Unlocking Multifamily Investment Success.

0:02 Hello everybody. Welcome to another episode of Arthur's Round Table. Super grateful for everybody that's paid attention to what we're doing here. It's been a lot of fun and we appreciate the Family Office Insights community, sharing it with others and listening in when it makes sense for you. And if you continue to do that, we super appreciate it. We're grateful to have Ryan Duff, who's a real estate investor and also has a fund that we're going to talk about and we're going to start with his origin story here, which is always interesting and in this case also very interesting. And so I hope you enjoy it and I look forward to and, and by the way, Ryan will be presenting a family office insights platform in the coming weeks.

0:48 So stay tuned for that as well. So Ryan, thanks for doing this. Super, super happy to have you. You're in Boston, right? Yeah, thanks, Ruth. Appreciate it. In Boston, yes, born and raised here, left for a little while, went to school in upstate New York, moved to Manhattan and then came back about six years ago. And we we're currently in the city still with my 2 little ones haven't haven't bit the suburb bullet yet but I I think it's in the not too distant future. It's coming, huh? Yeah, Yeah. It's tough. Yeah. So, so tell us how this all began, that we're you're able to be in a position to deploy capital in a meaningful way in the multifamily space.

1:38 It's a, it's a, you know, there's cycles, right? So, but tell us how this started. Sure. So I've been in the business about 16 years now. I started at a company called Arbor Realty Trust. On the debt lending side, think agencies, Fannie Mae, Freddie Mac, FHFA. We lent balance sheet products across all different types, shapes, sizes, markets of multifamily assets and I wove my way through the analytical underwriting side from screening deals over to the production realm, which is where I started building a book of business for the better part of about 12 to 13 years. I started representing owner operators, developers, brokers, folks that were mom and pop operators all the way up to the institutional type developer.

2:34 And I was structuring debt products for them, acquisitions, recaps, refinancings, construction loans, bridge loans, preferred equity, MEZ. And so it was at that time I really got a good feel for how to invest and how to invest the right way with the right people and what markets I wanted to be in. And so I started doing just that. Probably about 13 or 14 years ago now was when I first dipped my toes in as an LP in the multifamily space, took piece by piece of my Commission checks and started building a portfolio of exposure and investments. And Fast forward, you know, 10 years after that, you know, I was sitting on a couple 1000 units and had the freedoms of passive cash flow and a couple cycles within that time frame as well. And it was about 2023 when I looked in the rearview mirror. Obviously when rates started to run up and catch everybody off guard a couple years prior to that, I found myself wedged in between the house, my employer and my client book trying to mitigate losses, loss sharing, avoid foreclosure and work out events and realized it was a colossal waste of my time. And so I spoke to it's often.

3:55 More work than underwriting a new deal, right? Entirely. It's exhausting, it's emotional, and you don't get anything from it. And so outside of just, you know, maintaining an existing relationship that you've already cultivated and nurtured and executed for. But it was at that time where I really started thinking to myself, given the time of the cycle that we were in and wanted to feel and build something where I could leverage the sourcing and the deal flow capabilities that I had and my access and that access being the network of GP operators and developers that I had built over the decade prior plus prior to. And so I came up with the idea prior to even leaving my former employer.

4:43 I've been gone now for for two years to build out kind of a conduit platform that ran a series of micro fund strategies targeting all different types of capital from the retail LP investor all the way up to the institution. Think family office in the middle, think Rias allocators fund to funds, etcetera. And give them an opportunity and visibility into the predictable pipeline of deal flow that I had access to. You know, I handpicked 1/2 a dozen GP operators that I knew, that I knew well, many of whom for 5 or 10 plus years we had relationships dating back to, I would say most if not all, I had personally invested my own capital with. And I started to build a platform around them knowing that I had a bit of a Moat of deal flow given their visibility in their respective markets.

5:37 And I started to introduce that to my network. And Fast forward, you know, I left Arbor in 2024 and I scrubbed my network, created a database of about 100 or so people, 125 contacts, mostly friends and family, former clients of people that I had been organically introduced to overtime. And I put together a fund. My first fund was I think about 6 and a half million bucks. And we subsequently deployed that within the first six months into a portfolio of multifamily deals, all off market. I believe there were six assets in that portfolio.

6:19 And the bell rang and I realized that I could kind of, you know, consistently, repeatedly put this process in motion with new and repeat investors and deploy their capital in a condensed time period into off market deal flow that nobody really knows exists because of the network that I created. And so Fast forward to today, you know, this is our second towards the end of our second full calendar year. And since inception we're up to about 90 investors. We've we're currently actively raising for our 4th fund the first three funds, the first two funds excuse me are fully deployed. The third funds about 65 or 70% deployed. Last year we invested in 10 separate assets of about 16-17 hundred doors with a total capitalization around 300 million.

