Are There Real Estate Deals In Today’s Market? Breaking Down Trends With Brock Mogensen, Smart Asset Capital

August 23, 2023




CWS 254 | Real Estate Deals


What are the trends in the market today? Are there real estate deals out there? In this episode, Brock Mogensen, a principal at Smart Asset Capital, offers his expertise to answer your questions in today’s market, and he breaks down trends in the real estate space today. The interest rate is around 7% today, and he still sees good deals in the market, but it’s tough to find them. Brock also shares what he sees in the market, which made him pivot into the industrial space. Tune in to this episode to learn more about what’s in today’s real estate space.

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Are There Real Estate Deals In Today’s Market? Breaking Down Trends With Brock Mogensen, Smart Asset Capital

In this episode, I have a special guest. I have Brock Mogensen with Smart Asset Capital. Brock, how are you?

I’m doing great. I appreciate you having me on.

We are going to talk a little bit about Brock’s background in real estate and the market a lot. What Brock is seeing in the market and what we’re seeing in the market is a question we get asked a lot. A lot of people are out there wondering, “Are there deals in the market?” We’ll talk a little bit about that as well. As we get started, Brock, why don’t you tell us a little bit more about Smart Asset Capital? How did you get into this business? What are you going on?

I am based in Milwaukee, Wisconsin. I live and invest here. I got started in real estate a few years ago. I started with the duplex. Growing up, I saw my dad owned two duplexes. Both my parents worked very blue-collar jobs and I saw simply what owning four units could do for your lifestyle. Growing up, I always had that seed in my brain. I got out of college. I’m going to save up some money and buy a duplex. That was extensive about what my real estate investing goals were.

I bought that duplex and did the House Act model. In the first month, I had roommates renting out the other unit. I make $500 that first month. I’m like, “This is the best business ever. How can I grow this business and make it my full-time thing?” During that time, I was working in a call center making $40,000 a year. I didn’t have the income to grow quickly. That path to me seems like it was going to be a twenty-year path for me to make enough money to leave that job.

I started researching and experimenting with different avenues like wholesaling, flipping, and all these different things. I landed on this concept of syndication as my view of the easiest way and best way to scale and create a large real estate business. I went all in on that. Fast forward one year after buying that duplex, I find partners, did education on all the things, and syndicate an 89-unit deal. I continue to do more and more. Fast forward 1 year or 2 later, I left my job. I was able to get to we are, being a full-time investor. We’ve done about twelve syndication deals. We’re at $25 million in assets under management and several different asset classes here in the Milwaukee area. I’m loving it.

I want to peel back a little bit because it sounds like you went pretty quickly into the syndication space and the raising money side of things. Did you do it 506(b) or 506(c)? Was it people you knew from your network or did you have business partners along with this? I’m intrigued about how you were able to scale so quickly because that’s amazing.

We’ve done 506(b). In the beginning, I didn’t have many connections. I leaned on my first business partner. It’s my business partner still. I have two business partners but one of them had a ton of experience already, owning several 100 units, and had built this real estate business already. Another partner and I came in with this knowledge of syndication and said, “We’ll drive everything. We’ll add this into your business model.” He raised a lot of the capital on that first deal and provide a lot of the experience.

After a few more deals doing it, I was able to build my network. I take part in raising a lot of capital as well but that first one, I leaned on having a partner with experience. I own a duplex. I read some books and went to a couple of events. I wasn’t super experience so I leaned on having the right business partner to get those first couple of ones done.

As part of your portfolio, there are a lot of shifts going on in the markets and different things. You’re in different asset classes. What type of asset classes are you investing in?

I’m taking a step back. We started with multifamily and then after that started, we got thrown this retail deal, the strip mall, an office building, my self-storage facility, and industrial. Quickly, we kept seeing these good deals. I was like, “It’s a good deal.” We can learn how to triple networks and do this deal. Those deals went well but a few years ago, I have been focused on industrial. The past five deals we’ve done, I’ve been industrial. Our main target is value add industrial deals here in the greater Milwaukee area. Our niche is focusing on industrial.

I think of a lot of different aspects of industrial. Is there a specific use or site that’s being used for the industrial? Is it warehouse storage space or logistics like an Amazon place? I’d love to learn this stuff. That’s me using this time to educate myself.

