Dr. Julius Oni is the CEO of XSITE Capital Investments, which focuses on multifamily syndications. He also works full-time as an orthopedic surgeon specializing in hip and knee replacement at Johns Hopkins. In this episode, Julius shares his thoughts on the state of the economy and its impact on real estate as well as how XSITE is changing the way they approach and analyze deals based on current interest rates and slowing rent growth.
Dr. Julius Oni | Real Estate Background
- Julius works full-time as an orthopedic surgeon specializing in hip and knee replacement at Johns Hopkins. He is the CEO of XSITE Capital Investments, which focuses on multifamily syndications.
- Portfolio:
- $125M AUM
- GP and LP of 694 units
- Based in: Baltimore, MD
- Say hi to him at:
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TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Julius Oni. Julius is joining us from Baltimore, Maryland, where he is a full-time orthopedic surgeon specializing in hip and knee replacements at Johns Hopkins. He is also CEO of XSITE Capital Investments, which encourages all who qualify to passively invest in multifamily real estate. In his portfolio currently he's GP and an LP in over 125 million in assets under management.
Julius can you tell us a little bit more about your background and what you're currently focused on?
Julius Oni: Absolutely. Thank you so much, Slocomb. I really appreciate the opportunity to chat. So I am Julius Oni, just like you said, an orthopedic surgeon in Baltimore, Maryland, and the name of our company is XSITE Capital, where we collaborate with our community of investors to buy cash-flowing multifamily properties. And we started buying properties somewhere in early 2020. In the last 2.5 years, we've been able to accumulate an asset under management of about 125 million, and by the end of this year, we'll be at about 170 million. So I am very proud of what the team has been able to do over the last few years, and our growth has been a testament to the power of community, to the power of partnership, and to the power of what people can do when they pool their resources, and go after a mutual goal.
With regards to my personal background, I'm an immigrant. Originally, I'm from Nigeria. I came to the US in 1999, when I started college. I did my college in upstate New York, and afterwards moved to DC for medical school. After medical school, I was in New York City at NYU for my orthopedic surgery residency, and then moved on to Chicago for my joint replacement fellowship.
Over the last 10 years I've been in practice, replacing people's hips and knees, and I usually joke that the only thing I'm really licensed to do is really to replace people's hips and knees, particularly when I'm doing my webinars for our real estate deals, and people need to double-check everything i say with their financial professional. But obviously, over the last several years I discovered multifamily real estate in collaboration with my two partners, Mr. LESLIE AWASOM and Mr. TENNY TOLOFARI. I was super-fortunate to find two other guys that were just super-passionate about creating legacy wealth through investments in real estate. Over the last few years, we've been able to educate and get a significant number of people to join us in this vision of collaborating, pooling our resources and buying cashflowing multifamily real estate and creating legacy wealth for us and our families.
Slocomb Reed: Julius, two months before we are recording this, and likely four months before it airs, my interview of Leslie Awasom about XSITE published on all of the podcast apps and locations, so good to have a catch up with you. It was a conversation about data-driven analytics and how that data-driven analytics informs and fuels the underwriting and the analysis that you all are doing at XSITE. You started a little over two years ago. You have 125 million in assets under management now, and you're headed to 170 in the next couple of months...
Julius Oni: Yeah, before the year's end, yeah.
Slocomb Reed: That's fast. Of the deals that you're set to close in 2022, when did you get the last one under contract?
Julius Oni: That's a great question. The most recent one that we got on the contract, we've put on the contract about a month ago.
Slocomb Reed: You've put it under contract about a month ago... So we're talking towards the end of Q3, 2022?
Julius Oni: Yeah, towards the end of Q3.
Slocomb Reed: So all of the same things are relevant now that were relevant then about the economy in a crazy downturn, and inflation, interest rates...?
Julius Oni: Yeah, absolutely.
Slocomb Reed: And have you guys have gotten anything else under contract since then?
Julius Oni: No, not yet. Absolutely not. But we've been pretty busy, because we're actually slated to close a deal prior to that on November -- actually, this Friday. So this Friday, we'll be closing the deal prior to that. And then almost immediately, we're going to be going right into the next deal. This most recent deal that we're going into, we actually had been pursuing for some time; we went into the best and final and we were second. But for some reason, the first group backed out, and here we are. I always joke with my partners - we like to be second place, because I would say three of our last five deals, we were second place, the first group backed out, for some reason it didn't work out, and it came to us, and we closed the deal. So anytime we're in second place, we're usually like "Yeah, this sounds like it's gonna be the deal for us." And guess what - one of those deals, we're actually going full cycle on it, and we're closing on that one on November 8th, and selling it after holding it for about 18 months. Then we're going to be giving our investors some fantastic accounts, at least 1.5x equity multiple on that one... So I'm super-excited about it.
