Join Big Mike for a deep dive into resilient multifamily investing and life’s bold pivots with Gino Barbaro, co-founder of Jake & Gino, a real estate education platform. With a self-funded portfolio exceeding 1,800 doors and $350M in assets under management—mostly in Tennessee—Gino transformed from a New York pizza shop owner to Florida-based family man, driven by a vision for his six kids’ future amid skyrocketing Northeast costs.
From his 2017 migration south for affordability and freedom (echoing today’s exodus trends) to spotting DeSantis’ game-changing property tax cut bill, Gino shares why Florida’s “last stop” vibe is now a launchpad. Delve into his Knoxville origin story: snagging deals at $35K/door in 2011-12 fear, holding for explosive rent growth (from $300 to $1,100+), and balancing value-add grit with stable new-builds at near-1% rules. He breaks down today’s “Jesus moment” for overleveraged owners—flat rents, oversupply, and the $1.5T debt wall—while urging disciplined underwriting, capacity checks, and patience for 2025-26 bargains.
Whether navigating builder distress, Fed delays, or post-QT liquidity waves, Gino’s no-BS wisdom on cash flow, operations, and long-term legacy will arm you to surf market cycles like a pro. If you’re eyeing contrarian plays or family-first freedom, this is your blueprint—raw, real, and ready to deploy.
HIGHLIGHTS OF THE EPISODE
0:00 – Welcome to the BigMikeFund Podcast
0:19 – Welcome and Intro: Gino Barbaro
0:48 – Family Move: NY to Florida for Kids’ Affordability
1:50 – Migration Trends: Southward Shift Post-2010s
2:47 – Location: St. Augustine’s Small-Town Appeal
4:15 – DeSantis Bill: Eliminate Owner-Occupied Property Taxes
5:43 – Multifamily Focus: Tennessee Portfolio Origins
6:00 – Early NY Struggles: High Taxes, Poor Pencil
6:34 – Meeting Jake: Knoxville Entry in 2011
7:05 – Low Prices: $35-40K/Door in Fear Market
7:41 – First Deals: Hold Long-Term for Rent Growth
8:48 – Market Cycle: Buy in Fear, Patience Pays
10:45 – Supply Surge: 92% Occupancy, Concessions
11:44 – Debt Crunch: Sellers’ “Jesus Moment” at 4-5 Caps
13:13 – 12-24 Month Window: Debt Resets Create Deals
13:36 – 1% Rule: $100K Door Needs $1K Rent
15:04 – Newer Assets: 2024 Build at $180K/Unit
17:04 – Portfolio Balance: Value-Add vs. Core Plus
18:16 – 2023 Lesson: Overcommitment Stressed Infrastructure
19:13 – No Deal Better Than Bad: Fit Business Plan
22:15 – Builders’ Habits: Overbuild Leads to Distress
25:03 – Risk Tolerance: Buy Stable Over Build Speculative
27:08 – 2026 Outlook: Motivated Sellers Clear Supply
28:44 – Fed Delay: Wanted Failures, Late on Cuts
29:51 – Rate Drops: Spur Activity, Pencil Deals
37:42 – Connect with Gino
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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Full Transcript:
Mike Zlotnik (00:01.915)
Welcome to the Big Mike Fund podcast. I’m the Big Mike, Mike Zlatnik, and today it is my pleasure and a privilege to welcome Gino Barbaro. Am I saying it correctly?
Gino (00:12.204)
You are saying it correctly, yes.
Mike Zlotnik (00:14.599)
And he hails from sunny Florida. He’s got a sizable multifamily portfolio, over 1800 doors, 350 million aum. And it’s mostly his money, not investors, which is very impressive. Welcome to the show.
Gino (00:32.588)
Mike I used to hail from New York and now I hail from Florida. I’m doing good brother how you doing?
Mike Zlotnik (00:37.415)
Doing well. Appreciate you coming on a podcast and we’re in Florida and tell us a little bit about your family. You have six kids, so you’re busy.
Gino (00:46.478)
Well, that’s the reason why I moved to Florida. I had five kids at the time and I’m living in New York. I used to own a pizza shop, a little restaurant up in Potnum County. It’s about an hour north of the city and I loved it there. I was in business with my dad for years and I saw back in 2012, 2013, the inability for my kids when they get older to buy a house in New York.
That was the reality. I could live there. I could pay 30 grand in taxes. I could suffer the winters for a little bit more. But I’m like, my kids got no shot up here. And that was the reality to me. That was the gut punch to me that I had lived there my entire life, and that my kids would struggle living there. So I decided, where do I go? Where can they afford to actually buy something? Where is it? Where’s there more freedom? Where’s there more flexibility? And where’s their warm weather? And that’s how I ended up in Florida back in 2017. And
I think there’s gonna be more of a flight to Florida if you see what’s happening in New York. And it’s just very interesting what’s been going on over the last few years with migration patterns and all. Whereas 30, 40 years ago, if you said you’re moving down south, people thought you were absolutely nuts. There was no education down here. The talent pool of people working was not what it was. The infrastructure wasn’t great. And it’s just incredible to see what’s happened in the last 10 to 15 years down south, Mike.
