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Show Summary
In this conversation, Shawn Griffith shares his journey into real estate, discussing the evolution of syndication, current market dynamics, and strategies for navigating investment opportunities. He emphasizes the importance of due diligence, establishing clear criteria for deals, and the necessity of raising capital effectively. Shawn also highlights the challenges faced by multifamily syndicators in today’s market and offers insights into maintaining persistence in real estate investment.
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Investor Fuel Show Transcript:
Shawn (00:00)
You don’t have to negotiate with your investors. If you read most PPMs, the investors really don’t have any say in the disposition of the property. And this is one of those things if you as an investor are looking atand investing in a syndication. For God’s sake, do your homework. If you’ve never read a PPM, sit down and force yourself to read it and then go find yourself a good SEC attorney that will explain it to you in English because there’s a lot of legal garbage in there. But when you read it, you’ll find there’s about 14 or 15 pages in that PPM that when you read it, they’re all reasons why you should not invest in this deal.
Dylan Silver (02:15)
Hey folks, welcome back to the show. Today’s guest, Shawn Griffith out of the DFW Metro is a commercial syndicator. Shawn, welcome to the show.Shawn (02:19)
Thank you.Hey Dylan, thanks for having me on. I really look forward to sharing some things with your audience.
Dylan Silver (02:32)
Great to have you on here, great to meet you, Shawn. I always like to start off at the top of this show by asking guests how they got into real estate.Shawn (02:41)
⁓ man, that’s a long story. But ⁓ since we’re trying to do short form here, I will give you the highly abbreviated version. ⁓ had a friend of mine in the Dallas area that had invited me to go to one of these weekend real estate seminars where day one they talked about how you can retire with 10 single family homes. Being a math guy, I was doing the math and going, okay, I probably need 15, not just because of my salary, but I knowyou’re never going to have those homes 100 % occupied all the time. So you got to have some flex built in there. ⁓ And then the next day they talked about multifamily and being a math guy, that really made sense to me. You know, why manage, you know, 60 or 70 individual homes when you can manage 60 or 70 units under one roof and have somebody professionally manage it on site for you. So for me, that made a ton of sense. ⁓ So
Dylan Silver (03:39)
getting into multi-tasking.Yeah.
Shawn (03:40)
Yeah.so anyway, I wasn’t ready to take the plunge as a general partner, excuse me, as a general partner on a deal. But, you know, that my friend was and he got into a deal. I invested with him and he just absolutely crushed it. We got like three and half times our money back. It cash flowed 12 to 14 percent.
And every day I look at him, go, you bastard, you ruined me. Cause I’m still looking for a deal that good. You know, it was like the unicorn deal, you know, they’re excruciatingly rare. ⁓ But anyway, that got me started investing in real estate.
Dylan Silver (04:16)
That good.What year was that in, that deal?
Shawn (04:31)
That would have been like 2011, 2012.Dylan Silver (04:35)
So at that point in time was the idea of syndication as prevalent as it is today.Shawn (04:43)
No, and as a matter of fact, ⁓ the syndications, when you got the paperwork, the PPMs were all numbered and you were given a specific number and they had to track all of those manually. Everything was paper. Yeah.Dylan Silver (05:02)
Wow. Soat that point in time, what would be the process like? Is it like you have a group of investors and you have deals that you’re sending them on paper and they’re signing off on investing that they want to do per deal and it’s kind of snail mail type of thing?
