Turbulence, Tailwinds, and Why We're Buying Now

speaker-0: Hey guys, I'm Brent Eley. Welcome to the first episode of the Wealth Cockpit Podcast. So this was recorded at the Best Ever Conference live from Salt Lake City. It was my first episode. Did it with my friends Joe and Levi from Cowboy Capital. So please forgive us if there's too many ums and ahs, but I hope you enjoy the content. We talk a lot about the Best Ever Conference and some good takeaways that we have and what we're seeing and doing in real estate in the next year. We also weave in quite a few pilot flying analogies that hopefully make the ideas more clear. We'll see you later. Hey, this is Brent Neely and I'm here with ⁓ Joe and Levi from Cowboy Capital. If you don't know about me, I am a serial entrepreneur. started five businesses, sold a couple, have an e-commerce company, doing over $20 million in revenue. And I have moved all those profits into a commercial real estate portfolio over the last 10 years. ⁓ loving the industry, and we're here live at the best ever. conference this week. So we'll probably talk about that a little bit. But Joe or Levi, you want to tell us a little bit about your background?

speaker-1: Yeah, we can be quick with it. And thanks Brent, you've fun to hang out with. We've shared a couple hotel rooms together here at NMHC, so we've got to know each other pretty intimately. I'm just kidding. But yeah, just a quick bio for those of you don't know. Levi and I, Cowboy Capital, we both grew up farming and ranching. ⁓ More of my background is started in ranching and then went into construction with my dad. And then from there, actually started in the medical industry going to college and then went from that to... Real estate started in 2016, started buying small multifamily duplex fourplex, and then in 2018 ⁓ got into property management job, went and worked for a couple operators around the country, and always had the vision of doing large multifamily, and so now Levi and I have bought 419 units in the last 18 months, and on a pretty fun trajectory. Thanks for having us on. your podcast. Very cool. Cockpit. I love it.

speaker-0: Cool. Thanks for being here, Joe.

speaker-2: Yeah, thanks for having us Brent my background similar to Joe's and my dad and my brother pilots as well Just like Brent. We love planes. I grew up in Eastern, Oregon only about two hours from where Brent ⁓ Let you grew up in Joseph, right?

speaker-0: No, I actually grew up in western Oregon, so south of Eugene. yeah, I've been in northeast Oregon for about 15 years now.

speaker-2: Yeah, my family's been there for 25 plus years. They're potato farmers mainly, farming and ranching for years and years. A few years ago somehow I must have had a little bit of a persuasion on them to get into apartments. They sold the family farm and bought some more apartments. But yeah, it's been a good run, being raised, farming and ranching, learning about... ⁓ all the values that we feel like have led to some of our success today. Just your word is your bond, you do what you say you're gonna do. There's a lot of handshake deals that are done, farming and ranching. I started out small buying duplexes and then got around people doing bigger deals, gotten to some co-GP deals, and eventually started lead sponsoring my own projects, mainly here in Utah. That's when Joe reached out to me in 2020. I was buying a million dollar deal in Ogden Utah and he slid into my DMs and we hit it off and we...

speaker-0: That sounds like Joe.

speaker-2: Yeah, it's been great. We got to know each other and our skill sets are complementary and our ⁓ personalities are opposite and we figured out pretty quick that we could do a lot ⁓ together and yeah, bought five deals over the past two years and ⁓ under contract to buy another one, but yeah, it's been a fun run.

speaker-0: Cool, no, ⁓ it's been really fun getting to know you guys. ⁓ Yeah, and I've done a lot of government leased office buildings to start off my portfolio and have been transitioning to more multi-family. So ⁓ it's been fun getting, hanging out with you guys and ⁓ sharing ideas on how I run businesses and you guys helping me out on how you do multi-family and it's been a fun time. ⁓ You guys are definitely ⁓ scrappy, I guess I would say. A lot of people right now are running from multifamily, kind of licking their wounds over the last few years. And ⁓ I think we're kind of in agreement that we feel like it's a great time to buy multifamily.

