Charles (00:00):
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Morgan Keim. He has over 10 years of experience as a real estate investor, capital raiser, and flipper. Morgan began his journey by investing in and syndicating multifamily value-added projects while advancing his career in high-growth food-tech startups, where he helped raise over $500 million in venture capital. After spotting the potential in real estate, he launched a 75-unit affordable housing fund in the Midwest. He utilized creative financing techniques to acquire over 20 properties through subject-to and wrap deals in the Sun Belt. He has invested in over 50 Limited Partner passive investment deals, which have given him invaluable insights for investors. Thank you so much for being on the show!
Morgan (00:43):
Hey, great to be here, Charles. So
Charles (00:44):
You have a very interesting story about how you were flying across the country. You’re based in South Southern California now, and you’re flying back up to New England for a food startup years back. But maybe give us a little background on yourself, both personally and professionally prior to getting involved in investing in real estate yourself, and then also working with past investors and launching a fund. Sure,
Morgan (01:05):
Absolutely. So my background, I wasn’t originally in the real estate space. I grew up on the East coast and actually pursued a career in marketing and found my way towards high growth startups, particularly those kind of doing between biotech and food tech and sort of innovating the food system. So nothing to do with real estate. But that led me from Connecticut out to California where I spent, you know, the better part of more than a decade, helping to build and start high growth, you know, seed to series B type companies that were, you know, making innovation right? And it was an interesting time in life. It is a very, very high stress, high stakes type of, you know, perform sink or swim type of thing. I mean, you’re talking about venture backed startups, right? And you’re part of a portfolio strategy of venture capitalists.
Morgan (02:02):
One in 10 of these things is gonna make them any money, and they kind of write the other nine of them off. That’s part of their portfolio be. And so that works when you have the numbers that they have. But when you’re somebody living inside and working inside and breathing inside that sort of environment, you almost have to think what happens if this doesn’t make it? What happens if I need a bridge or something like that? And so, coincidentally, when I started that career path, I always knew that I wanted this, this sort of other side of a barbell strategy. I had the high growth, you know, high risk, high potential reward startups, but I, you know, I needed something more, more tried and true, more stable. And so back in 2014, actually the house that I was renting in Santa Monica was sold by an investor group.
Morgan (02:51):
There were syndicators in the the LA area, and I, you know, I was like living and writing rent checks, okay, now I’m writing checks to a different group. But I found out in this little, like, I think it was a three or fourplex complex, small, small little housing area, they made like a million dollars on the deal. And I remember thinking to myself like, who are these guys? Like what, what is this? I, why was I not in that conversation? You know? And I actually pursued them. I’m like, you know, trying to get coffee with the, the principals and like trying to figure out what this is all about. That led to a relationship where essentially I was making decent money in my startup and I would take whatever I had at the time. And sometimes I’d combine it with a buddy or two to sort of afford the bare minimum LP check into these guys’ deals, which at the time were la value add multifamily syndications in sort of growing parts of town.
Morgan (03:47):
Not the ultra luxury stuff, but, you know, gentrifying, turning neighborhoods, that kind of thing. And this is a time when LA was investible. Mind you, it’s gotten very different since about 2020. But we had growth trends. We had all sorts of things going on. And so I found myself doing this over and over where we were silently just kind of collecting mailbox money and quietly doubling our money every three or four years on these syndications, they performed incredibly well. Whereas I found that with my startup career, I reached milestones of success. We’d raise a huge, you know, series A or series B round, I mean, some of them to the tune of multiple hundreds of millions of dollars. And all of a sudden you have a wave of expectation. The goalpost is moved so far down the road, you can’t even see it. And I found myself on planes.
Morgan (04:36):
I found myself away from my family. I found myself essentially living, living a different life. And so it sort of led me to a road where I caught myself one day, you know, doing my usual commute to, to Boston from Southern California. I mean, that’s like a six hour flight, right? And you’re, you’re, you’re gonna get in, you know, you gotta get in for the Monday meetings. So that means it’s a Sunday flight. You’re at the 1 41 tm, JetBlue, you’re gonna get in like 9 45. You’re probably gonna eat Burger King when you get there, right? There’s, there’s nothing open in Boston at night, but the Irish pubs in the, in the fast food stuff. And, you know, I just found myself like taking off. And I remember one of my friends were at the beach. My, my fiance was out there, like all these things.