Slocomb Reed: You guys are a value-add apartment investors, correct?
Julius Oni: Yeah.
Slocomb Reed: What are your targeted metrics? Is it an equity multiple? Is there a targeted cash on cash and IRR that you're looking to deliver to investors?
Julius Oni: So usually, we are always looking to deliver at least a 6% cash on cash to our investors, at least an average annual return of 15% to 25% in an ideal world, and equity multiples over a three to seven-year period of between 1.5 to 2.5x. So that's usually just roughly what we targeted. But it's usually a combination of some cash on cash of at least 6%, and average annual returns of at least 15%.
Slocomb Reed: Within apartments, what markets are you targeting, and what types of properties or locations within those markets are you buying?
Julius Oni: That's a great question. So typically, we are looking in the South East US. So we've been mostly focused on North Carolina, South Carolina, Georgia, we certainly have looked at some of the Sunbelt states, Texas, Florida, but the competition in some of those states is pretty stiff, as you well know... So we've gotten some good traction in Columbia, South Carolina, we're just closing on our first deal in Atlanta -- actually our second deal in Atlanta, Georgia, but first deal as the lead general partner. So we are slowly but surely breaking into the markets that we are interested in, but we are constantly looking mostly in the South-East US. And the reason why we are that interested in that part of the US is because of obviously the population growth, the median household income growth, the diversity of employers that are moving down there, the increase in rent growth in those markets, and certainly, the increase in just the general migratory trend of people just moving down South, from the North-East, from the West sometimes, has really encouraged us to explore those markets... And to good effect. We've really found some great deals and doing very well for our investors on those deals.
Slocomb Reed: Julius, within those markets, do you find yourself targeting A, B, C class, all of the above?
Julius Oni: That's a great question. So we have mostly played in the B and C classes, but occasionally -- we've actually done all, what am I talking about? Our last close prior to the one was an A class property. Now, it all depends on, one, the particular property, and if the underwriting checks out and the numbers work, then we go after it, be it A, B or C Class properties. As far as there's some business case to be made for some value-add, then we'll go for it. Because some of the older class A properties also could use some value-add; it may not be a heavy value-add that we would do for Class C property, but it could be something like a smart upgrade for the units, for an updating of the pool area, upgrading the business center, adding some co-working spaces within the property, or something along those lines. This is another type of value-add that we've done on some properties. But for the class C properties, then obviously we do the heavy value-add, improve the curb appeal, do the full shebang and moving the classic units to more modern units.
Slocomb Reed: Julius, within XSITE, what do you focus on? What are your responsibilities?
Julius Oni: That's a great question. So I'm the CEO and co-founder, obviously, at XSITE Capital, and I'm mostly focused on the investor relations and the overall vision of the company. So Leslie, our son, my fantastic partner, who you have interviewed, is the numbers genius. He's the guy that does all the underwriting and oversees our underwriting, and also does all the operations for the company. Tenny Tolofari, who's my other partner, he's the director of acquisitions, and he works on the -- he oversees deal flow; he interacts with the brokers, gets us the deal, and then he passes it on to the [unintelligible 00:11:07.16] he underwrites the deals. And eventually we get the deal under contract, and I go out there and oversee the investor relations, obviously, in the in between times, and certainly oversee the fundraising process.
So we are three legs of a tripod, and without one, the tripod cannot stand. So we work very well with each other, and have complementary strengths.
Slocomb Reed: That makes a lot of sense. Knowing that you're focused on investor relations, Julius, we're recording at the beginning of November 2022... Have you noticed recently any change in the interests/behaviors of your investors or the quantity of investors who are looking to get into your deals?
Julius Oni: Absolutely, no question about it; everybody's spooked... Or at least the vast majority of people are. And even the most savvy investors are a little more reserved about going all-in on deals and doing even extra due diligence in deals that they're going into right now... And that is for good reasons. So we are finding that we are having to educate the investors even more about what we think our assumptions about where the interest rates are going... What we think our assumptions are about where cap rates are going to go within whatever markets we are; what we think our assumptions are about the supply chain dynamics with regards to all the value-add that we need to do; what we think our assumptions are about what's going to happen in the different markets that we operate in.
So a lot of these things, and all of the things that we're doing to essentially create cushions in the deals, we have to educate the investors about. And we've found that to be more than sufficient for the investors. Because yes, it's a little harder, particularly because a lot of people really had a lot of the challenges in the stock market... So because of that, some of them are reluctant to obviously pull their money out at the bottom... So they are keeping their money in the stock market, and therefore have less liquid to play with. But for the most part, with all the education that we're doing, and with people seeing us as their preferred investment partners, at least the people in our community of investors, we've not really had too much issues with closing our deals.
