WIN181. Real Estate Cycle Investing: Selling at the Peak, Buying at the Bottom with Brian Burke

AJ: Welcome to the Westside Investors Network. WIN, your community of investing knowledge for growth. This is the real estate professionals investing podcast for real estate professionals by real estate professionals. This show is focused on the next step in your career, investing. Thank you for listening.

And please, if you like our content, rate us on your podcast provider. Just a quick disclaimer, the views and opinions expressed in this podcast are for educational purposes only and should not be construed as an offer to buy or sell any shares or securities to make or consider any investments or take any other action. All right. Hey, today we've got Brian Burke with us. Brian, really appreciate you coming on our show and telling us a little bit about kind of your journey and how things are going.

You know, do you want to just tell our audience a little bit about yourself? I know that you're a big name in the industry, but I'm sure there's some people here that may not have heard of you and your wonderful book.

Brian: Well, I appreciate that. AJ, I've started investing in real estate thirty six years ago. And during that thirty six years, I've somehow managed to acquire over $1,000,000,000 in real estate, most of that multifamily. But I sold most of my multifamily portfolio right before the market collapsed in the 2022. And then kind of did nothing for the last three years until we just made a pivot recently into senior housing, assisted living, skilled nursing and memory care.

So that's kind of, that's our main business that we have right now. I also wrote the book, The Hands Off Investor, which is a guide for passive investors to teach passive investors how to properly evaluate syndication investment opportunities for their passive investing portfolio.

AJ: Yeah. And, I know my brother and I have read that book a couple times, you know, just trying to reverse engineer, what it is that we need to do from it. So it's, not only a good book for, you know, the the LPs that are investing, but, also, GPs that are looking to, you know, provide excellent service too is what I would say. So, yeah, really enjoyed that. You know, Brian, I, I I I think I heard you speak at some other event or something just kind of on, like, an economic kind of forecast maybe for 2026.

You have, you know, you predicted the, you know, kind of downturn in 2022 and you've kind of predicted the rise of multifamily up to that. So I'm just kinda, would you be willing to kind of give us kind of an overview of what your, idea of 2026 and beyond might look like?

Brian: Yeah, you know, I think 2026 is going to be a lot of kind of more of the same of 2025. You know, it just it depends a little bit on what sector of real estate that you're investing in. If you're a single family home investor, I think 2026 is going to be a really good year for you because pricing has come down in a lot of areas. Certainly transaction velocity has come down in a lot of areas allowing you to acquire, you know, better deals with less, less competition. So I think that's really good for the single family investors.

For multifamily, there's kind of like a two faced market where on the smaller multifamily side, call it two to maybe 50 units or so, really interesting, compelling opportunity where pricing is lower, buyer competition is down. But you also have a lot of these, you know, so called tired landlords and needle in haystack kinds of situations that you can find in small multifamily. So I think there's a real opportunity there. Large multifamily, maybe not so much. I think large multifamily still has a little bit more growing pains before it gets its legs back underneath it.

The market tumbled in 2022, when interest rates started to rise. Now you've got a situation where you got a lot of owners that bought during the peak years of, call it, you know, 2020 through twenty twenty three ish, in a lot of distress, loans coming due, loan delinquencies, and we're starting to see some loan defaults. But yet, there's still a bid ask spread where the buyers want to pay less than sellers want to sell for. And there's not really a lot of compelling opportunities that I've found in the large multifamily space yet. I think we got another year, maybe two years before we really see that market come into its own again.

Senior housing, you know, we made that pivot in early twenty twenty five. It's been an incredible extension of our business. Just read a report the other day from Green Street had 20 different types of commercial real estate and their projected returns. And senior housing and skilled nursing were number one and number two. And fifth from the bottom, fourth or fifth from the bottom was multifamily.

So it kind of just underscores that we made the right pivot at the right time, I think.

AJ: Nice. Then kind of going back to the small multifamily versus large multifamily. You you mentioned like the bid and the ask. Like my understanding is with the large multifamily, like both the buyer and the seller, it's extremely sophisticated. Whereas like with the smaller multifamily, like you may find some opportunities where there's not a sophisticated, is that why the market's better in the smaller multifamily?

Brian: Yeah, I think that's true. And you know, sophisticated may or may not be the right word to use. I agree with what you're saying in concept. But I think what you find in smaller multifamily is a lot of owners making individual decisions based upon their own circumstances and situation, right? And if, if you've owned a building for twenty years, and you're just tired of it, you know, maybe you've had some evictions or some tenant non pays or some vacancies, or it's time to remodel, you just don't want to fool with it.

