Multi-Family Deal Lab Podcast Episode 011
A Special “Ask The Experts” Episode!
Speaker 1: Stay tuned for a special edition of the multifamily deal and podcast. Welcome to the multifamily deal lab podcast, where we dissect a deal before your eyes and ears. So you can discover the strategies and tactics that got each deal to the finish line strategies and tactics that you can put in your own toolbox to get you to the closing table from sourcing the deal, raising due diligence to the property takeover. Multi-family deal lab shows how you too can get the deal done. And now here’s your host. David Lindahl, everybody welcome to multi-family deal lab. I’m your host Dave Lindahl.
Speaker 2: Hope everybody’s doing well. I thought I would bring on Scott Stafford Scott. Many of you know, he’s been a student for many, many years now been part of just about all of our groups, coaching, elevate El society. and he created a product called REI indicator that actually goes through the demographics of all the major city, secondary markets and tertiary cities throughout the U S but anyways, I thought I’d bring Scott on because we were chatting the other day and he was talking about, you know, one of the opportunities that’s going to be on the backside of this pandemic. so, so Scott, you with me? I am here!
Let’s take the first question – first caller.
Speaker 3: Hey Dave, and, and Hey Scott, thanks so much. We really appreciate all your guidance through all of this. My question has to do with the stimulus and, you know, there’s a wonderful and massive amount of stimulus, trying to keep, you know, liquidity flowing to a seizing of the economy as we basically you’re turning it off, but I’m just curious. There’s always pay me now, pay me later kind of puzzles when you’re in situations like this. And just curious about your opinion and what you’re hearing from experts as it relates to mid to longterm inflationary pressures resulting from this sudden inflow inflow of cash. Let’s take that first. Sure. what I’ve been hearing and, and there’s a, just an enormous amount of conversation on this topic. And nearly every body I’ve been able to tap into myself says the, basically there, we don’t know until we get there, because it is sort of a different situation, but the w the ones that I’ve been following most closely for a longer period of time, and have a better sense of where they’re coming from, suggest that just because of the nature of the mechanisms that are being used, it shouldn’t be highly inflationary.
Speaker 3: We probably won’t go into a time of rapid price increases. And in fact, there was even some thought that there might be a deep stationary pressure, going on now too, because demand is just so low. I did see people are strangely, they’re buying single family houses, almost the same rates, still. They, you know, they’re going on virtual tours, they’re putting in offers. I think the thing we don’t know is how quickly we can get this behind us. So we don’t know how much more money needs to be dumped into the, and what mechanisms need to be used to do that. If people are just holding their breath and holding on for a very long time, there will be a pent up demand so long as they have a new job or a return to their current job to actually buy things. And that’s when inflation might start to kick in, but I don’t see it in the next six to nine months from what I’ve been reading. Yeah.
Speaker 2: I’ll have to concur with that. I haven’t really been focusing on that aspect of the economy, the inflationary aspect. I’ve been focusing on the recovery of the real estate market and, and actually the, what the pandemic has been doing right now. So, Scott’s a lot more in tune with that question. That’s a pretty, pretty good question to start off with pretty in-depth. so surprising thing was, is that, yeah, there’s a lot of people out there still looking for single family houses and they’re pointing them into contract. I was surprised to see that part of the information. So you come over and, actually I have a family member that just put a single family house under contract yesterday and sent it over nice house. I congratulated them, but in the back of my mind, I thought, wow. You know, maybe in like two or three months, this, that market is going to really take a hit, you know, and that property could have been gotten at a much less a price of, I didn’t want to tell him that because he was so happy about the house that he just got, he he’s in the situation in the military.
Speaker 2: So he’s in a situation where he needs to move. So it is interesting how different aspects of the economy are, are being affected by, by this. And some of them that, aren’t the thanks, Kim. Next question. All right, Dave, next question is from Chad, Chad, you’re on with Dave and Scott.