Morgan (05:18):
I was looking down on like the most beautiful day. And I just realized I, like, I think I’m living at my dad’s life. Like this is, this is, this is not me. This is, this is this delay gratification indefinitely. And while I was, you know, while, while protected growing up, I felt that it ultimately was like a, a different sort of attitude than saying that I wanna live life on my own terms. And that was a really painful moment for me where I realized that I had to look at everything that had created my success up to that point and realize that it wasn’t gonna help me live the life that I wanted to live. That I actually needed to look at things that were working behind the scenes, and particularly those things that I was doing in real estate to help me live with intentionality and more financial freedom and live the life that I wanted. Yeah.
Charles (06:05):
Yeah. No, that’s that’s quite the story. I mean, that’s quite the travel commute. Yeah. Six six hours and three times zones to every week. I mean, that’s, that’s crazy. I’ve invested passively into startup and you know, startup funds, angel funds and stuff like that. And I didn’t really understand it at first. And then little by little as I understand more and more of it, it’s, it’s pretty crazy if no one’s ever done it. It’s not like real estate where we try to make like a double digit return, right? A you know, a teens return. It is something where every deal has to be able to cover all the losers and make money. It’s like, you ha every deal is like a, it’s like just putting it on, you know, keeps on putting it on 31 or something on roulette, and you’re like, okay, we’re gonna hit it. We’re gonna, there’s no, like, we’re gonna put, you know, we’re gonna make 50% here and there. It’s like everything has to go, like, you have to go full in because of the amount of risk and losses you’re gonna have. And like you said, 90% of the deals, you know what I mean?
Morgan (07:00):
It it, that’s so true, Charles. And you know, furthermore, when you’re in the startup environment, you’re incentivized for taking outsized risk because frankly, you could see an opportunity to make a double or a single, and you’re almost not encouraged to do it. You have to swing for the fence every time, babe Ruth style. Otherwise you’re striking out. Whereas, like in real estate, go add laundry room, make in incremental income you know, make, make a unit turn that that brings another a hundred dollars per, per unit. And you’re, you’re, the way that the, the valuation is gonna be multiplied on that investment with the leverage quotient that you have, it makes so much sense without taking on this exorbitant amount of risk. So in a way that kind of attracted me to like a, like a big career shift where five years ago I decided, you know what, yeah, I’ve done this as an LP several times over.
Morgan (07:54):
I’ve done well, people have seen me do well. They’re, they’re actually coming with me into certain deals. And ultimately I, you know, I think I’m gonna take a crack at doing this myself. I’ve learned a lot from these operators. I’ve leaned in. And that route, by the way, for anybody listening is looking at, you know, doing something in real estate. If you have the funds, if you can be an LP that’s active, it’s just a great way to learn, go find a sponsor two that you trust that are willing to share notes with you. Oh my goodness, you, you, you can pick up an education in this without taking on a ridiculous amount of risk if you don’t yet know what you’re doing. And so I can’t, I can’t stress enough how much that helped me with my own educational journey here.
Charles (08:35):
Yeah, make sure you fill out that, that GP first before you do that, because a lot of them, especially the larger ones, are not that interested. Even getting on calls, you know what I mean? With a lot of smaller LPs, if that’s where you’re coming in at, but they’re less likely even more to be telling you everything that’s going through it and explain more of the process, which I was on my first deal when I LP invested years ago. And then I’ve had some LPs since then that have been like that. You know what I mean? Where they’re more, there have some that don’t want anything to do with it. You know what I mean? You’ll never hear from them ever. And then you’ll have some that once in a while or if something’s off by one day or something like this, or they get a report and they have questions about it. But you’ll get some that are very active in it ’cause they wanna learn. And it’s, it’s a, you know, you just have to make sure that the GP is actually someone that’s going, you’ll probably kind of understand from when you’re speaking to ’em initially, how much time they’re spending with you. ’cause They’re not spending much time with you upfront. They’re probably not gonna spend much time with you during the deal of what I would think. No,
Morgan (09:31):
That’s, that’s exactly right. It’s, it’s, you know, there, there, there definitely is a matching exercise, right? When you’re, when you’re doing that, it’s not just about the deal and the market and the strategy and the exit terms, it’s about the alignment with the sponsor and what kind of experience you want to have out of it. Right? And you’re right, that sun sponsors, they would’ve put a 10 foot wall up, you know, others kind of invite you into the house and say, you know, here’s a cup of coffee. Let me, let me explain to you what you’re doing. That’s a very important part for, you know, let’s say an investor that wants to be actively involved to maybe not go with the sponsor that’s not gonna share information with them, right? And, and vice versa. Yeah.
