How Build-to-Rent Communities Can Scale Your Wealth Exponentially

Hi everybody. Welcome back. Excited to talk about Build Rent Communities. Want to first introduce myself as the host and then turn it over to Andy and Derek to talk really digging about Build a Rent. And what's great on this is we're able to ask questions and it's going to be open forum so hopefully you'll get something out. And those that are not here, you know, we'll send the recording and then to those that are on this call, we'll also, you know, include the recording as well as a follow up. But for those that don't know me, I'm Wayne Courageous. I'm based out of Austin. Been in commercial real estate the last 14 years, mostly with Fortune 150 commercial real estate company where we're repositioning and implementing strategic plans for our clients. So four and a half million square feet, both institutional, non institutional clients. I've done a lot of repositioning, over $60 million in strategic plan implementation and really back in 2019 had this desire to start our own multifamily investment group. There in the picture in the bottom left is my daughter Lily. She is eight, Emma is six. My wife Jennifer, we just celebrated our 12th year anniversary. And Hunter there is nine. And so we are, you know, these kids. And my wife, not so much my wife, sometimes she comes, but mostly I really try to make it a kid's family endeavor where we're going to walk in properties and such. So it's quite a bit of fun. Just real quick here, if you aren't following my weekly podcast, please do go to ciapartners.com podcast or just Google the Untold Stories of Real Estate Investing. I took a little break for a few months, but we've kicked back in with weekly podcasts over the last month and we'll continue doing those on a weekly basis. I do have an ebook that's focused on passive investors@creipartners.com ebook and then if you're also able to join us on Facebook, that's a Texas multifamily investors group. And then please continue to join us here monthly. So without further ado, I want to introduce you to two gentlemen that I'm really getting to know very quickly. First is Andy McMullen. He's with Legacy Acquisitions. He's orchestrated over $750 million in commercial real estate transactions over a 20 year career. And then Derek Alexandrinko met him this past Monday actually in person on one of his build and rent communities in Lafayette, Louisiana. But he's with Amberhead Capital overseas Capital equity and debt departments as well as build outs and has over 18 years in multifaceted real estate experience. Also lots of single family and such as well. So with that I'm going to stop sharing. And Andy and Derek, thank you again for being on and really look forward to learning from you.

Yeah, absolutely. Well, thanks for, thanks for having us. So just a little bit about me. I've been in this game probably 20 years. Kind of started off in the brokerage game. So, you know, for about three, four years in the brokerage commercial office, some reit, some larger projects, and then kind of evolved into some development in mostly Venice beach area and Santa Monica area. And you know, we, we kind of as, as I talked with a couple of people in our breakout rooms, you know, in 2008 we were in the middle of a, a development and Lennon just completely stopped. So we had to do a lot of kind of hustling because we had some pretty large partners, McFarland and Calpers, and we just needed to try and get through it. So we had to retrade a lot of the units. And some of you might remember the market really did come back for many years, probably 2011, 2012. So that's kind of when we started getting a little bit more heavily in the multifamily space. We had owned some smaller stuff before, mostly California, Central California, Southern California, some in Texas. I figured out Texans. You Texans don't like Californians much. I learned that early on when we were working on the brokerage side and started buying stuff here. Like, oh yeah, this, this is where we fleece these idiots, right? So then, you know, when rent control was enacted in California, we had to kind of figure out another move. So we just started partnering up a lot of the best, you know, operators across the country. Some people we had worked with before, really kind of heavy vetting process. So I'm like a lot of you at LP in a number of deals. So we kind of decided that we're really going to try and double down on, you know, the Southeast, this area where we've got so much opportunity. Suburbanization has been going on for years. We can still buy relatively low land, low cost land. And you know, we don't have the incredible regulation that we do here in California. So I met up with Derek Alexandrenko a couple years ago and he'd been basically figuring out this build to rent model for a while now, probably over 50 projects. And I just thought we could help him scale it because he basically, you know, like, like some of you probably on the call. You know, he's got a small team. He's very efficient in what he does. He builds it, rents them, and then manages them. Right. So he was just kind of doing it all, figuring out all the processes, figuring out exactly what people wanted in the build to rent space. And we thought we could maybe help them scale a little bit. So that's just about kind of our background, you know, I think we could probably talk a little bit more about kind of what is build to rent. Derek, is there anything you want to say? Why don't you introduce yourself a little bit, and then I'll kind of maybe introduce a couple topics and then I'll let it breathe. Wayne, if you want to interject any questions, you know, so keep this interesting for everybody. So go ahead, Derek.

