🗞️ Multifamily mentor Sumrok's empire cracking | Inside the October 2023 Issue

Inside the latest issue of The Real Deal Oct 03, 2023 [View in Browser]( [Share](   [Magazine Cover Image]( “You don’t have to do any work.” “You don’t have to know anything.” “And you don’t even have to own the properties.” That’s the easiest way to make a fortune as a multifamily investor. Or so goes a parody video of get-rich gurus that’s circulating the #ReTwit community on X (formerly Twitter). But real life isn’t too far off. In this month’s issue, we look at the mentors who pitched fortunes to their students, with some pupils now facing distress with multifamily investments gone sour. During Covid, the mantra was “everyone needs a place to live.” The plan was to buy rental buildings, make speedy renovations, hike rents and flip the properties. But rising interest rates hit investors hard. Teachers like the “Apartment King” — aka Brad Sumrok — ran classes on syndication: buying real estate with the wealth of many. Sumrok claims his courses (which feature strobe lights and air horns) have helped hundreds of students quit their jobs — he tells them they can retire in five years and claims he has “never lost anyone’s money.” “This is not a get-rich-quick program … but it is get rich for sure, if you learn it,” he said in a video this year. His students did billions of dollars in deals, but [the success story is now unraveling](, TRD senior reporters Isabella Farr and Suzannah Cavanaugh write. Star student Jay Gajavelli lost millions of dollars of investors’ money after buildings bought through his firm Applesway Investment Group fell into foreclosure. And now Sumrok himself is facing problems at some of his own properties. While floating-rate loans have created a lot of distress, especially when it comes to multifamily properties, these fledging investors may have been caught particularly off guard. Rising rates — alongside low inventory — have dramatically impacted the residential market as well, with far fewer deals happening these days. Southern California recently broke the record for the lowest number of home sales since at least 1990, when data was first collected by the California Association of Realtors. The Los Angeles luxury market has been slammed by a transfer tax that took effect this year: a whopping 4 percent for sales above $5 million and 5.5 percent for deals above $10 million. At our L.A. TRD event last month, it was called the “[dumbest thing we’ve ever seen](” by CBRE’s Lew Horne. “We as L.A. luxury agents have the biggest headwinds in the country,” added star broker Aaron Kirman, whose team finished first on TRD’s [annual ranking of Los Angeles’ top brokers](. We rank [Chicago’s top residential brokerages](, which also shows a slowdown in the market. And Chicago real estate pros should take heed of what’s happened in L.A., since a similar transfer tax is likely heading to the ballot in the Windy City next year. Elsewhere in the issue, six years to the month after the Harvey Weinstein story broke and the #metoo movement took center stage, efforts to root out harassment and discrimination remain front and center (with the ongoing limitation that flagrant abuses are easier to flag than more entrenched systematic and structural issues facing women and minorities). Check out stories on [real estate’s largest trade group](, a [top agent in Chicago]( and a [lawsuit in New York starting](. Finally, one bright spot for the market amid the bad news might be office space. Yes, office space, which fewer people use these days, if you haven’t noticed. San Francisco offices hitting the market for $200 a square foot (one-quarter of what they last traded for) seem to be garnering more interest; [Hudson Yards retail is being converted]( to offices; and new high-end office product is getting built in Miami. While there will likely be a steady drumbeat of distress around the sector, many on the sidelines may have decided now is the time to jump in to grab bargains, signaling some sort of bottom. Stay tuned. Enjoy the issue! Editor's Note Stuart Elliott Editor-in-Chief & CEO   If you’re interested in receiving future magazine issues in print, sign up for our [annual subscription](. Save $20 OFF your first year with promo code: MAG20 [SUBSCRIBE NOW](   [Multifamily mentor Brad Sumrok built an empire. Now, the cracks are showing]( Brad Sumrok teaches syndication: pooling investor funds to pick up apartment deals. He claims he has mentored thousands of students and in the process “created over 600 millionaires,” some of whom have gone on to quit their day jobs. His courses and conferences often attract those with no real estate experience. He also attests that he has “never lost anyone’s money.” Over the past six months, that success story has unraveled. This spring, Sumrok alum Jay Gajavelli lost millions of dollars of investors’ money after buildings bought through his Applesway Investment Group fell into foreclosure. The Wall Street Journal characterized the blowup as one of the largest commercial real estate disasters since the 2008 financial crisis. [READ MORE](   [Image]( [How co-ops are coping with a changing world]( With their financial futures on shaky ground, some co-op boards turned to new and in some cases offbeat measures to boost their coffers and lower their monthly maintenance costs. From investing in commercial property to renting out rooftop space, the buildings are changing their ways to contend with the economic challenges. [Image]( [NAR’s big, bad year]( It’s been a rocky few months for the National Association of Realtors. The Chicago-based trade group was named in two commission lawsuits leveled at some of the largest U.S. brokerages. But along with the external challenges, the group is dealing with internal turmoil after a sexual harassment scandal sparked the exit of one president and cries for the resignation of another. [Image]( [LA’s top-ranked resi brokers find their rhythm]( Rising interest rates, a statewide property insurance crisis and the local issue of the recently imposed ULA wealth transfer tax haven’t stopped the music in L.A.'s luxury market, but they have slowed the tempo significantly. Some agents managed better than others and kept the party going. [Image]( [“Airbnbust” rocks New York’s short-term rental landscape]( New York City’s “Airbnbust” — the crackdown on illegal short-term rentals — went into effect last month to a mix of cheers and jeers. The new regulations could benefit rental landlords and hotels, but it will harm hosts. [Image]( [Solow deal catapults New York’s top real estate law firm]( For law firms executing real estate deals in New York City, there’s no escaping what’s turned into the most difficult market for investment and residential sales since the Great Recession. And yet, scrappy law firms that have adjusted their business models — or were fortunate enough to have the right one in place already — have found a way to not only survive, but in some cases thrive in an environment where transaction volume is down across the board.   [THE CLOSING: WINSTON FISHER]( INTERVIEWS WITH REAL ESTATE TITANTS   [Image]( The Fisher Brothers partner on growing up in family business and being thrust into leadership following tragedy Winston Fisher’s first job at his family’s firm was in the mailroom. Fisher, who was around 12 years old when hired as a messenger, would finish his days playing in his dad’s office while the elder Fisher worked late. He has since worked his way up the ranks to become a partner leading the firm. Fisher is part of the third generation of the Fisher Brothers dynasty that made its name in the Midtown New York office market. But the company has diversified since Martin Fisher founded it in 1915 as a construction firm. Today, Fisher Brothers owns and develops office buildings and residential properties in New York and Washington, D.C. Trophies include 605 Third Avenue and Park Avenue Plaza. [Read full story here →]( [FULL ISSUE HERE]( [More Newsletters]( | [Unsubscribe]( | [Privacy Policy]( | [Subscribe]( The Real Deal 450 West 31st Street, New York, NY 10001 ©2023 TheRealDeal. All rights reserved. [View Online](