The Importance of Diversifying Your Real Estate Portfolio with Ben Fraser, Ep 78

Today's guest is Ben Fraser, He is the Chief Investment Officer at Aspen Funds, where he combines his analytical nature with a passion for delivering outstanding client service and strong returns.

Ben shared his knowledge and experiences as both an active and passive investor in real estate.

We also discussed the importance of understanding market trends and asset diversification even within commercial real estate. 

There were a ton of insights in this one for both active and real estate passive investors!

Episode Topics

[01:10]  Meet our guest, Ben Fraser
[03:33] Understanding Wealth Creation
[16:23] Evaluating Deals and Sponsors
[28:15] The Current Challenges in Multifamily Real Estate
[31:37] The Potential of Retail and Industrial Real Estate
[33:57] Understanding the Broader Economic Context of Real Estate
[39:47] What is one red flag every investor should look out for?
[40:13] What is a myth about the real estate business?
[42:12] Connecting to Ben

Notable Quotes

• "I wanted to own assets, learn risk management, and be on the side with the benefits of growth and ownership." - Ben Fraser
• "Wealth is created through ownership—whether in businesses or real estate. You don't need it as your primary occupation to participate and benefit from the upside." - Ben Fraser
• "Go slow deploying capital. Spread it across many deals early on. Learn along the way—you'll avoid later regrets." -Ben Fraser
• "Cash flow in real estate is a defensive metric. It helps you ride out turbulence and hold onto your property until things improve." -Ben Fraser
• "Cash flow keeps deals alive. Sponsors must be upfront about the timeline and efforts to save a deal before turning to investors." - Tim Little
• "Multifamily remains strong long-term. Short-term challenges, but retail, especially neighborhood centers, is a surprising gem—cash flow machines with great potential." - Ben Fraser
• "I shifted from self-managing a duplex to commercial multifamily because time spent dealing with issues was costing more than the 10%. Real estate offers diverse paths; it's about finding efficiency for the returns I seek." - Tim Little

Connect with  Ben Fraser

• LinkedIn: Ben Fraser
• Website: Aspen Funds
• Email: benwfraser@gmail.com
• Podcast: Invest Like a Billionaire

👉 Connect with Tim

• Linkedin: Tim Little
• Instagram: @tim_at_zana
• Email: tim@zanainvestments.com
• Visit www.ZANAinvestments.com for more info on Tim and how you can passively invest in multifamily real estate
• Get your Passive Investor's Cheat Sheet FREE

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Transcript

[00:00:00] Ben Fraser: From a passive investor standpoint, I think the biggest thing I always see is investors that want to get into real estate, but don't know how to do it. I think one, you don't have to go buy the rental property that you've, the turnkey rental that you've heard about. Cause you know, not to say that ship is sail, but they're a lot less compelling than they used to be. And there's a lot of other ways to invest passively in real estate. And then the other piece of it is. You can do it, right? I think a lot of people feel like they don't have the ability to do due diligence. I don't know where to start. I don't know how to invest. I don't know how to pick the right deal. It's just a start

[00:01:10] Tim Little: Hello everyone and welcome to the Journey to Multifamily Millions I'm your host Founder and CEO of ZANA Investments Tim Little you all are in for a treat today because we have Ben Fraser on the show Ben is the Chief Investment Officer at Aspen Funds where he is responsible for sourcing vetting and capital formation of investments He is also a co-host of the invest like a billionaire podcast Ben, welcome to the show.

[00:01:37] Ben Fraser: Hey, thanks for having me. Looking forward to our conversation.

[00:01:40] Tim Little: Yeah, absolutely. It's great to have you on. So I gave everyone a little preview of what you do now, but please get into the details of how you got started on your journey and how you got to where you are today.