Speaker 4: thanks David Scott for doing this today. kind of, I guess it’s a simple question, but w you know, in and out of an abundance of caution, we’ve been looking at all avenues for making sure we maintain adequate liquidity on properties that we’re currently operating. And part of that has been this whole mortgage deferral program that Fannie and Freddie has been rolling out. We’re not in a position to need that as of now, but we’re really trying to understand that. And I’ve been getting some mixed information from the different servicers. I guess my question is, is your team considering doing that on any of your properties and if not, what are the, the, the major deterrents that are pushing you away from it Just really trying to understand that
Speaker 2: We’ve got one property that, that we’re looking at may go in that direction we’re running at about 87% occupancy. I think it’s 88, 82% economic. So before this, before the pandemic happened, that property was, was struggling a little bit anyways. So we needed to change out the management company. So we’re watching that one closely on the other properties. The rents have come in strong so far, so good, but that particular program it’s basically, you know, you get, as of now it’s three months to ferment and then you have to work out a payback plan typically within the next 12 months on how you’re going to pay that back. And then, I think it was Fannie Mae’s program. Pretty much States that if you get any, any type of assistance whatsoever for the property, that, that payback gets paid first before you pay anybody else.
Speaker 4: Yeah. Did you see any information about, I guess this is what’s got me worried. I know you, you have to make, you’re adhering to the eviction moratorium during the federal period, as well as during the three month deferment. I’ve seen some buzz that during that 12 month or so repayment period, you also have to extend your, your eviction moratorium, which kind of is a dangerous thing as an owner. Have you heard that at all
Speaker 2: Yeah, I have. Oh, you know what, now that you say that I’ll get clarification as well, because I read it as that while you were paying that money back, you couldn’t evict, but that doesn’t make any sense.
Speaker 4: It doesn’t, and that’s a terrifying thing as an owner cause people talk and if you’re 12 months with an eviction moratorium, it’s a big deal. Right. So,
Speaker 2: Yeah, I’ll get clarification on that. Jermaine. I know you’re on the line, any chance calling Eric Stewart and getting clarification on that while we’re still, on this call, that would be great. So we’ll see. We’ll see if Jemaine can get that answer to that question. What was shown on the call today
Speaker 4: Okay. Thank you.
Speaker 5: Yep. Thanks Chad. So I have a Robinson’s Amina. He writes to Scott, what do you think of the Tulsa and Oklahoma city markets Are they too energy dependent
Speaker 3: In my opinion, they are. I think if you live there and you can find that distressed seller and or distressed asset, and you get the opportunity to be very careful reviewing what the tenant Bates, where is it in the market you might be able to do. Okay. But I would be nervous myself in markets that are so energy dependent. I think maybe Tulsa will have a little bit easier time, with this then. okay.
Speaker 5: All right. I have another one that was emailed in this. One’s from Michael DeRosa. He writes Dave and Scott, how will college towns do Is there a chance to universities won’t open next school year
Speaker 3: because the infrastructure with zoom and other things have been built out so strongly and are being used intensively. Now this ties into the idea of which markets are overexposed. There are a number of very wonderful tertiary markets that their major dominant industry is colleges and universities. You definitely want to be very careful with those markets because long-term, we may see a shift. This may be permanent in the way we deliver a college level of education. It just, it may be a fundamental, the one clear, fundamental shift that’s before us right now would be how we deliver education.
Speaker 2: Yes, I recently took a class over at Harvard on innovate, and it was a one week class through their executive program. And one of the things that they talked about was the fact that their MBA program, they can, I think, administer to 400 and some odd students, and then it’s kept, they, you know, they cannot sell any more into it, but their online program, that’s their fastest growing program. And they can, they can catch people from all around the world and their revenues have don’t really have a ceiling. And so I think in, in for an example, I put four of our executives over here. It’s called HBX core and anybody that’s listening can go through it. It’s pretty rigorous 17 weeks. it’s an online class, there’s a test every Thursday and, four of us took it. It’s all about, accounting, economics, and analytics.
Speaker 2: And you can take each one of those individually if you want. But we decided to go through the, the four, there must’ve been about anywhere between four to 500 people in our class from all around the world, which is pretty cool because inside of there, their online classes, they have discussion. So you could be discussing with somebody from, from somewhere else, but they were saying that, you know, their, their campus is limited while their online is unlimited. And I think a lot of the colleges, in higher education now realize that, and most of them are going to online curriculum now, especially with the, with this pandemic going through. I think that shifts, should be one of those shifts that, you know, when I was over at Harvard and I took the OPM program, we basically went to class for six weeks and then they taught us business models.
