Loading summary
Transcript153 lines
- [00:03]
A
We're supposed to close on this thing. I don't know, like December 1st. And I'm in Mexico this Thanksgiving. Mexico with my family. Got done with some private yoga. Feeling good, got a little tan. Get a call from Tom and he's like, yeah, so my guys tell me this is going to be a 17. Yeah, that's about right. I think we can maybe do a little better. He goes, yeah, so I think I won a 17. He's like, oh, I think, yeah, I think we get. No, I think you're missing the point, Alan. I won a 17. We're gonna move the pref to a 17. Okay. Okay. Tom, you're fucking me right now. You know that, right?
- [00:49]
B
Tis better to have loved and lost than never loved at all.
- [00:52]
C
The real question to ask Lord Tennyson though, is whether tis better to have raised that swift retail money and loss that never raised it all.
- [01:08]
B
Welcome back to the promode podcast, your insider guide to the money and mania of the CRE markets. I'm Hitan Samtani.
- [01:14]
C
And I'm Will Krasny.
- [01:16]
B
A shout out to our sponsors, Bravo Capital, a leading HUD and bridge lender and loan boss.
- [01:21]
C
The best in class CRE debt management software.
- [01:24]
B
This week we have a treat. We were visited by the poster child for the 2020s multifamily market, Alan Stalkop of GVA Management.
- [01:31]
C
I'd also say the poster child of the 2010s golf course management software market.
- [01:36]
B
Very true.
- [01:37]
C
And he did not pull punches. He was very candid about what it's like to both make and lose hundreds of millions of dollars.
- [01:43]
B
Look, we're gonna get some grief from listeners for quote, platforming Style club while he's on this reputation washing tour of sorts of, but we don't really care. Our whole thing is to have nuanced conversations with those driving the CRE market. And whatever you think of Style cup, the epic hemorrhaging of capital in the last couple of years, the wave of defaults, the lender and investor lawsuits, it is impossible to deny that he was one of the most important characters in the Sun Belt boom bust.
- [02:08]
C
And it wasn't like we're sitting there saying, what's next for Alan Stelkop? No, the interview was so tasty that we're actually skipping the punch list this week.
- [02:15]
A
Week.
- [02:16]
C
Let's cut right to our conversation with Alan Stockhop. Ready to go? Let's do it.
- [02:21]
B
We are ready to go. Okay. Alan Stahlkop of gva. Welcome to the promote podcast.
- [02:26]
A
Good to be here, guys.
- [02:27]
B
GVA is a name that if you were in the multifamily business or in the real estate investment business in general, you'd probably hear a lot of in the last couple years. Alan's story is pretty extraordinary. At one point, he managed over 30,000 units. There has been so much written about you, said about you. Fair to say in the last 18 months or so, mostly negative. You've become what many see as the poster child of distress in multifamily. You and I have had a conversation pretty extensively about, let's say, the fall. Will and I were fascinated, though, by the rise, the reason people are obsessed with you and gva. So I think we're interested today to talk about how the hell you got there. Is it right that you were selling software for golf prior to this?
- [03:08]
A
Yeah. Graduated Washu in St. Louis with a mechanical engineering degree. And in 94. A lot of this is just good timing. Java just invented, joined Accenture, gave me an opportunity to cut code and software engineering and joined a team of about 100 people. You're just at one of those phases where if you're six months ahead of someone else, Right. It's brand new. You're the expert. You could just stay six months ahead of everybody and you're really, really good. I had a great career there and got married, but I was traveling all the time, and if I wanted a second year of marriage, I'd better not travel. I had to find something in Austin, and this is when Austin was probably 500,000 people. You could work for Dell or work for the government. And I didn't want to work for the government. Worked for Dell at the right time and was able to join one of their more specialized groups, Dell Ventures, which was during the dot com days. You could buy companies like Red Hat for a dollar and sell them for a hundred in six months. From there, I bootstrapped a software company that focused in reservation and marketing software for golf courses. Super fragmented market. Right. All mostly individually owned, 25,000 golf courses in the U.S. so around 2010, I was generating quite a bit of cash flow for me.