7:13 Our strategy is a bit unique, you know, I wouldn't say it is consistent peer-to-peer or some of the comps in our marketplace. Clearly our differentiators are deal flow, right. You know we are actively building out our bench of GPS that constantly supply us deal flow which precedes our equity raising by about 3:00 to five months. So we'll, we'll make deal commitments well in advance and we will back into the equity, whether it's raising a new fund, whether it's putting together a single purpose vehicle for a particular deal or drawing down the existing undrawn funds that we have from prior vehicles. So it's become a bit of a repeat cyclical aspect to the business that we're creating.

7:58 And listen, you know, I think as it relates to to this year, we're in, we're in growth mode, we're in scale. You know, we know we have the allocation assigned to, to our business to grow probably 3 to 4 times over this year. And the source of that capital is going to come from larger check writers, single source capital writers that can, you know, stroke A7 plus figure check. To date, as I mentioned, 8085 investors, pretty much all retail. We have a couple Rias in there that have dipped their toes in with us. But for the most part it's been 1 to $500,000 commits. I'm the largest investor in every fund so far.

8:38 So there's significant alignment across the board with us as managers of capital, but also investors into the same deals that we're asking our capital to invest in. And so going forward, you know, we feel that there's a huge opportunity in the space right now given the visibility we have to deal flow to deploy into distress situations that have been created and, and, and by mismanagement, undercapitalized owner operators, capital markets, distressed lenders and balance sheets. And you know, we're at the forefront of all that from a deal flow perspective. And so you know, we, we feel that there's, there's a probably a 12 to 24 month window here where rates are going to sell in a little bit. Cap rates might compress, occupancy rates will normalize. You know, the influx of new supply that we've seen over the last couple years will will steady out, they'll balance out, concessions will burn off which has been compressing rents for BC assets, which is where we participate. And once that happens, you know the demand will start to accelerate again and rent growth will will, will move forward. And you know, we've been active in that space and we'll continue to be in the ones that have been active and not on the sidelines are going to be victorious over the next three to five years. So when you talk about your GP relationships and the sourcing of deal flow that's off market, is it largely because they see things before they become

10:12 publicly distressed and they can swoop in and say, OK, you know, we have certainty of clothes? Is it something like that? Absolutely, Yeah, Yeah. So you know, right now we're, we, we've invested with probably 8 different GP operators. You know, these guys are vertically integrated, 90% of them are local to the markets where they have concentration, portfolios, economies, efficiencies, you know, and a pulse to the marketplace and and transaction volume. And so, you know, when you're actively owning and operating within your target areas, people know about you, you have a reputation and generally speaking, those reputations are clean. And to your point, they have execution power, right? And so when a deal comes up, generally it's off market or a pocket list from a broker or it's a lender or a bank that's looking for a new buyer because the existing ownership foreclosed or worked out or.

11:12 About to or. About to, right. And so you know the distress comes in different forms and what we've done is we have regionally positioned ourselves across the country to have operators in different markets that bring us deal flow of similar profile and caliber, right. You know, we generally invest in 150 to 250 unit assets. We generally invest in vintages from 1990 to say 2010. They're all liars, right. We've done brand new construction deals that had a fracture lease up strategy, which in my opinion you know you're, you're acquiring a core plus deal that's brand new, but it is distressed because it hasn't been leased up appropriately. We've also done on the other side of 50 to 60 unit assets that we've acquired from mom and pop operators with massive pricing advantages and arbitrage because they haven't been marking rents to market because they've had tenants in place for 15 to 20 years and they don't operate efficiently. So our goal is to come in and fractured situations and provide scale, provide scaled equity, which in return commands and leverages profit share.

12:26 So what I mean by that is we are passive investors. We often times don't require control. We don't need certain rights and remedies that AJV or a larger fund might require to invest. You know, since we invest with the right folks that we have confidence and a reputation with, we understand how they execute. And so we become frictionless in that capacity whereby we offer the equity oftentimes 1 to $5,000,000 a deal and in return for that we command a profit share structure with the GP. So we're LP's, however we are Co GPS economically and to the extent there are situations where we put up our balance sheet where they, you know, key principles signing on the loan docs. I often times am involved in the debt placement just given my background and my expertise.

13:25 It's a huge value add to the operator for me to bring debt advisory and placement and equity to the deal. You can't get much more aligned than that as far as being up and down the capital stack and having full visibility. And so the value create for us is really on both sides. Investors have confidence investing with us because they know our touch points up and down that stack and the relationships that we have with these operators. And on the GP operator side, they understand how we invest and, and, and what type of investor we want to be, which is really to stay out of your way because we know you can execute and get us to our return profile within a three to five year period. So I know that's probably not the same across the board, but when you say GP in real estate parlance, it often means sponsor, right?

