Addressing the Housing Affordability Crisis feat. Mark Khuri

Well, hello, future billionaires. Today we are joined by Mark Currie and we are talking about a big problem. Everyone's talking about the housing affordability crisis. What is the future? What does it mean? What, what's likely to happen as we hit this affordability crisis and two potential solutions? So tune in and hear what we have to say about Housing affordability.

Yes. And as always, just a quick disclaimer. Whenever we bring somebody on the podcast that is potentially raising capital, we want to make a point that you need to do your own due diligence. Having them on our podcast does not mean that we are giving them the rubber stamp of approval and have done, done any more diligence other than we have interest and curiosity about what they're talking about, as I'm sure you will as well once you hear. And if you are enjoying this podcast, Please rate and review and help us spread the word. Thanks so much. This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Hello and welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we have Mark Currie on the podcast with SMK Capital Management. And we brought Mark on today to talk about housing affordability. And how they are solving the housing affordability crisis in our, in our nation. There's been a lot of, you know, underinvestment in kind of the lower end of the housing market especially. And he's going to talk about some of the things that they've done, which is pretty cool and excited to dig in. So, Mark, thanks so much for coming on the show.

My pleasure, Ben. Thanks for having me.

Yeah. So maybe just as a quick brief background, you share a little bit of just your story, you know, about SMK. Now you work with your father, which is pretty cool, and just talk a little about your background. We can dive right in.

Yeah, I started in finance working in corporate America, Ben, for a number of years. Started real estate investing on the side, you know, after work, going to Home Depot, fixing up my place, pulling out a line of credit, buying another one, partnering with my brother. Did that for a number of years from 2005 to 2010, built a small portfolio just with family, and we decided to expand and create our company in 2010 to really just keep doing what we were doing. I mean, at the time, as you guys know, there was a lot of buys in the market, 50%, 60% off what properties were selling just a few years prior. So we were taking a bit of advantage of that. And we started also expanding and diversifying into other asset classes that had done fairly well through the recession— mobile home parks, self-storage, some apartment communities— really focusing on diversifying. And so that's a bit on the earlier years. Today we still focus on those asset classes, really just with recession resistance in mind. We raise capital from our investor group and partner with sponsors that are specialty specialists in each of those niches and asset classes. Yeah.

So, so why affordable housing as a segment to focus on? What was kind of the, the way you got into that space and what was interesting both maybe from an investor standpoint as well as an entrepreneur standpoint solving a problem?

Yeah. So from an investor standpoint, about 10, 11 years ago, Ben, I was going to a lot of real estate meetup groups, networking events, meeting people in person. And there was a few folks I met that were investing in the mobile home park space specifically for a number of years. And caught my eye. It had done fairly well, weathered the storm in '08, '09, et cetera. Demand and occupancy at the parks remained high. And so that really caught my eye. That was a bit of a rabbit hole I started to go down and how I got our first look into that asset class. We started investing in it probably about 11 years ago, 12 years ago now. As far as apartments go, similar concept. You're trying to provide a housing solution to those that, of course, have a little bit lower income, middle income, and do it in a place where they have a decent balance of life, where they can commute to work, good access to transit, amenities, and still be able to afford the rent. And so that's been a big focus of ours for a number of years.

Yeah, talk a little bit— or go ahead, Bob.

Well, we're really seeing affordability going down. You know, now we have seen wage gains, you know, across the board in the last few years, which has kind of helped affordability and low interest rates. But, but, you know, really in the last couple of years especially, we've seen, of course, price gains shoot rapidly up, multifamily rents shoot rapidly up. And, and, and it hasn't kept pace. The wages haven't kept pace. So, so really what's happening and it's typical of inflationary times, it's the lower quartile, you know, lower earning quartile of the guys that are the ones that get hurt the most. And I think, you know, a lot of coasts and other places are just very, very, very expensive. So, you know, just talk generally about housing affordability. What's, you know, what's behind this and, you know, what's, you know, how is it going to be solved and is it going to be solved?