Speaker 2: And then we went out and used those bitters and business models for eight or eight or nine months. Then we came back for another six weeks and learned, the next set of business models and went out and use them and did that one more time. That may be where higher education is headed. So you want to take a look at that. So in thinking about that, you know, in a down economy, typically student housing has always been one of the best resources. Well, actually one of the best performing types of properties, apartments always outperform all of the commercial and a down market. And then student housing always outperformed all of the multifamily sectors. So now you gotta take kind of take a look at it and you’ve got to kind of wait until the weeds kind of get out of the way. So you can determine how this effect is going to, hold up on these student housing deals. So it’s almost like the military. You didn’t, you never want to go into a military, Tom, and have more than 10% military inside of your inside of your property, because those people can be sent somewhere else in a very short period of time overnight. So the risk is there. So now you’ve got to start taking a look at college campuses and college towns the same way, the student housing.
Speaker 3: And we have a generation of kids that have been growing up, learning online with YouTube and various other free resources. And they’re going to be thinking that they can handle it online education, much more freely than we did in terms of, you know, when we, even, when we go back, when do you want to go back to school I prefer to be in a classroom. It’s what I know, but you know, the new generation, that’s not what they know. Yep. I believe.
Speaker 4: Yeah. Thanks guys. I didn’t know what to come around that quick again. so general strategy question, Dave. I mean, we’re in the middle, unfortunately in the middle of a very good acquisition at this point. And we, you know, we were involved, we were 10 days from close when the debt market seized up and wound up having to pivot on the lender and renegotiate. So it’s, it’s been kind of a fun couple of weeks to, to figure that out. But that being said, it is a, about 67 units of, you know, workforce, class, C vintage, apartments, you the exteriors and instruction and all that’s great. We’ve already been through all that. It’s all heavy, enter your terms, load to get it up to where we need it to be, to support the class B tenant base in the area. Right. So my question is going into this, you know, we’re, we’re definitely in a position right now where we’re going in well-funded and well capitalized, and we’ll be holding on to money and kind of riding this out, but, you know, we’ve really been back and forth on, okay, do we simply try to ride it out with the existing tenant base that we have and just deal with whatever economic vacancy comes our way because of, as you said, wage-earners being impacted by the economy, or once we get through the other side of the moratorium on this, if we’re still having a lot of trouble with it, do we start pushing forward and actually trying to spend the money required on the units and put a, I guess the right term is a more stable tenant in there.
Speaker 4: Who’s likely to be salaried and, and less impacted by the situation. So it’s kind of one of those I could see an angle, both ways. I’m just curious what your thoughts are. I know there’s not one right answer, but what, what are your thoughts on that
Speaker 2: Are you saying that you have a C plus property that you could turn into a B minus a effectively Yes. Yeah. Let’s say,
Speaker 4: No, not the business plan that we were originally had, but now we kind of pivoted and we’re like, okay, we’re going to go on with cash in the bank and ride this, ride this out. But is that the right decision, you know, in this situation, that’s what we’re trying to figure out.
Speaker 2: I would certainly ride out the next couple of months for sure. I think your business plan is probably just right for this type of scenario, because of the fact that you had, vacancies with inside of that business plan, you know, you had turnover inside the, at that business plan, and you’re putting in a, a more stable tenant. That’s not going to be as effected by the swings and the service sector. The hardest thing is you don’t know what’s going to happen the two months. Do you know what I mean You don’t know how many of those reserves are going to need to dip into in order to get through the next two months or three, you know Yeah.
Speaker 4: So it seems like, maybe we, we kind of ride out the next, you, once we actually close w we’ve extended to close no later than June 22nd, which gives us the ability to ride it out with the seller controlling, and then he has no debt on the property. So that’s kind of good, but you have money hard on the deal. I do. Yes.
Speaker 2: At least you’ll have a decision, you know, going into the deal. That’s going to be plenty of time. You should have clear vision at that particular point as to exactly what you’re getting into. Yeah.
