Today’s guest is Joe Smazal.
Joe is the most active broker in the sale of $2M+ apartment buildings in Chicago. Joe has personally closed over 200 properties, comprised of over 4,300 units, for a total consideration of over $725,000,000. Join Sam and Joe in today’s episode.
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Where did Joe start? [00:00:48]
Opportunities in the Chicago real estate market [00:02:41]
Considerations for investing in Chicago multifamily properties [00:07:54]
Understanding Local Regulations [00:09:10]
Challenges and Opportunities in a Competitive Market [00:10:27]
Desirable Amenities and Property Types in Chicago [00:13:52]
Investing in Chicago [00:19:01]
Getting in touch with Joe [00:20:48]
Closing remarks [00:21:31]
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Connect with Joe:
Linkedin: https://www.linkedin.com/in/joesmazal/
Phone : (312) 848-6682
Web: https://interrarealty.com/
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
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Want to read the full show notes of the episode? Check it out below:
Joe Smazal ([00:00:00]) – A market that’s challenging, I think weeds out some of the competition. If you’re here and you’re operating and you’re you know, you’re doing it the right way for the long haul. Think it it kind of puts up some barriers to entry that can provide a competitive advantage for those that can do it. Well, you know.
Sam Wilson ([00:00:16]) – Welcome to the how to scale commercial real estate show, whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big. Joe Masel is the most active broker in the sale of $2 million plus apartment buildings in Chicago. Joe, welcome to the show.
Joe Smazal ([00:00:36]) – Good to be here, Sam.
Sam Wilson ([00:00:38]) – Thank you so much for coming on today. Appreciate it. Joe, There are three questions I ask every guest who comes on the show in 90s or less. Can you tell me where did you start? Where are you now and how did you get there?
Joe Smazal ([00:00:48]) – Uh, as a as it relates to my life, I started in Iowa.
Joe Smazal ([00:00:52]) – Um, I’m in Chicago, and I got here because of the job. My wife, as it starts, is it’s with my career, which Imagine more of what you’re asking. I started selling middle market size apartment buildings in the northwest side of Chicago, and Jefferson Township was the submarket of Focus. Um, I got there from a couple of years in medical sales and it just didn’t really didn’t really see as a long term career for me, enjoyed it, but just wasn’t a fit for what I wanted to do in 5 or 10 years down the road, how I got here and being the most active in the space where I work is staying really focused on that niche and not chasing deals or not chasing other kind of distractions along the way.
Sam Wilson ([00:01:38]) – Got it, man, That’s. That’s really, really cool. You know, you you’re a broker, but you also own apartment buildings there in Chicago, is that right?
Joe Smazal ([00:01:49]) – Yeah. Do you know my. My bread and butter? The way that I, you know, provide for my family is very much still from brokerage.
Joe Smazal ([00:01:56]) – But over the course of the last few years I’ve tried to acquire a small building or two. Um, and it’s, it’s allowed me to be a better broker, you know, certainly understand what, what my clients deal with a little bit better and I believe in what I do think it’s a great vehicle for long term investment for for my family. Um, my wife and I manage them together. So that’s kind of been fun. And, and it’s going well. It’s time to do it for the long haul.
Sam Wilson ([00:02:26]) – Man. That’s really, really cool. Tell me, guess what the opportunity is right now? I mean, you have people buying. Obviously there’s transaction volume, but but what’s what’s the opportunity that you have now maybe that we didn’t have a year ago if there is such a thing?
Joe Smazal ([00:02:41]) – What say that we’re dealing with with sellers that have a little bit more conviction to sell? You know, in Chicago, we didn’t have, um, we didn’t have the run up that and no, this is a national show.
Joe Smazal ([00:02:54]) – So if I talk too much Chicago.
Sam Wilson ([00:02:56]) – No, no, this is, this is, this is why you’re here on the show is the talk Chicago because we know exactly what’s going on in your local market.