[00:01:52] Ben Fraser: Yeah. So I took a maybe non-traditional approach from a lot of real estate entrepreneurs. and went the more corporate, traditional route for a while and got a finance degree, got an MBA, love finance, and spent some time working for a large, boutique asset manager in a mutual fund for oil and gas pipelines. And it's got exposure to institutional investors. but pretty low on the rung of the ladder. There were my first jobs at a school and then eventually made my way into commercial banking, where I really consider that to be, a lot of the groundwork that You know, gave me the skills to leverage into what I'm doing now. And so spent several years in commercial banking. I was a commercial bank underwriter, and then it was a lender, for many years. And, one of the kind of light bulb moments I had at that point was one of the cool things you got to do as a bank underwriter on the commercial side of it when you're underwriting these business loans, these commercial real estate loans. You get to look at the personal financial statements of the borrowers and the guarantors behind these deals. And it's basically, look behind the curtain, see under the hood of exactly what these, very wealthy, successful entrepreneurs. And, business owners and real estate owners had and what they owned and how they owned it. And a lot of times you can piece together how they made their wealth. And after a couple of years of doing this, it really consolidated down to a few common things that I saw. A lot of these folks were either business owners and, or they owned a lot of real estate. And those were two very common themes I saw over and over again. And so for me, the light bulb moment was that's what I want to do, right? I want to get on the other side of the equation and own assets. And it's a great place to learn risk management, and risk mitigation when you're underwriting deals. Because the bank, they don't get in the upside. They just only have their downsides. You're trained to think. You know what I say in a pessimistic way, but you learn a lot of ways to identify risks, I really wanted to be, on the other side of it, get the benefits of growth, and the benefits of, ownership. And yeah, I joined the Aspen funds team, six, seven years ago and really started out raising capital. And, over time, become a principal and a chief investment officer. So now managing all of our deal flow, choosing the assets and the strategies that we're investing in, and then helping form all the capital to purchase all those assets.

[00:04:24] Tim Little: Yeah, and that's such an awesome background. I think it's really important that you hit on really seeing how the wealthy like what the wealthy do with their money because 99 percent of people don't see that. All they see is the results. Maybe right. Okay, fancy car, fancy house, and they just, either get jealous or they want to know how they got that way. But they don't really see the assets, which is the behind-the-scenes aspect. I guess one thing I'm curious about, so I hear a lot of folks who are in the industry and get that opportunity to work with high net worth individuals, or at least, see their books as it were, whether that's brokers or underwriters. but I guess my question is, why do you think that so few? In those industries, seeing the opportunities and the assets that these, wealthier individuals own. Why don't more people in those industries pursue that route themselves?

[00:05:22] Ben Fraser: Yeah. It's a great question. I don't know if I have a solid answer other than I see behind you, the rich dad, poor dad, it makes me think there are a lot of different paths, right? The most challenging path is the path of entrepreneurship and a lot of people aren't cut out for it. and going back to your earlier point, a lot of people don't study what the wealthy are doing. And that's been one of my fascinations for a long time. Part of the reason why we started our podcast, Invest Like a billionaire is I want to study what the ultra-wealthy are doing, because what I found, from a lot of research I've done is. What is generally sold to us is mainstream financial media, right? If you stock money when you're four one K and forget about it, there's 62 and a half. That's not what the wealthy are doing. It's definitely not the common thread that I saw from most people that I was able to see under the hood of all the investors I talk with now, right? That's not generally the way. So I think it's one thing to know it. It's one thing to have the veil removed, so to speak, and actually see the difference between me. What's being told by the mainstream media and what people are actually doing? And it's a whole other thing to actually a path to achieve it. And I think there's multiple paths. I don't think there's only one path. And I don't think everyone's cut out to be a real estate entrepreneur. it's funny in the job I'm in now, like I've never owned a rental. I never want to own a rental. The very first real estate asset that I ever purchased was a 92-unit multifamily property. That was the first one coming from not a whole lot of background before then. And so different skill sets. You gotta understand, really what is your skill set? What are you good at? Are you cut out to be an entrepreneur or are you cut out to be? join a team as I did, that would, I already started, had built a decent base, but could really grow and create a launch pad for scaling, something that was already going. And that's really where my skill set is scale and growth. And, leveraging that into what I enjoy doing and I'm good at doing. And yeah, I think there's a lot of different paths, I think. If you want to be a working professional and you make a high income, say as a doctor or, as an attorney or some other high-paying professional. job, you can definitely carve a path to become wealthy and hack some of these frameworks, but you just have to think differently. You have to do it differently. And there are a lot of things that you can do just from self-education to take those action steps. But yeah, I think it's probably a common thing in most areas of life where we all know we need to lose a couple of pounds, but do we do it? We know we have to eat healthy and work out a little bit more and exercise, but it's the act of doing it. That's the real difference maker.