People might just part with that thing at a really, really good price for the next owner just to get out of it. Yeah. And I think you see a lot less of that in large multifamily, because large multifamily generally is owned with investor money. They have a duty to the investors to try to get the best return for them. They might not even have full decision making power without going out to a vote of members or, or some type of committee or maybe an institutional limited partner.

So you just have more kind professional heads in the game thinking about this more as a business than a personal decision. I think that's what splits the multifamily market into kind of the small versus large with the two completely separate owner profiles.

AJ: Yeah. And we're we're in the small small what what you constitute smaller multifamily space, you know, that kind of like 10 to 50 unit range. And, the last few deals that we have picked up, you know, it's it's unfortunate, but, you know, someone passed away and then it's, like, held in a trust. And then the new trustees are like, I don't wanna deal with tenants and toilets. Like so that's been kind of one of the things that's been successful for us recently, which is exactly what you identified.

Brian: Yeah. Very, very common scenario. Right? You you've got, an owner that was probably managing the thing and and dealing with the finances and all that stuff. Owner passes away.

Now there's family members who may never have been involved with that property. Yeah. All of a sudden finding themselves having to quote unquote deal with it, To them, it's not an investment. And to them, it's a pain in the ass, really. And they just want to get away from it and move on.

And that presents opportunity for the next buyer. It doesn't mean the next buyer is taking advantage of the previous owner. It means that they're providing a solution to get that previous owner out. And, you know, and the likely the property needs a lot of work and other things that the next owner can do to come in, make improvements and increase the revenue on that property and really create a really nice long term investment for for that next investor.

AJ: Yeah, that is kind of what I understood of what you said. And, you know, I definitely agree with that opinion. You know, we've been trying to, like work our way up to jump into that 60 plus unit space. And, you know, like you said, the, the buy and the ask are so far off on that stuff right now and, makes it pretty difficult. Well, that kind of brings us to, so you made this pivot over to assisted living because you saw this coming down the road, but can you tell us a little bit about like, I mean, I guess what I, what I would like to know is like, how do you, how do you research and get into that new business to the point where you're like, you know, you're taking on investors money and you're confident to do those projects?

I mean, that's not a small undertaking. I'm slightly familiar with the assisted living business. I mean, unfortunately our, our mom, had to go into memory care facilities. So my experience is from the, client side or the quote unquote, like tenant side of it. But yeah, I mean, if you could just maybe walk us through, like, how, like, how did you decide to put that new business plan together?

And like, what sort of resources and actions did you have to take to, to get to the point where you're like, okay, I'm ready to start buying?

Brian: Well, I'll answer those two questions in reverse order. The, you know, kind of the question about, you know, how do you research a new business like this to be comfortable with your competency?

AJ: Yeah.

Brian: I don't have an answer for that, because I don't know that you can do that very easily, frankly. In fact, it may be nearly impossible to do in the timeframe that you have in order to accomplish it, which is why I didn't do it that way. So to try to learn a whole new asset class, especially one with the operational complexities like senior housing, assisted living memory care, and skilled nursing, It would take years to learn that. And years from now, this opportunity to make really sound acquisitions at a really low basis at the bottom of the market cycle is going to be behind us. So I didn't have time for that.

Instead, this business line came to me more as kind of a bit of just years of preparation and luck. And what I mean by that is, twenty five years ago, a friend of mine was helping me with my house flipping business, and was kind of my right hand guy. And when he was done doing that, he left the job he was at that was that was helping me and went to work as an acquisition specialist for a senior housing provider. And for the next twenty years, he worked his way up the ladder through the corporate structure and you know, through a series of job changes. His last job was the president and CEO of a REIT that acquired and held senior housing, skilled nursing, memory care, and assisted living.

And he ran that REIT and built that REIT up over about a twelve year period. And then lo and behold, early twenty twenty five, he comes to me with an opportunity because he wants to go out on his own and, you know, strike it as an entrepreneur rather than being the guy working for somebody else. And he had a nine property portfolio in contract that he had secured through his relationships over the years, and asked me if I would be interested in partnering on this deal. And I said, Absolutely not. You know, I don't know anything about senior housing.

And, and I don't want to do, you know, one off nine property deal and, you know, have that just be a distraction. Instead, what I want to do is I want to raise a $50,000,000 fund, and go attack this sector with some vigor, because I really see an opportunity demographically, with, you know, the aging population, the fact that nobody's building, the fact that the market bottomed after COVID. COVID just killed the business and the markets bottomed and prices are at a ten year low. So you've got low prices, massive demand and the whole setup for an incredible bull run and buying at the bottom of a cycle. And that's what I really like to do.

