Where Are the Numbers Coming From - John Azar

John Azar:   0:00
then passive investors are gonna know the difference. You know, you show that underwriting costs investors. So may man, I'm gonna make you 30% I RR on this deal. I'm gonna make you 15% cash, cash, investor, but oh, my gosh, You are driving. Looks legit. Well, yeah, it looks legit, but where the numbers coming from, where those projections coming from, you know, Are they coming from a realistic lace? Are they coming from rosy colored glass? So, um and really, I think that's the difference. Is not It's the difference between good sponsors and syndicators and bad sponsors. Mystification is not the fact that they want to underwrite. One can't underwrite. Well, they both can underwrite its just a matter of how you look at the numbers. You know, one of them is being realistic and, you know, under promising and over delivering and one woman's being unrealistic over promising. And under delivering

Jerome Myers:   0:48
as an operator, I know other investors or romanticizing multi family investing. And I'm looking to learn from other investors. Mistakes I know you are to You found the right place. Welcome to Myers Methods presents multi family missteps. Everybody, welcome to my method presents multi family missteps. I'm your host, your own. And I've got John as our with me. John, how are you?

John Azar:   1:25
I'm good, man. Thanks for having me.

Jerome Myers:   1:28
Glad to have you, man. It was pretty cool tohave when folks are you team reach out via instagram and say, you gotta have John on the show. And I was like, This is a great opportunity. Pretty You buying all over the Southeast. But you know, I don't want to steal your thunder, Do me a favor and give the listeners a little bit about your background with your current focuses.

John Azar:   1:48
Yeah, Yeah, we were We are owner operators. We, uh we're a sponsor Century multi family focused based here in the Charlotte area. Buying our assets are, uh, you know, all over the southeast, as you just said anywhere from the Carolinas, the Georgia Tennessee, Um, we own operate about 6000 units and transacted in the past 11 or 12 years of our since we started in multi family, about 8000 units was transacted over 1000 years, but, um uh, yeah, we are value. Add in nature. So we are mostly mostly deal with workforce housing be Class B plus B minus, Um, some C plus properties. But Onda, we do, ah, value upgrade formula to all our assets. Uh, when we buy and buying holds for about four toe 4 to 6 years, our average whole time. And during that time, we instituted value add equation into all our assets. Ah, without some kind of a light to medium lift in all of them. And, um, we try to make some money for investors and for ourselves, hopefully

Jerome Myers:   3:04
go off the script within this interview because you're one of the largest owners that I've talked to so far. How to get into the space. And how do you go from whatever deal zero is ordeal one as to $6000.

John Azar:   3:18
Yeah, my brother Tony, these are started the company. I mean, this is a family run business. We have. Ah, you know, we have my my niece is working the business. They run the property management side. Just capsule in multi family group. That's up up to mentor and sister arm. Um, that that statue manages a lot of all our asset for us on the rocky asset outside. Um, my brother Tony started the business in multi family in 2007 and, uh, 7 4008 we bought our first asset in Augusta, Georgia, and, um, and we kind of just started adding from there. I mean, you is really no short cut t growth. You just have to kind of bite the whale 11 bite at a time to eat. Well, one bite of the time. I've always said that, you know, there's no you can't eat the well in one big chunk. So, um, I always said that anybody I talk to is on, and you just kind of incrementally start to build up and grow and add more. Get your reputation up and going, which is really probably the most important part in this business. His reputation and, uh ah. And you start to get your footing underneath you with lenders and investors. Ah, and you just keep growing. And at some point in 2013 with other 14 I decided to join my brother, um, and and take a business toe. No. Two different level. And at that point where we were approaching about 2000 units or so and we wanted to we knew we wanted to grow the business incrementally a lot and get to the next phase of growth. Next next, inflection point started. Get more private equity institutional investors. And and so that's what we get. Um, and between then and now, we are now I get in over 6000 units, over 6000 units, and, uh, it's still growing.

