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Multifamily Investing: A Look At The Next 12-24 Months With Michael Episcope

November 9, 2022

chrisseveney

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CWS 225 | Multifamily Investing

How is the multifamily market looking today, and how will it look in the coming years? As an investor, you need to be agile when positioning yourself on the market. It’s all about managing your risks and rewards. 

Join Chris Seveney as he talks to the Co-CEO at Origin InvestmentsMichael Episcope. Michael has executed more than $2.3 billion in real estate transactions, with an average equity multiple of 2.4x. Discover how Michael went from 90 investors to thousands with Origin. Hear about all the different funds he created so he can give investors exactly what they’re looking for. Find out how you can attract investors by showing how transparent you are. Finally, listen in to discover Michael’s insights into investing in real estate in the next 12-24 months.

Watch the episode here

 

Listen to the podcast here


Multifamily Investing: A Look At The Next 12-24 Months With Michael Episcope

We have a special guest. We have Michael Episcope with Origin Investments. Michael, how are you?

I’m great. Thank you for having me.

Thanks for being on. We were talking before the show about how Michael, who’s in the Chicago area, was sending us to Washington, DC area for some little nice warm weather, which is in the 60s. When I had a chat with my team out in California, they were dressed in thick coats, so it probably was only 70 there for them, which is cold.

We are going to talk about multifamily, and Michael, who is with Origin, has done over $2 billion in real estate transactions. As I mentioned, they are based in the Chicago area, with him and his partner since 2007. They have managed more than 5,000 multifamily units. They are across the Sun Belt. There’s a very long list of things he has accomplished in his career, and he’s going to continue to grow it. We are going to talk about where Michael is now, how he got there, and share a lot of insights into what people can expect in the next 12 to 24 months in investing in real estate because there’s going to be a lot for people going to have to pay attention to. Would you agree, Michael?

I agree. That’s a lot to pack in 30 to 40 minutes but I will do my best.

Why don’t you tell us what Origin is, your primary focus in what are you working on?

We are a real estate investment manager located in Chicago. We invest in multifamily in the Sun Belt States. We are in Charlotte, Raleigh, Atlanta, Florida, Tennessee, and Texas markets. At West, we are in Denver and Phoenix. We build by and lend to multifamily properties. We have three strategies under our house. We have four funds that are operating now, and we represent about 3,200 investment partners. They are ultra-high-net-worth family offices and our own capital as well.

We have been at this for several years now. We have 50 people at the firm. I’m in Chicago but we do not invest here because of headline risk, fiscal situation, and crime things of that nature. When you have a view of the world and can invest anywhere, you are looking at cities with the highest population, job growth, good demographics, low taxes, and lifestyle cities. That tends to where be the places where we want to put investment capital.

You mentioned something that just jumped right into my head. You have been in the business for several years and have 3,200 investors. I’m guessing those are all accredited investors. How did you get that many investors are the question? That’s a lot.

I will take it back to the beginning because my partner and I formed the company in 2007. I came out of the commodity trading business. I was an interest rate trader and had amassed a meaningful amount of wealth. I retired from that business. I went back and got a Master’s in Real Estate. I knew I wanted to do something in the industry. I wasn’t sure yet. He and I had done a lot of passive investing together in ‘02, ‘03, and ‘04 right up until that point.

It always felt like 1 to 2 steps forward, 1 or 2 steps back, and we weren’t getting ahead. We wanted to use real estate to protect our wealth, grow our wealth, and turn our assets and income. It was in about ‘06 that we came to the same conclusion, “If this is the best the market has to offer, we can do something better.

We pulled our own money together. We got together and thought about where we wanted to invest it. At that time, it was more credit. Cracks were showing in ‘07 in the market, and we started investing. It was in ‘08 and ‘09 that period we started to bring in outsiders. Close family, friends, and people in our network when we found great deals and started building it from there.

The first fund we launched in 2011. It was a value-added fund. We were more on the equity side there. You could buy deals that feel crazy now, but 50% high-quality deals below replacement cost, and that was how we started. The inflection point for us, for about the first 6 or 7 years, was all my partner and I, word of mouth, our network, and people coming in. We were doing fine but we were growing our personnel and business, and we wanted to grow faster.

