March 18, 2024

JF3483: The Best Time to Buy Multifamily Is Coming — How and When to Capitalize ft. Zamir Kazi




Zamir Kazi, CEO of ZMR Capital, joins host Slocomb Reed on the Best Ever Show. A college dropout who learned how to renovate properties by watching YouTube, Zamir now has 50 properties with more than 10,000 units under management. In this episode, Zamir discusses the “perfect storm” that has given rise to distress, his 200-plus unit buy box, and why he’s being patient and waiting for the right time — which he says is coming — to buy in the face of the wave of upcoming distress.

Zamir Kazi | Real Estate Background

          • CEO of ZMR Capital
          • Portfolio:
            • $1.75B+ assets currently under mgmt. 8,000+ units.
          • Based in:  LA and Tampa, FL
          • Say hi to him at: 
          • Best Ever Book: Shoe Dogs by Phil Knight

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Slocomb Reed (01:52.686)
Best ever listeners, welcome to the best real estate investing advice ever show. I'm Slocum Reed. Today we are joined by Zamir Kazi. Zamir is joining us from Tampa, Florida. He's the CEO of ZMR Capital, which focuses on value add and distressed multifamily opportunities in eight markets across the United States. Their current assets under management is over two billion. That's over 10,000 units of multifamily. Zamir is also a speaker at the Best Ever Conference coming up April 9th to the 12th. You can get more information, get your tickets at best We'll be in Salt Lake City, and there's a discount code for podcast listeners.

It is connect C-O-N-N-E-C-T all caps. You can say 15% on your tickets. If you haven't ordered already. Zamir, can you tell us a little bit about your background or what you're currently focused on?

Zamir (03:03.473)
Yes, look, thanks for having me on. It's a pleasure to be on the podcast So my background I actually went to Florida State Studied pre-med As all Indian good Indian children should do and then my senior year ended up dropping out of college and Started working at restaurants. I was a server at Red Lobster and and Rainforest Cafe in Orlando. I grew up in Kissimmee, Florida, and then started a sales job at a call center selling vacation packages over the phone, and then ended up making some money and saved up a couple dollars.

And my dad was like, hey, look, you should start investing in cash flowing real estate. Most wealthy people build their wealth and grow their wealth with cash flowing assets and multi-family is a great way to start. So I called up one of my best friends and he was a real estate agent at the time. He now works with us and I called him and I said, hey, look, I've got $30,000 saved up and I want to buy a duplex. And so he found me a short sale in 2012.

Bought a short sale from the bank for $20,000. Put probably five grand into it, fixed it up. I didn't know anything about real estate at the time. So I went on YouTube to learn how to renovate and fix walls and corners and cabinets and kill roaches and paint and you name it. Water heaters, learn how to replace those and fix them and repair them and fixed it up and sold it. Then bought the one next door and then bought the one next door to that.

And then proceeded to buy a bunch of REOs from lenders and two units turned into four units and then four units turned into 10 units and then 20 units. This was 2012 is when we started. So it went from two to four to eight to 10 to 20 to 50 to 100 and then today we've got over 50 properties and over 10,000 units.

Slocomb Reed (05:09.834)
What years was this?

Zamir (05:27.865)
It's been quite the ride over the last 11 years.

Slocomb Reed (05:35.246)
That's quite an escalation for sure. What is your current focus? I wanna ask that a couple of different ways. What all commercial multifamily average 200 doors per property it sounds like or more. So is that exclusively the property size that you're looking at? And are you a net buyer or a net seller right now in early 2024?

Zamir (06:05.001)
So yeah, our buy boxes 200 units plus really I'd say more 250 units plus these days. I think it's even 200 units is a little bit on the smaller side and harder to manage. So we get the efficiencies with the larger properties 90s and newer. I'd say is typical for us. We've done a lot of older value add historically 70s 80s product, but we're definitely moving and focusing on newer product these days.

Even when I say 90s and newer, I probably really mean 2010 and newer. I just think with this point in time of the cycle and where we are today, you're just not getting paid for taking on some of the older product and the age of those assets, where today you can buy things that are a lot newer, pretty big discount to replacement costs. So, you know, I think that's pretty attractive for us. So really focusing on newer product these days. And then in terms of being a net buyer or seller, you know, we haven't been either recently. We haven't transacted in the last 18 to 24 months, just given the volatility in the capital markets and the interest rate environment.

