A Sanguine Outlook, Negotiating, & Distress Update

release edition [032]

read time [7 minutes]

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

Today at a Glance:

Outlook: Becoming Sanguine
Negotiating: Creating Leverage
Distress: July CredIQ Update
Weekly Listen: Howard Marks

Outlook

Sanguine (adj): optimistic or positive, especially in an apparently bad or difficult situation.

If you're not already, I'd encourage you to consider adopting this as a guiding principle in how you view the world.

2025 has been an interesting year for many reasons, but through all the noise, I have become steadfast in maintaining a sanguine perspective on the future.

Nobody knows what the future holds, including the naysayers and doomsayer's, so why not choose to be optimistic or positive?

What's the alternative?

Living with fear, uncertainty, or doubt about what's lurking around every corner?

I know I'm biased because I live in America, which I realize is a tremendous blessing for many reasons, but one reality holds true no matter where you live: The future is bright.

Civilization finds a way to improve over time. History has proven this.

Just a few generations ago people rode horses, lit candles at night, and died trying to travel across the country.

Today, we launch rockets, sleep inside with air conditioning, and fly across the world in just a few hours.

This section has both nothing and everything to do with Multifamily.

What's the point?

Better days are coming. Stay positive.

Negotiating

There are many approaches to negotiating in Real Estate.

Below are a few thoughts on negotiating that have helped me thus far in my career.

Do you have any tips or advice that you'd add to this list?

1. Sit in Their Chair

It's human nature to take a defensive or risk-averse posture whereby each person (either subtly or overtly) protects what they want most.

Knowing this, it's your job to sit in their chair to determine what they want most, and why, so that you can make an offer or proposal that creates a mutually beneficial outcome.

Notice I didn't say "win-win".

Effective negotiations, especially in Real Estate, are often full of concessions, or "give and take". This means it's okay if a negotiation feels like a lose-lose. Negotiating effectively will cause both parties to concede something.

Now, a superpower in Real Estate is getting the other side to feel like they're both "losing" a negative consequence and gaining a positive benefit, which is a double-benefit to them.

For example, a broker trying to secure a listing might pitch a Seller with some version of the following: "The market has been on a run these past few years. Could it make sense to take a few chips off the table before the market shifts?"

Communicating risk is an effective way to push the other side to do what you want while they feel like they're avoiding something negative, especially if avoiding those potential risks directly benefits the other party.

2. Create A Mutual Success Vision

One of the best tactics that I've observed in negotiations is the ability to take the negotiation to 'hypothetical land'.

Here's what I mean: If you can paint a mutually beneficial picture of the future that includes a positive outcome for both sides of the table then it becomes far easier to reverse engineer the today's desired outcome.

In essence, by casting a hypothetical vision for the future, you put yourself in the driver's seat for reverse engineering how an action today will lead to the vision that you've just outlined.

We're seeing this play out real-time with global trade deals.

I have no clue what's being said in those negotiations, but I have to imagine that one component of the conversation goes something like this:

"America is not slowing down. Companies and capital are flocking to the U.S. We (America) want you (foreign country) to be apart of this growth for many, many years. The only way that you will get to participate in this growth is by agreeing to (insert trade deal terms). The growth is going to be tremendous, and everybody will benefit immensely. You don't want your country to miss out, do you? Gosh, that would be devastating for your country and your economy".

3. Create Tangible Leverage

The quoted paragraph above creates tangible leverage by stating the facts: "Companies and capital are flocking to the U.S."

But here's the reality: Positioning yourself as the prize is the only way to effectuate leverage in a negotiation.

And in many cases, the side with the most scarcity gains the most leverage.

This is challenging to do as a buyer, because there's often a structural imbalance between buyers and capital versus sellers and properties.

We saw this in 2021-2022 when capital flocked into Multifamily and prices were driven upwards to record heights. There were a scarce number of sellers were selling properties to an unlimited number of buyers and capital.