Slocomb Reed: Gotcha. So investors are spooked... Yesterday was Halloween. A great word to use there, Julius. But also, you're seeing a lot of investors who right now are looking to keep their money in the stock market because they feel like, whether or not it's bottoming out, the value of their stock portfolios dropped considerably... And so instead of pulling out at the bottom, they're looking to stick it out and see...
Julius Oni: Absolutely.
Slocomb Reed: Gotcha. That makes sense.
Julius Oni: And some people are even doubling down; they're putting more in. If they truly believe in the diversification of their portfolio or the choices of their stocks, then some people are doubling in and just going right into the stock market, hoping that it doesn't drop down any further, and hopefully rebalance their portfolio that way. But what we try to tell our investors is that multifamily real estate has traditionally done well even in recessions. This is one of those recession-resistant type of asset classes, and as far as we are underwriting appropriately, and having super-conservative assumptions, then we're very confident that we're still going to do very well for our investors and for ourselves.
Break: [00:14:54.13]
Slocomb Reed: Julius, I know you are not involved in acquisitions as much... But with the recent economic and global political volatility that we have experienced now fully into the fourth quarter of 2022, are you all changing the way that you look at deals, analyze or offer on deals right now? Some of the things that could be impacting your decision-making are, of course, interest rates, the slowing of rent growth, which of course, is felt in different classes within apartments and in different metro areas in different ways. Are you all changing or adapting to any of this? And what are the fundamentals that you're sticking to that you're not willing to back down off of right now?
Julius Oni: Absolutely. That's a wonderful question, and that's a relatively difficult question too, in the sense that the way that our acquisitions process has changed - it's multifactorial. So obviously, with the increase in the interest rate, and some of the sellers not willing to sell at a higher cap rate yet, we are having to be much more careful about how aggressive we are with our offers. So also, we are projecting a slower rent growth in almost all of the deals that we are underwriting at this point, and we also projecting that we are going to exit at a much higher cap rate than we typically would have.
So instead of, for example, projecting that we're going to exit out at a cap rate that's only 40 or 50 basis points higher than what we entered into the deal with - we would project that we would be 150 basis points higher, in many cases. So being that conservative, and we still build a lot of cushion into the deal, and the deal still checks out and still pencils (and fewer and fewer of them are doing that nowadays), then we put a fair offer on the deal. But we are certainly doing everything in our power to make sure that we are protecting the downside for our investors and us.
Slocomb Reed: Underwriting for more conservative growth and a more conservative cap rate on exit. Are you all making any projections about what the coming months and years will look like? If or how deep recession would go and how long it would last?
Julius Oni: Yeah, that's the million dollar question, right Slocomb?
Slocomb Reed: It is.
Julius Oni: I think a lot of people have offered their opinions on this, and I've read a lot of economist and their projections of how long the recession may be, and how long the Fed is going to continue to bump up the interest rates, and how quickly they're going to ease off on quantitative tightening, and maybe possibly start QE again - no one knows. But I think in the most conservative quarters, what I think is that the Fed will probably stop increasing interest rates sometime in 2023, maybe 2024... Who knows? I think it should top out hopefully sometime in 2023, but the effects of that are hopefully going to be eventually fell sometime in early 2024... And my hope is that it would then start to drop at some point, in maybe mid to late 2024, and by 2025 things will start to trend down again, where we have decreasing interest rates, and hopefully pressing cap rates again. But obviously, who knows where it's going to be dropping from? Is it going to be 10%...? Is it gonna be 7%...? [laughs]
Slocomb Reed: Of course. Yeah, I wasn't asking you to pull out your crystal ball as much as I wanted... I just wanted a lead-in to this question, which is given that you are aggressively pursuing deals right now, what kind of debt are you looking to take on, and how much is the current economic climate factoring into your decisions about debt?
Julius Oni: Got it. Obviously, Fannie and Freddie are just not willing to give any significant LTV at this point. The last time we checked, it was 50% to 60% loan to value ratio, which means we're going to have to do a lot of heavy-lifting with the raise on a lot of these deals.
So we've actually been doing a lot of assumption deals recently... So a lot of these deals with long-term debt, because obviously, some of the fundamentals is that you want to get into long-term debt, you want to cash-flowing property... So two of our last three deals, including the one that we're going into, are assumption deals. So we're just getting some supplemental loan to move on those.
The previous one that we closed this year was a Fannie Mae loan. But obviously, at that point, we still had some favorable interest rates. The most recent deal we're closing is a bridge loan, but we bought a pretty aggressive rate cap of 1%... So we were still lucky enough to lock it in at 4.2%...
Slocomb Reed: Oh, wow.
