How Do You Find Distressed Apartment Notes?

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This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for panties on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close Nodes, Scott Carson.

Good morning, good afternoon and good evening everybody. Welcome this episode of the Note CL show. As always, Scott Carson, excited to be here with the day. Today's episode is probably a burning question for a lot of real estate investors and I get this question probably at least twice a week from people, whether it's an email or a phone call. You know, I'm not, I don't usually get this question from traditional note investors. It comes from people in the traditional real estate space and chasing probably the hottest asset that's animals overpriced assets been out there for the last few years. Now. What am I talking about? Well, I'm going to give a shout out to one guy who reached out and was kind enough to ask the question. He's actually a note investor and this question enlisted question is I'm interested in finding distressed apartment loans. How do you find those types of notes that came from Sean Aziz. Now Sean was very nice. He's been listener for a while. He's a. Scott, you talk a lot about residential loans but how do you find non performing commercial notes, specifically the multifamily side. Now Sean's in it, also an apartment investor. He's out of New York looking New York, which I don't necessarily recommend because it takes forever to foreclose up there. But Sean Shlomo, thank you for asking the question. Thank you for listening. This episode goes out to you, buddy. So anyway, how do you find distressed apartment notes? And now most people don't know that when I started buying notes I was buying distressed apartment notes years ago, back in 2007, 2008 when I got this big listing from Capital One, most of it was small balance commercial stuff and probably half it was small balance apartment loans. 20 unit, 8 units, 6 units, 16. All right, a 75 unit in Dallas, 2021. I mean literally all across the country we were seeing a small balance one. So I bought one in San Diego, we bought a couple in Dallas, one in Houston, one in LA, one in, well, big one, 300 unit in Indianapolis. So how do you find these deals, these distressed apartment deals? Well, there's a little bit of caveat to it before I get into where to find them what you have to keep in mind is you're not owning the property. That's what people are looking for, right? They want to own the property. They want to buy these apartment complexes and turn into cash flow and, you know, buy the business out of it, which is great. But you got to remember when you're buying the note, you don't necessarily own the property yet. All right? You don't own the property. You're basically getting either paid on the monthly payment or you're not getting paid. And you have the right to foreclose on that apartment complex or hopefully negotiate a deed loan, which is actually what we have seen happen from quite a few distressed apartment owners out there. Some big funds, especially in San Francisco. You had a big group out there that deeded the property a big portfolio back. We've seen several Portfolios in Houston, 400, 500 units get foreclosed on. Others where the borrowers are just signed the property and walk away because they can't refinance. It doesn't make any sense for them to have to bring such a chunk of cash to the table to refinance. And now the new interest rate really eats into their cash flow where they're not making much. So there's opportunities. And if, obviously, if you can buy the debt at a discount, well below value, and then try to work it out with the owners to take the property, that would be the ideal aspect of things, obviously, where you step into the cash flow. You bought it at a big discount. It doesn't matter if you're paying investors, you know, for your money at 7, 8%, as long as you had all this equity. On the upside, you want to hold on to it for a while. But there's that transition period, 90 days, six months, maybe a year, depending on what you're doing with your borrower. So how do you find these? First and foremost, take a look at. Because it's a longer process. It's not as quick as a fix and flip or definitely as a residential loan. There's more work into it. So couple sources. You can actually jump on the phone, start calling banks, commercial departments, and you go to, you know, Bauer Financial, purchase a list from them. I like to buy that list about once a quarter. And when I reach out to them, they've got different lists you can buy on Bauer Financial. But I pick up the phone and give them a phone call, say, hey, I want to buy your list of banks that have at least five branches or greater. And what happens when you purchase this list? Bauer Financial Center I have all these columns and you know, rank the banks and I'll tell you what kind of percentage of the bank's portfolio is residential versus commercial with a dollar amount, how much is in nine, how much their commercial stuff's in default, how much the residential is default, how much 90 