The Best of Season One episode showcases highlights from season one of The RealCrowd Podcast and will take listeners on a journey through some of the keys points to consider when looking to invest in commercial real estate.
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RealCrowd – All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for information purposes only, and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisers.
Adam Hooper – Hey Tyler.
Tyler Stewart – Hey Adam, how are you today?
Adam Hooper – I’m great. Welcome RealCrowd listeners to the 20th episode of Season One of the RealCrowd podcast. Honestly, this has been an amazing experience, 60,000 downloads this year. Thank you guys for listening, this is why we do it, it’s for you guys. We appreciate every listen, every download out there. It’s been a blast this year, and Tyler what are we doing today?
Tyler Stewart – Yeah, today we are doing the best of series.
Adam Hooper – Yeah and also for listeners out there that don’t know, might not have time to listen to all the episodes, we’ve been breaking down each of the main themes from the episodes into a five or six-minute read, and we post those on our blog site on Medium, on LinkedIn, pretty much anywhere you can find us, you can get the quick hits of the podcast as well. While we love listens, we also want to make that content available in whatever format you’d like. Go to the blog, check our Medium, you can get it there as well.
Tyler Stewart – Exactly. And then our blog as well we have the transcript from each episode. If you just want a quick read.
Adam Hooper – And we also want to thank listeners that sent us in some questions here for episode 20. Before we get to the best of, Tyler, we’ve got some questions on tap from listeners that have some questions about real estate and what we do.
Tyler Stewart – Would you like a hard ball or a soft ball first?
Adam Hooper – Gosh, it’s early, let’s start easy.
Tyler Stewart – Start it easy? Okay. “Thank you for doing the podcast. Any tips for someone looking to start their own podcast.”
Adam Hooper – Well thank you listeners for listening. You know, when we started this, I was literally in a cloat closet, with a USB microphone plugged into my laptop. Closets have really good acoustics, out there for those who are trying to get started. We started it just with trying to help educate our investors out there. I would say, if you’re going to do this, it’s a lot of work, so you’ve got to be pretty passionate about it. It’s certainly not for lack of effort that we’ve stuck to this for a year. You know these microphones that we’ve got are pretty important. I don’t think I sound this good.
Tyler Stewart – No, the equipment certainly helps.
Adam Hooper – You sound okay in person, but the microphone really helps. I don’t know if I’d want to listen to myself for an hour. It’s a pretty intricate setup that we’ve got here, but I think you can do it pretty easy. Again, we started out with a couple laptops and some microphones. It just takes some time, some dedication and some work. And Tyler, it wouldn’t be possible without my man over here on the side.
Tyler Stewart – Well thank you, Adam, it’s fun. And the key for us, it’s not our voices and what we have to say, it’s really about the guests, and bringing content that our listeners are looking for. So long as we keep the focus off us and more on the real estate and the educational side, I think we’ll be in a good spot.
Adam Hooper – Yeah, and again I’ve had a blast doing it this year. Getting to pick the brains of just incredibly smart minds. Well-established, well-experienced real estate practitioners. I’ve learned a ton, and I’m excited to keep it going forward and seeing what else we can learn. And if we can help our listeners become better educated about commercial real estate investing and some of the topics that we’re talking about, then I think mission accomplished.
Tyler Stewart – Yup. Okay question two. This one’s from Justin. “I made my first crowdfunding investment in 2014, and I’ve been watching rates drop for debt funding ever since. Typical rates of return for investors have dropped from the 11.5% range down to the 7.5%, 8% range, on what I would consider equal properties and risk.”
Adam Hooper – Alright, we’ll pause right there for a second. In our last episode with Paul Kaseburg, we talked about the timing of a cycle in the markets, and how it’s tough to compare what the market looked like in 2012, 13, 14, to what it looks like even today, and as we go into 2018, 19 and beyond. In some sense, you know markets are dynamic. They’re always going to be shifting, interest rates are changing, demand and supply are changing, there’s more capital coming into certain markets than others. There will naturally be some cyclicality to return profiles, and we’ll talk a little bit further about that in the next few questions. But you know we’ve certainly seen with the real estate sponsors we work with, again on the equity side, because of that increase in competition, because of more liquidity coming into the market, naturally yields will drop somewhat. I can’t necessarily comment too much on the debt side, since we don’t do the hard money loans or commercial debt on RealCrowd. On the equity side we’ve certainly seen some tightening in yields, just based on market supply and available capital out there. But I think we’ll hopefully see that level off here. I’m not sure how much further yields will compress, but I think most indicators from the sponsors we’ve been talking with, is 2018 should be pretty fundamentally good year. And we’ll get into that I think in some of the best-of clips.
Tyler Stewart – We will. Okay, and to continue on, “Is a similar drop in borrowing costs happening? Is any of this coming from the platforms taking a larger set of fees?”
Adam Hooper – Could be. We’ll talk about that in another question, in the next question too. But yeah, you got to be careful and very aware of how certain platforms are charging fees and where those might be coming from.
Tyler Stewart – “On the pref equity and equity side, the decrease in projected returns doesn’t appear to be as large. Is that because of changing market dynamics? Platforms encouraging more conservative underwriting, platform fees? Basically, how has the business of crowdfunding platforms changed over the past four years, and what impact has that had on borrowing costs in first and second debt and pref and straight equities?”
Adam Hooper – Woo, that’s a big one, that’s a doozy. But I think those are all really good questions. To the borrowing cost side of things, again, we don’t do debt on RealCrowd, so I would probably refer to whichever platform you might be talking to, hopefully they’re giving you that education, they’re explaining that to you. If not, there’s definitely questions that you need to ask of them. And then on the equity side as we mentioned, the shifting dynamics in the marketplace are always going to be there. We’re getting later in the cycle, yields are tightening in certain markets, certain areas. There’s other markets that are going to be still showing opportunity that are going to be similar returns to a few years ago. But I think in general overall, as we’ve seen the market continue to recover, eight years roughly into the cycle now, we’re seeing those yields compress, those heavy value-add opportunities where you’re seeing the mid to high 20 IRRs, the low to mid-teen cashflow deals, those are just harder and harder to come by. And to the earlier question of perceived equal property and equal risk, you could probably make an argument that to get to those kind of returns this late in the cycle, you’re probably going to be taking on a little more risk. And that’s a theme that again we’ll touch on here. But understanding the risk that you’re taking to get to that return is an area that we see a very big mismatch in right now. And I think a lot of that goes to, as we were talking in prior episodes, the expectation in the crowdfunding industry,
Adam Hooper – I feel was set so artificially high by a lot of hard money loans, single-family fix n’ flip debt, projects that you would, in a spectrum of real estate, consider very high risk, also high return, but weren’t maybe billed as such high risk. And so the expectation of what a reasonable return was in this asset class was pegged incredibly high and incredibly short term. Which is somewhat counter to the historical view on how you look at this asset class. Which is longer term, stable cashflow, and appreciation. And so that’s one of the things that we’re going to be talking about, and that we’re really looking forward to as we go into 2018, is trying to help investors understand how that risk relates to these returns that you’re seeing, how to look at your portfolio on a risk basis, versus just a total return basis. And that’s something again that we’ve identified as a pretty big deal going forward, and something we’re excited to continue to help listeners understand, and a lot of what we try to talk about on the podcast. Is as an investor in this asset class, how can you gain a better appreciation for the risk that you’re trying to undertake to get to those returns?
