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- [00:00]
David Green
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS, and no sales pitches. I'm David Green and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's going on, everyone? Welcome to Real Talk Real Estate. This is the David Green Show. I'm David Green and I'm joined by my good friend and investing savant, Andrew Cushman. I used to call him the computer that wore tennis shoes, and now I call him the computer that wears snow skis, athletic shoes. He's the only guy I know they can compete with the computational power of a computer and also ski and snowboard in the same day. Andrew, how's it going?
- [00:47]
Andrew Cushman
You know, I'm feeling better than the people in pharmaceutical commercials.
- [00:51]
David Green
That's a really good one. I think you have a new line like that every time we do one of these episodes. Do you research to be prepared for that?
- [00:58]
Andrew Cushman
What? There was one time, I'm like, you know, what's a, what's a better way to answer the question than say, oh, I'm good or I'm fine, right? And then I just kind of, I started thinking about it and every once in a while they pop into my head. I'm like, oh, I'll have to remember that.
- [01:11]
David Green
So, yeah, I heard somebody say one time, I'm busier than a one armed wallpaper hanger. And that one.
- [01:17]
Andrew Cushman
I heard that. Yeah, I've heard that. I like that one too.
- [01:20]
David Green
Well, Andrew, give us a quick synopsis of your investing expertise and background so we know who we're listening to today.
- [01:28]
Andrew Cushman
Yeah, I took the traditional route into real estate and got a chemical engineering degree. I did that for seven and a half years and then in 2007 quit to flip houses full time in Southern California, which is a great time to do it. I had no competition because everyone was scared and I was just buying things at literally 50 cents on the dollar in Southern California. That was great for a few years. And then by 2009, 2010, we. And when I say we, my business partner and my wife, we had a couple of great years, but everyone else was starting to figure it out too. And it's starting to get more competitive. And we're like, this flipping stuff is actually just another brutal job. Especially when you're just kind of doing it on your own. And so we said, well, what's the next big thing? We reasoned, like, all right, well, we had just had a huge recession, which probably means we're gonna have a big, long expansion. And everyone and their mother either just got foreclosed on and can't buy a house for seven years, or they know someone who got foreclosed on and they're scared to buy a house for the next seven years. So we have an expanding economy, which means job creation and rising incomes, but a whole bunch of people who can't buy a house. So that means rentals are probably going to do really well. So we said, well, how do you scale rentals apartments? So we actually called our. One of our single family flipping coaches and said, do you know anyone who does apartments? He said, actually, I do. He connected us with a guy who had done about 800 units. We hired him as a coach. Our first deal is we went and syndicated 92 units on the other side of the country in Macon, Georgia, which I wouldn't buy there today, but it was our first deal and it worked out just fine. And at this point, we're just a hair under 3,000 units. We don't have any properties that are in distress. Everything in the portfolio is distributing from cash flow. So we. We didn't have anything blow up in the last few years. Not everything is hitting pro forma because the market did shift, but nothing's in trouble, and we're gearing up for the next cycle.
- [03:26]
David Green
Let's talk a little bit about the market shift that you referred to. If someone's listening to this and they're not a multifamily geek, maybe they don't know what people mean when they say cap rate. We won't explain cap rate, but just explain what happened in the market that gave us so many headwinds in the multifamily space when previously it was, like, so hot if you touched it, you'd burn your hand.
- [03:46]
Andrew Cushman
Yeah, there's quite. I mean, part of what happened is the last few years of the last big upcycle was artificial, meaning we had, you know, everyone calls it zirp, which just stands for zero interest rate period, where the Federal Reserve and really the government as a whole, held interest rates artificially low. And if interest rates are near zero, that means capital or money is basically free. And so if you can borrow money at almost no cost and then go invest it in something that produces a yield, that's a lot of, in a sense, free income. Free money. And so that is part of why prices for apartments and really almost everything else, the stock market and other types of real estate kept going up is because there was so much money in the system looking for yield. And so it pushed cap rates artificially low, which means prices went artificially high. And then you add onto that the COVID spasm of free money couple, however many trillions it ended up being. And actually we still have some of that in the system. That's part of why apartments and real estate has not come down as much as everyone expected, is because there's still a ton of liquidity out there looking for. Looking for yield. So those, those are the two biggest factors is we just had abnormally low interest rates and abnormally high liquidity.
- [05:24]
David Green
So basically when the government created a lot more money in the supply and they kept interest rates incredibly low, if you just put the money in the bank and saved it, inflation eroded at the value of that money because they kept making more money. So you felt pressure. I got to put it somewhere that it's going to get me a return. Otherwise I'm going backwards. At the same time, interest rates were incredibly low. So you couldn't just go put it in a savings account or a CD or one of the like traditionally safe investments because rates were too low. They weren't keeping pace with inflation. So a lot of people were able to get a lot of this money together. And they said, where are we going to put it? Let's put it in apartment complexes, because we can borrow really cheap money to buy them and we have to put it somewhere. And that created this ridiculous demand that was artificially high. Like normally people don't want to buy apartment complexes. There's not enough. It's like so much work for what you're going to get out of it in a normal environment. But in this environment it wasn't. And then we saw all these people getting into it that didn't really know what they were doing. But if you could just halfway stumble your way through the process of buying an apartment complex, as cap rates kept going down, meaning there was more and more demand for these things, then the value of them kept going up. And you could do a terrible job operating it, but you still made money because of a combination of inflation, inflation and cap rates compressing. And it was just a free for all. Like it was that. It was a. It was a nuts environment. I remember there's a movie I watched as a kid where someone was given a million dollars and they were like, you have to Spend all this money in one week or one day or something like that. And if you don't spend every single dollar, then there's a punishment. But if you can spend a million dollars in one week, you get some reward. He's just buying everything he could possibly find. It kind of reminds me that's what the market felt like at one point. And then something changed. And what was that?
- [07:15]
Andrew Cushman
The Federal well, inflation all of a sudden spiked up to 9%. And I know there's a lot of discourse out there about how do you actually measure inflation and can you trust the numbers and all that. But just for the sake of discussion, we'll go with the official numbers. So it went from like 2 to 3%, spiked all the way up to 9%. So all the doom and gloomers who have been saying inflation is going to spike for the last 20 years were finally right. They finally got to take their victory lap. And so obviously, 9% inflation is not good. It basically destroys the buying power of any cash on hand. And so wealthy people who own a lot of assets, like real estate stocks, they tend to do okay because those assets and inflate. But people who don't own assets, which is something like 60% of the country, who are more or less just living off their income, it absolutely crushes them because groceries are going up 20% and they got a 3% raise. And all of a sudden a comfortable life 12 months later is getting really tight, and then another 12 months and they can't make it happen. So one of the Federal Reserve's main jobs is to control inflation at a. An arbitrary target of 2% that actually came, you know. Well, why is it 2%? Well, it's because New Zealand decided in the 90s that that was a good target. We said, oh, us too. So they like inflation around 2% and they like to keep unemployment relatively low. As they're two. They call it the dual mandate. And so when inflation hit 9% at the beginning of it, the federal funds rate was zero. And what that means is that's just the rate that the Federal Reserve basically controls for banks lending money back and forth to each other. And so the Federal Reserve very rapidly took it from zero all the way up to, I don't remember if they topped out at five and a quarter or five and a half, but somewhere up in the fives. And the reason that that caused such a disruption in the real estate market, especially multifamily, is for the last few years of the boom, in order to make deals work, people were going out and getting floating rate bridge loans. And we'll say, well, why would you do that? You know, well, let me step back a bit. So, so you get a mortgage on a house, right? You go out, typically your rate's 4%, 5%, 6%. And it's, that's what it is for 30 years, a floating rate loan, it adjusts, it takes the, it takes an index like sofr. Sofr, which is based on the federal funds rate. They add a spread to it, let's just say 4%. And so your, your interest rate goes up and down.
