The Real Deal’s October Issue: Money For Nothing
“You don’t have to do any work.”
“You don’t have to know anything.”
“And you don’t even have to own the properties.”
That’s the easiest way to make a fortune as a multifamily investor. Or so goes a parody video of get-rich gurus that’s circulating the #ReTwit community on X (formerly Twitter).
But real life isn’t too far off.
In this month’s issue, we look at the mentors who pitched fortunes to their students, with some pupils now facing distress with multifamily investments gone sour.
During Covid, the mantra was “everyone needs a place to live.” The plan was to buy rental buildings, make speedy renovations, hike rents and flip the properties. But rising interest rates hit investors hard.
Teachers like the “Apartment King” — aka Brad Sumrok — ran classes on syndication: buying real estate with the wealth of many. Sumrok claims his courses (which feature strobe lights and air horns) have helped hundreds of students quit their jobs — he tells them they can retire in five years and claims he has “never lost anyone’s money.”
“This is not a get-rich-quick program … but it is get rich for sure, if you learn it,” he said in a video this year.
His students did billions of dollars in deals, but the success story is now unraveling, TRD senior reporters Isabella Farr and Suzannah Cavanaugh write. Star student Jay Gajavelli lost millions of dollars of investors’ money after buildings bought through his firm Applesway Investment Group fell into foreclosure. And now Sumrok himself is facing problems at some of his own properties.
While floating-rate loans have created a lot of distress, especially when it comes to multifamily properties, these fledging investors may have been caught particularly off guard. See the cover story starting on.
Rising rates — alongside low inventory — have dramatically impacted the residential market as well, with far fewer deals happening these days.
Southern California recently broke the record for the lowest number of home sales since at least 1990, when data was first collected by the California Association of Realtors.
The Los Angeles luxury market has been slammed by a transfer tax that took effect this year: a whopping 4 percent for sales above $5 million and 5.5 percent for deals above $10 million. At our L.A. TRD event last month, it was called the “dumbest thing we’ve ever seen” by CBRE’s Lew Horne.
“We as L.A. luxury agents have the biggest headwinds in the country,” added star broker Aaron Kirman, whose team finished first on TRD’s annual ranking of Los Angeles’ top brokers.
We rank Chicago’s top residential brokerages, which also shows a slowdown in the market. And Chicago real estate pros should take heed of what’s happened in L.A., since a similar transfer tax is likely heading to the ballot in the Windy City next year.
Elsewhere in the issue, six years to the month after the Harvey Weinstein story broke and the #metoo movement took center stage, efforts to root out harassment and discrimination remain front and center (with the ongoing limitation that flagrant abuses are easier to flag than more entrenched systematic and structural issues facing women and minorities). Check out stories on real estate’s largest trade group, a top agent in Chicago and a lawsuit in New York starting.
Finally, one bright spot for the market amid the bad news might be office space. Yes, office space, which fewer people use these days, if you haven’t noticed. San Francisco offices hitting the market for $200 a square foot (one-quarter of what they last traded for) seem to be garnering more interest; Hudson Yards retail is being converted to offices; and new high-end office product is getting built in Miami. While there will likely be a steady drumbeat of distress around the sector, many on the sidelines may have decided now is the time to jump in to grab bargains, signaling some sort of bottom. Stay tuned.
Enjoy the issue!
