Building & Nurturing Investor Relationships with August Biniaz | EP134

August Biniaz is the Co-founder and COO of CPI Capital. CPI Capital is a Real Estate Private Equity firm with its mandate to acquire Multifamily and BTR-SFR assets while partnering with passive investors as Limited Partners. August was instrumental in the closing of over $208 million of multifamily assets since inception. 

August educates real estate investors through Webinars, YouTube shows, Weekly Newsletter and one-on-one coaching. He is the host of Real Estate Investing Demystified PodCast - https://podcasts.apple.com/ca/podcast/real-estate-investing-demystified/id1650186768

In this episode we talked about:

• August’s Background and how he Found his Niche in Private Equity
• Nuances and Differences between Investing in the US and Investing in Canada
• Single-Family Rental
• Deals Syndication
• August’s Geography of Deals
• Syndication Structure
• Limited Partnership
• Syndication VS Joint Venture
• Difference between Funds and Syndication
• State of the Economy Overview
• Advice to Newcomers
• Resources and Lesson Learned

 

Useful links:

Books: “Best Ever Apartment Syndication Book” by Joe Fairless

“Raising Capital for Real Estate: How to Attract Investors, Establish Credibility, and Fund Deals” by Hunter Thompson

https://www.linkedin.com/in/august-biniaz-23291460/?originalSubdomain=ca

https://www.cpicapital.ca/

https://www.youtube.com/channel/UCBliV4We30bjaKqmqri8jQg

Transcriptions:

Jesse (0s): Welcome to the Working Capital Real Estate Podcast. My name's Jessica Galley, and on this show we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time. Ladies and gentlemen, my name's Jessica Galley, and you're listening to Working Capital, the Real Estate Podcast. Our guest today is August Biaz. August is the co-founder and c o of c p i, capital c p i.

 

Capital is a real estate private equity firm with its mandate to acquire multi-family and B T R S F R assets, and we'll get into what that is shortly while partnering with passive investors as limited partners. August has been instrumental in the closing of over 208 million of multi-family assets since its inception. August educates real estate investors through webinars, YouTube shows, weekly newsletter, and one-on-one coaching. He is the host of real estate investing demystified podcasts. August. How you doing?

 

August (1m 1s): Great, man. We're doing much better now that I'm here with you, brother.

 

Jesse (1m 4s): Beautiful. Well, I'm glad that we finally were able to do this. There's a little back and forth I was traveling, but you look great. You always look sharp for those that are listening full suit and tie, so I'm excited to to chat today.

 

August (1m 17s): Absolutely. You gotta stay in character, right? When you're in private equity, you just gotta be in character all times. Yeah,

 

Jesse (1m 23s): The August avatar, So August, you know, for those that don't know, we, we did have a conversation, I think it was the beginning of 20, or the end of 2021. Time flies. I can't believe we're gonna be in 2023 very soon here. But we chatted a little bit of, a little bit about multi-family investing, the economy, and you know, I tell guests if I haven't talked to them in over a year that, you know, nothing really of, of substances happened since we last talked, so I'm sure that, I'm sure we'll have nothing to talk about today.

 

But yeah, I mean, for those that don't know you August, why don't you give a little bit of a background about, of how you got into real estate in general, and then maybe how you kind of found your niche in, in private equity.

 

August (2m 7s): Absolutely, yes. I've, I've spent the majority of my professional career in real estate. Started out as a real estate agent 17 years ago, and I wasn't the best at being a real estate agent, but I was great at finding deals and, and putting deals together. I I started doing small fix and flips, started my own general contracting company, and then I started building single family homes more on the luxury side, both spec and custom, always wanted to scale a deal. Came across my desk, which was a five single family home land assembly that the, that we could, we were, we were able to rezone and build townhomes.

 

We were able to build Tony Townhomes. I syndicated that deal before I even knew what this concept of syndication was, was basically I found a deal. I I, I went to some investors and brought on some JV investors and basically purchased that property. My experience was ma mostly in single family. So I brought on the experts, I brought on AR architect, I brought on a gc, and we, we started processing, we started building that project. And I fell in love with this model, with this concept of finding the deal, finding the investors, bringing all the experts on, and then, you know, being compensated relative to the performance of the project, the performance of the asset.

 

And I wanted to learn more about the space, how real estate private equity worked, how the world of syndication worked. And most of the content was coming from the us. You know, syndication wasn't very common and still, it still isn't very common here in Canada, but in the US it seemed to be very common. A lot of podcasts, YouTubes a lot of books, and I'm happy to go over that in a moment. And I realized about us multi-family, particularly the value add business model, and fell in love with that model. Wanted to initially duplicate that model here in, in Canada to be able to buy apartment communities.

