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Addressing the Housing Affordability Crisis feat. Mark Khuri

With a massive shortage of homes, the United States faces a housing affordability crisis. In this week’s episode, co-hosts Bob and Ben Fraser are joined by Mark Khuri, the Co-Founder of SMK Capital Management to discuss how his firm is addressing this issue. Mark shares his expertise on investing in mobile home parks as well as using public/private partnerships to create more affordable multifamily housing.

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Bob Fraser: Hello Future Billionaires! Today we are joined by Mark Khuri and we are talking about a big problem. Everyone’s talking about the housing affordability crisis. What is the future? What does it mean? What’s likely to happen as we hit this affordability crisis and two potential solutions? So tune in and hear what we have to say about housing affordability.

Ben Fraser: Yes. And as always, just a quick disclaimer, whenever we bring somebody on the podcast that is potentially raising capital we wanna make a point that you need to do your own due diligence. Having them, them on our podcast does not mean that we are giving them the rubber stamp of approval and have done any more due diligence other than we have interest in curiosity about what they’re talking about, as I’m sure you will as well once you hear and if you’re enjoying this podcast, Please rate and review and help us spread the word.

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We focus on macro driven alternative investments, so your portfolio is best positioned for this economic environment. Get started and download your free economic report. Hello and welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser, and today we have Mark Khuri on the podcast with S M K Capital Management.

And we brought Mark on today to talk about housing affordability and how they are solving the housing affordability crisis. In our nation, there’s been a lot of underinvestment in kinda the lower end of the housing market especially, and he’s gonna talk about some of the things that they’ve done, which is pretty cool.

And excited to dig in. So Mark, thanks so much for coming on the show. 

Mark Khuri: My pleasure, Ben. Thanks for having me. Yeah. 

Ben Fraser: So maybe just as a quick, brief background share a little of just your story, about smk, you work with your father, which is pretty cool, and just talk a little about your background.

We can dive 

Mark Khuri: right in. Yeah, I started in finance working in corporate America. Been for a number of years. Started real estate investing on the side. Now after work, going to Home Depot, fixing up my place, pulling out a line of credit, buying another one, partnering with my brother. Did that for a number of years, from 2005 to 2010.

Built a, a small portfolio just with family and we decided to expand and create our company in 2010 to really just keep doing what we were doing. At the time, as you guys know, there was a lot of buys in the market, 50, 60% off what properties were selling just a few years prior. So we were taking a bit of advantage of.

And we started also expanding in diversifying into other asset classes that had done fairly well through the recession. Mobile home parks, self storage some apartment communities really focusing on diversifying. And so that’s a bit on the earlier years. Today, we still focus on those asset classes.

Really just the recession resistance in mind. Raise capital from our investor group and partner with sponsors that are specialty specialists in, each of those niches and asset classes. Yeah 

Ben Fraser: so why, affordable housing as a segment to focus on. What was the way you got into that space and what was interesting, both maybe from a investor standpoint as well as a, entrepreneur standpoint solving a problem.

Mark Khuri: Yeah. So from an investor standpoint, I about 10, 11 years ago, Ben, I was going to a lot of real estate meetup groups, networking events, meeting people in person. And there was a few folks I met that were investing in the mobile home park space specifically for a number of years. And It caught my eye, right?

It, it had done fairly well. Weathered the storm in oh 8, 0 9, et cetera. Demand and occupancy at the parks remained high. And so that really caught my eye. That was a bit of a rabbit hole started to go down and how I got our first look into that asset class. We started investing in it probably about 11 years ago, 12 years ago now.

As far as apartments go, similar concept. You’re trying to provide a housing solution to those that of course have a little bit lower income, middle income, and do it in a place where they have a decent balance of life where they can commute to work good access to transit amenities and still be able to afford the rent.

And so that’s that’s been a big focus of ours for a number of years. 

Bob Fraser: Yeah. Talk a little bit or go ahead. We’re really seeing affordability going down. Now we have seen wage gains, across the board in the last few years, which has helped affordability and low interest rates.

Really last couple years especially, we’ve seen of course price gains shoot rapidly up multi-family rents shoot rapidly up. And and it hasn’t kept pace. The wages haven’t kept pace so really what’s happening, and it’s typical of, inflationary times, it’s the lower quartile, loader earning quartile or the guys that are the ones that get get hurt the most.

