April 13, 2024

JF3509: Finding Deals, Getting Offers Accepted, and How to Get from LOI to Closing Table ft. Jon Siegel



Jon Siegel, co-founder and chief investment officer at RailField Partners, joins Slocomb Reed on the Best Ever Show. In this episode, Jon discusses the fundamentals of acquisitions, including how to find deals in 2024, the importance of building relationships with brokers, and how to get your offers accepted in a competitive environment. He also shares his strategies for getting from an accepted LOI to the closing table.

Jon Siegel | Real Estate Background

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Slocomb Reed (01:25.143)
Best ever listeners, welcome to the best real estate investing advice ever show. I'm Slocum Reed. And today we are joined by John Siegel. John is based in Bethesda, Maryland and Washington DC Metro area. He has a partner and chief investment officer for railfield. Railfield was founded in 2013 by three former Fannie Mae executives. They call themselves a small institutional firm that is focused on commercial multifamily with long-term hold and value add 
business plans. The current portfolio consists of 16 properties around 4,000 units and they've had successful exits from another 2,500 units. John, can you tell us a little bit more about your background and your current focus?

Jon Siegel (02:11.338)
Yes, sure. Thanks for having me on. So I've been, I like to say now I've been in the multi-family business, commercial real estate, for longer than I would care to admit, as I have a lot of gray hair now. But I originally actually was on the principal side and I worked for a company that was the largest owner of apartments in the country. That was back in the 1990s. And I like to say that company was so poorly run that they allowed a guy in his twenties to do all kinds of deals on the acquisition side. Portfolios, we bought some companies.

It was a great experience. And that company actually ultimately ended up getting sold. And so a sale of the company tends to be a bad situation for the acquisitions guy. And so that set me into my time as a lender. And so I became a lender. I started working at Fannie Mae. And at Fannie Mae, I did primarily what they called structured transactions, which are the large negotiated deals.

So most, most people who are listening to this who get a Fannie Mae loan, you get a loan on one property, you go through your lender and they sort of do all the work. If you're a big REIT or a big pension fund or something like that and you're borrowing $500 million, a billion dollars, something like that, somebody at Fannie Mae has to actually do that deal and negotiate that. And that was primarily my job. I also started Fannie Mae's business of lending on student housing. So Fannie Mae wasn't doing student housing when I started there.

I came up with that idea and put that into motion. I was at Fannie Mae for a while, but never saw myself as a big company guy and always had the entrepreneurial itch. One of my colleagues at Fannie Mae and I started an advisory firm. This was during the great financial crisis. We ended up doing all kinds of transactions, about $25 billion worth of transactions, advising mostly institutional entities on different types of lending and acquisitions. But our ultimate goal was always to be on the principal side. And so fast forward to 2013 and the guy that ran Fannie Mae multifamily when I worked there was a guy by the name of Ken Bacon.

And he left Fannie Mae around then and he was trying to figure out what his next step in life was and he was on the board of a company called Artemis Real Estate Partners, which is a private equity firm. And they had actually got some money from a pension fund that they were going to put out with smaller companies. And Ken, I think for being on the board, was sitting in Artemis's office. They gave him an office. I think that was his pay for being on the board. And at one point, I think the pension fund said, you know, you really need to find like a startup, a small quote unquote emerging manager.

And so they yelled across the hall and said, hey Ken, you ever think of starting a multifamily company? And Ken was like, well, I don't know that I really want to raise money and all that. And they're like, you don't have to raise money, we have the money. And so Ken being the big shot that he is called, Todd and I, my other partner, and said, hey, you guys want to start a multifamily company? And that's what we've been trying to do for five years here. And so that was the genesis of Redfield. And so three guys that were lenders at Fannie Mae, got money from a big pension fund to buy multifamily and off we went, 2013.

Jon Siegel (05:39.051)
And so, fast forward to today, and we've partnered with a number of large institutions in addition to some family offices. We're in, I think, 12 markets, the mid-Atlantic, Southeast, and Texas, and we focus across the spectrum of multifamily, all the way from affordable all the way into the core space.