Charles (10:08):
Yeah. No, that makes perfect sense. So kinda moving forward to what you’re doing now, can you give us an overview of what Ocean Ridge capital’s your company’s current investment criteria and strategy is? Yeah,
Morgan (10:17):
So our whole focus right now is on elevating the standard of affordable housing in America. I mean, there’s something like 5 million missing housing units. And we do hear about this, you know, are certain markets oversupplied certainly, but a lot of that’s on the Class A and sometimes on the Class B side of things, it’s very, very rarely on workforce housing. Section eight housing, that kind of thing. There’s almost a perennial national backlog in a bunch of different markets for, for section eight properties and lie tactics. So what we focus on is really buying things that are, I would say, at a fraction of replacement cost. Looking at bringing them to a standard that’s, you know, it’s not luxury, but it’s, but it’s, but it’s functional, it’s safe. It’s, it’s, it’s a good community to live in. And ultimately we found the sweet spot of doing this in markets that are, I would say presti institutional.
Morgan (11:13):
You know, we’re, we’re not gonna compete with everybody in Dallas or Phoenix. We’re gonna find tertiary markets where we can find really excellent cash flow and nice going in cap rates where we can then kind of be like a professional operator in a smaller market and deliver better, better product to the market than it’s even used to. Seeing which drives our lease up and ultimately helps us to create value for, for operators. That’s one side of our model. The other side is that there are certain markets where we don’t have a competitive edge today, and we actually will act as a capital partner again, on the affordable housing side. But really backing who we believe are best in class operators that are executing similar strategies. And that all banks on the diligence criteria and the work that I’ve done, you know, as an LP in, in 50 plus deals but also as an active operator in certain markets where, you know, we just, I think we just know kind of how to look at things in a way that protects investors, protects the downside, and then ultimately stacks the bests as possible for, for, you know, good upside returns.
Charles (12:16):
Yeah, I think that’s a great way of doing it. And I think you’ll have operators that kind of get scared of using that strategy because, but it’s also the most truthful. So like we, we buy in Florida, we buy right now in DFW and then also Atlanta, but when those two other markets outside of Florida, we don’t have a lead role in, right? So it’s something where in that scenario, there’s no hiding that fact. You know what I mean? So it’s one of those things where I’m just not gonna have boots on the ground living in southeast Florida for someone that’s in DI just won’t, you know what I mean? Versus someone that has it there that I’m working with. So I find that great that you’re doing that instead of you just trying to like, oh, we’re gonna, I’ll have someone that focuses on this, learn a whole new market and then like build a whole new team over there.
Charles (12:57):
And it’s, I mean, it’s a very, I mean, takes many years, you know what I mean? You’re probably talking a decade really to build the solid team with contractors with a great property manager that you don’t have to keep on switching all this kind of stuff. So that’s a great model. I wanted to talk to you about the new supply coming out and what you’re talking about because, so we went through, what was it, almost like a half million units came on market came online in 2024. Those were a, like you said, obviously it doesn’t make sense really to build C or B because for a little bit more you can pull the ice finishes in it. But as I, as I’m mainly a b class investor now started off in c class many years back. The thing though was that I, I don’t think that really affected us so much in C class, but obviously it doesn’t be, so do you think there’s any, I mean, how does that bleed down?
Charles (13:43):
‘Cause There is a bleed down effect, obviously if you’re, you own Declan properties, it’s not gonna touch you. But I mean like obviously coming into like c plus your B minus, which I would imagine what you consider is like your core workforce housing, right? So are you saying that there’s not much, you know, much effect on those properties? And I also wanna just preface one thing too is that one of these half units, half a million units came online. They’re mainly concentrated on like 20 main markets in the United States. So that’s another part too that I just wanna get out there. But what do you feel like, how does that affect, and where do you think that line kind of is in the sand where new product really doesn’t affect when you go below it? Yeah,
Morgan (14:20):
No, you’re, you, you’re so right about that. And it, I mean, look, we, you are right that 500,000 units came online last year and what is it? Almost all of them were absorbed or maybe north of 460,000, right? Where now we’re having supply start to fall off a cliff, especially looking out a couple of years. You know, I think the nearest term you’ll see, let’s say that class A product goes to market, you’ll see some, a little bit of pull from the Class B tenants that are getting, you know, a couple months of free rent or some aggressive concession if it’s a really overbuilt market at that current moment that might pull them out of that category. But it’s, it’s not enormous, right? And then I think that might incentivize certain people in the Class C group to go to class B, but it, I haven’t seen that.
