How to Buy Discounted Multifamily Deals During the Commercial Real Estate Reset

Igor / Avista Fund (00:00)
I feel like I’m getting excited when there’s opportunity on the market and we just talk about that. I feel like we do have like generational opportunity right now to purchase multifamily asset class at the discounted rate. Why? Because there’s people who bought it at the top of the market. Again, we’re back to 22, 23, right? The valuation was really, really high. The price of the money was really, really cheap, right? And that’s the reason.

Michelle Tack (00:27)
Yep.

Hi, welcome to Real Estate Pros podcast. I’m Michelle Tack, the leader of the podcast. And it is our pleasure to introduce Igor Shaltanov. Igor, did I get that close to how it’s pronounced?

Igor / Avista Fund (02:12)
I was close, Shaltanov.

Michelle Tack (02:13)
Shaltanov from Avista Fund. I’m psyched to have Igor here today because he brings a lot of knowledge about commercial investing and what makes a good investment and operationally in different markets. And we’re certainly psyched to talk about that. What really stuck out in terms of

you know, some of the things that I think are unique about you, Igor, is that your willingness to go to markets that may not be in people’s purview right away for commercial real estate and operations and your process around that. So first off, for those people who may not come from the commercial world and what you’re doing in terms of your investment fund,

Can you give us a short version of what your main focus is?

Igor / Avista Fund (03:06)
Yeah, the short version will be, right? We focus on commercial real estate, but the question is like what type, right? And then by doing this multiple, multiple times and being through the cycles, right? We understand. So the best thing is if it’s existing, meaning so there is a building which is existing, it’s a little bit less risk. I would say a little bit, right? But then.

So the second portion of it, so there’s gotta be some type of component of why would you purchase, what’s the narrative? Like is it like piece of land behind that you can sell it, parcel out, you can build some units if you want to. Is that like you got very cheap financing, you just basically saying I’m inheriting the loan at 3%, which is today’s unheard of, right? So there’s gotta be some type of value add into the component, right? Could be financial value add, could be physical value add.

Michelle Tack (03:50)
Mm-hmm.

Igor / Avista Fund (03:58)
could be, I don’t know, strategic, I don’t know. There’s something out there, which is bringing you like constantly to us.

Michelle Tack (03:58)
Mm-hmm.

That’s great. And you know, I know that you lived in California, but you had mentioned that you’re branching out. What markets are you doing business in now and want to continue to concentrate in?

Igor / Avista Fund (04:18)
Good. Yeah. So there’s two markets in the world. Like we started to invest in the commercial real estate 2020, meaning on the scale, right? And then, so there’s two components. One is you go online and everybody’s saying to you, oh, there’s a real estate buy that’s very passive income, right? Lola. So you start to understand it’s not, right? And then the second component, oh, buy real estate where you leave and you’re going to, but we’re in the California, like the

probably in the worst position possible if you own like 100 units apartment building today in California, all right? And then you live through the COVID-19 when they said to people you don’t pay rent, right? And then you got luxury tax on like 5 million plus purchases if you sell something, right? And now you need to think through, okay, where you can be present if not in California. And that was my thing. And then…

Michelle Tack (05:02)
Mm-hmm.

Igor / Avista Fund (05:11)
like back then, let’s say 2021, 22, everybody like, oh, let’s go to Phoenix. Let’s go to Austin, Texas. It’s building Tesla moved there, right? It’s going to be just incredible. And you’re like, hold on, but they teach you if everybody’s buying, right, you need to sell it. And then if everybody’s like selling, you need to buy it, right? So this is exactly how it works in my mind. So was like, if everybody’s body is talking about Austin, that’s probably like.

Michelle Tack (05:17)
Right. Right.

Igor / Avista Fund (05:38)
it’s a little too late not to say a little so. And then we were like, okay, let’s look at the markets, which is not as flashy, right? And then maybe it start to pop up, it start to pick, right? A little bit out of the weeds and then you start to really notice some of them, but then it’s not really like on the tip of the mouth of everybody, right? And then those are the ones we found that was Kansas.

Michelle Tack (06:00)
Uh-huh.

Igor / Avista Fund (06:02)
Back then, like again, three, four years ago, nobody was talking about Kansas and I happened to be there for the personal reasons multiple times. I was like, wow, that’s a really good market. So people will leave here like physically. So I love that. It’s beautiful, taking care of, right? There’s a proximity. So I’m talking about Overland Park specifically, right? That was Kansas. And then the second piece was North Carolina again. So it was kind of already.

