Chris Linger is a multifamily syndicator at Up Plex Capital, making it attainable for investors to invest in wealth-building assets with confidence. In this episode, Chris discusses how Up Plex is preparing for a constantly changing real estate landscape to best protect investors and how they were able to double the size of their deals by finding quality partnerships.
Chris Linger | Real Estate Background
- Multifamily syndicator at Up Plex Capital
- Portfolio:
- Current portfolio is $300MM, GP in almost 1,900 doors
- Based in: Austin, Texas
- Say hi to him at:
- Best Ever Book: Rocket Fuel by Gino Wickman
- Greatest Lesson: Partnership and leveraging others' resources are the best ways to scale and diversify in real estate.
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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 today I'm here with Chris Linger. Chris is joining us from Austin, Texas. He is a multifamily syndicator with Up Plex Capital. Their current portfolio is around $300 million; they are GPs in almost 1,900 residential multifamily units. Chris, can you tell us a little bit more about your background what you're currently focused on?
Chris Linger: Slocomb, I really appreciate you having me on here. Current focus is multifamily. We're trying to find C's, B's and A's. With the way that the market has shifted we're hunting deals, but it's tough yet still to find sellers looking to [unintelligible 00:02:33.00] The pricing, I guess I'll say.
Slocomb Reed: So you're looking for multifamily deals... Tell us about your business plan. I know that you tend to syndicate the deals that you're buying, so you're bringing on investors. What is it you're doing with the properties when you acquire them?
Chris Linger: So Class A properties are the really nice things that -- almost resort style amenities. In general, those properties are in nice shape, nice condition, and just needs a little cosmetic touch-up, maybe a little bit of upgrades on the interior. The Class C properties, more like the worker man's home - those are usually in need of some repairs, some deferred maintenance has been done, and maybe they haven't been upgraded in 20 years. So the interior units really need some extra help; not to make them livable, but to make them a higher value to somebody coming in. So that your business plan can have that much more of a return and growth in the net operating income for your properties. So those are the types of deals that we look for - value-add, where we can come in and force appreciation on the properties.
Slocomb Reed: Are you underwriting to the roughly five-year hold period then?
Chris Linger: We do. In general, our offerings are three to five-year olds, double your money in that period of time is roughly the estimate. And right now, the cash flow is where we're a little bit more flexible, just because, like I said, the more you pay on the price, and the more you have to pay for your renovations, because cost of goods because went up, the lower the cash flow is, if the interest rates aren't fixed. With today's rates, the sellers won't come off the price, and because the interest rates went up, you have less cash flow to deal with. So we're a little more flexible, but we try to get at least a five and a half annual cash on cash where we can.
Slocomb Reed: Especially when you're talking about cash on cash, there seems to be a big difference between A, B and C class properties, whether it be by construction, location, or both. How does your current portfolio break down between A, B and C?
Chris Linger: That's a good question. So in the last 16 months we've done nine syndications. We have - I'll say two class B's, two class A's, one of which even Grant Cardone had looked at. So we know that this is a nice, quality asset. And then most of the rest are class C. So five class C's out of those. And they're all doing well. Some of them aren't doing as wonderful, because they were on a variable rate, interest rate... But everything's been able to stay ahead of the interest rate as far as being cashflow-positive.
Slocomb Reed: Chris, I'd like to draw a conclusion from what you're saying, and then have you correct me if I'm wrong. The reason why more than half of your syndications are C class is because it's easier to hit your targeted returns with class C properties than it is with Class A or B. Is that a fair summary, or is there more going on underneath the lid?
Chris Linger: I'll put two answers to that conclusion. One, you're right, it is a lot easier to double your money on something that you can increase the value of a property faster, which by going in and doing those upgrades, you can increase that value. On the A class properties, it's a little harder. Like I said, it's mostly cosmetic stuff, and it's already a high dollar item that you paid an extra fee -- when you bought it, you paid the higher price, at a lower cap rate. So you're not expecting as much cash flow from that property.
The other side to it, and part of why we like to focus towards those class C properties - we like to have impact not only on our investors, but we like to have impact on the community. And if we're able to raise the standards of which people are living in, that helps us to feel better about the job that we're doing along the way, too. So everybody wins. The community wins, the property wins, investors win, all the way through. And if all of that happens, then we win as syndicators as well.
Slocomb Reed: What areas are you focus on, Chris?
Chris Linger: The properties that we currently own, we have some in Lexington, Kentucky, Winston Salem, North Carolina, we've got three different properties in the Dallas area, two properties in Houston, and one in Austin. Those are all multifamily. And then also, because we like to be diversified, we generally don't talk about it in this way for people, but right now with the change and the shift in the markets, it's really important to diversify, so we've also got some self-storage and some mobile home parks that we're partners in on a JV side of these deals. Our partners do the day-to-day on those other asset classes, and for those we've got some in North Carolina and Texas.
