Luke McCann is the Vice President of Multifamily Investment Sales at NAI, where he leads middle-market and development brokerage efforts across North Florida. A Jacksonville native, Luke has built a loyal client base through his extensive experience selling infill multifamily assets and development sites in the region. He holds dual bachelor’s degrees in economics and finance from Flagler College and is a licensed real estate associate in Florida. Outside of work, Luke is passionate about sports and serves as a partner at Mission House, a homeless shelter in Jacksonville Beach.
Here’s some of the topics we covered:
- From Finance Degree to Multifamily Mogul
- Current Market Insights and What Luke is Seeing Right Now
- Why Sellers Are Cashing Out
- Bridge Debt Breakdown and What’s Coming Next
- Interest Rates Finally Dropping and What This Means for You
- Broker Secrets and How to Communicate Like a Pro
- How to Stand Out When Submitting with Brokers
- The Real Way to Find Hot Multifamily Deals
- Game-Changing Advice for Aspiring Real Estate Investors
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
Full Transcript Below
00;00;00;08 – 00;00;20;18
Rod
Welcome to another edition of Lifetime Cash Flow through Real estate investing. I’m Rod Khleif, and I’m thrilled you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name’s Luke McCann, and Luke’s a VP of the multifamily investment division at Nai global and, leads the firm’s mid-market and development brokerage in the Jacksonville area.
00;00;20;18 – 00;00;22;20
Rod
So, we’re going to have a lot of fun today. Welcome, brother.
00;00;22;20 – 00;00;23;25
Luke
Yeah. Excited to be here. Thanks.
00;00;23;26 – 00;00;30;18
Rod
Okay, so, Yeah. And did you drive over today? I did, yeah. So that’s a five hour drive.
00;00;30;18 – 00;00;38;06
Luke
Well, I’ve done a big loop around Florida this week, so started down in Miami for a conference, drove over here yesterday. Had a couple meetings in the Tampa area.
00;00;38;07 – 00;00;47;06
Rod
Okay. All right. So not so bad. Okay. You didn’t look like you were too exhausted. Okay, good. Well, why don’t you take a minute and, you know, give us some of your background.
00;00;47;07 – 00;01;03;13
Luke
Yeah, sure. So, based in the Jacksonville area, like you said, we tackle the, the middle market multifamily space, which is really just call it 52 to 300 units or so, really focused exclusively on the the Jacksonville MSA.
00;01;03;16 – 00;01;06;26
Rod
So by the way, guys, MSA means metropolitan statistical Area.
00;01;06;27 – 00;01;33;01
Luke
Exactly. Okay. Yeah. So, you know, been in Jacksonville my, my whole life, born and raised there. Come from a family of investors I’ve always believed in. And real estate is a wealth vehicle. And knew I wanted to to get into that space. Been been on the brokerage side. Really my entire career. Actually started while I was, was still in college, doing a little bit of residential, but quickly learned that that was not the space for me.
00;01;33;03 – 00;01;39;08
Luke
I was more excited about selling returns and cash flow rather than drapes and countertops and colors.
00;01;39;08 – 00;01;40;27
Rod
Well, you have a finance degree so that.
00;01;41;04 – 00;02;01;00
Luke
You that right? Yeah. Yeah. So quickly learned that that, the investment space was more of the space for me. So, you know, chose multifamily because for me, it was the easiest to understand. I had been a tenant before. I had seen how these things operate. And, you know, just kind of went from the ground up, started cold calling on for unit practice.
00;02;01;00 – 00;02;03;23
Rod
What you guys have to do. Right. Yeah, exactly. Beat the phones.
00;02;03;23 – 00;02;13;06
Luke
Right. And four units turns into eight units turns into 16. And here we are. Now I’m over it. And I an average deal size ranges from 5 to 30 million, I’d say.
00;02;13;06 – 00;02;34;14
Rod
Yeah. Nice. Nice. So I love the Jacksonville market. As I was telling you before we started recording, I’ve. I know we put an Loi in on one asset there. Didn’t get it, but, Absolutely. Well, candidly, I love Florida, period. I mean, you can’t keep people away right now. So, you know, let’s talk about what you’re seeing right now.
00;02;34;15 – 00;02;52;15
Rod
You know, because things have really changed these last couple of years, and, there’s a lot of distress, you know, some competitors of mine are calling it the multifamily meltdown. I mean, I’m seeing the pain. I’m. I’m even experiencing some pain. And so, you know, there’s a lot going on right now, but give me your take.
00;02;52;18 – 00;03;20;18
Luke
Yeah. I think, we’ve we’ve seen number one, a migration from floating rate to fixed rate debt, just as, as interest rates have shot up here. And that reverberates throughout the market. And in many ways, it makes it very challenging. Not just from a valuation perspective, but, we’ve seen a lot of owners in our markets where, their, their debt service has tripled, if not quadrupled in a very short period of time.
00;03;20;20 – 00;03;42;03
Luke
And it becomes pretty challenging to operate properties in an efficient manner when, when that happens. Underlying all of this is as well, though, is just supply and demand have have completely been turned over. Yeah. The demand is still pretty robust. Really, across Florida and even the Sunbelt. Our job numbers remain strong. Our population growth remains very strong.