[00:08:04] Tim Little: Yeah, I think that's really true. Taking action is one piece of it. It sounds like you're saying, but I think the other thing that I pulled from what you were talking about was that it's not an all-or-nothing. someone doesn't have to go all in on real estate and, throw away that high-income career that they had, they can make, 100 to 100, 000, whatever it is, and use that extra income that they have to, Invest in the assets that we're talking about, in these apartment buildings or other assets, and so that way they can continue, on whatever journey they're on, in their regular career, but they're still planning for the future, right? they're building their wealth and they're buying assets instead of those liabilities like we talked about.

[00:08:50] Ben Fraser: Yeah, 100%. I think we've all seen, especially with the advent of bigger pockets, got to go buy your first rental and then, house hack and then buy your second one and just build up and there's nothing wrong with that strategy by any means, but it's Nothing that ever appealed to me and I always felt like a man. It just sounds terrible Like I don't. I'm not that handy, it just seems like small potatoes. It's going really slow and it just didn't fit my personality, but when I started educating myself, learning about syndications, learning about creating bigger teams around bigger projects. Being able to create a lot more value, on these bigger projects, all the kinds of pieces started to come together. And then with my background in debt financing, really understand how capital stacks are formed, right? how you make sure your senior debt is really good. And how do you form the equity on top of that? And so leveraging my skill sets too. Leverage into ownership. And I think the big takeaway is ownership and owning, either equity in a business, having options for equity in the business, becoming an entrepreneur or even an intrapreneur where you can buy into ownership over time or, investing into real estate and being, have the benefit of the upside, right? The upside is where. A lot of the wealth is created, and, whether that's through businesses or through real estate, you don't have to do it as your primary occupation to participate in it. And so I think that's where understanding what your skill sets are. For example, there's one of my investors, who was passionate about pest control. Like basically killing termites and he'd been doing it, door-to-door sales since he was like 16 years old and he was just really flipping good at that business. And, a lot of people don't think the path to wealth is through termite control, but he was really good at it. He built a business. He ended up selling the business in, made north of eight figures from the sale of that business. And now he can leverage that into investing passively. He doesn't ever want to be an active real estate owner. He actually bought some. Real estate because, Hey, that's what I should do. And then realized, Hey, it's actually creating more work for me. I actually want, I am prioritizing time freedom versus, a little extra juice, I can squeeze out of the lemon here by doing it myself. And so it's again, finding what's your skill set, what are those points of leverage that you can utilize that skillset into something that's going to give you the end result that you actually want. For most people, it's most people who don't want to own rentals to become a landlord. That's not what most people get up in the morning excited to do. They want to have passive income to give them freedom and optionality in their time. So that's the end goal that most people have. So how you get there is a lot of different paths. And I think understanding what you're wired for, where you can add value, where you can, really create a path that's exciting to you to get there.

[00:11:49] Tim Little: Yeah, I agree. And that's one thing I love about real estate in general is that there are very few wrong ways to get started. but I learned a lot of the same lessons that you're talking about, right? Like I got a duplex first and I was like, man, some of this is pretty miserable, but I, still I transitioned into a triplex that was much closer to where I live. And then I got the lofty idea of being the landlord, I was going to self-manage to save myself that 10%. That 10 percent cost me a lot more than just the money in terms of the time that I was spending at the property Dealing with it and that's what I quickly, you know came to the decision that I was gonna shift You know even more of what I was doing Into the commercial multifamily syndication side of things which I had already, you know Stuck my toe into those waters, but I was like, yeah, I'm diving in now because this is nonsense And I can't do this for another 20 duplexes, or triplexes in order to get the kind of Returns that I was looking for. So I think another point I wanted to ask you about was that focus that you talked about on risk because when you're an underwriter, like you said, banks are worried about risk. How much could we possibly lose? And what are all the red flags on this deal? With so many sponsors talking about how conservative they are in their underwriting, I have to imagine that experience gives you a leg up on it. knowing the worst-case scenarios to look for and recognizing them, better than maybe others might