- [09:58]
David Green
Based on what SOFR does.
- [10:00]
Andrew Cushman
Yeah, based on what SOFR does. And so for is extremely tightly correlated with the Federal Reserve. So you had, you had all these buyers out there, especially syndicators like, you know, the IT guy who quit his job and raised a couple million dollars from his IT friends buying apartment complexes, had no idea how to operate them, don't really understand finance and how it works. But they, you know, they heard on YouTube that they need to take massive action and massive action was rewarded for the last five years. So let's keep doing it. And so they went out and bought these apartment complexes and other types of real estate with a floating rate loan because at the time you had zero plus a spread. That means your all in interest rate. I saw people getting loans where their all in interest rate was two and a half percent. Well, guess what, you can overpay for a piece of real estate if Your debt's at 2.5% and still cash flow. The problem is those type of loans also come with very short time frames, typically two to three years and then they're due in full. Yes, they can be extended, but you have to qualify for it. And so what happened is during that, let's just say three year period, the base rate went from zero to five and a quarter. So your all in rate went from 3% to 8%. Now that property no longer can pay the mortgage. And oh by the way, the mortgage is due in full. And in the meantime the economy softened and we delivered, you know, hundreds of thousands of units. And so rents are down. So the value of the insurance went way up and wages went up and everything else went up. And so the net operating income of the property went down. So the value of the property went down. And all of a sudden what you have is you have a property that someone bought for 20 million that is now worth 14 million. Their debt is 18 million and it's due today. And you can't refinance it because the Value is down and the interest rate is 2 1/2 times what it was. That's what caused the problems.
- [12:04]
David Green
So you're forced to refinance your property or your rate has adjusted to the point that it's not cash flowing anymore. One of the two things are going to happen. And so normally you would either refinance the property when your note is due or you would sell it to somebody else. But in this case, you can't do either one. You can't refinance it because rates are too high and it won't cash flow. And banks make loans based off a debt service coverage ratio, which is a way of making sure that the property can afford its own debt and nobody wants to buy it for the price you paid for it because rates are way higher, insurance is way higher, expenses are way higher. So in order for them to make a cash flow, they got to pay a lower price. And we are now smack dab in the middle of this kind of ticking time bomb. But because there is so much capital still out there, you referred to the liquidity in the market. They're not all hitting as foreclosures and just stacking up for everybody to go in and buy at cheap rates. Wise investors are stepping in with a lot of money and they're buying some of the best inventory. Do you see something different than that happening with the non primo products?
- [13:08]
Andrew Cushman
You mean like class C and B kind of lower end?
- [13:11]
David Green
Yeah.
- [13:11]
Andrew Cushman
So what's a little different in that space is that's where you're really more in. Class C is that's where you're seeing not only financial distress, but operational distress. There's some properties in some markets, like Houston is one that kind of stands out in my mind where they're very demographically concentrated. And with the change in immigration policy, there are some properties that in one month's time went from 98% occupied to 82% occupied. And now all of a sudden you've got a debt problem and an operational problem. And it's also really hard to raise equity for those class C type properties. And so it's interesting, it's kind of a bifurcated market and it changes from market to market, but generally speaking, B up to A. So the nicer half, if a property comes to market or even off market, it's, it's got buyers, it's got solid demand. And actually those are still trading at cap rates that are less than interest rate on the loan. So they're still trading. The demand is still so high enough that many of them, if not most, are trading with negative leverage up front. The lower end stuff, especially the lower end stuff that's in not great neighborhoods or not landlord friendly counties, those things are often going no bid. Meaning a couple of years ago the IT guy could go out and quit his job and raise $20 million to buy 400 unit C class property. Now that guy is probably out of business. If he's not, he can't raise the money. And if even if he can, he can't get the debt on it because the lenders don't want to lend on it. And if it's 82% occupied so that you're seeing kind of a bifurcated market, a lot of the lower end stuff is having trouble. The higher end stuff, there's still demand. I mean we operate in the B to A minus space. Our average occupancy right now is, is just a hair under 96%. Like that's, that's really good. But if you go to the C stuff, you got properties that are, you know, 70, 80% occupied and that's trouble.
- [15:23]
David Green
Is there a point you feel like in multifamily, in general where you go below a certain occupancy rate and it signals you're in big trouble, or is it different for every asset class and every deal?
- [15:35]
Andrew Cushman
You know, I'd say it's different for each class in sub market. You know, I mean somehow there's this mythical number out there that, you know, if you're over 90% that's all profit and if you're below 90% you're losing money. And that's just not true. I mean a property where you've got a good basis and low debt, I mean we have properties granted that we bought a while ago. We could be 50% occupied and still cash flow. That would be an indication that something else is significantly wrong. But we could still. And then other properties. Yeah, maybe once you get to 85, you're at break even. So it really varies, I will say just kind of in general probably, you know, all other things being equal, a class C property is going to have a higher break even occupancy because recurring expenses and recurring capex and delinquency tend to be a lot higher on those. And so that's going to eat up more cash flow. And then also, you know, when you've got a nice shiny class A building and let's say for whatever reason 15% of units are empty, it just doesn't show up aesthetically as bad as when you have a C class property and you got a ton of vacant units. It's hard to explain, but when you drive through or walk through those, you can just tell something's not quite right. And when you've got 10 or 15 or 20% vacant units in some not good neighborhood, that's when you tend, then you tend to get things like squatters, drug dealers, you know, people filming onlyfans videos, you know, all that kind of. And then that drives out the good people and it kind of accelerates downwards.
- [17:22]
David Green
So great point. All right, thank you for that background and kind of where we are in the market and how we got here. So that sets the table for what Andrew and I are going to discuss in today's David Green show where we're heading and what to make of this market right now. I thought there's no one better than Andrew to come in and talk about this. And he was gracious to bless us with this time. So we got a couple articles to cover. The first One comes from JP Morgan and the headline is that the March 2025 Fed meeting interest rates kept steady. Slower economic growth projected. So what can we take away from this information, Andrew?
