Sonya Rocvil is a Principal of Bedrock Investors, a value-add multifamily operator with properties in Georgia and Alabama.

Vernon Beckford: Okay, Sonya. I’m so excited to speak to you. I know we were just chatting a few moments ago about how crazy the real estate world is right now. And I think there’s so much that our readers will benefit from following your journey.

Sonya Rocvil: Thank you so much for speaking to me today.

Vernon Beckford: Why don’t you tell the readers a little bit about your company and what you focus on?

Sonya Rocvil: My company, Bedrock Investors, is focused on the acquisition of multi-family apartment buildings. We have focused geographically on the Southeast, specifically in Georgia and Alabama. We typically utilize third party property managers based in the local market because I’m based here in New York. To date, I’ve done six deals, four of which we have gone full cycle. And we have two deals that we’re currently holding right now.

Vernon Beckford: Ring the bell on those four deals! So typically, how do you capitalize your deals? Are you going out and raising private equity? Are you syndicating? Are you going out to your personal networks?

Sonya Rocvil: Yeah, great question. So typically, what I will do is joint venture with another operator in the market. We will pull together our respective networks of contacts to raise capital. This is usually called a syndication and consists of friends and family we know that act as individual, passive LPs. So far, all six deals have been funded from our friends and family and networks.

Vernon Beckford: Got it. This topic couldn’t be timelier. I was literally just reading an article in the Real Deal yesterday that was basically describing many large syndicators that are experiencing really, really difficult times in terms of their portfolios largely, because they took out floating rate debt and then the cost of that debt exploded and many of those properties under a lot of stress. How have your investors responded to any of the news? Have they gotten more anxious, more spooked? Have they decided that they’re less enthusiastic of real estate?

Sonya Rocvil:  One of the things that we did, particularly with the last two deals, was put on fixed rate debt. And as interest rates started increasing, our investors did start asking more and more “Hey remind me again about what we did with the debt for these.” On that second deal we did look at bridge at one point, but in the end, we decided it wasn’t the best path for us. I’m very happy that we made that decision. And then, you know, on top of it, because I know the articles you’re referring to, debt is a significant problem.  But then there’s also the other things that have been happening like insurance costs, property taxes, and just other, other costs that have gone up also that layered on, on top of, you know, a floating rate debt situation has just made it even more challenging.

Vernon Beckford: I can say firsthand, we’ve been working with a sponsor on an acquisition with insurance quotes around $1,500 per unit and recently spoke to another sponsor on a project in Florida where that was being quoted north of $2,000 a unit. When you start to see numbers like that, it’s very, very hard to make the numbers pencil. I also read a research report produced by a great emerging manager called Climate Core. Their data suggested that insurance costs in the high- risk parts of this country could grow as much as seven, eight percent annually. So, you know, the big jumps that have already occurred, throw out that three percent standard growth and increase that to seven, eight percent. You’ve got a real problem in terms of how you generate any real growth to the bottom line. Rents are just not growing that fast, if they’re growing at all, in many of the markets where these deals are located in. You were wise enough to put on fixed rate debt, which looks brilliant, looking back. I’m sure many of your colleagues didn’t and are still in the middle of their executing their business plan. What do you think is going to happen with a lot of those folks?

Sonya Rocvil: Thanks!! It’s understandable what they did. Back then, floating rate debt was cheaper than locking fixed rate.  But fast forward to now and they need to restructure their expensive debt and still fund the capital needed to complete the value-add renovations. It’s a really challenging situation, depending on the leverage and cost of the capital. That’s why it’s important to develop a real relationship with their lender. Is there anything that can be worked out? Is there any flexibility in that? That relationship goes a long way driving whether there is a path to re-structuring.

Vernon Beckford: It’s important to note also that many of the folks that are going through these challenges were not in real estate during the last recession.  I remember back in the days of the GFC working in the loan workout space at CW Capital and you’re 100% right. You know, if you’re going to steer the ship, you’ve got to acknowledge there’s a problem. You’ve got to communicate with the lender. And frankly, even if you’re not prepared to communicate them with directly, use an intermediary. Of course, I would recommend it being Diversified Lending Solutions. But even if it’s not, use an intermediary that can communicate on your behalf to get in front of an issue with the lender so that they can at least understand that you are being responsible and not putting your head under the sand and just hoping that it gets better because that never goes well. Clearly, it seems like Bedrock has navigated this cycle really well. One of the things that I’ve always wanted to understand, help our readers get into kind of the sausage factory of putting a syndication together. You know over the last few years we’ve seen so many people come out and say “Real estate is the path to wealth.” My LinkedIn is flooded with this stuff. How do you build a funnel to make people excited about investing in your projects?