Mike Zlotnik (02:01.338)
Yeah, that’s the truth. People used to go to Florida just to retire. Now they go to Florida for quality of life.
Gino (02:03.734)
Mm-hmm.
Mike, my dad, my dad used to say it’s the last stop. That’s what he used to say. And he actually sort of half retired six months, New York, six months, Florida. And that was back in oh five. And I remember him saying that. And I’m like, wow, I guess this is the last stop for me as well. But I mean, it’s it’s it’s been a good transition. I’m praying. I’m praying it’s a long stop. Yes.
Mike Zlotnik (02:23.59)
That’s all, it could be a long stop, right? It could be a long stop.
Mike Zlotnik (02:29.85)
So which part of Florida just the.
Gino (02:33.016)
So it’s interesting, Florida, 80 % of the population is below Melbourne. If you go to Melbourne, Florida and go south, that’s where 80 % of the population is. That’s where most people think, especially New Yorkers. New Yorkers go to Boca, they go to Delray Beach. I decided to go to North Florida. I wanted it a little bit slower. I wanted seasons like today, 75 degrees outside. It’s beautiful outside. I’m in St. Augustine. So I’m about maybe two hours south of the border and I love it here. It’s great to raise a family.
The cost of living is great. The quality of living is great. Down in South Florida, it’s amazing. The opportunities are incredible. It’s just really crowded down
Mike Zlotnik (03:11.62)
Yeah, it’s the oldest official town in United States. think it was what founded somewhere in the
Gino (03:15.502)
Yes. 1565. Yes. Uh huh. Incredible.
Mike Zlotnik (03:20.784)
I’ve been there. It’s a wonderful, it’s different. It’s definitely different. It’s not a destination like Miami or Tampa. It’s just a small town America and it’s a very, very different experience.
Gino (03:34.592)
Yeah. If I would say to the listeners, if anybody’s ever been to Charleston or Savannah, it’s a small Charleston. It’s a small Savannah. That’s the feel that I get. And that’s why I chose it. It was really affordable at the time by household. Things have escalated a lot. no state income tax, property taxes are a lot less down here. So for us, it was just, it was just a great fit.
Mike Zlotnik (03:55.685)
Yeah, and I hear I another guest on a podcast previous recording last week as the sentence is floating a bill to eliminate property taxes for owner occupied. That’s
Gino (04:07.502)
It’s incredible because he’s got to get that on the he’s got to get that on the balance. He’s got to propose it. So he’s got to get 60 % of the people to vote for that. I don’t know who would vote against it. It’s incredible. Like he got Doge out there and Doge has found over a billion dollars of wasteful spending and only three counties. If he lets that thing go wild, he’s going to find out so much waste and people are saying, well, where are you going to find the money? You find the money by becoming more efficient and by actually getting in there and cut
Mike Zlotnik (04:14.697)
I’m sure people will vote for it.
Gino (04:34.51)
wasteful spending and start using AI to start replacing a lot of the a lot of the inefficiencies in government. And I think if he allows if he does that, you know, many people would move here just because of that, just because they have like they actually have their ownership, they own their own home, but not having to pay taxes for the next 10, 15, 20, 30 years, that would be incredible, revolutionary. And I hope other governors start to look at that and start adopting that type of mindset.
Mike Zlotnik (05:02.138)
Yeah, it’s a very pro business. You cut the taxes, more people move, the GDP of Florida grows and he’ll make up on the consumption tax and other ways to, and obviously, dodge, he’ll find inefficiencies and waste. So, interesting. That’s very fascinating. But let’s move forward and talk a little bit about multifamily. So this is the business you’re in and most of your properties in Tennessee. How did you wind up?
Gino (05:12.962)
Yes.
Gino (05:17.953)
Mm-hmm.
Mike Zlotnik (05:30.778)
Building a portfolio of multifamily properties in Tennessee. Why Tennessee? And yes, let’s start there.
Gino (05:36.961)
It’s a great question. When I started, I was in New York. I tried to buy stuff in my backyard. It just didn’t pencil. mean, up in New York, the taxes were too high, the insurance was too high, and I was starting smaller. So then I decided, hey, let me go up into the upper part of the state. So I decided to go into Rochester, New York. And I didn’t know. I wasn’t an inexperienced investor. I was just looking for deals. And that was the reality. And I was looking at high cap rates, high cash flow. But with that,
You got old buildings, got a lot of capex, you have tenants that are really not the greatest tenants in the world, a lot of Section 8. So I started getting burned out with that model. I said, I want to go somewhere where I can find value, I can have some cash flow, and I can have some capital appreciation. I wanted a little bit of both. And when I met Jake, he was the pharmaceutical rep that used to come to the restaurant, would take out orders from the restaurant, catering orders, and go to doctor’s offices.
And he got burned out doing that back in 08, 09, you know, Obama came in with the Sunshine Act and health start, healthcare started to change. So he’s like, Gino, I want to get into real estate. said, Jake, I know you’re moving to Knoxville, Tennessee, and this is when he moved back in 2011. When you get down there, let’s start looking at deals and deals back there. Mike, we’re 35, 40 a door. They were so inexpensive back then. But you have to remember back then nobody knew where Knoxville was. There was no institutional money back then. Rents were really suppressed.