days past due, how much is 30 to 89 days past due? Which, you know, that's like another quarter coming down. But it also says how much distressed multifamily they have, which is a great column to target. Now they may take that at a discount, they may not. It all varies. Banks sometimes are willing to hold that stuff. They may not take too big a discount, especially if the property value of that apartment complex is quite a bit greater than the unpaid balance or even a legal balance. So you gotta keep that in mind. I've had several sellers and then distressed stuff come to me and they want par. I'm like, I don't want par. I'm not gonna pay par because it doesn't give me any room to make any money in a lot of cases. Okay. But a couple other things that you can take a look at that can help you kind of look at some things that are gonna kind of point you in the right direction. The first thing I like looking at, and this isn't too difficult to find, it's literally pretty easy if you just go out and Google, you know, Google commercial or. Yeah, commercial mortgage service rank servicer rankings. Okay. Or multifamily mortgage servicer rankings. Okay, this. And I've got this pulled up. Sharing my screen. If you're listening to this, you probably want to go over and watch the YouTube video real quick. But if you go to mba.org news, it literally gives you the latest report of the commercial multifamily mortgage servicer rankings. It's an MBA survey of servicers released twice a year, mid year and year end and gathers data on the volume of loan service. It also breaks breakouts for primary master and special servicing, which is one of the key terms you're looking for on the distressed multi family side. If a multifamily property or not put into special servicing, that's like loss mitigation, okay. It also ranks servicing firms by their total servicing volume as well as their servicing for specific investor groups, including cmbs, Life Insurance company, Fannie and Freddie, FHA and other investor groups. Now it's right here. You can literally click on this to download the LACE report and it downloads this PDF report. Now we've gone through this report before when we've spoken to a couple multi family groups and it's worth taking a look at because it's, it's pretty good. This is a year end of 2022 that I pulled up. I, I don't think the mid year is up for this year but it may be. I just, this is the first one that popped up. So it gives you the year end rankings. It tells you total loans. I mean all these big, big firms. Okay. Now I wouldn't start at the very top. Like your biggest ones are PNC, Wells Fargo, KeyBank, Burksdale Commercial CBR, Richard Ellis Loan Services, JLL those are you know, some big teams. Are they going to have some more distressed stuff? Yeah, but they've got the teams. I would be going down to some of the smaller ones. Okay. And not the life insurance companies but I would be looking at, look at these servicers and then it keeps ranking it down. You know we got primary master servicing but if you just keep going through this rank return or purchase servicing lists. If you go down to, let's see this is US Mortgages income producing properties. It's worth looking at just for the list alone. Okay. Just a list alone. So then you can reach out to these servicing companies like Regions Bank. That's a list that we've bought some stuff from before. Might be worth working too. That's a great thing to look at. But if you really want a cheat code to this we found a service that's really second to none. And that company is a company by Crediq. Now their website is credcred-iq.com Mike Haas and his team over there out of Philadelphia. So they're big cowboy fans. I'm just joking. Big, big Eagles fans. I won't hold that against them. But this is a. We, we did a note night in America with them last year on their service and they've just amazing. You could literally search over 2 trillion of commercial real estate in just a few minutes. They've got a free seven day pass to take a look at it. But what's great, you can go in and do a quick search for multifamily and if you just. Let's see here, let's just go down here. Let's just run the website down multifamily and it's search. What's great is you can search by unit types and what's so awesome is that credit IQ actually is reading all these special servicing comments. They could pull a full list of multifamily stuff all across the country and you can, you know a Lot of the stuff is subscription only. You sign up for for a little while. But you can pick locations. Like if I want to look at Texas, let's just type in Texas. All right. Texas usa. You can say building size too. Let's just say minimum. Let's just say at least 50 units and apply. And it's going to pull a lot of every. And it was great. You can see the geographic on the map over here on the right side. But it's going to pull all this stuff up. So let's just click on. Let's look at this Fairfield Trails apartment complex. So I'm going to say where it's at. But what's so beautiful about this? It literally tells you the current balance, mature, the loan status. You can actually