Sonya Rocvil: Sure. For me real estate is a second career. My background is in audit in accounting and in finance. I had the opportunity to work in very large companies and kept in touch and built relationships with people in those groups, in those organizations. When you talk about friends and family, it’s really the combined relationships that you’ve built over the course of your career. Some are people that I went to college with. A lot of them are people that I’ve worked with before and know how I work. It’s about people trusting you. And then through continued conferences and networking and being part of real estate or other organizations, when I was making the shift out and kind of dived into everything real estate that I could find, those networks of people have also been sources for me. And that has been extremely helpful in bringing people to deals that I thought were worth doing.

Vernon Beckford: Let me ask you a question on that because I think what you said about trust is absolutely true. Trust is key and it goes a long way. When you did your first deal, did you get a lot of folks saying “Sonya, what the heck? This isn’t your background. Why are you bringing me this deal?” How did you get them over the hump on that?

Sonya Rocvil: Oh my gosh, Vernon, that was absolutely what I heard. And that was what made that deal so challenging to raise money for. When I look back, that was the smallest equity raise that I’ve had. And it was the hardest. That was a deal where we just had enough money to close. For people who, you know, are looking at doing this, sometimes as a syndicator, you must think of how much money do I need to close the deal? And then how much money do I need to complete the business plan? Right? That’s not the ideal way to look at it, but there are projects where you raise enough funds to close and raise post-closing for the capex dollars. That’s what happened to us. We literally had just enough money to close and very fortunately, very shortly afterwards, we were able to get the remaining balance.

On fundraising, somebody from a real estate group told me told me something that turned out to be very true. For your friends, this is Sonya from high school, Sonya from college, Sonya, you know, the accountant. They’re thinking “what are you doing in real estate?” However, to the people that I met along the way in a real estate investment group, to them you’re already in the real estate industry. They’re already see you as a real estate investor. Those people are a part of the same group as you, like multifamily, and don’t have deal. For them, it was it was much easier to say “yeah, sign me up” to my deal and their check amounts were a lot higher than existing relationships as well. It took a few deals for some of the people I already knew because they were just trying to, I guess, synthesize how this was going to play out. Part of what all pulled it together is that I was able to bring in with me the skill sets that I had acquired through my professional experience. And everybody has that. Everybody has a skill set that I believe in some manner you can apply to real estate. And with that, when you bring that in, you’re bringing your best self to it and you’re partnering with other people who are also doing the same. It makes for strong teams and outcomes.

Vernon Beckford: The point that you just made is just so important. Folks understandably get discouraged when they don’t receive tangible support from those that are closest to them. And that can also, you know, often be the reason why they don’t keep going. Because they said “Well, if my best friend or my uncle or my cousin won’t invest in this, well, then what am I doing?” But if you pointed out in such an eloquent way, that it’s a frame of reference issue. They don’t view you as the real estate professional. They still see the little cousin or the friend that they used to go watch movies with. Right? So, you need to define your brand with a new audience. I know you’ve done that by co-authoring a book and going on a lot of podcasts.  You’ve demonstrated your expertise to build new networks. It doesn’t have to take very long time for the shift to happen, but it has to be deliberate. I think so many people don’t get past that first deal where maybe they don’t raise enough money to close and then they just give up afterwards because they think there’s something wrong with them.

Sonya Rocvil: And I think it’s also realizing that this is so much of a team sport. You have to work with people with shared goals and values. When I first started out, I was just like, “Well, I’m going to just maybe try a 10 unit or so I can just do this all on my own.” And then one of my coaches asked “Why don’t you think bigger than that? Because the work you will do for a 10 unit is the same work you will have to do for a 50 unit, or a 100 unit. it’s going to require more capital, but it’s a lot of the same work.” And she was also encouraging me to think about how the vacancy risk decreases when you have more units under management. So, with that, I sought out somebody who had the same thought process, the same desire to provide for the investors, and focused on the same markets. Now, you can do that 10-unit project on your own. There’s nothing wrong with that and it could be great. It just depends on what your goals are and whether or not you’re looking to continue to grow. At some point, one individual person’s capital and bandwidth, unless you’re like have a whole lot of capital, infinite capital, it’s going to run out. So then what do you do then?