[00:13:24] Ben Fraser: Yeah. Yeah. And from a, more of a passive investors standpoint of how you evaluate risk, there's a lot of different layers of that one. I think it's. Ultimately you have to define what your end goal is, right? Is it wealth preservation? Is it, maximizing growth maximizing income, or some combination of all three of those, right? That's going to massively dictate what types of deals you should or should not be investing in. And then the second piece is education, right? I think It's really important, especially as a newer investor investing passively into syndications or private funds, different types of real estate. What I always tell people, especially people that come into a liquidity event, is they sell a business and they have a big exit or they receive a big inheritance and they're looking to deploy a million or several million dollars. And I say, go as slow as you possibly can in deploying that capital. And spread it across as many deals as you can early on, because what you'll find is a lot of the deals that you invested in early on, you wouldn't invest in later on. And some of the time you don't know which deals would be and for what reasons, but you learn so much along the way. And so there's a lot you can learn by reading, by listening to podcasts like this, by watching videos, and learning some of the basics of due diligence, but there's nothing wrong with going slow and really. learning along the way and leaning on people with experience and leaning on people that have good track records and, from a risk standpoint, there are so many layers of risk and it's a pretty boring conversation, honestly. So it's not to get too much in the weeds, but I think there's. portfolio risk as an investor that you want to think about diversification across asset classes. and diversification across types of investment, right? And so you have a heavy allocation into real estate. Do you have a heavy allocation within that real estate bucket into multifamily? and within multifamily, do you have a heavy allocation into say class B or class C assets, or do you have a heavy allocation? exposure to development projects. So you want to understand what the composition is. Of your overall portfolio, right? Generally, the mantra goes, the more risk you take, the higher returns you can make, but you're also risking your principal more in those types of deals. And so are you at the stage of your life where you can withstand a few kinds of bumps along the way, you can withstand a little bit of principal loss because you can make it up in other parts of your investment strategy and you're still earning a great income so you can. get over those bumps a little bit easier. Or are you at the tail end of your career? Are you wanting to go more risk and take less risk and get more passive income where your strategy should be 100 percent different, right? In those two scenarios your ability to continue earning income. Is a big driver of that decision. And then there's just the basics of due diligence on a deal. Once you answer the bigger picture questions and, to me, the biggest thing, probably the two biggest things that I would say that, if nothing else, you do focus as much as you can on these two, the first is a track record, right? And, that gets thrown around a lot, but. Look at the past deals that the operator has done. How have they performed? How long have they been operating? If they only Operated in the past three or four years in multifamily and they had some exits, you know that they got 20 or 25 percent You know annualized returns. That's awesome. Good for them. But Also everyone else that was doing real estate in those kind of short two or three-year periods did the exact same thing. So they didn't actually beat the market. And it's not that hard to make money when everything's going up. So understanding. The length of track record, putting into context, timing of that, And not to say that's a negative, it's not going to be a negative. They had positive returns, but you have to put that in perspective of that. That can't just be a checkbox that, okay, they have some next to the deals to really dig into it. And so what I always look at is to go a layer further and ask, how did the deal perform against their original pro forma? Because everyone says I have conservative underwriting. You'll never meet somebody who says my underwriting is very aggressive and very unlikely to happen. It's just never going to happen. And so if someone says they have conservative underwriting, I don't even, I don't even take that at face value. Okay, prove it to me. And I think part of proving it is. On your past deals. Have you hit your proforma, right? And so like in a lot of our deals in our quarterly communications with investors We have here's the budget. Here's the proforma. They put together the deal. Here's the actual performance relative to that Here's how it's tracking along over time, right? That's a little scary sometimes because not all of our deals are 100% Onto proforma, but here are all the things that we're doing to get it up to that. And having that level of transparency is really important. And then it also shows you too, are they actually monitoring and managing their deals along the way? Operational performance to me is so much of it. So I've spent a lot of time on that. The other big one, I think it's, the other big thing you want to focus on is skin in the game. And like it's thrown around a lot. What does that mean? That means a few things. One, I think it means true cash invested personally into the deal from the operators, right? Are they actually investing their own personal cash into the deal? And it doesn't mean just some operators will just invest, their fees into the deal, the role portion of their fees, the deal that's good, but it's not true cash, right? Because it's not Cash that they had outside of the deal that they're earning for putting it together. so looking at that and then, the other kind of piece of that is the alignment of interest, right? How do they get paid? Are there ways that they can get paid that don't benefit the investor? And, really understanding that alignment of interest pieces. And there's a lot of nuance to that, but those are the two big things, right? If I'm trying to understand risk, trying to understand diligence, I'm just getting started. Those are the two big things I'm going to focus on first, in evaluating and investing with somebody.

