Multifamily Distress Is Creating a Massive Buying Opportunity | Dan Brisse

Dan Brisse (00:00)
What happens is when a deal’s over leveraged and they’ve got an adjustable rate mortgage or variable rate debt and the rate takes off, what happens is the owner does what they can do, which is feed the debt. They feed the debt, right? They might have had a rate cap in place, but the rate cap only went so far, then it expires, and you gotta buy a new one, and you keep feeding this high interest rate debt. And what happens while you’re feeding that debt is the property has deferred maintenance and you need to continue to upgrade the property.

Dylan Silver (02:00)
Hey folks, welcome back to the show. Today we’re joined by Dan Brisse, a multifamily operator and co-founder of Granite Towers Equity Group and formerly a professional snowboarder who won multiple X Games medals. Dan, thanks for taking the time today.

Dan Brisse (02:16)
Thanks. Thanks for having me, Dylan. Excited to be here.

Dylan Silver (02:19)
Great to have you on. These days we were talking in the green room. You are doing a lot of deals in DFW. What types of deals come across your desk and what are you looking for?

Dan Brisse (02:31)
Yeah, over the, you know, last call it fifteen years, our buy box and our criteria has shifted pretty immensely. You know, as of right now, when we’re looking at assets to be buying, we’re looking for 1986 or newer multifamily product, probably, you know, 140 would be the lowest we’d do, but ideally 150 to 350 units where we can have a couple people in, a couple people out as far as office staff goes.

We’re looking for A-plus locations. You know, we’re in a unique time right now where we know and we can all see it that the bridge debt put on five years ago is erupting and there’s forced sales. And so when operators and owners are forced to sell, it creates a buying opportunity. And our goal is to buy at these massive discounts in A-plus locations, come in with a very rinse-and-repeat value-add strategy, low-leverage fixed debt, and enjoy the next cycle wave.

Dylan Silver (03:27)
That’s a great opportunity. And this is really the other side of what happens when things get squeezed, right? So you have people who take out variable rate debt, then they’re competing with other, you know, new construction and all these A-class properties with two pools and two gyms and this beautiful, you know, co-working office space and then great amenities on top of that. And so when you have so much development like that going on and that note comes due and maybe you can push it another year, the rubber hits the road, and that’s where you’re stepping in essentially.

Dan Brisse (03:58)
Yeah. You know, what happens is when a deal’s over leveraged and they’ve got an adjustable rate mortgage or variable rate debt and the rate takes off, what happens is the owner does what they can do, which is feed the debt. They feed the debt, right? They might have had a rate cap in place, but the rate cap only went so far, then it expires, and you gotta buy a new one, and you keep feeding this high interest rate debt. And what happens while you’re feeding that debt is the property has deferred maintenance and you need to continue to upgrade the property. And if you can’t or neglect the property, now what happens is you have this thing called a hollowing out effect because you’re feeding the debt to survive, hoping, praying that one day rates will come down. You keep, you know, servicing the debt because it’s due every month and the lender has you by the throat. And then your asset starts to sink as far as, you know, deferred maintenance. You don’t take care of the property. You don’t take care of the residents. Now the good residents are leaving, going to the competitors.

So the good residents leave and you have less income, you got more problems, more headaches while the debt sinks you. So that’s what’s happening a lot in a lot of the multifamily space right now. And for those that know what they’re doing, that is the opportunity.

Dylan Silver (05:06)
There is that opportunity to acquire these properties at a discount, but there’s also an awareness that you have to be first to seller effectively. So without giving away all of the gold, Dan, how are you able to find the deals?

Dan Brisse (05:19)
Yeah. You know, a lot of these deals are still broker relationships where, you know, they have the relationships with the folks that they bring out online and there’s just far less competition in the market right now. Title companies, lenders have, you know, real estate owned deals, and those types of connections are really the way that, you know, we’re searching for product right now in this market cycle.