- [17:56]
Andrew Cushman
Yeah, the Federal Reserve, you know, the mantra we used to hear is survive till 25. Right. Everyone thought, oh, as long as we can get to 2025, the Fed's going to drop rates and everything's going to be good again. Well, turns out it's now survived through 2025. The Federal Reserve, like we said, they held rates steady. Their overnight rate is at 4.5% right now. I think they dropped it 75 basis points previously, but they're holding at 4.5%. Couple of interesting things that came out of that meeting is the vote to do that was unanimous. That's actually, there's often a fair amount of dissent within the Fed. Some, you know, oh, we should raise, we should cut, we should just, it was unanimous to hold it at four and a half percent. So that shows us as market participants that the Federal Reserve has two things. There's a lot of uncertainty, so they're not going up or down. And they are unanimous and resolved in the fact that, yeah, we don't know what's going on, so we're just going to stay put for now. And that's what they said. They said that the uncertainty was because of tariffs, federal layoffs, oscillating data. I mean, for anyone who follows the market, you know, on Monday you'll get a report that says the economy's crashing and we've got a depression coming. And then on Wednesday, the next report says things are stronger than expected and everything's gonna be inflationary because the economy's gangbusters. Even the Federal Reserve is saying that data is just all over the place. There's different reasons for that. So much so that in their most recent Beige Book, which is just the, it's probably the most boring name for the biggest, most boring report ever. But the Beige Book is the Federal Reserve's just kind of report on the state of the economy. They used the word uncertainty 47 times, which is an all time record. So with the Federal Reserve and Jay Powell, or J. Money as we like to call them, is saying 47 times we don't know what's going on. Don't feel bad if you don't think you know what's going on either, because that's their job. And so the bottom line is they are projecting, and this is in the notes of the meeting is they're projecting weakening growth in rising inflation, which is the opposite of what they want to see. Now the one kind of thing that falls below the radar but is important is they reduced quantitative tightening from 25 billion a month to 5 billion a month. And what does that mean exactly? So the Federal Reserve, I lose track of the number. But during COVID and all that, they bought literally trillions of dollars of US Treasuries to keep liquidity in the system and help the government pay its deficits and debts and all that. Well, that all sits on the balance sheet. Those treasury bills, they mature after a certain date and they tended to buy short term. So two, three, five year. Well, what happens is, is those mature and often what the Fed will do is they'll just, if let's say 25 billion mature in April, the Fed will just go out and buy 25 billion more. Just kind of keep things level. What they have been doing is they've been just letting that 25 billion mature and not replacing it. Okay, well what does that mean? Well, that means the federal government has to go sell that 25 billion because they still need the money to the private markets. And what that effect of that is, that sucks 25 billion out of the private markets, which means it's not going to real estate, it's not going to stocks, it's not going to buy consumer goods. So it reduces the liquidity and it tightens market conditions. So that's why it's called. And the reason they call it, I think the reason they call it quantitative is because they, they can easily quantify it. They say, oh, it's 25 billion. So what they did in their announcement is I think starting in April they're reducing that from 25 to 5. So now they're only going to let 5 billion a month get sucked out of the system, which is an indication that they are a little bit concerned about growth slowing. And if anyone has been watching the Yield on the ten year treasury, mid January it was at 4.79 and as we're talking today, it's at 4.15. That's a big move. The ten year treasury is the one that we watch, number one, because many of our mortgages are based off of it. But number two, it is the one that is the best indicator of the market's sense of where we're headed. And if it continues to drop, that's a sign that the bond market, which is the largest financial market in the planet, thinks that we're heading towards weaker conditions. And when the Fed says, hey, we're not going to let as many bonds mature and get sucked up by the private markets, that, that reduces selling pressure and balances supply and demand and brings longer term rates down like the 10 year. So you take all those things together, that's part of why rates are down and that's part of that, that's part of why a lot of these properties aren't getting rescued is because the Fed is saying, sorry, we can't drop rates.
- [23:22]
David Green
So does this mean that prices for multifamily are likely to stay the same or do you think that they could be going up or down based on this information?
- [23:32]
Andrew Cushman
Yes and no and maybe so. You know, one of the key things is when we're evaluating this stuff is to think probabilistically. Don't get married to a specific outcome and bet the farm on that. My sense from actually being out in the market is that multifamily pricing has hit, actually hit bottom, I would say maybe the middle of last year, 2024, and has been bumping along ever since. As you know, if the ten year treasury continues its current trajectory, even if it stays where it is, that's going to help put a floor in multifamily pricing. You know, we're out making offers, set, putting in Lois, you know, very regular basis. And I can tell you that when the 10 year is closer to 5, there's a huge gap between what the sellers want and what we can offer. When the 10 year gets down to 4, that gap is much, much smaller. What that means is, is the closer the 10 year gets to 4 and especially below 4, the more transactions become feasible and that puts a floor in the market. So as the 10 year drops and partially because of all the uncertainty going on, that actually puts, helps, helps support multifamily and that's what we're seeing. But again, prices are, you know, I would say are down maybe 20 to 30% from the peak, which I would point as Q1 of 2022. And the other factor too is what we talked about before. There's so much liquidity and demand out there that, that capital. You've got some really big smart players who are just pouring capital into multifamily because they see it as still one of the safest investments. But number two, real estate is a long term game. It's not like, hey, I'm going to buy Bitcoin because I think it's going to go up 50% this year. You're buying real estate because you're saying, well, I think five or seven years from now the rent and the noi and the value is going to be far higher. So as long as I have my downside protected, it's okay if I'm kind of breaking even today or my cash, maybe my cash flow is light today, but I'm expecting that to be significantly higher down the road.
- [25:53]
David Green
And that's because of inflation.
- [25:56]
Andrew Cushman
Inflation? Yes. You know, inflation doesn't, it doesn't help. You know, everyone said, oh, real estate's a great thing to hold in inflation. That is true, but not necessarily for the reasons that are often touted. Because inflation can hurt real estate. And it has in the last couple of years, as insurance has gone up, as wages have gone up, as the cost of all that stuff has gone up, rents have basically held flat or declined and inflation has driven up expenses. So guess what that did. That took down the value of the properties because they're valued based on their net operating income. But not only inflation and the declining value of the dollar. The biggest thing is less inflation and more the fact that we're about to enter an exacerbated supply demand imbalance where there's going to be less units available than the population needs. That's going to drive rent. I've seen forecasts of 5, 6, 7% national rent growth, which is really high. And then what happens is it's actually the other way that rent growth then goes into the government's inflation numbers and we say, oh look, inflation's high. So it's not that inflation benefits real estate, it's just that conditions that Lead to rent growth, show up as inflation. So it's kind of like a chicken and the egg type thing.
- [27:19]
David Green
Yeah, yeah. Like here's the logic that I hear you saying. I will oftentimes hear a stat because statistics can be misleading. You can make a statistic show whatever you want it to show. And they'll say, when the Golden State warriors start Moses moody, they are 17 and 4. And you go, oh, well then we better start Moses Moody every time because that's why we're winning. Right? But then you look and you realize that they only start up against the bad teams and you're like, oh, wait a minute, so we beat bad teams and when we play a bad team, we're 17 and four. Right. There's so many things like this that when you, you read the headline of the news or you listen to people talking, the news doesn't often outright lie. Very few people will tell you a straight up two plus two is five type of a lie. Okay? It just doesn't tell you all of the information. It tells you the piece of it that creates the narrative that they want you to believe. Or maybe they, they do that because you want to believe that that's why you're watching that news source. Right. That's another. This is another great example of people criticize Fox News or CNN because they don't give the whole story. But I mean, they're giv. They're not giving the whole story because that's what their audience wants. Their audience wants to hear this part of it. So is it the news's fault or is it our fault as people with confirmation bias that seek the information that confirms how we like to see the world? Another great example of looking at it backwards. Now with, with this in mind, I had heard for years that we were overbuilding multifamily. Are you saying that in, in a lot of markets that's not the case? Case?
