Rawley Nielsen, President of Investment Sales in the Utah office at Colliers International, joins us for this episode of Masters of Real Estate to share the story about how he got started in the real estate business, lessons he has learned along the way, and the impact of COVID-19 on the real estate industry. We discuss the emergence of data and tech in real estate and how small landlords can leverage these resources. Nielsen ends the conversation with insight into how owners can gain important experience and education through the pandemic.

In this episode, we discuss:

  • Deep client relationships are important to building your real estate business. (6:22)
  • Real estate data and technology allows investors to do business in more markets. (8:23)
  • Some larger investors have stepped to the sidelines, creating more activity for private investors. (11:59)
  • Access to market data gives large institutional landlords an advantage over small independent landlords. (16:17)
  • Small landlords may have better tenant relationships, which could help them increase rent collections and maintain occupancy during the COVID pandemic. (24:30)
  • Housing has proven to be a resilient asset class during COVID, with stable rent collection during shelter-in-place orders. (27:21)
  • Organizations and individuals seem to be cooperating to solve problems brought on by COVID. (28:29)
  • Landlords can stay up to date on the impact COVID has had the real estate industry through resources, like NMHC (National Multifamily Housing Council). (35:41)
  • Class-C tenants have the lowest rent collections in the apartment market during the pandemic. (37:00)
  • Start having conversations with your lender and tenants to address any hardships as early as possible. (39:07)
  • Use this time as an opportunity to fine tune your business operations and to identify what is hurting or helping your real estate business. (41:15)
  • Owners should start sourcing capital to prepare for the long haul. (42:49)
  • Be patient during the recovery of this crisis if you want to find the right deals. (48:05)


Non-disclosure states.

Ability of households to pay a $400 emergency cost.

California legislation on a potential rent reduction.

Tom Barrack's "Preventing Covid-19 From Infecting the Commericial Mortage Market" Medium post.

NMHC (National Multifamily Housing Council) Webinar.

Podcast Transcription:

(0:54) Justin Alanís: Hey, Rawley. How you doing? Thanks for being on the podcast today.

(0:57) Rawley Nielsen: I am doing well Justin. Thanks for having me.

(0:59) Justin Alanís: Yeah, excited for you to be on. Really appreciate it and would like to start by talking a little bit more about your background. I've given the audience a bit of an overview, but would love to understand what it is that you do and what type of customers that you service in your profession.

(1:14) Rawley Nielsen: Yeah, for sure. And I guess a very quick background going back to the start of my career. I started at a brokerage firm in San Francisco early 2003. I had always wanted to be in commercial real estate because that was my father's business so I kind of grew up with the business in my blood. Not necessarily the brokerage side, but the commercial real estate side. I had always been intrigued by him and wanted to be a part of it so I was lucky enough in 2003 to find a boutique firm in San Francisco called the Royal Coast that was hiring and started my brokerage career with them. They were a firm focused specifically on, well for the most part, on apartments. So early on, even though I really didn't know what apartments were going into it, I knew what they were but had no real direct experience with apartments other than some student housing I lived in in college. I got right into the game in 2003 and have been in it ever since.

(2:15) Justin Alanís: You know, I have a fairly similar story. My father was in real estate and I think a lot of people who are in real estate have a similar experience of it being a family tradition of sorts.

(2:26) Rawley Nielsen: Yeah, both of my, I've got two younger brothers. One works with me at Colliers in brokerage, and the other works for a multifamily developer here in Salt Lake so both of my brothers ended up in the business as well. So that's fair.

(2:40) Justin Alanís: That's funny. All my siblings decided to go different directions so I was the only one who I guess followed in my dad's footsteps. Great. So you started out at Royal Coast and then it seems like you stayed in San Francisco for a little bit before you moved out to Utah?

(2:54) Rawley Nielsen: Yeah, I did. I ended up doing brokerage there for 12 years and while I lived in San Francisco, my office was there. Most of my business initially was in the East Bay in Berkeley and Oakland so I kind of cut my teeth selling and trying to sell rent controlled apartments in the heart of Berkeley and Oakland. It kind of grew out from there to sell throughout the Bay Area in Northern California. So yeah, I did that out there for 12 years and then came back to Utah 5 or 6 years ago to kind of transfer my business up here.

(3:29) Justin Alanís: Yeah, and through this discussion, we'll talk a lot about those different transitions. Both in terms of market transitions as well as career transitions and sometimes the market transitions lead to career transitions. It certainly did for me. But I'd love to talk about your more recent experience with Colliers. You are now the President of Investment Sales in Utah for Colliers. I think you're pretty much exclusively focused on multifamily. Is that right?