Dylan Silver (06:30)
If we can, I’d like to dive into the capital stack, what that looks like when financing these deals. A lot of operators, both on the show and who I talk with, speak about capital being the limitation. So when you’re purchasing these deals, even at a discount, of course, it’s still going to be one of the most important considerations. What does your capital stack look like in these deals?

Dan Brisse (06:53)
We keep it real simple. We like to use Fannie Mae or Freddie Mac non-recourse debt. And you know, we’ll come in with five, seven, or ten fixed as far as term goes for debt. Usually get three to five years of interest-only. We’re really between that 60 and 70 percent loan-to-value. So keep the leverage minimal. And we don’t finance our CapEx. We keep our CapEx liquid from the capital. And then on top of that is where the equity sits.

And that’s how our capital stack looks on our deals right now. And the great part is, if you wanted to be a buyer back in 2021, you likely didn’t have that structure. You had 80, 85, 90 percent leverage, potentially some preferred equity, and you had to use that level of debt in order to win a deal. Whereas now you can get a deal done with 60, 65, or 70 percent leverage fixed, and it basically—because the purchase price has come down so much, now it works to buy again with this nice low-leverage fixed debt, which at the end of the day, that’s what’s causing the destruction right now. It happened five years ago, it happened six years ago, and those loans are just coming due. And if you’re being forced to sell when prices are down, interest rates are still up, cap rates followed, expenses went up, occupancy’s down because of the glut of supply, you get decimated. And for those that can come in now and set up a very, you know, conservative five-year path or seven-year path—cycles reset. That’s what real estate does. Real estate is a cyclical asset class, just like stocks, just like everything. So where are you in the cycle, and how do you position your debt and debt load to ride the next wave? That’s what we’re focused on.

Dylan Silver (08:33)
You mentioned hold times. When you’re looking at these deals, do you have a five or six year hold time? Are you looking longer or shorter term?

Dan Brisse (08:41)
Yeah, ideally for these A-plus locations, we have a five to seven year fixed note and we’ll look to potentially refinance depending on the submarket, depending on the comps, depending on where the debt market is at that time. And ideally, you know, ratchet our interest rate down because when you’re buying where rates are higher, you know, and there’s a lot of talk that with this new jobs report that just came out—23,000 lost, revised the last two months down 103,000—that there is the beginning of kind of some pain coming. And so the Fed is in this tough spot. It’s like, hey, inflation’s still higher than we want, and we can see that the job market is softening. And so I think they’re running this teeter-totter effect. And I do believe that as the market continues to slow, if jobs do continue to decline, that they will consider dropping rates. So ideally you’re buying when rates are high. You do not underwrite that rates come down. And if and when they do, it’s icing on the cake to ratchet your rate down and refinance a deal or potentially exit.

Dylan Silver (09:40)
One of the other sources of distress is property management, and specifically at the scale that you’re at, I can imagine that you have a very specific approach to property management. What has been your process, and has it changed over the years?

Dan Brisse (09:55)
You know, property management is all about the right property manager who knows the submarket, where this asset class is their bread and butter, where it’s really their focus. You know, some property management companies focus on A-class deals. Some focus on B, some are C, some are, you know, D or rough locations. And you really want to pair the management company up with that right asset. And I’ll tell you guys, you know, we’ve been having third party manage our deals since 2012 and we’ve kissed some frogs. So one of the biggest pieces of advice I could give your listeners if they’re, you know, managing their own real estate is to make sure your management company matches your core values. If your core values match from, you know, who we are at Granite Towers Equity Group with a third-party provider, it’s much easier to integrate and create outcomes where there’s alignment. Whereas, you know, one of our core values is constant, never-ending improvement.

If our core value is that we can always do it a little better, we can find a little discrepancy, we can improve this, let’s focus on that, let’s tweak this, let’s tweak that. But our management company says, “No, no, no. We do it one way and we do it one way only. And this is how we’ve done it for the last 20 years, and we’re gonna do it like this for the next 20 years,” we’re out of alignment because I’m certain we’re gonna find something in the world of apartments that you could tweak and do a little better or you should be improving on.