- [28:51]
Andrew Cushman
No, you're absolutely right. We especially again, when money was effectively free, we were developing like crazy. So, you know, markets like Austin, Atlanta, I mean, there's quite a few markets out there where we did temporarily over build, only in the sense that there's just not enough people to absorb that many units at once. And so yes, I think we either created a new or got very close to an all time record high for deliveries in multifamily. Well, that is now falling off a cliff because when the Federal Reserve raised rates 500 basis points, most developers get loans that are floating rate. And then when the property is built, they either sell it or transition into a fixed rate loan or a different type of loan. And so what that means is for a developer who could go out and build 100 unit apartment complex with an interest rate of 3%, that interest rate is now 8 or 9. Oh, and by the way, the bank is nervous. So instead of 80% leverage, they're going to give you 60, which means that developer has to come up with way more money. And so far fewer projects pencil out and therefore far fewer projects are being started. And the amount of deliveries is falling this year, still high this year, but it's falling is supposed to drop to well below normal in 2026 and stay there for at least a few years. I've actually looked into developing and can't get it to work between the cost of the land and the cost of building. And then when you look at tariffs, the cost of lumber going up 25% and steel and all this developers, that's making it even more difficult and they can't get to pencil out. And then there's so much uncertainty that they're just kind of holding back, say, well, let's wait and see what happens. So the net effect of all of that is we are going to be back to a severe supply shortage coming up in the next few years. So yeah, the overbuilding in places like Austin, Atlanta, that's a very real thing. That's why those markets are seeing distress in multifamily. That's why rents are down. You know, it depends on where you hear it. I think it was 4.4% in Atlanta in 2024. And I've seen Austin numbers from 7.7 to 12 something. Right. I mean it just depends on the source. But the bottom line is, is yeah, rents are going down, which as a side note, you don't need rent control, you need to just build more. And rents will come down. But yeah, and again, that all reverses. And so the smart money is positioning themselves ahead of that reversal so that they already own the assets. Because once it, once it starts hitting and you know CNN and FOX and you know MSNBE that oh, rents are up 5% and values are, then everyone's good. Now you're going to be back to overpaying for the stuff.
- [31:51]
David Green
So yeah, that's a great point. That's what most people do is they wait until it feels safe because everyone else is doing it, but the smart people do it before everyone else is doing it, when it doesn't feel safe, but it is safe. I'm not saying go buy something Just because it's crashing, you should buy it. But when you have the information and the data, there's usually a gap period of time before everybody else catches on to what's going on. You also said something really profound there, that we don't need rent control, which is the process of the government creating a regulation that says landlords are not allowed to increase their rent. That creates all kinds of problems. But what we need is letting the free markets do what they do and create a supply, demand equilibrium. So if you're somebody who's interested in this kind of stuff, if you like listening to Andrew talk, research Adam Smith and the Invisible Hand, he was kind of one of the first people that talked about, like, how markets tend to work. And if you can understand supply and demand, you can understand exactly what makes real estate prices go up and down, what makes residential real estate valuable, why they go down at some time, why rents go up or down. Everything starts to make sense. All right, moving on to our next article here we have something out of Yield Pro that states Blackstone is making $10 billion multifamily purchase. Now, I think a lot of people assumed when we knew that multifamily cap rates expanded really quickly and they couldn't sell or refinance their properties. We just all figured, there's gonna be a lot of foreclosures, there's gonna be a great buying opportunity. And for some reason, this stuff seems to get sucked out of the market before you ever see the foreclosure. Andrew, so what's going on with Blackstone and what are real estate funds?
- [33:29]
Andrew Cushman
Yeah, so there's a couple of reasons for that. I thought in 2024, like, oh, man, all right, cool. The deals are coming. It's like that never happened. So I was even off on that. I fully underestimated the ability of the market to extend and pretend. I think we're coming to the near the end of that. But then also to what you alluded to, there's a lot of deals happening behind the scenes that we just don't see and don't get access to, where lenders will just go to their favorite operator and say, hey, instead of foreclosing, we're kicking the sponsor out and bringing in this other guy that we like who can actually run the property better, and it's just not coming to market. So Blackstone. And it's one thing I think probably 99.87% of listeners have heard of Blackstone, but I'm not sure if everyone actually knows what they do. It's kind of like one of those Bond villains in the movies, like, you know, like this shadowy, rich, powerful thing, basically. They are like one of the world's largest alternative investment management firms, and they specialize in private equity, in real estate, and then also they do credit and hedge fund stuff, but they're big, big, big into real estate. And so this was actually in 2024, so they were also a tad early as well. But it just shows you the mindset of some of the biggest, smartest money out there. They are. They acquired Apartment Income reit, which is basically a real estate investment trust. So it's a kind of like a publicly traded thing where that just goes out and buys real estate.
- [35:04]
David Green
So you put your money into. You buy shares of a reit, which is kind of investing kind of like what a stock would be, but instead of buying a share of a company, you're buying a share of a fund that only buys real estate.
- [35:13]
Andrew Cushman
Yeah, exactly. Yep. Yeah. And they tends to pay dividends and all that kind of stuff. That's why people. That's part of the reason people like it is cash flow. So they bought the whole thing for approximately $10 billion. And they basically said, yeah, we're doing this because we believe commercial real estate is bottoming out, that the timing is right to increase investments after a period of more cautious activity. And, you know, again, it's kind of like, you know, if you're sitting in the market going, geez, I don't know what the right thing is to do. Well, you look at the biggest, smartest guys, right? Well, what is Warren Buffett doing? What is Blackstone doing? You know, what are the most experienced? You know, just think of how much more data and insight Blackstone has than you and I have. Right. So if you're sitting here going, well, geez, there's 27 economic reports a week, and they all conflict. And one guy's saying, we're going to crash and we're going to be. The only thing we're going to be able to eat is the eggs from our own chickens. And then the other guy says, AI is going to make our life easy and everything's going to be great. What do I do? Just go do what the biggest, smartest, richest guys are doing because they got that way for a reason.
- [36:32]
David Green
Great point. Now, this doesn't mean that Blackstone is buying apartment complexes. What they're doing is they're buying a fund that owns a lot of real estate. Right?
- [36:40]
Andrew Cushman
Yeah, yeah. It's basically, you know, you know, you and I You know, if, in other listeners, if we're fortunate, we're looking to figure out, well, how do we, how do we put a hundred thousand dollars to work? Or how do we put a couple million dollars to work? Blackstone is like, you know, from their perspective, it's like it's not worth the paperwork if we can't put a few billion to work. Well, how do you do that? You have to do something that gives you massive scale. So you go buy a REIT that they already have thousands of units.
