Sid Shamim on Distressed Deals, Interest Rates, and Where Smart Investors Move Next

Sid Shamim (00:00)
Mitigating risk on a spreadsheet is 10 % of the job. Mitigating risk on operational level and on asset management level is another 80%. And the remaining 10 % is really how involved you and your leadership is with the property.

Scott Bursey (01:51)
Welcome back to the Real Estate Pros Podcast, the show where we cut through the noise to get straight to the investing strategies that drive success. I’m your host, Scott Bursey, and today we’re talking capital markets and investment philosophy with a true heavyweight. Our guest is Sid Shamim, the powerhouse behind Headway Capital. Sid, thank you for joining us.

Sid Shamim (02:15)
Thanks, Scott. Thanks for having me.

Scott Bursey (02:16)
It is a pleasure having you here. Before we dive into the how, I want to talk about the who for those just meeting you. Tell us about the path that led you to real estate and the core mission that drives your work today.

Sid Shamim (02:35)
Yeah, think in one line, ⁓ I’m just like anybody, most of us, a corporate ⁓ job guy who wanted to do something on his own. ⁓ I worked for an oil and gas for a long time and started buying single family 15 years ago and 16 years ago now. And then right after three years into real estate, started buying multifamily apartment complexes as a partnership and realized that that’s really what I want to do.

⁓ Long story short, today we are owning and operating apartment complexes in Texas and Arizona area. ⁓ we own about close to 550 ⁓ million assets under management in ⁓ about 3,500 apartment complexes. ⁓ I’m based out of Texas. I’m an immigrant. I came here for school. I did my master’s.

and all I want to work for a corporate world. And fun fact, today I own an apartment complex where I used to rent a unit. So my journey, if I can do it, anybody can do it.

Scott Bursey (03:45)
That is awesome. Thank you for sharing that with us, Sid. Let’s dive straight into the big picture. Everyone is talking about interest rates and inflation right now. From your vantage point, at Headway Capital, how are these macroeconomic forces fundamentally reshaping the landscape for capital deployment in real estate?

Specifically, what asset classes are you seeing being hit the hardest and which ones are showing surprising resilience?

Sid Shamim (04:20)
Yeah, no, absolutely. I’ll answer the second part of your question first. ⁓ We all see offices now finally coming back because there’s a government mandate for all the big ⁓ corporations to call their employees back. I think that’s one of the reasons to revive the ⁓ asset class as a nation. So that’s definitely got hit really hard after COVID.

You all know that. And interest rates did not help. So we’ve got the worst trauma ever for office classes. Luckily, I don’t do have offices. And I believe there always has to be a strategy and a good market and a bad market to make profits

from any business. ⁓ I think second is definitely retail ⁓ from a high leverage standpoint.

But definitely apartment is right up there, right? Apartment complexes, ⁓ interest rate was lowest, money was cheap, people, we had too many buyers. A lot of them were inexperienced and they’re overpaid. They’re simply overpaid. And you know.

We did not buy anything between 2022 and 2024 because interest rates were extremely high. But we did buy in 2024 because, going back to your first part of the question, the interest rate was so high, we bought two deals in Texas, in Houston. Those were out of foreclosure. They were distressed. And we bought it for barely for a loan amount.

actually a little bit less than loan amount. So, you know, from that perspective, I think we really did a good job on ⁓ buying it at the right time. ⁓ But those factors were real. Nobody knew in 2021 that the rate will come up. Well, let me put it this way. Rates supposed to come up interest rates were supposed to come up, but that fast, that quick, nobody could see that. And that’s one of the reasons why when they were selling

the interest rate cap, in other words, they were selling the insurance on how much interest will go up, those were super cheap, The technical word of that is interest rate cap, which is really the insurance on your, how much interest rate can go up. So those factors combined, think that was a perfect straw.

We’re officially not in the session, but if you look at all the other indicators, ⁓ as far as commercial race is concerned, that’s completely a buyer market right now.