Slocomb Reed (06:10.571)
Nice. So, uh, real field focuses exclusively on commercial multifamily, uh, larger properties. You have, uh, some institutional capital, uh, that is investing in your deals. Um, you've done quite a few, you've got their larger deals. Uh, and you said, uh, to me, before we started the interview, that some of them are, you know, that standard, you know, IRR driven, uh, targeted five year hold period types of deals with some of them are more long-term holds.

Slocomb Reed (06:50.855)
Jon, you're one of three partners. You're the chief investment officer. What is your specialty within rail field?

Jon Siegel (06:59.234)
So, yeah, so we have three partners. And let's say, you know, my partner, Ken, he's sort of our designated big shot. You know, he opens doors for us. My partner, Todd, he handles most of the operations, the back office, the finance, all of that. And then I am the deal guy. And so my specialty is primarily in transactions, both, you know, buying, selling, doing all the financing that we do with all the lenders and also working on raising capital. So I tend to be the transaction department, if you will.

Slocomb Reed (07:43.567)
Jon is the Transaction Department. We are recording at the beginning of Q2 in 2024.

Jon, please assume that our listeners are fairly familiar with what's been going on generally speaking in commercial multifamily for the last 18 months, high interest rates, unreasonable sellers, bid asks, spreads, transactional volume is way down. Um, all of that being assumed by our audience, John, with, with you being the acquisitions guy or the transactional and finance guy, what have you been up to for the last 18 months?

Jon Siegel (08:29.134)
Yeah, I think staying home all the time. No, we've been relatively busy. The market certainly is crazy. Last year in 2023, we bought two properties. We bought what I would call a pretty traditional value add property in Richmond, Virginia, and then we bought it was essentially a new construction property, but it was a distressed property, which is kind of a unique deal. And so we've been spending a lot of time, I'm sorry, that was in Houston.

And so we spent a lot of time, we drilled a lot of dry holes because of the bid-esque spread. But we're fortunate that we have institutional capital and a lot of relationships. And so the common thread on the deals is that...

Slocomb Reed (09:02.359)
Where is that one? The distressed new construction deal in Houston.

Jon Siegel (09:22.486)
You know, we had institutional capital that we could deploy relatively easily and quickly. And also that, you know, these were situations where the people that owned the properties were, you know, they had to do something. And so, you know, our value add deal in Richmond, the sellers, they had to, they had a loan maturing and they had to sell. And they they kicked the can down the road as long as they could, and so there was a bit of a crunch.

We stepped in there, we thought we got a pretty good deal. And then the deal in Houston was even a better situation where they had a construction loan, a better situation for us, where they had a construction loan that was maturing and they had every problem, go down the case study of everything that can go wrong in multifamily in 2023, and that happened to them. And so we were able to buy the property. We moved very fast, we bought the property all cash.

And we were really the only people that were involved talking to them that could do that. So we've been doing deals. We have two properties under contract now that we're selling. We have loan maturities on those. And so we're selling those. And so we've stayed relatively busy, but it's definitely a very tricky market. And as I say, I'm old now. So I've seen this movie a little bit before. And it just takes time. And so we're in it for the long haul here.

Slocomb Reed (11:37.187)
For the sake of our listeners, and I want to say you guys are operating on the high end with regards to property size of our listener base. There are listeners and there are contributors to this podcast who are in the same markets you are, possibly even were your competition for these two deals. And then you've got people all the way within commercial multifamily.

For example, my most recent acquisition, uh, was in February of this year and it was a, it was an eight unit here in Cincinnati, Ohio. So from, from your deal size down to my most recent deal size, uh, within that listener base, let's focus on multifamily right now.

What advice do you have on how we can find, we commercial multifamily investors across the spectrum, your advice on where and how we can find great opportunities in 2024?

Jon Siegel (12:45.074)
That's like the question about what's going to happen with interest rates. I always say if I knew I'd be rich. But now, yeah. Yeah.

Slocomb Reed (12:51.935)
Well, let me start answering the question on your behalf, John, based on what you've already said. The two opportunities that you found are the two opportunities we were all talking about this time last year. We talked about sellers having trouble with bridge loans maturing or interest rates just doubling and they, you know, we're going to have DSCR issues and going to have to bring capital into refis. You're going to have to recapitalize or sell. And.

So on the surface, it looks like you found a couple great opportunities to capitalize on that. I want you to have the opportunity to get beneath the surface though, beyond just take advantage of loan maturity issues. What advice do you have for us?