Yeah, great points, Bob. You know, In middle of 2021, the National Association of Realtors came out with a report, and it was, uh, not necessarily new news, but it definitely made main headlines, which reported just a significant gap in the supply and demand of housing in the U.S., shed a lot of light on the reality of the lack of supply. They noted at the time about 5.5 million units deficient. that had been building for decades for homes and for apartments. Um, there's a lot of charts and data on it, but they also extrapolated and tried to figure out, okay, how long is it gonna take to fill this gap? And one of the data points we looked at showed that if, hey, we take our highest, um, year of new construction and we extrapolate that out, it would take at least a decade to fill this gap. And so, right.

What year was that?

That report came out in the middle of 2021.

Yeah.

What was the highest year of construction, if you remember?

It was pretty recent to the report. So they were going back and saying, look, if we take this data and we say we're going to build X number of units and do that every year, which again is not necessarily an accurate— it's a very aggressive assumption. It's very hard to do. Right. Then we would take about a decade to fill the gap. But more recent data, Ben, to your question, is showing that there is a lot of new construction coming online in 2023 and 2024. This is for apartments. But there was also a drop in permits from October to November this year, about 18%. So I think what we're seeing is that we, as Bob alluded to, there was a lot of run-up in rents in 2020, 2021. We had a lot of developers apply for permits. There was some delays, of course, and in financing and material and construction through COVID. And a lot of those properties are now starting to come online. But what we've also seen is the jump up in interest rates, causing financing for new construction to really almost stop recently. And so now we're heading back down the wrong direction. So when and how we're going to fill this gap, Bob Fraser, and what's the solution? You know, I really don't know. We have a couple strategies that we work on to invest in this area. But that's a great question.

Yeah, we really saw, you know, a lot of people were surprised by the big, you know, kind of hockey stick in housing prices and rents and both hockey sticks at the same time, kind of, you know, and but, but it, but it's been building for quite a while. It's like this spring, you know, compression happening of this demand that has just, you know, there's, there's plenty of demand and not enough supply. And so prices have been steadily creeping high. And then, then really what happened was the stimulus we saw, we saw, I mean, tons of, you know, as the job market cratered, we saw, we saw wages dramatically increase and we saw cash increase. Today, today, we've never seen this much cash in checking accounts. So people are just really flush to the tune of, you know, $5 trillion excess. And so basically consumers, and certainly we're talking about more of the higher end of consumers, are flush and wages are high. So people jumped and the thing hockey sticked. But then to your point, well, now with interest rates and the reaction happening, it's cutting off the new supply. So we are going to see prices continue to rise until demand is, is, is, is gone or it's met by, by the new supply, which, as you point out, it's, it's not coming online, you know. Yeah.

And it's something that I've been hearing a lot of people just more recently, kind of beginning of 2023 is like, oh, just wait for the meltdown in housing, right? It's just, it's the natural reaction to seeing these massive increases in prices, but it's completely, you know, separate.

It never fails. Everybody lives in, in yesterday's crisis, right? Everybody inhabits yesterday's crisis, and it is not— the fact that it's being— there's so much attention being paid to yesterday's crisis ensures that it's not going to be the future. Everybody is on guard, you know. You know, and, and here's another point too. So I just, I just got a new insurance policy on my, on my house, and they came and did an inspection and a replacement cost inspection. And my replacement cost is $70,000 higher than the fair market value of my house.

I'm like, what?

You know, so, you know, there's this point too. We saw during this big run-up, we also saw costs dramatically increase, right? Building costs, labor costs, materials costs. I mean, skyrocketed. We saw, you know, 10%, 20%, almost 30% increases in some areas in materials costs and construction costs. So, so again, that's just, you know, if, if someone has to build a house that's priced 70% higher than mine to make money, well then they can't even compete with my house, so they're not going to build it. So, so again, it just, it just, you know, keeps new supply off the market until prices rise. And I've been arguing for you know, years now that prices are going to have to rise because they're far below replacement costs and there hasn't been enough construction, especially in single-family.