Scott Bursey (07:55)
That is an excellent breakdown. Thank you for that, Sid. And speaking of capital debt, it’s getting tighter and more expensive for investors who are still looking to grow and perhaps acquire what is the single most innovative financing strategy you’ve seen successfully deployed recently that gets deals across the finish line despite today’s challenging lending environment.

Sid Shamim (08:25)
Yeah, I think the.

I think there’s still a lot of dry powder out there. ⁓

The biggest factor right now is a gap between bid and ask. In a market, what buyers are trying to sell and what sellers are willing to pay, there’s a big gap. And the investment is still out there for the right deal at the right price. There’s a mindset that there’s a of sellers out there who just looking for distress. And frankly, I’m one of those as well. But I’m not saying no to a good deal in a good location.

for a fair price, right? And those deals are very little. ⁓ Honestly speaking, those deals are, you know, over and above a certain dollar amount that middle market cannot even touch, right? We’re looking at $200 million, $300 million, more of a transaction. ⁓ Our middle market or the raise that we play with is anywhere between 20 to 50 to $60 million transactions. And those are still the competition or the buyer market is…

extremely focused on only distress, right? So I think the capital market is definitely hard, but it’s not because that there no capital out there, it’s just because the big and ass, this gap, the bid and ass gap is so much that they still think that, you know, it’s still gonna come down, it’s still gonna come down. It looks like it will, I mean, 2026, we all knew that, you know, it might go back up, but it doesn’t look like

Scott Bursey (10:36)
Alignment is everything. If you don’t have sponsor equity skin in the game, you’re not going to get past the gatekeepers. It sounds like creative layered capital stacks are officially the new norm, said.

Sid Shamim (10:53)
Yep, absolutely, absolutely.

Scott Bursey (10:54)
And headway capital

is known for its forward thinking approach. When you filter out the noise, where do you see the deepest pockets of temporary under-evaluation right now? Are you leaning into distressed secondary markets or are you betting on a specific overlooked niche like maybe specialized industrial or niche housing?

Sid Shamim (11:19)
Great question, Scott. think the, as far as Hedway is concerned, us, ⁓ we are the biggest investor in all of our deal. Me and my family, we always stay the biggest investor in any of our deal. ⁓ Bigger than any other retail checks or retail investors that we bring in. ⁓ Since this multifamily market has changed,

in the few years, ⁓ well, we were forced to start looking into some alternative asset classes ⁓ with a clear mindset that it has to be, it has to, you our definition for any asset class that we invest in, has to be essential service. It has to be hard to get in. It has to be resistant as much as can when a recession comes in. And we identified fewer asset classes. Industrial is very famous right now.

But there’s a lot of competition as well. it’s, you know, getting another, another one that’s, has a sexy tones like, I’m buying industrial complex and it’s producing this much of time. That is for one of the reasons why we’re trying to stay away from it. So only because it’s getting too hot, too fast at the moment. What we are looking at right now is medical commercial buildings, micro hospitals, specialty clinics. Those are things that, you know, are not sexy.

they are recession resistant. I’m not saying recession safe, right? It’s essential service. ⁓ Even in the COVID time of COVIDs, know, those patients, the market has been disturbed, but most of these clinics were able to survive. Most of these medical and doctors offices were able to survive. And these are high caliber tints. They’re not moving out as fast. So we are very ⁓ keen into looking in those asset classes. Part of the reason is also that my wife is a physician, so.

That just comes naturally. ⁓ If you’re ever gone to a GI or a orthopedic or a cardiologist, mean, those people are, you know, those traits are not going away anytime soon. And even if some, in some cases when these hospitals and in, in micro clinics or, or specialty clinics, if they do, if they’re not doing what they’re supposed to do, or they’re not making good profit, now they get merged with the hospital. Right. So there are always a bigger buyer out there.

to acquire them. And that’s what hospitals are doing these days. you ⁓ know, we, once again, it took me two years to decide on what direction we want to move. And I think this is the direction that we really want to focus on as an alternative. Again, apartments.