00;03;42;03 – 00;04;05;29
Luke
It’s just an even staggering, amount of supply coming online. So, for example, in Jacksonville, we historically deliver about 3000 units a year. That ticked up post-Covid. We’re going to do just under 8000 this year. So over two times our historical average. And so when that happens naturally, you’re going to see occupancy soften. You’re going to see rents soften.
00;04;06;01 – 00;04;18;23
Luke
The good news is in the multifamily space, supply is one of the easier things to project, because once you put a shovel in the dirt, it’s 2 to 3 years before you’re going to deliver the building in full.
00;04;18;26 – 00;04;23;04
Rod
Let me stop you for one second. Have you seen that?
00;04;23;04 – 00;04;25;09
Luke
Slow down 100%. Yeah.
00;04;25;10 – 00;04;27;03
Rod
So that. I just wanted to hear them. To hear.
00;04;27;03 – 00;04;38;17
Luke
It. Yeah, exactly. So starts are down massively. Really? Across the country. Right. And so in Jacksonville again we’re going to go from just under 8000 units this year in 2024 to next year, about 2500.
00;04;38;17 – 00;04;38;29
Rod
Wow.
00;04;38;29 – 00;05;00;04
Luke
So, the writing’s on the wall. Supply in a manner coming back into balance here. I think we’re still adjusting to a new normal in terms of capital markets, interest rates and and, you know, it’s more challenging to raise equity right now much more than. Yeah, than it has been. So, but I think the good news is the fundamentals, are coming back much more into favor here imminently.
00;05;00;07 – 00;05;22;05
Rod
So let me ask you this question. It’s not the greatest time to sell with cap rates where they are. Yes, sure. And and you know, I, I’ve heard I don’t know what the actual numbers are, but I heard sales are down as much as 85, 80, 90%. Right. That’s it. Yeah. Okay. So would it be an accurate statement to say if someone is selling right now, they pretty much need to sell?
00;05;22;06 – 00;05;24;20
Luke
There’s definitely a need. Yeah. I think if you’re selling.
00;05;24;20 – 00;05;25;19
Rod
And want it’s need.
00;05;25;19 – 00;05;51;24
Luke
Right. And and it’s it’s in large part a, a debt driven decision. So, your past, your maturity or you can’t find a rate cap, or you’re just, frankly, out of money. Yeah. So there’s a lot of that happening. And those are never easy. You know, it takes it takes a little bit of pain, I think, for, for, that, kind of opportunity to, to meet market pricing, so to speak.
00;05;51;27 – 00;05;57;15
Luke
Right. There’s always going to be, you know, long, long term owners that may have bought their deal ten, 15, 20 years.
00;05;57;15 – 00;05;58;14
Rod
Ago in trouble. Right?
00;05;58;15 – 00;06;05;18
Luke
Yeah. There’s always going to be a little of that sprinkled in and in every kind of market. But right now the theme is is certainly distress.
00;06;05;18 – 00;06;33;25
Rod
Right? Right, right. You know, you’ve heard the catchphrases survive till 25, you know, and the lender phrase, extend and pretend. Yeah. And, you know, we’re seeing lenders work with borrowers, as much as possible because the minute they foreclose, it hits their balance sheet, right? Or actually, the minute they default, it does it. So, you know, these last few years, Fannie Mae and Freddie Mac dropped their loan to value.
00;06;33;28 – 00;06;51;14
Rod
You know, they’re they’re not they’re not stupid. They’ve been around a long time, and a lot of operators use bridge debt. Yup. And I think in, I would say definitely some maybe many cases they use bridge debt because they got higher loan to value and, and were able to show higher returns. Yeah. Do you think that’s an accurate statement?
00;06;51;14 – 00;06;58;28
Rod
100% 100% okay. So and and just describe bridge debt if you would from my listeners.
00;06;58;28 – 00;07;17;29
Luke
It swept the market. Really from 2020 into early 2023. You know, you got super high leverage. There were some deals that by the time you factored in the lending that was happening just for the CapEx budget, forget about the the acquisition, right. Some of these shook out to be 100% loan.
00;07;18;04 – 00;07;34;03
Rod
No kidding. Holy cow. By the way, CapEx, guys, is the money you put into a deal to to to to really, add value, increase rents, things like that? It’s capital expenditures. For those of you that I mean, I know for some of you like, okay, come on, let’s keep going here. But for some of you don’t know what it is.
00;07;34;09 – 00;07;34;19
Rod
Okay.
00;07;34;19 – 00;07;56;22
Luke
So, you know, I’ll take you back to 2020 and 2021. You could pull, floating rate bridge loan out at 4% interest and get 80% loan to cost. That was pretty easily obtainable, right? And if you’re in that market, and we have clients that just said, hey, I refuse to pull bridge debt out in this, in this climate.
00;07;56;25 – 00;08;13;22
Luke
And they just weren’t competitive. If you’re pulling agency debt out at 65% and you’re competing with another buyer, that’s getting, you know, 80% exactly at, frankly, a not too dissimilar interest rate at that time, right? You know, almost all of these transactions that we saw in that time frame went.