Jon Siegel (13:37.054)
Yeah. You know, look, it's acquisitions is a process, right? I think we all got spoiled in 2021 or 2020 or whatever that, you know, somebody would have a deal and everybody bids on it. And if you could make your model say the highest number you were going to win, then there was a thousand deals behind that. And if not, you move on to the next one. And so, you know, the story behind these deals and the story behind deals that work now is different from what it was in 2021 or 2014 or any other time, you know, because as you said, there's the story of people that have issues that need to sell.

Those are the people that are primarily selling right now. But acquisitions is kind of the same in terms of, okay, you need to identify the deals. Well, how do you find the deals? Well, everybody, you know, people say, how do you find deals? And I'm always like, any way that we can. You know, obviously there's brokers, but then there's people we know. I've been in this business a long time. You know, we know a lot of people who sometimes approach us about off-market deals.

You're trying to find deals any way that you can. And then when you get involved with the deal, you have to go through the same process of underwriting it and seeing what works for you. But in this market, I think the difference is that you have to be able to, first of all, realistically underwrite it. Second of all, stick to your guns on your numbers because you can't just tweak the model to put 12% rent growth in now because there's not going to be 12% rent growth. But most importantly, and I think the word that I would say is, how do you get a lot of these deals, the word is probably persistence, right?

It's seldom a process today where somebody puts a property on the market, you put in your offer, they give you the deal, you close the deal. These tend to be a process, especially because if you think about the situation that is giving you the opportunity, the people that were selling in 2021 or 2020, they wanted to sell because they were going to make a ton of cash and they were pretty excited to sell and they wanted to make it happen as quickly as possible.

A lot of people are saying, no, don't really want to sell, but they kind of have to sell. And so it's a process to get these people to be in a position where they can accept what they have to sell it for, and then to cooperate with you to get the deal done. So, you know, the guts of acquisitions are the same, but you have to identify, okay, where are the opportunities and then how you take advantage of that opportunity. And the way to take advantage of the opportunity now is you have to really sort of work the deals.

You can't just, you know, oh the number didn't work so we're done on it. You stick around, put in a bid, you know we call it hang around the hoop, right? The rebound will come to you eventually if you have a compelling way to buy it. So, you know, there's not a magic answer for getting deals done now or really any other time, but you know, I'd say this time it's just harder.

Slocomb Reed (16:30.787)
John, I really like where I think this conversation is headed, focusing on the fundamentals of acquisitions now that we're in a more difficult moment of the market cycle. So, uh, based not only on, you know, general commercial real estate experience and my own experience, uh, but breaking down the way that you put it just now, uh, let's call it the four components of acquisitions.

Number one is finding the deals to is underwriting them. Three is getting offers accepted. We're sticking around until your offers get accepted. And then four is getting to the closing table. So I'd like to ask you about each of those things specifically when it comes to getting in front of deals in front of opportunities. My understanding is 
basically everything is brokered in the space where you guys play. Is it, is finding deals as simple as making sure you're on the radar of the brokers in your markets or what's the deal here?

Jon Siegel (17:43.83)
Yeah, no, I would say that, you know, obviously a lot of it is broker because when you get to a certain size deal and a certain type of owner, which has a certain type of investor, you know, they want to make sure that they're making a market when they sell. So they're going to try to, you know, it's rare that they're just going to call their friend and say, hey, take a crack at it. But it's happened before of the properties we bought, we bought 25 properties.

They've definitely been probably, I don't know if I'd say half of them, but probably 35, 40% of them never hit the market. Now, those were in different times. The brokers are going to be your best source, but you also have to take into account that a lot of people today don't want to maybe widely market it, and the brokers are still the gatekeepers. So having the relationships with the brokers is really important because not only getting on their blast email list is not particularly difficult.

But getting their trust and having them call you either to get an early look at that, giving you a first crack at it, or tell you sometimes about deals that some of their clients have that they don't want to actually broadly market, that's going to be probably your best source right now. Because those guys, they know where all the bodies are buried and they can sometimes convince their clients to, hey, let me show it to five people or something.

