Jerry Winograd

@resetbasis We ae approaching stage 5.

Every distressed deal hits the market five times 1. GP wants to "cover closing costs" 2. GP wants to "make the lender whole" (foreclosure happens) 3. Lender "will sell at par" 4. Lender "will take small haircut" 5. Lender says "get me the fuck out of this deal"

@champtgram This does happen but not very often.

“minutes away from the beach”

@hitsamty Galveston is amazing, great restaurants, great beaches, great people, great museums, very interesting history and only one hour from Houston.

Robert Durst rated it just fine

@fasterfreedom This is the reason real estate is so risky, many are learning an ugly lesson on having too much leverage and floating rate debt.

Real estate is the only asset where the bank will lend you 80% of the purchase price. Try getting that deal on stocks. Leverage is the game. Learn to play it.

@robbiehendricks FOMO without knowing they are doing.

What is the number one way people go bust in real estate? • Not • Enough • Cash They go into deals skinny. Lever up. Count on cash flow to cover capex. Don’t keep enough personal cash. Don’t raise enough capital. Bank on a refi. All of this, just trying to squeeze absolute maximum gain. Not a sustainable way of building a real estate business, folks.

@DallasAptGP @joeybaum13 The market for these businesses are much more efficient today. As soon as it made financial sense to change; we did.

@jw_hou @joeybaum13 There are definitely groups that have internalized pieces of the puzzle Not sure anyone is doing all of these on a large portfolio though

Vertical integration with property management means: You own the payroll processing company You own the trash company You own the property software company You own the landscaping company You manufacture your own appliances You own every subcontractor that comes out to the site That’s vertical integration, not some GP hiring a few regional managers, an accountant, and then vending out every other service and saying you’re vertically integrated. Self-managing is not the same thing as vertical integration. Rockefeller was vertically integrated. In-house property management is not the same! This doesn’t mean you can’t be a good operator if you self-manage, just means you have no idea what vertical integration actually means.

@DallasAptGP @joeybaum13 We operated a trash company and a parts supply from 1972 until 1991, landscape company until 1985 and developed our own pm software which we utilized from 1991 through 2020.

@joeybaum13 Provide a few examples of a PM Company that operates this way I don't know of one that owns the payroll processing company, the trash company, the property mgmt software, the landscaping company, the appliance manufacturer, and the subcontractors

@CreateNotesOnRE Low leverage.

Did you know you could be on the way to being wealthy in real estate but have no cash flow and giant tax liabilities every year that you can't pay? There are many people in real estate in this situation. They have amortizing loans from banks. They have limited partners or just partners that get paid first. They are amortizing debt like crazy with the rents that are coming in. And that is taxable. So their wealth is going up everyday. As is their tax liability. But their cash flow can't pay it. Many are forced to refinance some of their equity out to cover their tax liability over time. All this does is strain their cash flows even further. Got to be a better way? Give us some examples of a better way to do this.

@robbiehendricks I would never do a preferred return deal, it does not work for long term holds and I have seen several groups lose their equity because of the preferred forced sale when the market is down.

FAQ: • Is there a PM fee? Yes, it's a very low 3.5%. I didn't include it because it would exist anywhere with any apartment deal. That said, our PM company is effectively a non-profit, and solely exists to operate our assets with excellence (and at cost). We earn no income from the PM company. • How are cash-out refinances handled? Cash-out refinances are 100/0 to LPs until they are whole. LP equity is not diluted when capital is returned. • Could a deal still go poorly with this structure? Absolutely. No structure can save a poorly acquired or specutively financed deal. • Can a "finance bro" with a high fee preferred return structure still put out a great deal that will crush it for LPs? Of course. While I'd personally prefer to invest with a GP that operates their own assets, that doesn't mean that a savvy GP who outsources ops cannot identify, close, and asset manage excellent deals for LPs. LPs just need to be sharp (regardless of who you choose to invest with). • Would you NEVER do a preferred return structure? Look, I always give myself room to change and evolve. If for some reason compelling evidence dictates that we need to try a different structure, we will. If some mega-LP wants to give us $50M but will ONLY operate with a preferred return structure, we'd probably do it. No absolutes in this world, but for now, we've found great balance with this current structure. I reserve the right to change as the winds change. • Do you ever have any other fees? Would you ever add more? Since 2023, no, we haven't had any other fees. In the past, we've tinkered with smaller transaction fees (ack, refi, dispo), but have recently just stuck with acquisition. I'd argue the refi and dispo fees can be justified if - and only if - you are exceeding pro forma for LPs. Performance-based fees don't feel as icky to me, again, because performance is required for that added compensation.

