Making Money in Multifamily Real Estate Show

159 | Short Term Business Plans and Long Term Outlooks with Mark Khuri

September 01, 2021 Dave Morgia Season 1
Making Money in Multifamily Real Estate Show
159 | Short Term Business Plans and Long Term Outlooks with Mark Khuri
Show Notes Transcript Chapter Markers

Mark's Background:

  • SMK Capital Management is a family-owned and operated real estate investment company
  • Mark has been real estate investor for over 15 years and been involved on pretty much every facet of the deal cycle
  • He has been involved in over 120 properties with a combined value of over $1 billion and created and managed over 40 real estate partnerships with investors

In this episode we cover:

  •  02:00 - Outsized risk-adjusted returns
  •  06:34 - Preferred exits in today's environments
  •  12:12 - Pivoting business plans and preserving capex
  •  14:28 - Balancing act on lease-ups
  •  18:34 - Conversations with Limited Partners
  •  24:09 - Three legged stool
  •  25:32 - 5KQ1 - If you could only pick one trait that explains your success, what is that trait and why?
  •  26:25 - 5KQ2 - What is the most uncharacteristic thing you've done in your business and why did you do it?
  •  28:12 - 5KQ3 - Can you name any time where you felt like you were not going to end up successful? How did you overcome that fear?
  •  31:26 - 5KQ4 - Can you name a time where something in your business went perfectly and what did you do to make that a reality?
  •  32:48 - 5KQ5 - What have you been focusing on lately to improve yourself or your business?

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Intro:

Welcome to the Making Money in Multifamily Show, where we discuss everything to do with multifamily real estate investing. We believe it's the best way to gain financial freedom and build lasting wealth. This is where you'll find it the best information and practices to help you succeed in your real estate business, whether you're already experienced or just starting out. Here's your host, Dave Morgia.

Dave Morgia:

Hello, listener and welcome to the show. I'm your host, Dave Morgia, and with me, today is Mark Khuri. Mark, welcome to the show.

Mark Khuri:

Thanks, Dave for having me.

Dave Morgia:

Looking forward to it today, Mark. And just before we get going, I wanted to fill the listeners in a little bit more about you. Mark is the Co-Founder of SMK Capital with his father. It is a family owned and operated real estate investment company. We were just talking before the show and his father's a little bit more passive these days down in Florida enjoying the sun a little bit more than he might be. But yeah, they founded the company a while back. Together between the two of them, I believe your dad has 40 years and Mark, you have 15 plus years with real estate. And that's over just a plethora of properties, 120 with a combined value of over 1 billion with a B. And that's with 40 real estate partnerships. So all kinds of just interesting, I'm sure, experience over that course of time, Mark. So would you just mind to fill in the listener a little bit more about who you are and what you focus on?

Mark Khuri:

Sure. Yeah. Thanks, Dave. We basically run a private equity real estate investment company today. And we focus on, really, cash flow and growth in that order, and across a few specific asset classes that we've kind of fine-tuned after investing in a lot of different areas. Today, we kind of four areas, Dave, that are assets that we focus on. And we really focus on both income and growth but really looking at downside protection, probably a little bit more than some other groups. And we’re trying just to really get that, we call it an outsized risk-adjusted return. That's always the goal with every deal we look at.

Dave Morgia:

Outsized, right, yeah, that's the name of the game. Everybody loves to preach the returns, but they don't mention you're going into distressed property or all these types of hurdles you got to jump through to get the same IRR or whatever. So yeah, I always appreciate when someone can understand the risk/return profile of a deal, especially a sponsor should absolutely understand that. Couldn't agree more there. And I think just before we started recording here Mark, we mentioned we might just kind of dive into a topic and see where it gets us. But we mentioned maybe just getting into multifamily short-term rentals. And I guess what does that mean to you as a firm? And what's your kind of, I guess, take on the market nowadays with it? It's kind of hot, in my opinion, a lot of Airbnb mentions around these days. And what is your kind of strategy with that?