Slocomb Reed (19:04.767)
Yeah, John, point of clarification for people with a background closer to mine than yours. I came to commercial multifamily from residential, one to four units. So my, when I think off market, I am, my first inclination is that means going direct to seller without any brokerages involved. In your space, off market tends to mean you're still going, you're still working through a broker, but before the opportunity has been made publicly available.

Jon Siegel (19:42.75)
Yeah, yeah, now oftentimes, yeah, right. That's a good point. And we have had deals where it never saw a broker, but most deals that you're gonna see in our space are gonna have a broker involved in some way, shape or form. And you're right, a lot of people would say it's not really off market if there's a broker involved, but there's probably, if you delineate it, yeah, yeah.

Slocomb Reed (20:01.399)
You're also just playing in a different space than the one that I came from. You go direct to seller to the ownership group of a 400 unit apartment complex and a major metro. You're gonna have a very different conversation than I am when I was trying to find single family house flips, which I still do. But John, let's...

Let's imagine a world where we have to take away all of your experience, all of your track record and your current portfolio. Um, and you need to build relationships with brokers right now, starting with little to no credibility. And you want these brokers coming to you, uh, with their deals before they go public with them. How is it that you right now? Would be looking to gain that credibility with brokers to be seeing things before they go live.

Jon Siegel (21:01.75)
Yeah, well that's a great question. Obviously, I try to play up my experience and my firm's track record. That's pretty much my strategy, but yeah. No, 100% understood. So, you know, look, it's forming a relationship like you form with anybody else, right? If you go to people and you tell them your story, and even if your story isn't that I have $100 million in the bank, but it's...

Slocomb Reed (21:10.156)
Right? Yeah, that's just not as relatable to the majority of our listener base, you know?

Jon Siegel (21:30.922)
I'm a smart guy and I want to buy some properties in this business and here's how I'm going to do it." And you build the relationship with it and you spend some time. I mean, look, I was a principal, then I was a lender, and then I was a principal again. Between being a principal and the two times was a pretty long time, and so I had to start again in terms of forming a lot of relationships with brokers. Now, obviously, it was a little bit of a different situation, but it just takes time. But I think if you are...

I think the most important thing if you're a broker, and I'm not a broker by the way, but obviously I've worked with a lot of brokers and know a lot of them, the main thing that they want is somebody that's gonna get the deal done and is gonna perform and somebody that's gonna do what they say they're going to do. And so getting the opportunity to show them, and if you can show them once that you're somebody that's going to do what you say you're gonna do, you're off to the races. And before that, it's just basic relationship building, getting in front of them, staying in front of them. And oftentimes they'll give you a crack because why not?

It doesn't cost them anything to show it to you and you can take a crack at it. But my advice would be that you have to have a plan of how you're gonna do it. You can't just say, hey, it'd be great to buy a 200 unit multifamily property. So I'll call some brokers. It would be like, okay, I wanna buy a 200 unit multifamily property. Here's, I'm gonna pay for it. And then call the brokers and say, okay, I know that I don't have a long track record to show you, but here's my plan, A, B, C, D, E, F, G they'd likely give you a crack. And once you get one done, you're off to the races.

Slocomb Reed (23:11.855)
The second component of acquisitions is underwriting deals. You've already said that right now you have to make sure your analysis is realistic and you have to stick to those numbers. Anything you want to add to that?

Jon Siegel (23:27.926)
Yeah, I think that there's two things about when you do a model or you underwrite a deal. One of them, of course, is that you have to understand that whatever you come up with is going to be wrong. Nobody's that good that they're going to predict the future. So it's going to be wrong. But you also have to do the numbers to make sure that you know where you are. And you just have, in this day and age, given where the market is right now, you just have to be realistic about where you are.

What we found a couple years ago when the market was much hotter was that you could easily convince yourself because there was a great margin for error. And now there's just not the same margin for error. So some of the big items that we stress on, insurance, insurance has gotten significantly more expensive. Rent growth is not what it was back then.

And then, you know, delinquency is a big thing. There's a lot of, you know, especially on the more affordable properties, there's a lot of delinquency out there. And so you just have to underwrite conservatively. And I think the thing that I've learned over, you know, doing this for a long time, and even just the two deals that we bought last year, is that be realistic and go in with what you can really do and stick to your guns on it, and you're going to have a better outcome than you are of just, you know, telling yourself what you want to hear and getting deep into a deal and realizing that it's not going to work. So I think that's, in this world now, just being realistic is the way to go. You're going to be more successful doing it.