Another point to add to that, Bob, just regarding the, the demand, right, and the lack of affordability really for homes, you have some data showing that the percent of households that could afford a home, you know, dropped significantly, um, I think it was in from 2010 to 2020, right? The last decade, 45 to 50% of Americans throughout that time could afford to purchase a home.

Wow.

And in 2022, that dropped in half. It's about 25%. Wow.

Yeah, you know, you know, so here's a point that is missing from, from a lot of, a lot of time. So I spent, you know, 10 years ago, I spent 12 years traveling the world and speaking. And so I'm very, very familiar with how the world lives overseas. And you go to Europe, I mean, you're— you get an apartment, it's a third the size of a US apartment. You get a house, it's 25% the size. You go to Asia, Korea, Tokyo, you go anywhere, it's— there is no square footage. And, uh, You know, that's one way to get affordable. You know, it's just to build, build little cubbyholes, you know, and with doors on them, you know, but, and I guess the point I'm making is that the world has adapted, right? The globe has adapted. America is still got lots and lots of square footage. And we have these humongous houses. When I invite my friends from overseas over, they go into our houses, and even a modest house here, they go, oh my gosh, look how 'Big, this thing is.' And, you know, they're just every— you know, they're just wowed by the, by the, by the space. So I, I do think we're gonna see, you know, you know, I, I think we're going to see more, more stuff come online, as you said. I think we're going to see higher densities, to my, to my point. And I think we're probably going to see pushbacks, you know, uh, policy-wise. We're going to see rent controls, you know, these kind of things. So those are the 3 things that come to my mind. You know, anything, anything else?

Well, I was curious to hear with your international experience, Bob Fraser, do you think that maybe we're heading in that direction where homeownership in the US will be for the minority, not the majority?

You know, I think Americans love homeownership. Our politicians love it. I think you're going to continue to subsidize it, you know, homeownership and I think we're going to see higher densities and lower square footages.

I think part of that reason too, in Europe especially, is just lack of land, available land to develop on. So you naturally have a constraint of new supply. We have a lot of vacant land in America. But I do think the bigger issue is not space, it is affordability and overhead costs like just the raw land and the labor. You know, we are seeing some softness in like lumber, other things come off in the short term. But as those continue to increase in land especially and labor, then you are going to have to shrink square footage to deliver the same priced product.

Right.

You know, you cut the square footage in half, you cut the price in half. So I mean, pretty close. Pretty close. So, you know, let's talk about rent control for a minute. So I actually went to school at Berkeley, you know, UC Berkeley, which was Berkeley— the town of Berkeley, as they call it, the people's Republic of Berkeley, you know, famous for rent controls all, all since the '80s, rent controls. And oh my gosh, horrible, horrible policy. You know, it means everything is just trash. The, the landlords cannot afford to fix up any properties because they can't, they can't, you know, get any rent to cover it. So everything is dilapidated and then people never leave. They will not move out because as soon as they move out, the rent controls go on. So you get this, you get this just bizarre economic reality. But, you know, you know, I've not seen a lot of data on rent controls or a lot of kind of push towards rent controls. Are you ever— you have anything on that, Mark?

You know, we read about it a lot, Bob, because it's top of mind for some of the sectors that we invest in. A lot of it for us is, you know, what states are we investing into, red or blue? And we try and direct that decision-making towards a little bit more land.

So you are concerned about rent controls?

Yeah, it's definitely a concern, uh, not to the point where we shift our focus to some other asset class to avoid it entirely, but we are strategically looking at it. Um, but recently, I'm trying to remember, guys, maybe you know if it was St. Louis or there was a city in the Midwest that implemented very strict rent control in the last year or two, and all development stopped, permits were canceled, and they've since retracted and walked back and are removing the policy. So that story sticks in mind where they came out with very strong policy change in process, and then they realized that it's actually more hurtful than beneficial and reversed course.

