better off overpaying for the debt and underpaying for the real estate than overpaying for the real estate and underpaying for the debt.

The residential version of NOI-constrained.

Are these unknown unknowns or known unknowns? We know that the intended consequence of rate increases is demand destruction which typically leads to job loss and/or recession, so if there are “surprises” such as bank failures or bankruptcy of non-bank financial institutions those would qualify as known knowns or known unknowns, not unknown unknowns. And that’s my tongue twister this beautiful Friday morning! ☀️

So much yes here. Beware any business model where the sponsor gets paid the majority of their fees at closing of the acquisition. There was a TIC syndication model pre-GFC where the sponsor took 6-7% fees upfront because “it’s against the tax code to participate in profits so we’ll take fees upfront.” If your age starts with a 4 or higher, we know how that went.

Quick chapter in our bio: during the GFC, we pivoted our business model from buying value-add multifamily to buying nonperforming debt secured by multifamily. We did approximately 20 NPL/REO deals in the 2009-2012 period, so we have more experience than most real estate sponsors in the space. It’s how @FARlikewhoa and I met. He was working at Auction and we were trying to buy their product, to no avail. There is a portfolio of Signature Bank loans secured by rent-stabilized multifamily in NYC being sold by Newmark which has the potential to be a massive win for the Buyer. Buying NYC rent stabilized multifamily with the hope that the law changes is extremely high risk and no way to run a multifamily business. HOWEVER!, whoever takes ownership of the real estate via a distressed debt play will have substantial imputed equity and likely an in-place yield >7% which is as much downside protection as you’ll get in NYC. If the SCOTUS cards fall in their direction, those properties are in 3.5% cap territory almost overnight. We’re not in the space otherwise I wouldn’t be writhing this tweet (or is it X?), but whoever is buying that debt may have a goldmine on their hands.