(3:54) Rawley Nielsen: Yeah, so when I moved back here again, in the Bay Area, I only did apartments. That's all I knew. Moving back to Utah, I actually moved back up here to start my own brokerage firm with my dad. So in 2014, we opened up our own firm. It was a licensed office for NAI, which is a global brokerage company and we took over the Utah operations or at least the northern Utah operations. And because I had made a move and was reestablishing myself in a new market, I kind of was doing any product type I could. I wasn't focused exclusively on apartments. One, because I didn't have the deep background in it in Utah and two, again, this was 5 or 6 years ago. You couldn't... I mean, in the Bay Area, there's tons of apartment brokers selling apartment deals because there's a lot of apartment buildings to sell. In Utah, especially 5 or 6 years ago, there weren't that many buildings to sell and there were even less than they actually traded. Over the last few years there's been a lot more development, a lot more buyers and sellers so its become a more liquid market. So those first few years, I was selling any products that I could to reestablish myself to help build this new brokerage company. But as I've established myself in this market more, and as the apartment market has grown deeper here, I've been able to shift back and go more towards trying to focus exclusively on apartment buildings. We will still sell the occasional office building or shopping center but those are more client relationship focused. We're not strategically going after different products.

(5:37) Justin Alanís: Yeah. When you shifted from San Francisco to Utah, did you have to build up a whole new book of business and basically start from ground zero?

(5:46) Rawley Nielsen: Yeah, and people that see many times. Changing your marketplace geographically is not something I would you ever recommend to someone who's in the brokerage business or even the real estate business. It's hard because so much of what you build in real estate are personal relationships and knowledge of a market. I mean, I feel like my first few years I knew the city of Berkeley, you know, better than anybody street by street, building my building. Moving back to Utah, I had grown up here for the most part so I knew, you know, the lay of the land, but I didn't have those deep client relationships. My dad had been in business here for years so he had some relationships that I tried to piggyback off of. But yeah, it was difficult. I basically had to rebuild a book of business here in a whole new market. But luckily, because of my dad's relationships, or relationships I had had from high school and college I kind of was able to much more quickly do that here then I was able to do it in the Bay Area. So 5 years, 6 years later, I've kind of rebuilt a good career and business here.

(6:58) Justin Alanís: Yeah, that's interesting. I wonder now with your perspective of doing that in the early 2010 period, moving from San Francisco to Utah, how that would be different now if you were to do that, given how much more available data is and how much more available customer information, owner information landlord information is out there. Do you think that that transition is becoming easier as technology and data becomes more available to people? Or do you think that it's staying the same?

(7:27) Rawley Nielsen: Yeah, I think it definitely is becoming easier. In fact, when my wife and I, when this opportunity came up to move back to Utah, because we never thought that we would come back here, my wife's from Seattle. When the opportunity came up, I actually at one point said, what if we moved to Utah, but I continued to do brokerage in San Francisco. Because even back then, you know, 2013 and '14, there was enough data out there and you could telework well enough that I even at one point considered living here but keeping my brokerage business in San Francisco. I didn't do that and I think it's a good thing I did not, right. Today that would be much, I mean for all you or my clients now I could be in, other than the COVID crisis, I could be in blue right now. Or I could be anyplace in the world still, for the most part running my brokerage business if I have someone that's boots on the ground. So data and technology and all of that being more widely available and accessible is definitely changing the real estate industry and the brokerage industry.

(8:32) Justin Alanís: I've also seen that. You know, at Rentlytics we saw that with owners who were able to use their data to advance into new markets and the availability of data through Costar and other municipalities opening up their data. We definitely see that with both investors and brokers where you're able to have more of a national reach and it doesn't become such a local game as a result of these technologies improving and advancing over time. I'd like to talk a little bit about who your customers are today, how they've changed over your career. We talk a lot about institutional investors versus the independent landlords out there. Where does your business focus today and how do you think about those customers?

(9:12) Rawley Nielsen: So again, because of the size of, this would be different if I were still back in San Francisco. Because of the size of the Utah market, it's very difficult in Salt Lake City to say I am only going to do institutional business because there's just not enough of it out there for multiple people to focus purely on the institutional space. So my business and most of the top brokers here in Utah, it's a mix of the private client, the net worth individual, the private fund on up to the institutional investor. It's becoming more institutional in Salt Lake where you can build over the next few years. I think you could build a career more focused on that. But mine now, and probably for the foreseeable future, is a mix arranged from the private client on up to the traditional investor.

(10:03) Justin Alanís: So do you ever see a situation where your high net worth private client investors have overlap with your institutional investors? Would love to understand from your perspective how they think about real estate differently. And how they think about the types of assets that they both want to buy and how they want to sell and when they want to sell.

(10:22) Rawley Nielsen: Yeah, I think there's definitely overlap. And in fact, the reason they might, my first 5, 6, 7 years in the Bay Area, I would say 90 percent of my, well, probably 99 percent of my business was the private client or the private fund investor. I did very little institutional business early on. Part of the reason I transitioned from Royal Coast, the wheelhouse brokerage that we started, to ultimately me ending up at Cushman and Wakefield, was because I was trying to transition my business to go after more of the institutional investor. Because I thought I would like that business more. It was a little more, it looked more exciting and attracting. So I've got deep experience on both sides. Luckily, that serves me well here in Utah because on a lot of deals. I mean, we'll list a 40 million dollar apartment building, we'll get numerous offers from private clients, and we'll get offers from institutional investors. And you've seen, especially coming in today is different than if you and I were talking 6 or 7 weeks ago. But in this run we've had from 2011 til today, because it got so competitive in the apartment market space and deals became more competitive for bidders. You'd see institutional guys that were historically only buying deals, whatever, 40, 50 million dollars and up, where they'd start to lower their price on the lower range, or they'd start to look down at 20 million dollar deals, 30 million dollar deals. Just because they were trying to get so much money out the door. So over the last 5, 6, 7 years, we've seen a lot more competition between the quote on quote, the institutional investor and the private investor just because there's so much money out there.