I do expect to be a net buyer this year, towards the end of the year, just because I think some of that volatility and certainty will start to go away, especially if the Fed takes its foot off the gas, which it seems like they've done, and inflation gets curbed, and they start to finally lower rates. And I think that'll kind of give us some more clarity on where the market's going.

And then I think more, most importantly, there will be some maturities that a lot of owners will be facing. Then there will be forced sellers. So, one of the reasons why we haven't purchased anything is because I think the bid asks spread between, you know, what we want to pay for the old versus what sellers want to sell for is, has been pretty wide. We see that narrowing today. And I think it'll continue to narrow. And

Hopefully there'll be some movement in the market. So we're excited for the end of the year.

Slocomb Reed (08:48.918)
So, Zamir, I gotta tell you, I kinda wanna cut to the chase here. We were talking before the interview began, and one of the reasons you're on the episode or being interviewed on the podcast right now is because we wanna highlight you in advance of the best ever conference, because you're gonna be a speaker.

Slocomb Reed (09:14.502)
From what I understand, I have limited information, but I believe you're going to be speaking on distressed real estate or the distress being experienced by commercial investors right now.

Slocomb Reed (09:29.666)
And you're telling me that you focus on 250 plus unit multifamily properties built since 2010, um, and that you haven't transacted in a while because of the high interest rates and the fluctuations in the market. Now I, um, I'm based in a very stable market in Cincinnati, Ohio, but almost everything, um, actually every building I own is 1978 or older all the way back to 1825.

And I have transacted in the last couple of years, a handful of times. So it may be my perspective being skewed on what it is that you do, but help me understand, um, tell me about your experience with distressed real estate right now, given what you've told me about the properties you're currently focused on.

Zamir (10:21.953)
Yeah, well, you know, you get the benefit of being in the Midwest, which hasn't doesn't get nearly the high as high as the highs everywhere else, but also doesn't get low as everywhere else. So it's kind of the darling of the multifamily market in the last, you know, 18, 24 months. So, you know, you guys are still experiencing positive rent growth, which much of the rest of the country is not, you know, and it's also one of the few areas of the country that's still transacting. So good for you. You know, we didn't have the force.

Slocomb Reed (10:55.402)
You'll, you'll also find, uh, next to no properties with 250 units plus built in Cincinnati since 2010. So, so your, um, you may know better than me cause you trade in that space and I don't, but that's not a thing here. So, um, so yeah, I get, I get where you're coming from, but tell me, tell us a little more about the distress that you're seeing across, uh, the country and places that actually have bigger peaks and troughs in their market cycles than the Midwest does.

Zamir (11:28.501)
Yeah, so I think it's a very interesting time because obviously, you know, 2021 and post COVID really, 2021 and beginning of 2022, we've seen more transaction volume than we've ever seen in real estate and multi-family in general, right? And I'd say 90% of those deals were financed with floating rate bridge debt.

And for those of you who aren't familiar, you know, those loans are three-year terms with two one-year extensions, right? So if you just do the math, all the stuff that traded in 2021, it's coming due this year, right? So you've got a historic amount of maturities. I forget, I think it was like $500 billion of multifamily maturities that are coming up this year. So that's a lot of real estate, right?

And that combined with, so you have interest rates that are going up at the same time, and drastically, a lot of people did not buy rate caps. Right, so your debt service is going pretty through the roof. And then combine that with a very unstable insurance market, especially in markets like Florida, which we play in, and then Texas, and you know, is your insurance costs are going through the roof, and in Texas you have property insurance as well, and then you take all of that, and then you add hyper supply, right?

You've got more supply being delivered this year than there's ever been delivered, more deliverables, which obviously competition's going up, and which causes most of the, all the properties to offer concessions, so your rents aren't as high as you'd hoped for, and your rent growth is going down, right?

Most of these markets that we're in, in the Sunbelt, you've got flat, so zero to no rent growth, and in markets like Phoenix, you've got declining rents, right, and Vegas as well. So, it's kind of like the perfect storm. Your expenses are going up, right? You've got expenses that are, payroll's going up, marketing's going up, right? Everything's going up on the expense ratio side, and then your revenues are going down, and then you've got fixed floating rate debt that's also going through the roof, and then your insurance and whatnot.

