Michael Gilman, Founder of Cross Mountain Capital, joins us to discuss leaving his job as an attorney to pursue Multifamily Real Estate. We discuss his first 20 unit projects, building a management company, owning in multiple states, working with Family Offices, and much more.

Connect with Michael at https://www.crossmountaincapital.com/

To join the DJE Investor list visit https://www.djetexas.com/access

For multifamily mentoring visit https://www.ApartmentEducators.com


Welcome to the DJE podcast where you will learn about real estate investing from real life examples. Here’s your host, Devin Elder.

Hello and welcome to the podcast. Thanks for coming on today. My guest is Mr. Michael Gilman, based out of New England. They’ve got assets in Colorado, Vermont, New England, mostly multi-family, although they kind of dabble around with some different stuff. But interesting story. Michael was an attorney and worked in investment banking lending and mergers and acquisitions. And then at some point along his journey, wanted to start building passive income and found real estate and specifically multi-family. So set out to build a company. Started out buying a 20 unit. So we talk about how he did that and how he handled the management of that. And eventually this journey led him to starting his own management company much like much we did a number of years ago.

Michael basically came to the conclusion that to execute some of these really heavy lift value add projects that he was going to need to own the management company. And so from a familiar story there, one that I can certainly relate to. But has kind of done it all at this point, managing the equity and the capital raises and the deal sourcing brought on a partner to manage the operations. That’s kind of a team dynamic that we see work well a lot of times in multi-family or in real estate investing. So a lot of lessons learned through throughout Michael’s story. I think you’re going to enjoy it. So we’ll have a word from the sponsors and then get into this show. Thanks.

This episode is brought to you by DJE Texas Management Group, a San Antonio, Texas based real estate investment firm with a track record of transacting on several hundred million of multi-family land and industrial deals throughout Texas. DJE’s been in business for over a decade and is approaching 100 team members in San Antonio. To learn more about DJE, visit djetexas.com or the link in the show notes of this episode. This episode’s also brought to you by ApartmentEducators.com, a complete ecosystem for professionals to learn how to find finance and operate large multi-family properties for profit. You can get started with a free mini course and learn more at apartmenteducators.com or visit the link in the notes.

Hey Michael, welcome to the show. Glad to have you. How are you doing?

Hey, good, thanks for having me on just another chilly day here in New England.

That’s right. Where are you guys based?

So I’m out in kind of distant New York City suburbs, Northern Westchester, but I go back and forth a lot between there. Our properties in New England, so Vermont, New Hampshire, and then out west every quarter or so to Colorado.

Is it all multi-family stuff or are you guys in different asset classes in those markets?

So we’re, I’d say 95% multi-family, there’s some self-storage mixed in there that came with the multi-family. There’s some single families here and there. We do some light cabin development by some ski resorts, so we have some short-term rentals, but the majority by far and large is kind of multi-family, the targeting the class C or class B value add reposition strategy.

Gotcha, gotcha. Yep. Makes sense. That’s funny. You’re saying it’s cold? I think it’s cold here in San Antonio. It’s probably 49 degrees out there and I’m like freezing my tail off walking back from lunch, but I’m sure it’s a different story in your neck.

Yeah, no, I mean it just got so bad this last weekend was, I don’t know if you saw in the newspaper there was historic cold New England. I was actually up there at my Vermont house and it got negative 20. That’s without the windchill, just straight negative 20 and there’s no way to keep the properties warm. We actually had, it was like a record amount, there were so many pipe bursts and issues we were just dealing with the insurance claims now, but we’d never seen anything. It followed by, I think it was like a 50 degree swing the next day it went to positive mid thirties high, high thirties. So everything kind of unfroze and popped.

Yeah, that’s the variable that we don’t have to deal with too much down here. Well, I’ll kind of want to back up a little bit and learn about your journey to real estate. If you didn’t grow up doing this, what were you doing before and what was that catalyst to push into real estate investments?

Yeah, so I started my career as an attorney was always kind of more business minded, so went into the investment banking in-house side, being on trading desks as well as some of the lending and M&A businesses. And I don’t know if that was, the parents were like, oh, you should have a career, should be a doctor or an attorney. So it was kind of what I did. But always I knew it’s not what I wanted to do and I wanted to have passive income. I wanted to have investments. One thing that affected me deeply growing up, my parents had a lot invested in the market and remember growing up in the .com crash happened, they had a lot in the technology stocks. So just seeing how when you have all your eggs in the equities basket, how quickly it could evaporate. And comes back but I’ll never forget that feeling of just stuff evaporating. Certainly we’ve seen that a little bit recently with the rate volatility.