- [37:09]
David Green
Great point. And that would be units that a lot of people have been hearing from the YouTube channels with the fire in the background. And it's crazy, Andrew, because they get 300,000 views over a week because they put this multifamily crash coming. Keep your powder dry, you're going to get deals for pennies on the dollar and none of that stuff actually even hits the market for sale because Blackstone goes and buys the REIT that owns it and they become incredibly well capitalized. And I mean, when I think of a company like, like Blackstone or, or when you hear Wall street, it's, it's almost, it's like the closest equivalent we have to unlimited capital.
- [37:44]
Andrew Cushman
Yeah.
- [37:45]
David Green
They can just pull it from anywhere else and, and inject it into this investment if they do have capital expenditures that weren't expected or like the type of things that knock out the small guy. You need to put a new roof on your house. You ra. You didn't keep enough in reserves and you had vacancy issues or whatever. It's almost non existent when you have this much money.
- [38:05]
Andrew Cushman
Doesn't even hit the balance sheet, basically. Yeah. So small.
- [38:08]
David Green
Yeah. So if you're waiting for foreclosures and they're saying, hey, we're looking to buy more real estate, not only are the foreclosures not coming. To me, the even sadder thing is the ability to buy that type of real estate yourself may not be coming because you have these huge players that just keep collecting capital from a bunch of other rich, smart people. And then they're stepping into the space where the David Green show listeners used to be trying to play. And it's just like you're the, you're the Bad News Bears and the New York Yankees are coming into town and now you're like looking at Aaron Judge and you got to pitch to that guy like, what is this?
- [38:44]
Andrew Cushman
Another key point here is notice Blackstone's. They, they're not saying, oh, multifamily cannot go down another 5%. They're looking longer. It could. I mean, you know, let's say we get a real recession and interest rates go up or, you know, whatever. It very well could. They're looking longer term, saying this is the opportunity to buy it now, because five to seven years from now, you know, getting it at the exact bottom. Number one, you can only do that by really kind of luck. But two, it's not going to matter that far down the line. And second of all, they also realize you when you talk, maybe you can do this in stocks, but in real estate, you can't build your entire portfolio in one week. You have to do it over a period of time. And so, yeah, that means you're going to start a little early and maybe you're going to still be building into the upcycle. But you've got to do it when the window is open. The window first opens. That's going to feel a little more scary. And when you see the window closing, you're going to feel a little bit better about it. But that's how you build a portfolio during that time frame. And that's what they're doing. They, they, you know, I mean, obviously I don't have any connections to Blackstone, but if I did, I bet they realize that, yeah, we might be a little bit early on this, but that's okay because they're looking again down the road knowing this stuff is going to be cash filling and be much more valuable at that point.
- [40:13]
David Green
Yeah, that's a solid point. For those that are confused by Blackstone and blackrock, how are they related to each other?
- [40:21]
Andrew Cushman
I think one's made out of granite and the other is quartz. I. And then see that my, my goal is to become Black pebble, right? Like, just as good, but a lot, a lot smaller. You know, I actually don't even remember myself.
- [40:37]
David Green
That's funny. I mix them up all the time. I want to be the Black Pearl, right?
- [40:40]
Andrew Cushman
Oh, there you go. Yeah, well, no, that's. That's Johnny Depp's ship, isn't it?
- [40:45]
David Green
That's why I want to be the Black Pearl. Pretty cool name, right? And I got. My head looks like one with a little bit of fuzz on the bottom. I don't know this. Somebody's about to criticize me. I've been getting a lot of criticism lately because I said the word tariff and the Trump derangement syndrome has all hit a wave and attacked by comments on YouTube. So I'm okay with it. But I think Blackstone, at least the way I see it in my Head or my understanding is it is like a subsidiary of BlackRock that focuses on alternative investments, particularly real estate stuff. But they, I think that they are part of BlackRock. I just, they made their name as confusing as possible. Andrew's going to Google check this or chat GPT at form.
- [41:21]
Andrew Cushman
Yeah, I am. Because you know what, I've actually had this question pop up in my own head. And you know what? Now that it's, now that we're discussing, I'm like, you know, let's go solve this once and for all. Oh, hey, you know, David Green, not surprisingly, you, you are correct. So this is the answer according to Perplexity. I have not obviously had a chance to verify this, but it says Black Rock and Blackstone were originally part of the same company, but split in 1994 due to differing visions between their founders. So BlackRock specializes in asset management. Blackstone focuses on alternative investments. So there you go.
- [42:02]
David Green
It's like it sounds like two rich white guys arguing over who is going to get the name. And like one of them won in court and the other one's like, oh, really? You get BlackRock? Well then we're going to be called Blackstone and we're just going to make everybody think that it's our company too. That sounds like that's how that went down.
- [42:17]
Andrew Cushman
Yeah, yeah, you're exactly right. I seriously, like, I want to rebrand as Black Pebble. You know, like just kind of like, like ride that, Ride the tail.
- [42:25]
David Green
Andrew. The Black pebble cushion. Funny the way that I remember it is Black stone's initials are B.S. and I tell myself it's B.S. that they're buying all the houses that we used to be able to.
- [42:34]
Andrew Cushman
Oh, there you go. There you go. Yep.
- [42:36]
David Green
All right, next article comes from Business Wire and it says that KKR acquires 2.1 billion multi family portfolio from Quarterra. So what does this mean?
- [42:46]
Andrew Cushman
So KK and R, they're a global investment firm that manages alternative investments. Alternative investments basically means anything that's not a stock or bond. So they do a lot of real estate. This just kind of reinforces that the Blackstone 10 billion dollar deal is not a one off. KK, they bought 5200 units, primarily coastal market. It's in Sun Belt, so Florida, Texas, Georgia, North Carolina. That's where these things are located. And what they said is they see it as an opportune moment to invest in real estate while transaction activity is low. Basically saying everyone's scared, so we're going to get in because we feel like we can get a good deal. And then they said that they are particularly bullish on multifamily fundamentals in high growth metropolitan areas where new supply is expected to slow. And that just gets back to what we were saying before is within a year or two, we are going to be well past the, the, you know, pig in the python of all these, all these units being delivered. And when that happens, there's not going to be enough and rents are going up. So kknr, just like Blackstone is positioning themselves ahead of that solid point.
- [43:56]
David Green
It's not just Blackstone doing this. It's not like they're so rich that they can just go spend more money than they need to. There are several different hedge funds doing the same thing. In this case, they bought a portfolio of 18 high quality class A assets in the coastal and Sunbelt markets. Does the location itself tell you anything, Andrew, about where the smart money is looking and what they think is happening with demographic shifts?