- [04:12]
C
You said you bootstrapped this when you went into multifamily. Was that the first time you'd raised external capital or had you done that for course trends prior?
- [04:18]
A
No, just bootstrapped my own capital. The reoccurring software company. So you don't make a lot of money for a few years, then you
- [04:25]
B
can make a lot, a lot of money, yeah.
- [04:26]
A
Three things that led to our success. One, I'm a builder I'm good at building things. And second is I use my engineering background and software background. Things like real estate are super, super easy compared to software. Right. Software company. You have to build the product, you have to market the product. You gotta get a sales team for the product. It's a lot of work and it changes every kind of four months. You have to create more and more features just to stay relevant. Multifamily. Well, the product's already built. Your customers are already living it, your employees are already working it. You just buy it and you have a company. I just found that to be super intriguing.
- [05:00]
B
You were just a guy with a bit of cash trying to figure out your next adventure.
- [05:04]
A
In a sense, I had excess cash, had a small family office that invested with that excess cash. So I started buying multi directly just on my own balance sheet for five years.
- [05:12]
C
How are you managing that? Did you have a third party?
- [05:14]
A
I did have a third party. So when I sold my software company, I sold 51% to a private equity group, put a CEO in, sold it to a strategic, which was the PGA Tour. I'm 40 years old and I've got young kids and I want to put on pants and go downtown and still be relevant in the world. I love the real estate piece. I started building processes around buying and renovating and operating properties. 2015 was my very first raise as an 88 unit property for $5 million, 1.5 million of equity. Hardest raise I ever did. Raised 700,000 from external folks and did 800,000 myself.
- [05:50]
B
We're getting into the meat of what we're interested in. What does that pitch look like at that point?
- [05:54]
A
We're already sitting on, at that point, probably a 63% IRR track record.
- [05:59]
C
And those are the deals you did just on your own balance sheet?
- [06:02]
A
That's right.
- [06:02]
C
Were those all in Texas or.
- [06:04]
A
Those are spread out Texas and Carolinas and Colorado.
- [06:08]
C
What was the scale of that?
- [06:09]
A
Primarily kind of smaller infill properties, kind of that 10 to 40 unit. A lot of those ended up going to a conversion seller. So maxed out the value. Actually did some hard money lending along the way. It's like these guys end up short and like, hey, would you lend us at 12% at a 30% LTV? It's like, I think I can do that.
- [06:29]
C
Yeah.
- [06:30]
A
Actually started taking some of those properties back and did it again. You got to remember, coming off the GFC 0% interest rates, people were pretty sluggish about getting back into the market. You feel a little more frontier. It wasn't like a real gimme to buy this stuff. And on the affordable space a lot of regulation was changing. Li Tech was still just kind of being understood, especially Li Tech that finished its compliance period, that 15 year still
- [07:05]
C
still on the extended use.
- [07:08]
A
Right. A lot of people weren't buying that. So we're finding literally eight to 10 cap deals. And that extended use qualified purchase program was still very relevant. And you could do that process. It's a bit of an accounting exercise, but then you could get the restrictions removed and it become a market rate deal. It unlock a ton of value in a pretty short amount of time. So like the Clemson deal, we had $533 rents that were restricted to 60% income. It was on the Tiger route in Clemson. And the best route we got to fifteen sixteen hundred dollar REITs. That was a good deal. That was a lot of the earlier stuff that I was doing. I wanted to do something more than just myself. And look, five years of success, friends and family kind of want to participate. That was the first kind of layer of investors.
- [07:55]
B
Was there like a catalyst, a step change or is it just gradually bigger and bigger deals? Because I think you jumped from buying 50 unit complexes here and there piecemeal and then suddenly you're going to 200, 300 and beyond. So was there a specific JV or a partnership that propelled you into that next level?
- [08:13]
A
So 2017 we had about a thousand units and I realized that third party management had different alignment than the owner. Property management companies made my spreadsheets lie.
- [08:27]
B
Now that's, that's a pretty colorful claim. We'll hear more from Alan and what he means by that in just a moment. Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask which was your least favorite?