So with all that being said, there's a lot of headwinds today in multifamily, especially in the Sunbelt. And especially for those that purchased in 2021 and 22. Now, if you've got fixed rate debt and you locked in, which we've done a lot of that as well, then you're fine, right? We've, half of our portfolio has fixed rate debt and the other half has floating rate debt.

So, from experience, we, so just for background, all of our capital is institutional capital. So we invest alongside institutional LPs, they're putting 90 to 95% of the equity. And we are having to work out our loans, our floating rate debt with our lenders, and they're working with us. So I think for groups that are well-capitalized, there will not be as much distress as I think everyone hopes.

But for those that can't come up with capital with all these lenders want capital to work with you on the loan, if you can't come up with five to 10% of the loan to buy down and get better terms, you're not getting those terms, you're not getting the extensions, right? And with that being said, there's gonna be a lot of operators out there that were not well capitalized that may syndicate or just don't have the balance sheet themselves to get the modifications they need to weather the storm and get through this time into a better market, there will be various levels of distress.

And I think we're excited for that. And especially on newer product too, you've got a lot of people that were building in the last few years. We had this construction boom, and now you're gonna need to have people that will need to refinance out of construction loans into more permanent financing. And given where LTVs are and where property values are, you know, the multifamily property values have dropped 25% in the last two years, just because of cap rate expansion, you're gonna need to have, all these are gonna be cash in refinances, right?

So again, if you need to put in $10, $20 million into a project just to get a new loan, you may not have the money and you're probably gonna end up taking some losses on the way out. Right. So we're, we're just, you know, kind of being patient at the moment and waiting. Uh, we're starting to see some of that distress rear its head. Um, and you know, we're starting to evaluate some, some interesting opportunities, both from lenders, both from operators. Um, but just, you know, kind of waiting. And, and, uh, hopefully, you know, some of that starts to pan out more throughout the year.

Slocomb Reed (16:55.198)
Zamir you referenced that half of your portfolio has that floating rate debt possibly not you know bridge debt ballooning in 24 but has floating rate debt what have you been doing or what is it that you're planning to do when those when those loans balloon here in the next couple of years.

You know, we're trying to essentially push everything out the next three to four years for our maturities now, which we've been pretty successful in doing. And the plan is, look, I think if you can get over the fact that this next year will be operationally challenging just in terms of all the new supply coming online.

I think the following few years are going to be very promising just because you've had no ground up starts over the last two years. So once all this new supply comes online, you're going to have a period after 2025 where there will be no new units coming online. The growth in these markets like Florida, Texas, Phoenix is still there. You still have a ton of people moving in. So all that supply will get absorbed and I think we'll be in a much better position to continue to push rents, keep executing on the business plan, really focus on operations and asset management, which will really make or break a lot of operators, I think, right now, because I think over the last 10 years, it was easy to operate assets, just because you're riding, rising tide raises all ships, right?

But in this case, you really gotta separate yourself and be a good operator for the first time in a decade, 
which we are and will continue to really hone in on the little things and cut back on costs. And we've started sourcing almost all of our material directly from overseas and we've cut down on a lot of costs that way and brought in a lot of the construction and house. And so we're cutting back on any expense item that we possibly can.

Slocomb Reed (25:08.333)
Are you a net buyer because you're expecting that, um, values will be lowest right when all the new inventory hits the market.

Zamir (25:23.205)
New inventory as far as the new supply.

Slocomb Reed (25:25.753)
New construction, multi-family, yeah, new supply.

Zamir (25:30.253)
I don't think values will be lowest then. I think what I'm saying is the Pricing will be the lowest once the sellers that are forced to sell finally come to market and it's going to happen all at once. So we'll finally have what I think will happen is we'll have a supply, increased supply of deals on the market.

Right now, I mean, even if you look for deals, there's not a lot to buy, right? Because like I said, I'm a net buyer. I wouldn't sell a deal right now if I had to, if I didn't have to. And I think that's our motto going into the next year, 12 to 24 months. If we can hold, we're gonna hold. Just because I think pricing isn't gonna be favorable to sell, but it will be favorable to buy, right? So yeah, I think that the supply will have an effect on rents, and your NOI for the short term, but more importantly, there's just gonna be circumstantial sellers where they will have to meet the market and actually transact because they have no other choice. Right? And I think that's where the opportunity's gonna come.

Slocomb Reed (26:49.985)
Let me say first of all, I said this to another podcast guest earlier today. One of the best things for me at the Best Ever Conference in the last few years has been getting a perspective on what people are feeling in other parts of the country because I'm in the steady-a Midwest where, yes.