Speaker 4: Yeah. It’s much better than we were. We were hard money with a lender that walked away 10 days before closing in a contract that was expiring April 21st. So we’re in better shape now, but
Speaker 2: Hold on to, I let’s unmute Eric at the same time. There he is. Hey Eric. So you just heard shots scenario. W what would you do in that situation What do you think about that I didn’t hear the whole thing. you’re talking about, are you talking about taking this opportunity to improve the unit Yeah, he’s got a C plus property that his business plan was to approve the units. He’s got a bunch of money that I’ll have in the bank ready to go improve the units and put a B minus tenant in there and turn and turn the property up. but she’s concerned about what’s going to happen over the next couple of months, but he doesn’t close until June 22nd. So we’ll actually be able to see that. What do you think I think he’s in a phenomenal position, frankly, because
Speaker 6: He’s got the luxury of time and discovery apparently had mentioned you’re already pregnant in deals. So, you know, from that point, you are committed, but you’ve got the, the luxury of time to be able to see what’s going to happen and try and get some, some stability of knowing what’s going on. Do you take the opportunity to improve the asset when you have the money available And hopefully you’re going to have a rejuvenated labor force, people wanting to get back to work as well. My opinion is yes, taking that opportunity to improve it now and, and being able to increase rents as long as you, obviously, you guys were earlier, you were talking about before Barron’s period and whatnot, not in this case, but in other cases, you may not be able to raise rents. in this scenario, I think you’ve got the opportunity to do that. What you’ve got to watch the competition, though, if all the surrounding properties are in that forbearance period where they’re, they’re negotiating with tenants and tenants are on this limited rent bump structure, your competition may be tough to be able to get those units filled at the higher rents. So I guess that would, I would keep that in mind, but as far as improving the assets, yes, that’s something you would, I think you would take this opportunity to knock that out right away.
Speaker 2: That’s a good point about, you know, where rents are going to be at the backside of this as well. It could be a lot different than what you had predicted. I liked the idea of improving now and being ready for the summer, you know, cause there’s going to be transitions in the summer. And then there may be the risk of this thing coming back in the fall and people may not be moving as much. So you at least capture the market, you know, that’s
Speaker 6: Okay.
Speaker 3: I have noted a couple of cities are kicking around possible temporary rent ceilings, you know, raise rent, raised percentages to hold markets a little more stable for renters. So I would just add to the mix, find out what’s going on in that market. Be aware of what may be coming on that you remember. Do you recall I, I know that Washington DC as a city is entertaining that, and I recall, I believe a market in the Midwest was also looking at that. So what we’re seeing here as, as this evolves and unfolds, the nature of the impact gets more severe until we turn the tide. So people will be looking for ways to alleviate the challenge to the, the tenants. And that’s true legislation through temporary measures from city halls. So, and then of course there could be courts involved in the state may come in and say, you can’t do that. Who knows, but I’d rather just at least know whether or not that’s rumbling around in my city or state.
Speaker 2: Eric, Chad had a question regarding, if you take the, a deferment of the three month’s rent from Freddie Mac Fannie Mae, and that you cannot evict during that period, then you have 12 months to pay it back. Can you still not evict during that 12 months or is that eviction moratorium over after the three months
Speaker 6: It’s a great question. Chad and I, when I read the forbearance terms, I had that same question because there’s a caveat in there that says during the actual forbearance period, right, the month, the terminology is the months of actual payment for barracks. Right. That, that was a question I had and I sent it into two servicers and I’m waiting for a response on that right now. So great question. I’m glad you caught that as well. And not only does that apply to evictions, but it also applies to you being able to make distributions to your investors. And I think that’s, yes, you’re going to have to IVIG people. You want to work through those, those few tenants, hopefully a few tenants, but also consider guys the, the ramifications of you being able to distribute to investors possibly for that 12 months. And also it’s very similar to a lockbox where they want to capture all of your excess cash flow. So we really have to find that out and I’ll make sure to report back to Dave and, and, as soon as I get an answer or anybody else gets an answer, you know, sharing it with the group would be incredibly valuable there a definitive answer, but not only does it apply to evictions guys, it applies to distributions to your investors, which is a huge component to this.
Speaker 2: That’s interesting. I didn’t realize that that was part of it as well.
Speaker 6: Yeah. I mean, if they’ve given you a break on payments and you’re, you’re in the process of paying that back, you know, just from a lenders mindset, the last thing they’re going to do is allow you to pay your investors a profit. Yeah.
