CrowdStreet’s Darren Powderly is joined by Jeff Gleiberman, Managing Director at MG Properties Group, to discuss how the apartment sector is holding up, how mass migration patterns are impacting occupancy rates, and how the CDC’s eviction moratorium could impact apartment landlords.
Darren Powderly, Co-Founder & VP Capital Markets
Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.
00:00:04 Hello, everybody, this is Darren Powderly with CrowdStreet. Welcome back to our next edition of StreetBeats. I'm here with Jeff g Lieberman. He is the managing director with MG Properties in San Diego, California. I haven't seen Jeff in a while, but we were just reflecting last time we did get together, which was at one of the Im n conferences. And so, uh, Jeff and his dad have built a tremendous company over the decades. So, Jeff, welcome to StreetBeats. Thanks for, uh, joining us today, and just please introduce yourself to the audience.
00:00:33 Awesome. Good morning. Thank you for having me. Um, very happy to be here. And as Darren said, I am the managing director of MG Property as I oversee investments, capital markets and company strategy. And I've had a long history with our company. My, my father founded our business in 92, about 30 years ago. So I grew up in the business working at the properties, doing maintenance and management, um, throughout my earlier life. And then, um, went on, um, to work at C V R E for a few years, went back and got my master's, and now I've been back in the corporate office in various positions over the last six, seven years. And we have seen a lot of growth this cycle and really throughout our whole company's history. So definitely happy to share some insights for what we're seeing in the market and, uh, what we're excited about.
00:01:28 Yeah, perfect. You guys really specialize in, uh, the, the western region, right? Wh which, uh, states do you guys have properties in? You have about 22,000 units as I think you said. Um, which, which states do you specialize in?
00:01:39 Yeah, so we, we specialize a hundred percent in multi-family. That is all we do. We don't do any ground up. It's all existing multi-family. We are from San Diego, so that's where we started the first 40 deals, um, in the nineties were all in San Diego. And then we started branching out. We went up to the InAllander Empire, San Bernardino, Riverside County, orange County, LA County, Northern California, Oregon, Washington, Arizona, and Nevada. So today we focus on those five Western states.
00:02:13 Um, tell me how things are going right now throughout the portfolio. I know you guys are very data driven as well, and you've got, uh, excellent infrastructure from a technology and data analytics standpoint. Uh, clearly with, uh, 22,000 units spread over those, uh, five major Western states on different submarkets. Um, you're seeing different trends, uh, but give us, give us some high level data points on what you're observing.
00:02:36 Yeah, so we're about five, six months into, um, into the pandemic. So we've got a lot of data points by now and with the 22,000 units, it definitely, definitely tells us a good story. The story is very different by submarket and by market, but if we're talking at the average portfolio level over the last five months, collections have been about 96% at the end of the month, every month. So much, much better than we originally expected, but still about two to 3% off of pre covid collections.
00:03:16 Are you seeing different performance metrics, different property types or submarkets, right. You know, is a, is a class C plus, you know, workforce, housing, property performing, how is it performing differently than say a class B plus? Right. And, and you know, maybe, or maybe an a, a class a, uh, property and
00:03:40 Most people, yeah, we, most of our product over 90%, probably closer to a hundred percent is in that c plus to B plus range. Yeah, mostly in the mid B. So, um, we feel very, um, blessed to be in that space. Right now it's performing very well. We do have, obviously a lot of data on the other classes as well, um, but the B class is performing well and the suburban product is performing well. So the urban cores, um, with, you know, um, covid people not wanting to get in elevators and be in a confined place with a lot of work from home trends going on, people can move to more suburban markets and they can get some rent relief, they can get a bigger space and they can still, um, live the, the quality of life they want.
00:04:30 It's an incredible, this mass migration as I call it, that's happening throughout the United States. And, uh, you know, it's everywhere. And, and I was just back in New York City metro last week, I was in the suburbs, but, um, reading articles and, and seeing the data points, what's happening in Manhattan, and I know that's a world away from where you are, but it's a similar trend. I mean, rents are, in some cases down 40, 50% luxury condos are on sale, 40, 50%, uh, when, you know, landlords, uh, need to move property, you know, they can quickly adjust and, and we're seeing some of those discounts, whereas, you know, the, the burbs, uh, it's getting more and more difficult to even be able to locate a place to rent and mm-hmm. <affirmative>. So, uh, incredibly dynamic, you know, uh, residential market or multi-family apartment market that we're experiencing right now.
00:05:19 And so it, it will be also very interesting to see what transpires throughout the rest of this year and then in the next year, you know, do you forecast that, um, that some of the migration pattern will sort of shift back to the inner city? I mean, unless, you know, corporations are going to all of a sudden have all these like hub and spoke offices, which I don't see happening in mass, right? It's just too duplication of cost to have, you know, small offices in suburbs all over, you know, inAllander empire as opposed to downtown la. I mean, maybe there's some of that, but, um, i, I kind of can see this as maybe a short term mul, you know, a year long or two couple year long trend and then it sort of reverts back and people start coming back into the city or the new kids graduating college or like, it's cheap to live in LA now. Like, I'm gonna move, you know, maybe to one of the, you know, west LA market places because prices are more affordable. What are some of the demographic trends, uh, that you guys see there at MG Properties?