see the subscriber information, the cash flow. It's in there. It's all the back office information that you look for. It even tells you the sponsor's name, the people who are signed on, the llc, their contact information, which is really great in negotiating a distressed note. All right, that's cred-iq.com I'll put a link in the description there for. Also put a link into the, the MBA list there for you. But that's the thing. It's just, it's a matter of reaching out on a regular basis to these servicing companies and using. I like to use Credit IQ to find stuff. Now what did I do in the past before credit I.Q. was around? Well, I started reaching out to apartment brokers in specific areas because they're usually getting phone calls from banks to pull updated property value reports, updated condition reports, that kind of stuff. You know. Now a lot of times these commercial brokers, they'll take a look at it, but they can't disclose that stuff. But it's good to be making the relationships. You never know when stuff down. Now here's another thing. I, I know some people are going to hate this, but I look at LoopNet and LoopNet is where commercial deals go to die. Let's just, let's just, you know, if you see something else that it's probably not a real deal they want too much for, but you can start looking on there to see distress stuff and then I would, you know, reverse engineer. If I have the address of the property, I can go find who the lender is and then go directly to the lender. I also used to go to auction.com and same thing, they had a property on there, a multifamily property. Well, if there's one, there's probably more Same thing, get the address, the property, go search the title, go search the owner's information, search any assignment or deed records to find the lender and then contact the lender directly. That's what we would do to find distress stuff. And it's obviously going to be geographically focused. There's gonna be more in some area and others and others. But I like using the credit IQ because it's going to search it down to a list for you or if you go to, like I said, do the CMBS route, start contacting these large servicing companies. You know that's a great way to build relationships where they can feed you their non performing stuff on a regular basis. And that's one of the things that we did. We just got lucky with a couple servicers from reaching out. Reaching out, Reaching out to be on their list of note buyers that they would send us their stuff on a regular basis every month or every quarter to take a look at that. And it's an important thing, I mean build those relationships. If you see something that's vacant or something that looks like it's distressed, then do yourself a little research, contact the bank directly and see what's going on with it. You never know. But you know LoopNet and the reverse engineering that has been something that we've done successfully for years. If you're interested in that more of that stuff, feel free to reach out to me at talkwithscottcarson.com we talked but I'd honestly if you're interested reach out to cred-iq.com talk to Mike Haas and his team up there. They just do a tremendous job with it. It's really a great tool. And it's not just the apartment. So if you're looking for self storage or any type of commercial stuff, that's a great tool to help you supercharge your lead gen and finalize. It doesn't matter if it's just a follow up, follow up, follow up basis. There's no magic bullet to help you just make one phone suddenly have all this stuff in it. You've got to work it. And we all know that commercial deals take longer than residential but it's, it's more of a due diligence aspect of reaching out and finding of course reaching out, talking to brokers, seeing who's in distress, that kind of stuff too. If you see any list pendants or not. So default stuff like that in states where that stuff is recorded, that's a great way to look too on the commercial side but I like on that servicing route because a lot of times you'll be six months ahead of when it ever hits the foreclosure markets or Liz Pens or Nosal default is filed. So you know you may have to when you make an offer, may have to follow up most of the apartment stuff that we've bought. It's taking us following up with it over a 90 day period making three offers, sticking to our offers and continue to follow up, follow up with sellers as they thought they had one price and finally they negotiated down and realized our price, our offer was was fair for what the market would hold. So but once again Sean, thanks for submitting that question. If you guys have a question you might have answered, feel free to reach out to me, talkwithscott carson.com or shoot me an email at scottclose notes.com always glad to answer individual questions here from students. You guys keep listening out there. Comment, ask, share, subscribe. Thank you for helping to make us the number one podcast for note investors and also helping us make us allow us to have the number one YouTube channel as well at Weclose Notes TV. So go out, take some action and we'll see you this out. Bye.