Speaker 2: Yeah. That makes sense. That makes sense. Cause Fannie Mae has that, in their particular plan where if you get any type of, funding from any source, they get paid first. So it would make sense that they would get paid before your investors get paid as well. All right. Do you have any additional updates Has anything else changed in the last a week or so two weeks in terms of lending requirement
Speaker 6: What I’ve seen that that was most interesting to me was the end. And I’m sure everybody’s familiar with the reserve requirements that we’re seeing in place that we’ve seen implemented both Fannie Mae and Freddie Mac. And I think it’s really interesting to know where the most restrictive terms are, which are on the smaller balance deals by that. I mean, either an 18 month principal and interest reserve from Fannie Mae and Fannie is also reserving for taxes reserving for insurance and also replacement reserves above and beyond what they normally do. Freddie Mac is a little bit more lenient with only 12 months and standard reserves, but Freddy’s capital markets execution program. Their conventional program is, is on a debt service coverage ratio, reserved structure. So that to me is a big tell on them,
Speaker 2: Explain what a debt coverage ratio reserves structure is for everybody that doesn’t quite understand that
Speaker 6: My apologies the benchmark here is if we can underwrite, if the lender can underwrite to a 1.4 debt service coverage ratio or better, they’re only going to require six months worth of mortgage principal and interest reserves. If it’s 1.4 or lower, then they’re going to require nine months worth of principal and interest reserves realistically, and relative to what everybody else is doing. That’s not too bad because the way I read the whole reaction with Fannie Mae and Freddie Mac is, is very bullish to me. It’s very positive. And I say that because they didn’t ratchet back their overall leverage, right They didn’t come out and say, Mr and Mrs investor, we’re scared to death and we’re not going to let, we’re going to slice all of our leverage by 15%. If you want 65%, we’ll do it. They didn’t say that. Right. All they said, look, we’re going to lend you our standard terms and we’re going to marry up to you for the next seven, 10, 15 years with our standard programs.
Speaker 6: We just want a little bit of extra security here for the first year, maybe year and a half, and then we’ll give it back to you, right So your investors, you’re going to have this reserve in place for 12 months, but then you’re going to offer your investors a capital event. And if all goes well, you’re going to return that money to them. And it’s really going to help your IRR. So in your underwriting analysis, to make sure that you plan for that capital event for that reserve to go back to your investors and see what that does to your IRR. I see it. And I read into that as a short term defense mechanism, but a long-term, they’re still very much in the game. That’s that’s the way I read it.
Speaker 2: That’s a good point. Excellent analysis. Thank you. stay with us. So we have a few more minutes left. Jimmy, do you have anybody that is calling in I have another question from Kim Kim. You’re on again.
Speaker 7: Hey, thank you so much, by the way. this has just been a great conversation. I’m really grateful for it regarding deals in progress. We literally are part of a team that just closed a deal like the week before everything fell apart. Yeah, right. so we have a, a C property in a C area. You know, it was going to be a minor reposition, mostly, management reposition. The reason we were excited about it is because it’s in Atlanta in a path of progress where we’re hundreds of millions of dollars are being spent revitalizing the area. So we still had some fundraising to do, for a complicated reason. I will get into here. We are planning to also get certified for section eight, HUD because in Atlanta, there were recently 300 HUD doors made available and over 36,000 applicants. So we know there is a strong demand for section eight subsidized housing. So that’s a part of the plan already. So what I’m curious about is, as we’re going about in this conversation to talk with investors about getting into a deal, now that’s already closed and so forth. Do you think the location location, location cell is strong enough when combined with the section eight plans where we can increase rents as is And do you still think Atlanta is a strong market
Speaker 2: First of all, how many units does that deal
Speaker 7: At It’s small. It’s 36 units.
Speaker 2: All right. And you said it was a C property. You see area you’ve gotta be prepared if you’re going to introduce section eight into a property like that, you’ve got to be prepared for a mass Exodus, the possibility of a mass Exodus. When people realize that section eight tenants are coming into the property. And I only know this from experience because I did it, down in, Alabama and one of the first property, larger properties I bought and just the people that, you know, they weren’t, they weren’t happy with section eight coming in. So you’ve got to weigh that risk. Are you getting any higher rent from the section eight tenants
Speaker 7: Well, because it’s so dramatically below market right now, the
Speaker 2: Rents are below market. Yes.
