Raising Equity, Thinking Critically, & More

release edition [009]

read time [10 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional career in Real Estate.

Today at a Glance:

Equity: 10 Observations
Thinking: My Filtering Process
Newmark: Multifamily Update
Weekly Listen: Scott Rechler, RXR

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Equity

We all know that Multifamily investing requires equity capital, but the manner in which is it raised and how that capital is utilized can vary greatly.

Investors typically prefer investing equity into Multifamily through some combination of LP positions (passive in nature), GP positions (active in nature), co-GP positions (semi-active in nature), and preferred positions (i.e. rescue capital).

Owners/operators generally prefer to raise equity capital from some combination of individual investors, outside fund managers, family offices, capital allocators, and/or their own fund vehicles (which can be more discretionary in nature).

As you can see, the Multifamily equity landscape is complex, dynamic, and challenging, especially today.

Below are 10 personal observations from my 2+ years of being on the owner/operator side of the institutional Multifamily business. I am self-aware enough to realize that my experience is a small sample size, so please keep that context in mind.

That being said, these observations are the result of significant time spent working on raising a sizable amount of equity over the past 24 months. (I'm hopeful to share more details with you in the future than I can today).

Finally, you'll notice than many of the observations below are daisy-chained together using the word 'influence'. This was done intentionally to demonstrate the foundational and interwoven role that equity capital plays in achieving success in Multifamily.

1. Raising Equity is Tough

If there were ever a such thing as 'easy days' raising equity, then they're certainly in the rear view mirror. Raising equity in 2025 is challenging regardless of who is doing the equity raising. Sure, oversubscribing a fundraising effort makes news headlines, but that's because it's the exception, not the norm.

2. Equity is a Lifeline

Investors with equity capital available over the past 24 months have had a significant advantage, in most cases, to those that did not. (I caveat with 'in most cases' because, despite opportunities to avoid doing so, there are Sponsors that invested equity into questionable deals simply to feed their 'fee machine' to keep their lights on. I strongly advise against this approach). Whether perceived or realized, well-capitalized groups provide a higher degree of certainty for today's Sellers that are typically only selling because they are motivated to do so for one reason or another.

3. Leverage Influences Economics

"Who needs who more?" is a critical question that every investor should be asking themselves about the counterparty. Ideally, the answer ends up being equally weighted and evenly matched. Equity capital, especially today, is typically more plentiful than great deals, but being in a position of strength to access that capital when it's needed most is a critical component of being successful in the Multifamily business.

4. Structure Influences Incentives

Individual LPs are less scrutinizing of structures than institutional investors, which is understandable given the typical sophistication gap, but I still find it somewhat ironic given that individual investors are investing their own dollars whereas institutional investors are unemotionally investing someone else's money. For this reason, I commend the Multifamily educators of the world like Aleksey, Paul, Scott, and others. My best advice to LP investors is this: Only invest into an LP position once they can explain and pitch the opportunity as if they were going to be the GP and their friends/family were going to be the LPs.

5. Incentives Influence Behavior

In the world of syndications, there's an age-old argument about incentives, and rightfully so. On one hand, LPs benefit from an incentivized GP so that the GP is focused on maximizing the investment performance. On the other hand, LPs are taking both capital risk (their equity is at risk) and operational risk (limited decision influence), and should be compensated for those risks. All else equal, it's better to overweight the GP economics on the back end of an investment versus the front end. This is why I'm a fan of market fees such as 1% acquisition fee, 1.5% asset management fee, 5% construction management fee, and a straight split. (IRR is a topic for another day, but IRR can be dangerous because it can misalign incentives among GPs and LPs. I wrote more about this here).

6. Behavior Influences Outcomes

If a GP is incentivized to remain committed to a deal, even if the business plan has gone worse than expected, then there will always be a chance that the asset may recover in the future. However, when GPs are not incentivized enough (through ongoing AM and CM fees) to continue scooping water out of a sinking ship then any hope of a brighter future goes away entirely.

7. Outcomes Influence Trajectory

For both LP and GP investors, investing in Multifamily creates a snowball effect. If the snowball gets scorched and completely melts then the velocity of capital gets halted. This is why early and sustained success is so meaningful for investors. The best way to predict an upward trajectory is not by always swinging for the fences, but by avoiding strike outs. Sure, home runs are nice, but singles and doubles are enough to get wealthy in this business.

8. Trajectory Influences Growth

If an investor hits enough singles or doubles, over a long enough period of time, then growth will occur. Many times, investors don't know where they want to go, so any road will lead them there. I have journal entries from 2016 where I wrote that I would own thousands of units one day. Will I get there? No clue, but I know that I'm on the right path and that's what matters most. Get clear about trajectory and the right type of growth will begin to occur.

