Protecting Investor Wealth During Market Downturns
Tanner Bickelhaupt, CEO and Founder of the Tanbic Company
Tanner Bickelhaupt has been investing, developing, and looking at new deals for the full cycle. He owns and operates a management company and has been successful across several asset classes in different markets. He’s also made it through different economic cycles and come out on top.
Just Because the Market is Good Doesn’t Mean You Don’t Need to be Cautious
(1:30) – Right now, the markets are at a high. It’s normal to talk about how to protect investor wealth during a downturn, but you can’t forget about precautions during the good times.
Bickelhaupt says some syndicators are in the mindset that they have capital and want to spend it right now in a get-rich-quick scheme. The healthier viewpoint is just to invest and preserve capital.
“Basically, how can I have enough runway? Because the things that never happen, happen all the time,” said Bickelhaupt. The pandemic was the perfect example of that, but it proved people always need to live somewhere. “We like what we can control, but we like the peace of mind knowing we’re owning real good real estate that’s being operated really well and we don’t have a lot of surprises.”
(4:20) – Growth for investors is very aggressive right now. Cap rates are the lowest they’ve ever been. People are buying up C and B class properties. There’s a huge demand along with a slowdown in ability to build, so right now it seems like things are only going to continue to grow. That’s especially true in the markets Bickelhaupt operates in, like Scottsdale, Arizona.
“The brokers will tell you, I’ve cost myself. I started locking in debt 2 years ago, 10-year, with the anticipation that rates are going to go up, but I just liked the fix that it provided a large fluctuation of cash flow,” said Bickelhaupt. “I would never even talk about bridge debt 2 years ago, but the bridge debt terms in that market have changed so much that we do talk about it. We’re looking at a deal right now where that might be the play. We feel there’s some low-hanging fruit that we can change stuff very quickly, we do not want to lock in that long-term debt but I will lock it in as quickly as possible. So the business plan would not be take it, flip it; it would be ‘Let’s create the value then go put more debt on it, and we’ll keep it.’”
Bridge financing can increase investor returns, so syndicators like it. You can hit 85% LTV, compared with a Fannie-Freddie set up where you’d get 65% or 75%.
“I really have to believe in the up-story to do that. Those deals are still out there, they’re just harder to find.”
(8:44) – Coming out of the pandemic, Bickelhaupt set up in an office in one of the apartment units Tanbic Company owns in North Scottsdale. Tanbic focused on what it already has and focused on rent collections.
“I think we had a lot of investors watching. We sent quarterly distributions, we didn’t miss a cash flow. Now, we were down 30-35% on what the expectations were, but I think a lot of groups said, ‘Hey, we’re pausing all distributions, we’re going to stockpile cash’ and that’s a great strategy. I’d be lying if I said we weren’t thinking about that. But, we were sitting on plenty of reserves.”
Tanbic Company cash flowed then spent that on capital improvements.