Mark Khuri:

Yeah, actually, we don't do a ton of short-term rentals, Dave. Really what we focus on is more-- It's kind of a short-term strategy within multifamily. So there's a lot of merit to Airbnb, especially since the pandemic, you've seen a ton of people renting out their places on a short-term capacity for rates that we've never seen before. Supply demand disequilibrium is really what's going on there. But that same story really holds true with apartments. We typically focus on Class B apartments in growth markets that are stabilized at acquisition, meaning, when we buy them, they're already typically 90% plus occupied. But we look for a business plan with that asset, Dave, that has… there's something we could do manually to grow net operating income. Usually, it's a combination of things. We almost always want to see below market rents in place, we want to see outdated interiors, right, think about pink bathtubs, and carpet going right up to the bathtub and that kind of thing. There's just not a ton of that product left in the US in these growth markets. But when we find it, we are able to come in and turn over those rents and renovate the property inside and out, typically, over about two years or so. Most of the properties are around 200, 250 units. So we're doing eight to 10 units a month is as our goal on some of these. And so as it relates to short term, the ability to do that and then sell the asset within two to three years is kind of the latest strategy for us. I say latest, call it since middle of 2020 and on. Prior to that, we were not focusing on the shorter term deals, Dave, we were really positioned more five to 10 year holds, anticipating a market correction. And so we actually did not want to be in shorter-term deals because we felt that there was a higher risk of the economy going south and then being a seller at the wrong time. And I'd say since Q3 2020, our vision and our views have changed a lot around that. We think right now, interest rates are low, they're probably going to stay low for a few years, cap rates have been low and just continue to go lower for this product type. There's, again, supply demand disequilibrium. There's not enough supply and there's a ton of demand. And that's both from investors who want to buy the product, and from residents who want to use the product. And so that is creating a heck of a situation right now, to be able to achieve outsized returns, which is what we talked about earlier about something we focus on. Because we underwrite and we project from day one, that interest rates are going to go up. And we underwrite and project from day one, that cap rates are going to go up. But if they don't, and they actually stay where they are, or go lower, you can really get a much better return on your investment than you projected. And if they do go up, that's kind of what we're underwriting for in the first place. And so today, we're looking at a lot of those cult fix and flip apartment deals, in and out in about two to three years. We think there's a window here to do that and do it in a way where hopefully, we will be quite successful. And we've had an operating partner that's done this many times, and we partner with them. And we just want to kind of rinse and repeat, same model over and over and see if we can take advantage of what the market is giving us right now.

Dave Morgia:

Yeah, and I guess where I'd like to go first Mark, you mentioned the window you want to capture is a two to three-year window where you think-- And I agree with you completely. I think interest rates are going to at least be suppressed for a little while, which in turn means cap rates will be right. So you want to basically provide some quick value to these deficient properties and jack that capital, improve the NOI, and sell on the delta there. So what to you is the plan A? Is it to prove a thesis but not completely finish a property? Is it to completely overhaul the property and kind of turn a more turnkey property? What is the ideal situation? Obviously, it’s deal dependent but what do you kind of see as your bread and butter today?

Mark Khuri:

Well, I mean, across apartments, specifically, because we do invest in other asset classes, including Mobile Home Parks, and Self-Storage, and ATMs, but across apartments specifically, we underwrite to renovate all the units and do all of the CapEx, exterior, interior, you name it, typically two to three-year plan. But what we're finding is after about 20, 25% of that value-add plan has been finalized, created, we can show, “Hey, we just did X, Y, and Z to each of these units, and you can see that we did it time and time again.” You know, 20% of a 250 unit building, right, you could do the math, it's a proven model. And there's a lot of other groups out there that will take that proven value-add strategy and it reduces their risk because we've shown them, “Hey, you can get this amount of rent if you do this exact model, remodel, etc, of the property while maintaining high occupancy.” And we're able to sell at a premium, they'll pay a premium for that, a much lower cap rate. And so you can actually achieve, call it year three returns or higher within 18 months. And so that is a plan that we've seen time and time again and we're continuously focusing on today to get that shorter window, but same or better return than we projected over typically three years.