Tyler Stewart – Yeah. Start with risk.
Adam Hooper – Start with risk. And if we didn’t write a book about that.
Tyler Stewart – We did, we have an eBook, it’s posted on our learning tools, start with risk.
Adam Hooper – Shameless self plug.
Tyler Stewart – Yeah.
Adam Hooper – Yeah, that’s what happens when you give us control of the mics.
Tyler Stewart – Okay, so another listener commented that he perceived there to be a disadvantage in relying directly on the sponsor rather than through an SPE as some of the other platforms do. The best he can tell, he’s paying about 100 basis points for this in the form of management fees the platform is taking off the top.
Adam Hooper – Well let’s pause there again. 100 basis points might be what the stated asset management fee is. I would caution investors, and again we have a very different approach here at RealCrowd than a lot of the platforms out there in that we are completely fee-free for investors, so we don’t charge the investors any fees. And that’s the benefit of that direct relationship. But I would urge investors to dig a little bit deeper on the economics of these deals, and try to get to the bottom of what those fees are actually being charged. We’ve seen many many deals on other platforms that do form these aggregator, you know these SPVs for each deal. 2% to 4% percent are taken right off the top as an acquisition fee, the 1% to 2% annual asset management fee, that comes directly out of cashflow. Sometimes they’re taking a promote from the investors, sometimes they’re cutting into the sponsor’s promote of the deal. And there’s also the spread. If they’re going to loan to a borrower at 12%, but they’re going to sell it to the investors at 10%, that’s another 2% that’s going into the pocket of that platform. While it might only feel like 100 basis points, I would urge you to do a little bit more digging and try to get to some true transparency of those fees. Because once you start peeling back those layers, I think you’re going to see more than 100 basis points in there.
Tyler Stewart – Yeah, you might see a different story.
Adam Hooper – Yeah.
Tyler Stewart – And to continue, “How does this work on the platform side? Why is this perception misguided on my part? What is my downside protection?”
Adam Hooper – Yeah, and I think that’s ultimately the question, they’re right, what is the downside protection if a deal goes bad? We’ve been through real estate cycles, we’ve seen what happens to really good companies that get impaired by a handful of deals. It can take down even the best operations. And so one of the biggest things that we’ve tried to remove from investors’ risk is counterparty risk. If things start going bad, we believe that investors should have a direct line, a direct security, with the underlying real estate that they’re investing in, not in an entity that a startup has founded with people that maybe haven’t even been through a real estate cycle. That’s how we’ve approached it from the beginning, is our belief that a direct relationship is best. The deals that we do on RealCrowd, there’s offline high net worth individuals, there’s very sophisticated investors in these deals, and ultimately the investor has a direct line of communication with the sponsor who’s the one managing the asset and working it out. We’ve seen already some platforms go under. And that’s not working out that well. There was a platform in New York that had a decent number of deals done, and it ended up filing for bankruptcy, and they’re still working that out right now. A special servicer came in, completely crammed down the existing investors. And it’s going to get pretty ugly, because you’re adding another layer of counterparty risk, fees, just another layer between your money and the actual real estate. And that’s something that we’ve been pretty firm on,
Adam Hooper – is not how we feel the best way to do it. Now granted everyone’s got their own opinion, we’re biased because that’s our model. That’s where we come from. The transparency, the direct relationship with the real estate companies. That’s how it’s been done for a really long time with that direct relationship to people that had access to it. We’re not trying to change the model necessarily so that we can line our pockets with these fees. That 100 basis points, again, I’d really really urge you to check in that 100 basis points, and get a feel for what you’re actually paying for.
Tyler Stewart – Exactly. There’s a difference between bringing the broker-dealer business model online versus our platform, it’s more about providing technology to allow investors to invest directly with real estate sponsors.
Adam Hooper – Yeah, efficiency. Trying to cut layers of middlemen out of the equation is what we’re trying to do, make it more efficient, versus taking that, again biased, we would consider that broken broker-dealer model, very high in fees, very little transparency, and just doing it online. That’s not our thing.
Tyler Stewart – Okay, last one. “What is next for RealCrowd and the RealCrowd Podcast?”
Adam Hooper – What’s next for RealCrowd and the podcast? You know on the podcast side, we want to do what you listeners want to hear. We love the feedback, send us emails, email@example.com. I think just continuing to talk to really great real estate minds. Educate our investors and listeners. And we’ll do some check-ins here in 2018, Season Two is definitely coming forward. You know we’ve got a good base of guests that have been on, and I think it’ll be real interesting to go back and get their take a year later, do some updates there. And then for RealCrowd, as we discussed, a lot of it’s going to be focused around this concept of risk-adjusted returns. We’ve seen this issue of the decision-making process is so heavily based on just what is the cashflow and what is the IRR, without any real appreciation for the risks that people are taking in their portfolio. I don’t know many people that would allocate their entire asset class to just the highest return deals. That’s not a very sound– Investment philosophy.
Adam Hooper – And I think we’re excited to launch some tools and to just change some things around on our platform to where we can provide a better platform for looking at deals on a risk-adjusted basis. And really help look at a risk-first approach, as we’ve talked about quite a bit. That’s what’s on tap. We’re excited for it, should be a good year. We’re looking forward to it. Well I think that’s a pretty good start with the questions, we should probably, that’s enough of us talking. Let’s get into the Best Of. I think the hope here is we’re trying to take our listeners on a little bit of a journery through the highlights of Season One. We’ll talk through some of the key points that you should look at when you’re getting into this asset class, looking at deals, different asset types. But we’ll probably start with one of our favorite guests, Mike Madsen from RealSource, out of Utah. I’ve done a bunch of deals with those guys, they’ve got a really solid analytics and market underwriting platform that they rely on. Mike is their Director of Econometrics there, and he’ll kick us off with talking about the state of the market, liquidity, competition, what’s going on out there, and maybe address some of those earlier questions about why we’re starting to see a tightening in some of those yields. Of course when you have increased competition on the buy side, that’s going to naturally try to compress some yields on these deals. Is that changing anything with your underwriting, is it changing how you’re having to source capital,
Adam Hooper – is it changing how you have to reset expectations from that capital of what’s going to be deliverable over the next four to 10 years if it continues?