So anyway, it always, that experience always made me want to find something that was really safe that didn’t go up and down and that was just cash flow. That’s kind of how I started looking at real estate, multi-family real estate and specifically around me, I was in New York City, certainly most of the stuff in the tri-state area just didn’t pencil from my perspective. I mean you had not much population gain, in fact, negative in some cases and not much job growth, but yet the cap rates were as low as you’d see in these top growth markets. So it just wasn’t penciling and the landlord tenant laws are the worst. I mean you guys are very fortunate there in Texas. So it took me up to New England where there was 10 cappers with plenty of value add. So I just started buying stuff up there just myself just with the simple idea of, well, I just want to replace my salary and forget if it goes up and down, but I just wanted safe, stable income. So that was kind of the catalyst and that’s what I started doing.

I like it. What was the first project that you bought?

So the first project was, other than my own residence was a 20 unit. I had done a lot of thinking and research and I knew you needed multifamily and just scale, the whole concept made sense. So I kind of maxed out what I could do personally on leverage. Most of it was leveraged actually and was able to get a nice 20 unit that was a 10 capper with value add. [inaudible 00:08:40].

20’s an interesting.


Yeah. So fixed bank debt and then always curious to hear on the management side. Because that’s an interesting size where you’re not maybe having a full-time person on staff. How did you handle management on that one, especially your first go?

Yeah, so the market was three hours away or four actually at the time, four plus. So certainly needed remote management. So we started managing it ourselves from the perspective of, all right, we’re going to control who we hire and keep the books and kind of run the operation. So we found an on the ground manager that was a broker there in the market that would pretty much just handle the key on the ground tasks, which are really lease up and in this market at the time, certainly for tenants we inherit is rent collection. Everything else there you cover with vendors, third party contractors.

I mean that’s how we started. Eventually we moved to a model where really the most important person was person that could take care of the property. So at that scale it was really just like a GC/repair guy that also could do the lease ups. Because again, the hardest part of all of it in my opinion, is the maintenance and maintaining the building, the really the physical operations of it I think is the most challenging aspect personally. So we started with a key person there and kind of grew around him around that kind of GC slot.

Yeah, that makes sense. Yep. And you guys have, you’re in a number of different markets. You mentioned Colorado, Vermont, some New England stuff. How are you managing those operations across those multiple markets and would you guys look anywhere the numbers made sense or is there kind of some strategy around market picking and that kind of thing?

Yeah, sure. So we started in New England, but one of the issues there in at least New Hampshire and Vermont, the markets we look at, you can’t get a big building. I mean that 20 unit was maybe one of the largest buildings in the region perhaps at least in that little area, New Hampshire has some more. But anyway, you just can’t get the scale. So I wanted to pick a new market. So did a lot of research, wanted a growth market, one that didn’t seem like cap rates were so low. And then ultimately one that I liked and wanted and would travel to and I’m always a big outdoor person, so skiing and whatnot. So that took me to Colorado.

So when we kind of landed there, we started with a property management company because we didn’t have operations, but really quickly realized and especially knowing how to do it from having done it that we’re going to have to control this ourselves. So again, we found the right GC. We partnered with them and we ended up just scaling there on the property management and construction side. And what kind of helped us scale more quickly was taking on third party accounts. So again, something would’ve never envisioned in terms of… Because I never started out wanting to be in property management, but what I discovered was the hardest part of the business. I say property management, but for what we do, we’re talking about repositions.

This isn’t class A. Pretty much, a lot of the tenants we inherit are bad, just terrible management. And so everyone has to go, unit’s got to be renovated, there’s schedules, there’s timelines, it’s a whole kind of operation if you will. And so it was just an… If we wanted to do the strategy we wanted to do that, that was the path forward. And so that’s kind of how that part of the business grew and really I think it was again, the most challenging.

Yeah, sure. I certainly hear that. We started a management company a number of years back, never wanted to do it, would publicly say I never wanted to do it. But then at some point you’re kind of faced with the option of, gosh, kind of almost have to really execute these business plans. I mean it’s one thing to learn this stuff and underwrite it and project things five years into the future. And it’s quite another to deal with the real day-to-day stuff that comes up. Tenants and then projects too. Just managing complex construction projects where people are already living. It’s kind of like you’re working on the plane while it’s flying. So yeah, we were in the same boat and now I’m really glad that we have the company. I’ve found some awesome team members and employees to execute that, but would never have dreamed that I’d own a big management company.

Do you guys third party manage as well?

We do a few, but it’s only because it’s maybe deals that I’m a key principal on or it’s friends of mine that own them. We’re not looking to grow that third party business at all because it’s a very low margin, very difficult business and we don’t want to be dealing with 10 different owner personalities. We’d rather just manage our own stuff really well and just for that, it’s a win. Just to be able to execute well on your own portfolio, it’s a total win. But it’s not like it’s a huge margin business and there’s an argument if you grow to 20,000 doors, you could sell at a pretty high multiple or whatever. That was never my strategy. It was just, hey, we need to manage our assets better. And the best way to do that is to own the whole thing from the maintenance guy to the CEO as just kind of one company, one decision maker type of deal.