In 2015, we said, “We want to grow and have a great product. The idea is that if we get it in front of a lot of people, we will get more investors.” That was at an early time in our lifestyle, and the JOBS Act had passed in 2008, which allowed companies like ours to market but was very controversial. Even then, there were a couple of companies doing it, and we decided to embrace it with that simple philosophy. If you have a great product and you put it in front of a lot of people, you are going to get more customers.

That was in 2015. It took us the first 7 years to get about 90 investors, and then the next two years, we ramped that up to about 550. The difference was that it was working, and we knew that but we only had one product. We had our Fund III, which was a value add product at that time, and we sat there with 550 investors for the next two years as we planned what was next for Origin, our product mix, and everything.

We came out with our IncomePlus Fund, which is a multi-strategy open-ended fund in 2018 and 2019. Very tax efficient. It utilizes all three strategies, the bill, buy and lend, into a single product. We also launched a QOZ Fund, the Qualified Opportunity Zone fund, at that time. A few years ago, we launched our Multifamily Credit Fund, and then we all still launched months ago what we call our Growth Fund. The Growth Fund is 100% crown of development.

When you think about it from an investor standpoint, we span the risk-reward spectrum. The Multifamily Credit Fund is for lower-risk investors who are looking for yield. IncomePlus Fund is for moderate-risk investors looking for yield and appreciation. The Growth Fund for all grounds of development is for higher-risk investors looking for only appreciation who don’t have a need for yield at this time.

If you want to attract investors, you need to span the risk-reward spectrum. Click To Tweet

Everything we do is through the lens of the ultra-high-net-worth investor. We are still the largest investors at Origin. We are a top decile manager. Over the years, our eight funds combined have outperformed 90% of the market. We are very proud of the team. We built the track record, everything, and where we sit with the suite of products. There’s something for everybody there, depending on your risk.

Quick question. All these funds, are they through regulation D 506(c) offering stuff?

Yes. It’s for credited investors except for the multifamily credit fund because the multifamily credit fund invests in case series bonds which are issued by Freddie Mac. Those are considered securities, and those are for qualified purchasers only. Investors in that particular fund must have a net worth of more than $5 million or investable assets above $5 million. The minimums in that fund are a little bit higher. $250,000 in that fund. For the other ones, it’s $50,000 to $100,000 for the accredited investor.

We will peel back the onion a little bit. You said you went from about 90 investors up to 500 because you had your one product. What was that product at the time, and what was the differentiator from that product compared to maybe other products that were on the market or in that area?

That was our Fund III. It was a value add product. I don’t want to give you the impression that we decided to throw some marketing out. This was a long process. We rebranded the firm. We brought in technology. We started investing in marketing which we had never done before. Prior to that, it was my partner and I running out, having lunches and dinners meeting people. In an old-style way, we invested in investor relations, and we set up a lead generation machine to be able to do that.

Our previous two funds had both performed in the top decile, they were also value-added funds, and that’s what Fund III was. Fund III was a $150 million value-added fund focusing on multifamily primarily, and then we had some offices in there as well. Now we only do multifamily. We have gotten rid of the office. Those were our last office investments.

It was a combination of both our alignment within our organization and the transparency that we are showing. We did a lot on the content side. We feel incredibly passionate about improving this industry, making it better, educating our investors, and that has brought a lot of people to us and then our team. When you have this trifecta of when you’ve got an alignment, track record, and great team, and I’m going to throw in there all the transparency, fees, and stuff that investors look for.

I’m not going to call it an easy sale but our job is to educate investors about the market and what we are doing, and their job is to make an educated decision on what they are buying. That’s how we have always looked at it. We don’t call it a sale because we are not paying anybody to sell our products. We don’t use the broker-dealer market. We invest with a lot of RIAs, Registered Investment Advisors but they get paid by their client. We don’t pay them to distribute our product. We have always believed in being direct-to-consumer and that a great product is bought. It’s not sold.

I’m going to joke a little bit because prior, we did not pay you to say any of that. I joke because that’s what we have been talking about in some prior episodes. For the last few years, we have stayed smaller in size and are working on many things to scale. We rebranded. We brought on what was myself, and then I brought on a few people. We are a team of ten now, and we have expanded.

You did that and did the marketing. Since we launched our Regulation A+ Offering, we have had more investors over the last months than I did in the prior years. By putting in a plan, start doing marketing, and focus on marketing because it’s hard. A lot of real estate people, there’s nuts and bolts and numbers, guys, and marketing is something different.