(12:10) Justin Alanís: Yeah, this private client market, the independent landlords, it still seems to be one of the few markets, real estate markets in the country that has not been fully institutionalized, right. So we're talking about the single family residential space. Individual landlords can still clearly get into that because there's so much inventory. But you see what's happening with folks like Invitation Homes and Starwood Colony and other players in that market and it definitely creates more competition, more liquidity in the market. And it becomes tougher for these independent landlords to actually compete. Then you've obviously got the institutional segment where the independent landlord clearly can't compete in that because they just don't have the cash to do it. And so this independent, this private client market, these small assets, multifamily specifically, but also other asset classes. It feels like multifamily is the most approachable for these independent landlords. We are seeing this trend and I certainly saw this at Rentlytics. And also early in my career in private equity where you see these private equity folks with huge amounts of capital coming down market and trying to scoop up and aggregate assets in order to create concentration in markets. I'm sure you've been seeing that a little bit in Salt Lake City. So on that note, I'd like to understand how can in this environment, how can independent landlords compete with institutional investors if they're bidding on on similar or the same properties?

(13:35) Rawley Nielsen: Well, it's tough. In my mind, it doesn't just come down to bidding in terms of price. Because oftentimes, the private client can accept a little bit lower yield than the fund, or the institutional investor that has certain hurdles they have to hit or certain fund requirements they have to hit. So oftentimes, we will see the private client. In fact in Utah in the last couple years, the largest sale in Utah's history was a private buyer from Northern California, who outbid many institutional investors for the largest class A asset that was ever sold in Salt Lake history. It was 180 million dollars.

(14:18) Justin Alanís: This was somebody with a lot of high, that's a very high net worth individual, right? Ultra high.

(14:23) Rawley Nielsen: High net worth. And in fact, it's funny that I don't know this gentleman well, who bought the building. But I know who he is because back in my original days at Royal Coast, one of my colleagues there did a lot of business with this guy when he was buying. He was a dentist in Sacramento. But he was buying you know, 20, 30, 40, 50 unit apartment buildings. This was 15, 16 years ago and now he's grown up to own the largest asset ever to trade in Salt Lake City and beat out, you know, the really big players, Kennedy Wilson. These guys that were chasing that deal. So in my mind it's not always pricing where it's hard for the private client to beat the institutional client or to compete. It's also, I mean we had a call this morning with Alliance's Residential. I forget how many units they have in the country, but on the West Coast, they manage 50,000 units.

(14:26) Justin Alanís: I think they have 150,000 across the country or more.

(14:53) Rawley Nielsen: Throughout the country? So we were having a call. The Colliers Multifamily team had a call with Alliance's western region leadership to discuss what they're seeing with lease up and rent collection because of the COVID crisis. But that call, reiterated, reinforced in my mind the big institutions are the guys who are able to tap into that. To have optics and data is so difficult for the private client to obtain. The competitive advantage for Alliance over, even over the gentleman who bought the big deal here in Salt Lake. When you manage 50,000 units, you have optics into what's going on that someone who owns 1,000 units could never compete with. And you as the 50,000 unit owner, I shouldn't say never compete with, it's hard to compete with without that same data. Without knowing what consumption you're doing and what lease up looks like and turnover. That's the type of stuff the institutional investor has. It's more difficult for the private client to obtain, but to our previous discussion, data and technology are starting to help in that sense. But that's where it gets tough.

(16:30) Justin Alanís: Yeah. We've seen a... Listen, I was guilty of this Rentlytics in terms of servicing those institutional clients, Starwood Capital, Blackstone, BlackRock. We had a strong relationship with Alliance and Greystar and they do have proprietary data, but 150,000 units of proprietary data is meaningful for performance, but it's not indicative of the entire market in every asset class in every pocket of the market. But where these folks do have, I think another competitive advantage, is that they can afford to buy data from all these various providers who are out there. And they can also hire and grow teams internally to be able to use and harness that data really effectively. Whereas in the private client market, what we've seen so far is that the individual investor is typically relying on, you know, knocking on doors, calling up local comps, looking on Craigslist to figure out what rents are. Not having really sophisticated underwriting under the hood in order to understand how to buy an asset or what the cash on cash or IRR and return structures look like. And probably getting a lot of this data wrong and then also relying on the broker ecosystem to furnish a lot of this data to them. And part of what we're doing now at Awning is obviously trying to democratize a lot of that. And bring the same level of sophistication down to these individual landlords that companies like Blackstone, BlackRock and Alliance and Lincoln have. But I just haven't seen a lot of that yet. I've seen some tooling around the fringes to help with things like property management and maintenance for some of these independent landlords. But not a lot of data driven, artificial intelligence, machine learning type of product yet to help them make better decisions. Do you think that that's the next wave to happen here in, call it proptech, is to now stop thinking about the behemoths out there because there's such a disadvantage now with the retail landlord? That now some more companies and more money are going to be poured into helping this really long tail of the market and helping these folks compete with these larger landlords?