- [08:47]
C
The first two, they were dreams. The third was a nightmare turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the dead tab was really, really annoying. Maturity dates, extension options, rate caps.
- [09:03]
B
Ugh. Sounds like you had good roi but your roi BD return on invested brain damage, not so good. So what changed?
- [09:11]
C
I discovered loan boss. All my loans live on one screen, no more. Let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post it note on my monitor for that. A post it note?
- [09:25]
B
A 10 in this day and age,
- [09:27]
C
don't I'm not proud of it. But the one click DSCR testing every lender adjustment, every unique requirement. Automated. Oh my God.
- [09:35]
B
No more getting surprised by your own cap stack listeners. Check them out@loanboss.com, that's loanboss.com and tell them the promote sent you.
- [09:46]
C
We're back. Alan was talking about how external property managers quote made my spreadsheets lie. Let's jump back in.
- [09:53]
A
They literally lied to me. I would plug in the information and said we move these rents and this kind of expense, we should have this kind of noi. And it just never worked out.
- [10:03]
C
So what didn't work out? They weren't able to push the rents, they weren't able to deliver the expenses. They'd.
- [10:07]
A
Now what's the incentive for a third party management company?
- [10:10]
C
It depends on how you structure your contract with them. But generally it's just to continue to grow.
- [10:14]
A
Right? It's a fee. There's no promote.
- [10:16]
C
Yeah, but per income they're generally incentivized to grow income.
- [10:19]
A
Just that growth fee, it's marginal. Right. They want to do the least amount of work possible and keep their fee income, period. And so we started our own property management company and then my spreadsheets actually were telling the truth and the stuff really started ripping. Three more years. We have an eight year track record at this point. Some of that earlier success has come down, but still a 42 IRR and we can systematically buy.
- [10:45]
B
You've got to raise capital tough and new for anyone. The other challenge is you've got to be able to be shown the right deals. So had you at this point cultivated a good network of brokers or how are you getting that access to that action?
- [10:56]
C
The guys who are, and it's just because I live this like the guys who are showing you the 10 to 20 to 40 unit infield deals are not the guys who are showing you the 400 unit. We talk about incentives. Their incentive is to sell it to somebody who's got a round trip it in three years you got a wink, wink, nudge, nudge, hey, we'll come to you and you'll get this on the back end. So if you're putting a ton of your own capital in, that's been a negative and some in a lot of cases because they don't want to sell you because you're not going to necessarily transact on the backside.
- [11:21]
A
Two things on that. We quickly adopted to a value add strategy where we were rewarded for selling properties and our average hold time was 23 months. It's a real simple formula. You move rents 25%, most of that drops the NOI, and then at cap rates stay the same. You're doubling your money. That's also higher leverage, kind of 80% loans. So we did right? We did what we say we're going to do. When I got a deal under contract, we would not retrade for sport. So brokers liked working with us because we would close. Third piece of the secret sauce is I had a balance sheet. So when I underwrote a deal, I was comfortable and I had the Equity to buy 100% of it. And what I found out is if it underwrote for my deal parameters, a lot of other people would want to invest in it. But if they didn't, that's okay. I would still close and I would still buy it. It closed 250 times. They all closed. Always be closing, always be closing. If you take that element out of it, the raising capital to close a deal, that is a pretty incredible advantage. We just got really good. We're buying a deal a week. And this stuff isn't complicated. When you're running a software company from scratch, going into real estate was not very complicated.
- [12:33]
C
I've actually sold a software company as well. And I will say that the software company has never drilled into a water line and taken out 10 units in a building. The software companies never left the grill on and started a fire. The software companies never had a domestic violence incident. So it is simpler, for sure, but it's not easy.
- [12:56]
A
Those are all easy problems, right? They're not your problems. You can get a contractor in to fix units, you can get a contractor in to fix water lines. Everyone has different capacities and capabilities. For me, real estate's a lot easier than software.