And I think, a lot of coasts and other places are just very expensive. Just talk generally about housing affordability. What’s, what’s behind this? And what’s, how is it gonna be solved and is it gonna be solved? 

Mark Khuri: Yeah, great points. Bob. In middle of 2021, the National Association of Realtors came out with a report and it was not necessarily new news, but it definitely made main headlines, which reported just a significant gap in the supply and demand of housing in the us.

Shed a lot of light on the reality of the lack of. They noted at the time about 5.5 million units deficient that had been building for decades, for homes and for apartments. There’s a lot of charts and data on it, but they also extrapolated and tried to figure out, okay, how long is it gonna take to fill this gap?

And one of the data points we looked at showed that if, hey, we take our highest year of new construction, and we extrapolate that out, take at least a decade. To fill this gap. And what year was that? That report came out in the middle of 2021. 

Ben Fraser: Yeah. And our, what was the highest year of construction, if you 

Mark Khuri: remember?

, was pretty recent to the report and so they were going back and saying, look, if we take this data and we say we’re gonna build X number of units and do that every year, which again is not necessarily an accurate, it’s a very aggressive assumption. It’s very hard to do. Then we would take about a decade to fill the gap, but more, more recent data.

Bend your question. Is showing that there is a lot of new construction coming online in 2023 and 2024. This is for apartments but there is also a drop in permits from October to November this year, about 18%. So I think what we’re seeing is that We, as Bob alluded to, there was a lot of run up in rents in 20 20, 20 21.

We had a lot of developers apply for permits. There was some delays, of course in financing and material and construction through covid, and a lot of those properties are now starting to come online. But what we’ve also seen, The jump up in interest rates causing financing for new construction to really almost stop recently.

And so now we’re heading back down the wrong direction. So yeah. When and how we’re gonna fill this gap, Bob, and what’s the solution? I really don’t know. We have a couple strategies that we work on to, to invest in this area, but that’s a great question. Yeah, 

Bob Fraser: We really saw, a lot of people were surprised by the big, kind of hockey stick and housing prices and rents and both hockey sticks at the same time, and but it’s been building for quite a while.

It’s like this spring, compression happening of this demand that has just, there’s plenty of demand and not enough supply. And so prices have been steadily creeping high. And then really what happened was the stimulus we saw, tons of, as the job market cratered, we saw wages dramatically increase, and we saw cash increase today.

Today we’ve never seen this much cash in checking accounts. So people are just really flushed at the tune of, 5 trillion access and so basically consumers and certainly we’re talking about more of the higher end of consumers are flush and and wages are high. So people jumped and a thing, hockey stick.

But bit into your point, now with interest rates and reaction happen. It’s cutting off the new supply. We are gonna see, we’re gonna see prices continue to rise. There’s the demand until demand is gone or it’s met By the new supply, which as you point out it’s not coming online, 

Ben Fraser: yeah. And it’s something that I’ve been hearing a lot of people just more recently, beginning of 2023, is oh, just wait for the meltdown in housing. The it’s just it’s the natural reaction to seeing these massive increases and prices, but it’s completely, 

Bob Fraser: separated from, it never fails.

Everybody lives in yesterday’s. Everybody inhabits yesterday’s crisis, and it is not, the fact that it’s being, there’s so much attention being paid to yesterday’s crisis ensures that it’s not gonna be the future, right? Everybody is on guard, and here’s another point too. So I just got a new insurance policy at my, on my house, and they came and did an inspection and a replacement cost inspection.

And my replacement cost is, 70% higher than the fair market value of my house . 

Mark Khuri: I’m like, what? 

Bob Fraser: There’s this point too of we’ve, we saw during this big run up, we also saw costs. Dramatically increase, right? Building costs, labor costs, materials costs skyrocketed.

We’re saw, 10, 20, almost 30% increases in some areas and materials costs and construction costs. So again, that just if someone has to build a house that’s priced 70% higher than mine to make money then they can’t even compete with my house, so they’re not gonna build it.