There’s analytics behind it but you are looking at, “Do I want to spend this much money on marketing where I can put in a deal or are you trying to look at your IRR and maximize returns?” Marketing, it’s something that needs to happen, and it takes time. As you said, it goes back to you having to build a brand and that reputation. You can’t pop up out of the blue and say, “I’m going to do this.”

The JOBS Act was one of the best things to ever happen to the real estate market. If you think about the laws, they go all the way back to the Great Depression, which was supposed to protect investors but the idea was that if you are accredited, and you have money, then you are a sophisticated investor, and you are doing.

What’s happened with the JOBS Act is that it’s made the market so incredibly transparent and opened it up to the crowd to do the due diligence that if you don’t have a great product, then you can’t survive in this market. My partner and I had a lunch. I wouldn’t call them a competitor, somebody who’s in the market, and they said, “We love what you are doing, and we want to do it.”

CWS 225 | Multifamily Investing

Multifamily Investing: The JOBS Act made the market so incredibly transparent. It opened it up to the crowd to do due diligence, that if you don’t have a great product, you can’t survive in this market.

We literally said, “It won’t work for you. You don’t have a good product. You are still engaging as if it’s the 1980s, and you are taking 5% fees upfront. If you want to change your business model, you can enter this world.” Guess what? They did. They decided not to do it and stay where they were and continue to ride out with their existing investors who didn’t ask questions and don’t ask questions. I believe that the JOBS Act has been one of the greatest pieces of legislation to ever hit the market for investors.

In this world where if you are on any coast, it’s a pretty high chance you are probably an accredited investor. In Washington DC or California, or in California, they pay lifeguards $175,000 a year. In certain locations, it’s not hard to become “accredited.” If you didn’t have that, where would you be stuck now? I would be stuck in the markets and watching whatever investments I have.

Over the last few years, markets have done great but you would have no other options to shift things or move things around to other alternative investments. I agree wholeheartedly with the JOBS Act that it did come out and open up a lot for investors to be able to create these offerings to give people the ability to invest. It’s the war of attrition where if you are good at what you do, you will survive but if you are not, there are a lot of people involved. You are not going to survive.

Let’s talk a little forward-looking on things because we talked about how you set up your business. I love the approach of how you’ve covered every basis for investors, and you give investors the option of here’s the menu on the risk-reward component. That’s something we used to do in the past with some of our funds. Looking forward now over the next 12, 24 or 36 months, what are some of the things that as a business owner, you are looking at or some of the things that you are monitoring or paying attention to, and if you made any shifts in the way you operate your business?

I will unpack that a little bit. Now, the biggest thing we have to worry about is higher interest rates, capital markets, valuations, and things of that nature. You had brought up our funds. One of the things we have to be as investors are agile and able to work across the spectrum. With a lot of companies out there, they make the mistake of having some one mega fund where they can only do X, Y or Z, and that’s all they do, and they paint themselves into a corner.

As investors, you need to be agile and able to work across the spectrum. Click To Tweet

In Canada, you saw this a lot in the last months and years where these funds were bringing in so much money, and they were value-add funds, so they could only buy existing. They couldn’t decide to do ground-up development. They couldn’t do pref equity. They couldn’t position themselves differently and were buying at any price. It didn’t matter.

That has always been important to us because it’s our money also going into these funds as well. Your question was about, “Where do we see the opportunity now?” It’s on the credit side, 100%. The markets are fragile. We don’t know where valuations are. We know that they are lower. A few years ago, cap rates in the multifamily sector, the institutional side on which we operate, were about 3.5% and, in some cases, 3.25%.

If you bought in early 2021, you are probably fine because you had a considerable amount of rent growth. If you bought it in the middle of 2021, you are probably not doing great. If you bought at the end of 2022 or the end of 2021, early 2022, you bought the top, and those investors are going to suffer. What we see, especially in our multifamily credit fund, I alluded to this earlier. We buy case series bonds.

The first things to react in any market are the public markets, things that are liquid, and things that people can liquidate to raise capital. That’s what we are seeing. The case here is that they try to trade in a private market but are liquid securities, and we have seen a lot of disruption on that side to the point where we are able to generate 12%, 13% or 14% yields on safe collateral.