Shawn (06:07)
Yeah, pretty much. Usually, they would like FedEx or UPS it. But, or, you know, if you’re in the same city, they might hand deliver it.Dylan Silver (06:18)
Times have changed. Times have changed.Shawn (06:20)
man, you know, with the, with the, you know, the nice investor portals like cashflow portal, which is my favorite. And I will plug them every chance I get because they are if everything was equal in all the portals, I would still go with cashflow portal because their customer service is white glove.Dylan Silver (06:39)
I want to ask you about that deal that did so well. What asset class was it? Was it, you know, commercial residential multifamily couple hundred units? What was it like?Shawn (06:49)
So it was a 64 unit class C multifamily. It needed some mild rehab. ⁓ It was a boiler chiller property. ⁓ But it was in an amazing area. It was across the street from a school. And it was in Carrollton, Texas. I know you know where Carrollton is. ⁓One of the things about Carrollton at that time was they were not issuing any more ⁓ multifamily build permits. it was, so you had like almost zero new competition coming into the area. That’s changed somewhat, but, you know, ⁓ it was, it was just, it was just a great deal.
Dylan Silver (07:32)
Yep.I’ve heard now about this timeframe, not 2011, not that timeframe, but I’ve heard about 2016, 2017, up to 2020, how it was almost like you couldn’t buy a bad deal.
Shawn (07:51)
If you could fog a mirror, you could make money in real estate.Dylan Silver (07:55)
And when we talk about the multifamily space today, I’ve spoken with so many investors who’ve let me know there’s distress on the operator side. So people who may have bought too deep or their pro forma isn’t hitting and things are happening that are unexpected. Their arm rate has doubled. So what what happened? What was kind of the perfect storm there?Shawn (08:19)
⁓ you know, ⁓ everybody had this buying exuberance going into the top of the market. ⁓ I bought a deal in November of 21 and my friends were all going, you should you should use floating rate debt because it’s cheaper. And I’m going, you know, this is the first deal I’m buying as a GP. I’m going to be more conservative if I can fix a cost going into the deal.That’s risk reduction, not only for me, but for my investors. And so I got a really nice, like, I think it’s like 3.89 % fixed rate loan. That loan is the only thing that makes that property valued above what we paid for it, right?
Dylan Silver (09:06)
Wow.Shawn (09:08)
just because the market in the DFW area lost around 30 % of value since 2021.Dylan Silver (09:17)
And we’re seeing a number of different factors because we’re seeing so much development, not necessarily even development that started now. It could have started two years ago and be finishing now. But in that time, things have changed. So there might have been a massive shortage of housing. Now there may be even some surplus in multifamily. At the same point in time, rents everywhere have not gone up. You’ve even seen in some places they’ve gone down.When you have that and your rate has doubled, it’s not easy to deal with.
Shawn (09:49)
and let’s not forget inflation of expenses like insurance, taxes, salaries, all of that.It’s never just one thing in business, It’s always a combination of things. Now there might be one key driver, but they’re all related. with multifamily, I think the
Biggest, everybody talks about the interest rate and that’s honestly secondary. If you’ve been conservative in your underwriting, you you should be able to handle some interest rate flex. Now, if you’re truly conservative, you’re not going to get a floating rate loan unless you just absolutely have to. Like if you’re going in, like the deals we buy, which are typically moderate to heavy value ads, you’re not going to be able to get a fixed rate.
know, Fannie or Freddie loan, you’re going to have to go with a bank loan, you know, bridge debt, basically.
Dylan Silver (11:25)
Now, these multifamily syndicators who may have bought too deep, my understanding is that the five year marker at the six year mark, that’s when they effectively told their investors, hey, we’re going to exit at this point in time. They’ve got to renegotiate with their investors, with their lenders and find a solution. So there’s distress.Shawn (11:49)
Yes, ⁓ but I want to make a slight adjustment to that statement.You don’t have to negotiate with your investors. If you read most PPMs, the investors really don’t have any say in the disposition of the property. And this is one of those things if, and I’m talking to the audience right now, if you as an investor are looking at
you know, buying into a cent and investing in a syndication. For God’s sake, do your homework. If you’ve never read a PPM, sit down and force yourself to read it and then go find yourself a good SEC attorney that will explain it to you in English because there’s a lot of legal garbage in there. But when you read it, you’ll find there’s about 14 or 15 pages in that PPM that when you read it, they’re all reasons why you should not invest in this deal.