You couldn’t raise capital back in 2010, 2011. GDP sucked. Everyone was afraid. So when you go back to that, you go, oh, wow. Okay, that’s when you should have bought. Everyone was exiting. Everyone was leaving the economy instead of like going into it. And it’s sort of what’s going on right now. People are afraid. If you could buy deals below replacement right now at the debt that you’re getting it at, and you can hold those deals, the next couple of years to me are going to look really good. And that’s what happened to Jake and myself. We finally
jumped in, found the deal after 18 months. Three months later, we found another deal. And then six months after that, we found another deal. And we were just fortunate to be in the right market at the right time. And we were able to buy these things at price points. But more importantly, I think I need to add this as well. We didn’t just flip out of those deals. We still hold and we still own the very first deals that we bought. They were incredible. We’ve been able to refinance them and repurpose the money. But I think the key to this business is buying a good asset in a good market.
Gino (07:55.353)
that if you can hold for the longer term and get that rent growth and get those tax benefits and get that and be able to hold it and be able to build a business from those assets, that’s when you start making money in this business. Because when we took over, like I said, rents were 300 bucks for that little crappy 25 unit property we bought. But fast forward to today, we still own it. And rents in that place were $1,100 plus rubs. So you can see how much they’ve exploded in the last 10 or 12 years, but you just need to have patience.
And you need to be able to operate these assets as well.
Mike Zlotnik (08:28.378)
Yeah, that’s a lot of great nuggets. So just to recap, it’s the market cycle nugget, right? We bought it right after the market reset and the fear was high. There were very few people who are doing this. These properties were trading at the insane discount and yeah, these were not popular markets. We were moving against the current. You were not doing what masses were doing. You were doing exactly the opposite. And that’s how you found the best value.
Gino (08:52.121)
Yes.
Mike Zlotnik (08:58.278)
And then the other nugget is Yeah, patient and it is an operating business Multifamily is one asset class that is it is not a It’s not a car wash. You’re not running an active where you’re not a senior living facility But it’s still a pretty significant operating business where you have tenants and toilets and you have to be able to service these properties deal with customer service and issues, so
It’s kind of, but the pendulum swings to the extremes. We’ve seen extreme greed now, there’s extreme fear and exactly the right time to consider going back into the strategy. If you can get the right deals. So today it feels like, I think right after 2008, nine interest rates were also very low and the market reset, the Fed cut rates to stimulate the economy with the economy went through a severe recession and you had.
Gino (09:41.634)
Mm-hmm.
Gino (09:49.529)
Mm-hmm.
Mike Zlotnik (09:55.911)
not only very low prices, but very cheap money. So the timing was almost perfect. Are you seeing the same opportunity now? Are we kind of at the bottom of the cycle? We still need some more time to basically inventories are building up, distress is building up in the system because a lot of people bought lots of multifamily in 21, 22, and that was the peak. Now we’re sort of at a very low point.
Gino (09:58.723)
Yes. Yes.
Mike Zlotnik (10:22.256)
But the rates are still still at the elevated level. So it’s not exactly that, that easy and cheap. What do you think?
Gino (10:27.791)
It’s interesting. Right now we’re seeing a lot of supply come online. I don’t think supply came online back in 11 and 12. I think builders stop. That’s the weird part right now that you’re getting the supply and there’s there’s assets being absorbed. That’s the good part. But it’s taking time. occupancies dropped around 92 % in our market, which it was 95 96 and economic occupancy in our portfolios at 90%, which is traditionally very low because we’re fighting for those higher assets, those assets in the A’s.
that have just come online, they’re giving these massive concessions. And that’s the weird part. I’m trying to figure it out. And as you know, real estate is not national, it’s really local. And it can even go down into neighborhoods from neighborhood. So as I’m saying this, somebody in another market may say, hey, like Rochester, New York, believe it or not now, it’s hot, because they don’t have any supply. I mean, there’s nothing being built up there. And of course, whatever product you have, they’re fighting for that product. Whereas in our market, we’ve had hundreds and hundreds of new units come on. The other thing
If you go back in 2011 and 2012, that’s very similar to right now. Back then it was harder to get debt. I think debt, as I like to say, is the circulatory engine of the economy. And as right now, it’s a little bit harder to get debt. So if you can’t raise money and you can’t get debt in a deal, these sellers have to come to this Jesus moment, as I like to say, is their assets are still 20 to 30 % overpriced, especially on these old 60s asset builds. They’re still asking four and five caps.