What a case series bond is for borrowers like us. When we go out to buy a multifamily property for $80 million, we leverage it to 65% and use Freddie as a government agency subsidized loan. We borrow from them at 65%, and they take that loan and pool it with 100 other borrowers. They put it into a package, and then they securitize them. They take off an A note and a B note.

We, the case series bonds that we are buying, are the B notes. When you think about within a case series bond structure, the A note is guaranteed. It’s basically 0% to 58% of the entire capital structure, and then where we operate is that 58% to 65%. In a market for us to get hurt, the property has to lose that equity first, that 35% of the value before our first dollar is even at risk.

To be in that position to be earning 12%, 13%, and 14% feels good, especially with institutional quality borrowers. The thing about Freddie is that if you want to be in the multifamily sector for a long time, you can’t default on bonds because they will not lend to you. One of the greatest things about being in multifamily real estate, especially on the institutional side, is a government agency, are our subsidized loans by companies like this.

Over the history of this several years going back, the worst vintage was in 2006, and that bond lost 0.42%. There have literally been no losses over the last several years because of how well-collateralized these bonds are. We love them. I love them. This is where I’m investing my own personal money. The other place where I see coming down a lot is in the private real estate side.

I will call it gap equity or preferred equity. We are starting to see a lot of these projects that are being completed go out to market for refinancing. Historically, when you were maybe taking out 30%, 40%, 50%, or maybe even 70% sometimes of your equity, a lot of these companies now have to write a check to the bank upon refinancing because they are not meeting the loan-to-value the debt service coverage ratios.

Banks are becoming much more conservative. Gap and preferred equity are going to be a huge opportunity for the next months, and we are taking advantage of it in our IncomePlus Fund on that side. Credit is where you need to be positioned. Going down the line, we could see distress. Generally, this isn’t ‘08. We still have a housing shortage. We need four million units in this country built. The majority of those need to be built in those Sun Belt states.

Credit is where you need to be positioned today, not in markets. Click To Tweet

In many ways, this is a welcome pause because we have seen construction costs go up. We have seen projects these laborers or construction workers naming their prices. Now that people are pencils down and there’s a balance back to the market where you are starting to see construction costs slow down, get better pricing out there if you are doing deals. For a firm like ours on anything on the equity side, especially ground-up development, it’s penciled down.

The ground up, and we have been in the Washington, DC, area for the last few years. A good example is if the pencil has been down because you mentioned that prior to the interest rate spike, the construction costs and typical rents in and around DC prior to COVID were somewhere in the outskirts, where around $3 a square foot is what they get for rent.

The construction which you could make a project work at that point in time depending on how much parking and below grade you had because that’s where you could end up losing a lot of money because there’s not a lot of ground where we are but you could still make them work. Once construction costs started going up 20% to 25%, numbers didn’t work.

Even though the rents did continue to rise, numbers still didn’t work. When you factor in this environment, the lead time issues on materials and the contractors themselves are still super busy. They are still very busy getting them on a schedule to continue to get a job, get into a flow, and complete on time.

Jobs now typical in our market-A got an eighteen-story multifamily building which would have taken about 24 plus months to finish, is now over 30 months. When you think of six months of hold time, the absorption taking that much longer on the apartments, it’s not economical. As you mentioned, it’s the housing component of, “I don’t think we will see 2008 because we don’t have the housing.” In the last few years, there hasn’t been that humongous uptick in people throwing homes up everywhere. Would you agree?

A hundred percent. The Fed is going to do its job. They are going to continue to tighten until they send us into recession. One thing is that there has never been a recession without the ten-year note coming down by at least 150 basis points, and that would put it back under 3%. Even to simplify it more, I would say you don’t buy real estate so that you can write a check to the bank every month. The numbers don’t work now.

Even if you were able to buy a 4.5%, you might feel great about it unless you are unlevered because financing costs are 5.5%. Imagine if you bought a 3.5% and are now in floating rate debt. You are writing a check to the bank every single month. That math doesn’t work. Until things come back into an equilibrium where you can make 5%, 6%, or 7% on your money in an equity position on a cash-on-cash, the market is going to be stalled for quite a while. We are going to have to see financing rates and value come down and a combination of both to get back in line with historical norms.