So again, it just, keeps new supply off the market until prices rise. And I’ve been arguing for, years now that prices are gonna have to rise because they’re far below replacement costs and there hasn’t been enough construction, especially in single family. 

Mark Khuri: Another point to add to that, Bob, just regarding the demand, right?

And the lack of affordability really for homes. You have some data showing that the percent of households that could afford a home, dropped significantly. , yeah, I think it was in, from 2010 to 2020, right? The last decade, 45 to 50% of Americans throughout that time, Could afford to purchase a home.

Wow. And in 2022 that dropped in half, it’s about 25%. Wow. 

Bob Fraser: Yeah. So here’s a point that is missing from a lot of time. So I spent, 10 years ago, I spent 12 years traveling the world and speaking. And so I’m very familiar with how the world lives overseas.

And you go to Europe, you’re, you get an apartment, it’s a third the size of a US apartment. You get a house, it. 25% the size. You go to Asia, Korea, Tokyo, you go anywhere. It’s, there is no square footage. And that’s one way to get affordable. It’s just to build little cubby holes, and with doors on ’em.

But, and I guess the point I’m making is that the world has adapt. The globe has adapted. America has still got lots and lots of square footage, and we have these humongous houses. When I invite my friends from overseas over, they go into our houses at even a modest house here. They go, oh my gosh, look how big this thing is.

And they’re just, Every, they’re just wowed by the space. So I do think we’re gonna see, I think we’re gonna see more stuff come online, as you said. I think we’re gonna see higher densities to my point. And I think we’re probably gonna see pushbacks, policy wise.

We’re gonna see rent controls, these kind of things. So those are the three things that come to my mind. 

Mark Khuri: Anything else. I was curious just to hear with your international experience, Bob do you think that maybe we’re heading in that direction where home ownership in the US will be for the minority and not the majority?

Bob Fraser: I think Americans love home ownership and our politicians love it. I think they’re gonna continue to subsidize it. And home ownership and, I just, I think we’re gonna see higher densities and lower square footages. I, I think 

Ben Fraser: part of that reason too, in Europe especially, is just lack of land, available land to develop on.

So you naturally have a constraint of new supply, and we have a lot of vacant land in America. But I do think it’s. The bigger issue is not space, it is affordability. And as and, overhead costs, like just the raw land and the labor, we are seeing some softness and like lumber and other things come up in, in the short term.

But as those, continue to increase in land especially and labor, then you are gonna have to shrink square footage to, deliver the same priced product. 

Bob Fraser: You cut the square footage in half, you cut the price in. Pretty close. So let you know, let’s talk about rent control for a minute.

So I actually went to school at Berkeley, uc, Berkeley, which was Berkeley. The town of Berkeley is, they call it the People’s Republic of Berkeley, famous for rent controls, all, all since the eighties, rent controls and, oh my gosh horrible policy. It means everything is just trash.

The. The landlords cannot afford to fix up any properties because they can’t, get any rent to cover it. So everything is dilapidated and then people never leave. They will not move out because as soon as they move out, the rent control’s gone. So you get this just bizarre economic reality.

But, I’ve not seen a lot of data on rent controls or a lot of kind of push towards rent controls. Are you ever, do you have anything on 

Mark Khuri: that? We read about it a lot, Bob because it’s top of mind for some of the sectors that we invest in. A lot of it for us is, what states are we investing into, red or blue?

And we try and direct that decision making towards a little bit more landlord. So you are concerned about 

Bob Fraser: rent controls? 

Mark Khuri: Yeah, it’s definitely a concern. Not to the point where we shift our focus to some other asset class to avoid it entirely, but we are strategically looking at it. But recently, I’m trying to remember guys, maybe, if it was St.

Louis or there was a city in the Midwest that implemented very strict rent control in the last year, or. And all developments stopped. Permits were canceled and they’ve since re retracted and walked back and are removing the policy. That story sticks in mind where they came out with very strong policy change in process.

And then they realized that it’s actually more hurtful than beneficial and reverse course. No kidding. 

Bob Fraser: Economics 1 0 1 every time you ever implement price controls on anything, you end up with shortages. That is, it’s every time in history it’s ever happened.