You know, I'm a property manager, active owner operator, and I often get too into the weeds with my own rental listings, but generally speaking, everything is either flat or increasing across the Cincinnati market, to your point, but not increasing by leaps and bounds the way it was a couple of years ago, where we would try to be too aggressive and list apartments higher than we thought they could rent and get it.

So we're not experiencing that, but, give us a primer, if you haven't already, of what we can expect to hear from you with regards to distressed real estate at the conference.

Zamir (28:03.433)
Yeah, I think it'll be more along the lines of, you know, what types of distress are we dealing with within our own portfolio, how we're handling that, both operationally and with the lenders, and then more importantly, how we are looking and valuing at distress and how to gain more distressed opportunities and really maybe help some other operators, you know work through some of their issues that they're having uh... you know with their letters or with their properties uh... and really just offer some insight on how we dealt with it and how we got out of it and uh... how we plan to take advantage of the market uh... the next twelve twenty four months.

Slocomb Reed (28:52.113)
Nice. Well, I certainly hope that sounds compelling to some of our best ever listeners who don't have tickets yet. For those of you listeners who don't, you can go to best the discount code connect for 15% off of the current retail price for tickets. And that's April 9th to the 12th in Salt Lake City. Zamir, I'm looking forward to meeting you at the conference and hearing your discussion on distressed real estate.

Are you ready for the best ever lightning round?

Zamir (29:25.217)
Yeah, let's go.

Slocomb Reed (29:27.541)
Awesome. What is the best ever book you recently read?

Zamir (29:32.205)
Best ever book I recently read, I mean it wasn't very recently but I think the best ever book I've read as one of my favorites is Shoe Dogs by Phil Knight.

Slocomb Reed (29:43.293)
Oh man, I'm such a fan. For sure. That's, there are not a lot of books. I'm an audible guy. There are not a lot of things I'll listen to more than once. I think I've already listened to it three times. What is your best ever way to give back?

Zamir (29:55.416)
My best ever way to give back is through children. One of my favorite things to do is we, I started a basketball training facility in my hometown of Kissimmee, Florida. And really just love working with the community. You know, we built quite the name for ourselves and just, you know, offering free lessons and camps and whatnot with these kids. It's a lot of fun. I grew up playing basketball. So.

Slocomb Reed (30:13.693)

Zamir (30:28.625)
It's one of my passion projects that I really, really enjoy in working with the children.

Slocomb Reed (30:36.689)
Zamir, on the properties you have acquired, what is the biggest mistake you've made and the best ever lesson that you learned from it?

Zamir (30:49.598)
I think a lot of the, it's a good question, the biggest mistake I think I would have made is waiting too long to bring in outside help. Like I wish, honestly I wish I would have done it sooner. Whereas I, initially I tried to learn how to do everything on my own. And you know, whereas it would have saved me a lot more time, maybe cost me a little bit more money, but bring in the right people, to surround myself with and really focus on the things that I know how to do and know how to do them well and then surround myself with people that are better than me at the things that I don't do well, right?

Slocomb Reed (31:27.165)
Gotcha, yeah that makes sense. On that note, Zamir, what is your best ever advice?

Zamir (31:34.497)
My best ever advice is to stay humble, stay hungry, always reach out to people that find a mentor. Like I mentioned earlier in the podcast, I didn't have a finance background. It was a college dropout. I am a college dropout and I was blessed and foolish enough, I guess, to just consistently reach out to people that.

I admired in the industry that it had accomplished what I wanted to accomplish. And, you know, more often than not, those people are always willing to, you know, offer their help and their resources. And, um, you know, and, and I think, uh, most of those people have an abundance mindset, so it's not like you're going to take anything from them, even if you're in the same industry. So I think it's, you know, always reach out, ask questions, right. Start and sit down and meet with people for coffee or lunch or drinks or whatever.

Slocomb Reed (32:33.021)

On that note, Zamir, aside from the best ever conference in April, where can people get in touch with you?

Zamir (32:43.257)
You can either go on my LinkedIn, Zamir Kazi, or our website, my email address is on the website at, or catch me at the conference.

Slocomb Reed (32:55.277)
Awesome, those links, including best are in the show notes. Zamir, thank you. Bestsever 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. Share this episode with a friend. Check out the conference in April in Salt Lake City. And have a best ever day.

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