Slocomb Reed: When did you close on your first indication, as a general partner?
Chris Linger: We actually close two of them, two days apart, and it was October of '21.
Slocomb Reed: October 2021. Gotcha.
Chris Linger: But we've actually been in real estate since 2006, and we started with small stuff. In '17 is where we started to invest intentionally with our own portfolio, of quadplexes or smaller things. I think we got as high as an eightplex. By 2020 we had 35 apartments between us, but I was still active duty, my wife was a reservist, and we [unintelligible 00:07:45.02] We knew about syndications, we just didn't want to be in charge of other people's money. Because if we were to deploy and not come home, not have internet access, that's not a good thing. And we hadn't really pulled in a concept of partnerships at that time. So we educated ourselves during that time, and in 2020, when I retired, we just flipped the switch, went to syndications, learned how to do it... It took us about 13 months to close our first deal. In the meantime, we sold off the majority of our personal portfolio, and we invested that into other deals, in other joint ventures.
Slocomb Reed: Chris, one last question, and then I'd like to transition the conversation just a little bit. You have a breadth of multifamily property types - A, B and C - through your nine syndications. Lexington is technically the South, but close to the Midwest as well. You're in North Carolina, you're in Texas, you're in A, B and C Class multifamily, and you guys are diversifying into self-storage and mobile homes, at least on the limited partner side. How have you been financing these deals? Were you going in in October of '21 with long-term fixed-rate debt, were you guys getting bridge debt?
Chris Linger: We did bridge debt for eight of those syndications. And like I said earlier, we've been able to enact the business plan fast enough to stay ahead of that interest rate increase, for properties. I will say that because of the October '21 purchase being the first purchases, those rate caps are getting ready to expire at the end of the year... So what's the best version to get out of that? Are they almost ready to sell? Well, I think that the cap rates may have decompressed a little too much for that to be an effective exit strategy at the moment... But we could go back and either refinance or buy a new rate cap. We have a reserve set aside for all of that stuff, we prepared along the way to make sure that we had a good business plan. I'll say right towards the end of '21 we saw the fact that this was all going to come about, and we just didn't know how long this was gonna be. I do regret not buying a three-year back when you could buy them for under $100,000. A three-year rate cap, that is. But hindsight is 20/20. Let's move forward and be successful in how the project works.
Slocomb Reed: I think we have an opportunity to add a lot of value here, Chris, recognizing that this may be a sensitive subject, all things considered. I know a lot of people in the syndication space, especially within commercial multifamily, who are very concerned about what's going to happen, primarily limited partners... There are more limited partners than general partners, but I'm hearing a lot of concern about what's going to happen when rate caps expire. We had the Best Ever Conference this March; we're recording in May of 2023, so two months ago we were all at our Best Ever Conference, where everyone was talking about capital calls, and general partners don't have the stomach to do a capital call, giving up properties to the bank when they weren't going to be able to refinance when their rate cap expired... Again, recording in May of 2023; this hasn't happened for any of your properties yet. You've already mentioned maintaining solid reserves. What else have you done, and are you doing currently, to be prepared for the financing events that are going to happen at the end of this year?
Chris Linger: One thing - and nobody wants to hear it - is stop distributions. If you're not sure how much the interest rates are gonna continue to go up, how much the rate cuts are gonna be, because nobody knows that 6, 8, 12 months out still. Stop your distributions, start reserving your cash.
The other thing that we're doing is we're focusing on revenue-generating CapEx projects. Maintain the property, of course, but we want to make sure that we're hitting the high impact, high revenue type things. If it's interiors, do some interiors; if you've got some new [unintelligible 00:11:54.23] parking or something that's not on your property already, take care of it at the cheapest amount that you can, improve it and build it out, so you can get that revenue generation going. The other is Wi Fi, bringing Wi Fi onto the property if you don't already have it.
But one thing I do want to say is we're in multiple masterminds, and in one of them somebody was talking about having a problem, and their rate cap was coming due at the end of June. They started a capital call at the beginning of the month, and I asked them for their information, their T-12 and rent rolls... So here's a little secret that I came up with on the side, is if the general partnership is the only portion affected, and it doesn't affect the LPs, then you can bring on another partner who's willing to come in and pay that late fee, if you're willing to give up some of your general partnership equity. So that's just another option to look at; again, not legal, not a CPA, please check on this stuff for me. I do realize that the cash being brought in, there has to be some sort of payback to them, whether it's as a loan, or as equity in the deal... But if you're doing a capital call, you're already liquidating some people. If there's people who aren't willing to put in the money and they're going to decrease their ownership share, then you can provide that ownership share back out to that new equity partner. But it doesn't have to be a preferred equity or mezzanine debt. It can actually be somebody buying their way into your partnership on a deal that's already working. Like, it's almost a no-brainer to do it if you've got the funds and capital available to do it. We haven't had that issue on our property. This is something that I offered up for somebody else.