Joe Smazal ([00:03:02]) – Cool. Um, well, in Chicago, um, a couple of years ago, folks were griping that we didn’t have the same rent growth and population growth and such as some of the Sunbelt markets did or some of the more popular markets did. And, um, you know, Chicago was looked at as kind of boring. Now, you know, I think that folks to look at the last few years in Chicago and say that Chicago has been much more stable compared to some of those markets. And you know, we never had three caps for caps, you know, unless something was really, really prime. You know, we were selling generally in the fives on the north side of the city and we’re still there. And we’ve had a ton of rent growth here, really strong. We have a very seasonal leasing season because the weather sucks in the winter and the beginning of the leasing season has been really strong.
Joe Smazal ([00:03:52]) – So we’ve seen folks kind of come back that left Chicago to explore some of these other markets. And then the folks that have never left seemed to be kind of doubling down and encouraged by encouraged by the operations. In terms of the opportunity here, um, like I mentioned at the beginning of that ramble, you know, we’ve just got sellers that have a little bit more conviction, kind of circumstantially in some cases that’s just a loan maturing or, you know, a loan that have been floating or a partnership or a fund just kind of run its course. Um, and so we’re seeing we’re starting to see the inventory open up a little bit here this spring and really good real estate at prices that I think makes sense.
Sam Wilson ([00:04:36]) – No, that’s. That’s really, really awesome. And you said that things are on average, you think you’re still trading in that five cap ish range.
Joe Smazal ([00:04:44]) – Yeah. I’m, um. He was funny. Mentioned a cap rate as a as the way to refer to pricing but in, in selling a middle market size apartment building.
Joe Smazal ([00:04:56]) – From your underwriting to my underwriting to another buyer’s underwriting, the seller’s underwriting to the lenders under a cap raise. You know, it’s such a moving target. So I think that if we’re underwriting apples to apples and something is stabilized in the consistent format that we usually present them to the marketplace, then I would say, yeah, we’re, you know, between a five and a six depending on the submarket, depending on the quality of the real estate. You know, we can sell much lower than that if there’s significant upside to the deal. And then if something is more hairy or, you know, not as attractive of a location or, you know, whatever the reason is, you’ll see it adjust up from there.
Sam Wilson ([00:05:36]) – What would you say the average average not not transaction dollar size, but number of doors maybe is the average average number of doors per sale that you work on. I mean, what does it look like in the Chicago market?
Joe Smazal ([00:05:51]) – Yeah, last year was about 30 units. It was about it was about $9 million.
Joe Smazal ([00:05:58]) – Over the course of my career, the average has been about $6 million. And, you know, call it 25 ish units. Right.
Sam Wilson ([00:06:06]) – And that’s going to be the standard kind of inventory size that you’re working on.
Joe Smazal ([00:06:10]) – Yeah, it’s typically private capital. It’s and it’s, you know, generally kind of that middle market space that call between, you know, eight units and 100 units in broad strokes. And then, you know, circumstantially slightly more, slightly less.
Sam Wilson ([00:06:27]) – But I mean, in Chicago proper, that’s that that is that’s basically what the inventory is, right? I mean, you’re not going to run into those two, 300 multifamily, two 300 unit multifamily properties very often. I wouldn’t imagine.
Joe Smazal ([00:06:42]) – No. You know, there’s some high rise product downtown that ends up trading more institutionally. That’s not really my my focus. You know, we’ve done some larger deals than what I referenced, but it’s not you know, it’s not what I’m selling, you know, 20 of a year. And then in the suburbs, you know, you see more garden style deals, you know, two, three story kind of sprawling with the pool, with the clubhouse.
Joe Smazal ([00:07:05]) – You know, that’s more suburban product. My focus being more in the city, it ends up being more, you know, vintage or newer. We’ve got kind of three vintages of construction here. We’ve got like, you know, 20 ish construction, 6070s construction. Then, you know, after 2000 construction and walk up or elevator kind of mid-rise buildings.
Sam Wilson ([00:07:26]) – That’s basically what would you say are some maybe top 2 or 3 considerations somebody should take into account when looking at a market like Chicago and you’re looking at, like you said, stock that could be up to 100 years old. There’s got to be some. Some nuances to investing in that type or that size of property. So what are some of those things that people should be thinking about as they consider this as an investment opportunity?
