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MARKET TRENDS Local Real Estate Investors Move from Caution to Confidence
INVESTMENT STRATEGY Reshoring
Stop Predatory Investment Bill LEGISLATION
Titan of Multifamily: Madina Shaik, CEO of Makaan Investment Group TITAN TALK
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Why Following Industry Trends Is Essential to Profitability
Following industry trends is particularly important in the
buying or selling properties—as well as the types of properties most likely to be in demand. 6 Tax and regulatory considerations.
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context of real estate investing. Some people think trend lines apply only to favorable markets, but there are many other considerations and ”trends” to follow when investing in real estate. Consider these components of industry trends that can impact real estate investing: 1 Identifying profitable opportunities. Real estate trends can help investors identify emerging markets and areas with high growth potential. Understanding factors such as population growth, economic development, infrastructure projects, and job opportunities can guide investors toward properties and areas that are likely to appreciate over time. 2 Risk assessment. By following industry trends, investors can assess potential risks associated with certain property types or locations. For example, understanding shifts in housing demand, zoning regulations, or environmental factors can help investors make informed decisions and avoid investments that might not yield desired returns. 3 Optimizing rental income. For investors in rental properties, staying updated on rental trends allows them to set competitive rental rates and attract quality tenants. Knowing the demand for rental properties and rental price fluctuations in the local market ensures the rental income remains steady and meets market standards. 4 Adapting to changing demographics. Real estate trends often reflect changes in demographics, such as the preferences of millennials or baby boomers. Understanding these shifts allows investors to tailor their offerings to meet the specific needs and preferences of potential buyers or tenants in different age groups. 5 Informed decision making. Industry trends provide valuable data and insights that aid in making informed investment decisions. Investors can leverage market research and analysis to understand the best timing for
Real estate trends can also shed light on changes in tax laws, zoning regulations, and other legal aspects that may affect
property investments. Staying updated on these matters helps investors navigate potential legal hurdles and optimize their tax planning strategies. 7 Portfolio diversification. Following industry trends enables investors to diversify their real estate portfolio strategically. For instance, if certain property types or locations are experiencing a downturn, investors can consider allocating resources to areas that show more promising trends. Many single-family investors are currently shifting their portfolio to rental properties using the BRRR method, given the state of the market. 8 Financing opportunities. Trends in interest rates and financing options impact the cost of borrowing for real estate investments. Being aware of these trends can help investors secure the most favorable financing terms for their projects. 9 Sustainable investing. Trends in environmental consciousness and sustainable practices are becoming increasingly important in the real estate industry and are important to follow and not ignore. Investors who keep up with these trends can align their investments with environ- mentally friendly practices, which can enhance property value and appeal to eco-conscious buyers or tenants. Following industry trends is essential for real estate investors to make well-informed decisions, seize profitable opportunities, and adapt their strategies to the dynamic and ever-changing real estate market. By staying up to date on the latest developments, investors can position themselves for success and optimize their returns in the long run. It is important to note that money can be made in any real estate cycle. As always, do your due diligence, follow the trends, and shift your investing strategy accordingly to optimize profitability.
CARMEN FIELDS, MANAGING EDITOR
thinkrealty . com | 5
CONTENTS
INSIDE THIS ISSUE
46
MARKET TRENDS
LOCAL REAL ESTATE INVESTORS MOVE FROM CAUTION TO CONFIDENCE Local investors stay disciplined even as institutional investors continue to retreat.