Yeah, I'll try. If I start lagging out, too bad, it's because my kids are stealing all the Internet. Like Andy said, I've been doing build rent in Lafayette, Louisiana, 19 years now. I've been doing real estate. Started with single family homes, doing the remodels, and eventually realized it's easier just to start from scratch and build exactly what I want to. So been doing that pretty strictly, you know, exclusively build to rent for about seven years just on my own, you know, as a general contractor and the owner. I keep them all in my portfolio. You are cutting out there, and then I'll take over.

Okay. So, yeah, I think. I think you're cutting out a little bit. So when you get that rubber solved. All right, I'll swing back around. Can you guys hear me okay, though?

He was fine.

Yeah.

Okay.

He was okay.

No problem. Yeah, we could hear him, Val, then. No problem.

Okay.

I think it must have been mine. I couldn't hear him then. Derek, go on. Excuse me.

Okay. They can still hear me.

Yeah.

All right. All right, good. So, yes, about seven years now, I've been doing exclusively build to rent. And about two years ago, Andy and I met in a group that we're in and started talking about what we were each working on. And I had a project that I was starting to do. I planned on doing it over five or six years on my own. And he's like, well, you know, we could probably just kind of accelerate this and turning it into a larger, faster product and kind of rinse and repeat. So that's what we started doing. So excited about it.

Yeah.

So just in general, I'd be curious to know how many people on this call have really heard much about Built to Rent. Maybe a one for. Yeah. Quite a bit too. I'm not. I'm not really familiar with it. Yeah, one, okay. Trevor's definitely heard about it. So really I like to describe it as just horizontal multifamily. And when I say that, it's really kind of all these single family homes enclosed in one community and they're managed just like a multifamily community. Obviously there's some differences when you finish. If they're individually platted, when you finish a single family home, in the case of what we build smaller homes, then you've got, basically you can start selling those immediately. So in the built to rent space, you could build 10 units, you know, and then you could start leasing them all. Now we typically don't do. I saw a note about townhomes. We typically do their own individually platted site, you know, their own side yard, own backyard. And this particular project we're working on now, about 20ft of backyard. And then the idea is to manage that like one enclosed gated community. And then we would have, you know, a dog park, a barbecue area, playground. You know, in some cases we're building clubhouses and pools, but in some cases they just prefer the bigger backyard, the doggie door and some of the nicer new tech. And the idea with the built to rent is so that a tenant who happens typically to be younger families would only have to worry about changing the light bulb. Everything else would be done. So any of those, you may get a lot of empty nesters. They've been living in a home for a long time. They potentially could buy if they wanted to, but they just want new stuff. They just want somebody to cut their lawn. They just want to enjoy the community. So we kind of get them from both sides. And so that's kind of a little bit about what it is. How it came about I think is really kind of interesting. Many of you guys remember 2008, the same guys that were kind of responsible for a lot of our crisis just started going out and buying single family scattered homes for 40, 30 cents on the dollar. And then they just figured out how are we going to manage all these scatter sites. We've got them in all of these different communities. And so people like Blackstone, which eventually turned into invitation homes, would just buy, you know, I think invitation homes probably has about 80,000 homes now, 8,000 units, really, some of our townhomes, some multifamily, but you know, they were just basically scattered. So they had to figure out these efficiencies. Then about 2015, 2016, really maybe 2017 is kind of when it really hit where it started to make sense now for us to build Wall street money to come in, build these projects to rent now because, you know, they're basically looking for yield, right? So if they're representing a pension fund, you know, they need to have this. The bond returns are so low, the stock market prices are so risky. How can they do that? Well, they're not good at finding stuff, but they can let little developers like us build them, and then they can increase rents. Right. With. With huge growth and then expenses, efficiencies on the expenses. So that's kind of how it started. And then they figured, hey, why are we doing that? Why don't we build them right next to each other? And now we can collect the appreciation on the homes and the appreciation on the rent growth. So, Wayne, was there anything specific? I want to let it breathe and see if there's any thing you wanted to talk about just globally or with specifics on our projects.