No kidding. I mean, Economics 101, every time you ever implement price controls on anything, you end up with shortages. That is It's every time in history it's ever happened, that's been the result. It seems like our politicians should be required to take remedial economics, you know, just Economics 101, you know, and we should eliminate all lawyers from policymaking. They should be, they should be hired, not, not appointed or elected. Anyone who doesn't understand economics, it's just, it's so ridiculous. Yeah, you, you limit the price of something, you get shortages of it. Hello. You know, am I going to manufacture something at my loss, you know, that cost me a loss, you know, and try to make it up in volume? You know, it's not going to happen.

It is interesting, too, in the current environment because, you know, it does create shortages in the long term. But we already have shortages right now, acute shortages. So it's— they have competing priorities, right? They want to have affordable housing, but they also need more. And so I'm curious to see as, you know, the conversations go on and policies, you know, try to get implemented, if that's going to be a common theme where ultimately it's just the, the shortage is already too great in the current environment to even make sense to, to do that.

Yeah, we're tracking it. We'll see where it goes, guys.

I have, I have no doubt it will be implemented here and there, but it's not going to help. It's certainly, you know, it's going to be— it's just going to cream some people, but Your focus on mobile home parks as affordable housing, talk about mobile home parks meeting the affordable housing need and why that's a thing.

Realistically, mobile home parks are probably, if not the most affordable housing solution in the US. They come with a lot of negative stigmas, Bob, people that maybe don't understand them or haven't lived in one or have pre-misconception about what they might be like. And so we've been investing in them for many years. One of our favorite asset classes. There's some interesting supply-demand constraints there that you don't see in many other asset classes, specifically on supply. Very hard to build new mobile home parks in desirable locations. That are actually affordable. And so you actually see year over year, the number of mobile home parks in the US is either flat or declining. Sometimes they will raise them and build a much better, higher, and best use for tax purposes for the local county. They're typically not the highest and best use. And so you don't see a lot of new mobile home parks being built. And the one—

So how is it an answer to affordability if is they're impossible to build.

It's, it's a lack of affordable housing because they're very hard to build. From an investor standpoint, uh, being a bit more selfish, I guess, we like that. It creates a bit of a moat around the asset class. It creates a barrier to new supply and competition. And so for affordable purposes, you know, typical rents, you'll usually, if you're, you're owning the home, you're paying a lot rent to the park owner, and that lot rent can vary anywhere from $100 to, you know, $1,000 a month. We tend to be in the $300 to $500 a month lot rent range. And so it's— if you own your home there, then it's obviously one of the least cost housing options there is.

Yeah. And, you know, we've heard a lot about mobile home parks. I personally never, never invested because it seems like it's just a very difficult asset class to get into and to get into in an urban setting. Right. A lot of it's rural. And, you know, so really, is there really, is there really opportunity for investors today in mobile home parks?

Yeah, good question. So I'll share this. 10 years ago, you wanted to invest in a mobile home park, you could almost cherry-pick the type of park. You could say, okay, I want, you know, within 15 minutes of a major MSA, I want all the residents to own their own homes. And going in cap rate of 8 to 10%. Wow. That was out there. It was almost plentiful. You look today, it's a lot more competitive, Bob. You've had a lot of institutional players jump into the space. You've had a ton of private equity groups, investors also competing for these types of properties. Now, what that's done is it's reduced cap rates significantly by almost 50% or more. In the last call.

So we're seeing 4 to 5% cap rates, give or take.

Yep. I mean, definitely if you're in—

that's, that's multifamily range, you know.

Exactly. And some markets we've seen, you know, like urban infill, Phoenix, mobile home communities, some of them are selling sub-4 caps in, in the height of the market. No longer as much today. But if you go to secondary and tertiary markets and you're buying from mom and pop you could easily be over 6% going in cap rate. And so there's opportunity just based on location. But you do have a very disfragmented asset class where roughly 80% or more of mobile home parks today are still owned by mom and pop. And so a lot of times what you find there is a little bit of mismanagement, a little bit of human error. We like to see that. It allows us to come in and improve operations efficiencies, manage expenses, grow NOI, add value. A lot of parks, they have vacant lot, aren't— there's no homes on them. So the mom-and-pop owners may not have the financial resources to fund the cost of bringing in homes to those lots and then selling them or renting them or selling them on a lease option. And so you're able to increase occupancy when there's vacant lots pretty significantly. Um, and that's also another value-add play where you're essentially creating more affordable housing by buying these parks and filling some of the vacancy.