Or AI could step in. And so if you’re hiring third party, you’re working with third party, make sure right out of the gate you got a core value fit. Just like you’re hiring anybody. If you’re hiring anyone on our team at Granite Towers, we’re going to give them a core value speech story so they can look into our company and they can say, “That’s what it’s like to work at Granite Towers” in nine months. Because at the end of the day, we want them to come if they want to come, and we want a great match. We don’t want to find out nine, twelve, eighteen months down the road that we need to break this party up, because changing management companies, that’ll sink your ship.

Dylan Silver (12:20)
Pivoting here, Dan. I’ve heard a lot about new construction being challenging in the multifamily space. You’ve been around for quite some time. Have you delved at all either currently or in the past into ground-up new construction?

Dan Brisse (12:32)
No, we’re not focused on that right now. The focus—you know, if I had in my snowboarding career, it was an inch wide, a mile deep. Become the best at one thing. First master that one thing and become a standout. And so for us, it’s value-add already built, 1986 to 2012, 2015, where we can come in with rinse-and-repeat value-add strategies in submarkets we know well, where we have other assets, we have other team members, where we know these submarkets, where we feel very confident that we can execute a value-add strategy efficiently, swiftly, comfortably.

Dylan Silver (13:05)
Pivoting here. I want to talk about snowboarding. Now we have to talk about snowboarding. Going from a career as a professional athlete, multiple-time X Games winner, into value-add multifamily seems like a big jump, but it also seems like something that requires a lot of education and self-education. Was this something that you began during your snowboarding career?

Dan Brisse (13:28)
Yeah, Dylan, for me, you know, I was unique and lucky because growing up in Minnesota, I would sit there and I would watch these snowboarding films of guys who became heroes on tape. And when I moved to Salt Lake City to pursue my snowboarding career, they became my friends. Like I would hang out with them. I would film with them. They became buddies. We’d hang out on the weekends. And so they were five or ten years in front of me. And I can still remember the date or days when these guys who were literally my heroes, who had 10 or 15 year careers, told me they’re getting cut. So like many of your listeners that can see a change coming, you know, like many of the folks I come across that see a change coming, that scared me. I was like, my gosh, if I’m lucky enough to have a career that’s like theirs and they’re terrified getting cut, I see their homes being repossessed. They live in these big homes that overlook Salt Lake City, right? They had these sweet cars or getting divorced, drug addiction. I mean, I even saw my friends commit suicide. And so for me, in that moment, it was a lightbulb moment of saying, “Hey, if I’m lucky enough to have one of those careers, I gotta do something different with the capital I’m making.” So back in 2012, I started reading every book I could get my hands on, being real-time terrified about what to do with the money I was making. And I realized real quickly that I needed to find a way to get my capital that I was earning as an athlete into these assets to number one, take care of it from the destruction of the dollar being printed.

In 1971, we all know Richard Nixon took us off the gold standard for currency. And every currency—this is a data point that right now you gotta listen to. If you listen to one thing and only one thing from this whole podcast, a hundred percent of currencies in the history of the world have either gone to zero or been replaced. So the dollar is a currency. Will it go to zero? Will it be replaced? When? I don’t know. But based on the data, it’s impossible—unless we have all of a sudden this dollar changes all of history, which I don’t see happening based on what we’re doing, based on what we’re seeing real-time right now—the destruction of the dollar, the currency, is there. So I needed to get the capital in an asset that as they print more, it went up in value, it held the purchasing power. So that was number one. Number two is, how do I create streams of income? How do I get cash flow? Not when I’m sixty, when I’m seventy, when I’m eighty. How do I get cash flow in two years, in three years, in five years?