Break: [00:13:31.24]
Slocomb Reed: Chris, that last piece of what you said makes a lot of sense, that when you're looking at a situation where paying for an extended rate cap or a new rate cap is going to be costly and required for the execution of your business plan, that you can give a piece of the pie for the capital required. That makes a lot of sense, and I don't think we're crossing the boundary of giving legal or professional or tax advice here, just speaking about it in those general terms.
More specifically, a summary of what it is that you are doing, first, within your general partnerships, is Up Plex the general partnership for your nine syndications, or do you co-GP with other syndicators?
Chris Linger: We co-GP with other syndicators. We have found our own deals, and we were the people who put together the team for some of our syndications. We are open to other partnerships, and in those nine syndications, we brought on 12 new syndicators to help teach them the process, [unintelligible 00:16:25.07] and we're not afraid to continue to do that.
Slocomb Reed: So within your syndications, Chris, you said that one of the first things that you all did at Up Plex is pause distributions in order to build reserves, so that those reserves could be deployed for the sake of restructuring the financing on those two properties that you first acquired later this year. Explaining any other steps that you have already taken or are currently taking?
Chris Linger: Other steps that I'm currently taking to build those reserves?
Slocomb Reed: Are there other preventative measures that you're taking currently, in order to make sure that the financing events that will occur later this year go as smoothly as possible for you and your investors?
Chris Linger: We've done a couple of things. Number one, when I said "Stop your distributions", have open communication with your investors that this is what's happening, and this was why. And the other thing that I'll say as far as other things that we're doing, have open communication with your lender, so that they know what's going on, what your plans are, and what you're thinking about for down the road. You should always be looking 6 and 12 and 15 months down the road today, to make sure that you're going to be in the right place.
We're reunderwriting our deals every month, with new data; we're reunderwriting our deals to make sure that we're still ahead of the game, and if we're not, okay, what's going on. And I think every asset manager goes back through the T12 to compare it across the board, to make sure that everything's trending in the right direction. If it's not, then you should be, and you should be asking your property management where's the issue, what's going on; you should be in good, constant communication with them to ensure that that business plan is growing, that the NOI is going up, that the revenue is going up, and you're maintaining or [unintelligible 00:18:13.11] It's asset management 101, but I'll say asset management 101 on steroids, because you really have to be extra vigilant to make the property perform right now. This is where the good asset managers are gonna come through on the other side doing really well, and then the ones that aren't, they're just there, holding a position; they don't really pay attention, I guess I'll say, and those are the ones that are gonna lose their properties or lose their shirts when they have to go and sell it, because they can't afford to sell it.
Slocomb Reed: I think there's another angle on this question that we haven't approached, Chris. First of all, thank you for your openness thus far. I don't want to get too caught in the specifics of your individual deals, but thank you for sharing what you have. You bought two-year rate caps on your bridge debt when you acquired your first two syndications. And I'm not asking about the hold period here; how long were your value-add business plans for each of those properties? Meaning at what point were you going to achieve that optimized NOI, that wasn't just waiting on market rent appreciation, but the actual things that you could execute on to increase revenue and decrease expenses? How long was your projection on each of those two-year rate cap properties, for how long that would take, and how long did it take or has it taken or is it currently taking with those properties?
Chris Linger: I love it. In general, we will try to have our business plan completed and start the stabilization process by the two-year mark, if not sooner. So I don't want to lock in "We're going to do things for 12 months", because that's not possible. You're looking to renovate interior units, and you have to have a cycle to be able to process those people out, or get new people in, and be able to perform your renovations that you want to do. But in general, I'll say it's two years that we'll be able to do anything on the interiors, and exteriors you should be able to get done mostly in year one. And that allows you for year three to have that opportunity to refinance, because now you have the strongest T-12 that you'll ever see from the time of ownership; you should have the strongest T-12 because you'll have the max revenue, you should have the minimum expenses, and you're not doing more CapEx projects, you're not doing more upgrades, you're not doing as many turnovers, because you've already vetted all the people that are on the property along the way. They're good, paying people, you're able to get rid of delinquencies when you take over a property... There's a ton of evictions and stuff that have to happen because the seller doesn't want to lose occupancy. So I hate to go down a different rabbit hole on that one, but overall the quick answer is 24 months is usually our time before we'll start the stabilization process on the renovations and stuff.