 

There was some hurdles and pain points I faced early on the rent to value ratios. You always hear a complaint in Vancouver or in Toronto that rents are very high, but rents relative to the value of the properties are actually very low. The rent to value ratios, you know, in the US are much higher. In some cases they have a 1% rule where one month's, one as properties, one month rent equals to 1% of the asset value. And here in Vancouver, if you do the same ratio, you're at 20 basis points.

 

So the rent to value ratios weren't there. And, and also in the US they were, you know, a lot of groups, private equity firms were investing in the Sunbelt because the apartment buildings were garden style and two story, three story. We didn't really have that here in, in, in Canada and really we're not really a, a, a renter's nation like, like the US are. So that was the really the impetus for me to look at the us. And then when I looked at the landscape across Canada, I didn't re, you know, there were very foreign and few groups that were actually investing in US real estate that were syndicating deals here.

 

So the competition wasn't there. And when I compared that to being a builder here in Vancouver, or being a real estate agent in, in our province, there's over 23,000 real estate agents, and that's a bit of a historic number over 8,500 licensed builders. And when I looked at our space of what syndicating US multifamily deals, there were less than a handful of teams doing it. That was really a start to co-found c p capital with partners with our mandate to purchase US multifamily.

 

Jesse (5m 34s): Yeah, and I think listeners will know, like we, we try to do on this podcast is I, I try to talk both to US and Canadian investors. You know, being a Canadian myself, I, I experienced the same pain points that you did in terms of the education. I started investing in 2000, 2008, and we've, we've gone light years ahead of where we were even back then in terms of the resources, whether, you know, you're on a bigger pockets forum or you're just on YouTube, but 100%, you know, a lot of talk about the irs, a lot of talk about LLCs and you know, for the Canadians listening, you know, all those pieces have little bits of nuance and it's almost more dangerous when you do have people talking about real estate and you're getting informed, but dangerous in the sense that everything is so close that you kind of get fooled to a certain extent.

 

Or you can, you can think you're doing something correctly and, and in fact you're doing something that is, you know, abiding by u US law, for example, and, and not Canadian. So, yeah. Can you talk a little bit about that process of, you know, education and some of the differences and nuances between investing in the states as opposed to investing in Canada?

 

August (6m 47s): Absolutely. And you said it perfectly. I mean, it's, it sounds very similarly, sounds the same. Some of the words are really interchangeable, but they're not. So for example, a term offering memorandum. Offering memorandum is usually a package that a real estate agent in the US puts together and gives to buyers when they wanna buy commercial real estate. And offering memorandum in Canada is an exemption you could use through securities commissions to raise capital. So they sound the same, they look somewhat similar, but they're totally different. And then you talk about, you know, LLCs, limited liability corporations or companies in the US and LLCs are very fashionable.

 

It, they're a hybrid entity. We don't have LLCs in Canada. We either got corporations or we got limited partnerships. We don't have this hybrid that they do in the us which is very fashionable to use when you're structuring deals. But if LLCs are used in the US to purchase and structure, you know, the, the acquisition of a project, that entity, that structure is not tax efficient for Canadian LP investors. Which, which is a case where they get double tax, they pay their taxes on the US side, but when those funds are repatriated, they have to pay their taxes here in Canada as well.

 

And in most cases, they're taxed close to 70% of their profits goes to taxes on both sides. So yeah. Now as far as a syndicator, as far as a fund manager, as far as someone raising capital, and now you have to abide by, you know, the regulatory framework on both side of the border. You have in the US the S E C in Canada, you have securities commissions in every province you have certain rules and regulations that are national instruments where it's across the board, but every province has their own rules and regulations.

 

For example, in in Ontario you have sophisticated investors, you have non-accredited, sophisticated and accredited. In BC you only got accredited and non-accredited. So there's nuances there. You know, when we first started our company, our company was Canadian passive investing because we wanted to cater to Canadian investors and bring us investments for Canadian investors. As soon early on we noticed that a lot of American investors were reaching out to us as well. That's what was, without doing any marketing in the us. So we were like, you know what, know what, let's make the company brand a name, you know, to be able to, you know, service both Canadian, US investors and we change the name to CPI Capital, but now we have to abide by laws on both side of the border.

 

So if you're syndicating a deal and raising capital from Canadian investors and US investors, this structure has to be tax efficient. The structure has to be compliant. The, the exemptions we're using to raise capital has to abide by regulations on both side of the border. So, yeah.