Slocomb Reed (25:08.751)
John, what is your advice with regards to getting your offers accepted? You said that sticking around with deals, making sure you're getting LOIs submitted instead of just assuming your numbers won't work for the seller, and then sticking around even after your LOI is not accepted, just staying in the game until it transacts. Do you have any other advice for making sure that even though we're being a little more conservative with our underwriting now and we're making sure our numbers are realistic, getting LOIs accepted.

Jon Siegel (25:51.69)
Yeah, yeah, no, I mean, as I said, persistence is really important these days. And so, you know, first of all, you have to go in, as I've said now a couple of times, you know, with something that's realistic that you can perform on. Stick to that gun, but stay, you know, stay close to, you know, presumably the broker or whoever it's you're talking to. And make sure that it's clear that here's how I can perform.

And here's how I will get the deal done. Because again, this is a turbulent market. And so the thing that everybody, I'm selling properties now. And my main concern with people is, can they perform and will they close or will they retrait me? And so, making it clear that you've done all your homework, that you have everything put together and that you're somebody that can execute, that's, we've had.

We've had in the last couple of weeks, deals that we're working on now, where people have come back to us and said, you're not the high bidder, but we know you can execute. So, hang tight, we'll probably come back to you. So I think that's really the silver bullet right now, is just being able to execute and making sure everybody knows that you can.

Slocomb Reed (27:08.059)
Is there anything tactically that you see working now more than before or anything tactically that is more needed now than it was before with regards to demonstrating your ability to get to the closing table?

Jon Siegel (27:23.882)
Yeah, I mean, I think providing more information now. I think everything before was basically an auction, and now it's not. And so being substantive and showing that, so there's nothing wrong with, say you're working on a deal with somebody, be it a broker or a principal, and they want one amount and you're at somewhere else, show them your numbers. There's nothing wrong, there's no big secret generally in most of our numbers. Show them your numbers.

Tell them how you're approaching it. This is my lender. Get them on the phone. This is my investor. Get them on the phone. I hate to use the term oversharing, but just not only just saying, hey, I can get the deal done, but here's exactly what I've done. And opening up your tent and showing them that, that makes people comfortable. And so making people comfortable that you can get it done, that's gonna win you the deal right now.

Slocomb Reed (28:23.455)
And lastly, I paraphrased this point. We're using Slocum's words, not John's, but getting to the closing table, the process from LOI acceptance to acquisition being complete. Do you have any, you know, Q2 or 2024 advice specific to getting through the due diligence process and the financing process and the other things involved in getting from the accepted LOI to the closing table?

Jon Siegel (28:54.23)
Yeah, I mean, everything is a lot harder now than it was before. So you have to, you know, in terms of, you know, on your own side, in terms of the due diligence, you know, really nailing down everything, you know, getting firm quotes, you know, doing all of your homework, making sure that you have everything nailed down so that there's as little variability as possible. But then, you know, obviously, the financing side is super complicated right now, just given where the market is.

So having a relationship with a lender is important. Working with people that you trust at a lender is important. And being straightforward, giving them all the information and staying in close communication so you know where the hiccups. I mean, you can refresh the tenure on your computer a thousand times and see that it goes up and down, but you have to make sure that the lender has all the ammunition they need to get you what you said. And...

Again, going back to working with somebody that you know will get it done. So just as I said, you want people to know that you can get the deal done if you're going to work with a lender or an investor, somebody that you hope preferably have an existing relationship with, that you work with, that you know that when they tell you something it's good, that's super important, or vetting all of that because there's just a lot of pitfalls right now. There are always surprises in this, but working with people you trust and doing all your homework, that's really all you can do. I mean, so again, everybody, and the last thing I'd say also is that I think everybody understands right now that things are a little weird and so sometimes there are surprises. Nobody wants to get retreated and people might walk away from a deal because of it, but I think people do understand that, things are a little complicated now and things can change. And so, again, just being open and honest with people, I think goes a long way.

Slocomb Reed (30:58.647)
Has anything changed in the way that you engage with, uh, with lenders in the last 12, 18 months?