Mike Madsen – Yeah, absolutely. And I think the further out you go the less that’s an issue. But there’s no doubt that three years ago you could go out and get a lot higher returns than you can right now. That’s just a natural process of more people chasing these assets. But at the same time, investors’ expectations have calmed in the last two years. People have realized that we’re not going to get 7% rent growth, year after year. It’s not sustainable, it’s not something that’s going to happen over and over. But the good news is, people are more in line with reality as far as return expectations. And in our world the underwriting process has changed a bit. Everybody’s having to underwrite and basically bake in interest rate rises into their underwriting and into their performance. But at the same time, nobody’s really pricing in increased growth that could happen. A lot of the capital markets are kind of in this wait-and-see mode. And if we do get some things happening, if we do get tax reform, if we do get repatriation of funds hitting the US, if we do get stimulated job growth, there’s a huge potential upside. But none of it has been priced into the values quite like it has in some of the other sectors. That’s the good news, everybody’s underwriting conservative growth, but there’s definitely a chance that there could be a lot more upside. If you look at the stock market and you see why that’s going up and what’s creating the increase there, it’s a little bit more speculative, it’s a little bit more liquid,
Mike Madsen – people can get in, people can get out. But the commercial real estate market does not fluctuate as quickly as that does, so it’s good news for current owners, because everybody’s being really cautious and really conservative. And at the same time, there’s some things that could happen that can really spur growth and really create better returns for everybody.
Adam Hooper – Now you mentioned interest rate risk. As long as I can remember, we’ve been saying they’ve got to go up, they got to go up, they got to go up. At some point they’re going to go up. By how much, and at what point, does it become a material impact on returns, return expectations and underwriting?
Mike Madsen – You know that’s the big question out there. There’s definitely people out there that think the interest rate rise will be moderate and slow. And there’s other people out there that think that the market could take off and the interest rates once they go past like 3% that they’ll jump to 4% pretty quick on the ten-year. A lot of that is yet to be known, but there’s no doubt that the higher interest rates go the more stress it’s going to put on the single-family market. I believe we’ve talked about this in the past. It’s really important for people to realize that if you’re investing and playing in the single-family market, it’s very different than commercial real estate. Your home, if you live in it and you have a mortgage, it’s really classified as a liability not an asset. And I think that the single-family market is going to be a lot more sensitive to rising interest rates, which could really create different situations in different markets. The more overpriced, more expensive you think the single-family market is in a particular city, basing that on average housing costs versus average incomes. There’s a few cities out there, a lot of them on the coasts, that are kind of showing a red flag of this could be a heavy impact to single-family real estate. However, at the same time we’ve got to remember that commercial real estate, in particular apartments, people are buying cashflow opportunity, they’re buying future cashflow opportunity, and it’s priced out much different. We’ll see commercial real estate
Mike Madsen – perform much more like the equities market, much more kind of like the stock market. Initially rising interest rates will actually be favorable to the performance of some of these assets.
Tyler Stewart – Alright, so that was Mike Madsen of RealSource Equities, going over the market. Adam, who’s next?
Adam Hooper – Next up, Tyler, we’ve got Paul Kaseburg, another serial guest on the podcast. He’s going to start with some personal allocation methodologies and then how to find a sponsor that fits the investment style you’re looking for. When you look at a sponsor, and investors are looking at sponsors, what are three or four items that you always look for? Just very high-level, when you’re looking at a sponsor that you might be interested in doing business with?
Paul Kaseburg – There are definitely some key items. One thing I would say about evaluating sponsors is, I wouldn’t necessarily start with an offering. In terms of building a real estate portfolio, I’d probably start from the top and say, number one what’s my allocation to real estate? Number two, what kind of product is that going to go into? Is it a REIT, is it a private real estate investment? And then where do I want to be in the capital stack? Equity, mezz, debt, preferred equity. And then strategies. Do I want to be core, development, where does that work? And then food group, how do I allocate across office, multi-family, retail. And then once I get all of that, then I would say I am looking for an equity investment in retail in the Western United States. You kind of work your way down to that point. And then you go out and you look for the sponsors that you think are going to be the best at that. And you try to dig those up from the bottom up, and find the people, given what you’re looking for, who are best qualified to execute it. And then once you find those people, that’s when you really dig in and say, what is their experience in that food group? What is their track record? What is their platform like? And I’d say, evaluating a sponsor, really the most important things you want to look for are the track record, and then what do they bring to the table beyond their track record in terms of their organization and their deal volume? Because that’s really what’s going to set them apart.
Adam Hooper – So the sponsor then, as you said, you’re already five or six layers deep, you know you want to invest in real estate, you know you’ve got this particular strategy defined. And then you want to look at the sponsor. And you said obviously track record is pretty big. In the book you mention that even the best real estate can’t overcome the damage caused by a bad sponsor. As you’re looking at track records, how do you peel back those layers and try to figure out, you know how much of their success can you attribute to market, or timing, or to the overall real estate cycle versus the actual activities of that sponsor? Just based on the track record or what you can see from your research?