14:22 Yeah. GP is the owner, the operator, the general partnership, correct. Yeah. And so give us an example of if AGP brings in an LP that's not you, they're going to have their standard fee structure promote etcetera and they're passive investors as well, most likely, right, especially if it's a smaller investor. Yeah. So in the case where what I was getting at is what's the delta between that normal LP that that GP would have and what you have aside from the help you can help do you can contribute with the debt and so forth. Are you adding, you know, 10% off the promote that the normal LP would get?

15:18 Is is it that sort of advantage? Yeah. So it's circumstantial. You know, we negotiate case by case, right? So for instance, if we're investing 10 or 15% of the equity, I don't really have a lot of leverage to go in and say, hey, you know, Mr. GPI want 50% of your upside, right. And the flip side of that, if we are 40 to 60% of the equity, that's a different story. And so there's really no pricing metrics, if you will. However, it becomes a negotiation. You know, I have conversations all the time with LP's about investing directly in the deal themselves versus coming with us, right? What's the advantage to coming through Seaport into these deals?

16:07 Your your economics on an LP directly into the deal? That might be a quarter million half $1,000,000 check writer is likely a 6 to 8% annualized yields, maybe a net return IRR of say high teens and then your multiple is generally around 2 and A5 or so year period, OK. When we invest with the scale that we do, we offer the cash flow in the annualized yields. We we promote everybody at an 8% prep coming into our funds day one, right, no exceptions. So you're benefiting on a preferred return basis by coming into our fund. You're benefiting from the terms that we negotiate at the deal level with the GP and that comes in different forms, OK.

16:54 So for instance, all GPS take an acquisition fee, all GPS take a management fee, asset management fee. We'll come in and we'll structure a sidecar with the GP whereby, OK, we're now participating in your acquisition fee. We're not going to be charged 2% asset management fee. We're going to be charged 1 1/2. And then for bringing 40% of the equity, I want 15% of your upside. And so I take that upside and I funnel it directly into the investors upon liquidity event, which is generally a sale in our case because we we invest for a condensed time period. And so from an LP in my funds perspective, you benefit from those three different silos economically above and beyond what you would benefit from as an LP directly investing in the deal by yourself, right, Yeah.

17:46 For 250,000 or 500 even $1,000,000 check. Leverage is different. Return Yeah. Yeah, I mean, you know, if you're right, so didn't touch. On this, but yeah, yeah, correct, right. I mean we a million is 1 is on this very small end for, for our investment. I'd say generally we are two to six on average depending on the deal size. And to give you some perspective on how that floats within the deal, the equity stack, our total capitalization on 90% of our deals is between 15 and 50 million, OK. And so when you're leveraging that up to say 6570%, meaning you're getting debt financing for 6570%, that leaves a total equity raise on average of about 10 to 20 million bucks, give or take 15, you know, 8 to say high teens.

18:40 We're generally sitting 3530 to 50% of that race. And so we're not all of it, but we're enough of it as a single source to come in and throw our weight around. And that comes in different forms. Is, is my point economically whereby everybody benefits. I could simply take that GP to myself and, and, and, and run with it and, and, you know, deliver a very respectable net high teen net result to to the investors. But there's no added benefit then by coming with me versus going directly in the deal other than access, right? And so, you know, I try to build a Moat around our value. And so that value is beating the market on our management fee, which is only 1% and then economically incentivizing investors to come with us above and beyond the access that you get, right? Because when we offer, when we put our offerings out to our investors, our entire network sees every deal that we invest into 60 days prior to it closing. They could just as easily pick up the phone and call the GP operator and say, hey, I want to invest with you, right. I need to make our offering valuable enough to that individual or source to come with us instead of going directly to them.

19:56 Yeah. So they're not even tempted to do that. Yeah. Not even tempted. And so listen, it's the predictability aspect of it. I, you know, I think the other thing that we've built which is a significant differentiator is that each fund invests broadly with different operators in different markets, right, Because we deploy our commitments across portfolios of four to six different assets. And so, God forbid one deal doesn't do that well or one deal underperforms. You're getting the benefit of blended economics across the board, across geographies. And obviously the profiles of the deal are very consistent from a return standpoint that we invest in just because that's the space that we know and we don't want to deviate.

20:40 I don't want to invest in deals that are too small. I also don't want to invest in deals that are too big because competition with institutions becomes a problem. And so we know our space, we know our role. We're sitting in the middle to upper, upper middle market and we're trying to scale up in that space to become invaluable to the GP operators who by the way have their own syndication networks, right, which is, you know, if we're 30 to 40% of 50% of the equity, the other 50% comes from their networks, right? They are individuals, LP's, retail high Nets, you know, maybe some fun to fund types of their own, but you know, I'd say generally speaking, you know, we're in the top one to three scaled investors in every deal that we do. So can we talk a little bit about a couple years ago, the multifamily space was super hot.