- [44:19]
Andrew Cushman
It does. And then again that, you know that that's always when I talk to people who are trying to get into multi fitness, that's when. How do I pick a market? Well, I don't know. What is Blackstone and KK and R? Where are they investing? Well, they still like Florida, Georgia, North Carolina, Texas. Right. So, okay, well, you know, they're probably pretty smart. So, you know, what it tells you is that the long term demographic trends that we saw in the last cycle are continuing. States like that we just talked about, even if we don't have a lot of foreign migration into the country, we still have a lot of net migration inside of the country between states. And so if the nation as a whole is at 0% population growth, there's still going to be states that are at 5% positive. Well, not 5%, but you know, 2% positive. In other states they're 1% negative. And so you want to buy in the areas where you have that positive growth. And those states listed are some of those states. And that tells me like, okay, well that confirms like those are the areas I want to be. Blackstone and KK&R are saying we expect these areas to continue to grow. And oh, by the way, they're also, you know, tend to be more landlord friendly as opposed to landlords are the devil, like in LA County. And so that tells you like, okay, you know, the biggest, smartest money in the world is saying these are the areas to invest in. You know, I'll go do my own research. But that tells me where to start.
- [45:54]
David Green
Yeah, there's Sort of like a tipping point where you, you see conservatives and liberals all living together because it's such a pain in the butt to move. And you just get political clashing, you get protests, you get people calling them libtards. You get.
- [46:08]
Andrew Cushman
Which is one of my favorite words, by the way.
- [46:10]
David Green
Yeah, it's a funny word. I know about.
- [46:12]
Andrew Cushman
It's just a funny word. Regard. I mean, take it, take it out of all the other context. It's like really like. Yeah, it's just. Well, it's also.
- [46:19]
David Green
You're not allowed to say retard. That word has been banned. I might even get in trouble because I just said it. But you can still say libtard, which seems like worse in a way.
- [46:27]
Andrew Cushman
It's like leotard. Right. Maybe you can't say that anymore. I don't know.
- [46:30]
David Green
There you go. But like, as the polarization, it just continues to increase in the country, you get literally to the point where the conservative side in many cases are saying, I can't and won't live with you and I'm tired of you taxing all the work I'm doing and it feels like you're not doing now. It's much more complicated than that when you're getting into political situations. But I think that's the way the conservatives see it. And so they say, I want to go move somewhere with low taxes, good weather, and less people trying to take my money. Right or wrong. That's, I think, how they look. And so then they move to the Sunbelt areas where you have kind of old traditional values, less progressive thought, less focus on education, a little more focus on like blue collar small town vibes. Small business owners tend to dominate as opposed to big Amazon centers like you see moving into the liberal areas. And that's where the population looks to be moving and that's where the opportunity tends to be. So I, I've, I've said this so many times. You and I were at a gobundance conference together is actually when we both said, hey, we should get on the Bigger Pockets podcast. If you remember that we had help. Yes, that's it. We had hell Alrod come up to us and connect us with the people that did the actual show. And that's how Andrew and I got to where we are right now as far as being on camera. And at that event, Robert Kiyosaki was there and he basically, he had the biggest like grift ever. It was like awesome for him where he got paid a whole bunch of money to go up on stage. Play a video of him talking for like 30 minutes.
- [48:02]
Andrew Cushman
I remember that.
- [48:03]
David Green
Give a 15 minute talk and then walk off stage. And it was like, I think Hal even said I should have done that. Like just play a video of me talking instead of actually talk to people. But in that video, one of the things he said always stuck with me. He said, foolish people get caught up in whether you should be heads or tails on the coin. This would be in this case, conservative or liberal. The wise investor sits on the third side of a coin, which is the edge. And they look and they see what are the heads people doing, what are the tails people doing? What decisions are being made politically and how does that affect the money markets, which in this case is where people are moving. And that's all that we're asking people to listen to the show. I don't really care which side of the aisle that you vote on, but if you're trying to increase your wealth, don't get blinded by being angry at the people that vote differently than you. Just look at what's happening and make decisions based on that, which is what we're talking about. Now. Our next article comes out of the multifamilydive.com and it states that apartment completions fall, multifamily starts rose month over month and February while single family hit a 12 month high. So what is this telling us?
- [49:13]
Andrew Cushman
So this is one of those articles that there's a lot of confusing data points in there because they talk about, well, month, you know, monthly and then yearly. And when you look at short timeframes like monthly, you get a lot of noise. But the to kind of take it down to the signal, which is the longer term, more important message that you want to pay, pay attention to. Again kind of gets to what we talked about before is multifamily developers on an annualized basis finish 646,000 apartments. That's buildings with five or more units, which is 15.8% year over year decline and 20.7 month over month. So again, that gets back to supply is rapidly falling off a cliff. And basically, you know John Siegel, who's the co founder and chief investment officer of UDR, which is again another big REIT, his opinion is that 2025 is going to be a transitional year and that 2026 is probably when we're back into the upcycle. Now if we get a recession, maybe it's closer to 2027. But I can tell you right now, in spring of 2025 we are seeing demand pick up and we're actually back to doing slight rent increases on renewals. Part of that seasonal. But that may be the fact that again, we're starting to shift into an upcycle. And so again, just another, you know, udr. They're a big player, very sophisticated. They're highlighting the fact that, yeah, there's less new supply coming and we're expecting that to flip the market back to an upcycle by 2026 and 2025 is the transition year.
- [51:00]
David Green
All right, I'm just going to ask you a question. There's no way you can possibly answer. It's going to drive you nuts. And I do this too on purpose sometimes. Do you think that we're just going to keep pushing back the year of the recovery every single year?
- [51:12]
Andrew Cushman
Well, let's see. It was, you know, survive to 25, it'll be fixed in 26, feeling like heaven in 27, all's great in 28, looking divine in 29. I don't know how you rhyme 30, there's going to be some of that. But I will say the market's willingness and ability to extend and pretend has exceeded all expectations. And it's kind of like when the stock market, when people say, oh, it's just too high or whatever. Well, the stock market and every other market can maintain irrational exuberance far longer than you can maintain liquidity. So could this go on longer? Yeah, it really could. Especially if banks and owners start to feel like they see light at the end of the tunnel. Like, if I just hang on six more months, rates will drop and it'll fix everything. That gives them more resolve. When the 10 years spiked to like 5%, we were starting to see signs of capitulation, meaning people are just like, all right, this just isn't going to happen. I'm out. Well, the further the 10 year falls and therefore the brighter the hopes of getting out and refinancing, the more reluctance we see for people to sell. It's like, no, no, no, I can hold on. It's going to get better. You know, so you get a lot of conflicting factors. So as a 10 year falls, it gets easier to buy, but then sellers are also hanging out. I'll give you an example. We sold a great property to a Group in 2021 in one of the best suburbs south of Atlanta. One of the best deals we ever did. They are now trying to sell it back to us at the price they paid just so they can break even. And we've been having discussion for this same discussion for the last two years now. And we're like, we cannot pay what you paid. It is no longer worth that. And so rather than sell, they went and put some capital in and refinanced. Now there's again, we've been doing this conversation for two years, same thing this week. They're like, well, we need this to get back out of it. And we're like, we would love to own these again, but it's not worth that today. And so they're like, well then we're not going to sell. And that just keeps playing out over and over again. Now of course you have other operators who can't hold on. Those ones are starting to come to market, but the ones who can are. And getting quite resourceful in the ways to do it.