speaker-1: If I remember this morning, you were challenging us to be scrappier.

speaker-0: Yes, I was. ⁓ I was. But do you want to go into kind of, I guess, why you're bullish on multifamily in particular? ⁓

speaker-2: All this, let me preface with a metaphor, a pilot metaphor, your typical syndication, you've got the pilot, which is the operator, they take the aircraft off into the air, and then while they're in the air, you're operating the deal, all of the passengers in the aircraft are your limited partners that are along for the ride. sometimes there's turbulence along the way in the air, and the operator has to maneuver through all that, and use all of their... ⁓ all of the weapons at their disposal, know, talking to, what's the word? ATC. yeah, landing the aircraft safely for all of the passive limited partners, the passengers. yeah, we feel like now is a great time. Like the turbulence have kind of settled down a lot. There's already been a lot of supply. There's already been rent drops. There's already been price corrections. Like we're starting to be able to buy deals from lenders. or forced sales where lenders are forcing ⁓ borrowers to exit at values 30%, 35 % lower than the peak pricing. And ⁓ secondly, the supply has just fallen off massively in all of the growth markets because it doesn't make sense to develop. ⁓ you know, not only interest rates short-end, tripled overnight, and long-term rates doubled, it's just halted construction. So now we feel like the skies are kind of clearing out, and if you take your aircraft off into the air today, we feel like there could be some good tailwinds along the way.

speaker-0: I the pilot analogy, man, that's awesome. Yeah, I'm a pilot as well, ⁓ hence the wealth cockpit. ⁓ But it's so true, when you get your pilot's license, ⁓ it's about being able to handle an airplane, ⁓ being able to understand the weather and what's happening, which is lot like the market. ⁓ But a huge part of becoming a pilot is that you are a pilot in command. You're responsible for everything that happens with that aircraft and where you're gonna fly, when you're gonna fly, If you're gonna fly who you're gonna let fly with you, and ⁓ I think it's a fantastic analogy for ⁓ Yeah, what altitude are you gonna fly at you know where we gonna go all those things are? ⁓ The responsibility of a sponsor right yeah, you're taking on a limited partner there They're getting in the in the back seat and putting the seatbelt on and ⁓ trusting you ⁓ From there, so I think ⁓ I love that love that analogy ⁓ Yeah, and to kind of tag on to what you said about the supply, think ⁓ if the listeners don't understand, you're talking about supply of new units. So as development has happened, ⁓ I guess what happened in the market is a lot of markets, ⁓ they were so bullish on the absorption on new renters, on growth. that the interest rates were so low, it was so cheap to build, that ⁓ they just overbuilt. that's what I'm seeing as well, is like there's a lot of markets out there right now that still have super strong fundamentals, right? mean, there's, ⁓ know, Boise, Idaho is one of my main target markets, and ⁓ there's double-digit population growth, there's massive investment by ⁓ Micron and other businesses in the area, ⁓ but rents have been flat to down. just because of all the new supply that's being ⁓ built. And you know, lot of these operators that have had shorter term debt and things that were just banking on that rent increase, they hit some bad weather, you know? They had to divert, right? And yeah, I think there's... Yeah, I wasn't gonna say that, but there's definitely some that have gone down in flames for sure.

speaker-2: crash landing.

speaker-1: and birds.

speaker-0: But yeah, I think it's a great opportunity. ⁓ There's a lot of passive investors that got burned a little bit during that time. I guess convincing and helping people understand the opportunity ⁓ is harder than it was, in my opinion. But I think the opportunity's really, really there. Did you have anything to add to that, Joe?