21:35 Everybody was deploying capital and it was a bunch of fraud and there was some people got smoked. Is is it fair to say there's a cycle and is it fair to say that you're in some way immune to that or benefit from it? I'll answer A and C we're in a cycle in different forms. We're in a, we're in a cycle from a supply demand imbalance, OK, Obviously when rates were 1 to 5% or 4%, you know, 5-6, seven years ago, nobody could do wrong.

22:19 You could, you could put a floating rate loan in place at 3% and buy at a four cap and everything would go right and you 22.5 extra capital. You could get a construction loan and get a shovel on the ground for four, 4 1/2% and deliver a product within 24 months with no supply disruptions and cost would remain stable throughout the whole process. That's been flipped. And so that dislocation has created immense opportunity for those that have access, right. I think to answer the third part of your question, that opportunity is, is born from those moments of distress because of inconsistent underwriting, aggressive assumptions.

23:09 And so we're now in the part of the cycle where a lot of the severe distress has been flushed, OK. You know, you take a look at two and three years ago, balance sheets were at all time high. You had debt funds that were bloated, that couldn't raise liquidity fast enough to offset their deficiency. And So what happened over the last 24 months is, you know, you had a lot of refinancings going on, recap events. You hear a lot about the rescue funds, the recap funds, you know, lenders cutting A&B notes just to buy themselves some time and try to try to solve their balance sheet woes, right? The deals from those moments that worked, worked, and they're now off in the balance sheet and they're now refinanced into a fixed rate 5710 year deal.

23:59 Going forward, the deals that are left are the deals that nobody wants. And so the distress on the lending bank side still exists, you know, and it's because if you foreclose the LP and all the equities wiped out, there's a loss share problem at the lender bank level where they they're taking it. Yeah. You have to post it to your balance sheet that you've actually have a realized loss. Right, right. And, and, and so lenders are still hanging on a little bit to I would say 40% of that balance sheet that they had four years ago, right? The other 40 to 50 to 60% was salvageable and people took a haircut, people had to cash in capital calls on LP's, you know, take a preferred equity note at 1013% just to get out of there senior.

24:47 But a lot of those opportunities found buyers found homes. And so we've taken advantage a lot of that to your, to your market cycle point. So a lot of the distress came out of that moment. However, Fast forward to today, you know supplies falling off a Cliff, nobody's been able to build in the last two years, right? They've been delivering property between 23 and 25, which are now in lease up. However, these lease ups are going poorly because there's a ton of competition in the marketplace and they're having to offer concessions, which does nothing but become bad debt and write offs or, you know, it falls to the bottom line and you're losing operating income.

25:31 And so those situations are also opportunity. We acquired a deal in, excuse me, Charleston, SC, which was an extremely unique situation. It was a 2024 delivery, 2023 delivery. It took him three years to build the property. He was sitting on a fully delivered asset. Mind you this is 260 units and it took him 12 months to get utility hookups from the MSA. And so we sat with a vacant property. He burned through his construction loan, he had to refinance at a high cost bridge loan and then he just jammed a bunch of heads in beds. I call it got his occupancy to a point where he can list the sale at a fraction of the original cost basis. So we came into that deal at a 30% discount on a brand new core plus institutionally grade asset. However, we inherited problems because he jammed a bunch of ill credit worthy tenants in the property. That said, that's an opportunity for a great operator to come in who's capitalized and knows how to complete a lease up or do a value add in nature.

26:34 Although it's a brand new property, there was still a repositioning that took place day one. We got in, evicted 70 tenants, so occupancy went from 92 down to 83. It's now back up to 96. So the opportunities come in so many different shapes and sizes. However, you can't just enter the market today because you raised a bunch of capital and you see rates coming down in the next 12 to 24 months. You had to have been in the market the last 1824 months to get the access. That totally makes sense and I. Think, you know, God willing, we've positioned ourselves with the right guys that have the good reputations that I spoke about within their jurisdiction in their markets to get access to these deals.

27:20 And these deals are coming in, in those different forms of distress that I mentioned. So the pipeline's predictable for those that have been in the right spot over the last year and a half. Can you talk about location? You mentioned one. Is it largely dictated by where you have these GPS and confidence in their ability and have a property that fits the box, or is there some geographic preference? So I first launched this thing thinking that I was just going to sit my butt in the Southeast, you know, in Mid-Atlantic, just because those were the markets that I knew, that I knew well, that I knew had a lot of distress because everybody entered those markets 678 years ago and many of them lost their shirt.

28:20 There was a lot of leverage in these markets, a lot of bank and lending exposure. I quickly realized that that was foolish of me to even consider pigeon holing ourselves and the opportunity set that we now have access to. We are now nationwide. I am market agnostic. That said, we gravitate towards tax friendly environments, both from the landlord and the tenant. We gravitate towards markets that have good migration trends, good demographics, good employment growth. We are suckers in the port towns of Charleston, SC, Savannah, GA because of, you know, having the import export, you know, situations that they do. Markets thrive off that.