We've kind of seen a bit of a bubble in multifamily. Um, a lot of syndicators entering in the space in the last couple years and just pumping up prices with, uh, using bridge debt financing. And I think we're going to see a lot of softness. Um, you know, what's going on in the market? Is there anything equivalent going on in the mobile home market?

Yeah, there is. And we see it because we've invested in both, too, Bob. So I know exactly what you're talking about on the multifamily side. So we've seen a lot of syndicators, young, young groups in the last 3, 4 years that have been focusing on mobile home parks. A lot of them are doing well, but there's just more competition in space. You're seeing—

so they're the ones that pump the prices up and drop the cap rates. And was it a lot of bridge financing? Same thing.

Similarly, yeah, but you also have a lot of institutional groups like Blackstone got into the space a number of years ago and they've been investing in mobile home communities for a number of years and reinvesting. And so it's institutional, it's private equity, it's investor groups. It's also a little bit more mainstream today. So even just individuals are going out and buying mobile home parks as well. Financing is a little bit more difficult to attain than multifamily, especially if the homes are owned by the park. It's a different type of loan product than if you're just buying the land.

Yeah, it makes sense.

And but you can also a lot of times find, Bob, you know, these mom-and-pop owners, they've owned the park in the family, maybe second, third generation, they have no debt on it, the kids don't want it and they want to get out. And so but they also like the income. And so you can do a lot of seller financing there and get a little creative with the capital stack for the acquisition.

So what's your forecast kind of going into your 2023 and beyond? You know, with— you said you're seeing maybe a little bit of softness in some cap rates, maybe, you know, sellers are willing to take a little bit less on kind of in-place cash flow. But I'm assuming the rents have continued to remain strong because of all the dynamics we've talked about, right? The rent growth, that is. We'll probably see some slowdown of the growth, but probably still growth nonetheless. What are you kind of seeing as far as opportunities on the horizon for for that, given the challenges to find some of these historically?

Sure. Yeah, very much top of mind, Ben. We're coming off 2021, 2022, and it's really 2023. So in 2021 and 2020, we saw nationwide 15% average rent growth in the apartment space. And then in 2022, it just got published that it was about 6%. So that's— we're still seeing rent growth, but not nearly to the tune of what we saw in the last couple of years. And a lot of 2022's rent growth was in the first quarter, first half of the year, right, where it slowed down since. But forecasts are still expecting rent growth, like you're saying, but to a more moderate, more historical level, a few percentage points. 6%, by the way, still the second highest rent growth annually on record. And so, you know, keep that in mind. All things are relative. But looking ahead, we are seeing potentially some stagflation, Ben, where we have revenues maybe flat or basically not growing much. And most likely, if inflation continues, increased expenses. So when we're underwriting deals, we really want to look at that and see, does it pass that kind of test where I'll give you a good example. I like looking at a lot of deals, Ben. So there was a deal in July, August of this year, apartment deal. They had a projected rent growth assumption of almost 10% in year 1. I think it was around 6%, 7% in year 2, 5% thereafter. They had a projected exit cap rate of 4%. And so I look at that deal today, I said, gosh, there's no way this is going to work. Like, that's just not— you're not even close. And so, yeah, I heard that sigh. But yeah, that's some of the stuff that we're checking on today is like, if you're going to stress test the deal, how does it pencil if there is no rent growth for the first year or two? Obviously, if there's a value-add play where we can increase occupancy, we can bring rents to market, maybe they're significantly below, that's really where we're focusing, Ben, so we can not rely necessarily just on the market or natural market speculation for growth.