- [13:08]
B
Let's say you're at a thousand units, as you mentioned, and then six years later, you're at 30k. The infrastructure the company you need to have or build behind you to support that kind of operation is pretty significant. Property management, financing, asset management. What were the challenges in having the back end match the front end of crazy, frenetic acquisitions that you were doing?
- [13:30]
A
Okay, so the acquisitions are pretty straightforward because pretty much myself and one other person, we had some analysts kind of load sheets. But we knew the box that we wanted and we knew the markets that we wanted.
- [13:41]
C
What was your box? What was an interesting opportunity to you? The platonic ideal of something that you would look at.
- [13:46]
A
There's only like half a dozen brokers of that in any market, you're working with a very small group of people that have control of the deals. Little challenge going to Newmark. Right? Going from Austin to Dallas or Dallas to Nashville. But CBRE has people in those markets. Newmark has people in those markets. Your reputation kind of follows pretty quickly. You got to prove yourself with that local rep. But the deal flow was was easy. That was straightforward. Our box ranged from 70s assets to 90s, but predominantly 80s. We averaged an 86 vintage across the portfolio size. 250 was the average property size they had to support on site management. So I'd say at least 100. Our preference was kind of the 2 to 4, 400.
- [14:28]
C
One of my mentors used to say that above like 400 units, you don't manage the property. The property kind of manages you a little bit.
- [14:34]
A
The whack a mole is endless. We're coming off the gfc. There was literally nothing built. Just look at the timeline of the SNL crisis. Fact check me on this. But if you go back from like 86 to like 2016, there's like a million net new units. There was very little multi inventory in that period. Right. Not like now where it's slowing down. It stopped. And so we're coming off of effectively no multi family in 30 years. New construction is just starting up. And so value add was prime. Take this 80s unit. Still eight foot ceilings, but washer, dryer connections. I can make it look brand new. 10,000 bucks in and out. We just had a good system of with the brokers. We needed to see that 25 to 30% rent increase through the value add program. And so I need to see kind of that 150, 250 rent pop. Oh yeah, we got that here. And we just bought everything they had.
- [15:35]
B
That's easier said than done. Let's talk a little bit about your partners. Both your partners on the lender side and your JV partners. You had these feeder funds, co GP entities for folks like Trinity, et cetera.
- [15:46]
A
We really focused on retail high net worth investors, which then translates into family office and then also syndicators like Overwatch, Trinity. Right. They have an investor base great to work with. We tried an institutional deal. Fortress.
- [16:01]
B
Was that pref or was that JV Equity?
- [16:02]
A
That was JV Equity, yeah. Their first kind of entree into JV Equity.
- [16:06]
B
If I'm thinking of the same thing. 11 properties, 2,000 odd units. Is that right?
- [16:10]
A
That's right. And so we remember. Wait, wait.
- [16:13]
B
Maybe you're not understanding how fascinating this part is.
- [16:16]
A
Okay.
- [16:16]
B
How the hell do you go Fortress? Will and I know quite well. Pretty crazy History of deals there backed by the likes of Mubadla, Sovereigns of sovereigns. How do you get into those rooms at that time?
- [16:28]
A
Well, I had control of the deal. Right, so.
- [16:32]
B
So you tied up the deal and then you got, you got them in.
- [16:35]
A
I put up, I don't know, 4 or 5 million hard money on the deal. I control it. We're at a point where people want what I have. We got introduced to them and they said, they said they're good to work with. And I met with them. They seemed good to work with and they're very interested in our product.
- [16:50]
B
Who was on the Maltese side at that time?
- [16:52]
A
Tom Pulley. I don't know if he's still alive. But they're deck guys, right? We get a JV agreement and, you know, it's all good. And I don't know, whatever the prep was, it was 10 pref 80, 20. We negotiated sharp revos, but we got it done. We're supposed to close on this thing, I don't know, like December 1st. And I'm in Mexico this Thanksgiving. Mexico with my family. Got done with some private yoga. Feeling good, got a little tan. Get a call from Tom. I've dealt with the guys that were like three levels below him and he's like, yeah, so my guys tell me this is going to be a 17. Yeah, yeah, that's about right now. I think we can maybe do a little better. He goes, yeah, so I think I won a 17. I said, yeah, okay. I think, yeah, I think we could. No, I think you're missing the point, Alan. I want a 17. We're going to move the pref to a 17. Okay. Okay. Tom, you're fucking me right now. You know that, right?