29:05 And it's not just, you know, the immediate employment, but you know, you have Tier 2-3 and four job opportunities for folks that feed that type of business. So yeah, we're now, we're now market agnostic. I mean, I think we're in eight different markets. You know, we are up and down the East Coast, I would say heavily concentrated in the North SC, Tennessee region. We are in Central Florida, Savannah and now soon to be Conyers, GA, which is about an hour South East of of Atlanta, which is a great re entrance into that market because that's where everybody played and did well or not over the last five or eight years.

29:46 And we're getting a great, great opportunity there. That's coming in from a liquidating wreath that unloaded 30 assets, 15 of which were acquired by Starwood at about a 30% discount. And we just plucked off one of them. I love Indiana, I love Indiana, Ohio, Kentucky. You know, there's, there's new manufacturing going back into these markets. There's a lot of data center development and there's good growth and steady jobs, steady incomes, right? We are, I say this, it's a little cheeky quote, but we're trying to preserve affordable housing stock, right? And people that are, I don't think it's cheeky that that I mean, it's, it's a little bit of a tongue in cheek kind of, you know, political politicized quote.

30:34 But it's real, right? And I don't mean affordable housing stock tax credits and Section 8 vouchers and you know, HAP contracts. I mean middle America, I mean folks that are making between 60 and 120,000 a year that can afford 800 to 2000 bucks a month in rent. And you know what? That's going up. I don't care what you say, right? People aren't buying homes anymore. My generation and generations beneath me can't afford it. They don't have the down payment. That's why you saw Trump come out the other day and try to put a cap on institutional ownership of single family homes because he was worried about the affordability aspect and the existing stock of that asset class.

31:16 We are multifamily. We are scaled offerings to concentrate units to offer middle America and the tenant that needs to rent and prefers to rent, right. And so back to your point about where we want to be, we want to be in good lifestyle states. We want to be where there's warm weather, where people are moving to. I love Nashville, TN, not MSA, but we're heavily concentrated. We got a deal in Murfreesboro, TN right now, which is Rutherford County, top five growing county in the country, drafting off Nashville's growth, right. So Asheville, NC, we're, we're, we're delivering and leasing up a 319 unit new build there right now that's best in class and doing extremely well in spite of the hurricane that rolled through there, you know, just a short time ago.

32:10 Those are the types of areas that we like to go into because a, there's not a ton of competition, you know, it's overlooked by the institution. Mom and pops can't participate and we have a foothold. We have existing relationships in those areas. Whether we're already invested in it at the fun level or me personally, we know that we've been successful, that we have access. There's regional reps, there's site staff, there's good leasing agents, there's good quality workforce in these areas. And these properties can perform, you know, and they stay full and we can get modest rent growth still in this environment. Now you might have to manage through some ups and downs and down leasing cycles, you know, maybe, you know, drop rents 5%, you know, to to maintain that 9396% occupancy just for the time being.

33:03 Maybe there's competition in the market, a new delivery or maybe a plant down the street shut down. Whatever the case may be, you can adjust very quickly. And that's why we invest with the right operators because they have the foresight, a lot of which is AI right now, believe it or not, which is a maybe another topic of conversation. But that's that's really entering the management of multifamily in the projectability of where rents need to be, how your competition's doing and how to optimize your product within your comp set in the marketplace. So yeah. The research has to be a lot easier to do now, right? Oh my God, Arthur, I'll tell you, you know, maybe another bar of, of, of commentary, but we're going to stay as lean as we possibly can for as long as, as we can, right.

33:53 And what I mean by that, you know, acquisition teams are becoming obsolete underwriters obsolete. I can throw AT 12 and a rent roll and a pro forma or an offering memorandum into AAI tool. There's numerous of them. Give them some guidance. Within 2 to 5 minutes, it can underwrite the deal for me. It can project the same for me in three to five years and it can perform them all. And you know. And and be the. You still need the sniff test, right? But it's more more likely than not to be accurate. You need a human element, but that human element is no no longer a team of 6, right, Right. So we we draft a lot of the communications and the marketing details and their performance from the operator themselves. So a lot of that work is handled for us. Obviously, you know, we recycle it and reintroduce it in a way that is digestible for our investor base, which I think is pretty unique and user friendly.

34:57 But you know, we can rely and outsource so many things these days, which are labor intensive in nature, whereby we can just focus on raising capital. And that's really what our goal is each and every day, every week is introducing our platform, which is I think had some pretty good success in a short amount of time. And the access we have is our Moat, right? I mean, you know, in order to survive in the next 5 years with the takeover of AI and technology, you need a Moat or you're, you're becoming obsolete. And our mode is the access to the deal flow that we have. So, Ryan, the deal, do you anticipate that there's more deal flow than you can fulfill?