 

Jesse (9m 25s): Yeah, and I, I think on that piece too, a lot of what is involved in the marketing of, of these deals is very specific on what you can and can't do. And some of the nuances between the states and Canada are important. You know, the, the nuances in general are important, but you gotta be very careful that you're, you're on side of, of, you know, of the law and of the rules. Yes.

 

August (9m 48s): I'll touch on that briefly quickly here on as far as the, the, the marketing side. So it, you know, with the securities commission, they're not their educating, there is a lot of content there. Most people that work for security commissioners are actually lawyers. When you look at the names of people that working, they're mostly lawyers. So they're there to sue to basically for bad actors and stop fraudsters. And that's understandable. But also they're, they're, they're not there educating you, so you have to get that education through, you know, speaking with, with attorneys and, and, and, and accountants and legal counsels and what have you.

 

So for example, as far as advertising in the US is very pretty black and white, not as black and white here in Canada. So in the US if you're using the Regulation D offerings and you're, you're raising capital, so you can most probably either using a 5 0 6 c C for Charlie or 5 0 6 B for Bravo, if you use a private 5 0 6 , you can't advertise the moment that you advertise the deal outside of your own network, you're triggering having to now switch to 5 0 6 , which is only accredited investors.

 

And 5 0 6 you're allowed to have non-accredited investors. I invest with you up to 35 non-accredited investors. But here in Canada is, is a bit more vague. So it, it doesn't go by any kind of trigger that is at the moment that you advertise, it goes by the exemption that you're using to raise capital. So if you're using the offering memorandum exemption, for example, or the accredited investor exemption, you can advertise as much as you want. You can put it on Facebook, wherever you want, obviously, depends what you're saying. If you're, you gotta make sure that you know, the promises you're making or any claims of guarantees are not there, so on and so forth.

 

So again, that is another situation, whereas far as fund managers or anyone's looking to start a fund or syndicate a deal, they have to be very careful and follow their guidelines by their Canadian and and US councils.

 

Jesse (11m 34s): Yeah. And for, for the Canadian side, the, like you said, it's a little bit more vague. And for those, I mean, if anybody's having trouble sleeping and wants to, wants to take a look at this stuff, if you Google National instruments in Canada, that's kind of our version of these exemptions. So I think it's National exemption 1 0 5, 45 1 0 5 45 1 0 5, 1 0 6.

 

August (11m 56s): Yep.

 

Jesse (11m 57s): Yeah. You'll see exactly. Friends, family, and you'll see kind of an outline of, you know, what, what that means, those definitions. And you know, in, in, you see, well, part of the reason in the states you see that you get put on an email list and there's conversations that happen is because there has to be a substantive relationship for, for you to kind of get into, I believe it's the 5 0 6 world, right?

 

August (12m 19s): B, b B for Bravo,

 

Jesse (12m 20s): B Bravo, yes. But yeah, I mean all those, all these pieces are important when you're, when you're doing these deals, but you know, that's why you hired the lawyers and you, and you make sure that you're, you're abiding by those terms. But I would always caution us, you know, Americans being careful when stuff is coming out of Canada in terms of educational content and then vice versa, Canadians being careful of what they're hearing in the states. And always make sure you talk with your accountants and, and obviously your lawyers when drafting these type of documents. Now, in terms of, you know, the actual fund stuff, when you get to acquiring real estate, we talked about this new asset class and it's built, built to rent single family rentals and it's, you know, we talked before, it's a newcomer asset class that you, you guys really like.

 

So maybe first you could describe what it is to listeners and we can chat a bit about, you know, why it's an appealing asset class.

 

August (13m 10s): Absolutely, yes. Yeah. So B T R S F R built to rent single family rental is a newcomer asset class at a commercial real estate umbrella. It's, it's an asset class that really started in post gfc when the foreclosure on homes it was, was, was, you know, tremendous amount of homes were being foreclosed and Wall Street got involved and they came on purchasing single family homes and swats of single family homes. And they, they started purchasing these single family homes in the, in, you know, buying these things, pennies on the dollars in the hopes of selling them when the market turn turned around.

 

But while they were holding the asset, they started renting them out. So they realized that this, the asset class be built to rent single family rental homes in a portfolio or in the community. They actually behave just like multi-family by the way they're managed and, and and rented. And actually they, the, the type of tenant demographic and the stickiness of the tenants is actually better than multi-family. So they actually started to be more involved in this asset class. And by, you know, 2015 when the market had completely turned around, they, they couldn't purchase these homes pennies on the dollar no longer.