Yeah, I think it's good from a standpoint of the basics. What. What is build to rent? One thing I like about build to rent is the fact that there's multiple exit options. Right. I'm pretty risk reversed. A lot of most of the people that know me on this call know it takes me a little longer to find that investment. I'm not an investment every single month and all. And I'm definitely not building new multifamily because as we all know, the cycles of real estate, you know, right now, everything is booming. But get caught up in a bad cycle with a new development, it's not the best. So what I like about this. So if you can go into more about sort of that safety of. From a risk standpoint of, hey, this is raw land, you know, the property I saw in Lafayette, it's raw land. But yet. And then maybe this is more of a Derek question too, is, you know, as you're building and say the market goes south, you know, you're still okay because you don't have 30 units to still build. You can stop and sell off. And so with all that said, could you go more onto how this, from a risk standpoint, is more attractive than, say, building a traditional multifamily new build, which in my investment profile, doesn't work.

Yeah. And I'll let Derek kind of dig into it a little bit. But I will say this. When we're underwriting these projects, we've got our plan A, which is typically to build all of the. So in this case, that Wayne was referring to it's 98 units, we started, we've got about six done, and then we've got another two maybe in the next couple weeks. And so we kind of have a little bit of an unfair advantage on that one because we kind of know where we can rent those six units. But let's just say that we had supply chain issues again, like we did earlier in the year we were underwriting. We had, you know, supply chain issues. I think the cost per 1000 foot board for lumber was like 1500, 1600. Now it's kind of fluctuating that 4 to 6. But ultimately the. If it did start to become so cost prohibitive, we could really just stop building the number of units that we want. Right. In a multifamily, you can't build half a building, right? So in a single family kind of community, cost got out of control. We could just hold on the 20 or 30 that we own, collect the rents. We're not paying interest on any draws that we haven't yet taken, so we don't have any debt service. Or we could sell the lots that have already been built out, you know, with infrastructure, streets and sewer and water. You know, even the land itself is worth. You know, I think it depends on the area, but I think in the Lafayette example, maybe 30,000 a lot. So the plan A would be to sell them all to one buyer, an institution that I referenced earlier, a multifamily buyer maybe coming from the multifamily world, or plan B, maybe cluster them down to 10 units and sell them to a smaller investor. So that's kind of another exit strategy. And then a third would be, you know, we just refinance and we hold them. You know, we just hold them as long as the market will bear. Probably the fourth choice for us would be, unless it just becomes so obvious that the. The values are so high, we probably wouldn't want to get in the business. I've done it before of selling them one by one, because it does become, you know, a business with the brokerage and the marketing and, you know, the flags out, all that stuff. So I prefer to kind of stay in those three parts of it. But yeah. Derek, talk a little bit about just the building process because, you know, you've done many of these projects now, you know, maybe some of the risk mitigants and exit strategies that you've been able to employ.

Yeah, well, like you said in part of what you were explaining, you know, you had a project that kind of went south when the market turned, and that really influenced me because we saw the same thing here. You know, when 2008, 2009 hit, they had some large multifamily projects being built and they got shuttered and they stayed that way for about two years. So I could just imagine being one of those investors, you know, on that project. You know, that'd be a nightmare. So I, you know, from the start, knew I wanted to have more flexibility. I wanted to be able to pivot, you know, in whatever we were trying to build. So, you know, that's how we kind of came up with these smaller units. They're on individual tracks. The most time consuming and riskiest part of what we do is really the entitlement phase, which is where we just have this raw land and we're trying to get through the government and the engineering and surveying to cut all that red tape, to turn it into. Get permission basically to build on it, what we want to build. Because there's a lot of outside influences. You know, gone are the days where you could pretty much just buy something and, you know, you know, you could do what you want with it. So. And we do that before we ever, you know, try to move a project into the building phase or actually bring it to investing partners. So once we get to that, we already have it, a prepackaged deal that's pretty much ready to be built. Because, you know, it could be anywhere from a 6 month to an 18 month or longer in some places, process just getting that to where it's basically permit build ready project. And from there it's pretty straightforward. We have to put in all the infrastructure because there's no streets, there's no. There's nothing there, no water. So that'll take a period of time, a couple months, you know, to get all that put in place to where we have buildable lots of same as just basically a normal subdivision. That's what we're doing is the horizontal infrastructure. And then we just have basically an assembly line. Once we have buildable lots, we start pumping out those slabs and it's rinse and repeat over and over. We're going at a pretty fast pace because these are pretty easy little cottages. You can see the floor plan of some that we're doing, and it's the same thing over and over. We just change up the front, you know, the front elevations so that when you're driving down the street, they have a little bit of a different pitch or different shape on the front or different type of siding just to give them a little bit of individuality and Then. But other than that, as far as the trades go, it's all the same. So that makes. It makes us able to, you know, accomplish a higher pace to where we're not building these 98 or 100 units. Some of our larger projects are going to be 200 units. We want to build them at a pretty fast pace.