Joe Smazal ([00:07:54]) – Yeah. The first place my head went with the answer to the question is more from operations rather than maintenance, you know. Think Chicago being a major market with, you know, a landlord tenant ordinance. Um, you know, you have to even if you’re trying to be a a good person, you have to know the rules.
Joe Smazal ([00:08:12]) – You know, it’s more than just kind of trying your best. You have to know the specific rules to operate in Chicago and, and abide by the specific, you know, notice provisions and handling of evictions and that sort of thing. So I think knowing, you know, or having an operational partner or, you know, management company, um, physically, you know, the 20 construction buildings feel like end up having sometimes fewer issues than the, the newer construction stuff. You know, they’ve been stress tested for 100 years. You know, the adage that they don’t make them like that anymore, it ends up being pretty accurate. Um, and so don’t know you know, we um versus some of the Sunbelt markets or, or you know Florida we don’t have the same don’t know some of the same construction issues or the same like weather challenges. You know, insurance here is more reasonable in some of those markets. So physically, I think the buildings are pretty solid. It’s more about being able to run them right now.
Sam Wilson ([00:09:10]) – That makes that makes a lot of sense there. That’s yeah, that doesn’t surprise me. The 20s vintage stuff is potentially less less maintenance work than some of the stuff that was built there in the in the 2000. I think that’s something really important there that you bring up is just understanding, you know, what the local regulations are and how you work inside of them. For somebody like me here in Tennessee, which is a very landlord friendly state, and even in Shelby County, where I’m in Memphis, Tennessee, you know, there’s more rules and regulations, but it’s still pretty landlord friendly. I mean, by and large, and not that we don’t want to do right by our tenants because we very much so want to, but we just don’t have to jump through as many hoops as you do. Think It was interesting. I think it was in California where when they started putting in rent control, it was actually kind of spearheaded by somebody that was one of the very, very large multifamily property owners, which is kind of counterintuitive, but in its own weird sort of way, like most regulation does, it builds a hedge kind of around what they’re doing and kind of makes the game much more difficult for everybody else to get into.
Sam Wilson ([00:10:13]) – But, you know, with all that kind of preamble put in there is there is their opportunity inside of that where we say, hey, this is this the game is now more difficult to play. So then that creates opportunity for people that actually want to get it and understand it.
Joe Smazal ([00:10:27]) – Yeah, for sure. I mean, think, you know, rent control is a horrible policy measure by every standard that, you know, I don’t know how many case studies we need to see before, you know, it stops being proposed as a measure to to help tenants because it does anything but, you know. Yeah. Anyway, we don’t need to go off on that tangent. Um, but yeah, I think as, as a market, um, you know, a market that’s challenging, I think weeds out some of the competition. If you’re here and you’re operating and you’re, you know, you’re doing it the right way for the long haul, think it, it kind of puts up some barriers to entry that can provide a competitive advantage for those that can do it.
Joe Smazal ([00:11:05]) – Well, you know, think of it sometimes from brokerage standpoint, like wish it was harder to get your brokerage license, wish it was wish that there was more barrier to entry in this space because, you know, pulled myself to a high standard. And I wish the whole industry would be able to do that, too. So think if it’s if it’s competitive and difficult to operate, there is the silver lining is that not everybody can do it. And so if you can and you can do it effectively, um, sometimes it’s half the battle.
Sam Wilson ([00:11:35]) – Absolutely. Absolutely. Let’s talk a little bit about you and your personal journey. You’ve been very niche focused, which is, I think for most people, myself included, a challenging thing to do, the one thing to stick with it and just just to master that. What have been some keys for you doing that?
Joe Smazal ([00:11:56]) – Uh, well, it hasn’t been a perfect ride to do that, you know? Think as you. As you grow and as you have some success and doing it, you know, the challenges or the, you know, the the shiny object is doing bigger deals.
Joe Smazal ([00:12:11]) – And what I’ve found is that there’s not as much velocity in those. You know, generally the institutional firms are set up a little bit differently in the way that they have teams and kind of handle the workload and. And so I took my eye off the ball a little bit and kind of trying to chase some of those and realize it’s not really the way for me to to grow my business. I’d rather do more of the size that I’m doing. And, you know, the deal size can kind of gradually work up. But it’s been a competitive advantage because in brokerage, you know, it’s brokerage. There’s a lot of good things about the job. But it is it’s not easy. And so think as you have some success, either are tempted in to do something different and more on the principle side or at some point in the journey you get you get tired of kind of the grind of having to feed the front of the pipeline. So one of my advantages has been, you know, some attrition and competition and just a general like kind of doubling down of of my focus on this space.