Dave Morgia:

Now, and as a seller, it's a great model, right? You can prove a business plan, like you said. You proved enough, percentage-wise, say 20, 30% of the property can achieve these rents if you do, and you lay it out X, Y, and Z whether it's kitchen and bath, whatever exteriors, we've proven if we do this, you can get that. So here's why you should value the property this way and you can sell it. I love that approach. I guess kind of if say, you get to that point at 30% where maybe you're not ready, or the market doesn't have the appetite for your deal, what's kind of the backup plan? You mentioned two to three years, right? But obviously, I can only assume you're underwriting for further conservatively on the debt side of things and all these things so what is kind of like the safe play that you can tell your investors at the end of the day, “You know what? Just in case we don't hit this out of the park, we're still going to be able to achieve these types of returns”?

Mark Khuri:

And those are the returns that we show them.

Dave Morgia:

Of course.

Mark Khuri:

We don't show them the out-of-the-park numbers. We show them the conservative, what we really believe we're going to achieve without the potential upside that you and I are discussing. And what that really looks like is a three-year hold and our debt will typically have two one-year extension options. We're also already padding in interest rate increases. We're typically padding in exit cap rates, 100 to 200 basis points over just a few years. And so a lot of the downside protection comes from that. We also look at physical occupancy historically at the property and at the local submarket. And we look at economic occupancy as well, at both, and we’ll pad those as well, the first couple years. And so if it doesn't pencil, after padding all that, we won't do it. It has to still work, even with those downside protections and even with the more conservative view. At the end, we're really targeting, you know, typically, we like to show our folks anywhere around a call it 15%, average annual return as projected for net returns. And a lot of times, some of the exits are north of that, of course, based on what we're discussing. But we got to go into it, Dave, with conservative view, conservative lens, there's so much volatility out there, no one knows what's going to happen. We don't know but we have a good feeling of what's going on and how long we think it may last for. But if it doesn't, we're okay, just continuing with the business plan, keep renovating the units, seek a refi or a sale between years three and five, so it gives us a couple years cushion there in case the market does turn, and something changes in the business plan. A lot of times, we're also using a debt fund lender, which will allow us flexibility on the CapEx and renovation costs, Dave, so we don't actually draw down on those dollars until we're using them. And so if something happens in the market, and there's a reason to stop renovating, we do that. And we actually turn off that capital source or just press pause, and we wait and see if we should continue to increase those costs and put renovations back into the property or not. So that type of debt provides the flexibility where you don't need to draw on the money if something changes in the future too. And so there's a little bit more comfort there as well.

Dave Morgia:

Yeah, and I guess before my next question, maybe we'll pick it at that for a second. So you mentioned the agility of that, can we just dive in further as to how quickly you can respond to, say, market fluctuations, or whatever the situation is, like you may say, it might be a local thing. How quickly can you decide to kind of “pull the plug” on that type of money and pivot?

Mark Khuri:

Yeah, it's pretty quick, within months, if not less than one month, because the drawdowns are usually in about 200k increments monthly or so, sometimes quarterly depending on the terms. And the way it works, Dave, right, you're going to go in, spend this money, renovate the property, renovate some units, and then you got to put them up for lease, right? So if you renovated call it 10 units, and you haven’t least any of them, you might want to slow down, you might want to wait on continuing to renovate. So it's kind of a balance between increasing rents by renovating and also maintaining occupancy, you don't want to get the occupancy too low. It's operational execution, you need to have your eye on the ball at all times and adjust your speed based on the market conditions, based on how quick you can rent out units, at what rate, what price. I mean, as of lately, we've been beating projections on post-renovation rents across the majority of our apartments. And so that's a very good figure, you know, how much are you getting versus how much did you think you were going to get. And if it's higher than you projected and underwrote, keep going, as long as they're not taking six months to lease of course too. And the market right now, is just so hot, Dave, there's supply demand disequilibrium, like we mentioned earlier, so a lot of these units are getting rented up or even pre-leased before they're even done in some of these markets.

Dave Morgia:

Yeah, and that tool, you mentioned having that kind of flexible debt, it's going to keep you agile, like I said, versus having a pre-determined draw schedule, where you're pretty much going to eventually, before you realize it, are subject to whether it's the local market where people are moving out temporarily because of some reason, or if it's kind of a bigger thing where you got to worry, like I say, a COVID, where that would have been a scary time to basically be subject to continue to draw down as people shift away from maybe a metro area, say. So it's nice to have a tool like that in your pocket, for sure. And Mark, as we get kind of, I guess I'll say into more timelines and business plans, can we just maybe hit how you guys stay flexible? You mentioned leasing, and maybe hitting or over hitting your kind of metrics on leasing up above market rates, etc. Would that be a situation where you guys would then say, “Let's get a little bit more aggressive and start to kind of bump these rents up and maybe be okay with some economic vacancy, and just get these units done quicker?” I know way back you mentioned eight to 10 units that you're doing a month on average, but are there situations where you'll get more aggressive in a market you like and just kind of really hit it and maybe move that two to three-year timeline down to, say, 12, 18 months?