So that's exactly what we did. You know, we went out and raised a big fund and we're buying all kinds of stuff, not just one portfolio.

AJ: Can I ask how, how did you identify that the prices were low? Like after COVID, I guess I'm not super familiar with that market. So, I mean, I guess how did you identify that?

Brian: Yeah, you know, there's some really good dedicated research organizations in the senior housing space that do nothing but study transaction data, you know, pricing, cap rates, you know, capital movement, all of those things. And the data is out there. And it's not free. But if you buy the right reports and you read them very closely, you get a really good picture of what's happening. And I've got some interesting charts that show pricing and where pricing has been over the last twenty years and how it peaked right before COVID.

COVID destroyed the industry by literally killing their resident population, literally.

AJ: Yeah, literally.

Brian: And then the resident population that wasn't impacted by the pandemic was pulled out of facilities by their family for fear of them being impacted by the pandemic, and or they couldn't go and visit them and those other kinds of things. So the industry just really suffered. And that caused the incomes to collapse, it caused values to collapse, it caused foreclosures, it caused distress. And that's what we're doing right now. It's like, you know, I've always been the guy that, you know, maybe this comes back from my law enforcement days, I used to respond to traffic collisions.

And, you know, you're the guy that's there to sweep up the glass. Well, this is the same thing. There was a, there was a traffic collision in this industry, and I'm here to sweep up the glass because there's a there's a really compelling bottom of the market opportunity with strong demographic tailwinds. And that's where I tend to operate the best. And I thought this was a great opportunity to have another run like that.

AJ: Nice. I mean, I know that, you know, we've been in the business a while and, I keep, mean, I have, I think I've heard for fifteen years that, you know, the baby boomers are going to retire and there's going to be this huge influx into the, you know, assisted living. My understanding of it though, is that it's, it's been more delayed than like what the economists or the data has like kind of suggested. And, I think what I'm hearing from you is like that time is starting to come. Is that kind of what you're seeing?

Brian: Yeah, that time is coming. The aging population is here. They call it the silver tsunami and 80 population is forecasted to double by 2035. Yet at the same time, no one's building in any quantity, at least new assisted living and skilled nursing facilities. And frankly, why wouldn't they?

I mean, you know, we just we just bought a portfolio of assisted living facilities at $35,000 a bed, and it would cost almost $200,000 a bed to build those brand new from the ground up. And these facilities are like 20 years old. I mean, were built in 02/2010. It's not like we're buying stuff that was built in 1950. So there's really, you know, it's difficult to make the numbers work construction, except at the very, very high end and super expensive, segment, you know, the, of the sector.

AJ: Yeah. The, you said the, the buildings kind of ages like 2,000 to twenty ten. So it's not even through its first like cycle of renovations.

Brian: Yeah, that's right. It isn't. And you know, we just bought another seven property portfolio that was built in 2015. So you know, all, you know, really, really new, very nice facilities. You know, since, since June, we've bought 21 facilities in 20 cities in four states.

So it's been, there's been some incredible opportunity out there. And some of this stuff, you know, we closed on one portfolio at 60% of the previous owner's loan amount, and another one at 45% of the previous owner's loan amount. So, you know, when you when you factor that they had equity in that to begin with from, you know, a purchase price, percentage of prior purchase price, that's that's a pretty significant haircut.

AJ: Yeah. Now the, the the kind of difference in, you know, our listeners are probably not, you know, investing or buying, assisted living places or probably not even buying like large multi families. But the, from my understanding, like the there's kind of a significant jump from the operations of multifamily to like the assisted living. Like there's a lot more, I mean, just health requirements. Do you have to do don't you have to have like a doctor either on staff or on call or, I mean, there's just like some operational challenges.

Like how, how are you dealing with those?

Brian: Yeah, the operational challenges are massive. Difference between operating a multifamily property and operating an assisted living or skilled nursing, you know, especially skilled nursing, skilled nursing is even far more intense, and operationally intense than assisted living. It's a it's a massive difference. But I'm a real estate guy, right? I know real estate, not patient care.

And I don't want that to change. We don't want to know patient care. So the way we approach this business is just like anything else as real estate guys. Yeah. So you know, we have best in class regional operators in place at the properties that we acquire.