Paul Kaseburg – To answer that, it’s important to talk about why you hire a sponsor in the first place, and what value sponsors bring to a transaction. Because it is a little less obvious than it seems. And that is, first of all, in almost every part of our world, we hire experts to do things. We hire attorneys, we hire tax advisers. You don’t build your own toaster, and you don’t write your own software. And so real estate is no different. Sponsors bring a level of expertise. And in general there’s a misconception about real estate that it’s really about the deal. And if anyone finds the deal, and they go out and do it, they’re going to do well. And I think there’s a lot more to it than that. And so the reason sponsors exist, as any sort of intermediary does in the world, is that they add some value. There are different pieces to that. The first thing they add is, there’s a level of detailed knowledge and relationships in the industry. Doing the same type of deal over and over, like anything there are just a million tiny details to the underwriting and the operations, and the relationships that are involved with that. And so that could be, you happen to know the local fire department. And there’s an issue with your fire system, so you can go down and deal with that in a way that’s going to be much less expensive if you have no exposure to the people involved. Perhaps you know a seller who you’ve closed a transaction with, and there’s a contract dispute about something,
Paul Kaseburg – you’re trying to work out a purchase contract. You pick up the phone and give them a call and work through it. Just even something as simple as I need to put down another roof overlay, and it’s windy here, and what nail pattern do I need for that? And so there are just a million of these little issues that can crop up where you can incrementally be a little bit better in your decision-making if you have the base and the platform and the experience. That’s one way that sponsors add value. And then obviously, there’s the actual transaction part of it, where sponsors who are specific to a product and geography are tracking essentially every deal that comes to market. There’s really a deep historical knowledge of deals that transact, what the valuations were, what the moving parts were, and the issues associated with those. And so there’s a lot of knowledge that contributes to valuing a deal in the first place. I mean a lot of the deals that we look at, we looked at the last time they transacted. And so we are very familiar with them, we know the history of them. They’re probably comps on the deals we own. And so there’s a very textured understanding of the market. And that’s important to being able to value a deal beyond just putting the cashflows in the model and seeing what comes out. And then I guess to add on to that, is because I think a good sponsor is someone who is active in the market too. Because that activity in the market and that track record in the market creates a reputation. And that reputation, doing what you say you’re going to do,
Paul Kaseburg – and relationships with brokers, relationships with sellers, that is really important to being able to tie up deals. Because if you sort of switch hats and you put on your seller hat, and think about why do I pick someone to buy my property? From a seller’s perspective, they’re going to sell a deal that, let’s say this is a $50 million deal, the debt’s coming due in a couple of months. If you put that property under contract with somebody who doesn’t execute, then that could end up endangering your partnership. You really have to have some trust in that other group. And so if it’s someone who you’ve never dealt with, who doesn’t have experience in the market, and doesn’t have that track record, then really the only way for that buyer to tie up the deal is to offer more, and maybe put up some non-refundable money. And so paying more for properties is not necessarily the best way to make money in the business. Having that reputation is really what allows you to hit, you just have that advantage on every deal. Because you get a little bit better price on everything, and you get the deals when it’s a tie. That’s an important factor.
Adam Hooper – Alright, a few more good nuggets from Paul in there. Tyler, who’s on tap after Paul?
Tyler Stewart – We have Mike Hu, and Mike Hu is going to walk us through the operations of hospitality.
Adam Hooper – Yeah we’ve seen a fair number of hospitality deals, it’s been a pretty attractive asset class for investors out there. So let’s see what Mike has to say about the hotel space. In today’s topic obviously we’re talking about hospitality and this asset class that you guys focus on quite a bit. It would be good for listeners out there to just set some base definitions. Let’s talk about the different kinds of hotels, let’s talk about some of the metrics, some of the different locations and strategies, so when investors are looking at opportunities, whether it’s on RealCrowd or direct or with other platforms out there, they can have a baseline of what some of those differences are. If we could take a minute to go through some of those high-level differences, full-service, limited-service, budget, extended stay, flags, boutiques, micro-hotels, there’s a whole bunch of different kinds of hotel opportunities out there. Maybe tell us a little bit about what you’re focusing on, what some of those differences are, and then we can use that as a base to go forward and to rest the conversation on.
Mike Hu – Okay, that sounds good. Within the hospitality industry, with what you just described, there’s a wide variety of different types of hospitality products, and our main focus, at least within Gaw USA is really focused primarily on I would say the limited service hotels, which are hotels that, I think the ones that come to mind are sort of like a four-point Sheraton, or Courtyard, Marriott. These are hotels that do not have room service. I wouldn’t say budget hotels, but I think they’re hotels that don’t provide as many services. They’re not going to have a spa, they may have a small gym, or maybe one restaurant. But they’re not going to be your Four Seasons or Ritz-Carlton or W Hotel. When you go to a full-service hotel, like a Hilton or a Westin for example, these hotels will generally have all those other amenities I think that most people think of when they think of a hotel. You’ve got room service, you’ve got multiple food and beverage outlets. And then generally speaking they’re larger hotels. They’ve got at least, depending on the market and the location, at least a couple hundred keys, or a couple hundred hotel rooms, versus more boutique hotels generally speaking are I would say under 200 keys. And that’s a very general number, because there’s some hotels that have less than 100 keys, and then there’s some, like we have a boutique hotel in San Francisco in Union Square and it has 153 keys at Hotel G. And so we consider that a boutique hotel. And then obviously there are five-star and luxury and resort hotels,
Mike Hu – if you’re looking at a Four Seasons or a St. Regis, Ritz-Carlton, et cetera. So there’s the really high-end hotels as well. And I think for us in the US we play primarily as I said in the limited-service and full-service space. Within Gaw Capital globally though, in Asia we actually do participate across the whole spectrum. We’re doing limited service hotels, we have our own boutique brand under Hotel G, and we’ve also acquired five-star hotels, like we just closed on the Four Seasons Bora Bora Hotel in French Polynesia, as well as the Intercontinental Hotel in Hong Kong. Those types of hotels are generally a lot more complicated, because generally speaking you get a lot of the food and beverage revenue from the restaurants and bars et cetera. The higher the percentage of F&B income, you know it’s a little bit harder I would say for someone to value it, because in a way it’s less consistent. Because you don’t know if that restaurant concept or if that bar or club or whatever it is is not very successful then obviously your cash stream could be more volatile.
Adam Hooper – Yeah, and that’s a distinction to make, as people are looking at these different operating models or different services levels if you will, the breakdown of that income, where that’s coming from, the consistency, you know we’ll talk hopefully in a little bit about some of the metrics that come into play in the hospitality that are different than what you’d see in a multi-family or an office environment. How much of those income streams are influencing real estate decisions? When someone’s looking at investing in a hotel, with your Gaw Capital hat on, and you guys are looking at hotel opportunities versus an investor that’s looking at investing with someone like you guys, how much of that decision is made on the operations versus the real estate part of the equation?
Mike Hu – That’s an interesting question. On the real estate side, so it sort of depends. I know it’s hard to answer that question with a standard answer, because a lot of it depends on the location and what’s the basis of that hotel. Meaning what is the price per key that you’re paying for that asset. For us, some of it is completely operationally driven. Meaning we’ve acquired hotels where we’ve looked at the operating expenses. And maybe this is actually to take a step back, one thing that’s interesting about hotels is that there’s some hotels that are pretty consistent, regardless of the location. Meaning, if you’re in San Francisco, or if you’re in Denang Vietnam, or in Shanghai China, there’s a certain number of restaurants that you’ll need to have based on how large that hotel is. There’s some things that you can measure, and our in-house hospitality team is really good at doing that, when they assess the operational expenses. Because you can look at it and say, well on other hotels in in a comparable location, comparable size, you know there’s roughly this much spent for utility expenses. That rate might differ based on the market, but you know that there’s usually a certain level spent. And that’s obviously dependent on climate, but you can at least back-of-the-envelope calculate and understand if a hotel is running a little too heavy. For example, you know how may staff that a particular hotel should have. If it’s a similar size hotel, similar F&B outlets, it would be a little unusual for one hotel to have twice as many people.