 

So they started actually partnering with developers, and this is Blackstone and other kkr, other large private equity firms, they started actually partnering with developers and building purpose-built rental communities. These are single family homes built, you know, approximately 1500 square feet, you know, 3, 2, 3 bedroom, two car garage in a community of single family homes, purpose-built rental. So the plan is to rent it. And yeah, it was the start of this new asset class and now you have groups like us that are syndicating these deals.

 

There's a sweet spot for us, the non-institutional groups, which is kind of the 60 to hundred single family homes in a community. And, and yeah, it's, it's, it's a tremendous asset class. I really believe in it, especially post covid. A lot of people rather live in a single family home, have their own privacy, not have somebody living next to them, above them have ha have their own, you know, two car garage independence. And also they're, but even though they're living in a single family home, they're not living in a community when they're, when they're one of the only renters, everybody else in the community is also renters.

 

So they get, you know, they're part of the same similar demographic and you know, they don't have to live in a neighborhood where, you know, they're, they're, they're, they're kind of the, oh, this person rents or what have you. So they're with others who rent. So yeah, it's a very interesting asset class and we're looking at it very closely. And yes.

 

Jesse (15m 46s): So with the, with the bill to rent, when you're saying that you're syndicating for these deals, what, in terms of the scope, are you syndicating the actual construction of them? Are you purchasing existing and you're being part of the equity, equity and debt at that point? How, how does that structure look?

 

August (16m 4s): Great question Christian. There's really three main ways to get involved into B T R sfr as the syndication group. You can either purchase a piece of land, partner with a developer or hire a developer to build these single family homes. You syndicate the project in different tranches, the first tranches to fund the capital needed for entitlement and rezoning and putting, putting the project together. And then the next tranche is to fund the construction. And then at stabilization, you're refinancing and paying back your investors.

 

However, you, you, you structure it. So it's getting involved early on. And the other way is to buy and already build project and you're taking lease up risk, basically bringing it, you know, from zero vacancy to full occupancy. And then there is, the other way is to, to, to buy an already stabilized BTR community and then going in there if, if it's a few years old, you can utilize the value add model. If, if a developer had just finished building it and just occupied it with tenants that they could just to be able to bring the occupancy up to 90% so they could sell to a buyer at that time, your business plan is just to go in and bring those rents back to up to market and bring the occupancy higher.

 

So there's different really stages that you get involved, depending on your, the, the firm's risks appetite, depending on their LPs, risk, appetite of where they want to get involved. Some LPs don't want to take any entitlement rezoning or construction risk. So in that case, the syndication group buys the asset when it's already stabilized. So it really depends on the group and their investors.

 

Jesse (17m 42s): And you mentioned a little bit about having US investors contact you in terms of finding deals. So this, in terms of geography, where are you looking at these properties or projects and, you know, maybe where, what are some examples of, of projects that you've done and, and where they are geographically and, and perhaps even the scope of them?

 

August (18m 2s): Our, our focus, our mandate is the US sunbelt. So the Sunbelt state, if you look at this, the, the, the southern part of us is, is like a smile. So you have Nevada, Arizona, Texas, north and South Carolina, Florida, Georgia, Alabama is, it's in our, you know, state that's doing tremendously well over the last few quarters. So that's somewhere we're looking at as well. We currently own assets in Orlando, Florida, Charleston, South Carolina, Houston, Texas.

 

Our BTR project that we were working on for a few months is in Tucson, Arizona. So we're very sunbelt focused, somewhat agnostic when it comes to these regions as long as certain key metrics are visible are available. So rent growth, population growth, income growth. And yeah, the sunbelt, again, they're mostly red states. They're very business friendly, they're very landlord friendly, they're no rent control laws.

 

So that, that's our focus. Yes.

 

Jesse (19m 5s): So in terms of the, these assets, we talked a bit about structure being different with Canadian versus US real estate, Canadian versus US investors. Let's, for the purposes of, of, you know, our conversation here, let's just assume that there's a Canadian investor that wants to invest in a syndication and it's US syndication. How are you structuring those syndications and maybe what are some of the things to, as a Canadian to, to look out for and and to make sure that you're doing properly?

 

August (19m 35s): Yeah, so the first advice here is if you're a Canadian LP looking to take advantage of, you know, great returns that are available in the US and us multi-family in general, and you want to invest in syndication syndicated deals and you're looking across the border to invest, investigate a US syndicator, the, the, the, the, the rule is do not invest in a deal that is structured in a llc no matter if there is a limited partnership in between as a conduit that doesn't make a difference if the deal is structured in the LLC is not tax efficient.