Nerd Alert Post: Our Deal Structure Why do we use a boring, low fee, straight split deal structure for our real estate projects? Let's dive in: Here’s how we structure our multifamily deals, why we do it the way old school operators do it, and why our LPs keep coming back. Bookmark this now. Come back later if need be. Feel free to ask questions. Preface • I post about our structure every so often because people like to consider various structures for syndications, GPs and LPs alike. • We’ve done it this way since 2013 and have no plan to change anything. It has been both successful and enjoyed by our investors (32/32 successful exits), it has protected the deals in times of volatility, and it has rewarded us for actual performance and not simply deal acquisition/capital raising. • I’ll always say this though: The operator and the deal itself matter far more than the deal structure. If you hit your numbers for LPs, I’m rooting for you regardless of structure. This isn't a contest...it's a preference. • That said, we use this structure because we sincerely do believe it’s best for LPs (including close family), the deal itself, and yes, us as GPs. • This structure rewards us for delivering results to LPs, it insulates the deal from stressors that could force a sale, and disincentivizes us as GPs to simply stretch to buy deals (helps LPs sleep better). The Structure Don't blink or you'll miss it: • 85/15 Split (100/0 on capital events) • Acquisition Fee That’s it. There are no: • Asset Management Fees • Construction Management Fees • Due Diligence Fees • Guarantor Fees • Hurdles • Waterfalls • Catch-Ups • Preferred Returns How does it work in function? • Monthly (not quarterly) cash flow is split 85/15. • Capital events like refinance or sale are 100/0 to LPs until they are whole. After that, profits are split 85/15. Why do we (and LPs) love this? • LP appreciate this structure because we are not paid anything until the deal is cash flowing for them (even the acquisition fee is reinvested into the deal). • Note that I didn’t say “accruing preferred return” for LPs...I said actual cash flow. Like now. We target properties where we know that, through our operations, we can drive current income for our LPs (and ourselves). • Since we do not take 2% asset management fees off the top every month - which are paid to sponsor‘s regardless of deal performance - we are on the hook as operators to get the deal performing. • Think about it from an incentive standpoint: Because of this, we have no motive at all just to buy deals, build a huge unit count, and fee it up. We are guided by buying deals we are certain can cash flow well (as we target 8% stabilized CoC for LPs). • This straight split model is/was popular with old school operators...because they were operators. They aren't finance guys in suits (or navy vests), but real deal operators of apartments. There is a difference. But what about the standard high fee, preferred return model? • Look, let's keep it real between us girls: A big reason the private equity types love the asset management fee model is that they are paid regardless of their ability to operate. Which is important, because most of them don't actually know how to run the businesses they are buying. (Scary when you think about it). • PE bros twist themselves in knots saying that because they have a “preferred return” that it is LP first. • Unfortunately, it’s not LP first. It goes asset management fee first, then LP cash flow. Or for many deals, LP pref accruing. • Deal underperforming? No big deal. That delicious 2% fee is still coming out. But don’t LPs want a preferred return? • In theory, of course. They sound great. And with good operators, they’re just fine. Again, not ragging good operators that use this structure. It's common, and a lot of retail LPs cross-shop preferred returns and IRRs (sadly, they cross shop biz plan IRRs rather than operators and track records...don't get me started on that). • But in reality, since 2013 (the advent of 506c, general solicitation), preferred returns have really morphed into a marketing tactic to attract LP capital under the guise of superior protection and a "guaranteed" return. (This is especially true the past 5-7 years as finance bros have flocked en masse to become syndicators.) • Unfortunately, preferred returns are not guarantees and they provide no more protection to LPs than any other structure. • And since they are paired with asset management fees 99.9% of the time, they actually protect the sponsor more than the LP. The GP is paid every single month whether the deal is performing or not. Here's a personal example: • I am currently invested in 8 deals as an LP (smaller checks than our own projects, obviously). All have preferred return structures with fees on fees on fees. • Only 1 deal is cash-flowing (2%). All 8 - all of them - are behind on pro forma. • Guess how many of them are taking their 2% asset management fee every month? 𝑌𝑜𝑢 𝑘𝑛𝑜𝑤 𝑡ℎ𝑒 𝑎𝑛𝑠𝑤𝑒𝑟. (Note: These investments are with well-reputed GPs that I trusted, but I'm happy to admit that I got caught up in wanting "sunbelt exposure" during the 2022-2023 heat wave. Didn't do enough diligence. Lesson learned.) Conclusion • Ultimately, we love our boring structure because we are operators. • We have strict criteria in our acquisitions and we take the responsibility of executing the business plan in to our own hands. We work every day on these deals. We live in our market. We have our own boots on the ground. • In this structure, we are banking on ourselves to execute the plan to earn compensation, rather than banking on fees regardless of performance. I’ll do some FAQ below.