This made it very difficult for a buyer to create tangible leverage.

As a Multifamily buyer, the only chance of creating tangible leverage is by demonstrating an ability to close, clearly communicating the constraints and rationale behind underwriting assumptions, and manufacturing the fear of loss.

Early in my career, I negotiated ~$200M in Single Family Residential ("SFR") sales in a 12-month period. Our company was helping 25-30 families buy homes in a highly-competitive market, and I was on the frontlines of our buyer negotiations. It was insane.

But one thing that I learned is the power of the fear of loss combined with an appeal to morality.

Here's how my typical conversation with a listing agent would sound when there were 10 other offers and my client desperately wanted to win the house:

"Look, I understand this might feel like a tough decision. Here's the reality: It's your fiduciary obligation to your Seller to get them the best price and the best terms. I'm telling you that my client is prepared to offer the best terms and pay the highest price. Tell me what we need to do to be selected and I'll discuss it with my Buyer. If my Buyer is willing to do what's needed to get the house then great, you did your job, and if not, that's okay, because it sounds like you have several buyers. We have a number of home tours setup tomorrow, so let me know how your Seller would like to proceed".

This worked like clock work. Our clients had a 50% win rate despite most home sellers receiving 5-10 or more offers.

The point was not to be manipulative or condescending, but to help open the listing agent's mind to the reality that they very easily could have forgotten: Their fiduciary obligation is to get their Seller the highest price, and I was telling them that I would help them achieve their fiduciary obligation.

I was able to build a bridge between our two desired outcomes using moral authority.

Negotiating is about knowing which lever to pull, and when, to create a mutually beneficial outcome.

There are tons of great books on negotiations, but here are two of my favorites:

Do you have any favorite negotiation books?

Distress

As we slowly come out of the most aggressive rate hiking cycle in Fed history, it's important to keep a pulse on the pipeline of potentially distressed properties.

Here's a quick July distress update from CredIQ.

As you'll see on the charts below, the data tell an interesting story.

Current Loans: $9.1 billion (15.5%) in loans were current in July, down $327.4 million from the June print of $9.4 billion (16.2%)

Late Loans: $3.8 billion (6.4%) of loans are late but not yet delinquent, down from $4.8 billion (8.2%) last month

Delinquent Loans: $10.3 billion (17.5%) of loans are 30+ days delinquent, down from $11.7 billion (20.1%) in June

Matured Loans: $35.8 billion (60.6%) in CMBS loans have passed their maturity date (up from $32.4 billion last month). Of these, 21.7% are performing (up from 18.5%), while 38.9% are non-performing (up from 37.0%)

The last bullet above is the most interesting, in my opinion.

Nearly two-thirds of all distressed and/or specially serviced loans have matured. Gulp.

How long will lenders / creditors hold these loans before deciding to recycle their capital? And, will the decision to get paid off occur en masse such that we see a cresting wave of distressed (or heavily discounted) properties hit the market all at once?

These questions are largely rhetorical, but here are a few things we know:

Most lenders are not in the Real Estate ownership business
Lenders must generate returns for their investors
Lenders should avoid the middle; either sell early or wait it out

If I had to guess, most lenders will need to recycle capital, but they'll find themselves caught in the middle (think: bell curve distribution), and this exodus of lenders deciding to sell will create interesting buying opportunities in the coming years.

I get the sense that many properties purchased in 2021-2022 will be sold at attractive discounts in 2026-2027.

Stay patient, if you can.

Weekly Listen

This week, rather than a podcast, I'm sending you the link to Howard Marks' latest Memo.

If you're not familiar, Howard Marks is the Co-Chairman of Oaktree, and has helped lead the firm since inception in 1995.

Titled "The Calculus of Value", Marks writes on several topics, including value, price, their relationship, and what to make of today's equities markets. While I don't agree with every perspective he offers, it's a well-written piece worth a listen or read.

You can listen (or read) it here.