Jerome Myers:   5:21
That is just absolutely amazing. To be able to work with family to be able to kind of start from I mean, not so just what's your kind of your upbringing? Did you grow up really wealthy or it is. You guys kind of create this from little or no means

John Azar:   5:38
now. So we're immigrants. We immigrated to the United States from Syria. Um, we, um My dad sent my brother here, and then he sent my sister and, you know, and then then Then eventually, my my dad, my mom and I moved. I'm the youngest in the family. My dad. Mom, I moved here, Um, in the late eighties, Um and, uh, no. We moved to the United States. We had nothing. We really didn't really start out with much. We lived in a in a C class apartment complex in Charlotte, North Carolina. I know. Um ah, it's you know, I you know, I I had to I there, you know, earn a few bucks here and there toe to buy myself some nice Z Karachi jeans or something like that, You know? And I, you know, at the time Well, nice acid wash your dash. Ah, but that was a luxury, man. That was a luxury. Now, the high life like man. Uh huh. Uh, so no, man, we didn't have much. I mean, I I didn't Dad couldn't even afford to send me toe Teoh, you know, four year college and beginning I had because we're immigrant and I didn't really have my We didn't have enough money, so we needed to be in state tuition here. Charlotte. Um, so I worked. I went and work working with my brother. I, um And then I went to community college in the beginning. Um, and then, you know, after a year or so, I was blessed enough to get into your NTC. And, um, you know, somehow another made it through college, Graduated, graduated my way through college after God knows how many drunken nights and and a lot of a lot of bar backing, a lot of weight wagering. And now a lot of hustling jobs different here and there. Um, got my first job out of college, and, um, I kind of moved over the well, the country I lived in lived in Seattle. I lived in California. I lived in, um we're gonna Atlanta area for a few months and been back to back to Raleigh and, um, in the company I was working for, God got sold to a private equity company. And, um, I ended up moving to Boston and getting my MBA from to you and, um had a whole life and built the life over there, got into investments and finance. I worked in a worked on investment just inside of the business. And, um, and ah, then started a sort of the real estate consulting platform in about 4 4005 with couple partners of mine from Morgan Stanley and, uh, knocked the ball out of the park for a few years until about 2008. Something some little blip happened in 4009 that you may remember no No, that made us all go back and get day jobs after that. And ah had to rebuild again all over again. And my brother is the same way your brother was in the computer business for a long time. Um, when you moved here, the United States after graduating college, and, um, computer business went bust in 2000 2000 1 4002 yet to pretty much remake himself from scratch as well and kind of re build the business twice.

Jerome Myers:   9:10
That's really cool, man. Thank you for going into that. So, you know, over these 8000 doors, I'm sure there's been some things that haven't going well. Would you be willing to share any of those missteps with me today?

John Azar:   9:23
Yeah, man, Uh, you run and operate as many units as we have, and you've seen as many units as we have. You know, you've uncovered a decent amount of dead bodies, sometimes literally so. But, uh, but and ah, yeah. I mean, look, the biggest thing is is you uncovered the most when you do your good, good amount of due diligence. I mean, and that is one thing I only still people never, never, ever estimate the amount of diligence you do because due diligence and and being realistic and what you how you underwrite a deal on what numbers you look at and deal. That's what's gonna save your ass in the long run. Not it's not a guarantee thing, you know. It won't save you of all the time, but it will definitely take a lot of paying off the table for you most of the time. If you if you run your numbers like like everything is gonna go to crap. You know, in a couple of years, if you run your numbers like everything's gonna go to crap and you can still pay your bills, then you probably are doing okay with your estimate. If you run your numbers like everything's gonna be hunky Dorie and beachy and you know everybody is gonna you're gonna have 99% occupancy and everybody's gonna pay their bills And, um, then you then you probably screwing yourself. You're probably not looking at the deal, right? Um, of course, we all like that scenario. We all like to have 99% occupancy and everybody paying their bills, and you know way all get together and sing come by on their way. All make in a month. But that's that's not reality, you know. That doesn't happen that way. Um, things happen, you know, uh, you know, excuse my friend. Shit happens all over the time all over the place. You know, it's it's, you know, you buy an apartment complex in two weeks later, You know, you got a drive by shooting. That's no fault of you. That's, you know, um, that will screw up your occupancy, You know, You know, you buy an apartment and you know, a couple of years later, something catches on fire, you lose a building. I mean, so, you know, if we always look at the best case scenario is we will never account for these worst case scenarios. Um, because if you always look at with best case scenarios, you will always always be blindsided. Do what's gonna happen on the dark side of the equation.