Yeah.

The reason I showed these slides is I just think it's so interesting. You know, Derek spent years kind of figuring out what was marketable what. What the residents wanted. Right. His. He and his family were kind of managing a lot of the units. So you can see they have. My. My wife loves them because she loves the shiplap. You can. You can kind of have the HGTV feel. But what I think is interesting about is how sturdy they are. Right. Those concrete floors, you know, they look. They look like marble there, but you basically got the support beam kind of going up the high wall and then. And then you've got kind of these really compact 1200, you know, square foot. You know, it's OSB wrapped kind of. It's concrete. It's not a. It's not like a vinyl siding. You know, they're kind of wrapped really, really tightly. And then you've got kind of the 130 mile per hour winds depending on where we are. So we're working on some stuff in Foley, Alabama and Gonzalez, and each area has kind of a different feel. For the most part, we want to be close to good schools, good elementary schools, because that's usually a big driver. You got to be next to amenities, but they also have to kind of be in an area where we can still have the lower land costs and impact fees. That's a big one too, for, you know, sewer, water, all those fees, you go to some of the other markets and they'll crush you there. So anyways, Wayne, did that answer your question or did you want to go a little more detail? I always like to hear Derek geek out on like construction and how he builds them, but I know some people couldn't care less.

I think people on the call are getting that they're individual homes that are being managed by a multifamily standpoint.

Right.

So let's talk about deliver. When we're reducing the risk in multifamily, one of the things that we're looking at is retaining tenants, reducing that turnover, increasing rents and yalls experience. You know, how what is compared to traditional multifamily. And now we have this builder rent. Are you, are you seeing any metrics that are supporting these build to rents as a potential better investment than a multifamily.

Yeah, I said, I mean, we still like multifamily and we still invest in multifamily and we still will be. I think there's some differences though in that you've got a stickier tenant. Typically you've got a tenant that's going to stay there a little bit longer. So as you guys know, in multifamily, a lot of what sucks out your profit is, you know, the turns, right? So you've got turns and renovations and a lot of your profit is sucked out in those turns and you have a lot less frequently here in these communities. I also think that there's, there's, you know, there's. Well, we already mentioned the advantage of being able to build them and market them right away. I think the expense ratios are huge. You know, these are newer. So average expense ratios on these built to rent are in that 29 to 33%. Right. I always like to have it a little bit more because we never know where supplies are going to be. So we're trying to market ours in that mid to high 30s. But that's a big deal, right, if you've got multifamily where you're at 50% coverage. And then I just think in general, Suburbanization has been going on for a while. I think with COVID it did accelerate it to kind of shine a light on the fact that, hey, look, people are willing to pay more for their own backyard and their own space and maybe the suburbs. And it's interesting. I think what we're seeing kind of with rents is yes, there's supply issues, but I think what we're really seeing is maybe even aside from what the Fed tried to do in pouring millions of dollars into the market, is that we're kind of seeing a lot of people from the big cities gravitate to some of these secondary and tertiary markets. And so those we're seeing in San Francisco coming down to San Diego, right? Like, they could, they could pay those huge rents or they could pay those prices. And so of course, in some of these nicer areas, even in San Diego, they're bumping up. So I think, I was talking with. Gosh, I think, I think it was Joe earlier about some of his properties in Austin. And you know, if he's in that, if you're in that 15 to 1700 range, which is a lot where we are, you know, you're going to get those people that could pay another MSA 18 or 2,000. Right. And so that's constantly pushing up rents. And then the fact that there's just not a lot of supply anywhere. Lafayette, for a market that we're at in Foley, Alabama and Gonzalez, these are kind of all markets where there's some industry and growth and a pretty balanced market. But just those are some of the comparisons on kind of a practical level. Derek, did I miss any there multi family kind of comparisons with. With what we're building in the built to rent.

No, I think that's good. You know, we basically try to align as much as we can with the multifamily, but our main benefit, again, is just pulling them apart. So, you know, people above you or below you, you're not going up two or three flights of stairs, you have your own yard space. And then we're also capturing people, you know, moving out of those subdivisions, whether they're downsizing, just tired of upkeep or new to town, but want to have their own personal space. So we really have to capture both of those segments.

Yeah. Wayne, did that answer your question on that one?