[00:19:36] Tim Little: Yeah, I think that makes a lot of sense. and I think it's beneficial, especially for new passive investors, right? Because then they'll learn the structures of these deals and how the sponsors get paid because sometimes that can be Shrouded in mystery, especially for new passive investors So as long as that sponsor is upfront and he's hey, this is you know, my fee my acquisition fee Here are my asset management fees, whatever those are that they're upfront about it, but helping to educate that investor. And then also, like you said, showing the alignment of interest because you're absolutely right. you could go into a deal as a sponsor or maybe as a co-GP with very little money in. Or, you could have had, 500, a million go hard. Day one, depending on the deal. That's all, every deal is different, right? but just understanding those circumstances and understanding how much that sponsor has at stake, they're obviously gonna fight harder to do what they need to do to save the deal, not only for themselves but especially for you as the passive investor. That brings up some great points that I wanted to transition to in terms of. Like you said, when you're in a great market, everybody's a genius. and that's absolutely true. I think we are going into a market that is probably not so great. And some of those proformas probably are not keeping up, not just for you, but for many, if not most, sponsors nowadays. And so I feel like some common themes among those who passively invest in real estate right now are fear and uncertainty. the third one may just be apathy like they're just not paying attention to it because they don't want to know, the whole bury-your-head scenario, but fear of what they're seeing and fear brought about by the uncertainty itself of what the future holds, what questions should investors be asking now that might be different from the questions they were asking in the boob times, say, a year ago.

[00:22:10] Ben Fraser: Yeah, absolutely. I think, here's the challenge that passive investors always have you're always at a disadvantage because you're only being told what that operator sponsor is saying. And so you have to trust them at face value. So anything you can do that, can I trust, but verify, is, it's really good. So I always want to give someone the benefit of the doubt that they're trustworthy and that they're being truthful, but then I want to verify as best I can. So looking at past deals and understanding, what level of accountability do they set for themselves when things don't go according to plan? Because that's the other big tell, right? Because like you said, most multifamily deals right now are challenged to some level, some a lot worse than others. So asking the question, what, how are you underwriting differently than you were a year or two ago in this environment? That's a really good question for a sponsor because it shows awareness. It shows areas that they maybe didn't consider before and how they have shifted their approach. And then does that make sense? Does that sound right? and then to me, the actual, the biggest risk right now, aside from. the deals that were highly leveraged with short-term bridge debt with floating rates in markets that are oversaturated, those deals are gonna have a very hard time surviving, right? But a lot of deals are, it's going to be a bell curve, right? You're going to have some deals that are just very conservative, low debt, probably not as much multifamily, and other asset classes that just aren't being hit as hard. You have the other deals on the other end of the spectrum which are the deals I just mentioned, the high leverage, short-term bridge debt, and highly saturated markets. And then you have this middle part of the bell curve, probably 80 percent of the deals that are at some level of stress, but it's not distressed yet. And it's understanding, how do you get to the other end of the challenge? And so to me, the biggest things that have changed right now, aside from borrowing costs, right? And understanding what the interest rate environment has done. capital is very difficult to come by. And so understanding what cash reserves and what runway there is to get to a cash flow positive position, if they're not already there, right? So cash flow, I heard this the other day that I thought was, it was so great, right? Cashflow in real estate. Most people think of it as Hey, I'm getting a current return on my investment. And that is what happens in good times. But in challenging times, cash flow is a defensive metric, right? It's a defensive mechanism because it can help you ride through all the turbulence, right? If you have enough cash to pay all your bills and to pay your lenders, then You can just keep holding onto the property until things get better because things will turn at some point, right? We know that real estate is very cyclical, just like every other business. And so understanding what's the cash flow position currently, if you're not in a cash flow position currently, what is the path to get to that and how are you going to fund that gap? And so I actually just did a podcast on capital calls, what they are, when to contribute to them or when not to, cause that's. What we're hearing consistently from investors is, I know in 2024 I have a lot of capital calls coming and just getting ready for that. But then the next question is, how do I know I'm not throwing good money after bad? and some real quick things you ought to pay attention to, but it's really simply that it's one understanding the initial capital structure because there are some deals that just, they are too. The initial capital structure was too aggressive to where there was almost no way that the deal was going to be right. And that is if it was too highly leveraged to begin with if it had bridged out with floating rate interest rates, and it's in markets that are slowing down because we have a massive amount of new supply hitting the market. We have the most. Supply of new apartment buildings hitting in this quarter through 2024 than we've ever had in history. It's actually a 60 percent increase over the next highest point in time from a new delivery standpoint, right? Because a lot of these deliveries take two to three years to construct and actually bring to market. So they all started in the good times in the boom time. Now it's all hitting like this kind of, plateauing a little bit. And so there's going to be deals that Much slower, lease-up, much slower, much higher vacancy, et cetera, that are gonna hurt the cash flow position. So cash and cash flow are the number two or two most important things. And then, really understanding what's that path to cash flow? How are you gonna fund that gap? And, those are the biggest things to be asking questions about right now.