And in many cases, we're just simply triple net leasing the properties to those operators. So we have no operational risk, no operational responsibility. We don't even have exposure to things like increased insurance and property tax rates, nor capital improvements or repairs and maintenance. All that's handled by the operator by virtue of the triple net lease. So for us, this is simply what we've always been good at a real estate investment and nothing more.

AJ: You know, and your book, the hands off investor is like essentially how to interview an operator. So are like, are these operators, are they coming from your partner's network or like how, I mean, how does identifying those people and making sure that like, you know, they're gonna, you know, keep paying the bills, right?

Brian: Yeah, that question kind of dives back into your earlier question about how do you handle the learning curve about going into a new sector like this and underscores the importance of my answer that I wouldn't try to learn this on my own, nor would I have ever attempted to be in this business if I didn't have somebody with twenty years of experience running this platform. And this is the one of the main reasons why, right? I I can find real estate and buy real estate and get loans and financing and all that stuff, no problem. But knowing who the good operators are, who to work with, who to avoid, more importantly, is really where the rubber meets the road. Because everything here comes down to operations.

If you have a bad operator, they're not going to be able to pay their rent, because nobody's going to be living there because they're a bad operator.

AJ: Yep.

Brian: So the decision you make in operator selection is going to be the most critical decision. And I don't think you can make that by, you know, going on Google, using AI, the old yellow pages from back in the day. You know, this is something where you want to know these operators and have a long standing relationship with them. And that's exactly how we're finding all of our operators. In fact, it's so important that we approach this business in reverse.

Like in multifamily, what you'll do is you'll find a market you want to invest in, you'll find a good property to buy, and then you'll go find a management company to run it if you don't have your own integrated management, right? That's how you do multifamily. We do this completely backwards. So in skilled nursing and assisted living, you know, we know who the operators are out there that we want to work with. And, you know, we talk with those operators, and we find out where are their facilities within their geographical footprint that we could acquire, and they could either take over, or perhaps it's when they're already running, and we're buying the real estate from whoever the real estate owner may be at that time.

And we get to keep those operators in place. So so for us, it's operator first real estate second, because, you know, that'll make or break you.

AJ: Yeah, for sure. And, you know, if if you're buying the real estate that they're already operating in, then this kind of system must be set up for assisted living. And that's, that must be like the way it's normally done, I guess.

Brian: Yeah, generally, you'll have it that way where there's a real estate owner and an operator and they're in their separate. Now, certainly there are some fully vertically integrated owner operator groups out there. There are those. But more often you'll find where there's a real estate owner and an operator and they're different because it's a completely different skill set. You know, the operator's specialty is patient care, you know, building a staff, hiring Networking with hospitals.

Yeah, hiring nurses, you know, networking with hospital referral networks to get referrals, you know, all of those things are their day in and day out bread and butter. And real estate people, you know, ours is debt and equity, capital stacks, you know, IRRs, cash on cash returns, you know, those are the, you know, the ethos that we live by. So those are typically elements of the skill set that the operators don't possess, you know, they don't have capital relationships and, and all those things. So, you know, we really do need each other, you know, they need us, just as much as we need them. And it turns out to be a great partnership if you have the right players in place.

AJ: Nice. You know, now going through this experience, if you were to go back to multifamily, I mean, do you think you'd start with the property management companies and then find stuff that's in their area or still just go towards market and, geographic area?

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Brian: Well, you know, multifamily in one in one respect shares a common trait with us with the senior housing space. And that is, is that the management on-site will make you or break you. So I do agree that management selection here is still just as critical in multifamily. Having said that, it's a little bit easier to replace an underperforming management company than it would be to replace an underperforming skilled nursing operator. That would be a very intensive thing to have to undertake.

Now, we we have our own vertically integrated multifamily management. So I don't really have to worry about the management company side of it. We have our own internal team that does our multifamily management. Unlike what we're doing in senior housing where we do not. In multifamily, we do.

So I just keep doing what we're already doing, use the excellent team we've already built here at Praxis Capital for them to manage whatever other multifamily acquisitions we may acquire in the future.

AJ: Yeah, I, we, we actually, I mean, the, my, my guess is, is that the operators, the number of operators that are out there for assisted living is so significantly less. Like we're in Portland, Oregon, and I think there's gotta be three fifty or 400 management companies just in the city. If we took a look at the assisted living operators in the city, I would imagine it'd be significantly less. And so that sounds like the partnership that you have with that operator is very, very crucial.