(18:35) Rawley Nielsen: I think so. I think there's no question. I mean, as a broker, and I feel lucky to have started my career in the tech center of the country, if not the world, in San Francisco. Even though I wasn't in tech, I was surrounded by it. So I feel like I'm maybe a little more forward thinking than your typical broker. Because as a broker, what are our skill set is the value we bring to the table, especially being the old school broker, is the off market knowledge that the general public doesn't have, right? That's why historically brokers would just hoard their data on sales comps on rent comps. So even something like Costar freaked brokers out 10 or 15 years ago. Even in Utah now, all the brokers hate Costar because Utah's a non-disclosure state in terms of sales prices. So when something sells here, no one knows. Only the broker knows because it's not even recorded with the county or disclosed as public record. So brokers here feel like that's one of our strategic advantages, is we know the sales price of that asset. To me, that's an old school way to think and again, I feel lucky that I spent all that time in San Francisco to see that, hey, you got to get on board with the next wave. Because if you don't, you're going to get run over by it. And I do think data and data driven tools and technology for the private apartment owner are the next big wave. I mean, you look at the number of privately owned units in the country. And it's staggering that it's such a bifurcated antiquated industry. When we sell assets, I mean, we could sell... We had 140 unit apartment building listed here in Salt Lake, which is a good size deal and the owner of that property only had one asset. Sorry, it was 216 units, that owner only had one asset in Salt Lake City. And their only reference or data point was what their onsite manager told them. We come in with a bigger market knowledge being brokers selling these fields and immediately saw tons of value add. Where they're under market on many items. But even an asset of that size, unless an owner is proactively paying for that data or has it as you said, a staff on hand that can go do all this research and analysis for them, you know, they're falling behind pretty quickly.

(20:58) Justin Alanís: Yeah, this goes I think more towards a disparity and a lot of different things with the more wealth that you build both as an individual and as a corporation. You see it from the bailout perspective and you see it from the wealth disparity across our country today. And you talked a little bit about how Utah is a non -disclosure state. And so where do you think municipalities come in to help these retail investors? For example, in Los Angeles and throughout California, all of these sales prices and information are recorded in the assessor's office and they're publicly available. And startups and other companies have been able to access this data, scrape this data. It's available to independent landlords, not very usable, and it's not in a very usable format, but nonetheless, it is available. Do you think that these municipalities have a requirement or some sort of interest in helping these independent landlords to help them compete with smaller landlords? I mean, with the with the big institutional landlords?

(21:58) Rawley Nielsen: That's a good question. I mean, on the on the sales price the reason there's so much sensitivity, and I don't know how many states in the country are still non disclosure, as I said Utah's one of them. The sensitivity around releasing sales prices on that end is because of property taxes. You know in California if you sell a property for 4 million dollars, you're automatically reassessed at 4 million dollars, right and your property tax jumps up. That's one of the reason Utah owners will fight tooth and nail to keep it in the non-disclosure state here is because they don't want their property taxes reassessed every time. Assessors are getting smarter and using more data and tools like Costar or RCA or these other sources to try and find out sales on their own and prices. But that's a good good question. I don't know if what else municipalities can or should be doing.

(22:53) Justin Alanís: Well, they're certainly thinking a lot about the renter right now especially. I'd imagine whether or not you agree with rent control, there's a growing, I think need, well maybe not need, but there's a growing sentiment out there for renters that rent control or something like rent control is needed. So it goes all the way down to the renter and small landlords. Institutional landlords do tend to use more sophisticated tools also to pump rent and extract every last dollar for themselves, whereas I think the independent landlords are a little bit more inclined to work more directly with the the tenant as well. Do you see that? I know that you also own own assets yourself? What's your relationship like with your tenants and how does that differ from maybe the way that institutional landlords interact with their tenants?

(23:39) Rawley Nielsen: That's a good question. Definitely on the institutional side, tenants are, and I'm not saying that institutional landlords are cold, but tenants are a source of revenue and a data point, right. They don't have a direct relationship with their tenants on a daily basis, just can't. They own on too large a scale. You know that task falls to their on-site or the resident manager. The private owner, it is much more, and so many of the clients that I worked with in the Bay Area, that was their full time business. They owned a few 20, 30 unit apartment buildings and they were there fixing the toilets, they were there painting units. They knew each tenant by name and had that relationship. That's definitely something you lose out on in the institutional side.

(24:29) Justin Alanís: Yeah, and I wonder if that serves the small landlords well during this time period. Where they do have that interpersonal relationship with their tenants in a situation where we already from May and April, from the month prior and the year prior, we have a 6 percent reduction in people who are paying their rent. I wonder if being a small landlord during this time period, while one person not paying the rent hurts more, I wonder if having that interpersonal connection and being able to hash that out with the tenant directly and the tenant knowing that this is also going to hurt this person personally. As opposed to some faceless franchise or faceless organization out there, I wonder if that also helps during this time period more than it hurts?