[00:26:40] Tim Little: Yeah, that totally makes sense. As you said, it's a situation that more and more sponsors and investors are facing together, unfortunately, so that's really valuable to give them that insight as to the questions to ask specifically when it comes to that, because you're right. Cash flow is what keeps deals alive. Again, we usually think of it as this bonus, right? It's the gravy on top that we provide to investors through distributions. but when times aren't great, they need to understand what that cash flow position looks like because that's the runway. And if you run out of runway, then you're crashing and burning. and if that's the case, then, sponsors need to be upfront with the timeline of what that looks like. And a lot of that is probably being explained during these capital call conversations, I would hope. But I think on top of that, sponsors need to also talk about what they've done up to that point If unfortunately, they are in a situation where they need to do a capital call. I think a fair question is okay. What have you done to help save this deal? Up until this point whether that's a GP capital call whether that's you know searching for outside monies to come in because I think you know, and I'm a passive investor, too I think passive investors are owed that you've at least exhausted all options Before you come to them not that they're there. They are your first stop in trying to save these deals All

[00:28:11] Ben Fraser: I 100 percent agree. I think that's really wise. Good questions.

[00:28:15] Tim Little: Yeah, and this rolls really nicely into the next one, which is, you know, with the current headwinds in multifamily. Do you think there are other assets that are better positioned for growth? Over the next three to five years or is multifamily still a top pick over that time frame because as you talked about All things come in cycles. So I guess it really depends on where in the cycle we are

[00:28:39] Ben Fraser: Yeah. Great question. My approach at Aspen is different from a lot of investment providers in that we aren't focused on just one asset class. So we already have. A lot of other asset classes that we've invested in that we have, focus on. So I'll hit on some of those. I still see an opportunity in multifamily. to me, it's shifted a little bit on where the opportunity is. 'cause at the end of the day. When we come out of this kind of little road bump, and I do think it's going to be more of a speed bump than an apocalypse scenario. for a lot of reasons I won't get into right now, but at the end of the day, when we come out of this, we're still going to have a housing shortage, right? Where we're really far in, the negative from how much housing we need based on the population growth and the household formation that we have. And that has been a theme and a thesis that has supported multifamily up to this point. And I think. In the short term, we will have an influx of new supply. So that will slow down a lot of the lease ups that are new developments and also impact vacancy and competition for our new product. But over the next two to three years, that's going to be fully absorbed. And then we're back in the same boat that we're in. And so I do think I'm a long-term standpoint, multifamily still is a great asset class. We need housing that is not going to go. Away, I think in the short term where we're really seeing opportunity is actually shifting down the capital stack. And what I mean by that is right now, for a lot of the deals that I mentioned before, they're in a, it's a good property in a good location with good long-term fundamentals, good GP team behind it, but they're in this kind of challenge if we have this shortfall of cash. We have, we're close to getting into cash flow, but we need to, Do a variety of these things, whether it's finish our innovation plan, extend our interest rate, cap, or, your fixed-rate interest rate for a little bit longer. just ride out the slower absorption in the market for a little bit longer. So there's a lot of things that are these short-term issues, but long-term great property. Great project. And so what we're seeing right now, because capital is very difficult to come by new capital and capital calls are very expensive and a lot of equity investors don't contribute. So it's still on the same list in the same boat as preferred equity or mezzanine debt. So you actually are going down the risk spectrum where you're coming into an existing project with a lower, at-risk capital on the capital stack. basically getting preferential payout before common equity and the terms right now are about the same that you would expect in common equity terms over the past few years. And we're seeing, Mid to high double digits. mid to high team percentages on a total return. and so we're, yeah, we're working right now and putting together a new fund. that's going to go after those opportunities. And we think there's going to be a massive amount of opportunity. It's just finding the right deals that make sense. and then from other asset classes. We're still very bullish on the industry. industrial has actually been impacted, the least of any commercial real estate asset class. there are a lot of reasons behind that, largely because of our kind of reshoring trends, post COVID bringing manufacturing back to the U S these are big long-term trends that companies are making decisions on that aren't based on a short time period of if we're hitting a recession right now, these are, massively restructuring their supply chain and, getting control over critical component manufacturing and other things that are going to reduce the risks of other parts of their business. And, they're still making these big capital investments, in the U. S. on that. So we're very bullish there. And the other kind of surprising asset class in real estate that a lot of people aren't aware of that has also been hit the least, is retail. so we actually love retail right now. These are kind of neighborhood retail shopping centers, non-grocery anchored, not a big box, shopping malls, or anything. These are Little strip centers next to residential areas. We can buy them, and nearly double-digit cap rates going to see a positive leverage on day one. and there hasn't been any new construction and neighborhood retail for probably the past two decades. And so they trade well below replacement costs and there continues to be a lot of demand for them. especially with right now, very strong consumer and, strong retail sales growth. So we really love those. They're properties, but they do their cash flow machines even right now. So like those asset classes in real estate and then outside of real estate, we're very bullish on oil and gas. So we have a lot of holdings in mostly oil-producing properties. and it's different from real estate. So a different whole set of risk rewards. terms, but we're buying these at 20 percent plus cap rates, on existing cash flow. So it's just crazy numbers right now.