It did, and I'm going to show one more thing and then I'd like to open it up to those on the call. More information on the Lafayette. I'm not. You know, from this standpoint, we're really just trying to really help everybody understand what Build a Rent is. And then they'll definitely. I'll send out Derek and Andy's info and then I'll do a webinar on it next week as we're raising capital. But for this, I want to show. I'm going to show a slide that. Because this is another thing I want to hit on. Are y' all seeing.

Yeah. Our guests? Is that what you're.

Yeah, I'm trying to get to have. I don't know what do here. Stop.

Share.

I'm just going to share my desktop here. Well, here we go. Y' all seeing that. Okay, so I want to talk about this, and then I want to ask. I think this is another important aspect. So one of the things that we all love about multifamily, and to Andy's point, we're still very, you know, multifamily, and for me, it's a medium risk value, especially the value add.

Right.

And we've talked a lot about already about multifamily and why I personally like it as an investment when we're starting to build into, like, new multifamily, new properties, and you get into opportunistic. Now there's higher Risk, higher returns. Right. But there's also, you know, the cash flow doesn't. It could take three, four years before that property is fully developed. Right. So that's why there's more opportunistic. But at the end it's an equity play. So one thing I want to talk about here is I would say, and correct me if I'm wrong, Andy and Derek, but this is sort of like bordering that value add opportunistic. Right. And little closer of a less risky opportunity. Now there's risk in everything. Right. But when you think about it from a cash flow standpoint, I'm all about cash flow. And as you build these units, as Derek has built these units, and when I went there on this past Monday, six of the units have already been built and leased. Right. And so every time there's a unit that comes available, there's cash flow, there's more cash flow. Sounds like two more units, et cetera, keep cash flowing. Whereas when you have a new development, you're not really knowing what two, three years will bring as far as rents, as far as occupancy, because the market can completely change. So for these, can y' all go into about how the cash flow typically is structured on a builder rent? It doesn't have to be at this Lafayette, but just in general, if someone's putting in 50,000, we're used to as value add, multifamily investors, cash flow coming pretty quickly because the property's already built and there's already investing. But can you talk about what is this from an equity and a cash on cash in general from a build to rent category?

Yeah. And I, I bet that many of the value add projects that you guys have invested into, and I know that I have as well, is also coming from kind of a preexisting raise that is basically, you know, in the raise in order to pay out preferred return. Right. So that, that, that does happen a lot with deals. So that's kind of a, almost a. I would say it's kind of a disguise preferred return. But typically these deals, let's say you, you know, typical value add deal, maybe you were paid your cash flow, Maybe it's an 8% preferred and you're, you know, maybe going to start seeing some of that preferred in month six. Right. Most operators are, unless they've kind of raised for it, are probably paying, you know, in the second or third quarter. And that way if they come and pay your four, fourth month, you know, you're pretty excited. On the development side, I think that There's a couple of risky points in the project and I think the most risky is investing during the entitlement phase. Because Dares will tell you there's tons of things that can go wrong. There's tons of kind of, you know, we've had to change the way that we're going to build them a couple times. And then I think you've got this kind of risky time from the time that you've built these units until the time that you've leased them up. So there's, you know, infrastructure phase. So if you're just to start, you raise, you know, you, you basically do the entitlement phase and then you're ready to kind of build the streets and the sewers and the water, all that stuff into. And then after that phase is complete, then you can kind of start what we call vertical building the actual units. And so if we can collect rent right away on the built to rent, then typically that obviously that cash flow is a lot quicker.

Right.

Than it would be if it was a speculative multifamily project or even a, even if you were investing in a single family to sell project like Lennars decided. Now part of their business model, they've been a home builder for years, part of their business model now is built for rent for exactly that reason. They basically got cash flow and they can collect the cheese from the appreciation as well as the cash flow. So on our projects we're typically like to tell people about 18 to 24 months, you'll get accrued preferred return. But we need to keep that capital alive in order for us to kind of continue moving the projects along. I think the two that we're working on now, again we've had a little bit of a head start. So maybe in about the year month 12, 13, we can pay a, you know, a dividend of some sort. So that's kind of, that's kind of where it differs a little bit than a multifamily development deal and a single family for sale deal. And that's kind of why I would put that Wayne, like you described, kind of on that heavy value add part of the spectrum, maybe lower opportunistic because of that. If you, you know, if you see where rents have been going. When we first underwrote our projects we were in the 1500 range. Now we're in the 1650 range and we have no idea where it could go from there. So already you've got built in equity and you still do as an investor own the buildable land which is different than unentitled land. So there's usually some additional kind of buffers that you have in order to protect your capital. Derek, what would you want to add to that, if anything?