6 | think realty magazine :: september – october 2023
INVESTMENT STRATEGY 8 Understanding Shared-Appreciation Mortgages A SAM can offer benefits to both buyers and sellers, especially in markets where prices and interest rates are high. By Bruce Kellogg 10 12 Ways to Adapt Your Rental Property During a Recession Investors who plan ahead and implement some basic strategies during periods of economic abundance have a better chance of their rental properties surviving even a prolonged recession. By Luke Babich 14 Rethinking Your Cannabis Real Estate Strategies Be proactive by considering these three tips. By Matt Giffune 16 Toilet Paper and Real Property Every investor must understand the opportuni - ties reshoring creates. By Neil Timmins 18 Navigating Rigid Borrowing Conditions and Rising Construction Costs Real estate investing is continually evolving, and investors must adapt to the changing conditions to achieve success. By Taylor Miller
DESIGN 26 Creating the “Wow” Factor with Your Home Renovations To achieve a dramatic before-and- after feel, consider these five tips. By Michele Van Der Veen
OPERATIONS 54 Unveiling the Marketing Blind Spot
Many business owners overlook marketing as their greatest asset. Here’s how content marketing can help you pull the blinders off. By Skyler Wilson
58 How to Build Your Brand in a Competitive Market
FUNDING 30 5 Common Ways to Finance Real Estate Investments An article series on navigating the private lending world By Damon Riehl 32 Financial Wellness Is the Next Big Trend Being financially fit can change the game for real estate investors. By Merrill Chandler
Now is the time to evaluate how effectively you’re using marketing strategies to build brand advantage. By Kurt Coleman
60 Real Estate Closing Gift Ideas Consider these ideas to make a lasting impression. By Jamie Cohen 62 Playing Business Versus Doing Business Investing in real estate is a serious endeavor that can bring substantial rewards when approached with diligence and a strategic mindset. By Jim Tannehill Multifamily Property Website Effective website content and images drive leads and signed leases. By Jenifer Calandra 66 Building Rapport and Momentum with Effective Marketing 64 Defying Trends with Your Executing a real estate marketing campaign that builds rapport and momentum requires the right mindset, a balance of time and money, and an understanding of multiple marketing strategies. By Justin Silverio 68 Why Real Estate Investors Must Change Their Mindset About Tenant Turnover If you focus on building strong relationships with your residents, you can reduce turnover, increase profitability, and build a sustainable business. By Nick Farquhar 70 Decision-Making in a Volatile Environment Following a structured, documented
LEGISLATION 34 What’s Really in the Stop Predatory Investment Bill?
We must ensure the bill does not contain unintended consequences for small real estate investors. By Aaron Chapman
MARKET & TRENDS 36 4 Industry Trends You Cannot Afford to Ignore Real estate is changing … again. By Tom Olson 40 A Look Back at 2023—and a Peak at 2024 Does investor sentiment align with market conditions? By Rick Sharga 44 Midwest Multifamily Market Trends Although there is increased interest in Midwest multifamily investing, the pace of interest rate hikes has slowed activity. Still, optimism remains for 2024. By Jeff Roth 50 Where Is Private Lending Headed? There is still money available to get deals done; however, it may be more expensive. By Anthony Geraci
COVER STORY 20 Titan of Multifamily: Madina Shaik, CEO of Makaan Investment Group
Shaik’s simple plan to dominate multifamily investing isn’t “rocket science.” By Katie Bean
CASE STUDY 24 Proper Planning Makes the Difference in Fix-to-Flip Loan Success It’s vital to plan for challenges that can arise during the renovation process that may require financial resources and quick decision-making. By John Santilli
process—that both internal and external stakeholders can understand—helps support how and why decisions are made. By Scott Lewis
52 Twin Peaks
Price and population peaks in various markets coincided. By Ingo Winzer
thinkrealty . com | 7
INVESTMENT STRATEGY
SAMs
Understanding Shared- Appreciation Mortgages A SAM CAN OFFER BENEFITS TO BOTH BUYERS AND SELLERS, ESPECIALLY IN MARKETS WHERE PRICES AND INTEREST RATES ARE HIGH.
By Bruce Kellogg
A
Shared-Appreciation Mortgage, also known as SAM, is a
or escrow officer can also probably assist with this type of note.
arm them for the meeting—or even arrange to attend!
carryback mortgage in which the purchaser of a home shares a percentage of the appreciation in the home’s value with the seller when a sale, refinance, or loan termination occurs. Do not confuse this seller carryback with the institutional investors who share appreciation with homeowners, a practice that became common during the past few years as housing prices rocketed. APPLICATIONS When the market is appreciating rapidly, it is sometimes difficult to convince a seller to sell on reasonable terms or to carry back owner-financing. The SAM involves a low interest rate, but then gives the seller a percentage of the profit at the end of the loan term. This approach also works in a high interest rate environment because it helps the buyer to achieve a reasonable cash flow to sustain the property. Because it is simply a promissory note with a few custom terms added, a “standard form” for this kind of note can sometimes be found on the internet. A real estate attorney
BUYER BENEFITS • The SAM is good for buying in high-priced markets and high- interest-rate environments. • Price is less important than usual. • Terms are negotiable, building a relationship with the seller. • SAM facilitates the purchase. Some investors in high-priced areas just don’t want to buy “out of area” for all kinds of reasons. They prefer to keep their money close by. Using a SAM can make this possible. The same is true if interest rates are rising or are high. A SAM can be used to still make acquisitions. The best opportunities are those in which the seller has a substantial equity. The more equity there is, the more payments can be reduced by the seller participating. Whether first and/or second loans exist impacts how much seller participation can be. Ideally, the SAM should be struc- tured to give the buyer a positive cash flow, at least. Keep in mind that risks always exist, including vacancies, evictions, rehab needs,
SELLER BENEFITS The SAM offers the seller nu- merous benefits: • Using a SAM gets the property sold, often at full price. • An “installment sale” under IRC 453 can defer income taxes. • The seller doesn’t have
to make payments on senior loans anymore. • It eases a sale when prices are high. • It eases a sale when interest rates are high.