That’s been the result. It’s, it seems like our politicians should be required to take remedial economics, just. Economics 1 0 1. And we should eliminate all lawyers from policymaking. They should be hired not appointed or elected. Anyone who doesn’t understand economics, it’s just, it’s so ridiculous.

Yeah. You limit the price of something, you get shortages of it. Hello, am I gonna manufacture something at my. They cost me a loss, and try to make it up in volume, , it’s not gonna happen. 

Ben Fraser: It is interesting too, in the current environment, because, it does create shortages in the long term, but we already have shortages right now, acute shortages. So it’s, they have competing priorities, right? They want to have affordable housing, but they also need more. And so it’d be I’m curious to see. As, the conversations go on and policies, try to get implemented. If that’s gonna be a common theme where ultimately it’s just the shortage is already too great in the current environment to, to even make sense to, to do that.

Mark Khuri: Yeah, we’re tracking it. We’ll see where it goes, guys. Yeah, 

Bob Fraser: I have no doubt it will be implemented here and there, but it’s not gonna help. Certainly, it’s gonna be, it’s just gonna cream some people, but, so let’s shift, so your focus on mobile home parks as affordable housing. Talk about mobile home parks meeting, the affordable housing need and why.

That’s why 

Mark Khuri: that’s a thing. Yeah. Realistically, mobile home parks are probably, if not the most affordable housing solution in the us. They come with a lot of negative stigmas by people that maybe don’t understand them or haven’t lived in one or have pre misconception about what they might be like.

And we’ve been investing them for many years. One of our favorite asset classes there’s some interesting supply. Constraints there that you don’t see in many other asset classes, specifically on supply. Very hard to build new mobile home parks in desirable locations that are actually affordable.

And so you actually see year over year the number of mobile home parks in the US is either flat or declining. Sometimes they will raise them and, build a much better, higher, and best. For tax purposes for the local county, they’re typically not the highest and best use. And so you don’t see a lot of new mobile home parks being built and the ones that so how is it an answer 

Bob Fraser: to affordability if they’re impossible to build?

Mark Khuri: It’s a lack of affordable housing because they’re very hard to build from an investor standpoint. Being a bit more selfish, we like that it creates a bit of a moat around the asset class. It creates a barrier to new supply and competition. And so for affordable purposes, typical rents you’ll usually, if you’re owning the home, you’re paying a lot rent to the park owner and that lot rent can vary anywhere.

A hundred to, thousand dollars a month. We tend to be in the 300 to $500 a month lot rent range. And so it’s if you own your home there, then it’s obviously one of the least cost housing options there is. 

Bob Fraser: Yeah. And we’ve heard a lot about mobile home parks. I personally never invested because it seems like it’s just a very difficult asset class to get into and to get into in an urban setting.

A lot of it’s rural and so really is there really opportunity for investors today in Mobile Home Park? 

Mark Khuri: Yeah, good question. So I’ll share this. 10 years ago you wanted to invest in a mobile home park. You could almost cherry pick the type of park. You could say, okay, I want, within 15 minutes of a major M s a, I want all the residents to own their own homes.

And going in cap rate of eight to 10%. Wow, that was out there, it was almost plentiful. You look today, it’s a lot more competitive. Bob, you’ve had a lot of institutional players jump into the space. You’ve had a ton of private equity groups investors also competing for these types of properties.

Now what that’s done is it’s reduced cap rates significantly by almost 50% or more in the last 

Bob Fraser: call. So we’re seeing four to four to 5% cap. 

Mark Khuri: Give or take. Yep. Definitely if you’re in secondary and that’s 

Bob Fraser: multi-family 

Mark Khuri: range, exactly. And in some markets we’ve seen like urban infill phoenix mobile home communities, some of them are selling sub four caps in the height of the market, no longer as much today.

But if you go to secondary and tertiary markets and you’re buying from mom and pop, you could easily be over 6% going in cap rate. And so there’s opportunity just based on location. , but you do have a very dis fragmented asset class where roughly 80% or more of mobile home parks today are still owned by mom and pop.

And so a lot of times what you find there is a little bit of mismanagement, a little bit of human error. We like to see that it allows us to come in and improve operations efficiencies manage expenses, grow noi add value a lot of. They have vacant. Aren’t, there’s no home. So the mom and pop owners may not have the financial resources to fund the cost of bringing in homes to those lots and then selling them or renting them or selling ’em on a lease option.