- [53:50]
David Green
I think it's very similar in the residential market. You're seeing a lot of short term rental operators, for instance, that their numbers are down significantly 20, 30% from what they were doing before. And then you're like, man, I'm barely scraping by. And then you get, the roof goes out, the H vac goes out, the pool has a massive leak and needs to be fixed. My two condos in Maui, for instance, just the, the HOA, out of nowhere said, hey, we have to replace the pipes. It's going to be $56,000 per unit. We're going to need $120,000 or whatever in $112,000 in the next three months. So like that type of stuff, like you get these people barely holding on and then something catastrophic happens, it just breaks and they put their house on the market. Well, do you think anyone's buying these Maui condos when the buyer's gonna have to pony up $56,000 and all the other people are putting their condos on the market. And Hawaii has its own issues when it comes to like allowing landlords rights to use their properties. Short term rental, renting it out, you tend to see that everything happens at the same time. Just like people, hang on, hang on, hang on. And then they all give up and then boom, the inventory gets glutted, there's nobody to buy it. And we all turn to the federal government, we say you need to do something to fix the problem. And usually their solution creates a bigger problem down the line, which is really how quantitative easing put us in this position of inflationary pressures and tons of money and low interest rates that we're in today. Now one of the differences with multifamily we're talking about today is that you tend to have more sophisticated buyers. It's not like residential investors are stupid. But you can do this part time. You can have a, a completely different job and just buy a couple rental homes. You don't, the comps are based on what the Smiths paid for their house. Right. You're competing with regular people that just want to live in a house, not other real estate investors. So it's a completely different mindset and commitment to excellence that you're going to see in commercial products versus residential. So I don't think you're going to have as big of a mess in the commercial space because like we're talking about today, there are funds that can support step in to buy stuff. People can put money together to buy it. Like you're having a conversation with the folks south of Atlanta two years before you even buy the house. That's not very common to see in the residential space. And our next article is from Business Insider and it states that it's not going to get any easier to buy a house in the next two years, economists say. So what is this telling us about home affordability and supply and demand?
- [56:16]
Andrew Cushman
Yeah, so I forget the exact numbers, but the cost of buying the average house right now is, I want to say, depending on who you're getting it from, anywhere like 35 to 40% higher than renting an equivalent apartment. And there's multiple factors in that. The two biggest ones being just the fact, number one, housing prices are still super high. Capital economics is predicting housing home prices to rise 4% again in 2025. You know, will that happen? I don't know. Some markets seem like they might be headed for a little bit of a decline. Especially situations like where you were talking about where everyone's saying that's it, I got to sell this thing. But let's just say they stay flat, you know, with prices at an all time high. You couple that with mortgage rates are now at what in the sevens or high sixes if you're getting a 30 year fixed. You know, I am not in the single family market, but my understanding is that about where they are these days.
- [57:20]
David Green
High sixes right now.
- [57:21]
Andrew Cushman
Okay, so high sixes where they used to be in the threes, but the prices haven't come down to adjust for the fact that the debt doubled. What that means is most people, the vast majority of people can't afford to buy a house. They can't come up with a down payment on an $800,000 two bedroom house. And by the way, the mortgage is double what it used to be and they don't make enough to qualify for it or pay for it. And so what that does is that drives more people into the renter pool that would otherwise be, you know, be buying a house. It keeps people who are already in the renter pool in there longer and it creates interesting dynamics within the multifamily market. And I'll give you an example. 5 years ago if we had a property, you know, most of our properties have a mix of one, two and three bedroom units. Five years ago the ones and the twos had the highest demand and we kind of, we often had trouble with the three bedrooms. We'd do things like pad split and all this to try to, try to get them rented and get more, get, you know, get higher rent for them. That has completely flipped. We cannot provide enough three bedroom units at our properties. If one comes up, we'll have five people fighting over it. Because when it comes to rentals, the most common floor plan is a two bedroom. And then ones and students, not many, three bedrooms tend to get built. And so for the last four years, the demand for three bedrooms has been off the charts. And so we're actually getting ready to close on a property that is all three bedroom units. That is something we never would have touched five years ago. Whereas now we see that as a play on the housing affordability crisis. The fact that, you know, people, they start having kids or, you know, or you have more, or people are just, you know, four people are getting together saying, hey, let's just go rent something and share the rent. They can't get a house.
- [59:28]
David Green
And so is the idea that if you wanted a three bedroom apartment apartment, you probably would have been able to afford a three bedroom house and that's what people would have rented instead?
- [59:35]
Andrew Cushman
Yeah, it used to be that way. It used to be that way. And then when we look at, you know, and when you're buying three bedroom apartments, you know, part of your competition is single family rentals. Well, when you go look at single family, three bedroom, two bath rentals in, you know, suburbs of Atlanta and you know, some of these tertiary markets, most of them are very mom and pop. If not, definitely not professionally managed and often not managed at all. Meaning there's you know, tons of deferred maintenance, it's a 70 year old house where that person can say, hey, for the same rent, I can go rent a three bedroom apartment in a gated community with a pool, two dog parks, three playgrounds, the fitness center on call, 24 hour maintenance, professional management. And it's like, well, which is a Better deal? Well, actually it's these apartments and that's what we've been seeing the last four years. We cannot keep three bedrooms in stock. And so we're actually buying a property that's all three bedrooms. And you know, that's crazy because when.
- [60:34]
David Green
You and I were talking about this stuff, it was almost like you wanted to avoid the three bedroom units because that's where your problem tenants were going to come from.
- [60:42]
Andrew Cushman
That used to be the case. Yeah. And then so you make small adjustments. So like one of the things we're going to do with this property is every unit has a back door kind of to a small patio. Well, we're going to fence those. We're going to fence those so that everyone has their own private little patio. So what does that do? Well, it kind of makes it feel like they have a yard plus a huge amount of, you know, common green space. And again, just, you know, we own a lot of, we own quite a few properties in very similar markets and the demand is for. That's off the charts and I don't see that changing. So even if pricing on houses comes down, even if mortgage rates come down, there is such a massive gap that there is a lot of room for that gap to collapse. And still for housing to be unaffordable. I have not seen anybody predict that affordability is going to fix itself. And even if we get a recession, even if prices come down, even if rates come down, it might improve some. And candidly, just for people looking to get, I hope it does. But is it going to revert to being to where renting is more expensive than housing? It looks extremely unlikely anytime in the near future.
- [61:54]
David Green
So there's, there's two components to affordability. There's how much something costs and there's how much you make. Because if prices for everything are going up, but you're making twice as much as their prices are going up, then things are becoming twice as affordable. And we tend to focus on the prices, but not the income or the revenue side. Very similar real estate, you have income and you have expenses. Right. And how profitable you are is a function of those two pieces. There's two levers that can be pulled on. There's a lot of talk right now in the news amongst the government that they're trying to get the government to bring expenses down. There's not a lot of talk of how we're going to create job opportunities and get more money opportunities to be made. That involves human beings being more productive, doing things that are valuable to Society producing stuff. I wish we talked about that more. I would. I wish we were like, look, we printed a bunch of money. It is really hard to get it out of the economy once it's there. We have inflation. It's really hard to stop inflation. What we can control is much better than what we can't. And that would be more opportunities, people that are getting out there. Like, if you're at your apartment all day long because you got nothing to do, it sucks being in a tiny space. If you're coming home at night to eat and sleep, it doesn't bother you as much because you're out doing fun stuff and working, hopefully. So I, I would like to have you on another show, maybe a YouTube show, to talk about, like, tariffs and how tariffs could impact the overall job market. If they're going to. If they're not going to. And if we can get income coming up, which is a way to tackle affordability without trying to put the lid on inflation, that's very difficult.