• The seller can trade the note, sell all or part of it, or borrow against it (i.e., hypothecate/collateralize it). It is important to deal with intelligent, good-natured sellers. The relationship will require mainte- nance. Additionally, the seller must believe the property will appreciate over the term of the loan; otherwise, they will not accept the SAM. Finally, expect the seller to take the proposal to an attorney. For best success,
8 | think realty magazine :: september – october 2023
and damaging events ( e.g., fire, wind, flooding). Clearly, breakeven won’t be enough.
“flippers,” particularly in a rising market. Typically, the term is under a year because that is often the time frame for a rehab and sale. The “flipper” gets lower interest costs, and the seller gets a share of the profit. This is a good way to convince the seller to make the deal. Also, when selling a property, a SAM can be carried back for the benefits previously mentioned. This is especially true of the “installment sale” under Section 453 of the Internal Revenue Service code. The net profit is basically spread out over the term of the loan, which could
reduce the applicable tax bracket. For the seller, the longer, the better. Definitely consult a pax professional when considering this option. •
CONSIDERATIONS Sometimes a seller who wants to accomplish a sale might not be enthusiastic about carrying back a SAM. In this instance, to encourage the buyer to pay off early (by selling or refinancing), the parties could include a “phase-out clause” that reduces the seller’s percentage based on an earlier payoff. Another consideration is that a SAM works well for property
Bruce Kellogg has been a real estate agent and investor in California for 44 years. He has purchased approximately 350 investment properties for himself,
mostly with high-leverage and tax-deferred exchanges. In the process, he made three fortunes and has experienced three real estate downturns since 1980. Kellogg has transacted roughly 550 properties for clients, creating fortunes for several. His book “Real Estate Investing Wisdom” is currently in publication. He can be reached at Brucekellogg10@gmail.com or (408) 489-0131.
thinkrealty . com | 9
INVESTMENT STRATEGY
RECESSION PROOFING
12 Ways to Adapt Your Rental Property During a Recession INVESTORS WHO PLAN AHEAD AND IMPLEMENT SOME BASIC STRATEGIES DURING PERIODS OF ECONOMIC ABUNDANCE HAVE A BETTER CHANCE OF THEIR RENTAL PROPERTIES SURVIVING EVEN A PROLONGED RECESSION.
By Luke Babich
he world of real estate investing is exciting but incredibly
you have capital to spend, picking up other rental properties during a re- cession can be a good bet. But if your investment goals include long-term, steady growth, continue to focus on stabilizing your current portfolio. Here are 12 ways to adapt your rental property during a recession. 1. LOWER YOUR RATES It may be counterintuitive to collect less money during a recession, but consider this: If you are feeling the pinch of a market downturn, so are
your tenants. They may be inclined to shift to a lower-priced rental during this time to save money. Reducing your rental rates, even for an introductory term, makes your rental property more attractive to tenants. Even so, it’s still important to ensure your rental rates continue to cover expenses.
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unpredictable. You might be riding the high of favorable returns one day only to stare down a looming recession the next. Fortunately, there are many ways to protect your investment when the financial picture is not so rosy. Sometimes the best you can hope for during a recession is to maintain your position. This means focusing on cutting costs, keeping current tenants happy, and being flexible so you can reduce vacancy rates. If
2. BE FLEXIBLE If your current tenants are struggling to make payments, consider flexible payment plans
10 | think realty magazine :: september – october 2023
If your leases end at graduation, chances are good you’ll be staring at three months of vacant units until students return.