[00:33:34] Tim Little: Yeah, a lot of great examples of people, cause hey, multifamily I think is great, but there's always other stuff out there and it just goes back to what we were talking about, in the beginning, which is diversification, right? Of your entire portfolio, not just your multifamily portfolio. I think it's really important when you talk about where we are in the cycle, right? And you know how all this new inventory is coming online. And, one of the impacts of that is that it's going to put downward pressure on rent. Because it'll put the renters in a better position to haggle for rates. There's more availability. They get more to choose from. So rents go down. That's bad. But, within a year, supply starts to stabilize because, like you said, there's still a housing shortage. So there will be absorption. It may take a little time. but eventually. then we'll be left in kind of the same position we were before all that inventory came online. and so I think it's important for people to, graphs are always helpful on this kind of stuff. but once it'll be a tough run for, maybe about a year, maybe a year and a half. depending on how far out you think it'll go or how long you think it'll take for that absorption. But I think it's important to also look at the broader economic context, right? To see, hey, I've seen recent articles about the delta between housing affordability and rents. And right now, renting is more affordable. Then buying a house and if interest rates

[00:35:07] Ben Fraser: one of the widest gaps that has been in the past 20 years, meaning it's substantially more expensive to own.

[00:35:14] Tim Little: And so who does that work in favor of? obviously, people who own rental properties, apartments, etc. So it's these competing forces that are working against each other, balancing each other out. And it's a lot to take in, but just some things for people to think about. And yeah, I was caught a little off guard by retail. it's just one that you don't hear a lot about today, especially with. You know all the talk of strip malls being dead and all that stuff and that's maybe not necessarily what you're talking about you're talking about more fundamentals like big anchors, businesses that You know have longevity right and I assume you're doing triple net leases on those. Is that what that looks like?

[00:35:55] Ben Fraser: Yeah, so we're going after, and these are actually not generally grocery-anchored or big box-anchored strip centers. So these are neighborhood retail strip centers. So these are generally your barber shops, your liquor stores, your restaurants. your, dentists, and other types of service providers, because these are all non-e-commerce reliable, right? These are service-based businesses that can not be replaced by e-commerce. And so we've seen, we have. Lots of graphs and stuff. So it's hard to set the whole stage for it, but basically, e-commerce penetration, meaning e-commerce sales as a percent of total retail sales has really plateaued the past few years, right? Not to say e-commerce is dead because it's not, but there's a kind of a shift back to this hybrid approach. There are actually a lot of companies that are now opening. New stores net on a net basis. We have to open up new physical stores. We saw Amazon do this when they purchased Whole Foods. They actually saw value in bringing brick and mortar back into the portfolio because there's only a certain point that people want to buy everything online. And then some people still like it. they got to get their dog group, right? They got to get their haircut. They want to go pick up a bottle of whiskey on the way home for that event. They have that night, they have to go see the dentist. These are things that aren't going to be replaced. And so because of the big negative headlines in retail as a whole, it actually groups in about four or five different subcategories of retail. Cause I'm not including shopping malls. I think those are dead, right? And there are other types within that, but you continue, there hasn't been any new supply. the. The vacancy rate is at all-time lows and there's so much demand for these spaces. So what's happening is we're buying these generally from mom-and-pop owners. It's very fragmented ownership like multifamily used to be for most individual owners. Most of them don't realize what they have, their cash flow and great. So they're happy with a hundred percent occupancy, but. If you have 100 percent occupancy, you're probably leaving somebody on the bone, right? And so what we come in and do is generally turn over the rent roll as quick as we can and convert everything from, gross or modified gross leases to triple net and then boost them to market rates on top of that. So a lot of times we're seeing 25 to 30% You know, lost to leases, meaning the existing rent roll is about 25 to 30 percent below the market. just on a gross basis that you convert it to triple net, where they're paying all the expenses of the property. And so we have one property right now. and it's. in a great part of town and it's my favorite property that we own. We have almost a hundred percent renewal rate on all existing tenants and pretty much no cap ex, no tenant improvements are being requested. Again, 30 percent rent bumps, and then converting them all to triple net. And so it's. It's a little bit of a secret gem, I think, right now. and it's actually funny because we started talking about this about a year ago and we've bought a lot since then. And the Wall Street Journal continues to pop out. The hottest trend in real estate right now is retail. And so I'm like, I want to tell a lot of people, but not too many people. So I create more competition for myself. I love these things. But yeah, it's a unique area. So I encourage people to check it out. and, retail is different from multifamily, but there are a lot of similarities, right? You have multiple tenants and you have income, you have expenses and you have that operating income and you can generally buy them at much better values, relative to the income that they're generating.