Mark Khuri:

Yeah, it's possible. There's just typically the one variable is people, Dave, right, which is contractors. Having the ability to go faster means you got to have more people. And so that sometimes can be a challenge, especially in today's marketplace is staffing up and being able to fill that void. But if we're able to and the market is not saturated, and of course, we can fill these units quickly or quicker than we projected at a higher rate than we projected, then yeah, it would make sense to staff up and continue to move quicker if we can. But typically speaking, there's a cadence and a pace that we tend to get into. And there's a lot of moving parts, a lot of people working together, teams, etc. And so changing it too much actually can become a little bit inefficient as well. And so we have a formula, it works, and we like to just keep doing it over and over.

Dave Morgia:

Now, and there's no wrong answer to that in my opinion. I've seen kind of groups where they not necessarily have always the staff to do so but they'll come in and kind of put all hands on deck and maybe bring in some additional help on the GC side of things to get some stuff done. But also, I think, like you say, if you can just kind of steadily increase the rents and increase the unit turns, there's nothing wrong with kind of not making too many waves on a property, especially when you can basically put out boring newsletters. That's what you want to do every month is put out boring newsletters to your investors and say, “Property is going great. We did X percentage more unit turns, hitting rents, etc., etc.” So there's nothing wrong with just getting up there in a reasonable fashion. So I just like to hear people's kind of takes on those types of situations where you are kind of exceeding your expectations, at least originally on that thesis. So really interesting.

Mark Khuri:

Yep, agreed.

Dave Morgia:

So where else do you go, I guess? Looking further down the line, you maybe don't have, say on a backup plan you maybe don't have the sale that you're looking for, whether the appetite isn't quite there, or maybe not the terms you wanted, etc. Will you guys even look to refinance and go longer than five years or is it always going to be a sale for you?

Mark Khuri:

No, we're 100% open to buying and holding and refi-ing along the way. A lot of our investments do do that, Dave, especially I said, pre-COVID, almost everything's five to 10-year hold that we looked at and that we invest in, on purpose. And we're just more-- Our appetite for these shorter-term deals that we're discussing has grown as the market has evolved, as we've seen the metrics, the data, and the trends, proving to us that this is a viable option for now. We'll see how long it lasts. But typically, yeah, a five to 10-year hold, we want to have a refi usually year three to five we could say, maybe even a supplemental on top of that in year seven, get all the principal off the table, and just keep earning income with much lower risk or no risk if we've gotten all the principal off the table. So we look at all those strategies. We like them all. There's pros and cons to each and really, we just focus on diversifying, we diversify across asset classes, regions, and then of course strategy as you and I are talking as well.

Dave Morgia:

Well, that's kind of my next question is maybe getting a lens on your investor base perspective. Like you say, you're kind of in a lot of asset classes, but maybe we'll just narrow it down to just keeping it multifamily. Obviously, everyone's going to like an outperforming deal, right, the one that can close in 18 months to three years. But what are the kind of the conversations when maybe you talk about, like you say, you're going to pitch a deal that's going to be a five-year hold because that's a conservative play. But how do you kind of navigate these conversations where you have to tell our story, right? So how do you kind of approach the upside without promising? And one of the kind of feedback that you get from these types of deals that you're looking at?