(25:09) Rawley Nielsen: I think it does, at least I hope it does. I still do own a couple of apartment buildings in Oakland, a 17 unit and an 18 unit apartment building. One of them I only have one partner on and we are, especially my partner because he's Bay Area based, we are the direct interface with the tenant. So, 2 or 3 weeks ago, we went and gave each tenant a letter, a roll of quarters for their laundry, and an Amazon gift card just saying hey, we're all going through this together to try and help these tenants through that time. Because we do have that personal relationship. On the flip side of that, I would say some of those tenants were grateful. I think a lot of tenants still view even, especially the institutional landlord, but even the private landlord if it's a mom and pop. They view the landlord a lot of times as a rich, bad guy who is just rolling in piles of money. And don't quite understand all the time that that tenants rent goes to pay a mortgage, property taxes, utilities. There's oftentimes very little if any profit at the end of the day for some of these owners. It's just a, you know, a long term investment for them for retirement. So we are seeing a lot of that today where the landlord, even the private landlord is seen as the bad guy, which I think is unfortunate because that's not at all the case. But hopefully as we come through this together and tenancy, you know, there's a real live person on the other end of this rent check I think, I hope, that it helps the situation overall.

(26:45) Justin Alanís: Yeah, as do I. It seems like so far, the bailouts and the the unemployment insurance and payments are preventing people from defaulting. Well, there's a couple things that are at play, right. I mean, the new feature of COVID itself is preventing people from moving. So there is right now a very illiquid environment where people are staying in place. They're thinking about renewing in place. If they have problems, there's eviction moratoriums in place but it does seem like given the early numbers that are coming out, people are mostly paying the rent so far. And this, I think, points to the resilience so far. We'll see how it plays out, but it points to the resilience of multifamily as an asset class. When people do live in a particular location, this is the last thing that they ultimately want to give up and be evicted from. Because this is it, and where do they go after this. But at the same time, it feels to me like landlords do have a responsibility to make sure that their tenants, especially through periods like this, are doing okay. And give them either payment structures or flexibility to be able to make sure that they don't get booted out of their place and not have a roof over their head as well. So it's a very complex situation and it'll be really interesting to see what future bailouts happen, especially directed towards the industry. But what are you seeing right now out there in the investment community? You had a call earlier today with Alliance. What are you seeing? What are you hearing out there right now?

(28:16) Rawley Nielsen: So I would say above all, what's resonated with me over the last 5, 6 weeks, compared to the one other crisis I went through back then, 7, 8, 9, 10, there is such a large scale, a level of cooperation and collaboration on this that I have never seen before. And I've been on, I could sit on a call every single day if I wanted to, from different organizations or entities putting on calls for people to talk and share about what they're seeing, what they're doing that's working, what's not working, struggles they're having. It's really neat to see people come together like this and view it as a worldwide crisis to solve together. I felt the last downturn there was a lot of, just felt a lot more confrontational between banks and borrowers, between tenants and landlords. A lot more buyers that came out of the woodwork kind of as vultures looking for blood in the water to buy distressed deals. We're obviously very early on in this current crisis but in that sense, it feels very different which I like.

(29:28) Justin Alanís: Yeah, the nature of this crisis is one in which it's a hidden enemy. There's nobody to blame for it. I'm sure you can blame a lot of people for the response that's happened, but nonetheless, that's political more than it is about the institutional presence and who's to blame. Whereas in the last downturn in the Great Financial Crisis, it was very clearly that the banks were at fault and these were the same banks that were packaging up deals and shipping off your mortgage and the CMBS package. And then that got hit and your performances is suffering because all of a sudden the banks were doing something irresponsible to hit main street. And then as you say the capital came off the sidelines to take advantage of that. I could see how that would be a confrontational environment. And it's really refreshing to hear that this one seems to be, so far, different in the way it's being handled. I do wonder if banks will be as non-confrontational as landlords start to struggle to pay their mortgage. And if this does start getting really bad for the independent landlord, specifically, and what do you think. I know it's probably way too early for me to think about and posit how the banks are going to react to this. We certainly haven't seen it yet, but what do you think, what do you predict out there in 6, 9, 12 months and how does it compare so far to the Great Financial Crisis in terms of what you're seeing of rent drops, unemployment and all that?

(30:47) Rawley Nielsen: So on the multifamily side, I do think we are a little too early. I mean, this April was the first month rent checks were due. Kind of in the heart of this, March was too early on the multifamily side.  It's pretty early to be seeing pain on the landlord side in terms of their mortgage. We are already seeing it on the hotel and retail side. So I have sat-in or talked to clients or lenders that have retail loans out and lenders are being extremely responsive and quick for workouts on retail loans. And I had one client with a retail property that has 7 tenants. None of the tenants paid rent in April, 0 out of 7. And I think that'll be the case for the next couple of months. And with one call to his lender, they on the first call already offered four months interest only and then we amortize the principal throughout. That was on the first call. I'm sure he could work out much better terms than that. So on the product and hotel, even worse I think, the product types that are hit hardest, the earliest, lenders are already actively engaged in workouts. A lot of lenders have taken people away from loan origination and put a ping out to their workout department. Just because they are trying to prepare for the onslaught of deferrals and loan restructuring they're going to need to deal with.