And how do I get multiple streams of cash flow that I control? Because at the end of the day, you know, like a lot of your listeners that work for somebody like me, my brands controlled my income. And when they didn’t like what I did for a couple of years, I’d get the phone call. And that phone call was real. And I remembered one of these phone calls from one of my main brands I rode for for 15 years called me. It sounded like someone died on the other end of the line. It was like this: “Breezy. Hey man, thanks for everything, man. We gotta let you go.” And that was about how long the call was. And so that’s where the cash flow piece—I need my own streams of income that I control. I need to hedge this destruction of the dollar, and the tax piece—just, you know, getting crushed paying taxes. My whole life growing up, Dylan, I was broke. I lived paycheck to paycheck. I worked at Blockbuster, T.G.I. Fridays, Pei Wei. I was biking to work, eating peanut butter and jelly for breakfast, lunch, and dinner. That was my story before I took off. My snowboarding career takes off. I’m not going back to that. And then all of a sudden my income goes up significantly. I’m making five to six hundred grand a year. You know, back then it was a ton of capital. Back then in 2011, ’12, ’13, ’14, I’m making half a million a year coming from literally making five or six thousand bucks a year, and all of a sudden I’m making five hundred K. Dude, at the end of the day, my tax bill skyrocketed. And my CPA is like, “Hey, just make sure you save half—half of whatever you’re making, cause at the end of the year, you’re gonna have to pay that in tax.” And I felt like I got punched in the gut because I spent ten years failing, falling, bleeding, losing, getting my butt kicked. Finally I make it, and I got a new partner called the IRS that says, “Give me half your money.” Well, real estate can really help with that.

Dylan Silver (17:59)
This is something that’s not often discussed. We’ve had other professional athletes on the show, but if we go back to that time, there’s less self-education available in the forums that we have today with podcasts and YouTube. There was some of this out there, but not nearly what it is today. Were snowboarders and folks in that community aware that they could potentially offset their tax burden? Was this something that was discussed, or did no one really talk about this?

Dan Brisse (18:24)
No. Nobody talked about this. Nobody knew about this. This was just, you know, I found through my personal education, honestly, Robert Kiyosaki’s books, *Rich Dad Poor Dad*, that whole series of the fifteen books he wrote or whatever how many books he wrote, I read all cover to cover. And those books brought me to other books and other mentors and it helped me find a CPA firm that specialized in real estate and they helped guide me. These team members that I started to add, you know, to my real estate investment decisions started to guide me on directions to help use the tax law to actually qualify and behave in a way where I could use the tax law legally to offset my tax burden. And it involved my wife, it involved becoming a real estate professional. It involved knowing a lot more than I knew. And that education piece is what set me free.

Dylan Silver (19:10)
You know, one of the challenging things about taxes is it changes all the time, right? And so you have to find someone who’s on the pulse and in the niche that you’re involved in. You know, someone who specializes in taxes but not specific to real estate may not be able to help you with real estate-related activities. And then finding that person can be challenging. When you specifically chose the multifamily value-add space, did you start big? Were your first deals, you know, multiple dozens of units? What did that look like, those first deals?

Dan Brisse (19:40)
Yeah, no, I started with a duplex. Bought a duplex here near Longview, Washington. I bought a nineplex the next year in Chehalis, Washington, a 24-unit deal back in Minnesota where I grew up. And, you know, back then I didn’t know what I didn’t know, but I got lucky, Dylan, because my timing was 2012. You know, going back to cycles, cycles affect everything. They are—it’s like the current of the ocean. If you’re a surfer and you’re riding the wave nicely, you can look dang good. Whereas if you’re a great surfer and you’re not hitting that wave at the right time, doesn’t matter how good you are at surfing. You’re probably gonna get crushed depending on your timing. And so cycles—it is the foundation of understanding great investing in my book. It’s the base structure. You’ve got to have an understanding of that. And so back in 2012, I started buying after the Great Financial Crisis hit. So everything I bought ended up doing really, really well. Didn’t know what I didn’t know.