speaker-1: I mean, the only other thing I can think of is like when you're talking about the investors that have crashed and burned, you know, and convincing, not necessarily convincing them, but helping them feel comfortable getting back into the market. You know, kind of an analogy of, you know, kind of a Western analogy, if you will, right, to compliment your guys' pilot analogies. That's right, we are Cowboy Capital, so you're gonna get it, right? ⁓ If you think about like horse race, you have the

speaker-0: cowboy cap

speaker-1: the track, the horse, and the jockey. And the way I think about that is like your track is your demographic or the area you're buying the deal. The horse is the deal itself and the jockey is the operator. And right now, the way I think about it is like you gotta bank on the jockey more than the deal. And so it's building a lot of relationships and a lot of trust and showing your reputation. Reputation, relationships, Reputation relationship and results right and that's how I think investors can get back on the horse with us if you will to to you know be bullish on multifamily again, so I think you know another way I like to say to is like you could have the the very best operator in You know in the worst you know say Track and with the worst asset and you're probably gonna win if you're with the right operator it's same And same thing, the other way, right? You have the best deal and the best market, but the wrong operator, you're gonna lose. And so it just comes back down to who you operate with and building that trust back up. Pilot-wise, yeah.

speaker-2: Choose your pilot wisely.

speaker-0: And your jockey. the jockey. Yeah. Absolutely. I mean, I still go back to the pilot analogy. I mean, you can have the fastest, fanciest airplane. But yeah. That's true. You're really riding with the pilot and what his ⁓ ability is. And that's why I've enjoyed getting to know you guys, because I think all three of us take that responsibility very seriously. We do. And those relationships are huge ⁓ with our ⁓ investors or friends that are you know gonna be gonna be taking that ride with us but yeah I guess ⁓ let me ask you Levi on the ⁓ on the on the market going forward and like interest rates are higher and you know there's there's a lot of uncertainty there

speaker-2: I don't know what you're seeing in Boise. We're seeing a 10 to 12 percent renewals on our Boise deal. Yeah. No, yeah, it has been soft. It's all market specific. But Boise is one of those markets that we've already seen start to rebound pretty quickly. Yeah. One of the big management companies that we use, Cornerstone residential, 25,000 units they manage. They said all their sites are 98 percent plus in Boise right now. That's that's our site. We're mid to high 90s and we're pushing, I guess, 22 percent. was the highest renewal we got. And then the trade-outs, yeah, they're like over 20%. And the rents were starting from a low level, because our model is buying from long-term mom-and-pop owners where the market rents, or the rents on the rent roller are just so far below market. ⁓ But yeah, it's just so different because then like downtown Salt Lake still has quite a bit of supply to absorb and talking to John Chang just about the job growth, even though GDP has been good over the past several years and over the past 12 months, it's been really strong. Job growth has been like ⁓ very, very bad and part of it due to AI. But more so I think the consensus I've got talking to a few economists here and different people is uncertainty is probably one of the major factors. And I feel like everyone I talk to, they're uncertain about politics, what's going on with the economy, what's going on with this or that. If we just had some more certainty, job growth could really take off in a meaningful way without anything else really happening. Just having certainty, small to medium sized business owners, they control the majority of the job market. If they had more certainty, that could be a big tell when that no one's ⁓ predicting or underwriting. yeah, you gotta have a little bit of faith to buy in this market today. If you wait for every green light to be on, it's too late. The institutional money's back in the market, there's bidding wars.

speaker-0: That's what we want to be selling. Yeah. Absolutely. Well, we are at the Best Ever Conference today in last couple of days. So ⁓ maybe we'll just go down and talk about what ⁓ we've got out of it or one of the best things you've gotten out of it. ⁓ I'll kick it off. They had a talk on ⁓ AI here and AI agents. ⁓ I use, know, chat GPT quite a bit and Claude, where you're asking questions. ⁓ creating content and helping you brainstorm, but these AI agents they were showing are just like a whole new world where they're actually going in and they can do tasks for you and different things. So already thinking about ways that I can implement those in my business just to make it run more efficiently. ⁓ But I don't see how that can't affect job growth over the next. Like, I mean, it's, how it's changed in six months, let alone like where is it gonna be in five years? ⁓ It's hard to even imagine, but yeah. What are some top takeaways that you guys have had at the conference here?