There are a lot of different niches or classes within industrial. For us, it’s a lot of general warehouses, storage, light distribution, and those sorts of things, like a big box pretty much. Those are the ones we like the best. Some are flex space. We haven’t gotten into heavy manufacturing. We have big cranes overhead. One day, we may but it’s a lot of more general warehousing asset classes.

Are those typically at least a triple net by the square foot? How does that structure work on those types of deals?

It’s a triple net. Most of the ones we’ve done so far have been occupied, depending. Several of the deals we’ve done have been short-term sales lease specs where we come in. We get it at a great price for a square foot. It has a great cap rate going in but there might only be 2 to 3 years left on the lease. There are more risks there for sure because when the time, it moves out of an industrial building, it’s much harder to fill than when a tenant moves out of an apartment. For us, that’s how we create value.

Within the industrial space, if a deal has a ten-year lease on it with an awesome tenant, those deals are going to trade at much lower cap rates and your return gives you much lower. It works for a lot of investors that are okay with riding a 4% or 5% return for 10 years, hoping for appreciation. We’re more value add. We tend to go forth those deals that might have a little bit more risk but we weigh in that risk with the upside, build in reserves, and protect our downside. The main deals we’re focusing on are some short-term lease deals.

If a deal has a 10-year lease on it with an awesome tenant, those deals will trade at much lower cap rates in your return. Click To Tweet

More education for me. My business partners are probably going to shoot me for asking these questions because they’re like, “Chris, don’t get this idea in the back of your head.” I throw a lot of ideas out there but we like to stay pretty target focused. Let’s talk about why you made the shift to industrial. What did you see in the market that gave you that shift and wager you to start moving the company in that direction?

In our caveat, we’re still a multifamily. We’re doing a development deal with 40-some apartments. We still like that asset class but the big difference why we like it is it’s more simple. With multifamily, there can be 50 different things that we have to come in and do to add value to this property. We got rehab units and lease 100 units. We’ve got additional income and deal with three onsite property managers.

There are a lot of more moving pieces. It’s a super lucrative asset class but overall, the first part is we see industrial comes down to one thing, the lease. There could be an awesome cutback stuff you have to deal with but it’s that lease. You have to figure out that lease and get the property lease or renew the lease on a longer term. That’s where your value is created. We saw it as a much simpler business plan.

The second is overall returns. In our market, at least what we’re seeing is cap rates on these multifamily assets and the A to B class, which is where we focus. I looked at a deal and it’s negative $100,000 cashflow in the first year. There’s no value added. How do you make sense of these deals? Whereas in industrial, we’re seeing overall better returns honestly when we compare the two asset classes. Those two things are the major drivers which have led us to focus on industrial.

You mentioned the multifamily space, which is a space I have a lot of background in my past life. I spent a lot of time underwriting deals back in multifamily. We’ve looked at some multifamily deals with interest rates creeping up. Cap rates are still not adjusting as interest rates have and then the overall cost of utilities, labor, property management, renovation, and construction. I’m having trouble making pencil-in these things out. There are still probably deals out there but I’m curious what you’re seeing.

Deals are very hard to find. Investor expectations can’t be the same as they were a few years ago. A few years ago, we could see a 15% to 20% internal rate of returns. Those are the deals that are there. Now, you have to push to find a good deal to hit 15%. A lot of the bigger groups are buying deals in the higher growth like the Sun Belt areas. 10% to 12% return rate is what you’re seeing. You have to be okay with coming in at a 2% or 3% cash-on-cash return.

Value add deals are what most people are doing but it’s tough. I have an account where I can store money that makes 6% with no risk. It’s tough when you’re competing against that. You need to at least double that to take on the additional risk. There’s risk in real estate. With this money account, there’s zero risk. In my mind, I need to at least hit a double on that return compared to risk-free money. It’s tough to find deals.

CWS 254 | Real Estate Deals

Real Estate Deals: It’s tougher now to find deals.


We’ve seen some syndications we looked at and stuff. When I started seeing people still offer 18% to 20% IRRs and stuff, I get a little more nervous because you were right. Years ago, that was the norm. Economics has changed. One of the things that have significantly changed that we’re seeing in all aspects of real estate in a lot of areas, and I’m curious to see up in your neck of the woods, is the bid-ask spread, meaning the seller wants X and the buyer is only at Y. Every buyer is pretty much around that Y. They may be seeking a cap of 8% but the seller is stubborn at 5% or whatever it is when the markets are in dictating that. Are you seeing a lot of that up in your neck of the woods too?