Yeah, absolutely. And that’s how for us to really be able to do this nationally. The big change I may have is a kind of bonafide partnership with my partner Phil, who runs the day-to-day of that kind of the way we structured it as I’m responsible for the kind of capital markets, the lending, the equity, deal sourcing for a large degree, I mean certainly we’re a brokerage out there, but just getting the deal and overseeing at a high level.

Yeah, a hundred percent. So I wanted to ask you about that. You know mentioned that 20 unit was your first deal and that was you and the bank, but how were you guys structuring your capital stack these days and building that up?

Yes, sure. So we started, when I started pulling capital, it was friends and family at first obviously. That’s something that I’d never done before so even though I had all this real estate experience, it was at the end of the day everyone was like, well, how much have you raised before, which is track record on syndicated deals. I’m like, well, what about this track record? It was like apples to orange is almost like people just certainly professional investors looked at it differently.

So we started with friends and family and then over time, and certainly now I’d say a predominant investor is more like the family office fund type. And then we certainly have our pool of individual investors that we earn our network and we carry with us… Our deals are 506(c), but we found that no one’s going to invest in a deal because you’ve advertised. At least in our experience. It’s all existing relationships and due diligence. And personally, my background as an attorney being on Wall Street, I kind of gravitated towards that professional investor when they do that due diligence and send those questionnaires and do the deep dive, it was almost like second nature to me. And so we kind of gravitated towards that and that that’s been our predominant equity source recently.

Yeah. Yeah, that’s excellent. We just did a 506(c) fund and it’s nice to be able to talk about it and market it, but we don’t expect to grab a bunch of equity off a LinkedIn post or something. It’s definitely very much relationship driven. How’s it been working with the family offices or is it larger checks and a long due diligence process? Is each one different? We’ve never done that historically. We’re just kind of dealing with a giant amount of small check writers.

So some go as far as to look at all your past deals, look at what you said you would do, look at your investment memo and look at your distributions along the way and quarterly reports and everything like that. So there’s a lot of looking at your track record, what you’re telling them your track record is, and then certainly looking at all aspects of the current deal, at least when you’re onboarding with them. Onboarding’s the hard part because that’s the long part, but once you’re kind of onboarded, then it’s just at the deal level and they kind of have their standard checklists and questions and investment committees. So it’s more straightforward there. Certainly I’d say onboarding is the most difficult part.

Yeah, that makes sense. That makes sense. So if you’ve got multiple markets, you’ve got established investor base, you’re kind of running the capital markets and acquisitions, we’re talking in Q1 of 2023. It’s been interesting time in the debt markets since the Fed started hiking pretty aggressively last year. What has that done for you guys? Are you guys on the sidelines for acquisitions? Are you still trying to structure deals creatively or what is the current state of acquisitions for your multifamily?

Yeah, we’re very much buyers. I mean, I’d rather be buying on a lower basis and independent of financial conditions, so to speak. So we’re very much in acquisition mode. We’re hoping to see distress and I should never hope for… That’s a horrible word to say. We haven’t seen a level of distress yet that I’m thinking should come just based on what’s happened. Certainly anyone with bridge debt that had a plan that did not execute on it is in trouble. Seems like there’s been a lot of rescue capital.

So we’re making the right purchases. We’ve been trying to digest this portfolio we’ve had in contract for a while that we’re dribbling out to market in three different tranches. It’s about 500 units from one seller. Speaking of the financing markets, we were under contracts in September and then we were set to close in December and as we were set to close, the lender, our lender was a regional bank, tells us they’ve shut down lending for the year and into the foreseeable future in the multi-family bucket, they’re full. Sorry, for the bad news. So we were in a really bad spot because it’s the end of the year. Everyone’s jammed.

The quick moving lenders are the debt funds, but one business model or one shift we’ve made is not taking… That debt has just become too expensive. It’s priced to sell first plus 400, so over plus four 50. The bank debt has just become so much more attractive and they’re just much slower. And so we kind of had to regroup, go out to financing again, unfortunately we didn’t find a bank that would take the full portfolio at once, so we had to break it up into three tranches because as it was like I think close to a 40 million loan and just the banks don’t… They’re very much relationship based. So it’s just tough to get someone with a new sponsor on that side. So we finally, that’s that settled and we’ve been able to move that along. But that was just really challenging in that when lenders were just dropping flies during that tough period in the fall and into winter, just in a few months ago.

That it’s been kind of a wild ride the last, well I guess we’re coming up on three years here since COVID hit March, 2020. Haunted volatility in the debt markets then seemed kind of short-lived because there was so much liquidity injected immediately around that time. But that created this whiplash and then the hiking cycle that we’ve been in the last year obviously changes things too. But you want to get those escrows short and get them done and get closed. We’ve had plenty of deals that we had to get creative on kind of midstream, but as long as you can close them.

