Max Sharkansky
@maxsharkansky
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Managing Partner and cofounder of Trion Properties. Keeping it real estate.
ÜT: 34.104901,-118.33664
Joined January 2010
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It’s an excellent time to buy a home. The housing market is down, which only happens every 6-9 years. Values are lower than a year ago and likely lower than a year from now. If you can afford the higher rate, pull the trigger. You can refi into a 25%+ lower payment in 18 months.
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Carried interest repeal: 2 guys buy a house to fix/flip where one puts up the $ and the other does the work. 2 years later they sell it at a profit and the guy who does the work pays 37% tax but the guy who puts up the $ pays 23%. Repeal impacts upward mobility at all levels.
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Never in my career have I seen a greater disconnect between multifamily values and operating fundamentals. Values are down 10-20% but trade outs are up 25-50%. We have one asset with 80% trade outs. Something has gotta give.
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My 2023 predictions:
- The S&P 500 will be up at least 7%, as will earnings of its companies.
- Inflation will crash harder and faster than most predict. CPI drops below 4% by the April print.
- Fixed rate single family and multifamily debt will drop into 4%’s by August.
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It’s starting to feel recessiony. Our conversion ratios in leasing offices are falling off a cliff and the worst they’ve been since the GFC.
Prime example: one property received 12 apps last week with 10 denied. That’s unheard of for our portfolio and low approval ratios have
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20 years from now when our babies are in therapy for this madness, we will view this as one of the more heinous acts in our great country’s imperfect history and the madmen below its chief architects.
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What was the point of printing $10T in stimulus to prevent a recession if the Fed is going to tank the economy anyways?
Why take the scenic route to higher unemployment when you can take the carpool lane?
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Not scary: the 2 and the 10 inverted by 20 bps. Little scary: 50 bps rate hikes with a 310 SOFR projection in ~1 year. Very scary: classic econ thinking says to raise the overnight rate higher than CPI to fight inflation during inflationary times. 🤯
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And it barely raises revenue. $15B of tax revenue over a decade is the proverbial lint in the government’s pocket. They spend $50T+ over that same period which means this is just optics. It will do more harm than good, especially with the realignment of incentives towards fees.
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Aliens attacking the US on Super Bowl Sunday is the interplanetary version of the Yom Kippur War.
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Just when you think this period in American history can’t get any worse, the Celtics are back in the Finals.
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The Autobiography of William Zeckendorf is a profile of one of the greatest developers in American history. It’s a lesson in both things to do and things not to do. He was as well-known for his huge boom and bust swings as he was for his successes.
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Blackstone isn’t the only organization who is compensated through carried interest. The young entrepreneur trying to build a business through outside capital and organic gains will have less gains with which to build that business and create jobs.
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@girdley
@realEstateTrent
Same. We started using Predictive Index a few years ago and it’s been a game changer. There’s nothing worse than a bad hire.
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@moseskagan
@girdley
A very prominent LA investor did this in the last cycle with brokers allowing them to hang their license with him and he let them keep 100% of commissions as long as he got first look. It worked.
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@MRossG199
@OmarMoraIes
We bought ~20 deals during the GFC through either the NPL or REO. Right now you have historic rent growth with yields 300 bps wide of the 10-year. This market is a cakewalk comparatively speaking. Pessimists sound smart. They’re not.
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Maybe not 20 years ago, maybe not 20 years from now but as we sit here today Miami is the best city in America and this is exactly why. The pols just get it. Recruit business with pro business policy+people follow jobs+house new residents= 💥
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Today’s Fed meeting likely won’t yield, no pun intended, anything new for the CRE/MF market with fewer rate cuts already priced into the bond market.
The bid ask spread is closing quickly and the market for anything built newer than 1980 is, dare I say, healthy. 1979 and older
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Multifamily real estate?!
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Quick chapter in our bio: during the GFC, we pivoted our business model from buying value-add multifamily to buying nonperforming debt secured by multifamily. We did approximately 20 NPL/REO deals in the 2009-2012 period, so we have more experience than most real estate sponsors
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While everyone’s cryin’, we’re buyin’!
1. Core plus asset with value-add returns in…
2. Miami! 🏝️
3. Fixed rate senior from the agencies with a slug of seller carry preferred equity at 7% with no default risk. No cash flow, no payment.