Morgan (15:05):
It’s really substantial in my experience based on the assets that we target. You know, again, a lot of ours are, are are class C and I tend to look at stuff that’s like 25% of the median rent. It almost cannot get any less expensive that it, even if they’re giving two months free at a $900 a month apartment, well ours are six 50. And, and, and frankly like people will see right through that or maybe they won’t income qualify. And it’ll help to kind of insulate some of the, you know, the tenant volatility that maybe you’d otherwise see from an oversupplied market. Now another point though that you brought up around like, like locationally, this is gonna be, you know, different a little bit where wherever you go. But that, that, that layer of affordability, I, I just don’t think it’s getting any cheaper.
Morgan (15:59):
I don’t think it’s ever getting any cheaper. And so you have these plays in value add apartments that are, that are on the, you know, the lower end, especially in markets that are not war zones, but maybe they’re, they’re a little rougher, but they’re not, you know, it’s, it’s not brickle, you know. And then you also have plays in stuff like mobile home parks where inherently the value of what you’re buying, you know, a mobile home park, 40 to $50,000 a lot, whereas a single family home could go for 300 in the same market. And you just have such a divide of affordability that, that more and more people need today that it can really insulate and downside protect those kind of investments.
Charles (16:39):
Interesting. So when you’re building your own portfolio, working through investors or buying stuff, just yourself maybe with a couple JV investors, how have you really sourced a lot of your deals? Is it through brokerage? Do you go directly to seller?
Morgan (16:53):
So a lot of our deals come from off market or in and industry relationships. You know, when we built our Cleveland, Ohio affordable housing fund, that was in 2020 and 2021, everybody’s chasing growth in Austin and Boise, right? It’s like a funny time. Money’s being printed and yellow stocks, whatever. We were going for like the ultimate value and a lot of it came from wholesalers and kind of off market reps. We bought some things right off the market though, just because there wasn’t competition the way there is today for those kind of assets. And what’s really interesting is that that pendulum has swung now where they actually haven’t really built in a lot of those markets, Cleveland and Rochester and Buffalo and whatever. Whereas now, you know, everything’s juiced on the market and it’s, it’s almost hard to find a deal.
Morgan (17:44):
Five years ago you could find them, right? We were buying, you know, 12 to 15 cap pro forma deals out there. Whereas now, I mean, you’re kind of lucky to find a 10. So it, it’s a big, it’s a big spread. You know, in terms of the ones that will back when the, there’s another operator. I spend a lot of time just networking, ding other sponsors opportunities, trying to get a feel for who has the best deal flow, but also who has a just paramount integrity, who’s very conservative in their underwriting. Those kind of relationships are the ones that I’ll tend to prioritize when deal flow comes through. And then I’ll kind of pair that into, hey, well what are we looking for in the asset in the market, in the exit and the return profile? That, that kind of thing.
Charles (18:33):
What do you look for with these other operators that you partner with in regards to their team? This is something that I’ve really started digging down more into, and not just property management team for sure, but also who they’re using in regards to, as we’ve seen over the last few years, who your lender is in. That lender relationship is extremely important, especially if you’re going through what we just went through and what people are going through right now. What, what are your thoughts on that?
Morgan (18:57):
Yeah, I mean, team is everything, right? It’s make or break on the investment. And it’s not just about the operator, it’s who they have on the ground. You know, I tend to look for rinse and repeat who’s done deals in the market before? I, I like to see people vertically integrated as long as it doesn’t pull them away from being excellent across what they’re doing, right? Because the sponsor has a lot of different responsibilities. If vertical integration is something they’re doing, I want to, I wanna see case studies about how they’ve turned around other, you know, other properties in their portfolio before I’m even gonna look that direction. ’cause You’re essentially banking on their management as opposed to an outsized management company. And that could be a great play, but they need to be staffed in that market, right? So I think that would be a key one for the lenders.
Morgan (19:43):
I mean, I tend to, like, when they’ve done deals before with the lenders, same lender, you know, it’s gonna reduce the risk. There’s some relational capital. It tends to be a, you know, a a a strong play when they’ve, you know, we, when they’re on first name basis, right? And it’s just a little bit more of a you know, hey, we, we, we’ve played well in the sandbox before because I’ve also seen a lot of people that have had the rug pulled from lenders they haven’t worked with. And you know, it’s resulted in either no deal, a loss of capital or, you know, other kind of negative downsides type of things that, that you could otherwise maybe avoid if they, if they, if they have that capital.