For sure. I haven’t seen a lot of distress yet. Maybe once or twice, I’ve seen a seller that’s facing some distress where he could scoop this thing up and put a lowball offer in but in most of these deals I’m seeing, I talked to the broker, and they’re like, “The seller would sell. This is the price. They’re not urgent to sell.” That’s what I’m seeing when there’s no distress.

We have a property that we would sell, and I’ve sent it to a few people. I know the price doesn’t make sense. “If you want to buy it, we’ll sell it to you. This is the price because we’re not in distress on that asset.” That’s the tough part. Most sellers are willing to sell for the right price, but it doesn’t make sense. Until we hit that wave of distress, and there is something coming, that’s when it starts making sense to scoop up deals. We have a deal on a contract. There are still deals out there, so it’s not like to sit back and wait. There are still deals that make sense. You have to get creative on the deal structure, get the right debt structures in place, and search for those diamonds in the rough.

It’s much more challenging if, years ago, you would look at 50 deals and say you closed on 5 of them, as an example. Now, to close on 5 deals, you’re probably looking at 250 assets or a lot more to go through. You got to get creative and find some distress. I agree with you. We’re probably a year away from starting to see more heartburn in the markets. I started a conspiracy theory that we buy a lot of distressed mortgage loans and the banks with what’s going on in a commercial space. Everyone knows what’s going on with commercial real estate.

I was joking with somebody. I said, “I wonder if the banks are going to go back for a bailout on everything.” They’re going to go back to the Fed and say, “It’s all your fault. I have all this paper at 3%. Rates are at 7%. All these bonds everything else. I can’t sell. My commercial real estate is collapsing. We need a bailout and eliminate all their bad debt.” I’m like, “It wouldn’t surprise me if the banks would do something like that.”

They’re genius. They get taxpayers to pay them again dated several years ago, but I digress. I apologize. It’s interesting. It’s the same thing with us. We have assets in our portfolio that people reach out to. “We’ll sell it, but here’s the price.” We have some people who buy it because they have the cash thing on the sidelines. They’ll still get a better return than just sitting it in a CD, but we’re spending a lot more time chasing deals. I’d like to be frank.

There are certain buyers that it makes sense for them to overpay. Your 1031 money, when you’re weighing in the tax, could make sense. Other investors that are sitting on a lot of cash want tax benefits and long-term appreciation. It’s competing against that market. That’s always been a factor in real estate investing. Those investors have always been there. Those are a lot of buyers. I’m talking to brokers and seeing the deals they’re transacting. It’s people like that that have to place their money somewhere, and they need to do it now. They are paying the prices with a lot of offers out there.

To be honest, that scares me when I see people doing that. I’m anticipating that we are going to see some type of plateau leveling off and coming back to reality, especially on the residential side. The way I look at the residential market is it is shut up so much from COVID that the average Jane and John Doe can’t afford a home. Rents have gotten so outrageous, pack on the fact that a lot of Americans are awful at financial planning and management and have no savings.

Eventually, something’s going to give, and they’re going to need something. Either they’re going to have a significant increase, defaulted credit cards, and other types of rents, or housing is going to have to come back to some reality for people. Some of these places with a $200,000 house are now $350,000, plus your interest rates went from 3%, which is certainly low. I was used to 5% and 6% when I bought my first house. It is up to 7%. That payment is probably doubled. I don’t know where all this money is coming from.

It’s crazy. That’s the hardest part, plus banks. Commercial lending is pulling back so much even at this 7% and 7.5%. We’ve got a 7.5% on interest rate. They’re even pulling back on that, requiring additional reserves, and holding back not as much interest only. There are so many different things that are making it so hard to do deals. I agree with that.

CWS 254 | Real Estate Deals

Real Estate Deals: Commercial lending today is pulling back so much, even at this seven-and-a-half percent quote on the interest rate.


It’s part of the underwriting process. You got to deal under the agreement. From a structure standpoint, how much leverage are you able to get? What type of term is that? What’s a ballpark interest rate on that? I’m curious. What’s out there?