Mike Hu – Right, if it’s exactly the same. Those are things that we can look at to figure out how do you manage the operating expenses. And so OPEX is sort of a key thing, because if you can obviously reduce OPEX you can increase your NOI. And your net operating income would go up, which obviously increases your cashflow. There’s different ways of looking at it, but operationally, that’s the one thing that’s the biggest challenge about hotels, because it’s daily leases. And people see that as being, I would say most investors look at hotels as being a lot riskier than an office or industrial or multi-family because of that reason, because they’re daily leases. Which is true. There’s definitely a fact behind that. But it’s also that for daily leases, if you understand the operations of a hotel and you have a team that has experience doing it, you can also generate I think returns much more quickly. At least, from our experience you can do that much faster than what you can in some of the other assets.
Adam Hooper – Tyler, We’re going to throw this one way back to Episode One. Pat Poling is going to talk about some of the supply/demand drivers of the B class part of the multi-family market.
Tyler Stewart – Yeah, and you had mentioned earlier on, starting out recording the podcast, doing it from the closet. This would be that episode.
Adam Hooper – Yeah, this is a closet show. Thanks Tyler. Good, now getting back to Econ 101 terms, obviously supply and demand is one of the main factors in the multi-family market. How are you guys looking at that now, how do you see current demand versus supply and what does that mean for investors looking to get into multi-family investing?
Pat Poling – Well you know I mentioned a little while ago that we selected multi-family not so much because we were looking for a great investment platform to take to the public. Bill and I were personally just looking for good places to put our money in. The more we investigated multi-family, the more we realized that there was a supply-demand imbalance, not only today, but really sort of structurally built into the model for an extended period of time. People often ask, how long do we think multi-family is going to be a good place to put money? And our standard answer is usually something like five to 10 years, because we don’t want to scare people with the actual answer which is probably for a generation, given what’s going on. If there was any other market out there, whether it was real estate or any other kind of investment opportunity, where you had the significant drivers on the demand side that we have in multi-family, and that that was being met with such a stagnant reply from the supply world, everybody in the world would be investing in buying into those particular products. And that’s really what our job is. We don’t sell anything to anybody. We simply help everybody understand what’s really going on in the multi-family space. And when people understand it, it becomes pretty obvious that this is a good place to put a portion of your investment dollar.
Adam Hooper – Good. Now obviously with demand and generational aspects that we’re looking at, that’s something that obviously weighs on the mind of a lot of investors out there, is what are some of the generational shifts around both elder generations of boomers, and also millennials coming up, and how do you see those generational forces coming into play when you look at that supply/demand equation.
Pat Poling – Well that’s certainly a significant amount of the driver of the impacts to multi-family demand. Baby boomers, right? 80 million baby boomers, everybody understands and knows the story of baby boomers because we’ve dealt with them for so many years now. And boomers are beginning to retire. And retirees do what? They downsize. One of the things you can do when you downsize is rent. And boomers are renting in the exact same proportion that their parents did. It’s not that boomers are renting more, it’s just that there’s more of them. And so when you get 10 to 15% of an 80 million base population, as opposed to a 40 million base population, moving into the rental market, you get a lot of extra renters that way, a lot of extra rental households. And think about it. Somebody’s 60, 65, 70 years old, and they decide to move and rent, they’re probably not ever going to decide that they want to own a home again, they’ve pretty much moved into that model long-term. The other thing that drives the demand really from the baby boomer side is they’re living longer. Their parents retired, and maybe they chose to rent, but they lived in retirement five years, 10 years, 15 years. Now boomers are all expecting to live 20 years, 25 years, even 30 years in retirement. We’ve got a larger number of them retiring, and moving to the rental marketplace, and then living for a longer period of time. And strangely enough, it’s combined with the fact that their children and grandchildren, the echo of that boom, are actually on the opposite end of the spectrum.
Pat Poling – They’re really not so sold on this idea of owning homes. Many of them have seen friends and family lose their homes through the crash in ’08. They’ve got student debt, and many other demands. Wages have been fairly flat. It’s a tough place to own a home if you’re 25 or 30 or 35 years old. You know when I was that age, I had owned a house already, I was on my second home already. But things are very different today. And so we’ve got two extremely large groups, about half of the population in the country, really being much more focused on the rental marketplace as opposed to home ownership. And that’s definitely showing up in the numbers we see in terms of demand on the multi-family side.
Tyler Stewart – You know that was pretty good acoustics in that closet. I wasn’t too upset with that.
Adam Hooper – No that wasn’t too bad. I mean it’s better now, much better, but it wasn’t too bad. It was a start, it was our first one. All right, so let’s switch over to a little bit of legalese here, Mark Roderick, we’re going to talk about the PPM. We’ve talked a lot about the PPM, pretty important document, isn’t it?
Tyler Stewart – You’ve got to read it. This is an episode where we got a little nerdy with Mark.
Adam Hooper – We definitely did a little bit here, didn’t we?
Tyler Stewart – Yeah, after you listen to this clip it would be good to go back to listen to Mark’s episode, an attorney’s take on crowdfunding for real estate.
Adam Hooper – When investors are looking at deals, whether it’s 506(b), 506(c) or otherwise, one of the main documents that they’re going to have access to as speakers on our podcast before have mentioned, is this thing called a PPM, the private placement memorandum. Let’s try to unpack that a little bit. What is a PPM, what’s in there, what are some of the clauses, from the attorney’s perspective, with your legal hat on, what are some of those things investors should look for as they’re looking at these PPMs? It’s a pretty big document, it can be kind of intimidating.
