From Distress to Opportunity: Mark Kenney on Buying Multifamily Deals After the Syndication Crash

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In this conversation, Mark Kenney shares his extensive experience in real estate, particularly in multifamily investments and syndication. He discusses his journey from starting with small properties to navigating the complexities of larger deals. Mark highlights the evolution of syndication, the challenges faced in the current multifamily market, and the lessons learned from the 2020 market downturn. He also explores the opportunities available in distressed properties and the current trends in multifamily development, emphasizing the importance of adapting to changing lending environments.

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Mark Kenney (00:00)
Pretty much all the above. So interest rates, were, you know, lot of people including ourselves bought ⁓ deals on floating rate debt. Bridge loans, lot of advantages to it and disadvantages to it, right? And, you know, the stat I saw, whether it’s, you know, verified or not, 96 % of syndicated deals during that period of time were floating rate debt, right? So a lot of people got into that position. Rates ticked up from, you know, the fours to 11 and a half plus percent. We had properties that you know, no joke, the mortgage payment tripled. You can’t, you can’t really pay your mortgage, right? You’ve had properties, if you’re not, not a cap rate, but a rate cap, which is interest rate protection, you can buy, think of it as an insurance policy of how high your rate can go up and you can buy this little policy that went up over 3,400 % in less than two years.

Dylan Silver (02:23)
Hey folks, welcome back to the show. Today’s guest, Mark Kenney is a seasoned real estate investor, entrepreneur, and founder of Think Multifamily. He has extensive experience in property valuation, acquisition, and operations based out of Dallas. Mark, welcome to the show.

Mark Kenney (02:41)
Thanks for having me, I really appreciate it.

Dylan Silver (02:43)
Great to have you on here. I always like to start off at the top of this show, Mark, by asking guests how they got started in real estate.

Mark Kenney (02:53)
So I started a smaller multifamily two to four units over 30 years ago with my identical twin brother. And we were in college seniors and we’re like, Hey, what are we going to do? Right? We need to buy some real estate. I know. I don’t really even know how we frankly got into it other than we thought it made sense. People need a place to live. We didn’t have anyone in our family doing it or anything like that. But our first property is the two unit when we were 21 years old.

And, uh, started buying smaller properties, two to four units for a while as a CPA. It worked for the big four consulting as well. Manager consulting and IT company. started in, in 2013, a friend of mine was doing a syndication and a little bit larger multifamily. think it was like 116 doors and I’m like, it of makes sense and invested in that and then invested in two other multifamily deals. And my wife and I were kind of like, Hmm, we think we could do this too.

And 2015 is when we syndicated our first deal and kind of went off to the races after that.

Dylan Silver (03:56)
So I want to talk about 21 getting into that first multifamily property with your brother. Did you think at that point in time, hey, we’re going to be real estate investors or were you thinking, hey, we need a place to live and this could be a potential way for us to maybe have where we’re lived paid for?

Mark Kenney (04:15)
Yeah, so we didn’t live in that one. We just knew everyone needed a place to live. It was real estate investor for sure, but never really even it’s Wednesday thought about buying a hundred plus units. It was like, let’s buy two to four units. It turned out we were kind of the, landlord, you know, actively involved maintenance people, stuff like that. We were both working 80 plus hours a week at the big four consulting, coming home 10, 11 o’clock at night and shoveling snow and doing silly things like that. And, ⁓ but no, never.

Never really dreamed about doing large properties, but we did say, we’re going to continue to buy, you know, smaller properties and then hopefully use that as kind of retirement thing. We’ve since sold all those properties, but yeah, one burned down actually. The last one we had, we bought when we were 21, actually burned down about two years ago. We had it on a land contract and, I drove by it this two weeks ago in Michigan when I was there and it’s, know, empty lot now.

Dylan Silver (05:05)
Goodness.

Yeah, when did the the syndication? I wouldn’t say craze, but when did you start to see more and more syndications happening to where it was on your radar? Hey, this is something that you know, other people are doing. I’m seeing more and more of this. Maybe we should start to do something like this.