00;08;13;22 – 00;08;34;02
Rod
Bridge and say, guys, the reason that is, is that the reason that loan to value is relevant is because the less equity in a deal, the higher the returns. Okay. And so, typically and and an equity is that is basically the down payment closing costs, operating reserves, CapEx budget, things like that. Money out of pocket, not in the capital stack.
00;08;34;02 – 00;08;57;07
Rod
It’s not the debt. It’s the money that you’re raising out of pocket. Pockets, plural to put into these deals. And the less of that you have, typically the higher returns you can project. Yes, exactly. And so, you know, if you if you were trying to get that conforming. Fannie Mae and Freddie Mac debt at the similar interest rates, you can’t compete with these guys that are coming in using bridge debt and you’re not getting any deals, right.
00;08;57;07 – 00;08;58;15
Rod
So everybody’s doing bridge debt.
00;08;58;20 – 00;09;21;02
Luke
Sure. Now, over the course of 2022 to now, obviously interest rates have come up significantly. Right. And so that same borrower that was pulling in 80% loan to value at a 4.5% interest rate, that interest rate now has gone to, you know, peaked at, you know, nine and a half, 10%. Yeah. All the while, expenses started to outpace income growth.
00;09;21;05 – 00;09;41;16
Luke
That’s right. And the properties just start to deteriorate. We saw a lot of groups come in, that, frankly, just didn’t budget to have any working capital. And so when all of a sudden your debt service starts to swell, you have to allocate more capital to servicing that. Right? All of a sudden you can’t fix the toilet as quick, the unit stays vacant a little bit longer and it can snowball.
00;09;41;16 – 00;09;42;18
Luke
There we we.
00;09;42;20 – 00;09;50;15
Rod
Oh, it’s a death spiral. I’ve seen it time and time again. What are the payments they require to get ahead of this? What do they call interest?
00;09;50;15 – 00;09;51;12
Luke
Interest reserve interest.
00;09;51;12 – 00;10;08;01
Rod
Rate. Yep. Yeah. So a lot of times lenders require interest reserve payments. And I remember looking at an asset I think I’ve said this several times, but in San Antonio, the guy’s reserve paying was 8000 a month, and it went to 80,000 a month. And, you know, how do you do that? And you got interest rate at 3 or 4%.
00;10;08;01 – 00;10;27;26
Rod
It goes to ten. How the hell do you do it? You can’t make that work in any way, shape or form. And you know what lenders are doing right now. What I’m seeing for the most part, is they’re just doing deferrals where they defer, you know, they’ll drop the interest rate temporarily to allow an asset to survive, but they’re kicking that on the back end.
00;10;27;26 – 00;10;35;18
Rod
Sure. Let me ask you this. Do you think that’s a viable solution, or do you think that’s going to create even even bigger debacle in the future?
00;10;35;19 – 00;10;52;08
Luke
Yeah, I think that road will will end. I think that’s something that’s a key theme as we go into 2025 is, you know, to your point, there are some built in extension options to a lot of these bridge loans. But usually those are tied to specific property performance metrics.
00;10;52;08 – 00;10;53;13
Rod
That which aren’t being met.
00;10;53;13 – 00;11;15;17
Luke
Exactly. But what we’ve seen is that these lenders still are willing to extend because, you know, especially as it relates to Florida, the alternative is, okay, lenders can just take the property back. Well, the foreclosure process in Florida is is not an easy one. It’s lengthy, it’s cumbersome. And all the while the property’s going to continue to deteriorate throughout that process.
00;11;15;19 – 00;11;40;27
Luke
And so we’ve seen these lenders, you know, extend and pretend is very much real. Right. The fact of the matter is these bridge lenders, aka debt funds, they borrowed their money as well. And they borrowed their money on, let’s call it five year paper. They just gave out bridge loans on 2 to 3 year terms. And five years from 2020 when we saw this bridge craze start to begin is next year.
00;11;41;00 – 00;11;59;20
Luke
And so I think a big theme over the next 12 to 18 months is these bridge lenders are now going to have to start writing these loans on their balance sheet down to what they’re really worth, and they’re going to have to clean up their balance sheet with that. That’s what I think is going to start to push transaction activity back to where we all want it to.
00;11;59;20 – 00;12;01;00
Luke
Isn’t and close.
00;12;01;00 – 00;12;18;21
Rod
That been one way to describe it. It could it could also create an absolute shitshow in the market. Sure. You know, if they’re foreclosing on this, all this, all these assets, you know, there’ll be a lot of fear. Fear will be pervasive. You know, it’ll be interesting to see if all these players on the sidelines will still be there.
00;12;18;24 – 00;12;22;15
Rod
Yeah. You know, or if the fear will cause them to put pencils down.
00;12;22;18 – 00;12;27;04
Luke
Regardless, it creates an opportunity for new cap. I agree completely, and I agree with cycles.
00;12;27;07 – 00;12;48;17
Rod
I agree with that completely. You know, we’re actually putting a distressed asset fund together ourselves right now. You know, I’m involved in some deals that that, you know, will likely be recapitalized, bringing in operators to, you know, put in, put in money and, and assume debt and recapitalize some of these assets. And, you know, I think there’s some real opportunity there as well.