Mark Khuri:

Sure, I mean, we've always been conservatively focused, Dave, when it comes to projections, okay? I'm a financial analyst by trade. You can go into a spreadsheet or a model and tweak a few things in five minutes and change the returns, right? This is the reality of it. And there's plenty of deals out there that I think are just too much fluff involved where they've done that very thing so they can show higher projected returns. And so a big part of my job is sifting through all that noise and trying to find where we think-- I guess I'll put it this way, at the end of the day, whether it's you Dave or anyone else listening, if you're looking at a passive investment, you want to ask yourself really one main question after analyzing all the details and asking 100 questions, “Do I think we have a very high likelihood of hitting or beating the projected returns?” If the answer is yes, or hell yes as a lot of people want to say, then you should invest in it, right? If the answer is, “Well, I'm still not sure” or “It looks like all the stars have to align in order to get there with all these assumptions and projections and rent growth and occupancy growth and cap rate staying flat or compressing, even, if that's built into the model,” you might have a tough time getting your returns, right, the projected returns. And so we try and always take that lens of, “If I share an investment opportunity with our investor group, it's got our stamp of approval on it. It's got my name on it, our reputation on it,” and it's basically our reputation, Dave. So we don't take that lightly. And I'm just thinking of a story I remember. Early on, we were actually doing a fix and flip and I ran all the numbers. I told my father, I said, “You know, I ran the numbers five different ways here and I really think we're going to give our investors a 20% average annual return.” He said, “Great, show them 15,” right? And so that's the concept, the mindset, that was probably a decade ago. And it sat with me at the time, right? I was a little younger, maybe a little more aggressive, and less experienced, to say the least. But it sat with me, you know, you better stand by what you're sharing here and do as you say you're going to do.

Dave Morgia:

Yeah, and I have to dig further into this reputation and this type of avenue conversation. So what does that mean to you just A, personally, and then B, professionally to maintain those relationships, and to not say the wrong things to people that you do business with?

Mark Khuri:

It’s the most important thing, Dave, like period. I don't care if someone invests with us or not but if they leave saying, “Wow, these guys are sharp, they're honest,” that's more important to me, period. And so it always has been, I think it's part of our character, our integrity, but it's how we run business. And we started small, right, it was just our family myself, my brothers, cousins, aunts, my parents like we were grouping capital together. And I was making a lot of decisions alongside my father, and everyone else was entrusting us. And so we learned quickly that if you're going to take other people's money, you better hold it to a much higher regard than your own money, right? And we still do that today, and we've evolved over the years. And our first capital raise was… gosh, it was in our basement of our home in upstate New York, where I'm from. It was, “Hey, friends and family and co-workers, come to our basement.” We've got free food and drinks, of course, so that they show up, and pitched them on a fund that we created. It was a blind pool fund in 2010, so if you can imagine.

Dave Morgia:

First deal is a fund, that's awesome.

Mark Khuri:

Right? It was a gutsy play, to say the least. And we thought we were going to raise a ton of money. “Everyone's going to put a little bit in, and we'll do great. And we can buy all these deals,” because there was a lot of opportunity in the marketplace then, and we'd already been doing it with our own capital, we really just wanted to keep going and grow it. But we did not raise that much money. Well, why not? Well, because first of all, the market was upside down, and nobody knew what was going on. Number two, we didn't have a great track record. But those that did invest with us, why? It wasn't because of the track record, it was because they trusted us. That was it. They knew who we were, they knew what we were going to do, and they trusted us. And a lot of those investors are still with us today. And so you learn by doing but also, you always got to put your partners, your investors first. And it sounds cliche, but just do it. That's the step, right? Do it, every time. Any decision you're making, is it better for the investor? Yes? Okay, then maybe you should do it. If the answer is no, then you shouldn't do it. And that's how we look at things.

Dave Morgia:

Yeah, it's like a three-legged stool, right? You have the deal, the market, and the people behind the deal. And if one of those legs is not there, the stool is going to fall right over. In that case, yeah, deals aplenty, maybe, and sure, you may have had a less sophisticated investor too, but ultimately knowing you as a person is what's going to get that kind of deal close that that fund raised. And it's more rewarding that way too, to just kind of have people have your back, I guess if that makes sense. People are rooting for you literally with their dollars to be able to say, “I trust him. I literally vote for him with my wallet or her wallet.” So it's just kind of a rewarding I'm sure you'll agree scenario to be in to be able to deploy that capital and do well by the people that kind of put their vote by you. So really interesting to hear the stories and I love the basement talk. We didn't really get into your background, Mark, but kind of hearing the roots, the 15 years how that started is super interesting to hear. So I appreciate that one.

Mark Khuri:

Sure, yeah.