 

And keep in mind that us syndicators there are watching their their own back, they just wanna make sure they are compliant and they're tax efficient. You know, they're, they're not looking long term in what, what happens to the Canadian investors coming on board. So you gotta watch for that. There's been a lot of examples of Canadian investors that have invested directly with us syndicators and the, there, there was issues there also. The US indicators, majority of their, their investors are American. So in my conversation with US investors who do cater to Canadian investors, less than 5% of their investors come from Canada.

 

So they're not there educating themselves about structures needed and what have you. So if the deal is structured in, in, in a llc, do not invest as far as how we structure our deals, we utilize a fund to fund model. So we create a project specific fund here in Canada, which is a limited partnership. We abide by the rules and regulation to raise capital for that particular syndicated investment. So for example, let's say we use the offering memorandum exemption or the accredited investor exemption.

 

So we, that's, those are the guidelines, those are the, that's the exemption we use to raise capital for our investors. And then we create a project specific fund in the us That fund is the entity that owns the asset on the US side. Our US investors invest directly into that US-based fund and our Canadian investors, the Canadian fund invests into the US fund as just another investor. So look at the Canadian fund, which is comprised of multiple investors as as just one investor investing into the, into the US fund.

 

And it also, you know, there there's other bells and whistles that goes with the structure that we have, which alleviates our Canadian investors from having to file US taxes. It's stressful enough dealing with the CRA not having to deal with the IRS every year as well. It could be cumbersome and cause some attention. So the structure we've, we've, we've, we've put together is a structure that the Canadian investors don't need to file us taxes. The, the entity will file the taxes on their behalf.

 

Jesse (22m 16s): So if I understand that correctly, it's there, there would be a u s LP involved, the Canadian LP involved, and the Canadian LP would be investing in the S LP as a limited partner. Is that right? Ex

 

August (22m 27s): Exactly.

 

Jesse (22m 27s): Okay. And in terms of, cuz we talked a little bit at LLCs and you know, caveat we should, you know, we always say is, you know, for any of this advice, you know, don't, don't take our word for talk to your professionals, but in terms of the, in the US side of the equation, a lot of times you see that there's still an LLC used as title to the land and it might be a 0.0 1.001% ownership in the limited partnership. I, is that still done in these deals? We're we're titled to the property will still be in the llc even

 

August (22m 59s): Very, very, very, very sophisticated question and you're definitely someone who has got a lot of experience. So, so depends where that vice is coming from. So this concept of disregarded entity that you speak of, which is that US LLC that holds a title which comes into effect because a lot of us lenders want the, the, the entity that holds a title to be a single member entity, which is a disregarded entity. And then the, the limited partnership is actually used as, as the entity that syndicates the deal.

 

But because of the source of where the asset is held is still LLC that could cause problems. It could most probably cause problems in a case of an audit. So advice that we've got from multiple, not CPAs, not just random accountants, but tax lawyers that, that that practice on both sides of the border. Not just a Canadian lawyer who specializes in US tax law, but Canadian lawyers that specialize in both laws.

 

That vices that is not a tax efficient structure even though that structure is, has been used commonly because of the source of, of, of, of the ownership of the entity is still llc be it a single member entity, be it a disregarded entity because the source is still there. It could, could cause problems depending on who, who the auditor is, depending on who it is. So the advice was against that. So there are ways to get around it to be able to convince the lender that the entity owned asset cannot be llc.

 

But that's a conversation that groups need to have and yeah,

 

Jesse (24m 39s): So yeah, that makes sense. I think what's important is that you, you make sure that you understand these structures. So in terms of the, the actual syndication itself, why don't you, for listeners you hear a syndication JV joint venture. What's the difference between the two?

 

August (24m 54s): It's a joint venture is when two parties or multiple parties come together to, to, you know, execute a business plan and, and get together to do complete adventure. And, and there are, they're partners, their, their names, the level of liability is there. They're, they're either, you know, the, the, the the, the debt is on the liability exists as far as debt for all members and all partners involved.

 

So it's more of a partnership where everyone is active, they're active partners. A syndication really talks about when there is two different types of partners. Some partners are silent, they're limited partners, they have limited liability. Their, their liability really stops at the amount of capital they've invested. They have no li debt liability, they have no liabilities in regards to, you know, damages or things going wrong at the asset. And then you have the general partner that, partners that manage the project where they have unlimited liability and all the liabilities on them.