8. STREAMLINE WHAT YOU CAN
The administrative cost of rental properties can eat into your profits. Automate administrative tasks such as rent collection and responding to tenant complaints. Check in with suppliers to negotiate more favor- able rates for long-term contracts and bulk purchases. 9. KEEP UP APPEARANCES If you are cutting costs during a recession, it can be tempting to elim- inate landscaping services or other property maintenance. Do not give in to this impulse. Regular mainte- nance prevents more costly repairs or purchases in the future. Keeping your property in top shape also attracts more prospective tenants. 10. CONSIDER OTHER RENTAL OPTIONS Diversifying your tenant base is another way to reduce vacancy rate and expand the use of your rental property. If your single-family rental isn’t moving, consider medium-term furnished rentals (or short-term, if you’re in a hot vacation market). You might also rent one room at a time. This is a high-return strategy that might be just what you need to get through a recession, especially if your rental property is in an area with an abundance of individual tenants (i.e., a college town) or if you’re trying to attract people who are relocating and looking for temporary housing. Keep in mind that local laws may not
to ease the pinch. Allow partial payments for a period of months or provide a discount for early or multi-month payments.
favorable terms. You might reduce the rent for the first six months, returning it to a market rate over a two-year period.
3. REDUCE EXPENSES When a recession is on the horizon, put off optional upgrades and improve- ments. Focus on what’s absolutely necessary. If you haven’t already, take a look at your monthly expenses for the past three months and determine what costs you can reduce or eliminate. Then bank that cash for emergencies. 4. GO SHORT Potential tenants may hesitate to sign long-term leases when they aren’t sure of their financial future. Offer short- or medium-term leases with the potential to convert to a lon- ger lease to appeal to these tenants.
6. LEVEL UP MARKETING It’s time to shout the benefits of your rental property from the roof- tops. Focus on any features that add value, especially during a recession. These features might include easy public transportation, proximity to grocery stores and shopping, or amenities such as an in-house gym. Don’t forget to highlight price adjust- ments or flexible rental periods too. 7. MIND YOUR VACANCY RATE Keep an eye on the bottom line: your vacancy rate. Be proactive in your search for new tenants and be responsive to the needs of existing ones. One strategy for keeping vacancy rates low, especially in a university town, is planning rental periods so they do not coincide with the end of the school year.
5. GO LONG On the other hand, consider offering longer leases with more
thinkrealty . com | 11
permit single-room rentals. Check with your locality.
11. INVEST WISELY If you do have some cash to add a rental property, invest with the 1% rule in mind: Your monthly rental rate should be at least 1% of the purchase price. Finding a property that is ready to rent at a lower price and being able to afford to snap it up and rent it fast is a great way to safely boost your bottom line when the economy is in a downturn. 12. EXPECT THE WORST It may seem counterintuitive, but a good time to put your rental prop- erty to the stress test is when finan - cial skies are blue. Assume one or all of the worst-case scenarios: • Tenants don’t pay for 90 days. • Vacancy rates triple. • Property values plummet. Could you survive each of these situations? Make changes before a recession hits so that you can weather any of these situations. A recession can be devastating for investors who aren’t prepared. Be proactive to protect yourself during the downtown and position yourself for a positive future. •
Luke Babich is the co-founder of Clever Real Estate, a real estate education platform committed to helping homebuyers, sellers, and investors
make smarter financial decisions. Babich is a licensed real estate agent in the state of Missouri. His research and insights have been featured on BiggerPockets, Inman, the Los Angeles Times, and other online and media outlets. Babich earned a bachelor’s degree in political science, with honors, from Stanford University.
12 | think realty magazine :: september – october 2023
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thinkrealty . com | 13
INVESTMENT STRATEGY
CANNABIS
Rethinking Your Cannabis Real Estate Strategies BE PROACTIVE BY CONSIDERING THESE THREE TIPS.