Dave Morgia:

And then I think it's kind of a great time we're getting into more of the mental fortitude and kind of mental aptness that you may have, Mark, if you just want to hit the five key questions for me, that'd be great.

Mark Khuri:

Sure, do you want to ask them? I don't have them up.

Dave Morgia:

Yeah, I'll absolutely ask them.

Mark Khuri:

Okay, thank you.

Dave Morgia:

That’s how it usually goes so no problem. And then if you need a minute, by all means, I know sometimes people need a minute to chew in them, so however long you need. But the first one here, if you could only pick one trait that explains your success, what is that trait? And why?

Mark Khuri:

Yeah, so I think the one trait, Dave, for me is my inquisitive nature, just thirst for knowledge. It's definitely helped us steer in the right direction and avoid situations that we should have avoided and have avoided. At the same time, it's allowed us to pick great opportunities and great people to work with. And so I ask a ton of questions. I'm an analyst by trade and that's just-- Sometimes it's too much. That's okay, it’s how I work. But I've also seen the other side of the coin where things have been missed by others. And being very inquisitive, that's just ask a lot of questions and never, never stop learning.

Dave Morgia:

And then what is the most uncharacteristic thing you have done in your business? And why did you do it?

Mark Khuri:

Yeah, I would say, so a few years back, we personally, myself, my brother, and my father, we invested into the working interests of a large oil field with about 175 existing oil wells, I think it was over 12,000 acres in Midland, Texas in the Permian Basin. It was at the time where price per barrel of oil was almost near an all-time low, give or take, not all-time, but it was very much a low point. And it was uncharacteristic because it was a speculative play, Dave, right. We said, “Oh, you can't really go wrong with oil today.” You look at the price per barrel and here's a great opportunity to get some equity in these working interests in these oil wells in these oil fields in Texas. And so yeah, it didn't work out as we projected, we still have that investment. We're earning, you know, one, 2% annual return on cash, versus a lot less than what we had thought. And yeah, it's something I learned from you know, if you don't understand it, for me, if I don't understand it very well, I shouldn't do it. And that's how I learned from that. And we didn't offer that up to our investors, it was just a personal investment. But definitely pretty uncharacteristic, I'd say.

Dave Morgia:

And I think it's important to note there too is stay in your wheelhouse before you bring that to your investor base, going back to that, right? So you guys want to dabble and maybe I'm sure it's a learning experience, too, right? Like, call it tuition, whatever you may call it. But do that before you bring it out to the masses, I'll say.

Mark Khuri:

That's right, exactly.

Dave Morgia:

And then can you name a time where you felt like you were not going to end up successful, Mark? And how did you overcome that fear?

Mark Khuri:

Yeah, sure. I got a story I'll share with you. I'll say this, too. It's not a matter of if but when, if you invest long enough, in enough properties, you're going to have a problem. And this is a problem I'll share with you that we had on a duplex in Florida at the time. Essentially, I got a call from the property manager, “Hey, Mark, we got a fire at the property.” And I thought he was joking, literally started chuckling like, “Hey, what's really going on,” you know? And he was dead serious. And it became apparent within two seconds that this was a major fire. And so it was a side-by-side duplex and essentially what happened was the tenant’s car, a Ford Excursion, just spontaneously combusted when it was parked in the garage. Like they were eating dinner inside, and they had to climb out the window to get out of the place. And it went up quick, it was very hot, and we had pretty much a total loss. And so that was a situation where we, you know, we've personally been through some hurricanes in properties in the past, but this was a little different, right? “Wow, what is going on?” The tenants are gone. And anyway, long story short, what we ended up doing is, first of all, we were insured properly. We had the loss of rental coverage kick in pretty quickly to cover the rents while we figured it all out. And then we decided to hire a private insurance claim adjuster, signed over a power of attorney to them, and they acted on our behalf with our insurance company. And I'm so glad we did that. I’ll just tell you that after about six months of negotiating back and forth with the insurance company, we ended up getting far more than we had anticipated for the repairs and the damage of the value of the property. And that we ended up just selling the property as is, I think we sold it for like 9000 bucks to another rehabber. And our investors voted in favor of that decision, and everyone did quite well. And the tenants were relocated, and everyone was safe and okay. And so it could have turned out much worse. Nobody was hurt thankfully, number one. Number two, financially ended up kind of hitting a homerun there without even projecting that in the first place.