 

That is really usually used to differentiate between the JV and a syndication. Jv all partners are active in a syndication. There are different types of partners. Now keep in mind in certain JVs, I I know, I know individuals who, who incorporate corporate companies and within the company shareholder agreements, they write that certain partners are just putting the funds, but the way that the, the S E C or the security commissions look at, as soon as your partners are silent and they're only putting the capital that is, they're looked at as a, as a syndication.

 

So you gotta keep that in mind as well. And then it could triggers issues, same thing on the US it could trigger issues as well. Individuals can't just be investing capital. If they're investing capital, they're passive and that triggers certain compliance and regulatory guidelines that they have to follow. So that's really the differentiating between JV and syndicate investments.

 

Jesse (26m 56s): Yeah, and it's important to, to make sure that that's ironed out again at the beginning and understanding that the different roles have different consequences cuz you can call something a partnership, it doesn't mean it's a partnership and, and vice versa. So I think it's, you know, one of those things that you kind of outline who, who has which responsibilities and partnerships. Something that you know, you, you got, you want to build that good base before you go into these investments. When it comes to syndications, you hear, you know, a lot of different structures when it comes to syndications.

 

So when we talk about say a co syndicator or you have a cog p what is that and, and is it something that you employ in the deals that you, that you do?

 

August (27m 39s): Yeah, no, tremendous question. So these syndicated deals, they're, they are very, they're they're somewhat sophisticated because again, you have the structure. Like for example, in our case, if you look at our org chart, you have US entities, Canadian entities, you have US investors, Canadian investors. But the, the great thing about syndicated in investments is that the structure can really be designed depending on the need and of the syndication group. So a lot of times you hear this phrase that real estate is, you know, real estate syndication or real estate investing is a team sport because, you know, to, to put together the perfect syndication, you have three main components.

 

You have the equity, which is investor relations, raising capital, the capital needed for the project. You have the acquisition, which is sourcing the deal, underwriting the deal, you know, physical due diligence. And then you have the asset management, which is basically executing the business plan, making sure the project is operating the correctly and the value add is conducted readily if there's value add involved. When partners come together, depending on what their contribution is to the partnership, they can play those roles and syndications can be really put together.

 

So you could have three partners. One of the partners great at raising capital, one of the partners is great at sourcing deals and one of the partners is great at executing the business plan and asset managing. And they can come together and they can play those parts within the syndicated syndication group. But then you also have lead sponsors. Lead sponsors are are groups that source the deal. They source majority of the capital, they execute the business plan. They, they have asset management in-house, but at times they might need assistance in capital raising and some other duties and responsibilities.

 

That's when they open a door for this concept of co syndication or co-sponsorship where the other groups come in and join them and they partner together to be able to close on larger deals. So you are syndicating the LP investors bringing tens or hundreds of investors to invest with you and all put in, you know, a certain amount of investment. But then you also have other groups who are coming in there with their own investors, with their own expertise, with their own contribution into the deal. And that's what creates really co syndication.

 

And it's, it would be my advice to any group who's looking to syndicate deals here in Canada or the US would be try your best to do your first deal as a co syndication partner with a lead sponsor who's done this multiple times before, who understands the structure, particularly cross-border. And yeah, we, we, that's what, that's one of the strategies we utilize. So we partner with other sponsors, other syndicators who come on board with us, us being the lead sponsor and they partner with us. And early on when we did our first few deals, we did the same thing.

 

We joined a lead sponsor and we were able to close on much larger deals that we could have done ourselves.

 

Jesse (30m 35s): Yeah, we see a lot of benefit when it comes to, especially if there's a new geography or if your, you know, if your cog p is has some area of expertise that you don't have. So for instance, if you know they're a developer or there are a somebody that can source deals, like you said, you know, maybe they find the deals and then your component is raising capital, and then just like if you were partnering with somebody on an individual basis, these more sophisticated structures very similar. It's just that the, you know, the deals are a little bit more complex and the structures are a little bit more complex, but ultimately, you know, it's the same thing as if you had a couple buddies putting together a deal.

 

Not everybody's most likely. And the the partners aren't good at every single aspect of the deal. So you'll have the asset manager, you'll have the person that can raise capital development if it's construction project. Now, how does that differ from your point of view from going into the funds? So maybe not specifically just the fund of funds model, but funds in general as opposed to syndication. Obviously you're gonna need more deal flow, but there are nuances between funds and syndication and there is a, you know, this idea of having that capital and deploying it because you know, o oftentimes you'll, you'll have a drag if you're not getting a return on that capital.

 

So could you talk a little bit about the difference between syndications and funds?

