Over the years, the relationship with local creditors has helped real estate investors in a big way. Lending is a big part of any business and it is a factor in whether you get to seal your real estate deal or not. Today we speak to Freddy Johnson and he tells us everything we need to know about lending.
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Freddy says some lending programs are now focusing on sponsors especially amid the COVID-19 pandemic. He also shares his knowledge on how interest rates affect cap rates. We then find out about his predictions on the real estate market and the lending environment over the next six to twelve months. He also shares some tips on how to prepare for a downturn. Listen now and enrich your knowledge about lending that can help you secure your real estate deal!
Key Points From This Episode:
- Freddy shares his journey in real estate and lending.
- Freddy talks about the lending environment before and during the COVID-19 pandemic.
- Could lending be split out to a couple of operators?
- Freddy differentiates community banks versus national banks and how they view sponsors who are looking for their commercial real estate deal.
- Freddy talks about how interest rates affect cap rates.
- What is a yield curve?
- Freddy’s predictions on the real estate market and the lending environment over the next six to twelve months.
- How can sponsors be prepared for a downturn?
- The daily habits that helped Freddy achieve success.
- The number one thing that contributed to Freddy’s success.
- Freddy shares how he likes to give back.
“Right now, we work with some lending programs that are all about the sponsors. They really don’t even care about the assets, it’s just ‘Hey if you’re a great sponsor, and if you have money, we’ll work with you.”
“When you have a low-interest-rate environment, obviously it’s gonna make debt cheaper and thus it’s gonna make properties more competitive.”
“The fact of the matter is, though, we’re not gonna see inflation as we did in the 1970s, we’re not gonna see that massive interest rate spike that we saw in the 80s, ‘81, ’82. But, it’s just gonna happen, we’re living in a different world right now.”
“Just ensure that you don’t overextend yourself. Make sure your debt coverage, you’re fine with it. Stress tests the property yourself.”
“We have to be disciplined about what’s coming at you if you really wanna get some stuff done.”
Links Mentioned in Today’s Episode:
About Freddy Johnson
Freddy has had an interesting path through the real estate sector. Out of college, he worked for a very successful investor in Chicago who always went against the grain. It was an eye-opener for him to work for someone who had so much success in assets like MHPs, multifamily, and tax liens. He would assist in multifamily construction projects, model out potential investments, and even go to tax auctions. From there he went back to school at George Washington where he interned with Brookfield Properties. He interned for a guy named Paul Schulman who was something of a role model and he went on to become COO of U.S. Operations for the company.
After grad school (May 2009) and intra-recession, Freddy moved back to Chicago as there wasn’t much hiring going on in the real estate world. He met a very well-known person in the trading world (Matt Hulsizer) and he and his wife (equally impressive) started an equity options trading firm (they had a prop shop and hedge fund) called PEAK6. The firm needed an analyst to cover banks, and property and mortgage REITs…Interest rate-driven stocks. These were historically not sexy stocks to cover at the time but it became somewhat interesting as the “fed” would cause a taper tantrum and we started to see volatility pick up in some of them during his tenure there with the “fed dots.”
Freddy also began to cover special situations (M&A, LBOs, spin-offs) and that would entail covering a lot of consumer and retail as a decent amount LBOs were happening in the early 2010s. After 5 years and being a little burnt out on the desk, he (maybe against his better judgment) decided to do a 180 and start his own company in fitness. He always had plans to return to real estate (either as an analyst or on the investment side) but he did not anticipate going to the debt side. He was introduced to StackSource by an old high school acquaintance who told me about the company and the deals he was working on. It honestly sounded colorful and fun and he admired the startup world. The guys who started it spent time working at Facebook and Google so Jon figured they were intelligent…and they are. They gave him a case study which he completed in the hospital a couple of hours before the birth of his second daughter, and a week later he was hired.
Since then, he has been able to work on financing redevs, ground-ups, refis, and acquisitions in all areas of the U.S. from Alaska to Florida. He is currently closing an SFR portfolio in Wyoming, a mixed-use portfolio in Alaska, several multifamilies across the country, and a couple of MHPs in MI and OH. He loves being in tune with the macro side of things and how it affects his clients. He also likes working with clients that want to keep learning and let me help them find the best returns for their investments. He works with them on their priorities, and he’s always candid with them as he really doesn’t have time to provide false hopes. He also knows most of his clients don’t have time as a large percentage of them work in the tech sector for companies like Google, Netflix, Facebook, and are investing in the CRE space.
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