And so you’re able to increase occupancy when there’s a vacant lots pretty significantly. And that’s also another value add play where you’re essentially creating more affordable housing by buying these parks and filling some of the vac. 

Bob Fraser: I’ve we’ve seen a bit of a bubble in multi-family.

Lot of syndicators entering in the space in the last couple years and just pumping up prices with using bridge debt financing. And I think we’re gonna see a lot of softness what’s going on in the market. Is there anything equivalent going on in the mobile home market? 

Mark Khuri: Yeah, there is.

And we see it cuz we’ve invested both too, Bob, so I know exactly what you’re talking about on the multifamily side. So we’ve seen a lot of syndicators young groups in the last cult three, four years that have been focusing on mobile home parks. A lot of them are doing well, but there’s just more competition space you’re seeing.


Bob Fraser: They’re the ones that pump the prices up and drop the cap rates. And was it a lot of bridge financing? Same thing. 

Mark Khuri: Similarly, yeah, but you also have a lot of institutional groups like Blackstone got into the space a number of years ago, and they’ve been investing in mobile home communities for a number of years and reinvesting.

And it’s institutional, it’s private equity, it’s investor groups. It’s also a little bit more mainstream today, so even just individuals are going out and buying mobile home parks as well. Financing’s a little bit more difficult to attain than multifamily, especially if the homes are owned by the.

It’s a different type of loan product than if you’re just buying the land. Yeah, makes sense. And, but you can also a lot of times find Bob, these mom and pop owners, they’ve owned the park in the family, maybe second, third generation. They have no debt on it. The kids don’t want it, and they want to get out.

And but they also like the income. And so you can do a lot of seller financing there and get a little creative with the the capital stack for the acquisi. 

Ben Fraser: So what’s your forecast going into here? 2023 and beyond? With, you said you’re seeing maybe a little bit of softness in some in cap rates.

Maybe, sellers are willing to take a little bit less on in place cash flow, but I’m assuming the rents have continued to. Remain strong because of all the dynamics we’ve talked about, right? The rent growth that is we’ll probably see some slowdown of the growth, but probably still growth nonetheless.

What are you seeing as far as opportunities and the horizon for that? Given the challenge it is to find some of these maybe historically, 

Mark Khuri: Sure. Yeah. Very much. Top of mind, Ben. We we’re coming off 20 21, 20 22 at this probably 2023. So in 2021 and 2020 we saw, I think nationwide 15% average rent growth in the apartment space.

And then in 2022, it just got published that it was about six. So that’s, we’re still seeing rent growth, but not nearly to the tune of what we saw in the last couple years. And a lot of 2020 twos rent growth was in the first quarter, first half of the year. Where it’s slowed down since. But forecasts are still expecting rent growth, like you’re saying, but to a more moderate, more historical level.

A few percentage points 6%, by the way, still the second highest. Rent growth annually on record. And keep that in mind. All things are relative, but looking ahead, we are seeing. Potentially some stagflation, Ben, where we have revenues maybe flat or basically not growing much.

And most likely if inflation continues increased expenses. And so when we’re underwriting deals, we really wanna look at that and see, does it pass that kind of test? Where I’ll give you a good example. I like looking at a lot of deals, Ben. So there was a deal in July, August of this apartment deal.

They had a projected rent growth assumption of almost 10% in year one. I think it was around six, 7% in year two, 5%. Thereafter, they had a projected exit cap rate of 4%. And so I look at that deal today, I say, gosh, there’s no way this is gonna work. That’s just not, you’re not even close. And yeah, , I heard that sigh.

But yeah, that, that’s some of the stuff that we’re checking on today is if you’re gonna stress test the deal. How does it pencil if there is no rent growth for the first year or two? Obviously if there’s a value add play where we can increase occupancy, we can bring rents to market, maybe they’re significantly below.

That’s really where we’re focusing Ben, so we can not rely necessarily just on the market or natural market speculation for growth. Yeah, 

Bob Fraser: let’s shift. I’m still trying to get my head around if it’s a good time to buy. I, I, we’re staying away from multi-family right now. We think prices have yet to reflect the new reality of, interest rate costs and and rents.