(32:10) Justin Alanís: Yeah, to some degree, the Great Financial Crisis, it's actually nice that it happened just 10 years ago because all these shops have a, I think, a pretty ripe memory when it comes to how to deal with situations like this. And so yeah, you're going to see acquisitions folks pulled into asset management. You're going to see banks starting to ramp up there and take originators off of deals and put them into workout situations. And it's really refreshing to hear that they're reacting that way. I wonder what happens when the volume gets so significant that the banks can't react as proactively anymore?

(32:44) Rawley Nielsen: Yeah, that is, and I'm trying to be optimistic, but we are concerned with May, June, July and however long stretches it on. Because as an apartment landlord, you can have 2 or 3 months reserves in the bank and be okay if, you know, your rent collection dips. But you stretch beyond that, those checks get really big. Then you've got, I mean, first property tax bill, or payment was due in California this week, right or last week. Then you get another one due later this month. That stuff really starts to add up if you don't have income coming in. And my concern with markets like, and I 100 percent agree there should not be any evictions right now for tenants related to non payment, non ability to pay because of the COVID crisis. There should not be any evictions at all, and there should be workouts and that should last for a few months. My concern is after that, what happens? I mean California's already... I got an email from the California Apartment Association today. There's already talk in the state legislature about forcing landlords to reduce rent. The headline is "State legislators seeks to mandate 25 percent rent reduction" across the board. So if you start to see stuff like that and the non eviction stretch out and tenants are taking advantage of the ability to live there for free for an indefinite period of time, you're going to have to see other workouts with lender or other government bailouts that are more focused on the property owners to help with that. So hopefully the government is as quick to react on that as they have been to the other stuff.

(34:27) Justin Alanís: Yeah, I hope so. You've probably read the stories about commercial real estate loans being a bubble and Icahn, Carl Icahn, selling them short and working against them to Tom Barrett coming out with a Medium post. And talking about how the government needs to provide a commercial real estate mortgage bailout. And so it'll be really interesting to see ultimately how this whole situation evolves because it all is impacted by one another, right. The tenants being unemployed, not being able to pay, how much stimulus they get, to how the banks react to the landlords not paying, to the people who own the existing assets being worried about them being underwater. And then being all packaged and bundled up and CMBS traunches. And so the whole thing is a pretty interconnected web. And understanding and seeing how the political response happens and whether it works in favor of small landlords, big landlords, tenant rights, tenants, and not letting the whole thing fall apart will be very interesting. And one of the things that we've been focused on internally is making sure that we are very, very up to speed on what's happening with the whole COVID crisis. And, you're right, there is a ton of great information out there right now for free. For example, NMHC is doing a weekly webinar on rent payments across the country using five different data vendors that exist out there: Yardi, Real Page, MRI, and Trata, Resman. And they're aggregating all that information and tracking this very closely. And it's information like that, Zygo just posted yesterday, about how many people are shifting to credit card spend, which is up from 10 percent, up to 13 percent. So it's a 30 percent increase on a pretty small base. But nonetheless, it shows trends that are concerning. And as you know, the longer that this stretches on, it will be really interesting to see both how the fundamentals continued to deteriorate or improve, and then how the government responds to the situation.

(36:25) Rawley Nielsen: Yeah. What's been interesting to see on the rent collection side that also kind of shows where we're at as a country, and this fundamentally goes to the root of the housing crisis in the country, is if Alliance is going through their numbers, and they're a mostly class A portfolio. In Utah they were 95 percent collected for the month of April, and that's again, that's a class A portfolio. We've got another numbers from Utah based property managers with thousands of units here. And you see that kind of similar statistic to class A, is typically close to 95 percent. As you go down and in the class quality, class B, class C, that rent collected percentage goes down as well. So you can see right off the bat that tenants that are living in class C apartments, even though their rents are significantly lower, they're being hit the hardest right now. I don't see how those tenants without some major help from somebody are going ever be able to catch up on missing April. If you're in the service industry working on an hourly basis, how are you going to be able to catch up on... You're not going to all of a sudden in May make an extra 2,000 dollars or 3,000 dollars or July, make an extra 5,000 dollars.

(37:43) Justin Alanís: Yup, and the 1,200 dollars, the existing 1,200 dollar check that's coming out hardly is going to make even a small dent in the inability to pay over the next 4 or 5 months. I mean, who knows maybe 12, 18 months, depending on how long this stretches out. So continued support is going to be absolutely necessary in an environment where we have wealth disparity that is at its all time high. And the reality is that almost 50 percent of the population can't have an incidental additional cost hit them in excess of 400 dollars, and they can't afford that. So you know, we're seeing credit card debt expand right now and starting to push off things like future debt and future payments. And definitely people will have to come to help out. So I think that begs the next question, which is, how can these landlords whether small or big, what are you seeing them doing right now? There's a sense of camaraderie you talked about, but what other tactics, tips, tricks have you heard about other folks doing right now? What can our listeners learn from this situation and this podcast to take back to their own properties and institute those things?

