PassivePockets: The Passive Real Estate Investing Show

139. Investing in Uncertain Times with Eric Sussman

Oct 22, 2023

Real estate investment expert Eric Sussman discusses analyzing deals and business plans during uncertain times. Topics include the current state of the economy, inflation, interest rates, distressed assets, and evaluating sponsors. Valuable lessons on passive investing for new and experienced investors.

59:50

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Episode guests

Eric Sussman

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Quick takeaways

Investing in multifamily markets with strong rental demand drivers and growth potential can provide stability and opportunities for rental growth.

Balancing liquidity for uncertainty while seizing opportunities for higher cash flow and growth potential is key in the current environment of rising interest rates and uncertainty.

Assessing sponsors' experience and track record of executing business plans, as well as their level of personal investment and transparent communication, is crucial when evaluating sponsors in uncertain times.

Deep dives

Factors to Consider When Investing in Multifamily

When deciding whether or not to invest in a particular multifamily deal or the asset class generally, there are a few important metrics to consider. One key factor is the cost comparison between renting and buying. Currently, the delta between the cost to own a single-family home and to rent a unit is at record highs, making renting more attractive. Additionally, it's important to evaluate the supply and demand dynamics in the market. Are there a lot of units coming out of the ground, leading to rent declines, or is there rental growth due to strong demand? The local economy and the drivers of industry and job growth are also crucial considerations. Investing in markets with diversified job markets and growth potential can provide more stability and opportunities for rental growth. Finally, assessing the rental opportunity and value-add potential is essential. Understanding the current rent and the potential for rental increases based on comps and necessary improvements is key to evaluating the investment opportunity.

Introduction

2min

Importance of Experienced Sponsors and Introduction of Eric Sussman

3min

Journey into Real Estate and Career

18min

China's Demographic Challenges and the Impact on Global Power

7min

Investment Opportunities and Evaluating Sponsors in Uncertain Times

5min

Capital Calls and Transparency in Investing

19min

Investing in Uncertain Times: Consensus, Skin in the Game, and Finding Opportunities

6min

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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