00;12;48;18 – 00;13;20;24
Luke
Definitely. Yeah. We’ve actually been involved on a few of those in Jacksonville. Yeah. Where, you know, it’s it’s, very much relationship driven. You know, these lenders are not out here advertising. They’re in distressed deals. Right? Because, you know, frankly, they’re oftentimes not worth what the, what the loan balance is. Right. And so we have seen the groups that are willing to kind of roll their sleeves up, get creative, work hard to kind of build these relationships up with these, bridge lenders to step in and say, okay, I’ll bring some fresh capital into the deal.
00;13;20;29 – 00;13;24;12
Luke
We’ll get it stabilized. And here’s a clear path to an exit. Right.
00;13;24;15 – 00;13;28;18
Rod
And they’ll have to do some mud, some no doubt they’ll have to do some modification for sure.
00;13;28;18 – 00;13;48;00
Luke
And you know what’s helping that is we are starting to see interest rates come down. Yeah. And I think that’s what everybody has been hoping for is that come 2025, 2026, interest rates will be lower. Supply and demand will be back in the balance. It’s really challenging right now, in some of these Sunbelt markets where there’s a lot of oversupply, it’s really challenging to I mean.
00;13;48;00 – 00;14;12;28
Rod
I’m in Texas and yeah, and you know, we’ve we’ve seen a lot of distress there, a lot of distress. And in markets that just looked fantastic two years ago. Sure. So it’s it’s very frustrating. Yeah. So, so, you know, I, I speaking about the election results and, and Trump in office and Trump obviously is a very sophisticated real estate investor.
00;14;13;01 – 00;14;27;17
Rod
Do you believe I mean, just just opinion. This is all up in here. Do you believe that he’ll be effective in in getting the interest rates down? And making some moves to help our marketplace, the multifamily marketplace? Yeah.
00;14;27;17 – 00;14;39;03
Luke
I’ll tell you, in the days following the election, it seemed like every phone call there was investor optimism. So that was very much welcomed. You know, Treasury markets have been still volatile since then.
00;14;39;04 – 00;14;49;15
Rod
Yeah, I’ve seen the ten year. It’s actually climbing. Yeah. I had a conversation with one of my partners just yesterday. He thinks it’s Bitcoin related that a lot of money flowing into bitcoin. I thought that was interesting. Yeah.
00;14;49;21 – 00;15;06;03
Luke
So I think look I think we still expect interest rates to come down at least the federal funds rate, which is what we’re all talking about when it relates to interest rate cuts. You know, treasury markets, I think until we have a real solid grip on what policies actually are going to get traction and get put into place.
00;15;06;05 – 00;15;09;09
Luke
Right. I think we’ll continue to see elevated volatility.
00;15;09;11 – 00;15;15;00
Rod
Know that was a great way to describe it. Which policies actually get traction. Yeah. Like this whole immigration thing I mean.
00;15;15;00 – 00;15;15;12
Luke
Right.
00;15;15;15 – 00;15;23;26
Rod
Right. I don’t know about the you know, the, the the logistics and or, or viability of what, you know, what was promised in the election.
00;15;23;26 – 00;15;32;01
Luke
So and we’ve seen this before. Right? It’s, it’s, it’s one thing to campaign on something. It’s another thing to actually get through all the layers. Right. Of, of our of our government.
00;15;32;01 – 00;15;49;05
Rod
Well, I think that piece is handled because he’s got the House and the Senate. Right. So I think the larger piece might be less cumbersome than it’s been in the past, but the actual execution as well. So I’m, I’m wondering if he’s able to. Well, that’s part of the execution too. So definitely.
00;15;49;08 – 00;16;14;12
Luke
So yeah, I think, you know, on shoring of jobs is only only going to help. Right. You know, I think just general investor, bullish sentiment helps as well. We’ve seen it feels like we’re go on on year three now of people sitting on the sidelines waiting for the right opportunity. I can remember, you know, beginning of 2023, the theme was, all right, we’re looking for the distress.
00;16;14;14 – 00;16;18;05
Luke
The distress opportunities have not come available as much as we. All right.
00;16;18;09 – 00;16;25;21
Rod
Wondered, kicking the can down the curb. Exactly. Yeah, exactly. So the given they’re given these operators a, you know, a glimmer of hope, right? Right.
00;16;25;23 – 00;16;28;03
Luke
So, Yeah. Look, a lot going on.
00;16;28;08 – 00;17;09;13
Rod
Yeah, it is, it is a crazy time to be alive in our business. You know? So. So let’s shift gears for a minute. Let’s talk about, how. Want to be operators or existing operators? Create good relationships with people like yourself, with your brokers in the in the commercial real estate space. Yeah. You know, it was very difficult to even bend a brokers here back in the day when things were flying left and right and, you know, and deals were trading like crazy, but but, you know, give us, give a give, give my listeners some advice for communicating with someone like yourself how to best do that, how
00;17;09;13 – 00;17;15;20
Rod
to be how to not be a pain in the ass, you know, and you know, so so speak to that a little bit if you would. Yeah.
