Capital Crunch or Capital Flow? The State of Syndications & The Real Estate Market

Mike, thank you so much for coming back on the podcast. I believe you were here maybe 5 years ago and we ran into each other at a at an event and we thought it would be a great idea to have you back. Yeah. — First, why don't you tell us a little bit about you? Yeah, well, you know what? Thanks for having me back. Um and you know, it has been a while, that's for sure and it was good to run into you at the Bronson's dinner event and uh reconnect. So, I'm glad we had the opportunity to do that. So, um yeah, I'm Mike Morawski. I am in Southern California. I have been in the real estate space for about 30 years. I've uh written a couple of books. I have a best seller on the market right now called multifamily investment secrets. Um uh I'm an owner-operator of multifamily, but uh do a lot of capital raising and um uh do some coaching and have a coaching platform that I work with individuals on and uh help them uh build their real estate portfolio. That's incredible. You're you're doing a lot in real estate, amazing. Um so, well, first, I'm curious, where is your portfolio? Where do you focus on? Yeah, great question. So, we actually monitor about 40 submarkets around the country. Um and we watch deals in those markets just to kind of see what's happening cuz I think every market is different. You know, they say real estate's a local business and it is, it's local to that market. Um you know, traditionally, all the years that I've been doing the apartment business, um I have always built my portfolio off the coach seat of an airplane. Uh-huh. I love that. You know, I was in Chicago forever, didn't invest in Chicago uh on the multifamily side and I live in California now and don't invest in California. So, um but our we really primarily pay attention to the Southeast and the lower Midwest. So, we have a big portfolio in Oklahoma today, Tulsa, in the Tulsa market. Love that market. Um we own some assets in Florida and Dallas and you know, if you were to look on a map, Stephanie, from Raleigh or Charlotte, North Carolina, down all the way to Dallas, that whole Southeast smile of the US is really the markets that we like. Mhm. And then, you know, there's some markets in the Midwest being Oklahoma and Northwest Arkansas, Tennessee, a few markets in Tennessee. So. Yeah, I love the Southwest as well and Dallas, we do have a property there as well and it's just, you know, I'm responsible for writing the investor update every quarter and it's just unbelievable. It feels like every month there's something new happening in Dallas, some new huge investment, some new huge firm moving their HQ there to Y'all Street. Uh it's just mind-blowing uh market. Um You know, that's funny about Dallas because Dallas, for probably the last 20 years, as long as I can remember, has been in the top 10 and for a number of years was in the top three of markets to invest in. Mhm. You know, every year the major brokers around the country put out annual and quarterly reports of what their prediction of the market is going to be, what markets are going to be and Dallas has traditionally been in the top 10, if not in the top three, for years. Yeah, incredible. Truly incredible. Uh so, let's jump into let's start with the state of fundraising uh today. I did a little uh update on what we have been up to a couple weeks ago and I shared our experience with raising funds over the last month, but let's hear from you. Yeah. So, um you know, it's been an interesting environment and I think it goes a lot has to do with the market cycle, which we can talk about later, but um I believe that raising capital, you know, there was a time when you could do a presentation, whether it be a webinar or a live presentation, uh you know, for a number of years, I would have I would put 20 investors into a conference room twice a week and people would want to pull their checkbook out and write checks immediately. And those days are over, you know, today I think that there's a lot of people out there raising capital. Um there's a lot of deals for investors to choose from. And then on top of that, you've got investors that are in deals that distributions have been paused, Yep.