Got lucky. I mean, at the end of the day, that just shows how if your timing is right, you can know so little and look like you know it all. And that’s the wave we went through from 2012 to 2021. Yeah, they were geniuses. They’re like, “Yeah, look at me. Look what we did. We’ve got the answers. We’ve got the results.” And now you’ve got this destruction of multifamily after the wave reset, after rates went up. And so that’s how I started though. Just small.

One stream of income, cool. I locked that in—five hundred bucks a month. Another stream of income, I got seven hundred and fifty bucks. Another stream of income, I got two thousand a month. And these cash flow streams mixed with the, you know, hedging of inflation and depreciation was a strategy that really got me excited.

Dylan Silver (21:16)
If you fast forward or I guess go a few years back, but fast forward from 2012 to then 2021, things change, right? How did you navigate that? And at that time were you aware that some people might be overleveraged?

Dan Brisse (21:31)
Yeah. I think the piece that we got really lucky with again is we weren’t moving nearly as fast as some of these groups that were crushing it at the time, right? Like, you know, there was groups, and I won’t mention their names, but literally started their investing career in 2011, and by the time 2021 hit, they had thirty, forty, fifty thousand doors. And like, that’s unbelievable growth. Like you’re moving so fast. You’re buying thousands. One group bought ten thousand units in 2021. Now they just came out and lost the entire fund publicly. And so I think one piece is that if you are actually being a conservative investor, you will not likely move at the pace of some of these groups. The other piece is, for the stuff we did put under contract in 2021, we luckily refinanced it into fixed debt pretty much immediately. And we were lucky to be able to do that. We had investors who believed in the deals, right? We reduced our debt leverage load.

And at that time I wasn’t focused enough on cycles, you know, and what’s interesting about it, Dylan, you go back is when it was the most dangerous time, it looked like the safest time. When it was the most frothy and like, “I’m in, you’re in, we’re all in, forget the underwriting, I don’t even care, I’ve just made so much money, I’m in,” it was the single most dangerous time. And you know, go back to Warren Buffett, what he says is, “When other people are greedy, be fearful.” That should have been the most feared time.

Now, fast forward five, six years, you’ve got incredible fear in the market. And it’s the time where the most savvy—because we work with a lot of high-net-worth investors, we work with people who are family offices, we work with a lot of highly sophisticated investors that are focused on the data—those folks that are focused on the data are here. Those folks are investing now. Those folks are buying deals now. Whereas the retail investors that were investing with emotion, they’re gone. They’re like, “I’m not touching that, dude. Look what happened five, six years ago.” Well, that’s the inverse. Now when people are fearful, be greedy. That’s Warren Buffett’s line. So that’s what I saw firsthand.

Dylan Silver (23:33)
When we talk about raising capital from family offices, from accredited investors, there’s many different ways to do this. There’s two types of syndications. You can partner with people in a limited capacity or in a more general capacity. Over the years, have you always had the same approach to raising capital? Has it changed with time?

Dan Brisse (23:54)
Yeah, no, we do the same thing every time. It’s either 506(b) or 506(c). We open the fund, raise the capital, and boom, that deal is held in that fund. And when that fund is full, we’ll wait, we’ll find our next deal and do it again. The most recent, and I know that you guys are more of a—I guess I don’t know if you’re more of a multifamily show, but we also have in the last four or five years had a lot of our high-net-worth investors reach out to us and say, “Hey, can you give me an asset class that has extremely consistent cash flow like clockwork and extremely high depreciation?” And so we have brought out some triple-net-lease assets to those investors as, you know, car wash funds, these larger corporations, corporately backed, where the cash flow is almost as guaranteed as it could be. Can never use the word guarantee, but, you know, it hasn’t missed and ideally it never does. Whereas apartments can fluctuate much more. There’s so many more variables, you know—occupancy, rent growth, lack of it, expenses increasing, debt. There’s just so many more variables. So those are the two asset classes that we’ve really focused on.