speaker-1: Yeah, think from listening to the pitch presentations yesterday, there's a lot of people that are moving from multi-family to triple net. Yeah. Which to me, like when I heard a guy say it yesterday when we were having a conversation, I'm like, perfect. You go do that triple net. We'll just keep doing what we're good at. Yeah. And so Jay, what was Jay's last name? was? Jay Scott.

speaker-2: Scott.

speaker-1: talked this morning and he was really bullish on multifamily and it was kind of a breath of fresh air because it just feels like everybody's poo-pooing on multifamily here at the conference. It's a multifamily conference at its core, the best ever podcast. And Joe Fairless writes multifamily, but it's interesting how there's very few multifamily and they're moving to other asset classes that are nice and shiny. And I think as long as we can stay true to our values and true to our business plan, we're going to continue to win. And when it becomes a shiny object again, we will really win because we'll be selling deals for stupid prices. so that's kind what I'll

speaker-2: Just to dovetail off that, some of the biggest operators that I've ever heard of, like on podcasts or on interviews, Barry Sternlich, or just huge operators, they've talked about how when it's very hard to raise capital, that is the best time to go all in on the market. And right now, I think a lot of operators, it's hard to raise money for multifamily especially, because you look at the past four years, with the rent softening, leases are on month to month and the supply and interest rates going up and a lot of value add deals or construction deals that are on floating rate debt adjusting. L.P. investors have had capital calls, paused distributions, lost money. So it's very hard to raise capital right now, even though the future five years could be completely different. The basis we're buying at, the debt amounts that we're taking on way lower today because of the... you know, we're borrowing at, call it 70 % of the adjusted basis lower, so like the debt load's so much lower, everything about the investment over the future is different, but LPs are stuck in the rear view mirror, so it's harder to raise equity, so I think a lot of sponsors are just trying to figure out where can they raise money to keep making fees, and nothing against them, I mean, you can still make money in triple net deals and stuff, but. Yeah, you're buying more on a cap rate, you're buying at a higher basis because of the long-term leases, they've just been going up and yeah, I feel like in the longer run, there's a lot more value to be had in multifamily.

speaker-0: Yeah, yeah, I totally agree. am getting more familiar with the multifamily industry. I haven't been in ⁓ that industry. I've been in e-commerce, done the government office for a long time, dabbled in multifamily. But just coming into it and getting ⁓ maybe an outsider's perspective of the market, it's amazing how cyclical it is, right? mean, you have this overbuilding and. ⁓ oversupply. And you but you rewind four or five years and everybody, if they could get approved to build something, they were building it, right? And right now, that supply cliff, like all that stuff's gonna be filled up here in the next, depends on the market. I think it's very market specific and like you wanna be dealing with an operator that really knows their market. ⁓ But a lot of markets, know, anywhere from the next few months to the next year, year and a half, like that supply is gonna be absorbed. People are gonna move in and there's nothing else. being built right now because it doesn't make sense and they can't raise capital. So it makes total sense to me that this is the time to be doubling down ⁓ and then when everybody, when it's the hottest thing, that's when we'll be selling.

speaker-2: It's crazy how short-sighted both sponsors and investors are. In COVID, rents were going up 30 % in a year, and people were paying three caps for properties because you you lost to lease on the rent roll. And like, oh, we can raise rents up here, and then we're to get 10 % rent growth next year, 5 % or 5 to 10 % ongoing after that. And then now everyone's so bearish, like we're never getting rent growth coming back again. So they're not even bidding on these deals. they're getting reset at low bases.

speaker-0: Yeah, we'll only buy them if, yeah, flat, flat rinse pencil and things. ⁓ yeah, well, that's great. Well, I appreciate you guys coming on the Wealth Cockpit podcast. Joe and Levi from Cowboy Capital. And I guess we'll have all our contact info down in the show notes if you want to get a hold of us. ⁓ we'll see you guys later.

speaker-2: Sounds good. Sounds good. Thanks, Brent.