Yeah, I definitely think that's where I try to stay in. What we're looking for putting together is right in between the opportunistic and the value add. I always say we're like the most extreme version of a value add because we're creating all of the value in what we do. So there's nothing there when we start, so we get to capture all of that. And it's all vertically integrated from the entitlement phase all the way through to when we're exiting the project. So because there are firms out there that do just do entitlement, then they have builders and developers that sell the projects off to the, you know, the end users. So each time that happens, there's more transactions and costs. There's more meat that gets chewed off the bone. But because of the way we have it here, all, you know, vertically integrated, we're able to just. It leaves a lot more room on the deal basically just to keep the whole thing greased. And it makes us. That's why I think we're kind of on the short end of the, the risk profile. You know, instead of falling in the high, high risk category, we're right there on that because we're still doing development, but we have so many back, you know, stops that we've put in there that really make this about as, you know, a low risk development as you could have out there. Like I said, I wouldn't want to be doing those larger projects. You know, a lot of people, they, they've been throwing them up everywhere and they, they're beautiful. But there's just so many things and with the way, you know, supply chain issues and economy and inflation, there's so many things influencing what we're, what we're all dealing with now. I like the, the levers that we've put in place to try to mitigate those and give us options to pivot and maneuver along the way. Really put us kind of in that sweet spot between, I think, you know, the value add and the getting that still getting portion of that high return. Do a little bit of the lower risk.

Yeah, you know, Wayne, there's risk in all these projects and how quickly you can build too, right where, you know, if Derek can do 10amonth, that's great. You know, we've got to underwrite at six a month. But let's say we do have supply chain issues, right? We can't get our appliances or we can't get lumber. You know, then, you know, there's risks always in a development deal in that project. I think what sets some of the projects that we've worked on apart is that we do have a very good understanding of what rents are. And so we have. You know, Derek has multiple projects in the neighborhood, so he kind of knows where rents go. That's always a risk for an investor when you're going into a new market, right, Is that you don't have a proven rent model. You can sort of figure out what comps would be for apartment buildings, but you don't have enough scattered homes to really determine what a market rent be and what's the trajectory. So those are the kinds of things that we just have to mitigate risk. We got to put in big, you know, reserve buckets, right? We got to put in, you know, an exit cap rate that sits, you know, 100 points, 100 basis points above a market cap rate. You know, got to have, you know, some cushion in the, in the, in the operating expenses. And if those can't be done, you know, then we need to move on and find another project. Right, because there's just too many. There's just. There is those kind of inherent risk in development project. Yeah.

Yeah.

All that was well said and I think puts a. Puts a clearer picture on the risk profile compared to that to, you know, a true value add multifamily. So with that, we've got about, I would say, 15 more minutes. Is there any questions you can either put in the chat box or, you know, we can just ask them.

Moses, I have a question either for Derek or Andy. What is your. What is the. I know you said at least built in 100 basis point, but what is the comparison to a multifamily? Now, on the cap, what's your reversion cap on something like this? And what is your equity multiple on something? Because you're thinking the rest.

Sorry, I didn't mean to interrupt. Modest. I thought you were finished. Go ahead.

No, yeah, I said, and what's the. What's the average equity multiple on the deal like this?