- [17:45]
C
You have a signed JV agreement.
- [17:47]
A
Signed JV agreement. We're closing in four days. I'm on the hook. It's my money, hard. I was trying not to lose my shit. And I go, okay, Tom, let's do this. If I could get a, I think 10 or $20 million credit, I think that's what it was. If I could go get that $20 million credit on this 2000 unit portfolio, can we get our deal back? I think that would still get you 17 calls, a few people. Yeah, yeah, yeah, yeah, we can do that. Okay, well, will you close on your balance sheet? Because I don't think the lender's going to close in four days. Right. Will you close on your balance sheet and then we close with the lender? If I get this credit and we get the deal back Calls. A few. Yeah, yeah, yeah, yeah. We can close. So you'll close in four days if I get a $20 million credit and we can get the deal terms back. Okay.
- [18:39]
B
This is why when I read about the story, I think in the San Antonio Business Journal, you're not even in the story. And it says the entity is called SA11. Is that the entity that you remember?
- [18:49]
A
Yeah, yeah. Cautionary tale for new gps. Be mindful who you get in bed with.
- [18:55]
B
Oh, boy.
- [18:56]
C
That is one of the best fortress stories I've ever heard. And the bar is high.
- [19:00]
B
But he's not quite done. More on the drama in just a moment. I'm here with Aaron Crowitz of Bravo Capital. Aaron, $2 billion in deals, 100% HUD approval rate. Five years since launching. How do you keep that streak going?
- [19:18]
D
Comes down to our team. Our underwriters know what HUD wants. We're a pure play HUD lender. Meaning everything we do is HUD and bridge to hud. No taking shots and just hoping when we go, we really go.
- [19:29]
B
You closed a healthcare HUD Express lane deal in four days? Four days.
- [19:34]
D
Four days from our submission to HUD's approval. And it goes back to knowing the ins and outs of the program so that there is no guesswork.
- [19:40]
B
Sniffs. Assisted living. It feels like such an arcane world full of very complicated regulations and such a specific cast of characters that you really need to know, Cole, to make this work.
- [19:50]
D
Exactly. We're steeped in state by state regulations and distinctions, but we're not just about hud. We also have a very strong balance sheet bridge affiliate, Bravo Property Trust. And we just financed over 170 million out in Miami and 125 million in Dumbo, Brooklyn. If we have conviction, we move fast.
- [20:12]
B
Thanks, Aaron. And where can people find you?
- [20:14]
D
We're@bravocapital.com.
- [20:19]
B
all right, let's get back to it. Stylekop is learning just how sharp elbowed the New York debt world can get.
- [20:25]
C
Immediate question pops to mind is how hard did they push you on the debt that they were gonna. They were gonna close it on balance sheet. They're like, we're gonna charge you arm
- [20:31]
A
and a leg for that? No, no, it was. It was to the deal, whatever their. Their line of credit was. Right. 2. 2/sofr or something. So we did. We closed on the balance sheet. We worked a deal with the lender, got the deal done, but the story keeps going. I'm also realizing that I'm an administrative member, so I'm not a managing Member and those are very different things. Yeah, okay, fine. Yes, you can come. Yes, as your representative. As my associate. Same thing. No, it is not. I'm a glorified property manager. So at this stage in my career, I was not looking to have a boss. But I had a boss. And the guys out of San Francisco who do debt really well for like cement trucks, they know how to run property management. Hey, we're buying this thing for 70 a door. Our goal is to sell it for 90 a door. I don't think we should reskin and put $15,000 a door into the exterior. No, I think we should. Okay. As the administrative member, it is bend over. And so I quickly realized the hide
- [21:39]
B
net worth where you have control over the gp, economics and the save.