Brian: It's extraordinarily crucial, crucial. And yeah, you're right. You know, I don't know the numbers for your area, but maybe there's a dozen or less, right? You know, there's, there's just not a lot. And so, you know, for us, it's, it's about the relationships that we have with, you know, really good operators in markets where we would want to own, you know, there might be some markets where we aren't necessarily interested in owning, you know, and more so from the regulatory side of it, know, like New York, we probably wouldn't want to own facilities in New York, you know, there might be some others as well.

But it really, really, again, know, you just can't stress enough how important your boots on the ground team really is.

AJ: Yeah. And for for this assisted living market, it sounds like you believe that we're we're at you're at the bottom, you're buying at the bottom and it's it's on its run up. Do you do you foresee that this is something that is just going to be another wing of your company or is this kind of a, you know, an opportunity that's going to last five, ten years or kind of how do you, how do you see that going in the future? And I know you, you don't have a crystal ball in front of you, but you know, if you had your druthers, what would it be?

Brian: I have the magic eight ball. Let me shake that and see what that says.

AJ: Yeah, you need to let me borrow that.

Brian: Yeah, I'll, I'll, I'll loan it to you. So I think that this is going to be an additional arm of our business for the long haul, at least, at least for now, as long as the opportunity is here. I think that, you know, the facilities we're acquiring are going be medium to long term holds. This is definitely more of cash flow business than looking for, you know, extreme value add short term appreciations and pops. You know, this isn't something where we're looking to buy something for $10,000,000 now and sell it in two years for 20,000,000.

That's not the thesis. The thesis here is really strong cash flow right out of the gate. So you know, I really, you know, you kind of don't ever want to sell them because they're just going to be generating so much cash and we're buying this stuff, our, our median cap rate is 10.2. You know, and when you're borrowing at 6%, and you're buying at 10.2 caps, the cash flow is off the charts. Yeah.

So it really is kind of a more of a long term cash flow play for us. And multifamily has been our core competency for, you know, quite a few years. And, know, I don't see that going away. But I don't see it coming back just yet either. Because, you know, I just don't see the opportunity.

Know, to what we're doing with our senior housing strategy, cap rates in multifamily are in the fours and fives, you know, maybe upper fives, and borrowing rates are in the sixes. So you're upside down day one, and that just doesn't really get me excited. It's still not a cash flow business, it's still more of a value add, you know, push the rents and value kind of a business. And until it gets back to being a cash flow business, which I think it will, it's going to have to, you know, we're still not getting back in just yet.

AJ: It's understandable. With the wait, so you said medium to long term holds. And I think everyone's kind of definition of that is different is can you give a little bit more clarity of like what that means for you?

Brian: Yeah, medium to long term for me would be seven to ten years, you know, we generally would sell stuff in three to five years in the multifamily side, I think the longest I've ever owned a multifamily property was like six years, outside of some personal investments that I've had for like fifteen or twenty. You know, it's been more of a shorter term hold. But the assisted living, skilled nursing, memory care, I could see those being seven to ten year holds and, and perhaps there's even an outlet to hold them beyond that period of time, if we can create some liquidity options through, you know, a REIT roll up or something like that.

AJ: Yeah, Can, can I ask more about that? I think I kind of understand what that is, but you're talking about, a REIT like investing more and then that gives you cash to pay off investors. Like how does that work?

Brian: It does through a REIT roll up, what you do is you're basically converting your, your LLC to a to a REIT. And then once you've done this kind of roll up into the REIT, then investors can sell their shares. And you create liquidity, the ability to have liquidity for existing investors, they could sell their shares and get out, or they could keep their shares and stay in. So it just, it allows people an off ramp. And it's a, you know, if you built a large portfolio, you can do that.

It doesn't work if you own a couple properties. But, you know, we've, we're up to, you know, almost 150,000,000 already. And it's only been six months, you know, when we get this thing up to a, you know, say a $500,000,000 portfolio or something like that with, you know, 50 to 75 facilities, it's a it's a really good opportunity to roll that up into a REIT structure, and allow investors that want to continue the investment to receive cash flow distributions just as they have, and investors who want to, liquidate and move on to something else, the ability to do so. And that's just one of the exit strategies that we have. We've actually identified six different exit strategies for this line of business.

One being just selling properties one off just like we do with anything else. And another would be sell the entire portfolio, you know, another REIT may come along and want to give us incredibly insane low cap rate, high value premium premium portfolio, yeah, premium, and buy the whole thing. So, you know, there's a there's quite a few different exit strategies that we've got here. And, you know, we'll see how this how this plays out. All of them look very compelling.

It's just a matter of which one is the right one to execute on.

AJ: Well, it's timing too, right? Like, that buyer's got to come by or you've got to, with the roll up, I'm assuming that that would be something that you'd initiate? Or is that something that you'd partner with a REIT and they'd kind of walk you through?