Mark Roderick – It can be. And it is too often too intimidating. Let me see, what do I want to say first? I guess I’ll answer your question first, for lack of a better plan. Also part of our securities laws is the idea that investors should be able to make informed decisions. You know just like when your doctor asks if you really want that surgery to cut out 3/4 of your brain there’s a thing in the medical community called informed consent. And the same concept applies when you’re making investment decisions. The idea is that people who are asking you for money, should, sometimes are required to, but I don’t want to get into the weeds there, should and usually try to, give you enough information to make a good investment decision. Partly because they want to tell you what a great deal it is, they want to sell you on the deal. And partly because if you lose your money, which is always a possibility in any investment, they don’t want you to be able to sue them successfully. The PPM is, I call it a disclosure document, because that’s what it is. It’s trying to describe to you the details of the deal, often in very granular detail, as well as all the risks in the deal. In every disclosure document or PPM you’ll see a long section, pages and pages, of all the reasons you really shouldn’t invest, or all the risks that you should be taking into account. There’s a section that talks about the tax implications of investing. There’s a section that talks about the project itself.
Mark Roderick – There’s a section that talks about who can invest. And ideally investors would carefully read, understand, absorb and be able to analyze all of that information.
Adam Hooper – Yeah we did nerd out there, didn’t we?
Tyler Stewart – We did.
Adam Hooper – Yeah, well let’s do some more. Let’s go back to Paul Kaseburg, and let’s talk a little bit more about what to look for in the PPM, since I hear it’s a pretty important document, Tyler, got to read it. Yeah, what should you do with it?
Tyler Stewart – Read it.
Adam Hooper – Got to read it. Yeah so the PPM it can be kind of intimidating. I mean sometimes they’re as short as 45, 50 pages, and we’ve seen some 100 plus pages. That’s a lot of information to try to unpack. Are there certain things, as you’re reading through a PPM, you know obviously most have some state-required disclosures, disclaimers, a lot of language about the securities and regulatory issues. What are some of the more important sections when you’re looking through a PPM as an investor that you should start looking at? Or are you a cover-to-cover kind of a guy?
Paul Kaseburg – Well, I would say, I think if you’re making a significant investment, it’s worth just pouring a cup of coffee and going cover to cover. But that being said, it’s worth talking through what’s in there and the important things. The key parts of a PPM usually are going to be number one, property information. What is the plan with the property, what’s happening in the marketplace, what are the dynamics of that marketplace, jobs, new development, which is obviously an important risk factor. And really understanding the market and the real estate. So that’s one section. And then another section is going to be information on the sponsor. And we talked last time about how important that is. If you can only pick one thing, you should really just pick a really good sponsor that you really feel good about. So background information on the sponsor, track record, key principles there, the organizational structure, transaction experience, all that is in the PPM, which is great to read through. Probably your best resource for it. And then the deal structure, in terms of fees. You know we have a very clear fee breakout that explains all of the fees and compensation that goes to the GP from the partnership. And so that’s obviously very important to understand, definitely a section that you want to take a really close look at. There’s going to be, typically, a section that talks about the legal structure of the transaction, so what entities are involved, is this a tenant-in-common investment,
Paul Kaseburg – where you’re investing in one tenant in common? Are you the only investment in the deal? Where’s the money coming from, how’s the deal getting capitalized? That’s all important to understand. And then of course there’s a big long section of boilerplate legal risk factors. And that’s pretty daunting and kind of boring to read through, but you definitely should flip through that and make sure. Because if there’s an important risk in the deal, it’s going to be identified in that section.
Adam Hooper – I was going to say, when you’re developing a PPM, how much of those risk factors are stock boilerplate versus property-specific risk factors for that individual opportunity usually?
Paul Kaseburg – You know for us, it is probably 80/20 boilerplate to custom. Most of the risks associated with our deals are pretty consistent across deals. The risk that interest rates could go up is going to be consistent across deals. And the general risk about investing in multi-family are all the same. The risks of leverage all the same. But that’ll be customized based on the exact loan that we put on the property. Most of it’s boilerplate, but we always sit down and think with every deal, what is unique about this deal, what should investors know about it before they make the decision to invest? And so we always actively have that conversation internally about what do we need to change about our normal risk factors on a deal?
Adam Hooper – Okay, so we’ve got it, we should read the PPM.
Tyler Stewart – What was that?
Adam Hooper – I think we should read the PPM. We should read the PPM.
Tyler Stewart – That’s a good idea.
Adam Hooper – What’s one of those thing in the PPM?
Tyler Stewart – Fees.
Adam Hooper – Who talked about fees?
Tyler Stewart – Michael Episcope.
Adam Hooper – Let’s do it. And so with all these different structures and different words for how these fees are described, as an investor, how can you start to make an apples-to-apples comparison on these with so many different ways these are put together or worded?
Michael Episcope – Well, when we’re dealing with institutions, they look at two things, or they look at one thing, and that’s gross-to-net. And again, I want to say that fees are, when it comes to decision-making, fees are sort of a distant fourth to all these other things. And fees are easy to quantify. And the value proposition is more qualitative, so that’s more difficult. I don’t want to give anybody, you know we’re here to talk about fees, but I would not let fees, if you’re talking about 1/4 or 1/2% or small fees, really be the guiding decision-maker between doing a deal or not. Now again, fees on the extreme are something to be aware of, you don’t want to go with the low-cost provider, and you don’t want to go with egregious fees on the end. But if you really want to cut through it and understand and compare one to another, you got to look at gross-to-net. And that is, what is the return at the property level, the amount of money coming up to the investment management itself, after property management fees et cetera? And then how much is going into the investor’s pocket? After your asset management fees, after your performance fees, after your debt placement fees, your acquisition fees, whatever fees are in there. And then you get to paint a picture, and you can compare one sponsor’s fees to another. And again it goes back to what I was talking about earlier. You’re going to have a range, and as long as they’re somewhat in that range, you want to pay fair fees. I would say 5% to 8% on IRR dilution is very reasonable.
Michael Episcope – It could be that you find a sponsor with a deal where they’ve mitigated so much risk that the fees are going to be a little bit higher, and it’s still a great risk-adjusted return. But investors have to look at fees, or the returns on an after-fee basis, and ask themselves if they think that on an after-fee basis they’re generating enough return to justify the risk that they’re getting into. And everything has to be looked at in an after-fee. It really depends, and I’m just giving a range. Again, I wouldn’t paint myself into a corner and say well this person’s at 9% and therefore it’s not a good deal. It could be that you’re paying 10% IRR dilution and you actually have a great deal.
Tyler Stewart – Alright, how do you feel about fees, Adam?
Adam Hooper – I feel like I know a little bit more now. I know I want to read the PPM though.
Tyler Stewart – What’s another document you want to read when you go into an investment?