Mark Kenney (06:19)
2013 is when we first saw it. We had a friend doing it. He invited us to an event. I went the first time to the event. My wife was out of town. Second time she went there and we’re like, Hey, this kind of makes sense. And we both really loved real estate, you know, for whatever reason, I think a lot of things just born with, know, you don’t control it. It’s just born and we’re like, Hey, it makes sense. So 13 is when we started investing passively. And then 15 is when we, we started looking for deals and did our first syndicated deal.

Dylan Silver (06:48)
Walk me through that one. you’re in ⁓ Dallas, are you in Dallas at the time? Were you looking at on market, off market? How did you acquire that deal?

Mark Kenney (06:57)
we, we were at Dallas at the time and it was, ⁓ really trying to build relationships with brokers since we had never done a deal. was 32 doors initially, which is smaller than we wanted, but we’re I’m like, Hey, we need to build relationships with brokers. The best way to do that is, know, don’t go meet him for coffee. Go meet him on a deal they’re selling because that’s how they make their money. Well, we toured the property and the broker said, well, there’s another 32 units right next door.

200 feet away that the same seller owns, might be interested in selling those as well. So it ended up being 64 doors in total, still a little smaller than we wanted, but it was, you know, it was not bad. The raise was about a million dollars. I was pretty much freaked out about that. Had never raised money before, was kind of almost like embarrassed asking even people to invest in deals. And what we did it, we ended up raising the capital for that and, you know, closing that deal and actually just sold that one in 2020.

Dylan Silver (07:54)
want to talk about exit strategy. at that point in time, I’m imagining syndications while they were existing were not what they are today. And I was talking to you before hopping on the show. It seems like everybody right now is either a syndicator or they may have been a syndicator and maybe faced some troubles in the last couple of years. But at that point in time, 2013, 2015, that time period, were the syndicators

having five year exit strategies, was it less structured or has it evolved over time?

Mark Kenney (08:32)
So the exit strategies were, you know, kind of like, five years as general. And then back in the day, during that time, you know, we, had a deal, like it was 16 months. We returned over a hundred percent of the capital. It was just a different, you know, market back then. So the five year exits turned into like, almost like who could tell with their money? The fastest is what it turned out to be. Oh, two years. Oh, you could, you, suck, right? I’m talking in cheek a little bit, right? But people were.

You know, went from four years of three to two and like we had, you know, a few deals less than two years doubling the money. So structure wise, I think it was very similar. It still had, you know, private place memorandums. The timeline ended up increasing a little bit as time went on to like maybe a seven year versus a five. Uh, there were less people, no doubt involved really in syndication in 13 and 15. I would say probably 18 to 22 is probably the peak of it.

It’s where a lot of people, you know, including ourselves, we bought a lot of deals, sold a lot of deals and, know, ended up putting money back into deals in 2022 and 2021, which, you know, as you mentioned, is a much different market. It’s a much different market than it is, you know, was in, you know, 10 years ago, but also a lot of lessons you can apply that, what, Hey, never do that again, you know, and how would I do things differently in the future?

But it was easy. You could almost.

do nothing on a property and just by the cap rate compression when that happens, you know, it’s dramatic of what that can do for a value. unlike a, you know, four unit below five units and above is, is a business and every dollar you can increase your operating income is, you know, 15 plus dollars of value. Like that’s a real number. Someone will pay you $15 for every dollar. Pretty hard to achieve that other places, but it works the reverse. It also goes down. It goes down the same way. So

Dylan Silver (10:59)
Right.

When

you were in that time period, mean, you talking about seeing returns, you projecting five years, getting it in two years. At that point, it had to feel like, okay, we’ve kind of struck a gold mine.

Mark Kenney (11:15)
We start to go mine. You’re a genius, right? How, how smart you’re, you know, until you’re not right. It’s, it’s timing of the market. Not that we tried to time the market. didn’t it’s locked people. Anyone that really is truly, truly successful. is luck involved, luck involved. What family you’re born into, where did you move? You know, there’s certain things and don’t get me wrong. It takes action to do it. We could have sat there and done nothing, but yeah, we were like, man, we made it, dude. Like this is like a dream come true. And until the nightmare start, which, you know,

Dylan Silver (11:20)
Yeah.

Mark Kenney (11:44)
for us included along with other people started, you know, in 2023 and it’s gone on since then and you know, it’s been, it’s been difficult in some cases.