Dave Morgia:

Yeah. And that just took us back to covering your bases, right? And I think the move, not to draw this out too long, but the move was to get that insurance agent on it, right? That's a very low-frequency task that not many will be able to do correctly or at least exceed at in their lifetime. So to try and do it yourself, probably not the move probably, like you say, in your example, end up pay dividends to pay a little bit more and get a lot more back. So yeah, great there.

Mark Khuri:

I would just add one thing, you know, proper insurance is critical. But also, if you do have a large claim, how can I say this correctly, the insurance company may not always have your best interest in mind, they'll just keep it at that.

Dave Morgia:

Yeah, they're scared to pay out at the end of the day, it's not in their business to hand out money. So make sure you have your ducks in a row, pretty much like you did, Mark so great job.

Mark Khuri:

There you go.

Dave Morgia:

And then pretty much flip to that is can you name a time when something in your business went perfectly? And what did you do to make that a reality?

Mark Khuri:

Yeah, I would say just kind of the latest few deals, Dave, that we've been working on the apartment space, they're going better than projected. We're probably looking at some exits in the next six to 12 months most likely. You never know, of course, but if things continue trending performance, NOI growth, occupancy, rent growth, etc. if they continue trending as they are today, we'll probably be seeing some great returns. And so why is that? Well, it's a combination of, I think how we discussed earlier of careful underwriting and projecting, number one. Number two, partnering with operators that have operational excellence and a lot of experience, and doing something on repeat over and over, rather than starting from scratch. And so you put all of that together, and you do it in a market in a time where the tailwinds are in your favor too as far as natural appreciation, rent growth, cap rate compression, and you can really take advantage of all those things. And so it's a recipe, it's a formula, it’s also, again, we’ll go back to it, just dealing with the right people and working with the right partners.

Dave Morgia:

And then the last one here, what have you been focusing on lately to improve yourself or your business?

Mark Khuri:

Yeah, well, improving business to us today means just carefully choosing the right deals, even more carefully than a few years ago. We also continue to diversify across asset classes, which we believe in, but the affordable housing play is at the top of our list and so we're really focusing on that. We think there's a huge disequilibrium there that's not going anywhere, and it's going to continue to grow, at least for the near term. I mean, there's a recent report, Dave, that came out, there's five and a half million units below demand, as far as housing goes, according to historical levels.

Dave Morgia:

It’s amazing. Absolutely amazing.

Mark Khuri:

You know, it's not-- It's been pent up for a while, it's been building for a while. COVID put the brakes on a lot of new construction, and now based on aggressive new development, it would take 10 plus years to fill that gap. And so we think there's a period of time here that we can continue to try and be a big player in that space and provide high quality yet relatively affordable housing for folks and, of course, do well for our investors.

Dave Morgia:

Yeah, Mark, I really appreciate you coming on to share your story today. A lot of invaluable lessons, especially on kind of strategizing your business plans. If someone wanted to reach out to you just to learn more about you or just say hi, how can they reach you today?

Mark Khuri:

Yeah, sure. I mean, you go to our website, our company name is SMK Capital Management, and our website is smkcap.com. There's a lot of information on there, some recent investment examples. You can connect right through the website. You can also email us at info@smkcap.com.

Dave Morgia:

Mark, thanks once again.

Mark Khuri:

My pleasure. Thank you, Dave.

Dave:

Thank you for listening. This has been the Making Money in Multifamily Podcast. If you have any questions, comments, or would just like to connect, please feel free to check out the show notes for how you can connect or visit longviewacquisitions.com

Outsized risk-adjusted returns
Preferred exits in today's environments
Pivoting business plans and preserving capex
Balancing act on lease-ups
Conversations with Limited Partners
Three legged stool
5KQ1 - If you could only pick one trait that explains your success, what is that trait and why?
5KQ2 - What is the most uncharacteristic thing you've done in your business and why did you do it?
5KQ3 - Can you name any time where you felt like you were not going to end up successful? How did you overcome that fear?
5KQ4 - Can you name a time where something in your business went perfectly and what did you do to make that a reality?
5KQ5 - What have you been focusing on lately to improve yourself or your business?