00;17;15;20 – 00;17;40;02
Luke
For sure. I think, look, a large part of our day to day as brokers now has shifted into developing new relationships because the same people that were buying deals, two, three, four years ago, are not the same groups that are buying deals today. Right? And so a big part of our effort is expanding our outreach, building new relationships with with new equity.
00;17;40;05 – 00;17;43;19
Luke
And so, look, we’re here to talk. I think, well.
00;17;43;19 – 00;17;44;14
Rod
That’s why you’re here today.
00;17;44;14 – 00;18;04;28
Luke
Yeah, exactly. Yeah. We want to reach folks. If you’re if you’re interested in looking at deals in the North Florida area, we’d like to think that we’ve we know the, the the big macro themes to get you a little bit more educated and comfortable on the market. If it’s new for you or, you know, from a micro perspective, if you’ve got a deal, you know, hey, this is the right street corner, this is the wrong one.
00;18;05;00 – 00;18;09;08
Luke
But you know, that constant communication I think is important. I’ll tell you.
00;18;09;11 – 00;18;15;02
Rod
So. So when someone is coming to meet you, you like that consistent communication? Yeah.
00;18;15;02 – 00;18;34;27
Luke
For sure. Especially if you’re trying to get your hands on deals. Because over the past two years, a greater proportion of our deal pipeline has pivoted to an off market basis. And that’s for a number of reasons. But I think the relevant theme there is that it’s not as simple as sending out an E blast now and having everybody come to you.
00;18;34;27 – 00;18;51;14
Luke
Right. And we’re having to pivot our efforts to a much more targeted one on one approach. And the more I’m talking with a buyer or a client, the more that they’re going to be top of mind. So when I do find that off market, the deal that meets their criteria, boom, it comes to mind.
00;18;51;15 – 00;19;03;29
Rod
Oh, that makes good sense. And and, I mean, obviously this is a personal question, but is there a route is there a preferred mode of communication? I mean, is is it emails? Is it phone calls? Is it all the above? I mean, just curious. Yeah.
00;19;03;29 – 00;19;25;25
Luke
I think that’s, probably a little bit broker to broker for me. I’m, I’m not too particular. Okay. You know, I’ll tell you the more touch points that we have, we you know, I’ll speak for our team. We keep track of every communication. Yeah, every every form. And and we track the stats of kind of the meat and potatoes of our business, which are confidentiality agreements.
00;19;25;25 – 00;19;35;03
Luke
So when we have a new deal, we create a deal room for it that houses the financials. We’ll send you a link, execute a CA and boom that goes into our system. Right. So any given buyer.
00;19;35;04 – 00;19;39;06
Rod
Hang on one second. So so guys confidential what do you call it.
00;19;39;06 – 00;19;39;28
Luke
Confidentiality.
00;19;40;03 – 00;19;55;21
Rod
Confidentiality agreement is is standard in the industry. I sometimes get people call me and say, hey, they want me to sign this thing. What what’s that about? And, and and you’re going to do that almost every time. Just so you know, that’s that’s how you get the financial information on a deal. Okay. Please continue. Sorry. Yeah.
00;19;55;21 – 00;20;11;15
Luke
No. No problem. So, we’re tracking all that. So if you’re a buyer and you’ve executed was with us, we could tell you every deal that you’ve done that for. And if you aggregate that information, you probably came back into, okay, what is their preferred asset type size, age, location.
00;20;11;17 – 00;20;13;22
Rod
So they don’t send you their criteria.
00;20;13;24 – 00;20;30;29
Luke
They do. And that’s something we’ve definitely tried to keep track of. Right. Frankly, for us, because we’re aggregating the CA information, you know, if we get a new deal in the pipeline and let’s say it’s an off market deal, I’m going to go to the deal that we sold last year down the street that was similar size and similar age.
00;20;30;29 – 00;20;33;18
Luke
And that’s where I’m going to start to build out my my buyer list.
00;20;33;18 – 00;20;35;08
Rod
Gotcha.
00;20;35;10 – 00;20;51;16
Luke
I would say even more important than that, we’re tracking every offer that comes in as well. And we have a master offer tracker for every given deal. And so, again, we get a new deal on the pipeline. We say, okay, what’s a similar deal in the recent past that we’ve worked on? Who offered on that? We’re going to go there first.
00;20;51;19 – 00;20;55;24
Luke
Even if you’re not competitive. I still encourage putting offers in writing.
00;20;55;24 – 00;21;11;05
Rod
I’m so glad you said that. I’m so glad you said that. Because I was just going to ask you that question. Yeah. In today’s market, I think it would be crazy not to make offers on anything you have an interest in 100%. Yeah. Because, you know, right now, would you say the most important factor is surety of close?
00;21;11;10 – 00;21;11;27
Luke
Definitely.
00;21;11;27 – 00;21;40;19
Rod
Yeah, definitely. And so and what we mean by that guys is, is it’s, it’s more important than the price the, the the surety of close is, is the deal actually going to close. And so you know, if there’s a way to show that based on performance, based on having money go hard nonrefundable. You know, things of that nature, limited or no contingencies, which is in the financing world, a little to me, a little sketchy right now to not have a financing contingency.
00;21;40;19 – 00;21;46;01
Rod
Are you seeing deals without financing contingencies? With people that are getting financing?
