Ep. 80: Emerging Markets and Underwriting Tips with Brian Burke

What’s it going to be worth when I’m done? Answering this question is how Brian Burke underwrites large multifamily deals. However, to truly answer this question requires a deep understanding of the market and an accurate projection of the income statement. Brian is the President and CEO of Praxis Capital, a vertically integrated real estate private equity firm, founded in 2001. Brian has been investing since 1989 and has acquired over 700 properties, including over 2,000 multifamily units. Brian came on the show to share how he analyzes multiple markets to stay ahead of the cycle and what to look for when underwriting deals.  

Key Market Insights

• Multifamily underwriting approach came from flipping single family properties to know, “how much is this going to be worth when I’m done”
• Take the future value, knock off percentage and subtract rehab costs
• Current market has too much money chasing too little real estate
• Each year, review markets using various sources such as Milken Institute and Urban Land Institute
• Texas markets were the first to recover, Florida was one of the last
• Surprising Markets for 2019: Las Vegas, Huntsville and Denver – driven by job growth, population growth and inward migration
• To manage risk in today’s market: Brian is looking at markets that are earlier in the recovery cycle, now underwrites with higher economic vacancy and multiple exit strategies
• Economic vacancy = physical vacancy + credit loss + concessions + loss to lease
• Use the submarket’s physical vacancy for vintage of property
• Tips for reviewing investment underwriting: check projections for economic vacancy, sources of income, expense assumptions and in-place income vs. Y1 projections
• If deals are missing credit loss, concessions, loss to lease –
• Expenses – ensure the staffing/payroll is in line with the plan
• Sources and uses of funds – have they allocated enough to complete the business plan
• Formed his own management company to oversee portfolio
• Most excited about their expanding investor base rapidly

Bull’s Eye Tips:

Winning Your Market: Perseverance

Tracking Market Changes: Reading economic data and news articles

Daily Habit: Underwrite 1-2 deals daily

Resources:

Milken Institute – Best Performing Cities Index Urban Land Institute and PWC

Best Business Books:

The Dealmaker’s Guide to Commercial Real Estate by Ray Alcorn

Digital Resources

Google Maps

Tweet This:

“There’s so much more to future value than just cash flow”

“The exit drives the bus, the passengers on the bus are the cash flow and entry price.”

“There’s too much money chasing too little property”

Places to Grab a Bite:

Las Vegas – Gordon Ramsay Steak

Maui – Kimo’s Lahaina

Connect with Brian:

Website: https://praxcap.com/

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