- [63:29]
Andrew Cushman
Yeah, that topic is a whole nother show.
- [63:34]
David Green
All right, Our last article for today comes from CBRE.com Andrew, how many times a day are you on CBRE.com you.
- [63:42]
Andrew Cushman
Know, CBRE.com you know, maybe once. But if you know, that's one of, I don't even know how many countless sites that I'm visiting or listening to or getting emails from.
- [63:54]
David Green
So in my head, I picture you on CBRE.com like 12 times a day, like you are CBRE.com walking around as a human being, just breathing and eating multifamily information. So this article says the cyclical recovery is just ahead. What are they talking about here?
- [64:15]
Andrew Cushman
So, yeah, what they're talking about is we are now, I don't know, two, two and a half years into a period of price decline and rent decline. Well, that's a normal business cycle, normal real estate cycle. And, you know, for lots of reasons, that actually wasn't allowed to happen for quite a while here, we kind of, we extended the last cycle a little too long, a little too far, but we're finally reverting to a down period, which feels like it's bottoming. And so that's when they say a cyclical recovery starting in 2025. That's what they're referring to, meaning we were at a peak, we came down, it's bottoming out. And then now the cycle is going to start, the start, start a new cycle, which begins with a period of rising rents, rising prices. And so what they're saying is that you know, for 2025, they're expecting. And these are national numbers, right? So real estate's very local. You'll have some markets that are down, some are up. Like, you know, like, I think Austin still falling, but like, you know, we're raising rents in some of our markets, so it all averages out. But they're predicting 2% rent growth in 2025 by the time we get to the end of the year, they said, especially in Sunbelt, in market regions, as the record supply dwindles down. So again, that gets back to the areas where people are moving and you have the highest growth by the middle of this year, they're saying multifamily construction starts will be 74% below the 2021 peak. So all these. They're saying that all the new projects that we're starting in 2021, by the end of this year, it's going to be a quarter of what that was. And so you're like, wow, like 2021, that was kind of the, the peak of the froth. So, you know, what is, what is it compared to normal? Well, that's 30% below the pre pandemic average. So by the end of this year, we are going to be 30% below the normal average when it comes to the pipeline for creating new units. Which means, again, supply demand imbalance. And you combine that with strong renter demand because again, housing affordability might get better, but probably not going to be fixed. And then you put that into an area where people are moving and you've got really, really strong fundamentals. And actually, they did put some numbers to the housing and affordability. We actually, we weren't too far off. So they put the cost premium of homeownership compared to renting at 35%, meaning it's 35% higher to get a mortgage than to rent an apartment, and then that's going to continue to drive rental demand and they expect that gap to narrow to 32%. So that is, you know, in the right direction. Yes. Is that going to change the dynamics of the market meaningfully? Probably not.
- [67:13]
David Green
Good stuff there. All right. We went through quite a few articles. We shared a lot of information. This might be one that you folks want to listen to again because you'll absorb some stuff the second time that might have not saturated all the way in the first time. That's normal. Whenever we're talking to Andrew, how can we sum up the information that we just gave today? Give me the chat GBT bullet points of everything that we covered.
- [67:35]
Andrew Cushman
Power to chat If I were to, you know, chat, chat. If I were to Andrew, GPT would be, yes, there's a ton of uncertainty. Yes, it's scary out there. Yes, it is the time to selectively and cautiously start building a portfolio to benefit from the next cycle that's starting. And that could be buying your own five unit or your own four unit. It could be buying your own 100 unit or it could be investing as an LP in a 200 unit. But one way or another, getting into the market now, the next 10 years are going to be a lot harder than the previous 10. The previous 10, you know, all you had to do is watch a YouTube video that says take massive action. You took massive action and everything went up and you win. It ain't going to be that way this time. This time is going to be normal where you have to buy the right property, you have to finance it the right way, you have to operate it the right way and execution will matter. But that doesn't mean the opportunity isn't there. There's actually going to be a lot of opportunity. It's just that you're not going to have a massively rising tide that rewards anyone and anything.
- [68:46]
David Green
That's a solid point. For years, the majority of my advice was, here's what's going on, here's how real estate works. You need to go out there and buy something, don't buy something stupid. But there's a lot of things that will make sense in today's market market. So get over your fear. And I've heard people say, well, why was David saying I need to buy a house? And now he's saying, maybe don't buy a house. We were in a different market, it was a completely different scenario. It doesn't mean I don't think people should look at real estate, I guess is what I'm getting at, like stocks, like do you buy at this time or do you buy at that time? It's way more nuanced than that. These are not button pushing investments, like I like to call them, where you just watch and you say I push a button and I have it. You're, you're planting a garden that you're going to be weeding and cultivating and watering and paying attention to. And at the same time you have to pay attention to what plants you're going to plant in the first place. Right? Do I want to plant oranges, apples, almonds? What's going to sell? Where's the supply and demand? And that's why we cover this much Information and nuance because it is not as simple as, oh, Netflix went down, I should buy it now, or Apple's too high, I'm going to wait for it to go down. It's, it doesn't work work to look at real estate the same way that we look at other investments. But boy, when it works, does it work out well, it's the best when you, when you hit it just right and you get into it and you develop a skill set that other people don't have. And you, my friend, have done that very good. And we're very appreciative at the David Green show for you sharing your time, your knowledge and your expertise with us. If people want to get a hold of you, what's the best way for them to do that?
- [70:15]
Andrew Cushman
Yeah, I'm not a big social media guy. You won't see me dancing on TikTok or post on Instagram or anything like that. The one outlet or platform that I use is LinkedIn and that is me posting. If you comment, that is me replying to the comments. It's not a chatbot or anything or anything like that. So, yeah, connect with me on LinkedIn and of course our website. If you just Google Vantage point acquisitions, it all comes up, but it's vp pacq.com and yeah, that's the. There's a couple of different ways to connect with us on there and those are the best, too.
- [70:54]
David Green
There you go. If you head to davidgreen24.com join J O I N you will see a form that you can fill out. Very, very short. When you're filling that out, check the box that says I am or I am not an accredited investor. And if you would like to invest with Andrew and I when we start buying, you can do so hands off. And you can also support the show. So make sure you go check that out. You can also get subscribed to my free text letter that has mortgage interest rate updates, market updates, foreclosure updates, all kinds of news and relevant information in the world of real estate to check out. Andrew, thanks for being here. We'll have you back again. Take care, bro.
- [71:33]
Andrew Cushman
All right, sounds good. Thanks.