Brian: No. We would initiate that and just create our own REIT.

AJ: Is that something that you've done before?

Brian: I haven't, but my partners have. So Okay. Fortunately, we've got that skill set in our toolkit.

AJ: That's awesome. Yeah. I we were we were talking with someone else and, you know, we've we've only done single asset syndication so far. But, know, the talk of, you know, putting together a fund has been, you know, you always talk about like, what's the next step and it's, I'm, I'm actually, I'm kind of curious to get your opinion, like, you know, how much of a track record and what, what would be good to show before thinking about starting a fund?

Brian: Yeah, you nailed the question. The question is track record, because if you're doing a single asset syndication, your investors are looking at the asset that you're acquiring, they can underwrite it alongside you, they can go drive by and see if they like it, they can decide whether they like the business plan, the thesis, the location, all of those things, and make they can make an investment decision. When you're when you are doing this under a fund structure, the investor really only has one thing, and that's that they trust you that you're going to do it right. Yeah. And so how do you build that trust with the investor so they can have that confidence?

And really, track record is the one thing you've got, and you can show like, here's all the things we've done, here's all the properties we've acquired, here's the results we've achieved. You know, that's one element of it. The other is, is that people worry about, you know, are you going to be honest, right? It's like, okay, money goes into a fund, which is basically a black box that allows you to do anything you want with that, with that capital, how do I know that you're going to deploy it, the way that we're specifying it's to be deployed, and, you know, in the types of assets and so forth. So, so really, the decision to convert from single asset to funds really comes down to how much trust your client base has with you as an operator.

And that trust oftentimes comes down to your track record. But it also extends beyond that to where, you know, you want to know that you know, we've got a lot of people that have invested with us repeatedly, deal after deal after deal, that means they trust you. When you get to that stage, then you might be about ready for a fund. But you'll be surprised how incredibly more difficult raising money for a fund is versus raising money for a single asset syndication for a lot of operators that are new in the fund business.

AJ: Yeah, that makes sense. That was kind of what I would have anticipated. My brother on the other hand is like, well, let's just do a fund. It's gonna be easy. And I'm like, okay.

So.

Brian: Well, when you're considering a fund, one really good way to start a fund is to seed the fund. In other words, you know, go find three or four properties that you have in contract that you can put into the fund to start the fund off. Yeah, because then you can show investors, here's the first five assets in the fund. And you know, we're going to buy 10 more that are going to look substantially similar to this. That helps you out a lot in raising money for a fund.

And that's also what we did in our senior housing fund. You know, when we launched the fund to investors, we had nine properties in contract that we could show them they could go look at it. And it's amazing how many questions we got about those nine assets. And, you know, on one hand, you kind of want to answer this is nine assets of what's probably going to be 50. So you're, you're, you're asking a lot of questions about these, that may not be all that important when the fund is all said and done.

But to an investor that that's all they get to evaluate, you know, they're right to ask all those questions about those assets. And once they get comfortable with it, then they're like, Okay, you're gonna buy 40 more similar to this, and I like these nine. So I'll probably like the other 40. I mean, you know, we raised over $6,000,000 in the first twenty four hours. So you know, it's, it helps a lot to have what I call a semi blind pool, you know, a blind pool is give us money, we're gonna go buy stuff.

Yeah, right. And identified asset is we're buying Marvin Gardens, give us money to buy Marvin Gardens. But a semi buying pool is where you say, here's five properties that we're acquiring, you know, give us money, and then we're going to go buy these five and five more just like it.

AJ: Right. With, was, were those nine properties? Was that just one portfolio or were that nine separate contracts?

Brian: It was one contract, one seller, one operator.

AJ: Yeah.

Brian: One portfolio. Yeah. And that's how we've done most of these. We bought a nine property portfolio, a seven property portfolio, two two property portfolios, one single, and now we're just getting ready to sign a purchase contract on a four property portfolio. So more and more of the stuff we're buying is in portfolios as opposed to single.

AJ: I'm kind of curious who who's who are the sellers? Like, I know that you said that, you know, COVID hit hard, but like, are these sellers, are they investors like us or are they, I mean, nine, nine property portfolios pretty large for assisted living.

Brian: It is. Yeah. And it's all over the map,

AJ: you know,

Brian: so we had the first portfolio we acquired, the seller was a REIT. And this the seller had acquired the the assets through an M and A transaction with a family office that was the previous owner, the previous longtime owner, there was a merger. By virtue of the merger, this REIT acquired these nine facilities. The REIT in the merger was an operator as well as a real estate owner. And now there's this situation where this operator is leasing to a competitor.