35:49 And if you had unlimited amounts of capital, could you fill the pipeline, let's say if you had $100 million? And the second part of that is at what point are you not interested because you'll get negotiated out of the market because institutional money will come in. Is it a $300 million asset? Is it for? Is it fair to even ask that? It's a fair question. However, I've thought about it. You know, as I mentioned earlier, we don't want to compete with the institution and I know that the space that we're actively playing in now is not of interest to the institution. They first of all, economically speaking, they can get away with yielding far less than I want to. So they're entering the core plus markets. They're buying the 3-4 caps because they have more patient capital AB they can get away with a three, 4% return. I'm not doing this for.

36:53 A return my investors, also me. With that. Right. And isn't it also true they can get away from that because they have investors or balance sheets that don't pay taxes, foundations, you know, etcetera, etcetera, etcetera, right. That sure that everybody has their reasons, but I think you know to your allocation question, my goal is to get to a point where you know within the current deal profile that we invest with and without getting too crazy on the bench of GP operators that we deploy into, we can comfortably deploy 50 or 100 million a year and not be 100% of the equity that is required to close these deals.

37:44 I think last year I did some math the other day because I had this question asked by an investor. I think the total equity raised within the deals we invested last year was about 140 million something in that range. And mind you that's across 10 assets, you know, with an average purchase price of say 20 to 40 million, OK. And so we're a small part of that now, right. But the idea the goal is to still still play in our space, however scale up to the point that is irreplaceable from AGP operator standpoint to have us in the deal. And when you get to that threshold, our economics become extremely outsized and and everybody on our platform benefits. So I don't want to get too big.

38:31 There's no reason to right. You know, I think and, and also to that point, we benefit by cycling equity quick. And so you know, even if you know you have 100 million of commitments for the year, ideally the original funds and the original deals you invest with are liquidating on the other end. So you're constantly cycling through your capital sources in a point where the returns, you know, ideally compound and people reinvest. We have a 25% reinvestment rate from prior fund investors into more recent ones, which is fantastic. It means we're doing something right. But I don't want to compete with the, the institution.

39:12 There's no need. You know our our economics, our leverage, what we command, our relationships. We want to play in our mid market space and there's no reason to jump outside that. So on the cash, on cash 8% that you're giving your investors, is that essentially pass through from the GPS? Yeah, Yeah. So it's a good question. So as A at the fund level, we offer an 8% pref to the investors. That 8% pref is not 100% satisfied at the deal level. So it takes a liquidity event to catch up and then to hit the waterfall, right. So I would say on average, we have a 2 pronged barbell approach.

39:59 I call it. We have a value add approach on one side, which obviously are assets that are a bit more distressed, mismanaged, neglected, you know, we're coming in, it's a heavier lift type reposition play. There's no yield on that day one. There's probably no yield or cash flow on that month 6. Generally, the idea is to target stabilization between month 12 and say 14. At that point, you're yielding 6 to 8%. On the other side of the barbell, you have our core plus strategy, right. Three out of our last four deals that we acquired are producing 7 to 9% annualized cash flow day one.

40:40 So our investors benefit first quarter post closing, they're getting distributions. However, 40 or 50% of their deployment, their commitment might be in that value add bucket, in which case it takes 12 months or so for those assets to catch up to that number, right. However, generally speaking on a value add deal, you put some type of short term debt instrument in place with no prepaid where you can refinance once the asset stabilizes and you can return 3050 plus percent of everybody's commitment in that deal and then it starts to cash flow. So we have the beauty of of investing in different types of buckets where our investors don't have to wait or get locked out five years and wait for a portfolio roll up on the exit to see anything. We offer cash flow, we offer liquidity events mid term, mid fund term, which is five years.

41:37 I have a one year extension option. However, you also get, you know, the benefit of of liquidity events and. Along the way, yeah. Opportunity along the way and staggered, you know opportunistic exits, right? Each deal is going to sell when it's ready. So within your 5 property portfolio per fund, you know, we're investing in different markets with different operators, all of whom have a three to five year rough hold period. These deals are going to sell in year 3 and year 4 and Year 5. And so you're not waiting for a roll up at the exit to get your liquidity event. You know, we're popping these things once they're ready. You know, if we get an off market bid, if we get, you know, if we stabilize and decide to list it, hopefully rates settle in at that point.

42:23 I think we can all agree it's probably going to be a bit better than it is today. However, I do think we're in a new norm, a new band on on rates. I think it offers a little bit of protection and, and, and downside risk hedge against that for everybody and every type of investor from from the LP, you know, to the institution. It's got a little, a little bit for everybody, you know, and that's the goal. That's the goal is, is to create consistently consistency beyond the cash flow. There's tax, massive tax advantages by investing in multifamily real. Estate, yeah, I was going to ask you what the does all that all the goodies pass through the K ones, the cost SAG the the depreciation, all that business?