Charles (20:19):
Yeah. And I imagine if you are, you know, you’re speaking to a broker and they’re gonna ask you too, if they’re representing the seller, they’re gonna want to know all this too, right? Especially now when you get into stuff that’s a little tougher, they wanna make sure a deal’s closing just so they get paid their commission, but also for their client that the broker’s doing what they said they did, right? Finding the best buyer that’s actually gonna close for the highest price. So I think that’s an important thing. I think you have a lot of people that are working on the commission side of it that wanna make sure what is your actual, not just that you have funds, that you’ve done your underwriting on it, that you wanna buy the property, but it’s also that you have the means and the team you have actually worked with before. And how much have you worked with them before? Yeah,
Morgan (21:01):
Yeah. No, couldn’t agree more. That’s that. It’s so important.
Charles (21:59):
Morgan, How do you how do you typically structure deals or in the past or how do you usually finance your acquisitions? I mean, this could be if they’re one-off deals you’ve done yourself, these could be with what you do with your fund. I mean, how does that usually work?
Morgan (22:11):
So I’ve had a combination of approaches here. You know, a lot of what I’ve done has been kind of just traditional syndication. You’ll pull together, you know, investor, investor money. I tend to attract higher net worth entrepreneurs to my ecosystem, particularly those that, that kind of see what’s going on in the affordable housing domain. And so we’ll, we’ll pair together, you know, 50 to $500,000 checks to go into certain deals that are, you know, we, we take a big, a big leg in terms of de-risking them and ding them and bringing people into those opportunities. You know, I’ve done a lot of creative structures, less so in the multifamily space. Not that you can’t, I’ve just had a little more experience with that on the single family side. Back when I was in my startup career, I really looked at real estate as an important tax haven and strategy for kinda insulating passive capital gains.
Morgan (23:06):
And one of the ways that I found a really good leverage point there was through subject to and seller financing, subject to is where you’d essentially have the, the seller keep their mortgage in place, but you make payments, the deed goes into your name. And it’s, it’s, it’s kind of a, you know, it’s an interesting strategy to be able to get, I would say, better than market interest rate loans on your properties. So I found really good inroads there where it would require so little capital to buy these properties. ’cause Kind of what you’re doing is buying somebody out of what they see as a liability. You know, we as investors see a 3% interest rate as an asset, but somebody who’s behind on their payments might say, I just wanna get away from this thing. Right? So it’s kind of important to see like who’s sitting on the other side of the table from you and what’s really important to them.
Morgan (24:00):
What’s the way that we can creatively structure this deal that’s gonna benefit everybody here? ’cause Frankly, a lot of people that are selling, even those that have good mortgages, sometimes they’re selling in their underwater after brokerage and, and and, and closing costs. So they might be more preferential to sell and do a loan assumption or to do a subject to transaction, or maybe they like the income of the property and they own it free and clear. They might really just like to do a seller finance deal with you. So it’s kind of about feeling out what’s right for them, right? Like, we’re not here to, to take, we’re, we’re here to serve and even for the seller, right? We’re here to like listen to them, try to solve their problem and be the one that can give them what they want. It’s not just like, give me the highest price. I mean, I can’t tell you how many deals I have not been the highest bidder, but we’ve been, we’ve been given the deal because certainty of close creativity of how we structure it or some other aspect of, of how we we deliver value in the situation. Yeah,
Charles (24:57):
And that’s, it’s interesting. I was speaking to someone earlier today, an investor, and he was telling me that he’s gotten more deals when they don’t talk about numbers when they’re just talking about and structuring it for the seller, and you’re like, makes perfect sense. Not what you would think if you just came into it. But when you think about it and you, you think through it and you go, that makes sense. You know what I mean? Helping out people. What do you need? Like you said, if you’re gonna be a little, if I’m gonna lose money on this, I might as well figure out another way. If I have to move outta town right away for a job or whatever it is, I don’t wanna sell it. Maybe this is the best way of doing it, and then maybe you’ll refinance me out a few years, or you’ll sell it, whatever it might be, but I don’t have to worry about harming my credit or lose your money. Yep.
Morgan (25:35):
No, could couldn’t you agree more? It’s just about, it’s a, it’s a, it’s a listening game as much as anything else. And, and, and trying almost not to be the one that’s talking sometimes can be the, the, the best way to score a great deal.