Yeah, you know, it's such an interesting conversation to have right now because I'm seeing a lot in the LP deals that I'm investing in, and a lot of the sellers are saying now, you know, in Austin, for instance, you would see a lot of kind of operators saying, hey, I don't really care about the exit cap so much now because I'm buying something that's basically going to have inflated rents throughout the term. And so I'm collecting all of that additional noi that even if I do have a cap rate that goes up and the values go down a little bit, I've still already collected that cheese in the middle of, you know, all of the excess opera, you know, noise. So a lot of guys I'm seeing now, instead of doing, you know, 20 basis points a year for exit cap rate above the entry cap rate, or I shouldn't say the entry, but the market cap rate, now I'm seeing a lot of guys doing 5 or 10 basis points a year because they say, hey, look, even if it does go cap rates go up, I don't care because I've already made more on my NOI and increased value. Right? So to answer your question, Moses, on even apartment buildings, I would like to be in that 100 basis points for five year deal. That's harder and harder to achieve, right? Certainly if you're investing in Austin, you're probably not seeing that. If you're invested in Phoenix, you're not seeing that. But Austin's an example, right? Market Depending on the areas, there has been some rent dips, not major rent dips, and always comes up at 10 or 11 the next year. But there's some volatility. So anyways, I think overall I want to try and stay in that kind of 50 to 100 basis points. And the IRR, the equity multiple should be a little bit higher because you're taking more risk as a development. Right. So we might take out to the market if we're in a multifamily deal and that 15 to 18% IRR, if we're going out to, you know, for a development deal, we want to make sure we have a really conservatively underwritten deal that's 18 plus. So a multiple would be, you know, two times, maybe it's 20%, maybe two times multiple over five years. You know, I'll say in this deal, we just decided to go. In one of our deals in Louisiana, we just decided to go out, let's go out with where we were before rent went crazy. So let's go out to where we were in the 1500, you know, per month rent and let's, let's market that and see if we can still achieve, you know, 18 IR. If rents come back down from where they are at 1650, you know, then great, we can still execute our plan. So I, I think you want to be A little bit more. I think you want to get a little more for your risk on a development deal, Moses. But I also think that what you're seeing in these LP deals, you're not seeing those risk mitigants, you know, like, you're not seeing the growth that's 2 and 3%. And in some cases, you're seeing, you know, operators that are underfunding the reserves, underfunding the raise. Right. So it's a lot tighter. That's kind of boosting the returns. You're seeing vacancies. You know, it's hard to get an 8% vacancy because you've got, you know, turnover and you're trying to bunch rents, like people getting those 5% vacancy numbers that without, you know, lost to lease, all those. So there's a lot of multifamily deals that I'm seeing out there that are not conservatively underwritten, and it's really tough to get them the 15% IRR. Did I answer your question, Moses, or did you want me to go a little. A little deeper on that?

I think you.

No, I think you touched on. On some of the. I just wanted a comparison to what a multi. And what I, you know, I built up would run earnings.

And I, you know, I think in general, I'm in. In most LP deals that I'm doing, I'm looking at the jockey first, figuring out how many times have they done this, when have they fallen on their face and how did they take care of it? Right. And then I'm kind of looking at the numbers. Right. So I think what happens is we get caught up a lot, and it's kind of the, like, people are talking about, like, interest rates, you know, they're up a quarter or, you know, at the end of the day, if you're. If you've got leverage and your rent, your tenants are playing your rent are you really need to focus in on, you know, 20 basis points here or there. I think we got to look at the big picture and all the ways that there is to create wealth in real estate.

That's good. Thanks, Moses, for asking that question. Any other questions? We definitely have some time if. If anyone has questions on Build to.

Rent, You're like, get us out of here, man. Let's get some breakout rooms now.

We'll be. We'll be closing. We'll be closing up. So it's past, past eight here.

Oh, God.

When? I'll ask one more. Sure. How is the debt structured? How is the debt structured in something like this? If, if you did had to go. The market went sour and you had to sell off and or stop building. How is the debt structure on it? Would the lender allow you to sell off, you know on developed.

Yes. Great question. So the way we went on this one was kind of a two. You know, in most developments you kind of have a tiered process. You've got you know a, you're going to get draws so you're going to build out 10 units and you get another for another 10 units, et cetera, et cetera. So in this particular case our first deal is with the community bank. So you know rates like 4 and a half percent, you know, IO for 32 years I think 20 year amortization which, which sucks. Right. If you're going to stay in it for a while and we have to sign on loan. So that's not a great, I mean it's a decent rate but we got to you know it's a recourse loan. Right. So a lot of the community banks are kind of where you would have to go on the build to rent. Now there's also bridge lenders that once we, once we do get through those for all the infrastructure and through the first 10 units and we can trade out of that into a bridge loan. And a bridge loan would be somewhere in that five and a quarter to five and a half, three years interest only, 30 year amortization period. Right. So now you got some real cash flow opportunities and it's non recourse. So we're not, we're not you know exposed there personally. So that's kind of where we're looking at. But to answer your question. Yeah. Each, each home is individually platted so if we wanted to refi out of each, you know, let's say we ran into some trouble. We want to sell 5 of however many we can, we can do that for this, this loan. So in some cases you might have a portfolio loan where it's really difficult to do that. That's not the case for, for this project.

And then is it typical once you, you know, you do your construction loan to your point but once it's stabilized on these build the rents. Are you refinancing into traditional. Well Fannie and Freddie tap loans.

Looks like he got frozen.