Adam Hooper – You know, if I was going to read a document after the PPM, Tyler, I would think I’d want Mark Roderick to tell me about the operating agreement. And so let’s go through some of the provisions that you would see in a typical operating agreement. And again, we’ve seen them vary from, I mean they can be just a couple of pages, right? It could be as simple as you need, if it’s just an LLC you’re forming amongst a few friends, it might be a fairly simple agreement versus some of the ones that we’ve seen on RealCrowd for some of these bigger deals. Where like you said, 40 to 60 pages plus. I’m assuming most of those are going to have some standard terms and there’s some structure within those operating agreements.
Mark Roderick – Yes. Let’s talk about what some of those things might be. One group of things is going to talk about who’s running the show, management. And you can do in an LLC absolutely anything you want to do. So I often have people say to me, well I want to own 51% so I can control the deal, and I always say, you don’t have to own 51%. Again, the ownership percentages and the voting control are two completely different things. In fact, in an LLC, you can have someone control the show who doesn’t have any ownership interest at all, which we sometimes do. You can do anything you want, any kind of voting structures that you want. Typically, in the deals that you’re going to see on a crowdfunding site like RealCrowd, the management structure is pretty straightforward. And that is the deal sponsor controls everything. The investors are typically completely passive. This is not an enterprise in which investors expect to have any vote. And the typical operating agreement, although it may take 12 pages to say so, really just boils down to saying the sponsor controls everything.
Adam Hooper – And then in that sponsor control and investor passive role, what are some of the characteristics? What would you see are the duties and responsibilities of the general partner, the managing member, and I guess maybe we should even clarify that term. Managing member versus General Partner, one and the same, different words, how do those differ?
Mark Roderick – For practical purposes, one and the same. Technically however, so we’ll be a little nerdy again, there’s no such thing as a General Partner of an LLC, technically. The General Partner is a holdover from the world of limited partnerships, which used to be how real estate was done before LLCs were invented in Wyoming. There’s no such thing technically as a general partner in an LLC. But, as you know, many people still use the term, the term carries over, thereby confusing everyone. We often use the term generically just to mean the person in control of the LLC. But that certainly could be confusing for people. The actual people in control of an LLC can also have different names, depending both on the structure of the LLC and the state in which it was organized.
Adam Hooper – It’s crystal clear.
Mark Roderick – Some LLCs are just managed by the owners, who are typically called members. And those are called member-managed LLCs. And then other LLCs are managed by a group which is analogous to the board of directors of a corporation. In Delaware, and many other states, those are called the managers of an LLC. In at least one state, Minnesota, it’s called a board of governors. Again, just increasing the chance of confusion. But I’m going to use the widely-used and Delaware-specific term manager. In a Delaware LLC, you can either have it be managed directly by the members, a sort of direct democracy, or managed by managers. And in all the deals that you’re going to see on most sites, the LLC is going to be managed by managers, and the managers are typically going to be one manager, not plural, which will typically be an entity that is owned by the deal sponsor. That is, again you’ll see 12 pages to lay all this out. But that’s what it’s going to boil down to. It’s called a manager, it’s not called a GP. And it is typically an entity that is owned by the guy or gal who is actually running the project.
Adam Hooper – And are there any specific terms or tipoffs or headings or sections that an investor can easily go to to try to ascertain that fact? Where is that in the operating agreement? And how important is that?
Mark Roderick – There’s always a main heading called management. That’s where you’re going to see it. That should also be very clearly disclosed in the disclosure document, which we discussed last time, the so-called PPM. Among the key elements of the deal should be who’s running the show. But then beyond who it is, then the question is what are the responsibilities of that person? And what are the potential liabilities of that person? And whether investors have the right to throw him or her out if he or she is not doing a good job. And all that is possible in an LLC, you can do anything you want. And in the Wall Street world, when you’re dealing with private equity, it would be very typical to see the institutional investor have a bunch of rights, to have veto rights over major decisions, borrowing money, admitting new members and so forth. In the crowdfunding world it’s very unusual for investors to have any such rights. In the Wall Street world, the institutional investor can often kick out the manager under certain circumstances. In the crowdfunding world, very very unusual for the investing public to be able to kick out managers. Investors can look at the operating agreement and see what rights over management they have. Can they expel the manager if the deal is not going well? But it’s very unlikely that they’re going to see any such rights.
Tyler Stewart – Okay, so I’ve read the operating agreements, I’m moving forward with the investment. What are some of the questions I might have after I’ve invested into a deal?
Adam Hooper – Well so this is an interesting one. This was recorded earlier this year, we’ve just had an event around potential tax issues, tax in 2018 and beyond, so I think we need to adjust this one. But we’re going to talk with Tim Wallen here a little bit about some of the tax implications and benefits of real estate investing. So I think we need to line somebody up here pretty early in 2018 to start talking about how this new legislation is going to impact real estate investments.
Tyler Stewart – Absolutely, this could be a big change.
Adam Hooper – Could be a big change. So let’s hear what Tim has to say. And listen in early 2018 and we’ll start talking about what it’s going to look like going forward. And one of the things obviously with real estate, you’ve got two different tools of wealth creation. You’ve got the income from rental income, and then you’ve got the appreciation. Can you talk about how those are looked at differently from a taxation basis, ordinary income versus capital gains?
Tim Wallen – The two main things in taxes, tax planning, is deferral, tax deferral, deferring, paying tax today versus the future. And the second major element is trying to create as much capital gain income versus ordinary income. And the way you do that, there’s non-tax expenses, depreciation is the big one. Multi-family assets, 27 1/2 year life, commercial 39 year life. And the personal property it’s five-year life. And so that’s the main thing. Another key strategy in the context of creating more cap gain income versus ordinary income is also doing what we refer to as cost segregation studies. On the front side, when you buy an asset, you go in there and you do a detailed study of all the assets. And then the laws allow you to really break that up. For example, you can value your curbing, your paving, your fencing, and get a 15-year life versus 27 years or 39 years. Equipments, seven years, appliances in apartments and furniture and whatnot are five years. There’s all kinds of cool elements there. It also allows in a context of, I’ll use one of our multi-family rehab deals, we were doing a complete rehab. On the front side, if we identify, even take a deal that we’re going to totally eliminate all the insides and totally gut it. All new appliances, all new refrigerators, all new stoves, all that kind of stuff. And because they’re operating and functioning on day of purchase, we can allocate purchase price to those items even though we’re going to throw them away within 12 months.
Tim Wallen – You buy the asset, you allocate purchase price to those appliances, and then when you get rid of them 12 months from now, not only do you have the appreciation in the short term, you can fully expense that appliance, those furniture items or equipment items that you’re disposing of 12 months later if you got a good cost segregation study to do that. A lot of guys miss the cost segregation thing, they just do the depreciation thing, and they miss the opportunity for additional write-offs.