Charles (25:48):
So we talked earlier, and I kind of glossed over it quickly, but you know, 50 different LP deals, over 50 LP deals. I mean, what are some of the main takeaways you have from investing in that many deals? And like I was talking about before, I don’t think I’ve had anybody on the show that’s told me that they’ve invested in that many limited partner passive deals. So kind of enlighten us about, you know, what you learned from that and then kind of what you’ve used with what you’re doing now. Yeah,
Morgan (26:12):
No, absolutely. I mean, look, from investing in that many deals, I think boils down to a few key principles. Number one is like you, you cannot fix overpaying for a deal. I mean, look, there, there’s like this misconception, right? When people say, in, in our real estate world, never lost a dollar of capital, right? You, you hear that one often. Does that mean though, that they had to wait 10 or 15 years to sell the, the property, right? Where that capital could have actually actually been cycled out? A lot of times, I think you see this on, on poor buys though, where people say, well, I kind of bought, wait, wait, wait, at the peak, I gotta wait till the peak of the next cycle or, or close to it to get out of this deal. So frankly, like I just bake that in from day one.
Morgan (26:59):
I’m looking at replacement costs. I’m trying to think, you know, at a bare minimum, I want to be, you know, under, under 20, 20, 30% of replacement costs. I’ve seen stuff that is 20 to 25% of replacement costs. Like, so if, if you’re asset would cost, like, you know, let’s say 5 million to build, maybe you buy it, you you can buy it for one or two. Like those are fantastic buys a a as long as there’s market demand where you’re going because at the end of the day, like you, you have new building that’s gonna be constricted to that replacement cost, whereas you got in for, for a fraction as, and if, and if you can manage a rehab well and turn that thing into, you know, what a a, a good standard property there’s a lot of insulation and protection there.
Morgan (27:48):
I think also market matters a lot. I mean, you know, you don’t want to , you don’t wanna plant a seed in the middle of the desert, right? And it’s like, it’s just about where, where do you actually see trends, both supply and demand. We spend a lot of time looking at kind of mixed between population growth, job growth, demographic, landlord friendliness relative to the built environment, what’s coming online, who is investing. I mean, just pairing that all together. And again, for us and for our investors, they love this like presti institutional size, right? I don’t wanna complete, I don’t, I don’t wanna compete with BlackRock or whatever. I want to, I wanna be the big, the big dog in a smaller market. And so that really helps us out here. You know, I’ve got a few more I can go on, but I don’t know if you wanna, if you wanna address any of those ones first. Yeah, no,
Charles (28:35):
That’s great. No, go on with with, with the rest of what you’ve learned. Yeah.
Morgan (28:39):
Look, operator is key. I mean, we, we know that, right? But you’re, you’re very much betting on, on the jockey. If the team can’t execute the plan, you know, it’s, it’s, it’s almost like what are you, what are you doing? Right? So experience is key decision making under stress. Try to like vet that out in those conversations. And I think also transparency is key. You know, at the end of the day, like we’re, we’re, we’re all adults here, right? And if your investment’s not doing so well, it’s, it’s important to share that. So, you know, there, there’s a certain way to kind of bring that message. But I’ve seen sponsors where deals haven’t gone so well and they don’t, right? And that doesn’t bode well for building relational capital. You know, I think structuring for the downside is another key one, just making sure that there’s a good installation around like how, you know, how ultimately you’re protected.
Morgan (29:33):
I like fixed rate, longer term duration loans. I mean, even when we bought our, our Cleveland portfolio, we, we put a blanket loan across the entire portfolio in 20 22, 30 years fixed rate. You know, and it’s, it’s not the standard, right? Most real estate investors would do five or 10, you know, year duration, and that’s okay too in certain times. But if there’s uncertainty around the rate environment where if things are at historic lows and that kind of thing, it’s just prudent sometimes to think, well, let’s go against the grain here and actually look at this as like a, a little bit of a protectionist type of thing. So I would say those are really key. And then lastly is like, how are you gonna exit the thing? You know, a lot of us can get into the trap of thinking, Hey, it’s a great asset, we’ll figure it out down the line.