Speaker 7: So the theory I’m sorry,
Speaker 2: Mean those rents to market. Are they going to be equal Are they going to be less than what section eight would be paying you
Speaker 7: They should be equivalent. However, part of the uncertainty right now is that in order to have a property considered, they have to be able to go in and then Corona again, you know, that’s going to violate social distancing. So we’re delayed knowing for sure what the possible upside is. However, our experience with section eight and other areas of the town show that it would be either at, or slightly below what the market is.
Speaker 2: So what, what do you think the benefits are by transitioning over to section eight
Speaker 7: Just the assurity of rental income, you know, especially where we have a large percentage of the population that are completely affected by unemployment right now is as they’re wage-earners. And so, section eight would just, you know, help make sure some rents coming in all the time.
Speaker 2: I can understand that it’s a, it’s going to be a risky move. just want to tell you that because you will have a lot of people leaving one section HR to come in. So you’re going to, if there’s a big backlog, as you said of applicants for section eight, you may be able to fill it very quickly, but I think you’re going to go through a few months where, you know, you’re going to have a lot of people just leaving. Eric, do you have any opinion on that Scott
Speaker 6: W we’ve actually implemented some subsidized housing on one of our properties and it’s turned out to be a real, a real benefit. We started with participating in the VASH program. And I think that may have been a more subtle entry into the subsidized housing arena, because again, you’re working with veterans, what I’ve learned. And what I was told initially is, you know, just because somebody is a vet doesn’t necessarily mean, you know, it’s, it’s not automatic sainthood, they’re in the program because they’re working through some issues. So you want to be prepared to work with their guidance person. but that was a more subtle transition and it may, it may benefit you. It may, it may be helpful. and now we’re, we’ve transitioned to about 45% sensitized housing and it’s worked out real well. It didn’t task us though, if the property is already all bills paid, it tasks us, you know, to, to do a deeper dive into that, our expense ratio, because we’ve got, now, we’re getting subsidized for utilities, we’re taking that over. so we have to work on our cost savings. So that that’s just another area that I’ve found to be beneficial. Scott.
Speaker 3: Yeah. we’ve seen historically that Atlanta is one of the markets. It’s a lot more volatile than some of the other majors, tends to go spike up higher and fall faster. And the softer neighborhoods, the weaker elements get hit very hard. So the, my question would be what’s the competition How long do you expect to hold the property So if you’re going to shift mostly to a section eight and you expect to do it mid and longterm, and you’re not really concerned about trying to prove value to another buyer in two or three years because of the neighboring properties may suffer negative consequences because of the, of the market downturn and the neighborhood struggles then, and by all means. But you know, if you were expecting to get out quickly and value add quickly with the section eight, I think you might want to be more cautious on that.
Speaker 2: And, you want to answer a question as to the strength of the Atlanta market or the possible comeback at the backside of this.
Speaker 3: I really like Atlanta in ways. I didn’t say five or seven years ago, they have diversified their economy significantly. And I think it has a much better shot of not having the delayed recovery that it did in 2008. So generally speaking, I’m more, much more optimistic about Atlanta than I would be in any other recovery mode.
Speaker 2: Anybody else on the line or some people who emailed some questions. I don’t know if you have time for that, but, yeah. Why don’t we, why don’t you do that but before I do that, Scott, why don’t you plug your, REI indicator And then Eric, why don’t you give out your contact information Because both of these guys we use as a resource on a regular basis over here at our mentor, in, in our investing. So, yeah, Scott,
Speaker 3: Our indicator is, as Dave mentioned earlier, a way to classify your neighborhoods so that when somebody says it’s a C neighborhood, you know, based on data, not a speculation, it also tracks the emerging markets. And, we’re building an, a market cycles module as well. And it’s got a whole bunch of new capabilities that are in the works right now, and just had a call yesterday on some data issues and some, programming issues and continue to build it out. And there’s a tremendous amount of resource that comes with it. including videos about how, the markets changes. I kicked you on the field. You can learn from me, by showing you how neighborhoods change. So hopefully you’ll have an interest in adding it to your toolbox. If you don’t already have it.
Speaker 2: Aria, Aria indicated.com, where do they get five more information
Speaker 3: If they can go to info dot our indicator.com and they can also talk to folks at your office,
Speaker 2: If they had questions directly to you, they would go to info@arireiindicator.com.