Dylan Silver (24:59)
Triple-net leasing is interesting, right? So many different types of businesses that would be a fit here. You mentioned car washes. I’m a Texas licensed realtor, so it feels like there’s a car wash just about everywhere. And then there’s also grades of car washes, right? When we talk about a business like a car wash, is that primed for someone who is a real estate operator to come in and own? Or do you really, if you’re going to be owning and operating a car wash, do you need to be doing that in and of itself? I’m talking about the tenant itself. If the tenant is operating that car wash, do they need to have a background in that, or can a real estate operator step in and run that effectively?

Dan Brisse (25:37)
Yeah, no, a real estate operator can completely effectively own the real estate. We don’t do anything when it comes to operating the business. We just have a corporately backed lease with a car wash company, whether it’s Club Car Wash or Mister Car Wash. So we purely own the real estate and then we have a 20-year lease. That’s a triple-net lease where they just purely pay us rent and they operate the business solely. So at the end of the day, you gotta be picking locations that are phenomenal locations—massive drive-by opportunity, easy to get to, easy to get out of. And as long as you’ve got a, you know, great company that has some corporately backed abilities on that lease, that’s what we’re looking for when we’re buying car washes.

Dylan Silver (26:19)
Car washes—I’ve heard car washes, I’ve heard from other guests some other asset classes. When you’re looking at some of these other asset classes, and car washes is the example that we’re talking about now, how are you evaluating these opportunities, and how do you know what deals to walk away from?

Dan Brisse (26:36)
Yeah, we’re looking for EBITDA being, you know, two to three times. We’re looking for an incredible amount of daily car passing on that road. We’re looking for easy ingress/egress. We’re looking for long-term leases. We’re looking for corporately backed tenants. You know, it’s so much easier to underwrite these deals versus an apartment. An apartment deal, it might literally take us fifteen to twenty hours to do deep underwriting, whereas with triple-net-lease, you know, you’re doing much more diligence on who the corporate is, who’s the company, what are their financials like, and what’s the location like as far as drive-by. Because at the end of the day, if that company does go out of business and you do need to re-tenant it, what’s the likelihood of being able to bring another company in just like that? Or who would take that space? ‘Cause that’s the biggest risk, right? One tenant, one lease. Apartments, you got two hundred—we just closed on a 229-unit apartment—you got two hundred and thirty leases. You know, if you lose thirty of them, you’re still likely gonna do fine as long as you can continue to, you know, operate effectively and have some liquidity and reserves.

Dylan Silver (27:36)
With the car washes then, are you looking for opportunities where the tenant is in place, or would you purchase something if there is no tenant there currently?

Dan Brisse (27:43)
Yeah, we’re always looking for, you know, in-place tenants. The day we sign, we have a 20-year lease in place. They’re newer assets that are built between 2020 and 2026, all already up and running, all have history statements or P&Ls, T12, T24, so we can see what their operations are, which way they’re trending, all that.

Dylan Silver (28:05)
Coming up on time here, Dan. Any new projects or activities that you’re working on? And then also anything you’d like to mention directly to our audience?

Dan Brisse (28:13)
Yeah, you know, if you guys want to learn more about what we do, you can always reach out to us on our website. It’s just granitetowersequitygroup.com and there’s a “Contact Us” button. You put your name in there and email, and happy to hop on a call to see if there’s anything we can do to help you guys better understand who we are. What we’re working on right now is we’re buying—we just closed on a 229-unit apartment and we’re in the process of creating our value-add strategy and taking care of this deal. A-plus location, you know, Whole Foods across the street, Trader Joe’s. So that deal is something we’re working on, and then a couple car washes before year-end for our investors. You know, big piece with that is the depreciation. You can get 130 to 150% loss year one. So it works very nicely when you have a huge tax liability and you’re looking for very consistent cash flow as a kind of a complementary piece and a little diversification if you’re heavily invested in multifamily only.

Dylan Silver (29:08)
Dan, thank you so much for joining us today. Thanks for your time.

Dan Brisse (29:11)
Thank you for having me.