Vernon Beckford: I think most of the people, if you ask them, at least the folks that read this publication, they’re going to say they want to be big and they want to grow and they want to reach that next level. How do you find good partners? I mean, how do you distinguish in your mind someone that you’d want to work with and someone you’d say, you know, don’t put me in the same room as them?

Sonya Rocvil: I think you can’t get away from the fact that it does take time to do it. You know, it does take time to find people who share your values. But what you can do is like if you’re part of an investment group or you are part of a group, you know, underwrite some deals with someone. How do you view it? How are you thinking about it? What do you think we should do for the residents? A lot of that comes out when you’re just thinking through the business plan. You are never really, really know until you’re actually in the situation with that person, spending time looking at deals together, underwriting together, whether you are aligned. The other thing is it’s easy to just say, “I’m going work with this person,” if you two are completely similar. But I’ve got to say, it’s great when people bring different skill sets. If you share the same values, but approach things differently it can produce more powerful outcomes.

Vernon Beckford: Have you ever walked into a relationship that seemed great initially and then you got into a deal together and it didn’t work the way you envisioned?

Sonya Rocvil: Well, there’s always going to be conflicts because that’s just human nature and not everybody is going to agree on everything. But it is a matter of how you navigate them. What’s the North Star for me? It’s my investors and if everybody is focused on that ultimately it will work out.

Vernon Beckford: On that point, folks say dealing with smaller retail investors can also be hugely time consuming and challenging. What’s been your experience and just dealing with the friends and family syndication network?

Sonya Rocvil: It’s all about communicating expectations and then trying to deliver on them. I’m not solely talking about returns, but about keeping the investors informed about what’s happening. Because if they know that there’s a quarterly meeting because that’s the cadence that you’ve set up, when you deliver consistently it helps to set their minds at ease. It’s not like “Oh, wait a minute, I haven’t heard from these folks in like six months, what’s going on with this property? But I have no idea.” Then you get frantic phone calls. We set expectations early so that people know when to expect an update and what information they’re going to get. That is going to cover both the wins and challenges, how we’re looking to resolve the challenges, and so on. We make yourself available of course for one off calls, but we also try to be as thorough as possible during our updates to minimize that need.

Vernon Beckford: For an operator out there that’s just now building their business when they think about how much time they’re allocating to executing a business plan versus just asset management activities and making sure their investors are well appraised of a situation what do you think some reasonable allocation of time?

Sonya Rocvil: We provide quarterly updates.

Vernon Beckford:. As we enter into 2024, obviously 2023, very turbulent year for multi -family operators, what do you think the fundraising environment will be for 2024? And I guess maybe even before we go into that, what’s the acquisition environment going to be? And how do you foresee that impacting your investor base and what they’re interested in and their appetite for real estate this year?

Sonya Rocvil: Yeah, I mean, wow, I wish I had the crystal ball for that question. I would say a few things. We didn’t buy any deals last year and not for lack of trying, but because they did not pencil. One of the things I’m thinking about in 2024 is about what kind of deals could pencil right now, kind of expanding my mind a bit. Is there a way to think about it a little bit differently and to find where is there opportunity? Because to the points that you made earlier in our conversation, there is a lot of fatigue from the operators. They may not be able to continue going as they are right now. Looking at how you can identify that opportunity within that niche, taking a step back to be creative, I think will really be very important for everybody in 2024 and going forward. Also, making sure that the expectations for revenue growth for expenses and costs are aligned with where we are right now in our new era. Expenses, property taxes, insurance, other types of labor costs have gone up significantly. Thinking about that in the local market, how, how is that impacting your underwriting? Can you really rely on 2% annual increases, or do you have to look at that in a different way as you’re planning out your pro forma? I think that those are some of the things that are going to be critical in terms of looking at deals. And that’s why a lot of deals weren’t really penciling out because sellers and, you know, were fixated on just where the market was a year ago, 18 months ago.

Vernon Beckford: And that, that delta hasn’t shrunk enough for a lot of transactions. Absolutely. So let me ask you this. Do you think that the retail investor who typically find a syndication deal attractive is fully socialized to the new reality?