that there's been capital calls, that there's disarray, um which just again goes to the market cycle. But you know, because of those because of all of that going on, I think investors have backed up a little bit and have hit the pause button on their investing for the last couple of years. And you know, a lot of what investors say today are I'm not getting distributions from other assets. I just went through four or five, not one or two, but four or five capital calls. I'm a little uncertain. I want to just wait and see what's going to happen. Uh and the one I love is interest rates are too high. But what does that have to do if you're getting a positive yield in a in an investment opportunity? So, um so, I think it's a it's, you know, right now is the time that if you are a capital raiser or if you're raising money for a deal, that you should be nurturing relationships with current investors, past investors, and future investors. Because the time will happen again very shortly, I believe, that um these markets are going to open up and people are going to want to jump back in and invest. Agree. Um and uh I don't know if I've shared in this podcast before, in 2008, October 16th, uh somebody said, "Buy American. I am. " So, '08, it's in the middle of a complete mess, right? In the real estate and economy overall. And that person is Warren Buffett. Mhm. So, I agree. I believe that now is a phenomenal time to buy and these times are the best time to buy, right? So, if you think about the people that are having capital calls, when did they put their money in? in when everybody was writing a check, when people were buying at 4% cap rates. Uh when actually those deals did not make sense, right? — Right. Don't go with the flow. Yeah. — As my mentor used to say, only dead fish go with the flow. Uh I love that. That's a great line. Just because people are pulling out, uh that actually means it's a fantastic time to buy in my opinion. And you can negotiate better terms and you can get Sure, you may have, you know, 2% higher interest rate, but the difference in payment compared to the discount that you get, uh it's enormous. So, with that, where are we in the market today in your opinion? Yeah, uh you know, one comment too I'd like to say about capital raising right now too is I think that you need to, you know, I always use the analogy with my coaching clients. of being a fisherman. You know, if you have one line in the water, you're going to maybe catch a fish. But if you have multiple lines in the water, you're going to catch multiple fish. And I think from a capital raising standpoint, you can't just do one thing to try and raise capital. You can't just be going to networking events or running social media ads. You have to do everything, right? Because you're going to attract more people and it's an effort of putting more people in your funnel today and building more of those relationships. So, you know, I teach everything from networking and building relationships to, you know, social media to webinars to, you know, lead magnets and paid advertising and all the things in between. — Mhm. You know, it's just like you and I both do podcasts and our podcasts are out there and people are going to catch them and they're going to catch clip it clips and and you know, it's going to make sense at some point for somebody. So, from a capital raising standpoint, have multiple um systems working for you that are going to draw people in. And right and when the market starts to get better, wow, you're going to be fully ready. Right. — Right? Compared to everybody else who may be dropping off or doing something else, changing uh what they do temporarily, it's you're going to be ready. Yeah, and think about all the people in your space that are off doing something else today because it got hard, right? And you stayed focused and I stayed focused and you

know, only the strong survive, you know. Yeah. Exactly. So. So yeah, let's move into where are we in the cycle in your opinion? I think we're at the bottom. Um I think we're I actually think we're cycling up. Um you know I always say Stephanie, there's no geniuses in this business, there's only market cycles. Yeah. And you know, the markets go up and they go down for 8 to 10 years. And there's different quadrants along the way. And if you pay attention to the cycles and you look at history, you know, I was at an event um about a week ago and it was uh you can it was a charity fundraiser and it was an economic event and um you know, the economist that spoke um really uh talked about the residential market. And I think that so much uh in our economy is driven by the residential housing market. It even drives the commercial business, it drives car sales, it drives oil, it the residential real estate market is a key um a key market to watch in the cycle. And if you watch the trends and this happened to be somebody who for 30 years has charted every year sales, you know, um per you know, production of new construction, new assets online, home ownership, home rentership. And if you watch the trends, there is no doubt right now we are at the bottom. And you know, we have we've gone through the tough time. Remember we peaked out uh everything topped out and um then we started to come back down and you saw occupancy drop, you saw new construction start stopping, you saw you know, unemployment spike a little bit, you saw us hit some high inflation rates. But if you look at it today, inflation is stayed you know, pretty well stabilized. Unemployment is low. GDP is up. You know, the stock market is booming and one of the things that could help us all is for the stock market to crash. But you know, I don't know that our current administration is going to let that happen. And you know, so much is driven politically and as much as you know, we don't want to talk about it, but it's driven politically. And I just think that you know, take a look at what's happening around right now. You know, you've got a president in office who is a huge real estate investor Yeah. — who made his fortune in real estate. He is going to bring this market back. 100% Yeah. And I — it went back bonus depreciation, right? It went back to 100% again. There's so many things in that bill that are still being dug out. You know, bonus depreciation's 100%. Um you know, one here's a great thing, right? You know, if you have an investor who invests through a self-directed IRA, they used to not be able to use their 401k from their current employer. Mhm. In that bill, it now allows them to use their 401k from a current uh employer to invest in real estate. So there's a lot of things in that bill uh that are going to help the real estate space. But you know, here's one of the things that I've been saying and I've been saying this on my podcast a lot is that if you wait right now for CNN or Fox News to say the market has changed, it's going to be too late. Yep. Cuz the change is happening now and whether you're an active investor or you're a passive investor looking for opportunities to get into, Mhm. you know, get in now and have the wind at your back and ride this next cycle. This is a time in history when I think some of the greatest wealth is going to be remade for people. Oh my gosh, yes. And let's just not wish the stock market crashes because that'll make it even harder to raise funds. Yeah, well, I think what'll happen is people will start to pull out if that starts to happen, you know. So — I don't know. We had a deal around that time. I think it was March or April when it was really down and people were like, I can't sell right now. Yeah. Um so yeah. Yeah, it does go both ways, I guess. Um but yeah, I agree with you. I just an