 

August (31m 58s): Yeah, absolutely. So if you look at syndications, see a syndication as a project specific fund. So you're have one deal, you put that deal under contract, you create your marketing material, you follow the regulatory guidelines to raise capital, you present that deal to your investors, you raise the equity needed for that project. Investors know exactly what they're investing into. They know exactly what the business plan is, they know exactly what the exit strategy is and so on and so forth. A fund is more of a, a basket of multiple investments.

 

So a fund could be, for example, let's say, you know, CPA capital starts a fund, which is a 50 million fund, which is mandate to buy us multi-family assets. C p a capital will continuously raise capital for, you know, for foreseeable future. And depending on how much capital they raise, they then deploy that capital and purchase assets and put it into, put, put those assets into the basket. So you're continuously raising capital until you hit your, you know, your what, what your goal was in your, your your, your total funds raised, and then you're continuously purchasing assets at the same time.

 

So that's really the fund model. The other differentiating factor is the, the, the, the fund funds usually yield lower, somewhat lower returns to investors because your investments is aggregated amongst a group of investments. Some deals might be doing really well, some deals might not be doing so much. So you have that you, you get that average aggregated number back and returns back. And also the cost of managing funds are higher than, you know, there's usually audited financials, annual audited financials and what have you and fund management softwares that are needed.

 

Whereas the syndicated investments, that's not, not in need. So it's lower cost of management. But overall, I would say as, as as investors who LP investors are looking to invest into commercial real estate passively, I would say diverse of our portfolio is probably the best way to go. So some of your investments should be in syndicated deals, some of your investments should be in funds and deals that are structured in funds and yeah, that's basically the main differences between funds and great that you bring that up, is that because of the difficulty and cumbersome process in putting these syndicated deals in cross-border multiple syndicated deals, we're actually looking to, we're in the process of starting our first US Canadian, US multi-family fund.

 

And actually I was gonna book a call with you. We were, I was gonna discuss to see get you, get you on there as board of directors as well. So that's a phone call you're gonna be getting from me soon here to discuss the fund. There

 

Jesse (34m 37s): You go. We're in real time. I like it. No, it makes sense because again, it goes back to this idea of there's a lot of information and it doesn't really matter if you're an American or Canadian because you can have, you know, you can have information that comes from the states and you're, you live in the states, you're American citizen and it's still not be correct. So it's always important to understand, you know, what the nuance is. There's a lot of great stuff on YouTube, but you know, a lot oftentimes there's, there's some misinformation. So it's, it's important that you, you know, you look into this stuff as you're making these decisions because for most people it's, it's, it's a lot of money.

 

It's a, it makes a large, it's a large percentage of the portfolio that you're, they're usually dealing with and you know, I love my real estate brothers and sisters, but we tend to be very asset specific too. So when we go into these deals, it's important that we understand them. I want to switch gears a little bit August and be mindful of the time, but you know, something that's absolutely topical right now is the economy. We're in a place right now where interest rates have gone up more than we have seen them in quite some time.

 

I remember when I started investing, I was saying oh 8 0 9, you know, five and a half, 6%, that was kind of the norm for five year fixed, you know, we got down very low and now we're kind of heading back up and there's a, I think a very big question mark of what 2023 has in store for us. So I guess put simply loaded question, but you know, what is your view on the state of the economy and, and what we're gonna be kind of looking at as you know, we kick off January in 2023.

 

August (36m 17s): Yeah, absolutely. So I definitely have a dog in the race because I'm in the real estate investment world. So we, we, you know, the, to keep the cop company operational, we have to close on deals, but we also have to be very vigilant of our, our investors' capital and be very opportunistic over the next couple quarters here. So we're very vigilant on the deals that we we're gonna be doing. Overall speaking about the economy, I personally believe that the economy is not sick. It is not a situation where it was in oh eight and in gfc I think what's happening is we're just paying for the residuals of covid where, you know, you have trillions of dollars that were printed by central banks and it really created so much liquidity into the economy and were really paying that back and that that's really what created inflation.

 

And, you know, the, the fed was, was, was a bit late, but they came back in and they've been very aggressive, very hawkish fastest increase in interest rates over 300 basis points in the shortest time since I believe the, the eighties they'll continue to raise. So investors have to really, really be careful in this, in these situations because when you are in an increasing interest rate environment, everything changes, doesn't matter what is it being increased by, but as, as the Fed and central banks are increasing those interest rates, it creates a lot of tension when it comes to lenders, when it comes to properties.