Dylan Silver (11:55)
I wanna

pivot a bit here, Mark, and ask you about that specifically. You’re really ⁓ being the multifamily ⁓ guy. I think you’re the exact person I should be talking to about this because I’ve been having people come on the show, some with lots of experience, some with almost no experience, but talking about there is distress on the operator side in multifamily across the country stemming from that 2020.

timeframe. I’ve heard people say things it’s arm rate loans. I’ve heard people say things rents have gone down. There’s too many people getting into the space. What happened?

Mark Kenney (12:35)
Pretty much all the above. So interest rates, were, you know, lot of people including ourselves bought ⁓ deals on floating rate debt. Bridge loans, lot of advantages to it and disadvantages to it, right? And, you know, the stat I saw, whether it’s, you know, verified or not, 96 % of syndicated deals during that period of time were floating rate debt, right? So a lot of people got into that position. Rates ticked up from, you know, the fours to 11 and a half plus percent. We had properties that

you know, no joke, the mortgage payment tripled. You can’t, you can’t really pay your mortgage, right? You’ve had properties, if you’re not, not a cap rate, but a rate cap, which is interest rate protection, you can buy, think of it as an insurance policy of how high your rate can go up and you can buy this little policy that went up over 3,400 % in less than two years.

So, you know, $100,000 protection, if you want to say, to buy would cost you over $3.4 million.

of the lender saying, me $3.3 million to renew your new rate cap, right? We had one property where insurance in the coastal area went from 600,000 a year, it’s a little larger property. After one year to renew it, it went to $3.6 million. So a $3 million increase on insurance, you couple that with lenders that were also, you’re trying to refinance your deal.

Dylan Silver (13:38)
Yeah.

Mark Kenney (14:01)
or extend your loan after two years and the lenders, you know, like, Hey, we’re going to rebalance your loan and give us, give us $5 million just to protect them. Right. And then on top of that, have evictions that were happening that were taking 16 plus months. One city ran, had over 12,000 people on, you know, backlogged on the eviction list. So there really wasn’t one thing by itself. Property taxes skyrocketed in some areas, even though values were going down.

Dylan Silver (14:11)
Right, right.

Mark Kenney (14:31)
But if you look at all those things and like, Oh my gosh, like why would they even get involved in multifamily? All these issues. Well, become smarter, wiser. If you want to say you have my idea, you have knowledge, you have understanding, you have wisdom, right? Knowledge is what you know. You don’t necessarily understand it. And then you apply that and say, I understand it now. And then, okay, now I understand how to use that information to make wiser and better decisions in the future. So, you know, 90 % of all these issues in reality could have been, if you want to say,

removed, eliminated. It would require you typically to make a little less return in theory and go slower. But you know, a lot of us got caught during that period of time buying a lot of deals.

Dylan Silver (15:55)
I want to get a little bit granular here, Mark. Maybe give away some of the gold, but not all of it here. For folks, 2020, of course, looking back and seeing what they did, maybe could have done things differently. You mentioned the mortgage premium tripled on some properties. You mentioned evictions and some compression overall in the market, maybe not appreciating as much as anticipated or rent stabling off or even going down.

How could people have?

bought more, I don’t wanna say responsibly, but maybe bought with more caution. Would they have just made lower offers? Would they have secured different types of mortgages? What would be the answer?

Mark Kenney (16:40)
Different types of deals, reality. So when people are like, heck, how can everyone be so stupid? Well, a lot of these deals that were value add deals, you can’t go get a Fannie or a Freddie or a HUD loan. not possible. They’re not occupied enough. Those agencies also were giving basically nothing for a cap ex. And we bought some deals that were, you know, 0 % occupied, 30 % occupied, and $20,000 a unit of cap ex. So your only option is bridge, you know.

you know, that’s really the only thing you can do. what you could do and what we do going forward to be like, Hey, we’ll look at deals that are stabilized, you know, that will qualify for the fixed long-term debt. So you don’t have that unpredictability, avoid certain areas where insurance costs have gone, you know, through the roof. We know we’re in 15 States. So we know which, you know, it’s at the County level for evictions. We know which counties will never go back to ever again in my entire life. ⁓

And there are just other, you know, you’re going to make a little bit lower return on those, which is harder because you’re competing against people projecting probably 50 % higher return that you’re going to make. But I do think people are kind of getting realized that, maybe this, you know, the risk reward is better to have a little bit safer deal, a little bit lower, you know, ⁓ a lot lower risk in some cases and lower returns. So looking at different deals, the debt, the, sorry, even understanding taxes.