(38:53) Rawley Nielsen: I think there's a few things. I mean, the number one right now that I hear from everybody, lenders, tenants, investors, and we're a little, I mean, we're too far in this now but as much as you can to get out in front of it. Have those conversations early with tenants or with your lender. In mid March, as I mentioned, my partner and I sent out those letters to our tenants with the gift card. And we were trying to start those conversations two or three weeks before April's rent was due, so that we could address it. Same thing, if you're an owner and talking to your lender, if you foresee an issue upcoming in May, now is the time to start having those conversations. Because while we are now in the midst of more, I think the spirit of collaboration and work out who knows how long that'll last and as with any issue, it's better to hit it head on than to delay it and avoid it. So I'd say get out in front of it as much as you can. There is so much good data... I shouldn't say data. There's so much good information out there right now, whether it be like you said the NMHC broadcast. I get an email a day from the student housing business industry or NMHC or the National Apartment Association. There are all of these Zoom meetings and conference calls and webinars going on where people are sharing what's going on in real time. What they're learning, what's working and not working, best practices, so jump on those as much as you can to learn what other people are doing, what's working. Now is a great time for I feel like the last, and we said this a lot on the brokerage side, the strength of the market the last few years erased a lot of mistakes by owners. You didn't have to run your property really well the last few years to sell it for top dollar. Buyers who were willing to look past a bunch of crap last year just because they wanted to win a building, they wanted to win the bidding process and buy it. That's not going to happen as much anymore. Those blemishes are going to show, whereas a year ago, they didn't, or 6 months ago they didn't. Now's the time to go through and while you're working with tenants on rent collections also fine tune your operation, trim the fat. Make it a, I mean, each one of these properties is its own little business, which is what I love about real estate. Go into each little business and fine tune it. Get it running the best that you can, so that when we come out of this, everyone's in a better position. Whether you're going to hold it for the long term or look to sell it, I think now's a good time to be doing that.

(41:32) Justin Alanís: Yeah. I think having a really dedicated renewal strategy seems to also make sense and being ahead of your renewal strategy. If there's going to be less movement in the market as a result of stay-at-home orders and potentially rolling stay-at-home orders, as soon as we lift this in California. For example, I'm in Oakland and I know that you guys are also stay-at-home right now and at some point that'll be lifted. And depending on what Trump does, maybe he lifts the whole economy. It seems that it's likely at this point that we will have a repeat of this, if not once, maybe twice. Hopefully not, but I'm certainly preparing myself for it. And it seems to me that tenants and landlords should think about preparing for that as well and thinking about kind of the worst case situation that can come out of this. And so one of the things that I've talked to with a lot of my friends who are in the industry and other people who own properties, but also with entrepreneurs in the startup world is, hey, be ready to ride this out for 18 months. And be proactive with it. Make the cuts where you have to. And make sure that you've got capital in one form or another to last you through a pretty intense, long period that could be, and hope not, worse than ultimately the Great Financial Crisis.

(42:47) Rawley Nielsen: Yeah, and if you don't have that capital now, I mean, again, get in front of it and start looking for those sources of capital. Whether it be banks, or we've heard a lot of on our Colliers call this morning, they kept calling it white knight capital, which wasn't a term I heard before. But there is still a tremendous amount of capital on the sidelines that wants to be an apartment. So for owners, whether it be debt or this white knight capital equity that can come in and help in dire situations, start building those relationships now. Because as you said, as scary as that is to think about, if this does stretch out and become a 12 to 18 month, 2 year crisis, you know, you need to have you need to have that credit available. That is one thing I learned in the last downturn. And I was so young in my career and had only known for 4 or 5 great years you know, and thought real estate was the easiest invest business in the world. But once that downturn happened and I saw all my sources of credit dry up.. You know, credit lines that I always used to be able to tap into if I found a deal to buy, all of those dried up really quickly. We haven't seen those at this point, because it doesn't seem to be a banking crisis right now. But it doesn't hurt to establish those lines of credit and get access to as much capital as you can, in case you need it down the road.

(44:11) Justin Alanís: Yeah, I totally agree. The other thing that I think is interesting through all of this, is that when, at some point there are going to be opportunities on the other side of this as well. And so what are you hearing from both people who have cash on the sidelines as potential buyers? And also for people who are thinking of disposing assets right now. There's obviously as a result of COVID, a lack of movement so tours are really tough right now. What are you seeing out there from a deal velocity standpoint right now? I'm guessing it's at a standstill. What do you think needs to happen for things to start picking back up? Because one of the things I was going to mention is that liquidity right now is on the sidelines because price discovery is very difficult in a declining market where you don't know how things will ultimately go. Capital tends to sit on the sidelines, which is why we're seeing spreads increase right now pretty significantly. So what are your expectations on when capitals kind of going to return to the market? What needs to happen? And what are you seeing people are anticipating and starting to gear up for?