Morgan (30:22):
And sure you’re in a growing market. There’s, you know, that that kind of thing is going on. But I really like to look for multiple exit strategies. I think that can insulate and protect the value of an investment. When you think about, you know, hey, we could sell this, but this makes a lot of sense as a long-term hold. It also can cashflow. We also have these options to bring more cashflow in. Maybe we didn’t capitalize ’em immediately, but you have like these, these, these windows and this is what makes real estate investing so, so much more controllable, I think, than the stock market. You don’t have those kinda levers in stocks. Apple stock goes down 10%. I can’t call Tim Cook and tell him to start selling an Apple car or whatever. Like whereas like your real estate, you know, has, has a challenge or has an, has an issue, you can find a way to pivot and create value around that, that experience. So I think thinking about the exit from the get go and the options and the routes, it’s like a really kind of underrated strategy that you should have from the get go going into any deal, whether you’re managing one yourself or whether you’re an lp you know, passive investor.
Charles (31:28):
No, thank you. That’s a lot of great information. And one thing you mentioned earlier in there is about buying under replacement value. And you know, you talk about deep discounts there when you’re buying properties because it’s just one thing that when I hear that, I think of a couple different things. First of all, possibly a lot of deferred maintenance and actually you’re going in and either heavy value add because you might have a lot of, not just your cosmetics where we’re getting rents up, but also a lot of mechanicals bones of the property that you’re putting money into. So can you explain a little bit about a typical deal for yourself as a gp when you’re looking at a deal, you find it, if you’re getting those discounts, I mean, I imagine, I mean, how does that usually work? What are the condition of the properties usually? And, you know, what are the vintages? I imagine if they’re older, they’re gonna be, you’re, you’re gonna put a lot more aside in those reserves for some of those mechanicals and whatnot. Yeah,
Morgan (32:19):
You’re totally right. And so the kind of value add stuff we’ll look at, I would put it at the moderately high, not destroyed. You know, we, we very rarely will buy a vacant building. It’s just, there’s just too many unknowns and it’s, it’s a level of risk that I don’t wanna play around with. What I tend to like is something that is between 50 to 80% occupied. So there’s a pretty good amount of occupancy issue. It’s probably distressed when we buy it. But it’s not destroyed. Mind you, this is, you know, this is something that is a functioning community. We’ll go in and we’ll, we’ll do unit level rehabs, exterior rehabs, and take the whole thing and turn it around. And depending on the market, it, you know, in Cleveland we did a lot of section eight because we found that the section eight offices there we’re paying between 30 to 50% above market rates.
Morgan (33:18):
It made a lot of sense to elevate the standard to that level. Whereas like we have an 86 unit deal in Lubbock, Texas now that we closed in January, that is gonna be almost entirely market. But we just bought it at such a great basis where we can go in and put, let’s say eight to $10,000 per unit to elevate the standard of these, these units so that they have new floors, new cabinets, new appliances, the feeling of new, the feeling of safety. You know, you have just the, the, the basic attainable level of, I would say borderline luxury for a tenant base that’s not used to any of that. Now think about what that’s like. Then when you’re scrolling on, you’re looking for stuff in your price range. You look at all these crappy apartments, you know, and then you find the one that’s got the new appliances and the, the really beautiful paint and it just looks nice and safe and good.
Morgan (34:15):
Like that’s, that’s a differentiator that creates a lot of value to then quickly fill up the units. And ultimately, you know, you can, you can go to the lenders at that point and say, Hey, look, we brought this thing from 60 to 90% occupied and here’s where the rents are. And that often gives us opportunities to get out, you know, a sizable amount of capital to have good exit outcomes in, in a couple years. You know, we’ve, we’ve experienced lots of those different things. And even with our Cleveland portfolio I mean we were able to sell seven of our assets in Q4 for, you know, north of north of a hundred percent return to our investors in a three, three and a half year timeframe. And we’re already under PSA to sell a large other chunk of that portfolio. We’ll just, we’ll just do the same rinse and repeat strategy of turning semi distress into thriving community. And it creates a, a really significant monetary outcome for, for our investors.
Charles (35:08):
What I found, when you’re going above and beyond just by that 10 or 15% end to make it, like you said, more of that borderline luxury for a group of tenant base that’s not used to that, number one, you’re renting it faster, like you said, and number two, you’re getting renewals so that 10 to 15% comes right back to you. Maybe not, you can’t pencil it right out. But you can know for yourself two, three years down the road, you might still have the same tenants. And that’s where you’re all that money you’re saving on not having to make ready and vacancy. And the $5,000 we have to put down and lose for every switch. I mean, that’s just one of those things that it’s coming right back to you. It’s just, you just, it’s a little harder to figure it out upfront. ’cause You know, in the beginning you’re like, oh, it’s gonna take maybe another year to get our money back or another few months, whatever it might be. Yeah, no
Morgan (35:52):
Abs absolutely. And, and also again, you know, all the more reason to work with a team that knows what they’re doing on the ground that can control costs to make sure that these things don’t overrun that, that kind of thing too. ’cause That’s the other side is you gotta still manage all of that and make sure that it’s not you know, it’s not gonna blow out your budget and, and make it, you know, unattainable to deliver that quality to that to the markets you’re at.
