He Got His Money Back and Kept 680 Apartments | Ken McElroy

Grant Cardone

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Video Summary

A real estate investor reveals how he achieved an "infinite return" on a distressed 680-unit apartment complex in San Antonio, initially acquired for pennies on the dollar from Bank of America after the previous equity holders lost everything. The deal, which involved negotiating a significant loan write-down from the bank, transformed from a 50% vacant, neglected property into a stabilized asset that has generated consistent cash flow for 17 years, allowing all investor capital to be returned.

This strategy, which the investor claims to have replicated across nearly 10,000 units, involves buying distressed assets below replacement cost and focusing on investor returns through cash flow. He is now redeploying capital from older value-add properties into new Class A developments, citing sub-5% cap rates on recent acquisitions in Nevada and Arizona as evidence of a market ripe for disruption, despite higher interest rates and a 30-40% drop in apartment values.

Short Highlights

Achieved an "infinite return" on a 680-unit San Antonio property by returning all investor capital and retaining ownership.
Acquired the distressed asset from Bank of America after prior equity holders lost everything.
Negotiated a significant loan write-down from the bank, purchasing the property for $21 million.
Stabilized the property within two years, leading to a new loan and full repayment of all parties.
Currently owns approximately 10,000 units, employing a strategy of buying below replacement cost and prioritizing cash flow.
Transitioning from older value-add properties to new Class A developments, acquiring assets at sub-5% cap rates.
Views the current market, with values down 30-40%, as a "phenomenal time to jump into the game."

Key Details

Distressed San Antonio Deal [0:00]

Acquired a 680-unit apartment complex in San Antonio, initially with 50% vacancy and significant deferred maintenance.
The property was acquired from Bank of America after the prior equity investors lost everything and the bank had to take a substantial haircut on the loan.
"So the 680 units is now sitting on Bank of America's balance sheet."

Negotiating the Acquisition [2:11]

The investor approached the broker handling the property for Bank of America.
Calculated the total cost, including the loan, necessary capital work, and negative interest carry, which exceeded the stabilized value.
Negotiated with the bank to resize the loan down to approximately $21 million, requiring the bank to take a $4 million write-down.
"And I put all that together. And I think it was around seven or 8 million bucks more than I needed."

Stabilizing the Asset [4:35]

Purchased the 680-unit property for $21 million, valuing it at $30,000 per unit.
Rents at the time were in the $700-$900 range for one, two, and three-bedroom units.
Within approximately 24 months, the property was stabilized, and its value increased to the high thirties.
"So long story short, two years later, we get the value up into the high thirties and we stabilized, right?"

Infinite Return Achieved [6:11]

Secured a new loan of around $30 million against the stabilized property.
Repaid all parties involved, including the bank, and retained ownership of the asset.
After 17 years, the investor has all his money out, the property has cash-flowed annually, and the asset is worth an estimated $70-$80 million.
"So you have all your money out of the deal. It's cashflowed probably every year since you've owned it."

Strategic Shift to Class A [10:48]

The investor has redeployed capital from older, tired value-add properties (mid-80s construction) into brand new Class A projects.
Recent acquisitions include a Class A building in Henderson, Nevada, for $260,000 per door and a Scottsdale, Arizona property for in the low $300,000s per door.
These new Class A properties offer amenities like elevators and rooftop pools, and were purchased below replacement cost with sub-5% cap rates.
"So I tell you what, like I was looking at the math grant, like you, you know, we were looking, we bought a class A building in, in Henderson, Nevada, right next to Whole Foods for, I want to say 260,000, a door brand new, you know, I'm talking about elevator, beautiful project."