Lecture Notes: Tech Equity and Money Talk with Michael Episcope

Introduction

• Speaker: Christopher Nelson
• Guest: Michael Episcope, Co-Founder and Co-CEO of Origin Investments
• Origin Investments manages $1.7 billion
• Michael's background: Former trader focused on interest rates, named Top 100 Trader of the Year
• Topic: Insight into multifamily real estate market

Transition from Trading to Real Estate

• Michael and his partner David focused on protecting and growing family wealth
• Chose real estate, specifically multifamily, due to past experiences and benefits
  • Introduced to real estate by his grandfather
  • Real estate as a stable wealth generator
• Michael's life stages influenced his investment approach
  • Shift from single trader to family man
• Michael and David initially worked on finding investment opportunities and learning the business
• Vision: An institutional platform for wealthy investors

Key Learnings and Strategy

• Importance of risk management in investment
  • Real estate can build or destroy wealth
  • Focus on understanding past market mistakes
• Strategy of putting capital to work effectively
  • Preferred equity for capital protection
  • Ground-up development: Building properties below market replacement cost
• Comparative market analysis: Assessing property prices relative to build costs

Market Overview

• Current state of the multifamily real estate market
  • Post-2020 fervor leading to high property prices
  • Increased interest rates in 2023
  • Identifying buying opportunities as the market changes
• Preferred investments: Good projects with distress in capital structures

Specific Market Insights

• Sunbelt markets oversupplied (e.g., Austin)
  • Demand is high but not matching supply
  • Oversupplied markets may offer buying opportunities at a discount
• Northern markets showing better rental performance
• Aim to buy high-quality real estate at discounts during market downturns

Investment Decision Criteria

• Focus on Class A properties: High-quality, renter-by-choice
• Avoid Class B and C due to higher risks during recessions
• Detailed due diligence on properties and market conditions

Interest Rates and Future Outlook

• Potential for interest rates to come down
• Mixed signals from international central banks
• Real estate market depends on long-term rate trends
• Importance of getting reliable, on-the-ground market information
• Understanding the true performance and opportunities beyond headlines

Advice for Investors

• Questions to ask if facing distressed investments
  • Assess debt structure and management quality
  • Importance of understanding true occupancy and rent performance
• Diversification: Focus on fewer, reliable managers rather than spreading too thin
  • Risk can lie more in the manager than the deal
  • Institutions favor narrow but deep relationships with good managers

Strategy Drift and Manager Accountability

• Watch out for managers deviating from their core strategies due to business pressures
• Ensure your investment managers have a strong balance sheet and aligned interests

Final Thoughts

• Importance of patience and deep due diligence in current market conditions
• Looking for deals with genuine opportunities rather than just helping managers stay afloat