(45:09) Rawley Nielsen: Well, I'll tell you the one thing again, because I think this is a different, little different feel, at least to me, we're all going through this crisis together. The most negative reactions I'm seeing right now are from buyers who are calling and trying to re-trade existing deals by very large amounts. Or blood in the water type buyers that are calling saying, hey, when you get some distressed, freaked out owners give me a call. Those calls are not being received well right now. I mean, as a broker, anyone, any buyer that calls me with that attitude goes to the absolute bottom of our list. So I think that's, in a sense, different than what we were going through 10 or 12 years ago, where we would take almost any buyer we could get in 2008, 2009. So that's different. I do think we're so early on in this, that at this point, we're just from brokerage side and transaction side, everyone's just hit pause, it feels like. Very early in March, we were able to put 4 new deals under contract. In the 5, 6 weeks since then we have put 0 under contract. No new listings. Listings that we were going to take to market, owners, they said hit pause, we'll reassess this in 2 or 3 months. Deals that we put under contract in early March are still very much 50/50 whether they'll close or not. The deals that are dependent on new financing, I would say are probably have a 30 percent chance of closing. A couple of the deals we're working on are loan assumptions. Those have a higher chance of closing. So unfortunately from a brokerage perspective, since I only make money when deals transact, we are in a great deferral right now, as I heard one guy call it last week. So the month of April and May are going to be really slow from a transaction side. And then if we start to go deeper into this, you may see more pain and more distressed sellers, which will narrow that bid ask gap. Or if we start to climb back out of it, and the markets looking good, then those people that were going to sell this year may go back on the market. Or in July and August because they, you know, they're still going to execute their business plan and sell in 2020 if they can.

(47:27) Justin Alanís: Yeah. Either way, all I know is that there's a lot of equity capital sitting on the sidelines, given that we were in the 10th year of a 10 year bull run. People were sitting on the sidelines and being I think, a bit more cautious with their capital as things stretched on longer and longer. And so this feels like a great resetting of a lot of industries. And I think that's happening right now with distressed funds that are popping up to buy companies. And there will be distressed funds that are popping up to buy all kinds of assets, including real estate assets. And so I think one thing that I learned through talking to a lot of folks is that through the Great Financial Crisis, one of the things that was really important for any buyers who wanted to get into real estate at that time, is that you should just make sure that you're patient, you find the right deals. Still think about the fundamentals and most of the large, great acquisitions that happened during that time period actually happened in like 2012. I don't know if that resonates with your experience, but after all the turbulence is over and price discovery can be met, and then we're reaching the trough of the market and starting to come back. And that's in a world where real estate prices, or sorry, rental prices, only declined by a couple percent for a couple months in the Great Financial Crisis. And then interest rates were being reduced actively during that time period and low throughout this entire period. So it's really been off the backbone of all the growth that has happened over the last 10 years where a lot of people have made so much in terms of their returns. And those deals that were bought during that time period had insane IRR as you know. We're talking 80, 90 percent IRR in some cases with great buys. But back then you could throw a dart blindfolded and hit a property that would make you a wonderful return because of when you were buying it, how you were buying it and ultimately, the fundamentals that go behind the multifamily industry that act almost as an annuity that becomes really, really safe on a long term basis. Obviously, people can get caught in situations like this, but that's why it is such an amazing asset class.

(49:38) Rawley Nielsen: It is, yeah. I mean, we closed on a gorgeous apartment property in mid March with the buyer from Northern California. It was the back end of the 1031 exchange. So even though we closed as the COVID crisis was just starting to take over the world and a lot of people were freaking out, they closed on this building as planned. And I think, even today or 2 months from now, that's going to be a great deal for them. I still think there are good deals to be made in any market, dependent on each individual investors business plan and circumstances. There are still good properties to buy today even if it's not a distressed owner. There's still good times for owners to sell today, if it works for their business plan. But I think it just becomes a lot more difficult in times like this to do that because you've got to be more selective. Like you said, you can't just throw a dart out there and hit any building and that's a good deal. And we're seeing, I saw this a lot in the last downturn and we're already seeing now, a flight to quality and you hear this term all the time. But our investors are going to be more picky with the asset classes they buy, the locations they buy in, and the quality of that asset. As I said before Class A apartments today are getting hurt a lot less than Class C apartment. So buyers are going to put a premium on the Class A even more so than before. It doesn't mean they'll pay more than they would have 2 months ago but they'll want the Class A even that much more now. So we've already seen that kick back in, in the last few weeks.

(51:18) Justin Alanís: Yeah. This has been a great conversation, Rawley. I really appreciate it. I think a couple parting thoughts for you, and then like maybe 1 or 2 parting thoughts from you. It seems to me that the overarching themes in today's conversations are that, number one, be patient and be prepared throughout this crisis and be informed throughout this crisis. And to use data and information to guide your decisions ultimately, and to talk to trusted experts and to ultimately make sure that you're educated and learning through this period. Would you say that's accurate? Anything you'd like to add to that?

(51:55) Rawley Nielsen: Yeah. I think that's 100 percent right on and there are more tools than ever now, both free and otherwise, for owners to be able to do that. Tap into to your broker who should also be the expert as needed. But yeah, I think you're you're right on.

(52:11) Justin Alanís: Awesome. Rawley, thank you so much for the time today. It's been a pleasure.

(52:16) Rawley Nielsen: Definitely. Thank you.

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