Dylan Silver (18:06)
Yeah.

Mark Kenney (18:07)
Structuring partnerships differently than a lot of the partnerships were structured, you know, as far as who can do what and things like that Location is huge what properties and locations were over supplied what happened, you know, we have a city We bought in, know the the cap rate so values went down 41 % That’s a true number So whatever 23 million dollar deal went, you know decreased by 9 million dollars of value in less than two years

Dylan Silver (18:33)
It seems kind of like a perfect storm of things that could go wrong. But on the other side, too, it also seems like there’s an opportunity for people. So because there’s a distress on the operator side, but the properties themselves may be newer. Is there an opportunity for folks to come in and maybe make creative offers? Would sellers even be able to entertain that?

Mark Kenney (19:00)
100 % there’s no question those deals are out there Volume starting to pick up a little bit if you look at the deals and I’m not you people have to make their own individual decisions What types of deals but there are deals where we looked at that are you can invest in a deal where it’s going to go from? Bridge but owned for three years. That’s on bridge debt. It’s stabilized because not all these properties are Distressed properties. They’re distressed in a lot of cases due to debt

You can move from 11.5 % down to a sub 5 % Fannie Loan, which you can do right now. And the deal has been owned by somebody for two or three years. You come in with equity in those deals. It’s like a lot of the unknowns are already known. You know what the rents can go to, know, property taxes, insurance, you know, all the hidden skeletons and CapEx is done. That’s if you’re going to come in and invest in a deal that’s moving, you know, same operator maybe, but moving from a bridge to, you know, into like a fate.

a Fannie or Freddie type deal. Buying brand new deals, there’s no question values are down. You’re going to be able to buy right now cheaper than you could have, you know, two, three, four years ago, just reality. And if you buy a deal that can qualify for fixed length, long-term debt in an area that maybe doesn’t have all the fluctuations with insurance in an area where it’s easier to evict, I history tells you where those areas are and those, those types of things. And then, you know, structure in that way.

to where a lot of the unknowns that, you know, a people got in trouble over, right? Or they’re knowing now and you’re buying into discount. It’s just reality. In some cases, it’s a pretty big discount.

Dylan Silver (20:31)
Yeah.

Now, even though there’s been this, I would say, tribulation or difficulty on the operator side, I’m still seeing multifamily properties go up everywhere in the country. And so how is that still happening? How are there, and I understand that it’s hard to get new developments in multifamily to pencil from what I understand. So how is there so much multifamily that’s still going up everywhere?

Mark Kenney (21:06)
Uh, it means definitely down from where it was in the prime. It’s higher than it was, you know, six months ago, but a lot of it is people being forced to sell their deal. They don’t have a choice. The lender is saying, Hey, we’re not going to extend your loan. I actually just talked to someone last week. This is a 98 % occupied property. They had it for three years, never miss a debt payment. And the lender’s like, we’re not going to actually extend your loan. Yeah. I mean, it’s just,

Dylan Silver (21:31)
Really?

Mark Kenney (21:33)
Lenders do whatever they want whenever they want, you know, and be careful about different lenders. And that’s probably different, different podcasts, but people are being forced. And then a lot of deals were sold on loan, loan assumptions, which ourselves included sold a lot of them where someone else comes in, takes a loan over. And in most cases, if not almost all of those properties are performing worse than even when we had them, just, just reality. And now they’re going to be stuck. So you look at the maturity, the loans that are happening, it’s not really

Dylan Silver (21:55)
Mmm.

Mark Kenney (22:02)
Totally accurate because now you have all these new deals that are going to flood the market again and a of those don’t qualify for agency debt either. So lenders are forcing people to sell. In a lot of cases they can’t sell even at the note value. So what do you do? It’s a, you know, a totally different, you know, kind of discussion how you handle that situation and some deals that can qualify to be able to go into a Fannie or Freddie loan. People are, you know, interested in buying those because they think they’re getting that at a discount.

compared to what they will maybe a year.