 

But there's also opportunities that can be found. For example, one of our strategies over the next couple of quarters is looking at deals in situations where either syndicated groups or other groups were overleveraging themselves. Maybe they didn't purchase a rate cap or maybe the, the rate cap that the purchase is coming due and now they have to repurchase it, which is a huge amount that they have to pay for the new rate cap they have to purchase. So there are opportunistic investments available and, you know, to, to watch out for.

 

There's also deals where you could do consumable loans, basically take over a loan, which it matures in, in, in the next three years. So over the next two quarters, at least till Q3 of 2023, I would, my advice is for investors to be very cautious, only get involved in deals that have a certain opportunistic component in them and from, but, but moving from there, I feel that at some point, obviously the, the Fed will stop raising rates, they will taper off and probably most probably start, you know, lowering rates sometime either at Q4 of 2023 or early in 2024.

 

They have a huge debt, they have 33 million of debt that they're paying and, and if the interest rates stay as high as they are, the premium they're paying on their own debt is so high that will cover most of their, their budget. So they don't want race to stay high themselves. So, but yes, that's, that's kind of overall how I feel about the economy and also, again, talk about those nuances. You've got the Canadian economy, you've got the US economy, you got the, you know, bank of Canada, you have the, the Fed raising rates at, at, you know, depending on how they want to control inflation in their own countries.

 

So yeah, the get as much as content and information out there, keep stay up to date of what's happening and be very careful over the next couple quarters.

 

Jesse (39m 35s): All right, August, so we're gonna kick off the, the final, final questions here. So if you're ready I'll send them, send them at you.

 

August (39m 42s): Ready?

 

Jesse (39m 43s): Okay. For younger people in our world in real estate, real estate investing, what advice would you give them?

 

August (39m 51s): Ooh, let's see. That advice I would give to people starting us. So don't be afraid of large numbers. Syndicating a deal that's is a duplex in a suburb of Ontario is just as easy as syndicating a hundred unit apartment communities. So don't be afraid of large numbers. The other other advice is really the golden rules of real estate. Don't be highly leveraged and exceed the business plan that you had from day one. And educate yourself, you know, eat, sleep, live, breathe this business and educate yourself and be a student of the game.

 

Jesse (40m 21s): What's one thing that you learned in the beginning of your career early on that, that you wish you knew back then that you know now?

 

August (40m 30s): Syndication. I wish I knew that you could syndicate deals and, you know, partner with others and to be able to close on larger deals.

 

Jesse (40m 39s): All right. Any resources, podcast books, shows, anything you are, you're taking in right now that you could recommend to our listeners

 

August (40m 48s): Podcast shows? Yeah, let me see. I watch Great Capital. It's pretty sophisticated stuff, but great capital. They have great podcast. The guys there, Spencer Gray and his team, that's a, that's a podcast that I listen to religiously. Other resources, books. Do you have a, do you have a book question coming up or

 

Jesse (41m 9s): No, no, that's, that's part of it. Yeah. Media, books, shows, whatever, whatever you're taking in right now. Yeah,

 

August (41m 13s): If you're looking to start a fund, if you're looking to start syndicating larger deals, I would recommend two really. The two Bibles of Syndications are the best ever apartment syndication book by Cho Fer, and then Raising Capital for Real Estate by Hunter Thompson. One of them is about raising capital, the other one about really syndicating multi-family deals. So they're both, like I said, they're bibles of syndication that you have to read and educate yourself.

 

Jesse (41m 40s): Yeah, and I'll just shout out to, to Hunter as well. He is got a great podcast, so check that out. You can, I, I, I don't want to get the name wrong, so just Hunter Thompson Real Estate, you could check that out. But that's also yeah, an absolute great book. And Joe Faris, I mean that really is the Bible when it comes to Ba of Investing. August. For those that want to connect with you, what's the best place that we can, we can send them,

 

August (42m 8s): I'm very active on LinkedIn, so you know, August Penny as on LinkedIn cpa, capital on LinkedIn. Get in touch with me. Send me a message. You, you're looking to start your own fund or syndicate deals. More than happy to chat about co syndication, our website, CPA capital.ca, YouTube and podcast Real Estate Investing demystified August Biaz, Google it. A lot of stuff will come up. I'm easy guy to get ahold of.

 

Jesse (42m 34s): My guest today has been August Bins. August, thank you for being part of Working Capital.

 

August (42m 39s): Thank you for having me.

 

Jesse (42m 48s): Thank you so much for listening to Working Capital, the Real Estate podcast. I'm your host, Jesse for Galley. If you like the episode, head on to iTunes and leave us a five star review and share on social media. It really helps us out. If you have any questions, feel free to reach out to me on Instagram. Jesse for galley, F R A G A L E. Have a good one. Take care.

 

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