By Matt Giffune
he cannabis industry is currently in a land-and-expand
these stores, and which targeted marketing efforts to deploy to ultimately support cannabis sales. Marketing, in particular, can be a dicey proposition, as it can be a bal- ancing act to meet local, state, and federal laws and regulations around advertising while still driving poten- tial customers through your doors. This data will also be essential in determining your retail sales capabilities at a given retail site, especially considering that seasonal trends influence sales in different geographic and socioeconomic areas. If you capture the right information, you can make data-driven decisions about what products to stock at which locations at what time of year. It’s important to monitor category performance to continually improve individual store performance—which brings us back to the real estate decisions you need to make. 3 TIPS TO IGNITE YOUR RETAIL CANNABIS STRATEGY Poor real estate decisions are often the biggest mistakes retail cannabis businesses make as they enter the industry. They can even impact those currently operating dispensaries. These mistakes don’t just entail choosing the wrong locations (though this, too, can
be problematic). Several factors will affect your decision about where to open your first, fourth, or 20th storefront. Keep the following in mind as you develop your cannabis real estate strategies for this year and beyond: 1. Implement a cluster retail model. Analyzing real estate and consumer data trends can help identify new markets for growth opportunities. Take something like a multiuse development. It offers a great way to orient a storefront with adjacent brands. Perhaps a certain develop- ment could position your dispensary near makers, creators, and artists. Or maybe a better option would be to open your doors next to a health and wellness spa. Your target market’s differentiators will dictate the optimal cluster approach for you. Just remember that some zoning and city regulations could prohibit you from opening a storefront within 1,000 feet of schools, public parks, playgrounds, transit centers, or even other retail cannabis dispensaries. 2. Become a neighborhood hub. More and more retailers are working to build their local community—and for good reason. Consumers want connections to brands, especially those they shop at locally. Your retail cannabis shop is uniquely positioned
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motion, with a projected compound annual growth rate of 32% between 2021 and 2028. Even though sales have fallen lately, the future is still bright. This means many things for cannabis retailers. Topping the list will be commercial real estate decisions. It’s become essential to strategically reevaluate your real estate expansion goals. As new markets continue to crop up and consumer interest expands, an increase in competition to secure desirable locations is only natural. If you’re not proactive in your cannabis real estate strategies, you’ll quickly find your business at a disadvantage. DATA AND CONSUMER PURCHASE BEHAVIORS Though this should go without saying, the key to any cannabis real estate strategy will be data involving the real estate market and consumer purchase behaviors. Both will be crucial in evaluating the potential of any storefront. By analyzing this data, cannabis retailers can better understand potential foot traffic, market trends, and adjacent retailers where their ideal customers shop. All this data can be aggregated to help inform decisions about where to open new stores, how to design
14 | think realty magazine :: september – october 2023
to craft a retail experience that caters to your clientele. Standing out from the crowd is a good thing. Cannabis retailers are creatively branding themselves and stitching themselves into the fabric of their neighborhoods. 3. Power your cannabis real estate strategy with software. After payroll, real estate is often the second larg- est expense for many organizations. The same is true for cannabis retail- ers. However, real estate can also be a revenue center. So, ensuring every storefront you open is profitable is critical. Lease management software enables your real estate and finance teams to track rent payments, rent
escalations, and additional expenses to ensure your monthly storefront spend has a strong ROI. Don’t take the forthcoming retail cannabis market for granted. You’re still operating in a regulated industry with varying application procedures and conditional use permits per market. From marketing to real estate, all your strategies will be informed by this fact. However, technology can help navigate your proposed sites for cannabis sales. Start capturing the data if you haven’t already, get the right lease management system in place to ensure your team never misses
opportunities, and think more strategically about where you open your next storefront. Take a page from Starbucks and McDonald’s, two companies that are more real estate companies than peddlers of coffee and burgers. They know where to open their next storefronts, and it all comes down to consumer and real estate market data. •
Matt Giffune is a co-founder at Occupier, a lease management software platform helping commercial tenants and brokers manage their real estate footprint and
comply with lease accounting standards. Before working at Occupier, Giffune held leadership posi- tions within commercial real estate and technology sales. He’s currently based in Boston.
thinkrealty . com | 15
INVESTMENT STRATEGY
RESHORING
Toilet Paper and Real Property EVERY INVESTOR MUST UNDERSTAND THE OPPORTUNITIES RESHORING CREATES.
By Neil Timmins
NO. 2 COST CONSIDERATION. Labor costs in traditional offshore manufacturing hubs such as China have been rising steadily over the years. For example, labor costs in China now outpace those in Mexico. In many cases, cheaper labor overseas no longer outweighs the increased monetary cost and risks. Simultaneously, advancements in automation and robotics have further diminished the cost advantage of overseas production. Manufacturers who reshore production upskill their domestic workforce to oversee the advanced automation and robots that complete tasks previously executed by people. Reshoring enables companies to leverage automation while minimizing transportation and logistics expenses. NO. 3 QUALITY AND INTELLECTUAL PROPERTY PROTECTION. Some com- panies have experienced quality con- trol issues, data security risks, and intellectual property theft when man- ufacturing overseas, specifically in technology. By reshoring, businesses can maintain tighter quality control standards, protect intellectual prop- erty, and ensure compliance with lo- cal regulations. NO. 4 REDUCED TIME TO MARKET (TTM). Time to Market (TTM) refers to the time it takes for a product to be
“Limit 2 per person.” “Limit 1 per Checkout.” It was common to run across
reevaluation of manufacturing and distribution strategies. One notable trend that emerged is the reshoring (also called nearshoring or onshoring) of manufacturing to the United States. Reshoring involves companies relocating their facilities from overseas back to the U.S. The growth in reshoring is one that real estate investors ignore to their own detriment. Let’s see why reshoring is happening, the industries it affects, and the opportunities this creates for investors.