Dylan Silver (22:34)
Are there any, because of you mentioned lenders basically telling operators, sell the deal, even if they had made all of their payments. Are there any newer either products or strategies or even just new lenders that are coming out with different ways for people to take down larger deals or is a system like that where it’s of course larger deals, greater risk, is it hard to change the lending institutions?

Mark Kenney (23:01)
there are definitely new lenders coming out. I’m a lot of them not to be these lenders that are, you know, do a lot of stuff. in the cycle in my opinion, and not friendly lenders. If you want to say they just pull up shop, open up a new name and start over again. Right. I mean, they’re, they just never, they don’t never disappear really. ⁓ the, know, outside of the Fannie Freddie, there’s definitely still bridge debt. They’re bank debt you can get, you know, with a regional bank is an example, but that’s going to be usually.

amortized over like you know, usually 20 year period, full recourse debt, you know, personal liability, things like that. But don’t be fooled. The non recourse debt is not really truly non recourse either. So don’t don’t be fooled by that myth because lenders go through and say whatever they want. But they’re definitely lending its way down as far as what they’re going to give you for value. Even if you go on to a deal and they say, we’re going to give you $10 million alone.

then you know, when you get closer timeframe to like, we’re going to get 9 million, you know, what do you, what do you do? Right? It’s just kind of, it’s kind of a game.

Dylan Silver (24:05)
I don’t know the multifamily world on that level, but I know the single family world and lenders is the same thing. It’s like, okay, well, we now need an additional appraisal, we need an additional inspection, this came back this and now so you’re like, we had this deal, everything lined up and then at the 11th hour, now we need a new lender, basically, I can imagine the frustration on these larger deals.

Mark Kenney (24:27)
And with the timeframes longer to close typically on a multifamily. So we have deals where, you know, we’re under contract and you don’t close for 90 to 120 days in some cases. And the vendor’s like, well, give us $3 million extra to close the deal. We had a refinance we were doing where, you know, the treasury went up by 50 basis points, so that’s just like 0.50%. That sounds really minor and small. Well, on a $20 million refi, that would have required us to bring an additional $1.2 million.

just by the rate going from, you know, by 50 basis points. It sounds trivial and small. It’s not. And that’s all why you’re, you know, under either contract or trying to refinance a property. So a lot of things can happen in a pretty short period of time. Rates are more stable now than they have been like, you know, for a long time. But we had deals where, you know, under contract rates went up, you know, 250, 300 basis points. So two and a half, 3 % while you’re under contract.

and you have to make tough decisions. What do you do? You move forward.

Dylan Silver (25:27)
Thanks

How does that happen?

Mark Kenney (25:32)
A lot of the loans you can’t lock in. So there are loans in some cases you can lock in but many of the loans you can’t lock in your rate right up front.

Dylan Silver (25:41)
In that

two month, three month period, you could be looking at a totally different underwriting.

Mark Kenney (25:45)
yeah,

millions of dollars of additional capital need to be brought, some cases and those deals.

Dylan Silver (25:51)
Okay, I can imagine the complexities there. And you know, if you’re putting something under contract, and then you know, 90 120 days later, it’s an entirely different deal. It’s almost like you’ve got multiple plates spinning in the air on every deal. So I can imagine that’s that’s challenging. If you’ve got more than a handful of those. We are we are coming up on time here though, Mark, where can folks go if

Mark Kenney (26:06)
You too.

Dylan Silver (26:16)
They’re maybe interested in reaching out to you, maybe they’ve got a deal or would just like to learn more about Think Multifamily.

Mark Kenney (26:22)
Yeah, our websites think multifamily.com and then they can also ⁓ shoot an email to info at think multifamily.com and reality is there’s a lot of things that people should be doing differently going forward. And you mentioned a lot of new people, they don’t even know what they don’t know yet. And that, know, ideally people can start talking more about some of the issues going on and how to solve those issues now, but also for future deals. That’s going to be critical for people to be successful.

Dylan Silver (26:52)
Mark, thank you for coming on the show today.

Mark Kenney (26:54)
Thanks for having me, I appreciate it.

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From Distress to Opportunity: Mark Kenney on Buying Multifamily Deals After the Syndication Crash

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