00:06:23 Yeah. No, we, we, we don't think it's a completely long term trend. We do think it's a couple years before people start moving back to the urban core, and that really starts getting, you know, a popular lifestyle again. And, you know, anyone that's going through this pandemic now is gonna have this in the back of their mind for a long time, for, for, you know, many, many years, decades. So it, it, it, it's gonna be a while before the, the urban core gets back to the trends that it was having. But, um, you know, that's a very desirable, um, lifestyle for a certain demographic. And once there's, uh, more information and treatments and maybe a vaccine and, and, and everything for the, the pandemic and Covid 19, it will start to slowly trend back that way. But I think we've got a couple years of very good suburban growth, um, and, and that's where we will be targeting our purchases for sure. Mm-hmm. <affirmative>, um, be because the urban cores are having the most distress right now, and maybe there's some, some sellers that might need to get out early or they might have other reasons to sell. There could be some good buys too in the urban core, just taking a little bit more risk. I I, I see us focusing more on suburban, just as we always have, but there definitely could be some good buys on that urban core distressed product.
00:07:45 So talk for a second about, you know, how do you think this eviction moratorium issued just last week by the C D C is going to impact business performance for the rest of the year? And, you know, where you think, um, both some of the, the challenges and opportunities lie related to that?
00:08:01 Yeah, so the eviction moratorium, it's, it's been, um, going on for about five or six months for anyone with, um, uh, a Freddy or Fanny loan. So, um, we've been dealing with it for, um, a long time now, and now they just extended it and, and made it a little wider too, so there will not be any evictions to at least the end of the year. Mm-hmm. <affirmative> and it, you know, it really, um, it got more marketed this time, so I feel that there's gonna be more residents knowing that really there's no penalties for not paying now, so there's no incentive to pay now we can pay at the end and, um, I think we're gonna see a little bit of a, an uptick in delinquencies mm-hmm. Over the next three to four months. And, um, I don't think it's gonna be significant, you know, and in the one-ish to one and a half percent, but definitely not a, a trend that we wanna wanna see.
00:08:57 So it's gonna be, um, extending, um, kind of, um, distribution levels and aren't gonna be able to be met obviously if we're not getting the income. And also just getting our properties back on track with renovations and, and back with the original business plan is gonna be pushed out a little bit longer as well. So, um, yeah, there's, there's definitely some, some people that will need some help with the rents or some payment plans and some deferment. There are some more bad apples that are, you know, maybe taking advantage of the, of the, what's going on. So there, there's definitely a lot of dynamics going on and a lot going on politically.
00:09:42 It is a hot button issue, right? I mean, um, we're talking about it from an investment point of view right now, which rightfully so that's what we do and we cover here on StreetBeats and, and, uh, let's, let's continue down that for, for, uh, a moment longer because it's, right. I mean, you know, you know, if tenants are not paying their rent, uh, due to a, you know, justified or just due to the fact that there is a eviction moratorium in, then you know, certain landlords can withstand that. The bigger, stronger ones can withstand that many apartments are owned by mom and pop investors. It might be their only, you know, 20 unit apartment, you know, in, uh, you know, you know, and, and that's the only thing in their portfolio and they cannot withstand that. And so they, they stop paying their mortgage and then, you know, if there's no relief for those sort of landlords, then we've got an uptick and not only delinquencies, then we've got some foreclosure activity happening. And, and that's unfortunate. So hopefully, um, I know that the N M H C, which is an industry organization that is, uh, lobbying for some sort of relief and or protection, uh, for those landlords cuz it would be, uh, i, I think not right, to not look out for, for those landlords as well, for looking out for the individual tenants. Where else do you see opportunities, Jeff, as we sort of point toward wrapping up here, what do you see the, as the future lies for multi-family residential?
00:11:10 We are still very positive on the, um, potential for, um, wealth growth and very, um, good risk adjusted returns on multi-family. So we plan on being very active, just similar to how we were the last couple years. We have purchased about a billion dollars in acquisitions every year, which is somewhere between nine and 12 deals. And we plan on getting back on track with that either next year or the year after this year. There was a, you know, major slowdown with the pandemic where there was no transactions going on, but we are back up busy again. We are, um, currently purchasing three new deals and selling about, um, six deals at the time now too. The, the interesting thing that we've seen is that cost of capital, the debt has gone down to an all-time low. The interest rate that we just locked on our, our, our latest property that we purchased in Vancouver, Washington, not too far away from you was 2.35 on a 10 year loan interest only the whole time.
00:12:16 So nothing that we ever could have imagined getting a loan like that. And that is really keeping cap rates low, maybe even lower than pre covid times. So values have really stayed, um, pretty strong during, during the pandemic performance. Um, at that 96% collection average has been pretty strong too, especially when you compare it to the other commercial real estate major asset classes like hotel and office and retail. So that's bringing in more and more capital to multi-family, which is also increasing values too. So, um, it is gonna be, um, difficult to find good opportunities, but people always need a place to live. Multi-family, um, has really, really strong demographics, especially on the west coast where it's a little bit harder to develop. Construction costs have gone up significantly. The supply and demand is really in balance for, um, the amount of people needing to rent and the amount of new development that's going on. So we feel very good about the long-term prospects for multi-family and plan on being very active.
00:13:28 Hey, thank you so much for joining us. It was really a pleasure. You have, uh, deep knowledge and experience across the western region of the United States and, and apartments and, uh, you know, there's, there's a lot of good trends, uh, at, you know, tailwinds for you and your team at MG Properties and, and the most, uh, and several members of your Liebership team and Oppos admired the work that you guys do. Jeff, thank you again for joining us and we will talk with you soon.
00:13:54 Thank you. Thank you for the time.
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