9. Growth Influences Optionality

As growth occurs, optionality increases. Wealthy, experienced investors have more options than non-wealthy, beginner investors. I realize this is obvious, but again, many overlook the benefit of creating optionality in investing, career, and life. As I continue to grow in my career, my world continues to open up more and more. If you want more opportunity or optionality, focus on growth, both personally and professionally.

10. Optionality Influences Everything

There's an old saying: "Someone with their health has many dreams. Someone without it only has one". I believe the same is true in our careers, especially in Multifamily. It took me 7 jobs in 8 years to arrive on my current path. The key was getting clear on what I wanted (remember the 2016 journal entry?), and a relentless pursuit of those goals. If you're feeling stuck inside of the vast Real Estate industry, but you know that Real Estate is for you, check out The Career Compass.

Raising equity as a GP and investing as an LP in Multifamily can feel overwhelming at times, but it doesn't have to be. It's simple, but not it's easy.

If you're a GP, focus on operational excellence, investor relations, industry relationships, and buying great deals.

If you're an LP, focus on each individual investment, not the GP's track record. Every potential investment must be evaluated on its own merit.

Thinking

In January, I went on the record in The Multifamily Download 004 and boldly disagreed with five out of six themes in Apollo's 2025 Outlook. Today, these five themes appear to be unfolding more closely to what I predicted than Apollo.

Of course, we're just two months into the year, so we'll see how the remainder of 2025 unfolds.

If you know me, then you know that I do not pretend to have it all figured out, and I'm a relatively risk averse person.

I make a point to never walk too far out on the limb unless I have the confidence to do so. I avoid being a keyboard warrior on LinkedIn.

And I certainly don't want to look foolish by telling a person or company that they're wrong.

So, as 2025 begins to unfold, I can't help but ask myself:

"How did I have the confidence to publicly refute Apollo's outlook?"

The TL;DR answer is because I look at data and research across all different spectrums of the economy and industries. I don't pretend to be as smart as the Apollo research team, and I have the utmost respect for Torsten Sløk, but as you'll see in TMD 004, the data is the data.

I am neither an optimist nor a pessimist. I'm a realist.

Of course, data can be arranged or manipulated to fit almost any narrative, so cultivating your own opinion is critically important in today's economy.

Many people accept the ideas of those they look up to without questioning them. They hear something on the news or read an article on CNBC and take it as fact.

This is a dangerous approach, especially when it comes to investing.

Critical thinking is about filtering new information before accepting or refuting it.

I carefully filter every conversation, interview, article, or news story. I never accept anything at face value, and instead, I filter it by thinking critically before formulating my own opinion.

If you'd like to begin this filtering process, here are a few questions to ask yourself the next time you're presented with new information:

"Does this make sense intuitively?"

"How does this compare to what I've seen or heard in the recent past?"

"How does this compare to what happened in previous cycles?"

"If this is correct, how might the future unfold? What if it's wrong?"

"How does the person sharing this information benefit from this information being shared?"

In many cases, institutions and individuals directly benefit as a result of the position that they're taking. For example, Blackstone calling the CRE market bottom in 2024 directly benefits them as investors become more likely to invest.

I'll leave you with an example to drive the point home.

Most institutions and media outlets entered 2025 with a general theme that the economy would remain strong.

I disagreed, and I continue to stand by my disagreement.

As I've studied 2006-2007 leading up to the GFC, it has become apparent that 2023-2024 were quite comparable.

Interest rates were rising rapidly, yet single family home prices continued to rise. Big banks were strong, profitable businesses. The stock market bull run began to defy logic. Small and medium sized banks were not really on anyone's radar. Credit was being extended to those that needed it the most despite being the least qualified to receive it.

I'm certainly not predicting that 2025 will be a repeat of 2008-2009, but history often rhymes, as Mark Twain said.

Taking time to pause, reflect, and filter data as it comes in is critical to determining what you truly believe.

My belief, despite what I was reading in many reputable 2025 outlooks, quickly became a contrarian one, as I shared in TMD 004.

My goal in sharing this today is simply to empower you to not believe everything you read or hear.

Today's world is noisy.

The better your filter becomes, the stronger your conviction will become.

Newmark

Commercial Real Estate brokerage Newmark publishes a phenomenal quarterly Multifamily Capital Markets report.

If you follow me on LinkedIn, then you've noticed that I've shared a number of graphs from the most recent Q4 2024 report.

I would strongly encourage you to review the report when you have time.

As you do, be sure to filter the information, of course.

You can access the report here.

Weekly Listen

This week's listen is a recent episode of the Walker Webcast with Willy Walker featuring esteemed guest Scott Rechler, the Chairman and CEO of RXR Realty in New York City.

Scott is a CRE expert and industry leader who understands the nuances of urban development, adaptive reuse, and long-term investment strategies. They discuss the state of the CRE market, betting on Multifamily and public-private partnerships, AI, workforce trends, the future of Office, and where to bet big in 2025.

You can listen to the full episode here.