Scott Bursey (14:04)
You just hit the…

yes, and that’s a great direction, great vision. I couldn’t agree more. Thank you for breaking that down in the fashion that you did. And Sid, interested to know, risk management isn’t just about hedging, it’s about making sure your thesis holds up when conditions invariably change.

Sid Shamim (14:09)
Go ahead. ⁓

Thank

Scott Bursey (14:30)
What is the biggest, most underestimated risk that real estate investors are currently facing? And what specific action should every operator take today to mitigate that exposure before it materializes?

Sid Shamim (14:47)
Yeah, so from an operator’s perspective, there’s really two perspectives from REST, right? From investor’s perspective and from operator’s

When most of our competition, even ourself, when we try to ⁓ have a look at a deal and try to decide whether we want to buy and make an offer, ⁓

We try to look for some of the parameters on macro and micro market or even sub market, the occupancy, the collections and all of those operation items that comes later. I think the biggest risk that most of these asset managers, they go into is that they just assume that the operations start going to bad perform, right? Or in other words, they just assume that the operation is going to be always awesome. And that’s not the case. We are full service.

vertically integrated firm for a reason. I signed up for more work to make sure that my risks are controlled when it comes to operation. ⁓ Several examples. going back to your question, the on paper risk is your sensitivity tests, your occupancy, your collection, your total economic occupancy, those are there. But somebody have to operate it.

And if they do a bad job and you as a sponsor don’t know how to fix it, that’s a big problem, right? Because by the time you change third party management company, that ship is already sinking. So when we look at risk, we look at from asset management side, from investor side, and from property management side. Investor side is really

What happens if the market goes really south? Can we still sustain a not-lunar capital? We have a 10-point checklist for investor risk mitigation that we go through. We have a 21-point checklist for asset management risk that we analyze. that includes looking at the asset from every angle.

It’s flood zone, it’s geography, it’s median household income, the strength of the tenant to pay the rents, ⁓ the quality of the asset, the location, you name it, right? So much so if it’s an 80s product, what kind of boilers and what kind of heating and cooling system they’re using, ⁓ what can electrical and all that. That’s for more on the aspergillant side. Operation side is entirely different. And that is even more aggressive. It’s like,

38 points where we can really figure out, can we really pass this property through those points? ⁓ To give us one example, ⁓ utility costs is going up. We have a proprietary system on how we go in and try to fix those utilities to bring the cost down. And we try to see if this property qualifies for that amount. We have a grant system that we shook hand with ⁓ the government.

that allows us to change HVAC systems in the whole property for half of the cost. ⁓ I can almost tell you none of my competition don’t even know about this. We know it because we learned it the hard way. And that’s one of the reasons why we took the property management in-house so that we can control some of those expenses, some of those risks. But overall, think…

Mitigating risk on a spreadsheet is 10 % of the job. Mitigating risk on operational level and on asset management level is another 80%. And the remaining 10 % is really how involved you and your leadership is with the property.

Scott Bursey (19:38)
That is the cold hard truth. If your exit strategy relies on a rapid rate change of endless multiple expansion, you don’t have an investment. You essentially have a wish. Stress tests your assumptions or prepared to get crushed, in other words. Couldn’t agree more. Sid, if you could walk us through this.

Sid Shamim (19:53)
soon.

Scott Bursey (20:01)
Let’s look five years out. If you had to identify one irreversible trend that will define real estate investing in the next half decade, what would it be and how should listeners position their portfolios today to capture the most value from that massive shift?