00;21;46;03 – 00;21;50;03
Luke
I would say it’s typical. The smaller the deal, the more likely that there’s a financing contingency.
00;21;50;03 – 00;21;50;27
Rod
Small of the deal.
00;21;50;27 – 00;22;14;08
Luke
Yeah, but I think that just goes down to to the buyer. Okay. But to your point with, with financing being shaky right now, that’s even more, that that puts the, incumbent on us as brokers to go do the diligence on, on the buyer, because at the end of the day, what the seller wants is when we go through an offer process and we present the offers to them, they’re going to come to us and say, okay, who do you think’s got the best.
00;22;14;15 – 00;22;14;25
Rod
Chance of.
00;22;14;25 – 00;22;35;27
Luke
Closing? Exactly right. And so that’s that’s what the yellow eye reads in terms of not just price but terms, timing, deposits, etc.. But it’s also, what’s your background? Tell me about your equity source. Tell me about your underwriting. What are you assuming for insurance? What are you shooting for? Taxes. Right. These are all things that A we like to provide the answers upfront for, to shorten the learning curve for that buyer.
00;22;36;00 – 00;22;39;16
Luke
But be if your assumptions are way off, that can be a red flag.
00;22;39;19 – 00;22;57;19
Rod
Sure I know it is a red flag for sure. Yeah. By the way guys, Loi means letter of intent and I know some of you guys are oh come on, get on with this. Well, some people don’t know what an a letter of intent is. And basically, you know, when you do one of these deals, you have a purchase and sale agreement and you never, ever, ever, ever not have legal involved, have an attorney involved.
00;22;57;19 – 00;23;20;21
Rod
When you do a purchase and sale agreement. And attorneys aren’t free. So you start with what’s called a letter of intent. And that lays out the the main terms of a deal. The price that, the due deal, it the timelines, the financing and all the major points or any unusual points. And if the seller and buyer sign that, then they send it to legal to fight out the purchase and sale agreement.
00;23;20;21 – 00;23;49;14
Rod
So that’s what a letter of intent is anyway. Right? Right. So, okay. And so, you know, in my view, you know, it’s been hard to find deals just because these lenders have been kicking the can down the curb and, and, and distressed deals. That is I personally believe that’s going to change. We’ll see. I’m wrong all the time, but, what’s what are some other value propositions that you can offer a prospective buyer?
00;23;49;14 – 00;23;51;24
Rod
We talked about that briefly before we started recording.
00;23;51;24 – 00;24;18;25
Luke
Definitely. Yeah. So we are data junkies, especially in the real estate space where I think we found relying on the traditional sources like costar, like, real capital and, analytics. They’re good, I think, at tracking the, the macro trends. But when it comes to micro of, of of markets and fundamentals, rent growth, occupancy, new supply, we found that there’s a lot of misinformation, spread around there.
00;24;18;28 – 00;24;31;26
Luke
For example, the supply pipeline, you know, you could have a developer announce big plans for a new project. We’re building 300 units here. Well, until they pull their construction loan or file a notice of commencement or.
00;24;31;26 – 00;24;41;13
Rod
Raise the money they need to do it. Exactly. I mean, I’ve got a buddy that’s got 9000 doors in Texas, and he’s got projects he can’t get out of the ground that he’s trying to build right now. Right. So I’m sorry.
00;24;41;13 – 00;24;59;06
Luke
Yeah. So like, you know, I, we saw, you know, an article from one of those publications here recently that said Jacksonville is is absorbing 14,000 new apartment units in the next year. And so our clients reach out to us and say, hey, what the heck? That’s a staggering number. Well, we actually track all of these deals.
00;24;59;09 – 00;25;17;16
Luke
We we’re driving them. We’re looking at the public records to see what’s actually happening. That number is actually, closer to half that. Right. So we are constantly putting out good data, our quarterly market reports, which have details on the fundamentals. It’s the first thing we send to, a new prospective buyer that says, hey, I’m new to Jacksonville.
00;25;17;16 – 00;25;26;02
Luke
I want to learn more about it. This report’s going to have the fundamentals broken down by submarket supply pipeline, historical job data, population growth, etc..
00;25;26;05 – 00;25;28;27
Rod
How do they get Ahold of you?
00;25;28;29 – 00;25;30;12
Luke
Readily available in an.
00;25;30;14 – 00;25;30;24
Rod
Email.
00;25;30;24 – 00;25;31;24
Luke
On LinkedIn. Yeah.
00;25;31;24 – 00;25;32;12
Rod
My LinkedIn.
00;25;32;12 – 00;25;32;23
Luke
So and.
00;25;32;23 – 00;25;35;01
Rod
Notes McCann. McCann. Right.
00;25;35;01 – 00;25;42;24
Luke
Exactly. Email to I it’s lm at NE hallmark.com or just go to our website NE hallmark.com and you’ll see my contact.
00;25;42;24 – 00;25;46;03
Rod
I thought it was an eye global okay. Is did they change the name. No. No.
00;25;46;04 – 00;25;49;04
Luke
Global. That’s right. So, hallmark is the Jacksonville branch. Oh.
00;25;49;04 – 00;25;50;22
Rod
Gotcha okay okay, okay.