Jon Siegel (31:08.742)
Um, yeah, I mean, I think again, it's more, uh, it's more of a, it's more of a process, more of a collaborative process than it was before where maybe you send them, you know, you would send them the rent roll and the financials and they'd come back with, with the quote. Now it's much more collaborative in terms of, you know, understanding not just, okay, the property's NOI is this, so the loan's going to be that, but what, you know, what are the terms for it? What do they need?

What is the lender underwriting? How much fluff do I have in my interest rate to withstand a change? All of that, all the stuff I think that we, a lot of us just assumed we could work out. If there ever was a problem a couple years ago, now you have to really work more hand in hand with your lender in terms of understanding everything that they're doing and what they're assuming so that...

So as an example, if you go in on a deal and say, hey, today the interest rate is five and a quarter and the lender is assuming that the NOI is this based on an occupancy of 94% and then all of a sudden the OXP goes to 91% and the 10-year goes up 30, 40 basis points, what are you going to do? And so you need to understand where you can go and sort of where the breakpoints are going to be because otherwise you're going to end up stock at some point being like, uh oh, this doesn't work anymore and I'm deep in this deal. So, you know, again, it's all collaboration at this point.

Slocomb Reed (32:44.995)
That makes a lot of sense. It's time to transition the episode. John, are you ready for the best ever lightning round? What is the best ever book you recently read?

Jon Siegel (32:58.158)
Well, my favorite book is a book called Confederacy of Dunces, which was, I think, written in the 1950s or 60s. It's written by a guy. He won the Pulitzer Prize, but he killed himself before he ever got it. But it's the funniest book you ever read. I'm serious. I mostly actually read nonfiction, but this is a novel that's hilarious. And it takes place in New Orleans, which is one of my favorite cities. And it's a book I first read back when I was in college, and I've read it a couple times since always keep comic relief for me.

Slocomb Reed (33:29.899)
Nice. What is your best ever way to give back?

Jon Siegel (33:33.662)
Um, you know, I have, uh, started teaching. So I teach a class at Georgetown university and their MBA program. And so, uh, you know, teaching and working with young people and it's, it's amazing how interactive they are and how many of them come to me and ask for advice and, um, uh, you know, that, that to me is, is pretty rewarding.

Slocomb Reed (33:58.671)
John, on the deals you have done, properties that you have acquired, what is the biggest mistake you've made and the best ever lesson you learned from it?

Jon Siegel (34:11.314)
The biggest mistake I've probably ever made on a property is not fully understanding some of the costs that are going to change after you buy the property. So, where you get tripped up on most of these properties is either in taxes, capital expenditures, now it's insurance. But back in the day, it was really taxes, capital expenditures. And so, misestimating those kinds of things.

That leads to a big hole in the financials. And so, that was a valuable lesson for me. The first time that ever happened to me was, oh, whoops, I didn't realize they were going to reassess the taxes and we're gonna have to pay a whole bunch more. Or, oh, I missed understanding that half of these rulers need to be replaced, things like that. So these are valuable lessons that you learn.

You hope to make those mistakes with somebody else's money and not your own. But I think it happens to everybody at some point.

Slocomb Reed (35:17.98)
And John, what is your best ever advice?

Jon Siegel (35:22.186)
You know my bit my advice and i get give it to people as there's a saying i'm up i am before i was a teacher coached uh... sports i could basketball and john wood is one of the great all-time basketball coaches and he has a million sands which are a little a little corny but pretty good he has it saying which is uh... things turn out the best for those who make the best of how things turn out which is a mouthful.

I think that's the best advice anybody ever gave me, and I always give to other people, is things are gonna change, things are gonna happen that you don't expect, and instead of sitting around and complaining about it or worrying about it, make the best of it, and you'll find out that things will actually ultimately work out.

Slocomb Reed (36:10.327)
Last question, where can people get in touch with you?

Jon Siegel (36:14.202)
I'm pretty easy to reach. You can email me. Just email me jsiegel, J-S-I-E-G-E-L at rail So railfield is like a railroad and a field, railfield. Rail Or you can go on my website and see. That's what it is. But I'm pretty easy to get a hold of. I'll always get back to you.

Slocomb Reed (36:35.951)
Great, those links are in the show notes. John, thank you. Best ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know that we can add value to through our conversation today. Thank you and have a best ever day.

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