4. Link for webinar in bio because
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@jbarro
I just had this experience at Son of a Gun. I went in a large group and was told the service fee is “non-gratuity service”, whatever that means. I left ‘only’ an extra $100 and the server rolls his eyes and walks away angry. There’s no playbook here so they can’t expect tipping
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RIP 💐 3.2% Cap -> 4.3% RoC w/growth: Y1: 8% Y2: 7% Y3: 6%. Exiting at a 4%. 🤦♂️
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@mu2myoc
One of our investors said “This other sponsor I’m with is making distributions and you’re not.” I responded to him saying the project is over capitalized and he’s giving him his own money back. His response to me was “You’re just being derogatory.”
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That’s one of the people responsible for Miami’s hyperbolic growth over the last year and mayor
@FrancisSuarez
.
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There’s a clear improvement in multifamily fundamentals the last two months.Late Q4/early Q1 seemed like the world went on vacation but since March 1st we’ve seen a spike in the leasing pipeline and an uptick in occupancy.Hard to say if seasonal or macro, but positive nonetheless
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5.1%?! 😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂😂
Inflation is more than a story of gas prices...
Groceries +10% --> biggest spike since 1981
Meat/poultry/fish +13.8% ->biggest since 1979
New cars 12.6%->biggest ever
Electricity +11.1% -> biggest since '06
Home furnishing 10.8% ->biggest ever
Rent 5.1% ->largest since 1991
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All eyes are on the Fed but the more critical issue is saving our regional banks. The contagion is real and spreading into more regional banks. The solution is to remove the $250k FDIC cap. Otherwise we continue with a system where thousands of banks that can fail are competing
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I was thinking about this scene from the Godfather II and it just strikes so close to home.
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I once read “Experience is what you get when you didn't get what you wanted." in a Howard Marks memo and boy oh boy did we pick up some experience with 500 basis points of rate hikes (most likely) over 16 months. I suspect the future holds many more fixed rate borrowers.
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@OmarMoraIes
When you deal with good people, you can work on a handshake. When you deal with bad people, a 10,000 page contract won’t protect you.
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Rent growth has hit such stratospheric levels that 60 Minutes did a piece on the housing shortage and its effect on skyrocketing costs. Are you listening, California? Neighborhood councils and EIR’s causing three year entitlements are destroying the state. It’s time to build!
Rents are increasing dramatically across the U.S., but what is the cause? “We didn’t build any housing for [millennials] in the last decade because we are still so traumatized by the last housing crisis,” Redfin chief economist Daryl Fairweather explains.
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@chernobelskiy
I can write a novel. We spent four years buying NPL’s and REO’s (09-12) and the stories range from an NPL with a concurrent deed in lieu from one of LA’s most notorious slumlords and curing 400 code violations in 60 days to dodge REAP by a force of miracle to buying a portfolio
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@moseskagan
One has to be completely insane to sacrifice credit quality for a few extra bucks of rent in this environment.
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This is a seemingly accurate data point based on my conversations with NYC office owners. They never got the back to the office boom they were expecting but the number of people going back to the office is rising on a monthly basis. A full recovery in the next 24 months is likely
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You’re always better off overpaying for the debt and underpaying for the real estate than overpaying for the real estate and underpaying for the debt.
@maxsharkansky
@moseskagan
@fortworthchris
Why is it the greatest sin? I don’t get that..the treasury is up 320 bps..completely different environment now
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Me too
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If you believe we’re in an interest rate driven bear market, and you believe the rate hike cycle is over, you have to believe we’re at or near bottom.
There’s gold in the streets right now. Smart money is buying with all three hands.
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Fantastic interview with one of the 🐐’s. Not only is he one of the greatest real estate investors in the history of the business, but he created the W Hotel brand and CEO’ed a mega hotel business while running Starwood Capital, which now has the flagship fund and two REIT’s.
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If there were a Nobel Prize of real estate, Craig Robins of Dacra and LVMH would be recipients for their work in the Design District in Miami.
The area was lined with decrepit warehouses but happened to be in the bullseye of Miami. They bought it all up for pocket lint and in a
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The man is a national treasure. My personal favorite line that could be so impactful for people looking for that special someone “If you want to guarantee yourself a lifetime of misery, marry someone with the intent to change them.”
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@PinkPoloShorts
@MRossG199
@EllliotttB
@khzny
@seandsweeney
@joakim_rr
When EOP bought Spieker in an UPREIT, they agreed to pay Spieker’s taxes because of his negative basis if EOP ever got acquired which could NEVER happen. It happened, and BX begrudgingly paid Ned Spieker’s personal taxes when the acquisition closed.