And the operator in place is leasing from a competitor, and neither one of them wanted to be in that situation. So they needed a strategic breakup. And we were the solution to come in and be the new real estate owner, because we're not an operator, we're not a threat. We had another portfolio that was owned by a doctor who got in way over his head after COVID fell behind in the bills and just could never get get their head back above water. They were being forced to sell by their lender.

It was a lender short sale. So really, it was the lender in charge of the of the disposition. We had another one kind of similar situation. It was a group that invested in single tenant restaurant, triple net buildings, and, you know, went and tried to do assisted living, they bought these facilities were the only ones that they owned. But again, under COVID, they got in over their head and had to get out and their lender was in charge.

We had a nine portfolio, seven property portfolio was built by the original developer, the developer was selling because they were getting out of the business. You know, they developed, they did well, they were wanting to move on, and we're just selling. So you know, there's, there's as many reasons as there are properties just like in any other sector.

AJ: So it's, it's, it's like another market. I mean, it sounds for the most part though, it sounds more like larger multifamily where they're more sophisticated sellers, but there

Brian: generally, yes.

AJ: And I mean, from what you described, it seemed like through COVID, there's been some pain. And so there's there's these reasons that they're selling, which is, you know, when there's compelling reasons to sell, then that brings good opportunities is my understanding too. So chaos breeds opportunity. And the

Brian: more chaos you have, the more opportunity there is.

AJ: Awesome. Well, Brian, it's been great. I've got our last four questions here to wrap up. So I'll w unless there's anything else that you want to chat about before we wrap it up.

Brian: Let's do it.

AJ: Okay. First questions. What's one piece of advice you would give to your 25 year old self?

Brian: I would say that partnering up with the right people will expedite your roadmap to success. When I was my 25 year old self, I felt like I had to be the one that did everything. And I didn't want to have partners. I wanted to be the Lone Ranger. And this business is a team sport.

And it's amazing how much more you can accomplish when you're aligned with the right people. And I would say, don't try to be the lone ranger build a team that has the right skill sets, and you'll be able to be more successful faster than trying to do it all on your own.

AJ: I like it. I know that I've partnered with my brother, but we've, you know, grown up together a lot of trust there. This, we're about to close on a deal that we're partnering with another property management company out of Seattle. And, that's, this is going to be our first foray into like a significant business partner, I want to say. So, so far it's all been great.

All right, next question. What was your first entrepreneurial endeavor?

Brian: My first one was my grandmother had a pomegranate tree in her front yard, and I would pick the pomegranates and set up a card table at the side of the road and sell the pomegranates to people passing by. So my first business was selling pomegranates for, I don't know, 10¢. I don't even know what I was charging for them.

AJ: I Kind was of like the lemonade

Brian: stand, Yeah, just like the lemonade stand except pomegranates.

AJ: That's awesome. Very cool. Next question is how has your formal and informal training shaped your journey?

Brian: Well, I don't have formal training. I have a PhD from the school of hard knocks. So I think that the one thing that shaped my journey more is the experiences that I've built over three and a half decades of investing in real estate, I think that's shaped it more than anything else. And it's where I've learned the most that coupled with, you know, leveraging the knowledge of my partners, and you know, just other people I know, that's shaped my journey far more than any kind of formalized training.

AJ: Yeah, I'm a more our kind of answer is like both of them coupled together the experience just, there's there's no substitute for experience.

Brian: Especially experience in a bad market, because it's amazing how much more you learn when things are going wrong than you learn when things are going right. You've learned very little when things are going right. But when things go wrong, you learn.

AJ: Very much great. All right. The last question is, is what was your biggest mistake? And then what did you learn?

Brian: Oh, wow, that's a good question. Probably, I would say, overleveraging. You know, when I when I was in the great financial collapse of two thousand and nine, real estate collapsed first. Started going down in value around 2006. So in 2008, I bought a multifamily property.

It was a 50 or 60 units. And I paid about half of what the last guy paid. So I thought that was a brilliant Seems

AJ: like a good deal.

Brian: Yeah, that's we're starting off good so far. But to make it even sweeter, the seller's lender had this property in receivership and really wanted out. And so they said, we'll leave the loan in place, we'll write down the principal balance to your purchase price, and in essence, giving me 100% financing. And so now I bought like this, you know, 50 or 60 unit deal, I think it was 60 units with no money down. Yeah.