Michelle Tack (06:20)
yeah.

Igor / Avista Fund (07:14)
coming to the radar, right, of the people, but still not as flashy, right, as Austin, or for example, Miami, everybody moved to Miami, Florida. So, and then those two we found was really, really working well for us, right, and then existing multifamily, 100 plus units in Kansas or North Carolina, those type of states.

Michelle Tack (07:34)
That’s great. Yeah,

that’s great that you’re you’re opening the you know, obviously have been to these other states and looking at where before it was considered remote, but now they’re building out communities right and you’re getting there ahead of the other guy or gal. know and that what that means to me is that you really understand how to run your business like a machine, you know successfully.

Can you talk to that piece, how you’ve been able to get to that point where you have the blocks of, we’ve got to have all of this in place to make this a good deal and for it to be successful?

Igor / Avista Fund (08:16)
Yes, absolutely. So my thinking was again, I was thinking through my own capital first, right? And then, so there’s three risks for me, right? Going into the real estate deal, there’s which is location risk. It’s just the real property risk, location risk. So there’s the management risk, right? So who is the manager? What’s gonna happen and stuff. And then there’s asset class, right? Risk, meaning, what type of asset class? What are you trying to do with that?

not to say like a business model risk as well. So, but I probably connected to the manager. So, and then for me it was like, I don’t wanna be like laser focused on the one operator, one asset class, one state. And the reason why is if you start to think through like, okay, history, there’s even proven models can fail, right? There’s still there’s a possibility of failure, right? And then if you’re not, you know,

Michelle Tack (08:59)
Mm-hmm.

Igor / Avista Fund (09:11)
Let’s say this, if you are very focused, and all of your money tied up to one specific deal, and then market shifts and you’re stuck, so that’s gonna be painful. For me it was, how can you find a good partner which is locally present in all the verticals of the business for the real estate, and then…

Michelle Tack (09:23)
Absolutely.

Igor / Avista Fund (09:31)
So go all in and connect to him and build the relationships and really understand what they do and then invest your own capital first. So even so we fail, it’s not gonna be as painful as you brought the capital from other people, right? So, and this is exactly what we did. So we’ve done like a 20 different deals and we start like a different asset class, I think it was three different asset classes in that time. So when we start to understand how they operate on a daily basis, right? On the monthly reports.

going out to the site, right? Really talking to the team, really talking to the property management group, like who’s running the apartment complexes back then. So, then, so that’s what gives you the confidence. And then the idea of my capital was I’m gonna place, you know, one fourth, one third, whatever the net worth in this type of deal, right? And then I’m gonna move on to the next one, all right? And then let’s say if I got a storage deal, like who’s gonna be the best operator? So basically choosing the partner was the key.

and why you need to assess you can’t really find out is it a good partner or bad partner in two three four weeks two months right you got to get a time you got to give it a time let’s say six months to a year easily right so the question is do you have a time to actually do this type of deep diligence process and i said i was telling to the people like when they reach out to us and say oh we want to work with you guys right what type of terms was i was like

Michelle Tack (11:03)
Mm-hmm.

Yep. Yep.

Igor / Avista Fund (11:30)
There’s no terms. takes like a long time to develop relationships. We’re not doing anything with you guys. There’s no trust that it’s going to take us a long time. If you’re ready for that, let’s do it. And a lot of those guys will be gone, right? Because they’re not focused on the relationship. They don’t have a time because they want to grab the money, so on and so on. So like I said, it took us a long time to understand. So this is we bring to investors. say, listen, do you want to speed up that time frame?

Michelle Tack (11:41)
Right. Yeah, absolutely.

Yeah.

Igor / Avista Fund (11:57)
The second idea of my capital was, okay, so the asset class, the location, right? So meaning, going to the different states, which is not as flash, so we did that. And then lastly was the, again, so the management, right? So again, location, management, asset class. Those are the three for me personally, and it’s working really, really well. So we did lost money, and that was one of the best examples for us to learn. Why? Because you start to dig deeper, your brain start to really…

pay attention and focus why we did that, what was the problem, what was the fundamentals we didn’t look at.