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For most of us, today is jobs report day. For those of us in the middle of an acquisition or refi, today is shaping up to be rate lock day.
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CNBC is running a countdown ticker to the CPI report. What a time to be alive!
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I was just spending time looking for new books to read and thought I’d share some of my favorites.
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@JaretTurkell
@MRossG199
@Keith_Wasserman
@moseskagan
@soupdujour86
We solve to a similar gross return and unlevered RoC. Our assumptions for growth and exit cap haven’t moved much because they were already very conservative. We never fell for the 10% growth and 4% cap exits con. The main metric that took a hit for us is CoC.
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It’s that time of year…our annual letter to our investors (and potential investors) is hot off the press. Give it a read and let us know what you think!
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@OmarMora1es
We just got SMOKED on a deal in South Florida that on our numbers trades at a 4.2% in place solving to a 5.5% ROC, 80’s vintage. 🚀
The market is moving in the right direction nationally. We’ll see if the current sentiment on rates changes things.
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@Jason
Is the most elite talent comfortable working from home or are is the true elite the folks who insist on going into the office and working in a high-energy, professional, collaborative environment? My experience is the latter is far more talented AND has the right attitude. They
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This 🧵 is flawless, but the Fed’s methodology on renewals is deeply flawed. If a $1k/month lease rolls to $1,100/month but 10 months ago would have rolled to $1,200/month, that’s not 10% inflation. That’s ~8.5% deflation.
Here's the data to show real-life rent inflation will cool faster than the Fed suggested last week-- and not just for asking rents:
We’ve plunged back to long-term average in “loss to lease” – meaning the runway for renewal lease rents will significantly narrow going forward...
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There seems to be light at the end of the tunnel on the insurance nightmare.
We just received a renewal in Denver at a 1% increase.
We’re building a master for our Southeast portfolio and are expecting a decrease in premium. Anecdotally, I’m hearing of other decreases in
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It was a fantastic experience working with your team and may this be the first of the next 100! You guys are as pro as pro gets. Let the good times roll!
@OmarMoraIes
and I just closed a $108M apartment sale w Trion Properties who we met through Twitter!! The power of this platform is amazing.
@maxsharkansky
and his team are AMAZING to work with. Awesome buyers. Give him a follow!!
@MRossG199
@Keith_Wasserman
@moseskagan
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It seems like almost overnight the bond market went from calling the Fed’s bluff on higher for longer to panicking into a massive sell off that gave us the highest yield on 10-year T’s in 15 years.
What happened?
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We sold a property in 2009 that we bought in 2006 at a profit. How? We more than 2x’ed NOI.
Massive value can be created through repositioning, market growth via in-migration, and disciplined operations in almost any market, and this market is no GFC.
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@MRossG199
I’m not stressed, just providing some color for how it works at lower incomes. I find the whole thing to be red meat to a fringe political faction, and accomplishing nothing but optics. It raises virtually no money and likely does more harm than good. What’s the point?
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@EllliotttB
Now do post-1031 foreclosure risk where you lose all your money AND owe Uncle Sam a massive check.
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@OmarMoraIes
I would do an ARM with as short a fixed rate term as possible. I use ARM’s during the best of times, so I would definitely use it in this environment. If the difference between a 5/1 and a 7/1 is de minimus (10 bps), might as well get the 7 but reality is a 5 and a refi in 2024.
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@joeybaum13
@EllliotttB
We’re telling investors that there’s almost no CoC over the next couple of years and anyone telling you otherwise is lying.
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🐐
I’m committed to making the
@CityofMiami
the first major American city to achieve functional zero for chronic homelessness!
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There is a not so unlikely scenario where the economy goes into a recession, rates get cut and the real estate market starts to recover.
This is salient because the recession that institutional investors have been patiently awaiting may have the opposite effect of the assumed
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- the population trend of decline in the urban core reverses because employers demand time in the office and young people desire metropolitan amenities.
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My wager on the SVB debacle is the FDIC facilitates a sale of SVB to a healthy bank in an orderly fashion preserving all deposits. It’s important to remember that deposits prime all bond holders and shareholders, and are a driving reason for acquisition by another bank.
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@joeybaum13
There’s an acronym you young bucks might not be familiar with. That acronym is R.E.O.
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I sent a note internally that we’re waiting for cap rates to go to zero and then hit the eject button on the whole portfolio. We’d love for you to be a part of that very special moment.