Slocomb Reed: Chris, that makes a lot of sense with regards to the outflow of money; spending your budget on capital expenditures, renovations, starting your stabilization process in two years. Asking the question again, in another way... How far down the line are you expecting your NOI, your net operating income to be optimized? When is it that you're expecting to have market rate paying tenants in 95-ish percent of your apartments?
Chris Linger: That's a great question. I'll probably say in the neighborhood of the end of year two, early year three. And what I will say is in our underwriting, we only underwrite to a 90%. So if the deal works, we know it's going to work in our underwriting paperwork. The reality is - yes, you want 90% to 95% occupancy, but we always leave ourselves a little buffer in our underwriting. So that's why it's a little harder to sneak through that question, of where do we feel that it is; even through year five, we never actually have it underwritten at 95% occupancy, if that makes sense. We always leave ourselves with an extra buffer no matter what the market is.
Slocomb Reed: Chris, it does make sense. And if this were an hour-long style podcast interview instead of a 25 to 30-minute podcast, we could dive into this further. But I think the point I was trying to get at is will your NOI be optimized by the time that your cost of debt increases? And the reason why that's why I was going is that if you're bringing in fully stabilized NOI, you have a larger buffer there to cover the increased cost of debt. And it sounds like those things are going to line up relatively similarly with regards to when you have market-paying butts in seats, and your cost of debt increases to make sure that you're not falling behind the cashflow [unintelligible 00:22:53.02] On that note, Chris, are you ready for the Best Ever lightning round?
Chris Linger: Let's go, yeah.
Slocomb Reed: What is the Best Ever book you recently read?
Chris Linger: I have to say Rocket Fuel by Gino Wickman. That just defines the roles, and it helps you realize if you've got the right partners, and stuff like that, so that you can move faster.
Slocomb Reed: Are you the visionary or the integrator, Chris?
Chris Linger: I'm the integrator. My wife's the visionary.
Slocomb Reed: I was gonna say, you were telling me beforehand that a 26.5-year career in the Navy, the fact that you put the half year on it made me think I'm much more of a visionary. I round off all numbers. What is your Best Ever way to give back?
Chris Linger: Our mission is to provide medical and community outreach programs to underdeveloped areas; specifically my wife is from Mexico, that's where her grandmother lives; it's a very remote area, there's not a whole lot of medical care... So we would like to bring some medical care and help, whether it's carpentry work, or things like that, skilled labor out there to try to help them with some of the home repairs that maybe they can't otherwise do.
But in the meantime, we actually found an organization that distributes wheelchairs, and we have done four missions with them, where we've probably handed out close to 1,000 wheelchairs in the last eight months. So we're really excited to be able to build relationships with them, and they even already said, "When you guys get your stuff going at her grandmother's area, [unintelligible 00:24:14.03] but we still want to get back to that community, he said, "Let us know, we'll bring a shipping container out for it."
Slocomb Reed: That's awesome.
Chris Linger: We're excited.
Slocomb Reed: Chris, thus far in your commercial real estate investing, what is the biggest mistake you've made, and the Best Ever lesson that resulted from it?
Chris Linger: I hate to say this, but we didn't vet our partners well enough upfront. So the lesson learned was to dig a little deeper, spend a little more time, do in-person, not the Zoom calls, really get to know people... One of our mentors actually said "Ask them for their financials, see what they actually have." Because if you're going into a partnership with somebody, you really do need to know where they truly stand on everything. And a lot of us have a background with having landlorded, or work with property management stuff, and we understand the background check... Do a credit check. There's nothing wrong with it. And if somebody is not willing to do that, then you don't need to partner with them anyways.
Slocomb Reed: And on that note, what is your Best Ever advice?
Chris Linger: Having said that, the Best Ever advice is if you want to grow, you need to find partnerships. If you go it alone, you're gonna go low and slow. It doesn't matter what it is, you're encapsulated in only what your knowledge [unintelligible 00:25:24.17] pick up whatever education you're willing to pick up. But if you bring in partners that you know, like and trust, have some rapport with, and you appreciate their input, you can go so much further and do much bigger projects.
Originally, we were looking at $3 and $6 million deals to syndicate, because that's what we felt like we could handle. Our first two deals were $23 million and $26 million, because we're part of a larger partnership of people who could help bring all the extra things that were needed, whether it was cash, or asset management, boots on the ground... One was in Austin, one was in Houston. We're in Austin. So teamwork is something you'll hear almost everybody talk about in the syndication world.
Slocomb Reed: Where can our listeners get in touch with you?
Chris Linger: The easiest way to get a hold of me is on Instagram, @topsrei.
Slocomb Reed: That link is in the show notes. Chris, 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 we can add value to through our conversation today. Thank you, and have a Best Ever day.
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