43:07 I like that all the goodies, yes, all the goodies do pass through and that's a major benefit to being a real estate investor, right? And passively, I mean, you know, we have all the all the depreciation from the Cal seg analysis and that that's not performed in year 1. It's two or three that flows directly on everybody's K ones down to the investor level. They can offset, you know ancillary income, W2 revenue, you know our distributions and recaps refi's when we're returning principal tax free, right. You don't pay capital gains on those. That's not a. That's not a. Trade. That's not a taxable event. Yep. And so, you know, it becomes a system where you know, you can expect quarterly distributions, cash flow, you know, you can expect a little bit of a gift. So goodie, you know, fall flow through down to your K1 on an annualized basis.

44:00 You know, and then the exit optionality I think is a major feature of what we offer is something that you know is predictable and expected between years 3:00 and 5:00. And if the, if the GP doesn't like kind exchange, you just benefit from that as well, right, If if you decide to participate in a new asset. Yeah, I, you know, I'm not. I don't love that idea, you know, I've been. Really hard to do right? It's hard to do because you got to, you got to there's, there's, there's carried provisions, there's tick exchanges, there's obviously you have to go through AQI qualified intermediary. It's got to be, you got to solve for equity, you got to solve for debt.

44:44 And I can't predict whether my investors want to participate in that, right. So I guess that's a wedge that I have not experienced yet, Although chances are, you know, we're now in 12 assets or 12 properties, some are portfolios. It's going to happen and I'm going to have a conversation with the investors within that fund that's invested in that deal. Hey, what do you want to do? Chances are nobody's going to have a problem with it because if we've done the right thing and the operators performed and everybody's been successful, multiplied their capital, why not do it again, Right. Exactly. And so that is a feature that we haven't toyed with or had to yet just because we've only, you know, been around for a couple years at this point. So, but you know, every day is a learning curve. You know, things pop up, you got to solve for them. But we have a lot of, you know, good investors in our network. I'll give you an example.

45:40 You know, there was an investor in our second vehicle, our second fund, we were probably 60% drawn down on, on their commitment. I got a call from this individual and they basically told me that life happens. I, I can't, I'm, I'm maxed out. And when you have a closed fund, obviously you got to solve for that. However, I reached out to that fund investment group, it's probably about 30 or so individuals in that group. And I say, look, I shared the story within a matter of hours that allocation was absorbed it. Was sucked up. It was. Sucked up. And so that's the power of the network that we're building, you know, with interested parties, people that believe in what we're doing, want more, feel like they didn't invest enough, you know, when they first committed.

46:32 But that's also why we're reintroducing new vehicles. I've had that question asked a lot too. Why are you putting out so many funds? Well, I talk to people every day. And, you know, if I put a fund out, we're trying to wrap one up in the next 30 days. If I have 50 conversations with individuals or family offices that have interest in the next three months, and I have the deal flow and the allocation in that deal flow. Let's go. Let's put another one over the market, right? Capitalize on that momentum. And so that's kind of the thesis that we've adopted in a short period of time that makes this strategy very predictable, repeatable and deployable. Is the is it qualified investors only?

47:15 Everyone's accredited, you know, we generally run 5O6B and C type offerings. You know, we I'd say our minimum is 100 grand. You know, we have a few inside that we have several entities that have come in that are three or four or five different individuals, say family or friends that have put 3 or 400 grand in. You know, I would say our largest investors you know are around 1,000,000 bucks which includes myself. And you know we are actively in discussions with a couple families, a couple RI as folks that are going to provide some scale in two different forms either in the fund commingled with other LP's. However, we've also launched a separate JV Co GP strategy for larger single source capital check writers that want to commit 5 to say 20 million of their own, deploy it in the same fashion, but might have their own profile of deal. And so for instance, you know, Family Office XYZ wants to commit 5 or 10 million bucks, but they only want to be on 200 unit assets in the Southeast.

48:25 You know, we're confident that our bench and network of operators can supply that deal flow to that source. And so that becomes a bespoke strategy that's a bit of a different silo introducing the same deal flow, but to a different type of capital. And so really that's a network that we're trying to crack into right now. Yeah. So you, you mentioned one more thing before we wrap it up, if it's OK and you we can talk about whatever else you want to talk about. But I was interested to know a little bit more about how you feel we've maybe reached a new level in interest rates and what you're thinking is around that? Yeah, I try to ignore it.

49:15 I mean, you know, we've been in a band of I'm calling it the new norm as I mentioned, you know, you can't run a business, particularly with the activity that we try to have and really get too hung up on that. You know, a way around is to assume alone, which we did about 5 deals last year. We assumed interest rates that were originated 3-4, sorry, 4-5 years ago that have a good term left to maturity, say five years, 2.9 to say 3 1/4%. And so, yeah, it's lower leverage. Yeah, you have to raise a bit more equity to acquire these deals, but positive leverage day one, these properties are yielding significantly out the gate. There's some value add ramp up as well. However, on the flip side, you know, in our business, FHFA is very incentivized to put capital out the door, right, from a debt standpoint.