Adam Hooper – And so the cost segregation that allows you to further accelerate depreciation based on the results of that cost segregation. As an investor, what is the benefit to me from this depreciation? Whether it’s from the straight-line 27 1/2 or 39 on the commercial side versus this accelerated through a cost segregation study?
Tim Wallen – In our case like the MLG funds, we allocate and we push all the benefits of depreciation and the write-off from cost segregation to our investors. You do have to look at that in your legal, sometimes the sponsors grab that piece. And so we give all the tax benefits to our investors. So again, you’re trying to eliminate as much of the ordinary income that you possibly can, and maximize the cap gain income. And these strategies allow you to do that. And the numbers are pretty compelling if you’re pretty proactive about doing that.
Adam Hooper – And the depreciation, that’s offsetting this ordinary income from the asset level. Is that a dollar-for-dollar, is it on a tax bracket basis?
Tim Wallen – Well really, it depends on, every dollar depreciation expense does offset your ordinary income. If you’ve got $300,000 in rental income and $300,000 depreciation expense, you pay zero current income on your operating income because that depreciation expense and the write-offs offset your rental income. It is a dollar-for-dollar offset against your operating income.
Adam Hooper – And again, MLG, you said that you guys do pass that through to the investors, but not everybody does out there.
Tim Wallen – Well to be honest with you, we use to grab it ourselves. We used to grab half of it in years past. And with the special allocation rules, you can do that. And part of the reason we did that is many investors weren’t able to use the losses anyways due to the passive loss rules. But we decided over time that that probably wasn’t the fairest thing, and we switched our beliefs on that. And we now give 100% of those benefits to the investors.
Adam Hooper – Now obviously again, we should have prefaced this conversation with we’re not tax consultants, so obviously listeners out there, consult your tax advisers on all these issues when you’re looking at these different deals.
Tim Wallen – Absolutely.
Adam Hooper – You know one of the things, when you’re looking at the tax world too, is as you said this deferral. The longer you can defer those taxes the better, and you said the ultimate exit strategy is, unfortunately, passing away. Sometimes we hear that I’m too old to take advantage of these issues. Is that true, or is that a myth?
Tim Wallen – It’s such a myth. There are some things you have to watch out for. There’s a huge estate tax benefit of investing in these tax vehicles. Unlike the stock market, if I have a million bucks in stocks, and I got a million bucks in private real estate investments, and let’s assume that your tax, actually let’s say you got 10 million because you need to be above a certain threshold to have estate tax. But let’s say you have a taxable estate. A million bucks of stocks will get taxed at roughly a 50% tax rate, the thresholds are above 10 million really. But if I have real estate I will get what’s called a minority discount. So $1 million of real estate investment will only be valued typically about 70% of that million, or about 700,000, you get roughly a 30% discount. So if I invest in a real estate deal today, and I die tomorrow and I put a million bucks in that real estate deal and I got a taxable estate, I effectively save $150,000 in estate taxes immediately. Because that million-dollar investment will now be worth 700,000 and not the million, and I’ll save 150,000 in estate taxes the next day for the benefit of my kids and family. It’s a great tax planning vehicle. I do want to caveat one thing here. The main thing and the issue of investing stuff like private real estate is the liquidity issue. You need to have proper liquidity for your estate planning needs. And if you’ve got proper liquidity, real estate is a great, private residences are a great structure for getting that minority discount.
Tim Wallen – And a great investment vehicle. It’s important to note that you have to be a minority partner. For example, if you own 100% of an apartment complex yourself, that doesn’t get you the minority discount, you have to be part of an investment structure, you truly are a minority partner, and it’s being that minority partner thing that gets you the 30% discount. It’s not the fact that it’s real estate, it’s the fact that you’re a minority partner in an investment structure.
Adam Hooper – Alright so yes, we’re definitely going to follow that one up early Season Two to get an update on the current tax rules out there. But before we get into that, let’s go back to Mike Madsen to provide his outlook on what they’re seeing on a macro level for 2018 going forward and where we’re going to see the market go. I know you said you don’t have a crystal ball, but that doesn’t mean we’re not going to try. What should we be looking at going into 2018? First part of that, any indicators that we should be paying attention to, or which you guys have identified on the horizon that might be some kind of leading indicators, or things to look out for going into the new year?
Mike Madsen – There’s no doubt that everybody’s waiting to see what’s going to happen with the tax reform, whether you’re a fan of it or not. The intention is to create more economic growth. And I think that whatever happens is going to be a little bit of a pivot point for investor or sponsor strategy. So we’re looking at it prepared, analyzing what kind of adjustments, and how we need to adapt to the marketplace with whichever way it goes. There’s no doubt about it that it’s a little bit of a pivot point, and it’s going to have an effect on how the economic outlook is going to be, especially on a state-to-state level. There’ll be a lot to discuss. I know we’ve talked about doing a returning podcast after this shakes out so that we can provide an outlook for RealCrowd clients either way. But we’re going to see interest rates rise either way. There’s a lot of people out there that feel that interest rates will always stay down, and that may be the case, there may be some financial engineering to hold them down, and that would also be great for real estate investors, especially the single-family investors. But at the same time, these global capital flows and the bond market is going to most likely create rising interest rates, it’s just a matter of how much how fast. That trend is already in place, it’s already happening. And it will continue, so there’ll be a lot to talk about in debt structuring, potential liquidity issues in some markets that you want to be aware of and you want to time right. I’m really excited to get back on the phone
Mike Madsen – with you guys and give a 2018 outlook.
Adam Hooper – Sure.
Mike Madsen – And some key areas to focus on and some key risks to just make sure that you’re thinking about as you make these decisions.
Adam Hooper – Alright Tyler, I think that’s enough for today. I think that’s enough for today. Yeah, Season One was fun. It was a good time. Hopefully investors got a lot of education out of it. And again, that’s what we’re here trying to do. It’s not for a love of hearing us speak, necessarily. It’s hopefully trying to get some education out there and help our investors ultimately make better decisions with their investment capital as they look at this asset class.
Tyler Stewart – And please let us know if there are any topics you would like us to cover and identify some experts on and have on the podcast, let us know.
Adam Hooper – Yup, as always if you want to send us a note, any questions, comments, concerns, please send us an email to firstname.lastname@example.org. And as we near that 100,000 download goal, we love those ratings and reviews. iTunes, Google Play, SoundCloud, anywhere you listen to us, let us know, we really appreciate it.
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