example, I've been watching San Francisco office uh and I've been telling people it's a huge opportunity in my personal opinion. And now the rents are starting to go back up already. And so uh as we all know with real estate, it takes a little while for things to um for the price to adjust based on the new rents. But now is the perfect inflection where rents are starting to go up and you can still put some properties in contract at a very low price. Um and you know, that not only helps you with getting a low basis in terms of taxes, you also can negotiate better when the next downturn uh the next downturn comes, right? Yeah. — be able to give more discounts than your neighbor who bought at the peak. Uh so there are so many benefits to buying at the bottom. It's just you just got to hold it for a little bit um at this point, at least in the San Francisco office example. Yeah, you know I think all asset classes are like that, you know, um whether it's office or retail or self storage or multi-family. You know, it might be painful and you might find it painful to invest today, but you know, I think that you know, a little bit of short-term pain is going to give you some long-term gain. Yeah. And there's great incentives out there, you know, we have deals that are paying 7 to 10% annual cash flow. Um and you know, IRRs that are close to 20%. Yeah. — So uh there is huge opportunity out there. Agree. Well, is there anything else that you think we should cover in today's market, Mike, that we haven't touched on or anything else related to commercial real estate? You know, I you know, I think that one of the interesting things is you're in totally different asset classes than I'm in. And you know, I think when you look at the multi-family bucket, um there's so many different asset classes inside that bucket. You know, if you look at it in investing in general, you have self storage or you have senior housing, you have medical housing, student housing, — Yep. you know, um you have retail, office, commercial, industrial, manufacturing. There's so many spaces, but when you look at that multi-family bucket and you have self storage and mobile homes and RV parks and senior housing and all the different asset classes in that bucket, I tell people I say, you know, pick something that you know, excites you. And get involved don't you know, don't get in self storage because you want to be with Stephanie and don't get in multi-family because you want to be with me, but get in it because that asset class excites you and you believe in the asset class. Because that's what's going to help you, you know, create wealth and increase your cash flow for you as an investor. Absolutely. Well, it it'll help you also understand, right? When you do get those investor updates, what's happening in the market? Are they doing everything that you think they should be doing? Um Yeah, I don't know about that. Would I diversify? You know, that's a good question. If I was a passive investor, I may also diversify a bit. Well, I believe in diversification for sure. You know, for years they talked about diversification in the stock market, right? Yeah. Have an allocation in stocks, allocation in bonds. And I still believe you should have some money in the markets, but alternative investments, you know, you should have some money in self storage and multi-family and gas and oil, right? In those different asset classes because every sector is going to perform differently. And if you have that diversified investment philosophy, it's going to help you um you know, over the future. You know, there's so many investors that have come to me and said, "Oh, I want to put 200,000 in this investment. " And I tell people I say, "You know what? I don't want all your money. Yeah. — Put some money here, put some money in this asset over here. Or find another asset class, but don't give me everything. I don't want to be the responsible one for everything, right? If you build over time, great, but you know, get started and put money in other places, too. Agree wholeheartedly. And that, in my opinion, is a sign of a great syndicator because we actually care about your money.

Yeah. I've heard people say, "I'm going to take money out of I don't like I'm going to borrow against my credit card. " I'm like, "No. " Yeah. — Don't borrow. Yeah, we do not want to be responsible. I've had people do that, too. They say, "Oh, you know what? I'm going to go get I'm going to get $20,000 off my credit card. " I'm like, "What's your interest rate? " "21%. " Well, where are you going to you know, no, don't do that. I don't I'm not going to take that kind of money from you. — No. Oh, Mike, so great chatting with you. Um and glad to see your perspective of a responsible syndicator uh that, you know, also aligns with mine. Uh so, thank you for being honest. Thank you for your insights. What is your podcast and how can our listeners get in touch with you? Oh, thanks for asking. Um our podcast is multifamily Unplugged. Um we uh we go live every Saturday morning at 10:00 and I always have a great guest on. You've been on. Um I don't remember, to be honest. Sorry. Yeah, I think a couple year a few years back I we had you on, but um and we uh we're always talking about the same things we're talking about. Market cycles, raising capital, where the deals are, where deal flow is. Um and I really I love doing these podcasts because you learn something new from somebody you talk to or interview. It's just always a great opportunity. So, uh if you want to reach out to me, uh anywhere you hang out on social media, whether it's Instagram, TikTok, Facebook, LinkedIn, uh just reach out, get me there, or you could send me an email. I'd love to connect and that's Mike at mikemorawski. com. Thank you so much, Mike. I'm going to try to find your first interview and link it up here because your story is truly incredible. Uh so, hopefully people will be able to listen to both. Thank you so much for your time. Thanks, Stephanie. Have a great day. You, too.