purchase restrictions on “essential items” during the COVID-19 pan- demic. And if a purchase limit didn’t apply, your plans to stock up on 30- roll packs of Kirkland’s finest 2-ply might have been foiled because it was out of stock. As you know, toilet paper wasn’t the only item in short supply. Carbon dioxide detectors, cleaning supplies, sriracha, lumber, and computer chips were just a few of the other products missing from shelves. The COVID-19 pandemic taught us all a thing or two about the significance of supply chains. Reuters reported in August 2021 that the cost of shipping a single container from China to the East Coast had “climbed over 500% from [2020] to $20,804.” At the same time, ships sat waiting for days, and even weeks, due to port congestion, lockdowns, and labor shortages. When you consider the average container ship transports 15,000 con- tainers and those 15,000 containers end up at hundreds of destinations, it’s easy to see why thousands of businesses were missing inventory. Increased shipping costs. Increased fuel costs. Delays. The problem is compounded at an exponential rate just for shipping a single container! The disruption of global supply chains led to a worldwide
WHY RESHORING IS HAPPENING There are four main reasons reshoring is occurring.
NO. 1 SUPPLY CHAIN RESILIENCE, DIVERSIFICATION, AND CONTROL. The pandemic exposed vulnerabilities in global supply chains with disruptions in shipping, shortages of critical components, and reliance on distant suppliers. According to the Kearney Reshoring Index, “79% of executives with manufacturing capacity in China have already moved part of their manufacturing capacity to the U.S. or plan to in the next three years.” Reshoring affords companies greater control and flexibility over their supply chains, reducing their risk of future disruptions.
16 | think realty magazine :: september – october 2023
developed, manufactured, and made available for consumers to purchase. Companies with reduced TTM have a competitive advantage, increased rev- enue, higher customer satisfaction, greater cost efficiency, and increased ability to adapt to customer demand. In the apparel industry, reshoring production helps companies cut lag time from their historic practice of or- dering products three to five months in advance and hoping they sell.
$280 billion available in new funding for the domestic research and manu- facturing of semiconductors in the U.S. In addition, the demand for solar panels, robotics, drones, and chips continues to grow. NO. 3 CHEMICALS. Pharmaceutical companies producing vaccines and treatments require reliable sourcing for chemicals. Renewable fuels and the production of batteries also re- quire chemicals. HOW REAL ESTATE INVES - TORS CAN CAPITALIZE The reshoring trend has led to job growth and will continue to contribute to employment opportunities in manufacturing jobs, research and development, and other supporting industries. According to the U.S. Treasury Department, real manufacturing construction spending has doubled since the end of 2021. The St. Louis Fed reports that U.S. manufacturing added “roughly 1 million workers be- tween 2010 and 2021.” The increase in domestic production and manufac- turing job growth has a ripple effect on industrial real estate and other asset types. This all spells opportu- nity for the savvy real estate investor. Southern and midwestern markets account for a combined 76% of jobs brought back due to the lower cost of land, labor, and skilled workforces. Reshoring has generated an increased demand for industrial space. The increased demand is driven by a few distinct factors: NO. 1 FACTORY EXPANSION. Com- panies reshoring their manufacturing operations require additional space to accommodate new production lines, equipment, and workforce. To meet
this demand, industrial parks and vacant manufacturing facilities are being repurposed. NO. 2 SUPPLY CHAIN LOCALIZATION. Reshoring involves clustering suppli- ers and distribution within reach of the customer. This localization neces- sitates the creation of industrial clus- ters or supply chain hubs near people across the U.S., leading to the devel- opment of new industrial spaces or the expansion of existing ones. NO. 3 MODERNIZATION AND AUTOMATION. Companies adopt manufacturing technology and automation systems to make reshoring cost-effective. These innovations require space for the installation of robotic systems and flexible layouts. NO. 4 WAREHOUSES AND DISTRIBUTION CENTERS. Reshoring drives a need for the warehouses and distribution centers necessasry for the efficient inventory management that supports one-day or same-day shipping to customers. Although the 2020 trend was to stock up on 2-ply, it’s looking like 2023 and beyond may be the time to stock up on industrial property. Unlike the pandemic, this looks more like a material shift than a phase. •
WHAT INDUSTRIES ARE RESHORING? The interest in reshoring
sparked by the pandemic has been perpetuated by the war in Ukraine and recent government incentives and federal policies (e.g., CHIPS and Science Act , Inflation Reduction Act, and bipartisan infrastructure bill). Given the recent advancements in automation and robotics, companies partner technology with a domestic workforce to be more cost-effective and reduce their global supply chain exposure. In the first quarter 2023 S&P 500 earnings transcripts, talk of reshoring was up 128% from the same time last year. Which industries are pushing this trend? According to the Reshoring Initiative 2022 Data Report, here are the top three sectors for reshoring production: NO. 1 ELECTRICAL EQUIPMENT. The top product in this category is the production of electric vehicle batter- ies. Federal incentives for electric vehicles have led to explosive growth in investments in EV batteries and charging stations. Job growth in this sector is up by 42%. NO. 2 COMPUTERS AND ELECTRON- ICS. The Chips Act of 2022 made
Neil Timmins is a real estate syndicator, broker, and educator. He generates passive income opportunities through industrial real estate in “Cash Flow
Country,” the Midwest. After spending years invest- ing in houses and $300 million in transactions, he graduated to investing in commercial real estate. Now he educates others on how to do the same. Neil hosts the podcast “Passive Real Estate Invest- ing with Mavericks.” His first book “Unicorn Hunting for Real Estate Investment Companies: The Com- plete Hiring Funnel” was released in 2021.