This is going high level to the deal. Generally, we’re targeting 75% leverage. The interest rate rises. We’re somewhere around 7%. That’s the ballpark on that, but the harder part too within the industrial space is some of these lease-term deals they’ve got is a two-year sale lease back. We have the opportunity to add value after that, below market rents, buying it a great dollar per square foot, and a great story behind the deal. From a bank’s perspective, we like it. We can add value to it. You’re 3% or 4%.

The bank sees it as “I have a tenant in there for two years. Who knows what’s going to happen in year three?” They might have a vacant building on their hand. They look at us and say, “You guys have to be the person liable for the mortgage payments.” We’re strong enough to cover that, but it’s a riskier asset from the bank’s perspective, compared to a deal that has a ten-year lease on it or a stabilized apartment building. It makes it extra tough in the space for navigating to get great debt terms.

Have good relationships with debt, whether you have a great mortgage broker. Work with someone that has great local banks. We have some good connections here that we work with, so it’s leaning on those people we’ve worked with for years and have good relationships with. I’ve shown them, “We can navigate through tough times. We’re not going to default.” That’s super key. That’s the hardest part.

It blows my mind still how banks or some lenders will still give non-recourse debt. I was working for a large family office that owned a lot of real estate. They had significant loans on assets, but they’re only probably 30% loan-to-value of the assets. They had plenty of equity in all their deals. They still had recourse debt on everything. They were getting money from insurance companies and other places and stuff, but everything was recourse.

Even though their balance sheet was probably the strongest balance sheet I’ve ever seen for a real estate developer, we’ll do some private lending. In everything we do, the first thing we tell people is, “This is recourse. We’re letting you know right up front.” It’s surprising to me sometimes when I still see some of the non-recourse debt. I’m curious how that shakes out different things but for people reading, it’s not uncommon. A lot of people make it sound like it’s uncommon to have recourse debt. It’s not, especially if it’s an asset that poses a little bit more risk because giving a loan is all about balancing the risk versus the reward in return.

Out of the 12 deals we’ve done, 11 out of 12 of them we have with local banks and full recourse. In the first deal we did, the 89 unit, we did agency debt. We had a pretty rough experience dealing with an agency. We got hit pretty hard with COVID at that property. You call them, and there’s zero. They’re not going to help you. They’re not your friend. They’re not going to bend over to help you at all because they have such government regulation. Whereas with local banks, if someone goes on wrong, they got to call.

I got off to them, and they’re going to navigate through it. They’re not just going to hand it over to you, but they’ll find something. They need to restructure it or work with you to make both sides happy. To me, that’s a big benefit. When you get to a certain scale, you go big on your agency debt, non-recourse, and all that stuff. In the space we’re navigating, we found that local banks have been the best source of debt for us.

Some of these deals with value adds can be a little more challenging with the financing. What are some of the things you’ve done to overcome that hurdle? Does it require more equity in the deal? I’m curious. What were some of the things that you did to overcome that?

The biggest one we’re doing is giving more cash to the banks. It’s not necessarily from a leverage standpoint. It’s from reserves. We’ll put $100,000 in their bank account. They can hold on to it to cover that potential year of vacancy. Once we exit or whenever we get through that period, they’ll refund it. That’s been the biggest thing. What we’ve been leaning on is we’ll stack in more reserves whether they hold it or we stack in our account to give the bank more certainty that we have the cash to weather that year’s vacancy period that we assume.

We’re highlighting a big thing on a little tangent. Historically, when I first started, it was easy to get financing. We’d send it out to five banks and maybe fight over it. It’s a matter of if we want a 3% or 3.2% interest rate. Now, you have to be dialed on how you present this deal to the bank. We put together a detailed investment summary that highlights everything about the deal, how we are mitigating risk, and everything. We send that professionally to each banker.

I had this conversation with the banker. Someone was asking for financing. He got 50 different emails and 50 different spreadsheets. He had to spend twenty hours piecing all this together to see if the deal worked. It’s especially important to make it easy for them to make a decision. Lay out everything in one PDF about the deal so they can scroll through that and understand what the deal has going on. Something we’re focusing on is getting creative. We’re doing whatever makes the banks happy and presenting it in a professional manner.