00;25;50;22 – 00;25;57;02
Luke
Frankly, there’s only a handful of, multifamily dedicated teams in the entire global branch. Okay.
00;25;57;02 – 00;26;01;06
Rod
Gotcha. Okay, okay, okay, I yeah, I learned something today.
00;26;01;06 – 00;26;16;29
Luke
I will say as well, you know, kind of going back to, more and more of our, our deal flow, pivoting to an off market basis. It’s, it’s rare that our deals hit some of the more traditional online platforms that you’d see, like Craxi or Loop net. Right. We really market exclusively to your list. Our own list. Right.
00;26;17;00 – 00;26;26;23
Luke
So if you’re interested in seeing deal flow from us in Jacksonville, reach out. We want to get your email on our distribution list. We want to know your acquisition criteria. That way you’ll see everything from us.
00;26;26;23 – 00;26;43;15
Rod
Yeah. You’ll get you’ll get the research that you provide. You know all the big houses provide research. And that’s a great source of of information. And then, you’ll be on their shortlist for deals. Exactly right. Yeah. So talk about, referrals. Because in our business, you know, used to be that you’d Google something, you know, hey, I need something.
00;26;43;15 – 00;26;56;09
Rod
I’ll Google it or I’ll call you used to be the Yellow Pages. That’s how old I am. But but, you know, that’s really not how this business is done. So describe how you find the best resources in our business.
00;26;56;11 – 00;27;13;10
Luke
Yeah. For sure. I think we take a lot of pride in that. Because again, we like to provide all the answers upfront, for any given deal that we have. So when we take a new deal out, we’re going to have it accompanied by an insurance quote. We’re going to have a debt quote, we’re going to send you to, to Denton insurance brokers that we’ve executed with in the past.
00;27;13;10 – 00;27;23;02
Luke
And we know that they’re highly reputable and not going to change terms on you at the last minute. Right. And even the micro things like we have a preferred vendor list. So things as small as.
00;27;23;04 – 00;27;26;25
Rod
Painters, plumbers, electricians, drywall roofers. Exactly right.
00;27;26;26 – 00;27;43;16
Luke
Because there’s so many of them. And if you did a Google search for plumbers in Jacksonville, you’re going to see 30 come up. Right. But these are all vendors that we vetted out. Either we have relationships with them or they’ve come highly recommended from other clients. Right. And so again, if you’re if you’re new to Jacksonville, we want to have all those answers to you.
00;27;43;16 – 00;27;46;03
Luke
And we’ve got that data assembled and we’re always happy to share it.
00;27;46;07 – 00;28;03;19
Rod
Now that’s fantastic. That’s really how this business works. So the next thing I want to ask you that I ask anytime I interview or speak to someone that’s a broker or a real estate agent, is, why the hell aren’t you buying your own? Yeah. Okay. So let’s talk about that a little bit, please.
00;28;03;19 – 00;28;09;22
Luke
Yeah. So look, it’s the reason why I got into this business. Like I said at the start, I believe in real estate is a wealth vehicle.
00;28;09;24 – 00;28;11;23
Rod
They’re golden handcuffs or. What’s going on here?
00;28;11;23 – 00;28;32;17
Luke
Well, I, you know, as as time has gone on, I know I have invested in some deals just passively as a, as an LP, but, you know, the plan is always to build out your, your own portfolio. Right. And what I found is, you know, you’d think being in the real estate profession that deals may just fall into your lap or it’s easier to just kind of overlap the personal with the brokerage side.
00;28;32;19 – 00;28;49;28
Luke
It’s not the case. It’s just like any other profession where whether you’re in the medical space or you’re in finance or accounting or whatever it is, you need to be intentional about that. You need to set aside time. You need to be looking at deals. You need to have a process down, because again, they’re not they’re not just going to fall into your lap.
00;28;50;01 – 00;28;53;22
Luke
You need to have a plan. And so it’s definitely something that that’s on the.
00;28;53;22 – 00;28;54;06
Rod
Horizon.
00;28;54;06 – 00;29;09;10
Luke
For you. Definitely. And it’s an everyday thing. To, to to be intentional about taking the broker hat off and putting the principle hat on. And so, yeah, I think it takes some intent, it takes some dedicated attention, and it takes a plan just like it takes.
00;29;09;10 – 00;29;26;01
Rod
It takes hunger. Yeah, exactly. Gotta want it. Sure. You gotta want it to be able to push through fear, to be able to push through any limiting beliefs that you have. You know, when, you know, I just had a boot camp last weekend had, I don’t know, 800 plus people there. And the first thing we do is goal setting on steroids because, you know, you’ve got to have that.
00;29;26;03 – 00;29;46;10
Rod
You got to build what Napoleon Hill, in his book Thinking Grow Rich, calls a burning desire. You got to want it to to actually take that and carve out time at night. And I’m not speaking about you directly, but, you know, to get off fricking Netflix, to get off, you know, screwing around. And actually, like you said, be intentional to grind for a few years like most people want to live the rest of your life like most people can’t.
00;29;46;10 – 00;29;46;16
Rod
Right?