Jerome Myers:   11:45
So talk to me about the mix, right, Because if you're to doomsday, none of your deals with pencil, right? Because, of course, can yeah, all of the upside out on. So how do you balance that is. You hear a lot of people talk about Hey, we're stress testing this blah, blah, blah, blah. But was how do you decide what's the most likely scenario and, you know,

John Azar:   12:10
Yeah. I mean, look, don't get me wrong. I'm not I'm not a Doom's Day. All might be all our deals. We don't take the deal and say, Oh, my God, what's gonna happen when there's an arm again? I mean, that's not what we That's not what we and this this market right now that we're living in this unprecedented time, of course, in 19 is a perfect example. Um, none of us upset. Not foreseen. This this is this is unforeseen from everybody and anybody in the industry. This is This is nothing that we penciled in. This is nothing that we stress tested against. Nobody stressed us is against him. Frickin global pandemic. I mean, I you know, if you were to ask me, have you stressed us of your assets to a global and then it six months ago out and said, Are you kidding me? What? What do you mean, a global pandemic? What? This ain't no movie. Hey, uh, yeah, but

Jerome Myers:   13:04
everybody but sideline is smart right now. They weren't doing anything. There's nothing wrong. And then the people actually playing the game Like, how do you plan for this? Has

John Azar:   13:16
Yeah, Yeah. You mean you don't You don't. But what would you do play for is you do stress test. And you stressed us too, to reasonable levels. And when I say a reasonable levels is you know, if you could stand your occupancy to dip to for us, you know, we stressed us to argument he depicted it to the eighties range. Um, you know, 85 if the deal still holds up and we can still pay our bills with 85 86 87% occupancy, then we're good. If you know, we stressed us with with rent the faults, too. Let's call it 567% default rate on rents. Um, which, by the way, that got blown up all to help right now. Because that way past that as far as the fault rates concern. But but if you stressed us with 67% in most of the market is stress. Stress testing, too. Maybe a 2.5 or 3%. So you're almost double stress testing, but you should be good. I mean, for the most part, in a normal environment, you should be good assed faras default rates. Concern. Then you just stressed us of what you can. Um, you also also. So the two stresses I just mentioned is one for occupancy, one for defaults on payments on rent payment. Uh, you The third stress lets you do is you stress test with growth market growth. What's gonna know what's gonna happen to coming the exit Capri. You're going, You're going in a certain kappa rate. You're buying a crop yet? Let's call it that six cap rate and you estimating that you gonna sell it in four or five years and exit out of it with, uh, you know, I don't know, Maybe maybe maybe a six cap rate, maybe a six and 1/4 cap rate, and maybe add another 20 basis points. So you know what? Maybe Mark is gonna go a little crap here, so I'm gonna make it at 6 40 cap rate. So it's going to be It's going worse, and maybe not as much a Z. I think it's gonna be so stressed us that that way. And if the numbers still come penciling okay with that kind of a cap. Great, then. Great. And you know what? In 45 years, if you get there and you sell your promptly at 5.8% cooperate, then my gosh, you made you just made yourself a boatload of money, Arian. Your investors buys happy. Everybody's happy, you know. Um so so that's another stress test that that that we do and we way always add. You know, we always go. Probably I would say, you know, whatever everybody else in our in our market is doing this for expressed its that usually add another 2030%. Beyond that distrust, that's the market. You know, Rain rose, for instance. That's another stress test that you do for rent growth. You know, a lot of people. And that's the biggest stress test that people always always, always over. Um, a lot of operators go in with, you know, with rosy, rosy colored glasses and say, Oh, yeah, I could take this unit here, man slapping new countertop. You know, put in a couple of new appliances. I can charge $200 more. Rhett, I'm like, Really? Can you really? Can you really charged on a many dollars more rent with with the new countertop and some slap some paint on it cabinets? And you think you could get 250 bucks more rent? Are you kidding me? So you know,