You’re going to read that and you’re going to go, oh my God, why should I ever invest in this? You know, I mean, it talks about wind, flood, fire, famine, hail, locusts, you name it, it’s in there. And, but that’s in there not only to protect, you know, the, guys putting the deal together, the sponsors, but also you as the investor, because it’s going, Hey, when you see all that stuff, what it should prompt you to do is, you know, don’t be afraid of it.
Matter fact, the SEC attorney I had that explained it to me, he goes, the only reason you should be afraid of this section of a PPM is if it’s missing. He goes, because if it’s not in there, they’re trying to hide something.
Dylan Silver (13:29)
Yeah, and that’s not a good thing in syndications. You don’t want to be syndicated doing that. You’ll end up in some hot water fast. Now, when we talk about acquisition in the multifamily space, I was mentioning to you Shawn before hopping on here, there’s people making offers and then there’s a lot of people who may have very large funds and syndications but have not actually got something to closing this year or even in the last several years. So what would be your feedback to folks who may beShawn (13:33)
No.Dylan Silver (13:59)
jonesing to get themselves into a multifamily deal and excited to get one under contract but maybe having some difficulty.Shawn (14:07)
Well, first thing I would say is a word of caution is don’t let your your Jonesing to get into a deal. Let you make mistakes and make compromises. You should have criteria well established and you should not vary from your criteria. ⁓ And. You know, as far as deals, I mean, getting into a deal for us ⁓ at Kraft Capital, it’s about.persistence and consistency. ⁓ This year we screened over 300 deals. We actually underwrote about 30 of those and out of those 30 we submitted I think 17 LOIs and one of those was accepted and we closed on it September 23rd. We had another one that we accepted but we ended up walking away from it.
because we had early access due diligence and there was a major foundation problem and we’re not afraid of those because we do heavy value add. ⁓ But they didn’t want to come down on the price like we felt was necessary to compensate us for all the work and time that was going to have to go into this thing.
Dylan Silver (16:04)
Also spoken with some folks who are more than a handful, who are maybe newer to the multifamily space and are looking to make offers through seller finance. Do you have any guidance for folks when they’re either talking to listing agents, commercial brokers, or sellers themselves about how they might be able to broach that conversation?Shawn (16:26)
Just bring it up to see if it’s an option. ⁓ We did on one of our deals. Matter of fact, that was ⁓ the deal that we ended up walking away from. The guy was willing to carry part of the note back. ⁓ But, you know, it’s like anything else in business. It’s negotiable. You just have to ask.Dylan Silver (16:50)
Now, when we talk about the multifamily space, there’s, and commercial in general, there’s so many different segments that people could look at, right? You could look at multi-use, you you could look at commercial, residential, know, hundreds of doors, you could look at 50 units and below, you could look at townhomes. You know, I know people that syndicate for builders, right? Is there one of these segments that you feel is more manageable or that you’re preferential towards, or is it?Shawn (17:12)
Uh-huh.Dylan Silver (17:19)
really much the personality and the comfort level and the expertise of that operator.Shawn (17:28)
man, there’s so much in that question. ⁓ Short answer is.I have to give you the standard statistical answer. It depends. ⁓ know, one of the things I found about real estate, like you pointed out, there’s so many different areas. Every single real estate deal is different. ⁓ Now, 80 to 90 % of it’s the same, but that other 10 to 20 % is really where either the money’s made or you as an operator is going to get crushed. And you have to understand
a lot of those nuances. That doesn’t mean you have to know everything, but you’ve got to be prepared for everything. Just like any business, the worst thing you can be going into a real estate deal is under capitalized. You cannot run out of money because as soon as you run out of money, now you’ve got to start cutting corners and
You know, if you don’t have money to do repairs, if the lender says, guess what? You have to do this and this and this. Well, if you don’t do it, you’re going to be in default and they’re going to take the property back. No, it’s never just that cut and dried. mean, there’s always things to do, but, you as the deal sponsor, you and your team are going to have to come up with that money somewhere.