[00:39:20] Tim Little: Awesome. Yeah, that's some good insight. I think I'm probably a victim too of the overgeneralization, in the industry, just in terms of the news that gets put out. So maybe I had some bad assumptions there, but that's why it's worth digging into the specifics of, your Of asset classes. All right. we do need to transition to the turbo round right now. So I'm going to ask you three questions that I ask every guest I have on the show, and I just ask for a quick honest answer. Are you ready to go?

[00:39:46] Ben Fraser: Let's go.

[00:39:47] Tim Little: All right. What is one red flag that every investor should look out for?

[00:39:52] Ben Fraser: Yeah. I think I hit it earlier. It's to me, it's skin in the game, right? And just a lot of interesting skin in the game. How much does the GP stand to lose if this deal doesn't go well? At the end of the day, if things go wrong, that's going to be the biggest thing that's going to help save a deal is if they have, they stand to lose something.

[00:40:10] Tim Little: Yeah, that makes total sense. All right. What is a myth about this business that you would like to set straight?

[00:40:17] Ben Fraser: Yeah. I think From the active investor standpoint if you want to go do real estate as a business, build partnerships, right? I think I mentioned earlier, but the first building I ever purchased was a 92-unit apartment building. And it was just for education and building the right partnerships to create a skill set around a strategy and a business plan. Where we could all go bigger, we could all make more money and go a lot faster, right? And so I think we can go faster together when you build partnerships. Building your network, building partnerships, and finding ways to do that. Real estate is an amazing vehicle for that, right? It's one of the only businesses I know of where you can work with multiple groups and I'll have the same kind of business plan around an asset and make something work and do a bigger project that you could do individually. From a passive investor standpoint, I think the biggest thing I always see is investors that are wanting to get into real estate, but don't know how to do it. I think one, you don't have to go buy the rental property that you've, the turnkey rental that you've heard about. Cause you know, not to say that ship is sail, but they're a lot less compelling than they used to be. And there are a lot of other ways to invest passively in real estate. And then the other piece of it is. You can do it, right? I think a lot of people feel like they don't have the ability to do due diligence. I don't know where to start. I don't know how to invest. I don't know how to pick the right deal. It's just the start, right? As we said earlier, the biggest difference between those that know and those that do is the action. And I think taking small steps, investing in your own education, investing in your networks, and Talking about these things and learning, you'll be surprised at how quickly you can get up the learning curve and start being a good passive investor.

[00:41:58] Tim Little: Yeah. Couldn't agree more. All right, Ben. Hey, you have dropped some amazing insights. We covered a lot of ground the, in a short amount of time. Please tell our listeners how they can get a hold of you. And if you have anything else that you'd like to share with them.

[00:42:12] Ben Fraser: Yeah. Appreciate it. If you like podcasts, you can check out our podcast called Invest Like a Billionaire. And then we have, a private equity firm called Aspenfunds.us. You can check out some of our offerings.

[00:42:23] Tim Little: All right. Ben, again, thanks for coming on. And I look forward to continuing to see you do big things on your journey to multifamily millions.

[00:42:31] Ben Fraser: Thanks so much.