When interest rates are six, I don’t want to go into a deal right now in this part of the market cycle with negative leverage. I don’t want to do that. That’s the fear that I see. If I’m going to buy an old asset right now and take all the risk as rents, believe it or not, are either flatlining or they’re dropping in some markets, I don’t want to catch a falling knife and say, okay, I’m getting this deal. I’m going to underwrite this deal for the next two to three years. Be very careful of how you’re underwriting rents right now. And also expenses, know, expenses have jumped up.
but I don’t see expenses slowing down over the next 12 to 24 months. So don’t go in with these rosy colored glasses and say, hey, I’m gonna get 5 % rent growth the next three years and my expenses are gonna be flatlined. Just be very careful. All that being said, I still think Mike, there is a great opportunity in the next 12 months with a lot of this debt that’s resetting, a lot of these sellers that have to get out of these assets, a lot of these, you know, LPs, they’re pushing the deals, right? It’s constantly pushing, kicking the can.
Gino (12:50.223)
Those deals sooner or later are gonna have to matriculate. And I think that’s where the opportunity is in the next 12 to 24 months.
Mike Zlotnik (12:57.166)
I hear you. I am completely in agreement with your point of view. But what are you seeing? What are you able to actually buy? Because you have an issue here of, I mean, we definitely need to have a positive spread between the cap rate and the interest rate. So the interest rates are at the elevated level. So you got to get really meaningfully higher cap rates. Otherwise, you’re not getting a deal at all. So what kind of deals are you seeing in the markets that you’re operating? And the
Gino (13:05.346)
Hmm.
Gino (13:15.684)
Yes.
Yes.
Mike Zlotnik (13:25.156)
You’re still seeing downward pressure on rental rates and occupancy because of the oversupply, right? So if you’re buying existing, you got to get a really good deal. What does a really good deal look like? Are you buying anything now? What do you like today?
Gino (13:29.293)
Yes.
Gino (13:35.682)
A great deal.
Gino (13:39.759)
For us, we’re very simple when we underwrite because we’re cash flow investors. We want to buy in profit per unit. We want to buy cash on cash. So if we can look at a deal, very simple the underwriting. If you’re buying an asset for $100,000 a door, we’d like to see $1,000 in rents on that asset. I mean, that’s the reality. It’s so simple. But 1%, that makes a deal work. And then with these interest rates, then when rates drop, you can refi, great. But the problem is, we saw this Cardinal deal right now. Cardinal deals are
Mike Zlotnik (13:55.974)
Still 1 % ratio.
Gino (14:09.231)
pretty crappy deals. They’re smaller property, smaller bills, 300 square feet, 600 square feet units, they get an amazing price price per rent on these on the square on the square footage of those things. But even those like they want like 100,000 a unit for a property built in the 90s. That is it’s it’s it’s suspect you got to do roofs. And there’s not much meat on the bone there. So if you’re to buy an asset like that, you have to be on you have to understand what your exit strategy is if you’re looking to buy that deal as a syndicator.
and flip out in the next three years, because you think you’re gonna catch a wave. That’s not the kind of asset you need to be doing it. Now for us, if we can get a lower price point, maybe in the mid 70s, per door, and we have like, let’s say, 900 to $1,000 in rents, that makes sense to us. Because we can hold it long term, we can refinance some of that capital out, and we can continue to operate that asset. But to your point, you need to be careful right now, because in a lot of the markets, rents are flat.
And in a lot of the markets, in my opinion, rents are actually dropping and occupancy is dropping. So when you’re trying to underwrite, it’s so difficult. I’ve looked at, I don’t know, maybe 10 T12s and 10 rent rolls in the last two or three weeks. Everyone’s occupancy, the highest I’ve seen is 91%. I’ve seen a lot of delinquencies on these rent rolls and I’m seeing that occupancy is dropping. So just be very careful because that’s the reality right now. And that’s, think, the storm that’s going on right now. And if you can hold on.
and you can find the motivated seller. That’s what you’re looking for. But for us, if we can buy a newer asset, anything newer, just, our last deal we did in April was a 2024 build. We bought it from a builder. We had bought two previous assets from him. 2024 build, we paid 180,000 a unit. Three bedroom, two and a half bath town homes, two bedroom, two bath town homes, rents are around 1,700 bucks a month. That deal works. Cause you walk into that deal at 6%.
You’re getting interest only for two years from a credit union, right? You know rents, I think at end of two years are probably gonna get to 1800. They’re gonna get to the 1 % rule, but it’s such a great asset in a great market where there is rent growth actually. There’s job growth also there in that market. It’s a little bit outside of Knoxville and the CapEx requirements are none. It’s a brand new asset. It’s built really well. It’s something where, if I’m gonna own this for the next 10, 15 years, it fits really well in my legacy thinking as well.
Gino (16:30.477)
And it fits well there because we already own two other assets. So we’ll be able to strengthen our position in that market as well.
Mike Zlotnik (16:37.606)
So, Jean, let me just dissect what you said because the 1 % rule, you got a 1 % rule and almost just under 1 % on a new product, right? If you’re buying an old product, have to be well above, well better than 1%. In other words, you said 70,000 per door and we’re 70 something in the 70s and then you’re trying to collect a thousand dollar rent, right? That’s on an older product. On the newer one,
Gino (16:48.3)
and your new product.
Gino (16:55.776)
Yes.
Gino (17:04.825)
Yes.
Mike Zlotnik (17:06.918)
You said 180,000 adorning and the rent is 1700. You’re almost 1 % on a new product, right? That means you’re buying well.