- [21:42]
A
So with that said, you know, bigger checks are helpful. I did look into that again after the scars healed up from fortress. And there are good partners. Like Crow is a very good partner. Leste was a good partner.
- [21:52]
C
So I know you're talking about getting in and out of these things in two to three years. And that's obviously how you crystallize the promotes. But at the same time with the retail folks, did you ever consider putting on long term fixed rate debt and just being like, you know what, your capital's back, you get 80% of the cash flow, I get the rest. We have a nice little annuity. Or was it always just like high velocity?
- [22:11]
A
The original plan was to kind of do that. But a little secret 70s and 80s properties. Don't cash flow.
- [22:20]
B
Say more about that.
- [22:21]
A
They're great noi, but they don't cash flow.
- [22:24]
C
You gotta replace some systems and the roofs and all those things. Yeah, for sure.
- [22:28]
A
Find someone that cash flows with real debt. I've never been able to find a 70s and 80s. I can cash flow 90s. I can cash flow 2000s. But they're 40 year old buildings. They've been sold probably 10 times.
- [22:40]
B
So you're saying the only way to the mountaintop is to hold for as little time as you need and then sell at a nice markup.
- [22:47]
C
His point is with real leverage. Because there's a lot of groups that own 10,000, 20,000 of these 60s 70s vintage. But they've just owned them for 30 years and they're 40% levered on a refi at 75. Doesn't really work as well
- [23:01]
B
when you were really cranking. When everything was going according to plan, everything was just hitting. What do you estimate your net worth was?
- [23:07]
A
I ate my own dog food. I believed in this stuff. And I went all in. I mean, I was probably on paper, 6, 700 million dollars.
- [23:14]
B
You've told me before that you lost $400 million in this very violent downswing since. Is that right?
- [23:20]
A
That's right.
- [23:21]
B
Is that like unrealized promotes? What do you mean by that?
- [23:24]
A
No, I think, I think if you
- [23:25]
B
like the equity wiped out in deals that you had to sell or fire sale or turned over.
- [23:29]
A
So it's twofold, 30,000 units. Most of that was bought in 21 and 22. Find me someone that hasn't lost 30 to 40% equity value in a deal. Bought in 22, 20, 25% equity value. Deal bought in 21. If you can find those guys, let me know. I haven't found any. And at 80% leverage, you lose 40% of the equity value. You don't have any equity.
- [23:51]
C
Was there a certain point when you go, oh, this is not working?
- [23:56]
A
I can tell you exactly what happened. Crow taught me this. We closed our first deal and we're going to probably do 10 of them. The Fed raised rates. This is like March 22nd. And they're like, we are pencils down. We do not fight the Fed. I was like, come on, guys, they're not going to raise it that much. Historically you're 150 basis points and it takes two or three years to even get that. Rents can absorb 150 basis points. And so lesson learned was don't fight the Fed. I learned that probably maybe six months later. So we stopped buying. The thing is, you get a lot of this stuff under contract and you're kind of going through the motions. And we just finished out our pipeline. We closed everything probably by September of 22, and we stopped buying. We're pencils down, pencils down. Let's manage what we got. Don't know what the Fed's going to do. Don't know what the market's going to do. Short on the curve was terrible. The long end of the curve was still good. So 10 year treasury was still good. We're getting some refis done. We got a big package, three, $400 million refi package done in 22. Got another big package, three, $400,000,000 done in May of 23 and rents are still going up. But then July of long end of the curve just blew out. And that's when the market dropped and that's when everything just stopped.
- [25:13]
C
Between September 22 and then summer 23, were you guys still doing your renovation plan or had you gone pencils down on those assets as well to Try to preserve cat.
- [25:21]
A
No, Instead of just renovating. Good with new. Right. Sometimes, you know, hey, this everything works. Let's just rip it out and put in new stuff. Because we were getting the pops, we weren't doing that. But when you get a trashed out unit and you got to just replace everything, then we would rent it. So it was an augmented renovation plan.
- [25:38]
C
And so when you were capitalizing these things too for your raises, for the heavy value add, there's no cash flow while you're doing all this because you're spending all the money back on the units, how much reserves did you generally keep at each property? What I'm trying to ask is like how long did you think you had when rates went up? How long did you have to really weather the storm?