That’s a great point you make because the presentation is key. Before, banks end money out like a lemonade stand on the corner street. Now, banks have seriously tightened their belts in regard to commercial. We had somebody reach out to us for a private loan. They had commercial debt. It was a commercial office. It was a townhouse-style office building that they had 90% leased. The appraisal came in at $2.6 million, and his debt was maturing. It was a maturity default. It’s got to balloon of about $600,000. The bank would not give him a new loan. Even though it had great cashflow and he had tons of equity, they’re like, “No, we’re not lending on this type of product anymore.”

We have spoken to him about potentially a short-term private loan to pay that off until he could refinance it. He didn’t like the terms of that, but he ended up refinancing his house to pull the money out of his house to pay for that property. For anything commercial, make sure you speak with several lenders. The amount of equity you’re probably going to put in this deal, like the reserves and everything, it’s that service credit ratio. People are happy with a 1% or 1.1%. If you say anything below 1.2%, I’d be still surprised. There might be some lenders out there, but I probably target 1.2% on that standpoint.

We’re talking about the guarantees perspective too, having strong balance sheets, liquidity, net worth, track record history, and all of those things. If there’s a bank that you’ve worked with for a long time and you’ve performed well with them, those things go a long way. For the newer investor that doesn’t have all those things, it’s even extra tough. It’s not impossible. It’s still possible, but it requires having a great relationship and having all your pieces in a row.

If there's a bank that you've worked with for a long time and you've performed well with them, those things will go a long way today. Click To Tweet

You mentioned that agency debt story and so forth. What has been your biggest lesson learned, headache, hair pulling situation that you’ve had in your years here in this lovely world of real estate?

To be honest, we filmed a podcast about this whole thing. It’s top of mind. In the first syndication deal, we did an 89-unit apartment building. There are a lot of learning lessons on that one. We’re starting with the debt. We got the mortgage broker and worked with them on that. It screwed us over last minute. They promised the world to us, and that changed at the last minute. Going into this deal, we’re in a rough spot. I’ll go quickly through this story.

Essentially, we had to evict 60% of the tenants right away. We get all that figured out, and then COVID hits. 25% of our tenants don’t pay rent for 2 years. We were stacked on top with an $80,000 boiler that goes out, so we were in a rough spot. We don’t want to do a capital call, so we put $100,000 down to cover that. Luckily, we found the right buyer for the property and exited that property. We were able to negotiate the prepayment penalty and got out of it with a profitable return to investors. There are a lot of unlucky things but a lot of learning lessons too, disregarding due diligence.

The biggest one for us is the firm. We don’t want to buy stuff in rush locations. We’re focusing on what tenant base we’re supporting and factoring in the numbers. C-class, C minus class property, I don’t care if the performance says you’re going to operate that property to a 50% expense ratio. You’re not going to. It’s going to be 65%. Things like that have a lot of learning lessons. It was the first big syndication we did. That was the biggest one. We took a lot of those things and, luckily, got out of it profitable but we took that and made sure we don’t repeat those mistakes.

There are a few things I take from that. One is the commitment that you made in regards to the capital call and putting your money in the deal back in. That shows a lot. If I had to do it, I’ll probably let the investors know, “The property is not going well. As the owners, we are putting this in. We’re not asking for a capital call.” That goes a long way, especially in this environment.

Every time I go on LinkedIn or some groups I’m in, either distributions or capital calls are happening left and right, especially those individuals who have no bridge debt that is on a floating rate. A lot of those people, unfortunately, are getting hurt pretty badly in that. It’s like anything in real estate. You’re constantly learning, and you can never learn enough. You have to make sure that if you have a lesson learned that that’s the only time you learn that lesson. You don’t try and repeat it.

You learn everything. Learning never stops. That’s for sure.

Brock, if people want to reach out to learn more information about Smart Asset Capital, what’s the best way for them to reach out and learn more about you?

Our website is SmartAssetCapital.com. We have some different downloads. You can book calls there. I’m pretty active on Instagram, @BrockMogensen. My email is Brock@SmartAssetCapital.com. Feel free to reach out. I’m happy to talk with anyone.

Brock, thanks for joining us on this episode. For everyone reading, please make sure to like and subscribe to us on your favorite platform. Thank you, all. Take care.


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About Brock Mogensen

CWS 254 | Real Estate DealsBrock Mogensen has been investing in real estate for over five years. He lives and invests in the Milwaukee, WI market. As a principal at Smart Asset Capital, the firm currently has over $25 Million in assets under management. The portfolio is comprised of multifamily, retail, industrial, and self-storage.


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