Speaker 3: Right If you have a question directly to me about something, you can send me an email@scottatariindicator.com. Okay.
Speaker 2: And Eric, give out your contact information. you are a great lender, and you’ve been servicing us for years.
Speaker 6: Thanks, Dave. I appreciate the opportunity again, Eric Stewart, Atlantic business capital, and my phone number is (800) 916-9005 (800) 916-9005.
Speaker 2: We’re in the middle of navigating a deal and you need some advice. Give Eric a call. If you, what happened to Chad, if all of a sudden you lose your lender 10, 10 days before the deal, because what’s happening. Do you have Erica call because he has a portfolio of lenders that, that he has available. And what else were you going to say, Eric
Speaker 6: But yeah, my email address is first initial, last name. So it’s E Stewart at Atlantic business, capital.com. And thanks for the kind words, Dave. I appreciate that. All right.
Speaker 2: So yeah. Well, we’ll take a couple of questions right now. If you guys want to stay on the line, feel free. If you, if you guys have got things to do Scott and Erica, feel free to drop off too. It’s up to you.
Speaker 6: So I’ve got a question that was written in by Jean Nicholas. He writes given the current situation, what should our Trinity criteria be for the respective class, a class B class C properties.
Speaker 2: The Trinity is always the same, regardless of the property type. you want to hit those that aren’t familiar with the Trinity. You want to hit a cap rate of, probably seven and a half loss, a cash on cash return of 12 plus, and then a debt coverage ratio of one point at 1.6. so when those three come together, then you’ve got enough cashflow in the property and a solid enough deal where you can go out and raise money to fund that deal. So it doesn’t matter what the markets are doing and how they’re changing, what cycle they’re in. The Trinity always remains the same.
Speaker 6: Another one from Joan Urquhart. This is probably more for Eric is interest rates. Are they going up on commercial and multifamily families, even though the rates are low to answer your question, yes, we are seeing increase rates right now because of the volatility. When there’s uncertainty in the market, when there’s volatility in the market, lenders get a little spooked, right. A lot spooked. So that’s when they increase their spreads to try and make up for any of that volatility, even though treasuries are low, agencies have actually implemented floor indexes, meaning there, even though you see a 10 year treasury yield at 0.7, five or 0.8%, they’re not going to go any lower than 1.1. So yes they are. We’ve seen some increased pricing still historically low, but we have seen increased pricing. And I wouldn’t expect that to, to line out until we start to gain some footing and some direction going forward with the economy more Dave, we had one from Matt mop and he writes, I’m curious, what percentage of rent collections have been affected by COVID-19 in everyone’s portfolio
Speaker 2: It’s too early to tell right now because we’re only a day, seven of April, but it all depends on the PR it’s all property specific. like I said, an our portfolio, we have one, one difficult property that we were concerned about. but other than that, the rest are doing okay. I think you’ll see more risk in the C properties than you own the bees in the A’s. So we can report more, mid month and at the end of the month as to what happened this month in terms of rent, collections of revenues.
Speaker 6: And the last question for the day is from may Dean named Dean Simmons. He writes as the government ever decreased the rents on VA vouchers.
Speaker 2: She’s on a note. Do you want Eric, do you know, the answer to that question, it’s got to know the answer to that question. Has the government ever reduced the rent on VA vouchers
Speaker 6: It’s always been a cost of living index, for us, which has increased over the years or since I’ve been, since I’ve been managing it. So I haven’t seen a decrease. All right. And one more just got written, got written in is from, Steve Knowles. He writes, what do you think of transitioning student housing into housing for middle income retirees or still physically viable
Speaker 2: I wouldn’t do it just yet. I’d see how this shakes out, but it certainly is an option because that demographic is rising faster than any other. so I would just kind of, it’s kind of like a wait and see. All right, well, I want to thank Scott for coming on and giving some great information. I want to thank Eric for coming on and giving some great information and, everybody out there stay safe. We’ll be back next week. We’ll keep you advised as to what’s going on in the marketplace. Remember this is a time to be sharpening your tools, to be prepared for the opportunity that is just around the corner at this, at this point. So, work on those things that you’re a little weak at, work on strengthening your team and work on your property. If you’re an operator right now, you know, the daily focus on your property and, we’ll see you all next week. Bye everybody.
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