Jerome Myers:   16:34
John, the passive investors believe

John Azar:   16:37
that the passive investors are they don't know what the hell they're talking about. So, you know Yeah. I mean, look, you can make the numbers dance, however you want to dance, you know? And that's the big That's the biggest thing. So if if you if if If you take a underwriting all underwriting is a bunch of numbers that you you put together and and you can tweak the formulas around, however you want to tweak them I mean, it's it's But if you're not looking at the numbers in a realistic way, If you were saying, Well, I'm gonna get to under $50 worth of red bumps next month, as opposed to you may be able to get away with 50 bucks for 40 bucks in, passive investors are gonna know the difference. You know, you show the underlying cause investors. So may man, I'm gonna make you 30% I RR on this deal. I'm gonna make you 15% gash gash investor, but oh, my gosh, you underwriting looks legit. Well, yeah, it looks legit, but where the numbers coming from, where those projections coming from, you know, Are they coming from a realistic place? Are they coming from rosy colored glass? So, um and really, I think that's the difference. Is not It's the difference between good sponsors and syndicators and bad sponsors. Specification Is that the fact that they want to underwrite one can't underwrite? Well, they both can underwrite its just a matter of how you look at the numbers. You know, one of them is being realistic and, you know, under promising and over delivering and one woman's being unrealistic over promising and under delivering

Jerome Myers:   18:06
what? So, guys, is your host your own? I just want to let you know we lost my methods in the fall of 2019 with the ambition so inspiring new breed of if you are interested in getting in a multi family, are scaling your current business up over child website and my methods dot com free forceps guy. How did? Now let's get back to the O, which

John Azar:   18:31
can't would you write to be it I don't know about? You always like to be in the under promise and over deliver. I always under promise over deliver and everything. So

Jerome Myers:   18:41
let's talk a little bit about that because there's some investors who are looking for, you know, they compare pro formers or offerings in the they pick the one with the highest return right every time and on foot. My 50 or my $125,000 in this deal. Yeah, the one that's going off for me Tennis at 8.9.

John Azar:   19:07
Yeah. Yeah, unfortunately, right. Yeah. I mean, I can't you know, unfortunately, can't proof against, um against lack of knowledge and sometimes ignorance. I just You can't proof against that. I don't know how I can I can't always win deals just by the numbers. So somebody's is if the investors looking at my deal and it happens all the time I pass on ICASA. We pass our investors all the time. I you know, we get I get an investor says you know. Okay, I'm expecting I want my deals toe have 15 16%. I haven't. I'm looking at a deal announced and give me 16% guarantee cash on cash. Will be I'm like, Oh, guarantee. Really? Oh, I was like, What? What is he buying government bonds? I mean, I don't understand. Where is this dont coming from? He's a well, you know, that's that's what the numbers they gave I'm like, really? Okay, well, my deal is gonna pay 12% or 12 to 15% you know, and but that I'm not saying, I guarantee, But I am going to tell you that Look at my track record for the past 10 years and look at all the investments that we've made. And look at all the numbers that we've been able to deliver for the past 10 years, and they are consistent with the numbers I'm telling. So if you're gonna tell me, I don't know what I'm talking about against some guy who just just started buying his first book like family or a second or third with my family, and it is guaranteeing you quote unquote 15 to 18% numbers. Then you know, brother, God be with you. You know go, go invest with them and I don't. You know, I can't, uh, you know, And then you start digging into the numbers. That's when you start asking some questions and say, Okay, so what is he expecting his? Ah, Quincy to be? What is he expecting? Is Brent bumps to be on that deal? What is it penciling for that? What you've been looking for That what you consider that once you start doing talking about the numbers and you start getting a more comprehensive, calm precision, I can always one of you. I can always win the deal, but it's people who wants to have a blind blinders on and say, I don't want here by the numbers. I just I'm looking at this performer and it gives me the right numbers that I want to look at, and I'm just gonna go with the highest number. Okay, great. Go with the highest number. You know, it's the same investors that a year later gonna call me and say, man, that be a went belly up. What? Well, no shit. Didn't make no make up 18% like No, he didn't make 19% Did you? So

Jerome Myers:   21:38
So What would you do you say to somebody that doesn't have a tenure track record but is looking to present realistic numbers to potential partners or investors? How did they work with the investor in order to get them to participate in the deal?