A lot of our readers have accredited investors, and they look at many different syndications and things to look for. One of the things I have mentioned in the past and been wrong many times but seen a lot of syndications that are in one property. The single property syndication is where they are going to raise $40 million to buy some apartment building, and they have been buying them in the last several months. When you see those types of syndications coming down the pipe where it’s to acquire one asset, would you, especially where things are at, consider that very high risk because of potential limited exit strategies?

A single asset is always riskier than a fund because of the lack of diversification. It depends on the asset itself on the manager. We don’t do syndications on single assets for a lot of reasons. One of them is that we did a few syndications years ago. We did it on an office deal. That office deal became the bank of Michael and David because we kept losing tendency.

An office is very different from a multifamily in terms of the cost of operating it. What happened is that we didn’t want to call money from investors. When things go wrong, what happens to the manager? They generally lean on the balance sheet of the investor. If suddenly that $40 million disappears or becomes $20 million and the bank calls, then you are a limited liability to a company that they were going to call.

We can give it back or we are going to make another capital call, and those who invest will dilute other investors. There’s a huge advantage to running a fund because it’s more like a company. We can take money when we refinance one asset, give it to another, and do things of that nature. There are so many nuances behind it. Sometimes a single asset can be an absolutely great investment at the right moment in time. It’s probably something to stay away from on the equity side. We don’t have enough price transparency out there.

Nobody knows where the market is trading because no trades have taken place since the tenure hit 4.25% or 4.3%, and we need price discovery. To go back and look at several months ago and say, “We are going to do this deal because look at the comps that traded months ago.” I can tell you the concentrated months were deals that were under contract for a couple of months, and the only reason they traded was because of inertia, not because some smart guy did it. You have to use a little bit of vision in this market and understand that anything trailing and looking behind you is a waste of time in looking at that stuff. There will be some pain ahead, so tread lightly on the equity side.

CWS 225 | Multifamily Investing

Multifamily Investing: You need to have some vision in real estate. Anything trailing behind you is a waste of time right now. There will be some pain ahead, so tread lightly on the equity side.

That brings up a point too for us. I mentioned prior that we buy a lot of distressed debt, and the basis of our pricing model is based on the balance of the loan plus the actual value of the property. In many instances, there are still borrowers that could be underwater a little bit or close near equity and trades that happened a few months ago. It’s the same thing in our business.

You can’t base anything off of what was traded a couple of months ago because a lot more people have more understanding of where things are headed. I’m not projecting any type of crash but several months ago, people thought home prices would stabilize or continue to grow. Now, if you ask anybody in real estate and we are talking single-family, except for potentially certain markets but more broadly based, and we are already starting to see it, you are seeing softening and pricing.

If you have to go back and take that property back a few months from now, you are trying to guess what that value is in a couple of months, and you got sellers saying, “The value is going to be the same or higher.” When reality, as an investor, if I were playing odds, I would bet against that being the case of a property value being worth the same or more in the next couple of months. I’m going to bet on it being less, and that’s where we ask anybody that’s probably what their thought process is.

You are right over the next several months. We spent a lot of time, effort, and money on something we have internally called Origin Multilytics. It’s the predictive tool for rent growth. It works at the city level. It works all the way at the property level. It’s incredibly accurate. We decided to build it a few years ago because what we could rent out there seemed inferior when it was wrong.

We hired two Universities of Chicago data scientists to build this. What that’s showing is that we are going to see a softening of rent over the remainder of 2022 and negative rent growth in 2023, and then an upward resumption in 2024 into 2025. If you are delivering in 2023 or even early into 2024, you are going to see a huge softening in prices. We are going to see a resumption.

CWS 225 | Multifamily Investing

Multifamily Investing: There will be a softening of rent over the remainder of this year. There will be negative rent growth in 2023 and an upwards resumption from 2024 to 2025.

Over a five-year period, you are still seeing positive rent growth but over the short-term, the next eighteen months, there could be some pain involved. That’s when banks will start calling for more equity, and these projects that are delivering at that time will have a need for gap equity. The fundamentals are strong over the long run but like everything, we are going through a business cycle and you don’t have to be a visionary to know that things are slowing down.

Prior to jumping on this, I was talking to a reporter from Bloomberg, and we talked about this exact thing of what’s happening. I said, “To me, it feels like it’s about a 1-2 punch. First, the capital markets. We have seen interest rates rise. The Fed is going to do its job. They are going to put the brakes on. The second punch is going to be the operational revenue is going to start to slow down because of the demographic within multifamily one thing we have been enjoying for the last several years is the Millennials who are gobbling up rentals.