@hitsamty @TheDTownClown I don’t think I would want to behind the pref, of course I never want to be behind pref no matter the terms.

initial terms on the pref raise were these; unclear where final deal w/ 3650 ended up (12.25% fixed w/ 7% soft current pay)

Chicagoland multi megadeal closes: LaTerra/Respark complete 1,500 unit purchase from Aimco. Key deets • Price tag: $455M ($304K/ 🚪) • Assumption of ≈ $300M in Fannie debt • ≈100M of pref coming in from 3650 Capital (quite hot rn) Fatty!

@laurenlash0521 @themoviedadsc Right at 11 am. The airport was busy but the TSA line was moving at a fast pace.

@jw_hou @themoviedadsc What time was that at FLL?

Legitimately now considering driving 14.5 hours to Ft. Lauderdale this coming weekend vs. flying. Drive is brutal, but my worst nightmare is getting caught in this TSA mess flying with 3 young kids Question to those who've been flying. Is it really that bad right now?

I agree @robbiehendricks The big mistake I see many operators make each cycle is that they refinance every chance they get to pull out tax deferred cash in order to do a new deal and many get caught in a slight downturn. This is a risky way to operate especially with C class properties because unexpected capital projects just happen.

Let me share a secret with you regarding real estate investing the sunbelt cowboys don’t want you to know: Provided you have: • Conservative acquisition buy box • Strict financing rules and • Operations mastery You can enjoy a career without losing money. There, I said it. Capital loss is not a requirement in this line of work. Not saying you won’t run into trouble. Bad markets come for us all. Sometimes wars and pandemics start. New supply can go boom. Rents soften. Capex bomb goes off at your C class special. Rates go boom. But if you stick to conservative criteria, finance it with boring long-term fixed debt (+ maintain robust reserves), and operate them with excellence, you’ll build in enough margin where time can help you overcome most disruptions. I’ll share our boring criteria in a future post, but for now, take heart: You don’t have to lose capital if you play this game defensively. Could you? Sure. Bad things do happen to great operators. But it’s not a foregone conclusion.

@realEstateTrent Happens all of the time. When we hire a subcontractor that will have large invoices from suppliers like roofing and sheetrock we insist on directly paying for the materials.

Crazy that your general contractor can have a dispute with a vendor you didn’t know existed, and that vendor can lien your property

@AdamB1438 @realEstateTrent Any many more ways to lose money…

@jw_hou @realEstateTrent End of the day, there's just more than one way to make money in real estate... <sigh>

I don’t believe in holding commercial real estate long-term. Doing so means you are relying on two things to happen in order to get appreciation: Interest rates going down, or rents going up I don’t have control of either. “Buy and hold” made many people look very smart, when what really happened was interest rates went down for basically 40 years straight. We can very easily see rates flat for the next 10 years - nobody has any idea. If that happens, you can’t make real money unless you: Find opportunity, use your skill and experience to create value, and bank the profit.

@Dudewithacigar @shawngorham Tecovas are great, they are the least expensive most comfortable boots I have ever owned.

@shawngorham Buy the square toe Tecovas. Just be warned. You’ll develop an addiction

Cowboys - Tecovas or Ariat Boots? btw - they are selling Tecovas at Nordstrom now in So Cal, seems like a sell out?

@bethanyjbabcock I prefer saltwater pools. Safer to not use chlorine, doesn’t have the smell of chlorine and it is easy to maintain. The device that charges the salt does need a little maintenance and requires replacement every 5-7 years.

Saltwater or chlorine for pools? Looking at an above ground one if that makes a difference.

@MiketheAptGuy Congratulations. What do you think this property is worth today, I know this is a loaded question? 2020-2022 was a unique time to sell.

Thanks for sharing. I like the strategy of investing to created a more attractive property. Great job!

@CaseyMericle @bavedikian It is if need cash tomorrow. And it is really illiquid if you purchased with floating rate debt in 2020-22.

@bavedikian Real estate isn’t illiquid

I’ve missed out on a lot of returns over the years from keeping a lot of cash. Many would call it crazy. What I think is crazy is how many people with an 8 figure net worth on paper have less liquid cash than my monthly credit card spend. Yes, I miss out on some returns. But I sleep well at night. And I'll never miss out on an opportunity because I had 99.99% of my net worth tied up in illiquid investments.