John Azar:   22:00
Just just just be real and pragmatic on your numbers, man just talked to other people, you know. It's a small industry. Talk to other people in the industry. There are a lot of sponsors that are like I still reach out responses, You know, we reach out the sponsors all the time that are in the same boat as we are. I always like to talk to peers in the industry. There is no competition in this industry, and that's one thing that people sometimes mistake. There's no competition. I don't I'm not competing. I mean, because And that sounds weird because you see there is no competition because look, man, if you could make the numbers work on the same asset as I'm looking and I'm scratching my head, saying I can't make numbers work and God bless you, we don't go take it. It's not a competition. Then you you must be doing something that I know. I can't figure out how to do that. You're making the numbers work for, then go, Go. Take it. Um, so, you know, I I I don't believe it. I don't believe in competition. It's industry. I mean, you can even make the numbers work for yourself. You can make yourself if you can make the numbers work for yourself, somebody asking me for themselves. So, um and and growth in this industry is knowledge growth is just sharing the knowledge. It's not hoarding it, you know? It's not It's not, You know? Oh, I know how to underwrite. I'm going. I'm going to keep the way I look at numbers. Just me. It's my and you can't look at this. You can. I'm not going to share with you how I look at numbers. Why not? What? What's what I can tell you, right? I can go through with you right now The way that we underwrite our kids make That doesn't make you overnight that you're gonna be able to go out and and slammed me in the markets that were buying them. You know, that doesn't mean the old suddenly, even if you could go overnight just for me explaining our underwriting to you and get 5 6000 units and my kidneys. We must be a genius, you know? Or, you know, have ah, don't know Warren Buffett has your back or something like that. It's not about you do that. So you got me. So there's no competition. It's it's it's sharing knowledge, talking to your peers, you know, comparing notes, seeing where things are seeing how everybody is looking at the same formula. That's how you get. That's how you get better. That's how you improve. It's not, it's not. It doesn't happen in isolation. You don't grow and improve and get better in a bubble. Nobody does that. You know, it's it's, you know, people who are in a bubble. They don't grow, they die.

Jerome Myers:   24:20
So did you learn that through experience? Or you always knew that just by being collaborative in your approach?

John Azar:   24:28
I've always been collaborative in my career, General, Um, whether it's in the stock market, whether it's been, you know, in, um, you know my my previous work and in structured finance and certainly certainly Morgan Family multi family in the past five or six years of certainly cut taught me a a lot of collaboration skills. You know, I I speak at a lot of conferences and commercial real estate, and and I see a lot of the same people over and over again every time I go to travel to these conferences, um, you know, some of the some of the best insight, some of the best deals, some of the best, you know, Ah, market intelligence that I've gotten have been from peers from people just like me from sponsors that are doing exactly the same kind of work may be different. Market may be similar. Market. Um, they have different focus, different investors. But, you know, when you get together and talk and and ah, exchange knowledge about where you are hype, you're looking at things the world opens up. I mean, and it doesn't take anything away from you. It actually adds to, as opposed to taking anything away from. So So I think the biggest advice I can give is just just be open to collaboration. Be open to knowledge. Sheer sheer first, and you shall receive later. Don't always, always expecting, received first before you share, always share always share at some point another, it will come back to you.

Jerome Myers:   26:02
Wow, that's perfect. Without me even asking the question about words of wisdom. John, I appreciate you coming on the show today. Of course, man. If folks want to get in contact with you, what's the best way for them to do that?

John Azar:   26:15
Ah, you can email me John Jail, which in at MK v p dot com m a c c v p dot com You can find me on Linked in Under Gela Jonah's are, um, or Mac Mac Venture partners on you can find me on Instagram or you can go to our website, which is Ah Mac v p dot com and the a c c v p dot com.

Jerome Myers:   26:41
Awesome man. Thank you so much. We'll talk to him.

John Azar:   26:44
Thanks, man. Huh? Appreciate having me.

Jerome Myers:   26:46
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