So speaking of creativity, this Colorado Springs portfolio, we were in contract when we went into contract, it was a totally different rate environment at the end of August. But we were already getting them at such a rock bottom price compared to the market because of just their state, just heavy mismanagement operationally. Structurally they were good buildings. Certainly we renovate the interiors and whatnot. But the main problem was just the current rent role was half, it was 50% under market I would say, and just mass delinquency, that kind of management. Anyway, one thing when we had negotiated that price, the seller was so clear that there’s no re-trades and he doesn’t care what happens because it’s just was such a low price compared to the market.

So anyway, rates rose and we figured, okay, well asset values have gone down say 20% and we still have a good price, but hey, things change. So we went back to the seller and we’re like, look like we’ve got to make a concession here because this isn’t the same debt model we were underwriting when we went into contract. So we couldn’t get the price lower, but we were able to get some really nice preferred equity terms where the seller [inaudible 00:24:36] in the deal with a nice soft equity, which is there’s no current pay that was lower than we much lower we knew we could get in the market. So that’s kind of how we made that deal work.

That’s a great option and I don’t know if we’ve done any seller carry stuff, but I remember we did a deal during COVID if you recall, they were requiring a year of debt service escrow. It’s like some of these deals, they need a half a million bucks escrowed which is kind of painful. And there was one seller, we were like, we can’t get to your number with this new, it was like a 400K escrow. So he lent me the money at 2% and then for a year, just on a personal guarantee, just principle to principle, we stuck that in the bank and it worked out and that kind of creativity helped everybody get across the line. So that’s good to see when you got sellers that’ll cooperate to get deals done and pref at a better than market rate sure helps kind of juice things for the LPs. Was your leverage from that first lien loan pretty low on that deal? It’s kind of what I’m seeing out there.

Yeah, I mean low is relative, we used to do high 80 LTC loans bridge, so that was a different world so that this one at this bank was at 70% LTC, which we thought was good for the deal. The rent roll and one of the buildings wasn’t even occupied. It was down, it was basically stripped and ready to be finished. So there was one vacant building in there. So it was not an easy financing situation.

You guys are really seeking out these distressed deals. I mean you looking for fire stuff, are you looking for vacant, totally mismanaged, 50% occupancy type stuff?

Yeah, I mean we like to do where just a ton of upside and so you’ll only get that when there’s hair usually. And so we tend to get the… I mean, maybe one deal. We had one deal recently that was, the management was good thankfully, and I was so thankful because it was so nice to be able to keep tenants and I certainly want to do more deals like that. I’m hoping to find softer pricing on stabilized deals. So that’s really what we’re trying to actually do less heavy value add right now because I’m hoping we can find softer pricing on the stuff that’s not as big of a lift, but we’ll see.

Yeah, I think some of these bridge maturities come, or the rate cap maturities depending on where rates go-

[inaudible 00:27:42] really what it is.

… That’s going to force some deals off a cliff at some point here. I’m not really seeing the distress at all yet, but the clock’s ticking on a lot of this stuff for sure.


So what do you guys see, again, kind of talking in the early part of the year here for 2023, if things go your way this year, what does that mean for you guys? Do you have targets? Are you just kind of looking opportunistically at deals or what do you think for the year ahead?

Yeah, we look at things opportunistically. I wouldn’t say we have a set target. Personally, I’d like to expand markets. We want to get into Utah. We want to kind of diversify our risk there geographically and just do expand more in New Hampshire as well. We don’t have that many assets there, but we found it to be a very landlord friendly and just good tailwinds for good cap rates. But first and foremost, we just finished a big period of consolidation and reorganizing because we ingested a lot of stuff and it’s not easy. You realize you’re just not set up to scale when you start scaling so it’s been a tough changeover, just kind of rejiggering the pipes. We have to switch property management systems and that’s tough. And so we just wrap that up and really looking to grow and there’s no set target, just hoping we see deals.

Yeah, yeah, that’s right. You got to be able to react quickly to that. Well, excellent. Well, Michael, this has been great. I appreciate you coming on the show and sharing your story. Definitely a lot of parallels to what I’ve done and so I certainly understand all those pieces there. If somebody wants to connect with you and learn more about what you guys are doing, how can they do that?

You could sign up to our newsletter on our website, crossmountaincapital.com. You could always reach out to me personally. I use LinkedIn for social media and my email is also a great way, [email protected].

Awesome. We’ll link to that in the show notes. If you’re listening, you can kind of scroll down and click through to Cross Mountain Capital there. Michael, really appreciate it. Thanks for jumping on and wish you guys success in the year ahead here.

Yeah, thanks for having me on.

All right, take care.

Thank you for listening to the DJE podcast. For more information, please go to djetexas.com.