Michelle Tack (12:31)
That’s a great answer. Let’s pivot a little bit. We know that every operator, you know, has a moment where things get real, right? Maybe a deal that went sideways or a time that you had to pivot fast. Do you mind sharing anything in the last year or what have you that we’re, you you did that, you had it laid out and maybe it’s not a deal. It could be a relationship, what have you, you recognize there was an issue.

and you had to pivot and do something else. I’m sure our guests would love to hear about that.

Igor / Avista Fund (13:07)
Yes. So I want to give you a couple of examples, one like on a, on an asset class and what type of business model. So we do really want to try the construction business, like a brand new construction development. And the reason why, there’s better return, right? But the face in reality was like this, for example, let’s say it’s California, right? It’s, it’s existing building. used to be hotel and the operator want to convert it to the,

to the units, just multifamily units. And the first issue was ⁓ we built a construction budget to convert it. And when the city showed up, so they said, okay, you know what, it’s by the water, you gotta reinforce the concrete, right, in the basement. Okay, it’s older construction and the load usually in a hotel occupancy, let’s say 70%, very light usage, right, nobody’s cooking and stuff. Now you have multifamily, like it’s gonna be 90 % occupied.

Michelle Tack (13:43)
Mm-hmm.

Igor / Avista Fund (14:03)
heavy load on electricity. You gotta change all the panels, change all the wiring. So does just get busted. Like it’s a double the budget for electricity, like electrical work, I would say this. So it’s triple the budgets for the basement reinforcement because next to the water. So, and then, so we’re moving on and then all of sudden they say, okay, yes, by the way, you need to change, right? I forgot what exactly it was, but it was a third.

like a piece which is completely busted the whole thing. So basically from the construction budget of 3.5 million, it became like 8.3. So that was like a huge difference. And then all the profits was just, you know, it’s gone, right? And now you need to find the finance. And now you got to go through the cycles of like, you know, kind of surviving, right? We’re basically saving that property from the complete flop and blah, blah. So that was one of the examples. The second example was, okay.

So if you got a large company, right, and the one focus is to purchase multifamily real estate, right? If you gone into the cycle of 22, 23, and that company purchased 10 apartment complexes per year. So in 22, they bought 10, in 23, they bought 10, in 24, they bought, let’s say, five, right? So they got 25 apartment complexes on the balance sheet.

But every single person knows who used to be on the market for five years to longer. That was the worst time to buy apartment complex. Like there’s no way it’s gonna pencil out. Like there’s no way. Or if it’s penciling out today, so wait until your loan is gonna come due and you’re gonna go on the open market and you’re trying to refinance those things, right? So now that company trying to open the fund all of sudden, which was ridiculous like.

Michelle Tack (15:47)
Mm-hmm.

Igor / Avista Fund (15:48)
interest rate, they’re giving like 17 % preferred return, like something like crazy. Like I was like, how is that even possible? Where the money is gonna come from? And the only reason for that, so it’s just because they wanna save the portfolio. So this is another kind of the aha moment. you’re like, wow, that’s kind of a really tough space. You guys bring in the capital, bring in a new investor to replace the old guys, or maybe it’s like dilute them in the capital stack, right? And then you promise,

Michelle Tack (16:08)
Right, right, right.

Igor / Avista Fund (16:58)
all the profits which is gonna go directly to the new, it’s like make me like crazy when I see this type of things. And the only reason is why, because you wanna save the portfolio, which is already kind of in a pretty bad position, right, response. So those are the things, if you don’t know, you don’t know, right? Because again, you’ve never been there, just imagine entering the market and you excited about multifamily, they come up to you and they say, let’s go do this, right? So.

Michelle Tack (17:11)
Right, exactly.

straight.

Igor / Avista Fund (17:23)
This is going to be tough lessons to learn. And then again, this is going to be one of my reflections back to 12 to 18 months.

Michelle Tack (17:32)
Yeah,

understand. What’s the next goal for you in the business? You know that we talked a little bit earlier today about it, but you know it could be anything. But if you want to share you know what your thinking is in terms of growing your business or modifying what have you. What does that look like?

Igor / Avista Fund (17:48)
Yeah, so there’s opportunity, like, I feel like I’m getting excited when there’s opportunity on the market and we just talk about that. I feel like we do have like generational opportunity right now to purchase multifamily asset class at the discounted rate. Why? Because there’s people who bought it at the top of the market. Again, we’re back to 22, 23, right? The valuation was really, really high. The price of the money was really, really cheap, right? And that’s the reason.

