The FORT Podcast: Moses Kagan

Moses Kagan, CEO of Adaptive Realty, joins Chris for his second appearance on The FORT Podcast. In this episode, they discuss how COVID-19 has affected the real estate market in Los Angeles. Moses gives his perspective on best practices providing rent relief to tenants, the effectiveness of Adaptive’s all-cash buying strategy in this environment, capital markets, financing, opportunity zones, and much more.

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01:00 — Multifamily and COVID-19 in Los Angeles
02:30 — How is Los Angeles handling this compared to other parts of the country?
04:45 — How are you offering relief to tenants?
06:36 — What does “you don’t have to pay rent” really mean?
07:23 — What could others learn from the way you’re providing rent relief?
11:35 — Now Until July: Worse, Better, or Same?
13:21 — What does the leasing experience look like now?
13:51 — Will this situation lead to an influx of tenants who were originally planning to buy?
15:03 — Did you have anything under contract prior to the pandemic?
15:54 — With an all-cash purchase strategy, has financing worked in your favor?
16:58 — What are you seeing in capital markets right now?
20:13 — How does getting a loan look different now versus 60 days ago?
22:08 — Has your underwriting process changed in terms of becoming comfortable with a price?
26:10 — 15% Drop in Rent vs. Purchase Price
27:08 — What does your equity environment look like? Are you currently raising capital?
31:29 — What are you doing in opportunity zones?
33:15 — Is there a specific time frame when capital needs to be deployed into an opportunity zone?
34:55 — If a deal walked in today, what would it have to look like for you to pursue it?
38:00 — Are you making distributions to investors or are you holding back to create a safety margin?
40:08 — What is different between now and ’08 -’09?
43:11 — Are you changing your focus at all with hotel and retail becoming so cheap?
46:06 — Is there anything you’re hoping to hear from Washington that you haven’t already?
49:24 — If you had to make a bold prediction for the end of 2021, what would most people not agree with you on?

Episode Summary

The podcast kicks off with a focus on the multifamily market in Los Angeles, shedding light on the current dynamics, challenges, and opportunities that exist. Kagan provides a nuanced perspective on the apparent stagnation in listings, contrasted with the thriving activity in off-market transactions, demonstrating his keen eye for market trends and his ability to navigate through complexities.

Tenant behavior, especially in the context of the ongoing global challenges, forms a significant part of the conversation. Kagan commendably highlights the resilience and commitment of the majority of tenants to uphold their lease agreements, fostering a sense of trust and reliability in landlord-tenant relationships. He delves into the intricacies of lease structures, particularly in roommate situations, underscoring the predominance of joint and several liability leases in his portfolio.

As the dialogue progresses, Kagan provides a realistic yet optimistic outlook for the months ahead, balancing caution with a forward-thinking mindset. He underscores the indispensable role of government stimulus in sustaining tenants’ ability to pay rent, particularly in lower rent scenarios, and highlights the resilience of leasing activity in the market, despite the challenges.

The podcast takes a deep dive into the realm of financing, with Kagan sharing invaluable insights from his own experiences. He discusses the strategic advantages of all-cash purchases and provides a candid view of his dealings with construction lenders, showcasing the surprising availability of funds even in a turbulent market. His discussion on refinancing reveals a strategic and patient approach, emphasizing the importance of timing to secure optimal financial outcomes.

Challenging conventional wisdom, Kagan urges listeners to rethink property valuation, advocating for a focus on rental income and yield as opposed to relying on comparables of recent sales. He elucidates the disproportionate impact of rental income fluctuations on property value, highlighting the critical importance of maintaining healthy debt service coverage ratios and ensuring prudent financial management.

Throughout the conversation, Kagan’s expertise shines through, as he provides practical advice, real-world examples, and strategic insights, painting a comprehensive picture of the multifamily real estate landscape during these unprecedented times. He touches upon various facets of real estate investment, tenant relations, and market dynamics, providing listeners with a holistic understanding of the intricacies involved.