Julius Oni: Yeah.
Slocomb Reed: For how long?
Julius Oni: 4.2% [unintelligible 00:21:26.28] but then we bought a rate cap for three years.
Slocomb Reed: Gotcha.
Julius Oni: So yeah, hoping to ride out whatever the recession was going to present to us. So the term on that loan was three plus one plus one. So our hope, and I think we are completely within our conservative baseline to hope that whatever is going to happen with the interest rates, it's going to hopefully be done in three to five years, hopefully... And that we'll be hopefully back in a more favorable environment at that time. But we've stress-tested almost all of these deals to seeing even what would happen in a worst-case scenario, and our first goal for all of our deals is cash preservation; it is to preserve our investors' principle. And then we certainly also want to do well for them. So we tend to try to under-promise and with the hopes of over-delivering for them.
But going back to your question - yeah, we're still willing to explore some bridge that; but obviously, if we're going to do that, then we want to buy a pretty aggressive rate cap, and the deal still has to work with that before we would consider it. But yeah, the deal we're going into right now is more of a management play. We are doing a debt assumption, and just going to manage it a little better, reduce expenses, expect relatively flat rent growth, and the deal still works. So it's a beautiful thing.
Slocomb Reed: Nice. Well, Julius, are you ready for the Best Ever lightning round?
Julius Oni: Why not? Let's do it!
Slocomb Reed: Great. What is the best ever book you've recently read?
Julius Oni: I've just actually finished Sapiens. And that was incredible. That's a book that completely changes your perception of the world we live in, and the history of mankind. So I truly enjoyed it.
Slocomb Reed: Yes, [unintelligible 00:23:20.11]
Julius Oni: Yup.
Slocomb Reed: What is your best ever way to give back?
Julius Oni: I'm fortunate to also collaborate with a couple of other orthopedic surgeons, and we have a nonprofit called Operation Stand Walk Run, where we perform free total hip and knee replacements for people who can't afford it in Africa. We were just in Nigeria, in March, doing those surgeries for people who can afford it, and it was so rewarding... And the beautiful thing about it is that XSITE Capital was one of the sponsors of that trip. So in those cases, my two worlds kind of come colliding, where we are able to use some of the gains from the real estate work to make a difference in the lives of people in different parts of the world. So that's one of the ways that I give back. I give back in other ways also, but that's one of them.
Slocomb Reed: Julius, thus far in your real estate investing, what is the biggest mistake you've made and the best ever lesson that resulted from it?
Julius Oni: That's a great question; a mistake I've made... So I would say probably the biggest mistake sometimes is -- in my experience investing in real estate so far, the biggest mistake I've made so far is thinking that single-family real estate was going to create legacy wealth for me personally. Because initially, when I started learning about real estate, I initially thought I was going to buy one single-family home every year for the next 30 years, create a small portfolio, and then sell them as a portfolio eventually... But then I quickly realized that it was just a little too time-intensive, energy-intensive, and cashflow wasn't as impressive as I expected. And I certainly realized quickly that I wasn't a great landlord, at least to single-tenant rentals. So it was after that that I segued into multifamily in collaboration with my partners, and I'm so thankful that I was able to make that pivot.
So for me, moving into multifamily was the best thing that's ever happened to me in real estate, but certainly thinking that single family was going to do for me was the biggest mistake, and I lost some years doing that.
Slocomb Reed: Julius, what is your best ever advice?
Julius Oni: My best advice is that a journey of 1000 miles starts with the first step. So stop thinking about those things that you're going to do. Just do it. Just start taking that step today. You want to lose some weight - just start working out. Even if it's 10 minutes a day. Start doing it. You want to go into multifamily real estate? Start listening to some podcasts, start taking some steps towards your goals. You want to be like XSITE Capital and have a billion dollars in real estate in the next few years? Start collaborating with other folks, start educating people, start seeing where partnerships can take you. Figure out how to get to those deals, how to underwrite them quickly and efficiently, and figure out how to get those investors that are going to come together and help you acquire those properties. So for me, once I realized that, that was a game-changer for me.
Slocomb Reed: Awesome. And Julius, last question - where can people get in touch with you?
Julius Oni: I can be reached at Juliusoni@xsitecapital. I'm also on LinkedIn as Julius Oni. And you can just check out our website at xsitecapital.com.
Slocomb Reed: Awesome. And those links are in the show notes for our Best Ever listeners. Best Ever listeners, thank you for tuning in. If you've gained value from this conversation, please do subscribe to our show, leave us a five star review and share this with a friend that you know we can add value to through this conversation. Thank you, and have a best ever day.
Julius Oni: Thank you so much, Slocomb. I really appreciate the opportunity to chat with you. Have a beautiful day.
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