2. There is so much capital out there chasing yield. Cap rates are going down in 2022. (From a very sharp guy in the industry.)
3. Even if rates increase spreads will tighten thereby mitigating increases in RE borrowing costs.
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There has been a lot of chatter about the inverted yield curve. The 2y and the 10y are flat and likely inverting soon based on inflation data but that isn’t the inversion that is a historic predictor of inflation.
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As a manager of capital, I genuinely feel bad for him BUT I walked over to our marketing manager’s office a couple of months ago and he told me how FB leads were dropping in value because of iPhone privacy changes. He should have known better.
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@EllliotttB
If you hear of any have them call us. They can assign it if they can’t close. We’re buying three 70’s deals (~1k units) in three states and closing all of them by mid-June.
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@realEstateTrent
TruAmerica/BCE spawned Tides and several other companies. I believe it’s 10+ companies.
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- Occupancy for office buildings increase because of a return to in-office and hybrid work making office buildings financeable again
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@MRossG199
What did you find to be the most impressive? You haven’t lived until you’ve toured 10000 Santa Monica in LA.
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I have a feeling the backlog of yachts and private jets will start to clear up over the next 12-18 months.
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I had the great fortune of meeting Justice Sotomayor in person three years ago and it was a bucket list experience. Irrespective of what one thinks of her jurisprudence, there is no question that she’s a brilliant and wonderful person, as evidenced here.
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@joeybaum13
We have a few high 3% cap deals in contract but forward RoC is significantly higher than six months ago. I’m from California. Low cap rates don’t scare me.
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@Keith_Wasserman
Same. I had an investor tell us “why buy this now when it will be cheaper six months from now?” Lots of pencils down happening right now which means lots of deals will fall our way.
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There was a running joke post S&L crisis during the RTC days “stay alive ‘til ‘95.”
It’s starting to feel like it’s coming back in the form of “stay alive ‘til ‘25.”
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@JeffFeldman_
@TreppWire
As one of our favorite investors jokes: “Great location, beautiful asset, nothing not to love. Everything about the deal is perfect…other than the basis.”
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Not terrible with last year’s predictions. My favorite piece of engagement last year was someone adding me to their list named “idiots.”
As for 2024:
- The S&P 500 will grow by approximately 10%.
- The Fed will cut rates by 125 basis points.
- The published unemployment rate
My 2023 predictions:
- The S&P 500 will be up at least 7%, as will earnings of its companies.
- Inflation will crash harder and faster than most predict. CPI drops below 4% by the April print.
- Fixed rate single family and multifamily debt will drop into 4%’s by August.
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@OmarMoraIes
Buy a small home. Spend a few bucks making it look better. Increase the income and value and maybe sell it, maybe not.
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There has a been a clear pricing shift in the multifamily real estate market, 5-10% down since Q1. Does that mean that someone who closed at the “top” in Q1 overpaid and will lose money? No, here’s why. 🧵
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@moseskagan
In case the LP has to remove the sponsor. The LP is always underwritten for that event. Sponsor and LP quality is a big deal in a non-recourse loan. Counterintuitive but logical.
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@moseskagan
Intentionally excluding our own book, small bay industrial in either SoCal or the Southeast. Similar to MHP that there’s no new supply and high demand.
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Difficult position for the Fed. They have to hike rates to fight inflation but debt service relative to GDP is at historic highs. Powell and company have their work cut out.
whether 3 to 4 would therefore be enough. The
@federalreserve
could work to restore its credibility with an initial 50 bps surprise move to shock and awe the market, which would demonstrate its resolve on inflation. The Fed is losing the inflation battle and is behind where it
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We procured an off-market deal, with immediate upside, 30% below peak pricing in a growing pocket of Dallas with 100 million square feet of industrial space and high-paying workforce jobs. We’re now accepting investors.
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Another great piece by
@NickTimiraos
. We in the housing industry know that our contribution to inflation has been zero to negative over the last 10-12 months. The data is finally reflecting it with CPI trending to 3% in this week’s report and core trending to 4% or lower in the
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This has been a topic of conversation since I played high school baseball in the early 90’s 🙈. This single rule could reverse the declining popularity of the game. The knee jerk is it’s “bad for baseball” because of less commercials but if there are significantly more eyeballs
In the first weekend of spring training, Major League Baseball's new pitch clock rule shaved nearly 30 minutes — and 40 years of bloat — off of the average game.
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