Gino (17:10.287)
17, 1800, but the newer properties, that’s phenomenal. It’s phenomenal because they’re easier to match. So the whole idea is when you’re looking at your portfolio, what you’re trying to do is you’re trying to balance your own portfolio. There’s gonna be some opportunities that are complete value add where you’re gonna make a killing, you wanna work on the equity, there’s so much upside. You can’t continue to buy all those assets all of the time in your portfolio because you don’t have the bandwidth to do that.
We have capex crews that are working on those assets that are older. This asset is a lot easier to manage. The managers love this because the resident base is higher. The median income is in the 80,000s, probably between 80 90,000. There’s no capex. It’s such an easy turn. So right now where we are in our portfolio, it also fits the strategy that we’re employing. We have a little bit of value add going on over here. We have this asset that’s stable. It’s gonna cash roll for us pretty well. And over the long term, over the next two to three years,
We’re not going to have to do a roof. We’re not going to have to do a driveway. Decks are great. There’s not much that’s required to manage that asset. So that’s what I’m saying. When you’re looking at your buying ability, you need to understand what your portfolio looks like, what your requirements are. I mean, we got caught, Mike, back in 2023. We did 130 unit property in February. We did 105 unit property in July. And then we did 97 unit in December in 2023.
There were all three significant value adds. There was so much work involved. We had to hire so many CapEx members that it stressed us out. It stressed the portfolio out. I mean, like when you have like 300 plus units going on all at once, it’s a lot of work to do. So when you’re buying these newer assets, there’s a lot less requirement from that end. And they’re also also a lot easier to manage as well.
Mike Zlotnik (18:57.508)
Yeah, I really appreciate your brilliance here because you’re really stating sort of the obvious common sense type of thing, but these things are not common. Capacity, ability to execute, bite what you can chew is critical. So if you bite more than you can chew, you choke.
Gino (19:13.155)
You know why, Mike? I’m gonna cut you off. I gotta cut you off real quick, I’m sorry. I’m gonna let you finish your thought. But it’s common sense to me, because I have not been able to execute. I made those mistakes. And I’m like, well, why did I make that mistake? I outgrew my infrastructure. I’ve done it so many times. I’ve learned that mistake. And I’m just telling people here right now, just make sure that you, just because there’s a deal out there and maybe you can execute that deal, can you execute the business plan of the deal? And if you can’t,
No deal is better than a bad deal. I’ve learned that one as well. So make sure it fits your business plan. Make sure you understand what the exit strategy is. See, on some of these value heads, we can sell these things and make a ton of capital or we can refinance these things. On these newer assets, we’re gonna hold them for the next three to five years. They’re on credit unions right now. We’re gonna push them off the Fannie in the next three to five years when rates drop. There’s not really not much of a cash out potential, but it doesn’t matter.
We’re to be getting making between 8 10 % on a brand new asset that’s easy to manage. So just be aware when you’re trying to position and grow your portfolio, you may have to say to yourself, well, I can do this much with a complete value add. I may want to do this much. And by the way, what’s wrong with investing passively in somebody’s deal? If you’ve got excess capital and you don’t have all the time in the world and you want to park some money in somebody’s deal as a limited partner, there’s nothing wrong with that.
You’re really spreading your eggs around and you’re not stressing your infrastructure out as well.
Mike Zlotnik (20:41.498)
Yeah, and I really like the element that you’re adding to your value-add projects is a low value-add or very core, core plus type of a very stable new product fits, right? And that’s a walk in the park. And it’s kind of interesting enough, but the same token we’re looking at, so triple net industrial. The easier the property management, the less aggravation you have.
Gino (20:49.561)
Mm-hmm. Yes.
Gino (20:56.11)
Yes.
Gino (21:03.094)
Yes.
Gino (21:07.812)
Yes.
Mike Zlotnik (21:07.878)
Brand new asset has that element or something that you’re not involved with heavy Value-add improvements construction property management all those things are hard. Most people don’t understand how hard it is But on the other side if you can if you can get that asset at the right price And it’s just give it enough time when the interest rates come down. You’re have way better cash flow on on the refi Yeah, so it makes a lot of sense. I I certainly
Gino (21:23.161)
Mm-hmm.
Gino (21:30.879)
yeah.
Mike Zlotnik (21:38.214)
I give you five stars for just real basic observations. If it’s a hard value add, what’s your capacity? And then if it’s an easy one, get the right price. You need to get the right price on both of them. It’s just the price is different from the older asset that means the word versus the brand new build.
Gino (21:43.137)
Mm hmm. Mike.
Gino (21:57.371)
And it’s interesting the new build we’re able to get it at that price because builders are creatures of habit. What do they do builders? They build and they build and they build and they build until they can’t build anymore. And then they have cash flow problems because they’re not really they’re not really to me. They’re not executing a business. They’re just building. If they were able to map out their jobs and understand cash flow and understand personal financial statements and understand when there’s cash flow coming in, great.