Sam Wilson ([00:13:11]) – No, I think that’s great. That’s absolutely great. Yeah. And that’s and that’s something that that I do think is a struggle for all of us. But I’m always impressed with people who say, you know what, I’ve been doing this for a dozen years, 20 years, whatever it is, and this is exactly what I focus on. Yeah, it seems like by and large you’ve been able there to pull that off. Let’s talk a little bit maybe what I have some questions on. Oh, what’s trading like Right right now. I know you mentioned you kind of unit size. Is there are there particular amenities that people want in Chicago? Are there certain building styles or types that you say, man, this is doing better than that? So somebody coming to Chicago and wants to invest, they should be looking at whatever it is. Fill in the blank. Are those types of things that we should be thinking about?
Joe Smazal ([00:13:52]) – Um, yeah. What’s trading is call it 20, you know, 15 to 20.
Joe Smazal ([00:13:59]) – It’s up to 50 ish unit product in any North Side market and some of the south side markets, you see the same type of velocity. Um, the trading have a lot of different amenities or they, you know they can be kind of they can run the gamut of finish level and quality, but the common denominator is that they end up kind of lending well to the buyer pool of owner operating long term investor, um, a lot of family offices or private individuals that, that have um, that end up kind of having consistent demand for that type of product. And they don’t trade real frequently. I mean, a lot of those are held for decades prior to selling. So when they come up, regardless of what the conditions are in the market, the long term holders in any given submarket end up being pretty territorial with the inventory. So if you can get the right type of inventory, we’re seeing really strong demand from that type of buyer pool. Um, amenity wise, you know, I don’t know that there’s I don’t know that there’s anything that’s a particular hot button.
Joe Smazal ([00:15:05]) – I mean, it seems like individual Hvac just given kind of the cost of utilities and, and offsetting that to the tenants and then having in unit laundry seem to be probably two for different reasons, but two of the most desirable amenities to have um say there’s probably a slight preference towards more stabilized physically versus less and that’s changed a little bit over the course of the last few years. Just given, um, you know, the Chicago permitting process has gotten embarrassing, embarrassingly slow, and the cost of construction obviously has gone up kind of everywhere. And here’s no exception. So somebody can buy more physically stabilized and create some operational efficiencies or roll it into an existing portfolio. Um, I’d say that product is more attractive than something that has a real heavy lift right now.
Sam Wilson ([00:15:56]) – That’s interesting. Yeah, I wouldn’t I wouldn’t have thought about that. But again, going back to the, you know, challenges that may be faced from the landlord tenant laws, the rules and those provisions, all those things that that could be a hurdle that maybe you wouldn’t want to climb as a new investor coming into the city.
Sam Wilson ([00:16:13]) – So.
Joe Smazal ([00:16:14]) – Yeah. And the lead time and giving the notice and then, you know, getting the permitting and doing the work. I mean, it can be a longer cycle than a lot of people have tolerance for. Um. But over the course of the last few years, you know, prior to the recent past, it’s been like value add, value add value add. Think it’s easier to raise money for. There’s, you know, there’s some sort of pop kind of earlier on in the hold that creates some excitement for both sponsors and and passive investors. And so, um, but I think there’s just been some challenges in the way those get executed recently. We can still certainly sell them and some of them are more attractive than others, but I’d say there’s a bias probably towards more stabilized versus less right now.
Sam Wilson ([00:16:58]) – Right now, that makes that makes a lot of sense, especially if you’re out of town. Investors. If you came to me, I’d certainly want to look at more stabilized assets than less.
Sam Wilson ([00:17:05]) – You know, in the Chicago market, what you mentioned that owners tend to be territorial in in the sense that they probably buy up as much as they can within a given area and they hold them for a long time. I think that’s a really compelling, compelling thesis for seller financing. Do you see any deals getting done at this point where they say, hey, look, you know, we want to unload a portfolio seller, Financing is the way to do it that way. I mean, do you see anything on that front happening or is that something that’s just kind of outside of. Outside of the norm.