Sid Shamim (20:03)
Thanks

You know, I’ll…

I’ll just, I’ll probably answer it in two ways. Number one, when, you know, there’s a famous saying Warren Buffett said, when everybody’s greedy, be cautious. And the other way around, And when everybody’s cautious, be greedy. Meaning, I use a terminology, if you’re a roofer and you don’t know how to make money when it’s raining, you’re a bad roofer. ⁓ Meaning, you gotta know if you’re,

income is dependent on something else which is not in your control, a variable that’s truly not in your control, that’s a bad strategy. ⁓ The one thing that would change from an investor perspective, if I’m an investor, I got to know.

the cycle of any industry that I’m investing. Meaning if I invested three years ago and I thought that I’m gonna make money, which did not happen, if I’m sitting back and I’m not investing anymore, that’s a bad strategy because now is the time to invest. That was a time to kind of take a back seat. So I would definitely say, learn more about the timing of any industry, right?

If you’re trying to go invest in a, in a bottle company, I can almost bet you there’s a cyclic nature of that business as well. If you’re trying to invest in real estate, you know, try to understand the cycle of those industry as well. More importantly, if you are somebody who is looking to invest in commercial real estate, if you are somebody who is tired of stock exchange, volatility and losing money.

And if you’re looking to invest in commercial real estate, even though you’re not ready to invest today, maybe you’re ready to invest in a month from now, two months from now, a year or two years or three years from now, you got to learn and educate yourself today. So that when the time comes, you’re not rushing into investment. And that’s, I’ve seen people doing it day in, day out. They’re rushing to something without understanding the whole picture of it. And unfortunately, you know, sometimes it’s not a good answer for them.

Scott Bursey (22:44)
That’s powerful advice. Technology isn’t just a layer anymore. It’s an infrastructure. Future proofing your assets through tech adoption is going to separate the legacy operators from the long-term winners. Sid, that was phenomenal.

What else would you like our listeners to know? ⁓ Nugget or some advice about your organization?

Sid Shamim (23:06)
Thank you.

I would definitely say, if you ask me, what are your top three strengths as an organization, I would tell you, ⁓ we are very hands-on. ⁓ I joke with my team sometimes that we are plumbers, we’re electricians, and we are also ⁓ asset managers and property managers. ⁓ The second thing I would say is, ⁓

We are, our company’s motto is it’s all about people, meaning ⁓ we pay huge attention on people’s growth. And we understand that these, this is just not a number, right? So if I can go in detail, but we’ve got a pretty detailed plan for each of our employee and their benefit plan as they grow and increase their number of service with us. So, you know,

Definitely hands on. We’re very people oriented, truly in a meaning that if somebody comes in an interview and say, Hey, tell me what does that mean about all of our people? I can take one hour and explain you in writing that this is your signing it for. One of the features that we have at the year, year, year 10. If you have, if you don’t own a house, company will pay as a paid money down for you after 10 years of service. So we have this structure to incentivize our people.

in a truly, truly important way. And the third thing I would say is, you know, especially in the investment world, there are very few people out there who, let me put this way, we take extreme pride in our work. I can tell you, me and my core team, we don’t go to sleep if something is not settling with the property correctly. We don’t go to sleep happy.

We want to make sure that next morning we wake up and the first thing we do is fix it.

Scott Bursey (25:13)
That was an excellent breakdown and thank you for sharing that with us as well. And we’ve covered a lot of ground here today. And I know people are going to want to tap into your brain. For the listeners who want to build with you or just follow the play-by-play of your journey, what’s the best way for them to reach you?

Sid Shamim (25:34)
Ooh, they can go to our website, headwayinvestment.com, or they can simply look me up on LinkedIn, Sid Shamim on LinkedIn, and ⁓ I think I should show up pretty fast. I think there’s very few Sid Shamim out there. Or they can email me at [email protected], but website, ⁓ setting up a call from there is the best way. ⁓ It’s headwayinvestment.com.

Scott Bursey (25:52)
Thank

It was a pleasure having you here today, Sid. An extreme pleasure.

Sid Shamim (26:10)
Thank you, Scott. Appreciate it.

Scott Bursey (26:12)
Thank you again, Sid, for your insights. Really appreciate it. And to our listeners, we appreciate you. If you got a vibe or found some gems in this episode, do us a favor, hit the subscribe button. We’ve got a heavy lineup of guests, just like Sid, your way in the near future. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.