They have cash calls. You have two jets, you have a Bentley, and then you have a business, and then you have 30 projects going on. That’s where the opportunities are right now. Now, is this going to be the same opportunity in the next six to 12 months? I don’t know, but I think builders are at their limit right now where it’s hard to lease up and they’re not property managers. They don’t want to lease it. It was easy to lease two and three years ago. You build a product and there’s a lot of demand for it. Now there’s a lot of product coming online all at the same time.
They’re lucky and they’re thankful they’re just finishing this product. Now they gotta lease it up. If you can buy it during the lease up phase, man, that’s where the opportunity is right now. And I think the next six to 12 months will offer that opportunity as well.
Mike Zlotnik (23:09.274)
Yeah, interesting. It’s kind of funny. I have this philosophy very much aligned with what you said. People have floated to us and they continue to float these new construction projects. And I tell them, I don’t want to do them. I don’t care because you can’t get a discount. It’s going to cost you to build or it’s going to cost you to build. And then you got to get the rents that you want. And if you can’t, or if you’re trying to sell, if you don’t get your prices, you have a liquidity squeeze.
Gino (23:37.987)
Yes.
Mike Zlotnik (23:38.023)
But you can get a really good deal in existing, right? Even get it from a builder who is liquidity squeezed and then the bank wants to get repaid and they can’t float the mortgage. They’re very motivated to transact and you can come in and lowball or give them a low price and as much as they don’t want to take it, but what options do they have? So that approach makes a lot of sense.
Gino (23:40.452)
Yes.
Gino (23:58.905)
Mm-hmm.
I give builders a lot of respect, a lot of respect and a lot of credit because they’re the ones who are actually solving rent pricing and inflation in rents because they are putting supply into the market. To me, I’m not smart enough to know where rents are going to be in the next 36 months. So I can’t underwrite for that. I can’t underwrite for what the cost is going to be. They take such massive risks. And I don’t think people really appreciate what they’ve done for affordable housing. Everyone wants to bash on the builders.
And you’re always looking at when they make a ton of money. Well, right now they’re not making a ton of money right now. They’re losing money. They’ve taken a lot of risks and they’ve helped out. So I think when you, when you step back and you look at it from that perspective, I don’t want to build cause I don’t know how to limit my downside risk. And that’s the problem. Like as Trump says, if you can limit your downside risk in the art of the new art of the deal, the upside will take care of itself. I don’t know how to do that in building. And it’s very difficult. And people who have been doing it for two, three, four market cycles, honestly, Mike, they don’t seem as if they’ve
figure it out unless they’re really massive or they’ve got enough capital set aside that they can weather the storm and I don’t want to I don’t want to have a business like that where I’m always scrolling away capital working worrying about it things are gonna crash do I have to be completely dependent on the market cycle to make money I’d rather buy a good asset at a good cost basis with good debt to be able to manage this property to be able to look the future stream of revenue where I can sort of I can sort of say hey rents are 1100 they’re probably gonna be 1300 in next five years
and I can buy an asset like that, I’m more comfortable. I may not make as much money as a builder, but that’s my risk tolerance and that’s my relationship with money and I’ll be able to sleep at the end of the day with that kind of mindset.
Mike Zlotnik (25:41.457)
You know, I kind of like I bow to you. This is exactly the right thinking and philosophy. I agree 100%. I just had a couple more comments exactly the same line. So lots of respect for builders. But exactly the challenge that their business is speculative in nature. So they are subject to market cycles when they when they they they do it at the wrong time. They the market cycle can wipe them out or hurt them a lot. And the difference is exactly what you said.
Gino (25:52.323)
Mm-hmm. Yes.
Mike Zlotnik (26:11.25)
You could get a great deal today from that perspective. And I’ll give you just one comment that I thought about this quarter bill. The reason people build is because they can’t find enough of existing. They’re not good marketers on the existing. No, for no other reason, they didn’t build a machine to market for existing. What they build is a machine to find land and then they know how to build. So it’s not necessarily easier. It’s just different. And finding land.
Gino (26:26.147)
Yes.
Gino (26:30.34)
Mm-hmm.
Gino (26:34.351)
Mm-hmm.
Gino (26:38.136)
Yes.
Mike Zlotnik (26:40.294)
And building is in some ways way easier than trying to find and renovate So the simplicity of that business of the building business what people go for because it’s scalable You could do a lot of the same and that’s why people have kind of gone into this but it is susceptible to cycles and and I think now is a great time to Come in and buy from a builder or buy existing because you can get a way better price from a motivated situation But you have to be very disciplined
Gino (26:45.615)
Yeah, I you’re right.
Gino (26:52.772)
Yes.
Gino (27:08.438)
Mm-hmm.
Mike Zlotnik (27:08.91)
So next we go into 26. What do you think? Are we going to see a whole bunch of these great deals for motivated sellers? In order for the market to find the absolute bottom, you got to have enough of these transactions to clear the supply side. The supply side is still coming in and the supply is happening for two reasons. One is people are still finishing what they started to build. The rents are still in many markets. They have negative rent growth.
Gino (27:32.217)
Mm-hmm. Mm-hmm.