Millennials are now getting to the point where they want to buy houses. If rates come down, you can be sure that a big portion of these, what we call trapped renters, people who would buy but can’t, are going to rush to buy homes, and we are going to see a softening in that side. That’s another reason why from an operational perspective, we have seen things hold up quite well in the last years because nobody can afford to buy a home. They are trapped renting, and you have more renters coming in behind them. It has been a great couple of years, and the next couple of years will probably give some back but certainly not all.

I wouldn’t imagine. It’s interesting. To your point about that Millennials because it reminded me, going back in time several years when I bought my first house. I bought my first house in 2001. I was in my mid-twenties. At that point in time, it was almost like the fear of missing out. The rates started in 2007 or 2008 kept ticking down and hit 6%.

I remember my parents telling me, “If you can get a house at 6%, jump on it. Everyone should be buying houses at 6%.” Several years ago, that was a great rate. Fast forward to now, where everyone has very short-term memory and selective memory, where now that my credit union is above 7%. All of a sudden, if things start going back down to 5% or even below 5%, some people might get that little FOMO component of, “Now I can afford a house.”

Long-term wise, you can borrow money. Either primary or for an investment property, you can borrow money at 4% to 5%. To me, that’s a steal. If you look at any other country in the world, why is real estate so valuable in the US? It’s because we are the only one in other countries where you can borrow money so cheaply and for a long time.

It’s subsidized debt. That’s what drives the market.

You’ve known better than me but people typically get themselves in trouble because they over-leverage. That’s the biggest thing in those case series. You go up to about 65%, which has always been the sweet spot for my days of working for a multifamily developer, and that’s what they would do. It was a family-owned business through generations, so they typically put 40% equity to even put a little more equity in the deal, so they didn’t have to worry about it at that point in time.

You get better rates. You get non-recourse financing. That’s one of the Holy Grails in real estate. Not only your tax advantages, the depreciation but non-recourse financing and multifamily are fantastic.

One thing I wanted to jump back on as we start to wrap up the episode, as you mentioned with your investors and transparency. That’s something you hear a lot of people talk about. Sometimes I ask people, “How do you define transparency?” They say, “We are transparent.” What is your process for reaching out to your investors, whether it’s through webinars or mailings? I’m curious. What do you provide to your investors as part of the process to keep them informed on everything that’s going on?

I wouldn’t use the word transparency. It’s overused. You are exactly right, and a lot of people use it. We did a study when we were rebranding the company back in 2015. We went out to different financial service companies, and there were three words. I want to throw up when I see them on these different websites. It was client service, transparency, and honest. You can name it.

They were all cliché. We were like, “We are going to make the decision. You will not find any of those words on our website anywhere. We believe in showing, not telling.” Everything we have when it comes to a fund, fees, and all those things that the investors want to see, it’s upfront and center. We don’t hide things. We don’t put things on page seventeen.

I will never forget that this goes all the way back to 2016, when we were first entering the market. You get attorneys. You get all kinds of people who invest with you. Somebody in our investor relations department at that time said to me, “Do you know what I love about my job? There are no gotcha moments. There’s nothing in the PPM on pages 30, 40, and 50 that, ‘I found it.’”

Everybody is looking for that, and you can’t give them because when you are trying to build trust online and with people, you can’t give them any ammunition to find things that they can use against you. For us, it’s always about if this is a term that we believe in and can justify, let’s put it on the front page. Let’s put it right up there.

When you're building trust online, you can't give people any ammunition to find things that they can use against you. Click To Tweet

The other thing we do is overcommunicate. We talk to our investors constantly via webinars, fund updates, blogs, and everything we can do because when it comes to money, people are nervous. We take our job very seriously about being stewards of their money. If they have questions, we will either answer them directly through a direct outreach talking to them or through a blog if we think that it needs to be more widely distributed.

Through our webinar, which we leave pretty much the last twenty minutes for an open Q&A session where people type in their answers, and we answer all of them. To me, that’s about showing transparency and being transparent rather than saying it on our website. If you find it on our website, I will give you $1,000.