thinkrealty . com | 17
INVESTMENT STRATEGY
OVERCOMING BARRIERS
Navigating Rigid Borrowing Conditions and Rising Construction Costs
REAL ESTATE INVESTING IS CONTINUALLY EVOLVING, AND INVESTORS MUST ADAPT TO THE CHANGING CONDITIONS TO ACHIEVE SUCCESS.
By Taylor Miller
n the aftermath of the pandemic, two significant
more substantial collateral to secure loans. This has created a barrier to entry for some investors, particularly those with limited capital or less established credit histories. Additionally, the stringent borrow- ing conditions have led to increased competition among investors for the limited financing options available. This has driven up interest rates, reducing the profitability of real estate investments. Investors must carefully evaluate the financial viability of their projects, factoring in higher borrowing costs and poten- tially lower returns on investment. Despite the challenges posed by stricter borrowing conditions, real estate investors can adapt their strategies to navigate these changes successfully. Investors should focus on improving their creditworthiness and building stronger financial profiles. This includes maintaining a healthy credit score, reducing existing debt, and increasing liquid- ity. By presenting a solid financial position, investors can enhance their chances of obtaining favorable financing terms. It is worth mentioning that traditional banks may not always be the sole source of financing for real estate projects. Investors can
consider alternative options such as private lenders, crowdfunding platforms, or partnerships with other investors. These alternatives can provide more flexibility and potentially more favorable lending terms. Investors can also explore creative deal structures to overcome borrowing challenges. For example, lease-to-own arrangements or seller financing can provide more acces - sible financing options, allowing investors to pursue deals that might not meet traditional lending criteria. RISING CONSTRUCTION COSTS In addition to borrowing condi- tions, real estate investors face the impact of rising construction costs. Factors such as increased material prices, labor shortages, and regulatory requirements have contributed to the upward trajectory of construction expenses. These increasing construction costs can significantly impact the profitability of real estate projects. Investors must account for these expenses when evaluating the finan - cial feasibility of their investments. Burdensome construction costs can lead to elongated project timelines, reduced profit margins, and the need
I
trends with a profound impact on real estate investing have emerged: stringent borrowing conditions and the increasing cost of construction. These factors are reshaping the real estate landscape. They are also forcing investors to rethink the strategies they must employ to remain profitable.