50:13 And so there's a lot of levers. And I know this because I was in the business for 15 years, something called mission critical business, where there's an affordability aspect. So for instance, you know, there are calculations that peg your current rental rates to median incomes in various markets across the country. And if you are if you qualify as a certain ratio, you get a certain spread reduction on your interest rate. And so the agencies Fannie and Freddie and HUD which are the largest capital debt provider of liquidity in our business incentivize operators to go after assets that are considered affordable rich. And so that is a way today to acquire a deal with a five year fixed rate loan inside 5%. You have a four handle 4849 in most cases with non recourse with interest only you know maybe some exit flexibility on the prepaid as well.

51:08 So we know what levers to pull in the interest rate environment game to make sure that our, you know, investments are safe and sound. I would say going forward, look, listen, I don't think we're going to see a lot of rate cuts this year. And the reason being is because our GDP is on a hockey stick trajectory. We do have a new chair coming in. It's going to probably take three to six months for him to implement any type of policy change. And you know, there's a lot of macroeconomic and geopolitical events taking place that implement and inject volatility into Treasury markets. And so the only hook that you have is to either reduce the Fed funds rate, say a quarter .50 basis points, purchase bonds, which Trump has touted he wants to do. However, what people don't realize is that multifamily and commercial real estate investing in general is pegged off long dated treasuries.

52:14 Long dated treasuries have a predictability to them whereby they forecast market conditions 6 to 9 months in advance. And so if the market is projecting a rate cut of say 50 basis points, you know in Q2 or three of this year, it's already baked into the 10 year treasury and so it's pushed out, right. And so regardless of what the Fed decides to do, it's such a nominal move. It doesn't move the needle in our business. And so you can't really when you're investing and you're consistent and you have the action and activity that we do, you don't really look towards that. You look three to five years out and you try to normalize your predictions and your assumptions in a way that, OK, great. If the market stays where it is, here's our result, I'm OK with that.

53:06 If the market cooperates or maybe rates come in and there's a little cap rate compression. Even better. Yeah, Bravo. But you know, I, I think it's a new norm. I think, you know, we're not going to see a 10 year treasury, you know, inside 4% for the foreseeable future. You know, it's just, it's not, it's not supportable. And quite frankly, you don't really need to do it outside of, you know, trying to force people to buy homes. You know, businesses are performing right? And they're changing guard and technology's advancing. And, you know, unfortunately, there's going to be a lot of. Economy's goodness. If that's a term, it's good and people hate to admit it.

53:51 They hate it simply because of the man up top. And it's not about politics. But you know, unfortunately the gap of the haves and the have nots is widening, which is going to be a forever issue. But I think for us and, and for our marketplace right now, predicting rates in, in 12/24/30, six months is a useless endeavor. And I think we're in a new norm. I think things are getting reset. I think valuations are getting reset. And for us, you know, the good thing is, yes, rents have come down or plateaued in, in many instances, but that's a supply issue, not a demand issue. Demand will continue to be there.

54:31 It will accelerate. I think we are 7 million units short across from a housing standpoint on the supply side across the country. You can't build. Yeah, that's what they're saying. Enough time? Yeah, for. For. Occupancy rates not to maintain a north of 90% level. And so that's my prediction. I, you know, could be wrong, could be right, but we don't run a business in, in our platform based on predictions. You know, we, we try to stay within, you know, the, the, the goal posts of, of what we have and, and, you know, make sure that the people we're investing with are the right guys to steward our capital. Yeah, totally makes sense. This has been super helpful. I really appreciate you doing this and thanks for, I mean, there's lots of good Nuggets in there. I know people appreciate it.

55:19 And we also look forward to you as you know, coming on and telling the stories to the investor community for FOI too. So Ryan, thanks for doing this, really appreciate it. Thank you. Nicely done. Appreciate. It yeah, no, likewise it's, it's a great opportunity. You know, as I said, it's a it's a huge gap in when what I'm trying to fill right now is, is the capital sourcing from these mid markets and upper middle market type family offices. And so we're putting resources towards it. I'm trying to educate folks on what we're doing, how we're doing it and why we're different, which I think is, you know, something that is, is is hugely important in today's environment with a lot of noise.

56:04 There's a lot of noise and you are different. There's no question about that. I can confirm it. So and we look forward to having you in a in a couple weeks to talk to the rest of the group. So all right, Brian, thank you. I appreciate it. Thank you, appreciate it. Thank you everybody for joining us today. We'll talk to you soon. Bye. Bye.