Sonya Rocvil: Are they shifting in their mindset? Yeah, but I think a lot of it is still fundamentally about their relationship with the sponsor. I was having a conversation with one of my investors and he’s just like “Yeah, I saw the update. You know, property taxes and insurance went up. They did in my house too, so I understand that.” People are also experiencing the changes in real time themselves at the individual level. Does it make them want to still invest in real estate? I think they still are interested in real estate. I just think there’s going to be a little bit more scrutiny on the deals. There are people who say, “Hey, I could put my money in a CD or something and get 5%. Why should I put it in this deal?” You know? So, okay. Yeah, and that’s fair feedback. And it really depends on what your long -term plans are. So, that CD, maybe six months or 12 months and you’ll get the 5% and that’s guaranteed. And if that’s what your goal is for the next six to 12 months, that is where you should put your money, do it. If you’re thinking about, you know, that okay, with real estate, there’s also some tax benefits that I could potentially get in the beginning of the deal. If you’re thinking about, potential upside, so you have a longer-term strategy, that’s not six to 12 months. If they want a portfolio of properties, then a CD is not sufficient. Maybe it’s okay for now, but ultimately you want to be in an actual hard asset. It really depends on the risk profile and the goals of the investor. If there’s somebody who’s really focused on that short term gain, then value-add is probably not the right play. If real estate is outside of your risk tolerance, you shouldn’t pursue it.

Vernon Beckford: What I love about that statement, right, is I think there’s a tendency to believe that anyone that is willing to take your phone call, you know, you should always be closing and get them across the other side if possible. What you’re saying, though, is, you know, sometimes the juice isn’t worth the squeeze and if you must really force someone to do something that they don’t feel comfortable with, and they do it out of either some sense of reluctance or begrudging, you know, pressure, it’ll be more costly to you than you anticipate. That’s because they are going ask so many questions, or as soon as the plan deviates in the slightest, they may be more sensitive to it. If you, heaven forbid, lose the capital or some of the capital, it could be doubly impactful to them because they recognize or remember you trying to force them to do it. I think there is wisdom in what you’re saying, which is play the long game. And if you believe you’ll be in a position to have visibility to good deals over the long term, you want to be building strong relationships where people see that you’re smart, that you know what you’re doing, and then you’re not going to pressure or force them to do something that they don’t want to, just because you’re so obsessed with getting your next deal closed.

Sonya Rocvil: Right, yeah. I think that’s important. You know, there were instances where I just told people, I don’t think this is a good investment for you right now, just based on either the source of funds that they were going to be using or their other concerns. My advice to them is “Look, there will be other deals. It doesn’t look like right now is a good time.” I never want them to feel pressured into doing a deal or anything like that. If it’s not for them, then it’s not for them and that’s okay.

Vernon Beckford: To that point, I’ll ask the last question of the day. You’ve now gone through six deals, you’re a bit of a syndication. ninja now at this point, guru or expert. Have you gotten to the point for the younger or less experienced operators where you can judge from the cadence of a conversation with an investor, the likelihood of whether they’ll invest, can you judge folks that are really just kicking the tires from folks that are seriously looking at a deal? What advice would you give to an operator that doesn’t have as much experience fundraising as you and how to be efficient with their time and these conversations they’re having?

Sonya Rocvil: Yes! I definitely still spend the time talking to people, even if it doesn’t seem like they will be an investor in that deal right now. And I do that because sometimes people say no because they don’t understand. They may still walk away saying “no,” but they would have gotten just a little bit more knowledge from the conversations, from the questions that they’ve asked to help them the next time. This whole thing is a long game. It’s a long game. Your person may not be an investor now, but they’ll remember, “Hey even though I didn’t invest they still spent time with me teaching me.” There are certainly people, that may not be interested at all and waste your time. You kind of learn how to gauge that over time. But I really do try to make myself as available as possible because even if they don’t ever invest in one of my deals, if I helped them better manage their portfolio it will pay dividends eventually one way or the other.

Vernon Beckford: Often, we’re so obsessed with figuring out how to grow a company quickly, that we take investors for granted. What I love about your business is it lives and dies on being a good steward of capital and everything grows from there. It’s a strong differentiator. Kudos to you for what you continue to do. Hopefully 2024 will be one that presents a lot of exciting opportunities for you.

Sonya Rocvil: Thanks so much for having me! I look forward to the opportunities as well!!