Mark Khuri: Yeah, a couple thoughts on that, Bob. We haven’t done a new apartment investment in about four months. So we’re also just cautious. We’re waiting, we’re watching, we’re trying to understand where prices are going. I think with the Fed meeting coming up here shortly, c p i data lately has shown that potentially it’s peaked.

We’ll see. We don’t know. I think. Quarter or so will be very telling in in price dis, excuse me, price discovery. But as far as deals go, yeah we’re also being very cautious. But at the same time, the deal I just mentioned to you that didn’t make sense this summer.

Maybe they’re gonna wanna just panic and get out of it pretty soon. And so there could be an opportunity there. But at the same time, Bob, if you told me I don’t want my house anymore. I don’t wanna sell it to you for $10, I don’t care what the market’s doing, we’ll buy it. So there’s always opportunities, there’s always investments.

We just gotta make sure that they make sense Going in basis is strong and attractive. Do the bridge lenders do mobile home? Not typically. No. You’ll typically 

Bob Fraser: so I think the bridge lenders created a Bob Hole, so if they’re not there, then there might not be a big crash. Yeah. A lot of the mult multi-family guys focus on bridge debt, which typically has a three year, the three year interest rate lock, and then after that it’s floating rate and they simply will not, they’re not gonna be able to refinance.

And and they don’t have, they can’t cover the debt service and these things are gonna retrade and it’s gonna be ugly for equity investors, 

Mark Khuri: Yeah, I agree. I think we’re gonna see some more forced sales coming soon. 

Ben Fraser: Yeah. Mark, let’s shift a little bit here, kinda the last part of the show here, just on some of the public-private partnership deals that you focus on in the similar vein of housing affordability, but more in kind the multi traditional multi-family 

Mark Khuri: sector.

Sure. Yeah. And this is another area, Ben and Bob, where we’re focusing on trying to source deals in today’s environment. But basically, tax exempt departments, it’s where we partner with the local municipality, the county, the city, the housing authority. In a public-private partnership. And what we do is we allocate up to half of the units for an affordable component, which is tied to a m i, which is the area median income.

And in exchange for that, you get a a tax abatement where the property taxes are exempt. You also get agency type financing, Fannie Freddie, which have very attractive terms for affordable housing. And you just create a positive arbitrage with, strong one cash flow in year one to investors.

And you’re also, really we believe it’s a win-win where residents are also being able to afford the rent and keep ’em that. 

Bob Fraser: That’s very cool. Why don’t you, can you explain exactly how it works? Just get into the mechanics for a second, how it actually works? Yeah, I maybe an example 

Mark Khuri: like Sure, sure.

So essentially what we’re doing is we’re taking 50% of the units at a property and we’re keeping the rents restricted so they can’t go up too high based on the area, median income and a threshold of that. And I’ll give you an example. Let me just see if I can pull one up here. Okay one of our latest deals in Texas, to qualify for the property tax exemption, Bob, 50% of the units were rent and income restricted based on the area meat and income.

And 50 40% of the units were rented to residents that earned 80% or lower than the area median income. Okay. And remaining 10%. 

Bob Fraser: At 60. And so how much did that cost you in terms of rent 

Mark Khuri: on that deal? It was I wanna say around 250 K a year where we were reducing the rent. 

Bob Fraser: That’s no small potatoes.

So then, what did you get in return 

Mark Khuri: property tax exemption, which was near a million dollars a year. Ooh. 

Bob Fraser: So right away it hits the bottom line. Very nice. That’s right. So how long do you get the property tax exemption and how long do you have, do, are you required to keep it in the affordability 

Mark Khuri: constraints?

Yeah, so the property tax exemption is for 99 years, Bob, and it’s transferrable to future Biden 99. Correct. Wow, 

Bob Fraser: okay. 

Ben Fraser: Is that state by state or mean municipality by municipality, or how does that. 

Mark Khuri: Yeah, it’s municipality by municipality, Ben it is nationwide. There’s certain areas where it just doesn’t make much sense, right?

And so if the rents are high and you have to drop them significantly, it may not pencil. 