00;29;46;16 – 00;30;00;18
Luke
Right, right. I think I think, you know, the time is going to grow to fill the space that you give it in terms of your career. So you need to carve out some time to be intentional about achieving your goals. And it’s not just real estate, right? It’s anything. It’s health, it’s relationships.
00;30;00;18 – 00;30;18;23
Rod
Oh yeah. And personally that’s right. It’s all of that health relationship. All of that. Yeah. Yeah I’ve got a lot of aspiring multifamily investors that listen to my show. You know, I’m blessed to say it’s the largest in the world for what we do, which is just blows my mind whenever I think about it. But but, you know, they’re they’re listening.
00;30;18;23 – 00;30;30;18
Rod
They have a job. Maybe they’re comfortable, you know, or but they know they want more. You know, speak to them. What would you tell them about moving forward?
00;30;30;18 – 00;30;39;10
Luke
Yeah, for sure. And I’ll start by saying, you know, we’ve had the fortune of working with many of your students, that are active in, in Jacksonville and elsewhere. No kidding. Wow. Yeah. So it’s.
00;30;39;11 – 00;30;39;28
Rod
That’s cool.
00;30;39;28 – 00;30;55;07
Luke
Yeah, definitely. It’s a it’s a huge community and it’s great to see that success. Thank you. So you know, first firing investors again I think it starts with getting educated which obviously you do a great job of I think as brokers we’re here to help get you educated on, on the market and all the things that we’ve been talking about.
00;30;55;08 – 00;31;13;13
Luke
Right, from a micro deal perspective to what relationships you need to have on the operational side. And again, lean on on us as brokers to provide those answers. I think that’s a big part of of our job. I think, keep keep swinging, keep underwriting deals. I think the more you underwrite deals, the more you practice.
00;31;13;13 – 00;31;36;16
Luke
Even if they’re not working, you’re intuitively going to start to get a handle on what rents are in this area or what they should be. You’re going to get a handle on what things are trading for in terms of price, cap rates, etc.. The best way to dive into a market is just by underwriting deals. You can read all the literature you want, but at the end of the day, we’re here to buy and operate and execute on deals.
00;31;36;18 – 00;31;45;19
Luke
And the best way to kind of shorten that learning curve and sink yourself, immerse yourself into a market is by underwriting everything that that comes into your inbox.
00;31;45;24 – 00;32;07;14
Rod
By the way, if you come to one of my boot camps, you get our deal evaluator software, which is absolutely kick ass. To do this, okay. And it was developed by someone on my team and it is really good. So, you know, you’re able to start doing that, which you need to do. And so, yeah, that’s the bottom line is, is repetition is the mother of skill.
00;32;07;14 – 00;32;16;10
Rod
And the more you you review things and look at it, you’ll get to where you can smell. If a deal’s a deal, you know very quickly and get rid of the crap that, that you don’t want to waste any time on. I agree that.
00;32;16;10 – 00;32;28;17
Luke
Yeah, 100%. And it’s and it’s not as easy as throwing a cap right on on a no no. I know, you know, not, you know, I, I have a hard time sometimes with buyers that are just solving for a cap rate because frankly, that just doesn’t paint this.
00;32;28;22 – 00;32;29;16
Rod
One little piece of the.
00;32;29;16 – 00;32;30;22
Luke
Puzzle. Exactly. Yeah.
00;32;30;22 – 00;32;47;07
Rod
Yeah. You’ve got to normalize the expenses. You’ve got to normalize the income. You’ve got to project the expenses and the income. You know, you’ve got to actually look at comps, you know, and and see what, what you can realistically expect in rent. You’ve got to look at the median income to make sure that that income will support what you think the rent will be.
00;32;47;10 – 00;32;48;14
Rod
You know, all of these things.
00;32;48;14 – 00;33;12;08
Luke
And we as brokers, I can tell you, us in particular. Again, we we try and provide that upfront. So we’ll take, we’ll take market expenses and build it out, in a pro forma on the income side, we take a three pronged approach to building out our rent profile. It’s one what rents have been achieved on the property today to what is the the income in the area support, for those rents and three what do the cops say.
00;33;12;12 – 00;33;13;14
Rod
Yeah. Real comps.
00;33;13;14 – 00;33;14;00
Luke
Yeah. Right.
00;33;14;00 – 00;33;36;21
Rod
Right. I mean like, I like, like comps that are actually comparable. Sure. Yeah. Sure. Yeah. So and guys there listen, there are a lot of reputable brokers out there like Luke, but, you know, you you always do your own homework as well. Would you agree with that? Yeah. 100. You do your own homework as well. And and really dig in and, and the more you do that, the better you’re going to become.
00;33;36;21 – 00;33;50;00
Rod
Well, brother, I really appreciate you coming on the show. It’s been a lot of fun. And, you know, let’s plan to have you come back in a year or so and let’s see what we are there. That’ll really be interesting. So, and we’ll have to circle back to this and just see what happened in this year that’s coming.
00;33;50;00 – 00;33;50;29
Rod
Because it’s going to be crazy.
00;33;51;00 – 00;33;52;18
Luke
It’s exciting. Yeah. Looking forward to.
00;33;52;18 – 00;33;53;29
Rod
It. All right brother good to see you.