Charles (36:14):
Morgan, as we’re wrapping up here, just one question before I let people know how they can learn more about you. What do you say would be some of the main factors that have contributed to your success over the years?
Morgan (36:23):
Hmm. Good question. Look, I think detail orientation and really trying to like protect the downside has been a really critical factor for me. You know, it’s like the Warren Buffet quote right around like, take care of the downside, the upside takes care of itself. But I can’t stress that enough. And I mean, I don’t know. I, I found myself around 20 19, 20 20, 20 21, seeing that things didn’t have the inherent value of, of what it seemed like they could sustain. Right? I know, I know a lot of people talk that this is a very shocking, how did this all happen? I would’ve never guessed interest rates. But when rates are 2.25%, they’re probably gonna go up like , you know? And, and just, just thinking a little contrarian I think is really, really helped me. ’cause A lot of my investments have been contrarian plays. What’s unique about it is I haven’t really had a lot of capital losses either.
Morgan (37:20):
You tend to see that like the contrarian play goes sideways and it didn’t work for this person. Like, I don’t feel like I’m taking extra risk by being a little contrarian and creative. I think I’m just looking at things a little bit more critically to make sure that I’m not following the herd into something. And on occasion that’ll work too. You know, there’s a major demand swell. You can make money, you know, following a mainstream trend, but you’ve gotta be there at the right, at the right time. And I just, I don’t wanna compete with a billion people. I, I, I wanna, I wanna kind of think independently and, and I think our investors really value that, that kind of thing too. The other thing is like, don’t, don’t, don’t chase IRR for the sake of returns. Like IRR could just be a juiced up spreadsheet and you have no idea what’s in it, right? And I’m sure you’ve heard that before and I’m sure you, you’re really methodical with how you do that kind of thing. I see a lot of newbie investors though, they, oh, well, this one’s 25%, so I should do this deal. It’s like the last, you should probably not do the deal because they said it was 25%. Like really look at that thing. Yeah. You know, because you’re probably taking on a risk, you don’t realize
Charles (38:25):
It’s there. Yeah, I’ve heard that before. On investor calls, I had someone that says that, you know, they’re like, figuring out the percentage. And I’m like, well, every deal is different. You know what I mean? You’re going through, you’re like, you know, you’re just like putting some deal that they saw, whatever with old deals that we had or deals we’ve done before. And you’re like, well, can’t really compare them. And the second thing too is I’ve heard, oh, we were getting distributions like the third month out or something. You’re like, well, that’s probably not real cash flow. You know what I mean? Like, it’s just, I, you don’t, you don’t wanna say it, but it’s also one of the things you’re like, well, I mean, they’re just like giving you back money that you gave them. Pretty much. It’s like, so these are all things that you learn. I think after doing so many LP deals and being a, around syndication and looking at so many different spreadsheets and everything, it’s one of the things you kinda, you kind of figure out in your, you, you kind of see through what’s being done and you’re like, no, I don’t want, this is not, this is not for my strategy of investing. So
Morgan (39:14):
You got it. Yeah. It’s all, it’s all about asymmetries, right? And just, just making sure that you’ve got that, that lens. But part of it takes taking action and learning and asking questions, right? And listening to podcasts like this to really get sharp and know, you know, where, where those, those kind of asymmetries are.
Charles (39:29):
So Morgan, how can our listeners learn more about you and your business?
Morgan (39:32):
So I would say check out our website, www dot Ocean ridge cap, that’s CA p.com. Or you can follow me on Instagram at Creative capitalist. I need to be a little more active on there, but definitely go to the website, check out what we’re about, and look, happy to, happy to guide or ask, you know, answer any questions for anybody who might find value here. And, and wanna follow up with me.
Charles (39:56):
Morgan, thank you so much for coming on today. I appreciate all the time and all the insight. I’m looking forward to connecting with you here in the near future.
Morgan (40:03):
Absolutely. Thank you Charles.