Dylan Silver (18:48)
No question. You know?Now, when we talk about ⁓ raising capital for these deals, know, syndicators can have a myriad of different backgrounds, people coming from Wall Street, people who are builders, people who may not have experience raising capital, but ⁓ they may know, hey, I’ve reached a limit where I’ve got to either pivot my business or continue what I’m doing, but maybe at a smaller scale. For those folks who are in that category, and you said, you know, you had an
Shawn (19:19)
That was me.Hmm?
Dylan Silver (19:30)
⁓ raised capital beforehand. What is the process like generally? And then for folks who may be worried about, how do I start doing this? Any advice to them?Shawn (19:40)
So if you’re just getting started and you think, I’m going to do a deal in the next 12 months, you should already be raising capital. Now that doesn’t mean you’ve got to put together a pitch deck and all this other stuff. You need to be having conversations with people like, hey, Dylan, I’m getting into this real estate business and I don’t have a deal on the table right now, but at some point in the future, ⁓ we’re going to have opportunities for people to invest.would something like that interest you? And you just start the conversation ⁓ because investing isn’t about the ⁓ shiny pitch deck or how good you can talk to people. In the end, comes down to trust. Do they trust you or not? And for them to trust you, they need to get to know you a little bit. for me, that’s
The first deal I ever did, my partnership team asked me, say, well, how much money do you think you can raise? And I said, well, I don’t know. I’ve never raised capital before. I said, but I’ll commit to raising 100K more than I’m going to invest myself. And I actually ended up doing better than that. But they go, no problem. We’ll raise the rest of it. Because it was a small raise. It was like $4 million. And now, at the time,
when the first time I did it, four million seemed like a massive number. Now it’s not that big a deal.
Dylan Silver (21:09)
Yeah.Now, when people are going about this process and they’re trying to determine what the best way for them to raise capital is, I actually spoke with a syndication attorney who was giving me the different options. He ended up telling me, look for some partners. Don’t necessarily syndicate. This was a syndication attorney telling me this. ⁓ At what point in time are certain strategies like, you know, limited partners better than syndication in your perspective?
Shawn (21:39)
So it’s just like any other investment. What are you trying to achieve with your investment? If you’re syndicating, you’re investing more than just money. You’re investing your time and your effort. So you’ve got to ask yourself, am I trying to generate cash flow here? Am I going for the long-term capital appreciation, and I want to maximize that?Because if you’re trying to maximize your capital appreciation, maybe it makes sense to have limited partners that are interested in just being your financial backer and you do all the work and then you get compensated for that with an outsized share. Again, it’s the thing I love and hate about real estate is there’s so many different ways to make money in real estate. There’s also
Dylan Silver (22:22)
Sure.Shawn (22:34)
You people don’t talk about it much, but there’s ways to lose money in real estate too. If you don’t pay attention and do your homework, you know, you get into a situation that’s hard to get out of. And that’s where some of the operators are today.Dylan Silver (22:47)
That’s exactly true. And people don’t necessarily go and ⁓ tell those stories ⁓ everywhere, but you see them once you’re in the business. ⁓ On the single family side, I know so many people who told me their first flip was an educational experience and not one that was tremendously profitable. But, you know, at least in the Vixen flip space, that might be recoverable, right? ⁓Shawn (23:07)
Yeah.Dylan Silver (23:14)
but on some of these multifamily deals, can get hairy quick, especially if you’re not tremendously conservative in your pro forma. Now Shawn, we are coming up on time here. Where can folks go if maybe they’re in the DFW Metro, they’d like to reach out to you? Maybe they’re ⁓ somewhere else and they’ve got a deal they’d like you to take a look at. How can they reach out to you or your team?Shawn (23:35)
So our email, our email, the website is craftcapitalinvestments.com and that’s craft with a C, C-R-A-F-T, investments with an S dot com.Dylan Silver (23:48)
Shawn, thank you so much for coming on the show here today.