Joe Smazal ([00:17:37]) – I’d say outside of the norm, you know, down a handful of them over the course of my career, I wouldn’t say we’ve seen really in Chicago. I know that, you know, I’m reading about more getting done nationally as a solution to where the debt market is gone. But I’d say for the type of product that I referenced, most sellers would say if they don’t have to do that, they don’t really want to do it, and not for everybody.
Joe Smazal ([00:18:00]) – Some people want to do it as a, you know, as kind of a mechanism to create some some more passive cash flow over the course of the next year, not realize capital gains, whatever the reason why somebody wants to do it. Sure. But I’d say there hasn’t really been a significant uptake in it here because the buyer pool that I was referencing or that I have been referencing still still getting fairly attractive term, there’s still, you know, kind of the sponsor of choice for most local banks. So they’re still getting pretty decent terms. Um, and it’s competitive on the buy side. So generally like unless it’s something the seller is trying to do is kind of a segue into retirement. Haven’t seen a ton of them.
Sam Wilson ([00:18:44]) – Got it. Okay, cool. No, that’s awesome. Joe here, before we jump into the last segment of the show, we were learning how to get in touch with you. Is there anything else we should be thinking about as it pertains to Chicago? Investing in Chicago, investing in multifamily, small multifamily in Chicago? Anything else come to mind you’d love to share with our audience?
Joe Smazal ([00:19:01]) – Uh, you know, I think Chicago is, is getting some a bit of a bad rap in the in the news.
Joe Smazal ([00:19:08]) – And, you know, if you read the headlines, I think people that that don’t know it intimately could can say I’d rather you know live or invest elsewhere. But Chicago is an incredibly well rounded city. You know, there’s a job market where you could do anything in the world. In Chicago, we’ve got incredible housing stock. We’ve got great nightlife, restaurants. We have geographic constraints and how the city can expand. So it’s not easy to build here in addition to the permitting and, you know, the scarcity of land, it’s just we don’t see supply grow much in Chicago. So right now we’re in a gangbusters rental market when other areas of the country are, you know, are seeing rents recede. And, you know, it’s not as bad as the news on the other fronts, you know, it’s not without challenges. I’m not being, you know, Pollyannaish about it, but, um. It’s a great place to live. Believe in investing here and running my business here. I’m not going anywhere.
Joe Smazal ([00:20:12]) – And there’s a lot of people like me who are going to be here for the long haul.
Sam Wilson ([00:20:15]) – Yeah. Understand that, man. Absolutely. Love Chicago. A big a big, big fan of the city there. That’s. Yeah. If you had to pick any city in the US, I wanted to go visit and spend a weekend, and it certainly would be Chicago. But I’m not just saying that I really, truly love going to Chicago, so it’s always, always a good time. And it’s kind of like Memphis. I mean, we get we get that bad rap too, or it’s like, Oh man, if all you do is read the newspapers, then don’t think any of us would ever leave our home. So it’s just kind of the way it goes. But Joe, appreciate you coming on the show today. If our listeners want to get in touch with you and learn more about you, what is the best way to do that?
Joe Smazal ([00:20:48]) – Uh, thanks for having me on, man.
Joe Smazal ([00:20:49]) – Uh, my cell phone number is (312) 848-6682. I work for a firm called Integra Realty and Terra Realty. Um, yeah, I’ve got LinkedIn. Joe Small. I’m not super active on the other social media platforms, but I’m pretty easy to get in touch. I’d be a bad broker if I was hard to get in touch with. So you can’t touch me Like there’s not that many Joe houses running around, so it’s easy enough to do so.
Sam Wilson ([00:21:19]) – Fantastic. Joe, thank you again for coming on the show today. We will include all of that information there in the show. Show notes to look for that if you want to get in touch with Joe. Joe, thank you again. Have a great rest of your day.
Joe Smazal ([00:21:30]) – Thanks, man. You too.
Sam Wilson ([00:21:31]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show.
Sam Wilson ([00:21:48]) – It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