Yeah, let's just—

I'm still trying to get my head around if it's a good time to buy. You know, we're staying away from multifamily right now. We think prices have yet to reflect the new reality of, you know, interest rate costs and, and rents.

Yeah, a couple of thoughts on that, Bob. You know, we haven't done a new apartment investment in about 4 months. So we're also just cautious. We're waiting, we're watching, we're trying to understand where prices are going. I think with the Fed meeting coming up here shortly, CPI data lately has shown that potentially it's peaked. You know, we'll see. We don't know. I think the next quarter or so will be very telling in price— excuse me, price discovery. But as far as deals go, yeah, we're also being very cautious. But at the same time, you know, the deal I just mentioned to you that didn't make sense this summer, maybe they're going to want to just panic and get out of it pretty soon. And so there could be an opportunity there. But at the same time, you know, Bob, if you told me I don't want my house anymore, I want to sell to you for $10, I don't care what the market's doing, we'll buy it, right? So there's always opportunities, there's always investments. We just got to make sure that they make sense. Going in basis is strong and attractive.

Do the bridge lenders do mobile home parks?

Not typically. No, you'll typically—

so, so I think the bridge lenders created a bubble. So if they're not there, then there might not be a big crash, right?

Right. Yeah.

A lot of the multifamily guys focused on bridge debt, which typically has a 3-year, you know, 3-year interest rate lock. And then after that, it's floating rate and they simply will not— they're not going to be able to refinance and and they don't have— they can't cover the debt service. And these things are going to retrade and it's going to be ugly for equity investors, you know.

Yeah, I agree. I think we're going to see some more forced sales coming soon. Yeah.

Mark, let's shift a little bit here, kind of the last part of the show here, just on some of the public-private partnership deals you focus on, kind of in the similar vein of housing affordability, but more in kind of the multi— traditional multifamily sector.

Sure. Yeah. And this is another area, Ben and Bob, where we're focusing on trying to source deals in today's environment. But basically, you know, tax-exempt apartments, it's where we partner with the local municipality, the county, the city, the housing authority in a public-private partnership. And what we do is we allocate up to half of the units for an affordable component. Which is tied to AMI, which is the area median income. And in exchange for that, you get a tax abatement where the property taxes are exempt. You also get, you know, agency-type financing, Fannie/Freddie, which have very attractive terms for affordable housing. And you just create a positive arbitrage with, you know, strong one cash flow in year one to investors, and you're also You know, really, we believe it's a win-win where residents are also being able to afford the rents and keep them that way.

Yeah, that's, that's very cool. Why don't you— can you explain exactly how it works? Just kind of get into the mechanics for a second, how it actually works.

Yeah, I mean, with an example, like, sure, sure. Um, so essentially what we're doing is we're taking 50% of the units at a property and we're keeping the rents restricted so they can't go up too high based on the area median income and a threshold of that. And so I'll give you an example. Let me just see if I can pull one up here. Okay. So one of our latest deals in Texas, you know, to qualify for the property tax exemption, Bob Fraser Fraser, 50% of the units were rent and income restricted based on the area median income, and 50— 40% of the units were rented to residents that earned 80% or lower than the area median income.

Okay.

And the remaining 10% at 60%.

So how much did that cost you in terms of rent?

On that deal, it was, um, I want to say around $250K a year where we were reducing the rent.

Well, that's no small potatoes. So then, you know, what did you get in return?

Property tax exemption, which was, uh, you know, near $1 million a year.

Ooh. So, so right away it hits the bottom line very nicely.

That's right.

So how long do you get the property tax exemption and how long do you have— are you required to keep it in the affordability constraints?

Yeah. So the property tax exemption is for 99 years, Bob, and it's transferable to future buyers.

99?

Correct. Wow.

Okay.

Is that state by state or municipality by municipality or how does that work?

Yeah, it's municipality by municipality, Ben. It is nationwide. There's certain areas where it just doesn't make much sense, right? And so if the rents are high and you have to drop them significantly, it may not pencil.