Michelle Tack (18:16)
Yep.

Igor / Avista Fund (18:16)
the demand was

Michelle Tack (18:17)
Yep.

Igor / Avista Fund (18:17)
super high, everybody got dispersed, like the income, right? And everybody wants to deploy capital and they purchased those apartment comps at really, really high prices. Now when the loans come due, cause we’re talking about 22, 23, right? That’s about three years average loan for commercial real estate, if it’s interest only. So there’s a couple extensions, but you cannot extend cause the value is too like a small rate for the apartment comps if they’re trying to.

you know, refinance the project, right? They cannot, and the reason why, because the price is like too small and then they need to come up with additional capital, right, to get the refinance and stuff like that. So basically what happens is they’re forced to go to the open market and say, listen, do you guys wanna buy it? And then, so we like buy it at what? At the purchase, like the purchase price will be equals to the price of the loan.

Michelle Tack (19:04)
Mm-hmm, mm-hmm.

Igor / Avista Fund (19:04)
So meaning,

you go out and if you purchase like 70, 30, let’s say you got 70 % LTV inside of the complex, the 30 % was equity. And then the debt, which is like the loan amount was 70%. Originally, like, you you basically buying the complex at 70 % of the price, right, from the previous ownership.

Michelle Tack (19:24)
Yep.

Igor / Avista Fund (19:25)
And this is my goal

Michelle Tack (19:25)
Yep, sense.

Igor / Avista Fund (19:27)
right now. So we want to get into the market, identify those opportunities, right? And purchase like at least three of those within the next 12 months. So because you come and do right one by one.

Michelle Tack (19:36)
Good for you.

Awesome. Last thing that I’ll ask you before we close is help me understand, know, everyone has a network or is trying to change their network or make it bigger or more fit. Can you talk about your network? You know, and and building that out that helps you with your business.

Igor / Avista Fund (19:57)
Yeah. So, come from the professional background. I play water polo in Moscow, Russia, and then, I played in Europe as well. And then my wife played basketball. We are really passionate about sports and my kids actually playing and pursuing professional athletic world as well. And, the network we’ve built. So I have a pro investment show podcast. So we do invite like a high top athletes, high achievers.

Michelle Tack (20:19)
cool.

Igor / Avista Fund (20:20)
All right, and then we talk about like, the idea of that network and the idea of the podcast is as the pro athlete goes through the career, right? It’s a little bit artificial. Usually told what to do. You receive like a ridiculous amount of money. So, but then when the sports stop, right? So there’s a grand canyon of uncertainty. So there’s very tough.

time of transition from, know, where’s your next passion? Would you be passionate enough to get up tomorrow? Right? The sports is over. Nobody is like excited to see you anymore. And again, I’m not talking about like one to like 1 % of the athletes. Like let’s say you LeBron James or something like everybody wants to talk to you. I’m talking about general public, right? There’s 450 and NBA, right? We know only five names and the rest of them get cut every year. Another couple of hundreds. So

Michelle Tack (20:47)
Mm-hmm.

Yeah, yeah, Right, but… Right, exactly.

Right, exactly.

Igor / Avista Fund (21:12)
making average like $9 million or so with the next three years and they gone as well. And then there is about 10 % of people who like stay there for, I don’t know, maybe 10 years plus, right? And general public will get cut pretty soon. So not to say they get a life changing money, right? But then they have a life changing like expenses, right? Still mounting the next day and the day after the contract. So that’s gonna be the toughest.

Michelle Tack (21:37)
Yep.

Igor / Avista Fund (21:40)
Reality hit for them, right? So there’s a 90 % Bankruptcy rate was in the NFL players like almost like 90 % Which is ridiculous, right? You made the life-changing money But it’s just blown away. So in a second, so that’s what we talked about and just sharing the experience of the existing guys and who just play that’s just you know priceless

Michelle Tack (21:42)
Yep. Yep.

Yeah, it’s ridiculous. Mm-hmm. Mm-hmm. Yeah, it is ridiculous. Yeah. Mm-hmm.

That’s awesome.

Well, look, I really, you’ve brought a lot of good information to the table. We’re happy that you did this podcast for us. And for those that are listening, if you got value of this, please continue to subscribe or if you haven’t subscribed yet to our Real Estate Pros podcast, we have continued great content like we, that Igor just shared. Thanks so much, Igor.

Igor / Avista Fund (22:26)
You’re welcome.