I got a question for Derek. Derek, what is the, what is your for an investor, let's say an investor vest. I mean Andy was talking about a five year 20%, 18%, 20% IRR is what's the, is there an exit strategy for an investor at five Years.

Yeah, this is an individual project, so it's just a syndicate. It's a one time project. So we plan on this one because we are already in the development phase. We're breaking ground basically on the infrastructure, starting to work on streets and things of that nature. We expect to probably have a lot of interest while you. We might be at 50 homes and really be getting approached just because of the. Unless there's something drastic that happens in the market. Cause we had one in our same market here that had multiple offers when it went on for sale earlier this year. So we don't expect to hold it longer than we need to. This is kind of our springboard for the other ones that we have. So we, it is, you know, we have it underwritten as a five year project. We're hoping that closer to three we may have an exit. But you know, we obviously want to be more conservative. So we have it, you know, the planned as a five year plan. But we do expect to have some opportunities there hopefully.

Okay. But I'm trying to get an understanding. So let's just go with everything's perfect. Let's say in three to five years you reach your exit. What's that exit look like for an investor? What are you selling it to another large institution? Are you going to sell the individual homes to individual buyers? I mean.

Right, okay.

What's the.

Yes, no, most likely exit is to an institutional investor or another multifamily investment company.

Okay, so what's the cost per square foot to build in your. In those areas? I mean, I'd imagine because you're not in the major metropolitan areas like Austin. You know, it's your dollar to square foot build is probably 250 to $300 a square foot. What's your, what's your average cost per square foot to build?

Yeah, we're under 100. Okay. Where we are.

Yeah.

So that's a big difference in where we play and why we're able to make this work. You know, it's just the type of construction that we do, the way we're building them. And you know, they're nice, you saw the pictures, but they're still cookie cutter. They're quality. But we also engineer them to certain dimensions to where we're economically using the lumber. You know, we're eliminating laminated beams when we don't need them. All those types of things that really get our cost down, you know. And when you multiply it times 100 units, it really makes a big difference. So those things really make the Wheels turn on this type of project.

Sorry, guys, I lost a bit, but probably better. You're talking to Derek anyways, I'll go on forever.

No, it's good, Joe. I was asking great questions. I think again that we've mentioned selling off single family and build to rent that as an exit option, but that is not the ideal. That's like worst case, multifamily investors are viewing this as the new multifamily class. So syndicators, how I would typically come to our investors and say a hundred, we got 150 units that we're raising capital for and then in five, three to five years, we sell that to another person or a group that's buying 150. What you're seeing is on the builder rent is this horizontal multifamily, where instead of the vertical, you have these single family homes. And it's treated as a. When we go out to market to sell these properties, it's in this case 98 units or 150 units. And those units are houses, not individual apartments. So great question, Joe, on that and just clearing that up that it's. We are selling the multifamily investors and also institutional buyers who are putting billions of dollars into this asset class. You know, it just really incredible the money that's being flown into it just because they're seeing yield. Money goes where yield is and you're seeing, you're seeing these institutions even buying up single family homes. So it fits in that pretty well.

So.

All right, we got time for one other question before we drop off. Are there any other, any other questions for the group? Well, Andy and Derek, can y', all, in this recording tell us how listeners can find. You sort of treat this as a little podcast at the end. But, you know, I think this would be a great, you know, people are going to want to connect just in the future on opportunities and this opportunity you have here on Louisiana and such. So thank you for your time and definitely let us know how people can reach out to you.

Yeah, Derek doesn't like to be really touched. So you guys can just come through me. No, he's. If anybody goes to Louisiana, he'll put you up himself. And anyone wants to see the project, his family's got their own little dungeon. So you guys can go down there, stay and take a look at the Lafayette Project. So I'm all over LinkedIn. You can go to our website, legacyacquisitions.com and you know, download some of our resources there and get in touch with us. And I put my LinkedIn stuff in the chat and really love talking real estate, whatever it is, multifamily, single family, all of it, new investors, LPs. So please do reach out. All right.

Yeah.

It was great chatting with everybody. And you could find me, just search my name on LinkedIn. It's the only one, so you don't see that last name very often. So that's it.

All right.

Well, thank you both, and thanks for everybody. Hope everyone has a great Thanksgiving and we'll do our next meetup in January. So looking forward to that. But have a great holiday. And happy Thanksgiving, everybody.

Hey, Wayne, thanks for having us. Thank you, everybody. That was great. Thank you very much.

Thank you.