Bob Fraser: So you, in some cases, you don’t have to drop the rents that much to meet the amis. And and then how long are you required to keep these, this this rent constraints in 

Mark Khuri: force? If you don’t keep it enforced, Bob, you’ll lose the property tax exemption.

Okay. So it’s, 

Bob Fraser: as long as you keep it enforced, you get the the go abatement. I see. Yeah. Yep. So you literally could decide next year if rents are going up and the taxers are going down, you could say, I’m gonna pull that out the 

Mark Khuri: program. You could. Yeah. That’s 

Bob Fraser: paying taxes. 

Mark Khuri: That seems kinda like a good deal.

We like ’em a lot. Yeah. . 

Ben Fraser: So the other attractive thing you mentioned, which I think is a big deal right now, is the financing. Cuz agency financing, aside from just the specialty programs is very attractive. Comparative to other, BRI Bridge debt, other kind of more traditional recourse lenders.

And I’m assuming that they have, similar, attractive terms on these types of projects. 

Mark Khuri: They do. Yeah. So you typically will see more blown proceeds a lower interest rate longer interest only period. So for the deal I just mentioned guys, that the debt was 76% loan to cost, 10 year fixed, 4.9399999999999995%, seven years interest.

That’s very attractive. Yeah, 

Ben Fraser: And I might have missed this, but you say, are these ground up construction deals or is these repositionings, or is it both? And 

Mark Khuri: it’s both. Yeah. E either could apply. . 

Ben Fraser: Okay. And is it, and how does it start? Do you, like when you’re looking for these deals, are you going after the municipalities that you know are gonna be most receptive to these deals all nationwide and you back into a project that’s gonna fit?

Or do you, first find deals you like and then hope that it’s gonna qualify for this type of of a program? 

Mark Khuri: Yeah, good question, Ben. So we partner with an operating partner that your guys understand that process of course very well, and they specialize in this area. And what they’ll do is they’ll typ typically be looking in certain areas where they already have a concentration of experience and a team on the ground.

And they know the market very well and they know the laws in and out and they have the ways of to means to get this pro type of project. Approved. And I think it’s probably more the latter, what you noted where they know it has a higher likelihood of working in certain markets and they know how to actually implement it and they focus in those areas.

Bob Fraser: Yeah. It’s just an interesting area, something that, as a free market guy, I just never think that way, right? If where the public money buckets out there, but politicians are under a huge amount of pressure to, to solve this problem, even if it’s, Band-aids and bailing wire like these programs often are, but, and they’ve got billions and billions to spend as part of these, part of the covid programs and, all these different programs.

They’ve got these giant money buckets they have to spend with these certain constraints, and it’s just knowing how to tap those things. It’s, and you gotta jump through the bureaucratic hoops but they’re doable. I’m just reminded. Group I talked to recently, I said, Hey, what about doing a project here, land development into a, it was a low income housing tax credits, light, light tech apartments.

And I said, Hey, what are the possibilities here for public funding? And he listed. He listed seven programs that this would qualify for. Yeah. And basically we’d build the thing, equity without equity, without any equity cost. And I was blown away. Never heard of anything like this. It just it makes sense in today’s kind of government heavy market.

And we’re and yet I’m not throwing the government under the bus. They’re trying to solve a problem and they’ve got a lot of money to do it. and we need to be smart about accessing those public money 

Mark Khuri: buckets as well. Yeah. We find it to be a great area, Bob. Again, there’s nothing that, there’s not, no program is perfect, right?

You can always scrutinize everything, but if you think you’re able to create win-win or very close to it, especially in an area where a lot of these markets, they just, as we talked earlier, there’s suffering for new supply that’s affordable and so these types of programs definitely help. 

Ben Fraser: Mark.

Thank you so much for coming on and sharing some of what you’re seeing in the market and especially how you guys are looking at the affordability issue and positioning ourselves and your investors in a good position there. So thanks so much. What’s the best way for folks to hear more about S M K?

Mark Khuri: Sure. Yeah. Thanks for having me guys. It’s been fun. Our website’s a great place. Our company again is Smk Capital Management. Our website is smk All right. 

Ben Fraser: Thanks so much. 

Mark Khuri: Nice to meet you, Mark. You too, Bob. Thank you.


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