Mike Zlotnik (27:37.657)
Exactly what you said. saw an article, Sunbelt is seeing a lot of that. Like you said, Tennessee is seeing this plenty of market, Carolinas, where there were hot markets before things got overbuilt and that absorption is taking longer than everybody thought. But on the other side, can you actually get really good pricing on existing? Because people are trying to hold off the banks, continue to extend and pretend loan modifications.
Gino (27:37.742)
Yes.
Mike Zlotnik (28:07.898)
So they’re trying to manage the supply. What happened in 2008, nine, those years, they didn’t control the distressed supply and then the market got flooded. As a result, you had real heavy price crashes. So we see significant correction now. Are you seeing more and more supply and continuous softer pricing or it feels like things gonna come to sort of a bottom?
and you’re going to be able to transact for some amount of time and then things will start recovering. I’m just curious. It’s a crystal ball question.
Gino (28:38.953)
For me, the Fed has always been late to the party. And it’s interesting, they probably should have dropped rates a lot sooner, because inflation came in on Friday, it was like 3%. And what I personally think, and I read an article about six months ago, maybe a little bit longer, they said the Fed was slowballing this because they wanted deals to fail. They didn’t want to bail people out. And I sort of believe that, because there’s a lot of bad operators out there. And they didn’t want to drop rates so people could refi their deals. And I’m like, well, that seems pretty harsh.
But that’s the reality. And I agree with that. And they’re late to the party again. They should have dropped rates. There’s no inflation going on. If you know what’s going on, there’s been no, at least on the rent side, you’ve got energy prices dropping. We’ve been, in my opinion, we’ve been in a recession or at least a flat economy for the last 18 months to two years. It just feels like nothing is moving. And that’s their silver bullet is the drop rates. And now if they drop rates, some of these operators who’ve been holding out,
I think they are going to be, they’re going to be saved. They’re going to, but for me, there’s just a lot of deals out there that they’re not going to be saved. They overpaid. They just didn’t have the capex requirements. There’s a lot of people that try to operate multifamily and whatever debt they have, they still can’t solve for the fact that they suck at operating a business. So those are the people that are going to fail. And it comes down to the strength of the banks. Can the banks continue to kick the can down the road? In a way, no one, they couldn’t do that anymore.
and the credit problems and the bank problems. I don’t know what happened with like signature and all those failing banks a couple years ago. Everyone was said that was the end of the world. Didn’t come to fruition. It seems like banks can hold off. Everyone was saying survive to 25. Well, now we’re in 25. What are they going to say in 26? That was the whole slogan. And I just think that they have to drop rates in my opinion, because all these lenders, they just need to spur the economy. They need to get some activity. And I’ll be honest, when you see rates drop,
I don’t care what anybody tells you activity does pick up deals start to pencil again. And that’s what I think they’re they’re they’re saying to themselves. I think we’re gonna have to drop rates because we can’t keep saying, you know, inflation, inflation, inflation. No, they’re gonna have to figure this out because they’re neat. They’re gonna I think they’re gonna have to need to spread this economy.
Mike Zlotnik (30:52.622)
Yeah, it’s a lot of wisdom and I’ll just add to what you said. I’ve actually thought about this quite a bit. One is we have only one Fed and one level of national interest rates and it impacts all kinds of industries, all kinds of locations. So the AI industry is seeing a massive boom and that’s giving GDP probably 1 % 2 % boost per year while because of massive investment in AI, while the real estate is suffering tremendously.
Gino (31:10.041)
Yes.
Yes.
Gino (31:17.23)
Yes.
Mike Zlotnik (31:20.398)
And if you could just set the interest rate higher for AI people and lower for real estate people, that’d be wonderful. So this is one of the most obvious things. I literally was thinking about it today. This is how you actually have to national one single level of interest rates that reflects various market conditions is not fair and it’s not right, but that’s what we have. And the second point exactly what you said is the
Gino (31:20.419)
Yes.
Gino (31:25.271)
Yes.
Gino (31:42.157)
Mm-hmm.
Mike Zlotnik (31:49.669)
The opportunities that we’re seeing now will come partially from bank, how much distress they want to tolerate. But the Fed, remember, the Fed was founded as a organization, as a cartel of banks. They support banks. They don’t care about equity investors. They care about what’s going to happen with banks because they have a systemic responsibility to make sure that banks don’t fail versus
Gino (31:59.012)
Yes.
Gino (32:10.553)
Mm-hmm.
Gino (32:15.843)
Mm-hmm.
Mike Zlotnik (32:16.954)
whether investors who speculated on the market fail or not, they don’t care. So they were perfectly okay to let investors lose their equity capital. That’s not that concern. But today, they are beginning to be more concerned about bank balance sheets and problems. And they probably quietly providing liquidity behind the scenes. But we don’t even know exactly what’s going on. Some of the stuff, some of the facilities they provide is all ultra quiet until
Gino (32:38.777)
Mm-hmm.
