Investment Opportunities and Evaluating Sponsors in Uncertain Times

Learn practical ways to analyze deals and business plans during volatile times. In this episode, real estate investment expert Eric Sussman joins us as we cover a wide range of topics including the current state of the economy, inflation, interest rates, distressed assets, and evaluating sponsors. Eric's engaging commentary and wealth of experience offer valuable lessons for both new and experienced passive investors.

About Eric Sussman

Eric Sussman is a founding partner of Clear Capital, a real estate investment firm with over 25 years of experience. Eric has deep knowledge of commercial real estate across multiple property types and markets. He publishes a highly informative quarterly newsletter sharing his insights on macroeconomic trends and their impact on real estate.

Here are some power takeaways from today’s conversation:

[04:06] Eric’s career path

[07:40] Economic uncertainty and its impact on markets

[11:11] The debt market

[17:28] US dollar's global dominance and potential challengers

[23:46] Distressed real estate

[26:31] The importance of investing with experienced sponsors

[29:38] Evaluating sponsors' experience in real estate investing

[32:07] Banking crisis, capital calls, and sponsor responsibilities

[37:51] Investing in multifamily real estate

Episode Highlights:

[11:11] The Debt Market

Eric provides insight into challenges in the debt market. He notes rising interest rates have caused losses for banks on fixed-rate loans and treasuries. Variable rate loans are also affected as borrowers face higher rates upon reset. Banks have higher funding costs from increased deposit rates. Lending activity has declined significantly. Some banks may face further difficulties depending on their loan portfolio composition between fixed and floating-rate loans. This uncertainty in the debt market is impacting real estate transaction volumes and refinancing opportunities as lenders take a more cautious approach during this period of rate volatility and unknown economic impacts.

[23:46] What is Distressed Real Estate?

• Eric explains that the term "distressed" doesn't have a fixed definition, but it generally refers to situations where cash flow is insufficient to cover debt levels. Even performing assets could become distressed if they were sold or refinanced today due to rising interest rates. Lenders assess each situation individually based on factors like the sponsor, business plan execution, and guarantor strength, so they are unlikely to own all multifamily properties. 

  
  

[26:31] The Importance of Evaluating Sponsors

Investing with experienced sponsors who have a personal stake in the game is crucial for success. Clear Capital firmly believes in this philosophy. As investors, it's essential to consider the expertise and financial commitment of our sponsors. According to Eric, by aligning their capital with the sponsors, they minimize uncertainty and increase the likelihood of successful execution. Therefore, keep a close eye on our chosen sponsors and ensure they deliver on their promises.

This show is for entertainment purposes only. Nothing said on the show should be considered financial advice. Before making any decisions, consult a professional. This show is copyrighted by Passive Investing from Left Field and Left Field Investors. Written permissions must be granted before syndication or rebroadcasting.

Resources Mentioned:

Clear Capital

Connect with Eric Sussman on LinkedIn

Avoiding Rookie Errors as a Left Field Investor: 20 Lessons Learned From 14 Years of Passive Investing in Private Syndications by Steve Suh

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