- [25:54]
A
You certainly had the capex funds from
- [25:56]
C
the lender when they make a new force fund, or would they, for the most part let you choose?
- [26:01]
A
You would have to go spend the money, show that you spent the money and then you get reimbursed.
- [26:05]
B
Yeah.
- [26:06]
A
At this point, lenders choose your partners well. Ask a lot of questions, choose your lenders well. Right. When things are really going, we get 30, 40 term sheets from lenders and debt's a commodity. Pick the lowest debt, best terms, but the lenders matter.
- [26:20]
B
I should just say for the tape that pretty bruising battles with some of your lenders, namely Starwood Capital, Benefit Street Partners, some pretty ugly lawsuits traded back and forth, bad boy carve outs that have been invoked. You've addressed that before. You're certainly free to address it now if you'd like.
- [26:36]
A
You've got these renovation reserves and you're expecting them to be funded every 30, 60 days. And some of these heavy lifts, you go spend three, four million dollars and then they don't fund them for eight or nine months. That starts becoming a problem. So when the lender is starting to work against you, that's difficult. We'd also hold back a couple million bucks per property. You have to have some working capital to go fund these projects and get them reimbursed. But when you go fund them and you don't get them reimbursed, you get kind of stuck. That happened a couple times, specifically with Benefit Street. Yeah. Not great to work with.
- [27:08]
B
They've alleged that you committed fraud. It's gotten pretty bad between the two parties at this point.
- [27:13]
A
Well, for sure, 100%. Yeah. But before all that happens, when they're creating opportunities to take back properties is you start seeing their stripes.
- [27:23]
B
One of the things will and I were talking about before we got on with you was at this point, you've stepped back. You've told me before that your hope is to kind of wind down this portfolio, work through the problems, make sure that your investor capital, to the extent that it can be, is protected, and then figure out your next move. When you look back at this, besides the macro, which is by definition not in your control, is there stuff that you could have done differently, that you should have done differently? Where did you screw up?
- [27:49]
A
As Alan Stalkop if we had interest rate zero for two more years, we'd all have diamonds on our teeth and big fat gold chains. You start drinking your own Kool Aid and you think it can go forever. I certainly didn't think we'd have 11 rate hikes and debt service triple. Short of like not buying anything in 21 and 22, it would be probably vetting investors a little bit better, vetting lenders a little bit better. And then that negative cycle kind of in 24 probably paid attention to the media a little bit more. I was 100% focused on our equity and recapturing equity and didn't care about the narrative.
- [28:26]
C
You're talking about 1,000 units in 2015 to 30 plus. I can just imagine on the backside, everything breaks, all these systems break. Was there any challenges from that side? Because even just you talk about vetting lenders, partners, how do you vet employees? Because you're managing these things yourself. That's a massive, massive company. And that's in a short period of time.
- [28:46]
A
It's 800 employees, right? It's probably four direct reports. It's important to like define your direct reports. Well, yeah, and define the systems that they use for hiring and their direct reports. A good leader knows how to operate at the 30,000 foot level and make decisions, but knows how to get into the weeds and be boots on the ground, but also knows how to get out. I would say the property management, it was challenging. 100% Covid was a big curveball. Coming out of COVID was the toughest labor market I've ever seen. We fundamentally shifted our work ethic as a country because of COVID A fair assessment would be, I think I built a very good company. Property management, company culture and when it rains, it pours. So timing wise, right? So July of 03, you realize, okay, the long end of the curve is gone. Values have dropped. You can't refi this stuff. It's problems with occupancy and rents, and you're not going to outgrow this thing. And now your debt service is tripled by October of 23. We realized that the music has stopped and we're going to the lenders and we're trying to work out plans while selling what we can for equity recapture. I think we did a really good job going to big hype line with survive till 25 and if you live that, you're fucked. And so we moved fast and we got on average about 30% equity value out of those 20,000 units, kept 5,000 units, gave 5,000 units back.