STRINGENT BORROWING CONDITIONS
One of the primary trends affecting real estate investing today is strict borrowing conditions. Following the global financial crisis of 2008, regulators around the world imposed stricter lending requirements to mitigate risk and ensure financial stability. These conditions included higher down payments, more stringent credit checks, and stricter debt-to-income ratios. We are now seeing these same conditions befall the lending market. This borrowing environment has made it more challenging for investors to obtain financing for real estate projects. Investors now need to demonstrate stronger credit pro- files, higher levels of liquidity, and
18 | think realty magazine :: september – october 2023
for additional capital infusion down the road. The rising costs also pose a challenge for investors seeking to enter the market or expand their portfolios. It becomes imperative to accurately forecast and budget for construction expenses, ensuring that the project’s financial viability remains intact. To navigate the challenges posed by rising construction costs, real estate investors can employ several strategies. Conducting comprehen- sive due diligence is crucial to accu- rately estimate construction costs. Investors should engage experienced professionals, such as architects or contractors, to provide detailed cost projections. Understanding the local market dynamics and the availability of materials and labor can help investors make informed decisions. Another worthwhile pursuit is value engineering. This is where you optimize construction plans and materials to reduce costs
while maintaining quality. Investors can work closely with architects and contractors to identify potential cost-saving measures without compromising the project’s integrity. One of the more popular strategies to mitigate the impact of construction costs is portfolio diversification. Investors can diversify their portfolios to include a mix of development, renovation, and income-producing properties. This diversification helps mitigate the impact of rising construction costs by balancing potential risks and returns across different types of projects. Additionally, exploring alternative construction methods like modular or prefab construction can help reduce costs and shorten project timelines. These innovative approaches can offer cost savings through economies of scale and increased efficiency. The landscape of real estate investing is continually evolving, and
investors must adapt to the changing conditions to achieve success. The stringent borrowing conditions and rising construction costs present challenges, but they also offer opportunities for creative strategies and innovative approaches. By strengthening financial positions, exploring alternative financing options, conducting thorough due diligence, and diversifying invest- ment strategies, real estate inves- tors can navigate these challenges effectively. With careful planning and adaptation, investors can continue to thrive in the ever-changing real estate market. •
Taylor Miller is a project specialist and marketing coordinator for Owner Build- er Advisors, where he helps developers and owners navigate the construction
process. He has been actively involved in the con- struction and inspection industries since 2016. He also manages marketing campaigns, social media, and document generation/compilation for both formal and informal application processes.
thinkrealty . com | 19
COVER STORY
MADINA SHAIK
Titan of Multifamily: Madina Shaik, CEO of Makaan Investment Group SHAIK’S SIMPLE PLAN TO DOMINATE MULTIFAMILY INVESTING ISN’T “ROCKET SCIENCE.”
By Katie Bean
rowing up in southern India, Madina Shaik was passionate
bubble burst in the early 2000s. He had to let go of his employees, primarily colleagues from India who had H-1B visas. As work dried up, Shaik didn’t have projects to assign them. Reflecting on that, Shaik said he reinvented himself and his company. He shifted his focus to government contracting. Around the time Shaik became a U.S. citizen in 2004, he began consulting for the U.S. Army. Though he and his family had settled in Houston, he began rebuilding his company in Washington, D.C., to accommodate the government work, and traveled there weekly. By 2016, he decided to put the pedal to the metal and shift into growth mode. Now, his consulting company, CompQSoft, is a $100 million company with 500 employees and a full slate of senior leadership in D.C. DIVING INTO REAL ESTATE As Shaik’s consulting business prospered, he began to think about diversifying with real estate investing. In 2008, he bought some single-family homes as rental properties. He asked a friend to manage them and to continue to find more properties for him to buy. Time passed and there were no further
acquisitions. Still, he wanted to dive deeper into real estate. “It was a to-do thing on my list, but I did not have time to do it,” Shaik said. “But when COVID started, all my meetings got canceled. No travel to D.C. So, I had a lot of time on my hands, and I was just getting bored. So that’s the time I kind of got into the real estate.” Not one to sit idly, Shaik began reading books about investing and talking to other real estate investors. He bought nearly 100 single-family homes to rent in 2020, but he quickly realized he couldn’t scale up one house at a time. “So, I said, OK, now I need to move into the real estate. I’m going to buy multifamily apartment complexes,” he said. He didn’t start by dipping his toe—he jumped all the way in. Shaik started Makaan Investment Group and bought his first apartment complex in 2021. He made 12 acquisitions worth about $350 million in 12 months, totaling about 3,500 apartment units. “That’s my nature. I want every- thing done yesterday,” he said. During the past year, he put off further acquisitions to stabilize the complexes he owned, avoid high interest rates, build his team,
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about civil engineering and decided he wanted to be part of the building process. Today, he’s a titan of multifamily investing, building and renovating thousands of units. Of course, it wasn’t a straight line from his childhood dream to becoming the CEO of Houston-based Makaan Investment Group. SETTING THE FOUNDATION Shaik didn’t become a civil engineer. Instead, he studied electronics. As a young man in the 1980s and ‘90s, he could see computing becoming
the way of the future, whereas engineering was saturated. He
received his bachelor’s and master’s degrees in India and immigrated to the United States for a job in technology. Soon, he decided to work for himself, creating a technology consulting company in 1997. He worked alone for a few years until colleagues began reaching out, asking if he was hiring. “That’s how I built my company, actually,” he said. “So, by the time I realized [it], I had around 200 people working for me.” Unfortunately, his company suffered a setback when the dot-com
20 | think realty magazine :: september – october 2023
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