Mike Zlotnik (32:46.392)
It breaks in a massive scale. So I’m sure they’re providing already some support because we know it’s anecdotally and practically. Plenty of banks, they’re not getting paid in the mortgage the way they were supposed to because the operators can’t pay. They just can’t pay. They don’t have liquidity. They have struggles with operations. On top of all this, when liquidity hits pretty hard, what happens with maintenance? People don’t have money to maintain properties. Occupancy starts falling and you have further pressure.
Gino (32:48.793)
Mm-hmm.
Mike Zlotnik (33:15.278)
even worse maintenance, worse liquidity because you don’t have NOI supporting the mortgage payment and the property upkeep.
Gino (33:25.862)
Mike, let me ask you question real quick. Do you think that a lot of banks have protected themselves over the last several years with getting more of a down payment? I think there’s a lot of LP capital. You said the Fed doesn’t care about LP equity. I think a lot of that is wiped out. I think operators are holding on because they don’t want to lose investors’ capital. And I think banks can take back these deals with the debt. I think that
maybe attractive, maybe they discounted 5 % or even maybe 10%. But it’s not like it was back in the way where you’re taking 30, 40 % haircut. And a lot of these investors, they didn’t have much into these deals. I think that’s something that we may be looking at. What are your thoughts on
Mike Zlotnik (34:06.886)
I it’s pretty standard, like multifamily. Most of the deals transacted used to be 75 % leverage, although it has changed after the 2022. When the market was at the peak, right, there was a standard and there was even additional leverage through junior debt. But the primary debt has always been maxed at 75%. I mean, unless you had some heavy construction loans, you could have had some funds for improvements. But in general, that equity, the 25 % is broadly wiped out.
Gino (34:12.44)
Yes.
Gino (34:26.583)
Yes.
Mike Zlotnik (34:36.58)
Unfortunately, the market conditions with deals falling 20 to 40 % of the peak, right? That equity is gone. And that’s not just the equity, it’s liquidity. It’s liquidity that’s under pressure because, you know, higher for longer is what’s been draining these deals. So I think a lot of the deals are coming into the environment where the bank’s realizing they can no longer even sell for the value of the mortgage. They have to start taking haircuts. And this is where the Fed starts carrying because it’s no longer
Gino (34:36.76)
Yes.
Gino (34:42.702)
Yes.
Gino (34:52.473)
Mm-hmm.
Gino (35:01.229)
Yes. Yes.
Mike Zlotnik (35:07.214)
Yeah, you see some assumptions buyers coming in. Yeah, I’ll just assume existing loans from what I’m hearing is even I was listening to Bloomberg was there was a woman who was a CEO of a multifamily company and she’s saying they’re buying properties from assuming the loan, but not only assuming the loan banks even lowering the rates for them to transact. Otherwise, otherwise she said they would have if they didn’t get a low interest rate, they’d have to bid even lower than the mortgage balance.
Gino (35:11.374)
Yes.
Gino (35:27.567)
that’s awesome.
Gino (35:34.797)
Yes.
Mike Zlotnik (35:36.775)
So where do we go from here? I don’t know, but I do agree that the Fed is late. They’ve always been late. And in essence, because their job is difficult, they’re solving the whole country problem. It’s back to the thought process that they can’t lower the rate for real estate because they got other parts of the economy that are doing fine. So now they’re beginning to see more and more problems. I don’t know, JP Morgan, CEO, Jamie Dimon mentioned that was a comment a few weeks ago about
Gino (35:54.869)
Yes.
Mike Zlotnik (36:05.988)
regional banks having no balance sheet problems because some of these things are coming through and they’re going to be, they might require some liquidity. We don’t know that. So I think the Fed is starting to gradually ease. The other thing I was listening in today this morning on Bloomberg, as of this meeting that’s happening this week, from what I understand in October, again, 25, after this, they will no longer do quantitative tightening.
Gino (36:17.143)
Mm-hmm.
Mike Zlotnik (36:35.344)
they’ll actually turn to light easing. In other words, instead of rolling things off the balance sheet, they’re going to gradually allow things to start increasing on their balance sheet, which actually helps interest rates. So this is how they actually move interest rates down, not only the lower end of the curve, but they can actually impact the high end of the yield curve through the QE, a version of not QT, but light QE, and then see what happens. that’s what I…
Gino (36:37.935)
Gino (36:44.783)
yes.
Gino (37:04.367)
That’s interesting.
Mike Zlotnik (37:05.286)
That’s what I heard.
We’ll see. you coming on our podcast. Lots of great nuggets. We’re past the time again. All good things must come to an end. So does this podcast. How would folks reach out if they wanted to learn from you, speak with you, learn more about what you’re doing? What’s the best way to reach out?
Gino (37:21.839)
I’ve had you on our podcast. Just go to JakeandGino.com. Mike’s been a guest. This show is airing in a couple of weeks. We just love talking about real estate. I do a how to show and it’s basically multifamily thought leaders entrepreneurs. So just go to JakeandGino.com.
Mike Zlotnik (37:37.403)
Thank you, Gino. Really appreciate you coming on our podcast. Lots of great nuggets and definitely enjoyed your show. For those who listening to this podcast, you should definitely visit and check it out. Thank you.
Gino (37:49.625)
Thanks, Mike.
_______________________
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