- [30:15]
B
You talked about paying more attention to the narrative. You're in overdrive now. Every couple weeks I'm seeing Alan Style cup interview here. Alan Style cup interview here. I saw a sponsored content piece in multifamily dive. You're kind of working overtime now to either reverse or at least add your side of the story to all the stuff that's been written about you. What are you looking to accomplish here? Yeah, look, basically I've never seen anyone go from pretty much don't talk to the media outside of a can statement in a release to suddenly like let's talk, let's chat. Let me open the kimono to you twofold.
- [30:45]
A
One, I have the time to do it right. 24, 25 was heads down, stabilize what we can. That work is done. We've got a 5,000 unit portfolio. It has two tranches of debt. Maturity stuff works, it runs. We're doing distributions on more than half of the portfolio. It's probably not worth the debt. Even though we did refi at 65% LTV in 2023. Still not worth the debt. We'll see. But yeah, running a 5,000 unit portfolio with 150 employees is kind of like a cakewalk. It's pretty easy. And then I just reflected on it and I think our investors deserve a balanced view. I think our employees deserve a balanced view. No one wants to invest in a company that has a bad reputation or work for a company that has a bad reputation. For example, one of the big headlines was this $100 million fraudulent transfer. Well, guess what, Overwatch, who said that in a petition, who got that information from a disgruntled employee that was fraudulent, made it up, 18 months of litigation, those cases are dismissed and no settlement.
- [31:44]
B
Is there no settlement at all in the back end?
- [31:47]
A
That's correct.
- [31:47]
B
Are you saying there is nothing you guys had to do?
- [31:50]
A
That's correct. But guess what? That headline is still there. Okay, so Ben Lockeri is the head of Overwatch. We've known him for a decade and we did 58 deals together, right? 150 million. Hey, Ben, can you write an affidavit just stating the facts that you did all this work and you came to the conclusion that there's nothing true about it? Yeah, sure. So he does the affidavit. I go back to the people that write these articles. Austin Statesman, the real deal, Right. Hey, you have this affidavit. I think your readers would really appreciate learning the full story. Nah, I don't think they would. So there's only so much I can do. But that's just the media. It's good to pump up these headlines. But maybe you don't get readers if you publish something that shows that it was all wrong. So, yes, I am taking the effort, and I have the time to do it, to let people know the truth. Nothing to gain on my part. I'm not raising money. If we're going to have a story, let's finish the story. If you're going to invite me to a game, I'm going to win. I'm going to finish playing the game. And if you're going to invite me to play a game like litigation or like this negative media, well, I'm going to keep playing it until I win it. That's just how I work.
- [32:59]
C
You say you're not raising money. Do you see yourself? I mean, 5,000 units is a good place to start. That's a good portfolio. Do you see that?
- [33:07]
A
There's a lot of people that would love to be there. I get it. I'm 53. I've run the bases. Two kids in college. I got one that's getting out of high school in a couple years. I've got other interests. I don't need to maximize my money. Here's my mantra right now, guys, is I want to do interesting things with interesting people with no obligations.
- [33:25]
B
Alan Stahlkop from GVA Management, thank you so much for being with the promote.
- [33:29]
A
Hey, my pleasure.
- [33:40]
B
Hi, Will. That was something.
- [33:42]
C
Does not get much more unfiltered than that. And I have to say, as a sponsor, that Fortress story is absolute nightmare fuel.
- [33:49]
A
Oh, my God.
- [33:50]
B
Yeah. Alan's Mexico tan must have faded in a flash when he got that call.
- [33:54]
C
Pretty crazy after that yoga. It undid all the hard work.
- [33:58]
B
We'll be back next week with more CRE Insider goodness. Thanks again to our sponsors, Loan Boss and Bravo Capital.
- [34:03]
C
You can find them@loanboss.com and bravocapital.com and if you enjoyed this conversation, why not go write us a review on Apple
- [34:10]
B
it helps the pod grow. It helps our egos grow. Win. Win. All right, well, I'll see you next week. That was a really fun one. Thank you.
- [34:16]
C
Thank you, CIA.