So, so you, you, in some cases you don't have to drop the rents that much to meet the AMIs. And, uh, and then how long are you required to keep these, this, uh, this rent constraints in, in force?

Well, if you don't keep it in force, Bob, you lose the property tax exemption. Okay.

So it's as long as you keep it in force, you get the— the— I see.

Yeah.

So you literally could decide next year if rents are going up and the taxes are going down, you can say, I'm going to pull it out of the program.

You could. Yeah. Well, that's just kind of like taxes.

That seems kind of like a good deal.

We like them a lot. Yeah.

So the other attractive thing you mentioned, which I think is a big deal right now, is the financing, because agency financing, you know, aside from just the specialty programs, is very attractive, you know, comparative to other bridge debt, other kind of more traditional recourse lenders. And I'm assuming that they have, you know, similar attractive terms on these types of projects.

They do. Yeah. So you typically will see Yeah, more loan proceeds, a lower interest rate, longer interest-only period. So for the deal I just mentioned, guys, that the debt was 76% loan-to-cost, 10-year fixed, 4.94%, 7 years interest-only.

Very attractive.

Yeah.

And I might have missed this, but you say, are these ground-up construction deals, or is these repositionings, or is Both and it's both.

Yeah.

Either could apply.

Okay. Okay. And is it— and how does it kind of start? Do you like when you're looking for these deals, are you going after the municipalities that you know are going to be most receptive to these deals all nationwide and you kind of back into a project that's going to fit? Or do you, you know, kind of first find deals you like and then hope that it's going to qualify for this type of, of a program?

Yeah, good question, Ben. So we partner with an operating partner. I'm sure you guys understand that process, of course, very well, and they specialize in this area. And so what they'll do is they'll typically be looking in certain areas where they already have a concentration of experience and a team on the ground, and they know the market very well, and they know the laws in and out, and they have the ways to— means to get this this type of project approved. And so I think it's probably more the latter, what you noted, where they know it has a higher likelihood of working in certain markets and they know how to actually implement it and they focus in those areas.

Yeah, it's just an interesting area, something that, you know, as a free market guy, I just never think that way, right? If we're the public money buckets out there, but politicians are under a huge amount of pressure to, to solve this problem, even if it's, you know, Band-Aids and baling wire like these programs often are. But they've got billions and billions to spend as part of these— part of the COVID programs and, you know, all these different programs. They've got these giant money buckets they have to spend with these certain constraints. And it's just knowing how to tap those things. It's— and you got to jump through the bureaucratic hoops, but, but they're doable. I mean, I'm just reminded of group I talked to recently, I said, hey, what about doing a project here, land development into a, you know, it was a low-income housing tax credits, LIHTC apartments. And I said, hey, what are the possibilities here for public funding? And he listed 7 programs that this would qualify for.

Yeah.

And basically we build the thing equity without equity, without any equity cost. And I was blown away. Never heard of anything like this. It just— it makes sense in today's kind of government-heavy market. And we're— and yet I'm not throwing the government under the bus. I mean, they're trying to solve a problem and they've got a lot of money to do it. And we need to be smart about accessing those public money buckets as well.

Yeah, we find it to be a great area, Bob. Again, there's nothing— there's no program is perfect, right? You can always scrutinize everything. But if you think you're able to create a win-win or very close to it, especially in an area where a lot of these markets, they just— as we talked earlier, there's suffering for, for new supply that's affordable. And so these types of programs definitely help fit.

Mark, well, thank you so much for coming on and sharing some of what you're seeing in the market and especially how you guys are looking at the affordability issue and positioning yourselves and your investors in a good position there. So thanks so much. What's the best way for folks hear more about SMK.

Sure. Yeah, thanks for having me, guys. It's been fun. Um, our website's a great place. Our company again is SMK Capital Management. Our website is smkcap.com.

All right, thanks so much.

Nice to meet you, Mark.

You too, Bob. Thank you.