Which that's what all the books say you're supposed to do, right? You buy real estate with no money down. This is a good thing. So you know, pay half the price and get no money down. Thought that was a real winner.

But then, then about, you know, so I close on it, it's 80% occupied, I start fixing up units, I get it to like 98%, 99% occupied rents are up. And this lasts for like a week. And then all of a sudden, Bairstjern's collapses and Lehman Brothers collapses, and you know, the whole market goes to hell in a handbasket. And the great financial collapse of two thousand and nine is underway. And I discovered that having that high 100% financing leverage was now a liability far more than an asset.

Because when, when I used to joke that half the units were empty, and the other half weren't paying, it made it really difficult to survive in that kind of an environment. And you know, the higher your leverage, the higher your payment, and the more income you need to have. So as it turned out, I ended up having to make that mortgage payment out of my own pocket to the tune of like 15,000 or $16,000 a month. I did that for like three or four years, before the market finally turned around and came back and occupancies came back and rents came back and, you know, the property came back, values came back, cap rates compressed, I was able to sell it for a profit. But that was a really tough set of years having to write that check every month.

And I learned very, very clearly that conservative leverage gives you the ability to sleep a lot better at night than 100% financing. So it kind of changed my approach to commercial real estate.

AJ: Yeah, I think that's, that's good. That's definitely want, you know, the DSCR so that the rents pay the mortgage for sure.

Brian: But even when the market isn't good, right?

AJ: Yeah, you can have a of DSCR

Brian: at the outset. But if if the tenants move out, then what?

AJ: Yeah. You know, I was a lot younger in 2009. I think, Chris and I were just getting into real estate. Like we'd bought maybe our first couple houses or something like that. But did did, did rents really did did people really move out that much out of apartments?

Like we weren't looking at apartments then, So I don't have a good, like subset of data, but I mean, the market that we were in, like rents stayed the same, if not went up and, you know, all these people that had to move out of single family homes because they lost their variable rate mortgage or whatever had to then or went bankrupt or whatnot had to then rent. And so rents actually for us were great. But we were in the Portland market.

Brian: Yeah, well, this was in the Dallas market, which was one of the top markets in the country. Yeah, even throughout the economic collapse. And, you know, before the collapse, our occupancy was in the high 90s. Yeah, after the collapse, we struggled to get out of the 60s. And that's physical economic occupancy, we struggled to get above 50%.

We were in the 40s. The economic occupancy was so low, the property generated just enough income to pay the expenses, insurance, payroll, repairs and maintenance, but nothing left over for the mortgage payment. So the answer to your question is, is yes, rents do go down, and occupancy does go down. And you know, if you have a low leverage loan, you can survive. So, you know, I mentioned earlier at the top of the show that, you know, we had a lot of multifamily, I had 4,000 units when the market was, you know, went through COVID.

After COVID, I saw that there was a chance that the market was probably going to suffer. So we started aggressively selling and we sold 3,000 of our 4,000 units right before the collapse. And the collapse happened in the 2022. I can almost identify it to the day. And you know, we've got 1,000 units still.

And we've had to ride through this whole down cycle with this 1,000 units, and it's been a grind. But the one thing that saved us is going into these deals, our LTVs were like 55% to 65%. So that allowed us with ten year maturity, so that allowed us to get through without some of the stuff you're seeing with other operators who are out there that had, you know, 85% LTV bridge loans with short term maturities that are finding themselves in all sorts of distress. So you know, I think that leverage point really seals your story, right? Whether you succeed or fail through a down cycle market.

AJ: Yeah. Well, I mean, on top of the, the amount of leverage, the type of debt that is too, right? Yeah. Is, you know, the maturity, whether it's variable or fixed, like, you know, the, the higher leverage at a variable rate is just super risky.

Brian: So especially with a short term maturity that forces you to sell in the middle of the down cycle, with no ability to ride it out and wait for the up cycle to bring your values back.

AJ: Yep. Yep. Well, Brian, it's been a blast. Know, if, if our listeners want to reach out or learn more about Praxis Capital, what's what's the best way for them to get ahold of you or get ahold of someone at your company?

Brian: The best way is through our website praxcap.com. It's praxcap.com. You can also check out the book, the hands off investor.

AJ: Yes.

Brian: Availablebiggerpockets.com/syndicationbook, or Amazon or your favorite bookseller.

AJ: Awesome. Well, thank you again for, coming on the show. It's always a pleasure talking with you and, yeah, we look forward to, seeing you again in the near future.

Brian: Thanks for having me here, AJ.

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