Quick question in regards to everything said. I’m curious about providing the information and webinars because people are more nervous. Have you had to provide additional information or change the timing of maybe if you did it once a quarter or you doing it once a month? It’s because of the lack of uncertainty in the markets. Have you had to change your business model at all to be more informative because of what’s going on in other markets?

A hundred percent. If I go back to COVID, it is when we started communicating with people. That was at a time when it was March of 2020, and I have been an investor for many years now, and you treat people how you would want to be treated. When you don’t have the answers but everybody is asking you for them that you have to go out there and say to people, “I don’t have the answers,” and that’s what we did in April of 2020.

CWS 225 | Multifamily Investing

Multifamily Investing: Treat people how you want to be treated. If you don’t have answers and everybody asks for them, go out there and say you don’t have answers. You have to be honest with them.

We had to have a webinar, and somebody said, “What are you going to say?” I said, “We are going to tell people we don’t know what’s going to happen here but we have made some good decisions. We are in the right markets and leveraged correctly. We didn’t cross-collateralized debt. Our money is with your money.” That’s what we said.

People like that honesty of coming in and saying, “We don’t know if we are back in ‘08 again. That’s what it felt like.” Nobody has ever experienced the global economy shutting down. Not in over 100 years, and the financial markets weren’t sophisticated back then. We had this huge Q&A for 40 minutes, and people made them feel better. We were communicating every month for a while until the markets calmed down, and then we went every other month, and then we went for two and a half months.

Now, we are starting to see that people are nervous again. We decided to reenact the once-a-month cadence. Even when it comes to valuations, people have questions about valuations and even to the point where they are questioning the valuations. That’s my job to go out. I’m going to create a blog. I’m going to go through each and every one of our portfolios. We are going to talk about every one of the assets. We are going to stress test them. We are going to look at what happens with our AI forecast.

Give them the information, so they see and know what I see and know, and that’s all we can do. They can make their own conclusions. Lack of information and communication is one of the worst things that a manager can do in a time of crisis. Even if you don’t know, you have to be honest and tell people you don’t know what’s going on but you are doing everything in your power to make things better. What people don’t want is a black box.

I have seen it in some of the investments I have made where you would want to reach out. You want to know the status of what’s going on with things, and you can never get anybody. That’s the worst feeling you can have because you always think the worst. We are humans and always tend to lean towards this. It’s part of ingrained in us. You always think the worst of things.

When you are reaching out to somebody and can’t get an answer to them, and that’s why I tell people, “If you don’t know the answer, don’t BS me.” Just say something like, “I don’t know but I’m looking into it. We can’t predict what is going to happen because we have to wait until this A, B or C. Do you like to check back in a month? Maybe I will have a better update for you.” At least give them that courtesy of letting them know, “I hear you. I understand your concern but unfortunately, I don’t have an answer for you now.”

It’s hard for people to deliver bad information, and you must get good at it. We are all adults. We all understand that to get 15% to 16% returns, we are taking risks, and no tree grows to the sky, especially every single day of every single month. That’s all we can do. We can control communication. We love to say, “We are obsessed about two things, and that’s generating returns and client service.” Those two things if you are an investment manager, you need to focus on those two things and tell people straight answers.

Michael, thank you for joining us now. If people wanted to learn more about Origin Investments, the company or reach out, what’s the best way for them to get some information and reach out?

Go to our website, OriginInvestments.com. We make it super easy for anybody to engage with us. You can download our decks, do research on us, and connect with somebody from investor relations. As always, if you want to contact me directly, you can do so as well, Michael@OriginInvestments.com.

Michael, thank you for joining us on this episode of Creating Wealth Simplified. I hope everyone enjoyed this episode. As always, make sure to leave us a review and subscribe to us on your favorite platform. Thank you all.

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About Michael Episcope

CWS 225 | Multifamily InvestingIn 2007, Michael and business partner, David Scherer, founded Origin Investments. In the 14 years since its inception, Origin has executed more than $2.3 billion in real estate transactions, with an average equity multiple of 2.4x, and has never produced a realized loss for any of their 1,400 investment partners. Origin’s team manages more than 5,000 multi-family units in 14 cities, across 8 states, giving their investors the peace of mind of stability in their returns because they aren’t reliant on any single market. Origin pride themselves on offering unparalleled service to their investors and their performance ranks them in the top 1% of private real estate North America-focused fund managers by Preqin, an independent provider of data on alternative investments.

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