He Walked Away Mid-Deal. It Cost Him $100,000 (But Saved His Investors)

Episode Summary

August Biniaz explains how CPI Capital expanded from Canada into U.S. commercial real estate, what the firm learned about cross-border structuring, and why disciplined risk management matters more than forcing a deal to close. He compares Canadian and U.S. multifamily economics, including cap rates, debt availability, landlord regulations, depreciation, rent control, and market depth, while outlining how CPI treats Canadian investor capital as a U.S.-dollar investment and uses cross-border tax and securities specialists to structure offerings.

The conversation also covers CPI’s early co-GP strategy. Rather than immediately building acquisitions, asset management, and investor relations at the same time, the team partnered with more experienced operators to gain track record and learn the U.S. market. August discusses the importance of partner transparency, middle-market competitiveness, broker reputation, extensive market research, and staying nimble in large markets such as Tampa and Dallas-Fort Worth.

A major case study centers on a 71-site build-to-rent project in Tucson. After interest rates moved sharply higher, CPI walked away despite more than $100,000 in sunk costs, pending acquisition fees, and substantial time invested. August explains why preserving investor capital and avoiding an increasingly fragile variable-rate deal outweighed the pressure to proceed. The episode also examines build-to-rent renter demographics, market cycles, team selection, and why experience, conviction, and the willingness to stop are essential for operators and passive investors evaluating commercial real estate opportunities.

Key Takeaways

• Re-underwrite until closing and be willing to walk away when the economics materially change. Money, time, and acquisition fees already invested should not justify putting additional investor capital at risk.
• Cross-border real estate requires specialists who understand both jurisdictions. CPI ultimately relied on cross-border tax counsel, securities advisors, and a written tax memorandum rather than assuming a general CPA or U.S. attorney could address every Canadian-U.S. issue.
• A co-GP structure can be a practical way to enter a new market, borrow track record, and learn operations before building every capability internally. The trade-off is greater dependence on partner quality, making transparency and diligence critical.
• Strong markets still move through periods of oversupply and distress. Long-term population and employment drivers matter, but operators must underwrite the current cycle, debt environment, supply pipeline, and their ability to perform for investors.
• Middle-market operators can compete with larger institutions through speed, detailed market research, broker credibility, dependable closings, and disciplined execution rather than trying to win every deal on price.

Key Topics Covered

• U.S. vs. Canadian multifamily investing
• Cross-border real estate investment structures
• Currency risk for Canadian investors
• U.S. dollar investment and distribution strategy
• Cross-border tax and securities compliance
• Limited partnerships for syndicated real estate
• Co-GP partnerships and sponsor selection
• Multifamily market cycles and oversupply
• Tampa and Dallas-Fort Worth investment markets
• Middle-market commercial real estate competition
• Broker relationships and market research
• Build-to-rent investing
• Build-to-rent renter demographics
• Rent-versus-own affordability
• Sunk cost fallacy in real estate deals
• Variable-rate debt and interest-rate risk
• Investor capital preservation
• Team building and partnership alignment
• Experience, conviction, and risk management

Episode Chapters

00:00 Intro
Kevin introduces August Biniaz and frames the central question of the episode: what should an investor do when more than $100,000 has already been spent but a deal no longer makes financial sense?

00:47 Pivoting to US Real Estate
August explains why stronger yields, deeper transaction volume, broader debt options, landlord-friendly laws, depreciation benefits, and fewer rent-control constraints drew CPI Capital from Canadian multifamily into U.S. real estate.

10:20 Cross-Border Complexity
August discusses the tax, securities, and entity-structure issues involved in bringing Canadian capital into U.S. investments. He explains why CPI moved toward specialized cross-border counsel, a written tax memorandum, and limited-partnership structures.

15:05 The Co-GP Approach
CPI used co-GP partnerships on its first three U.S. deals to gain track record, learn the market, and avoid building every operating function at once. August also shares lessons about partner transparency, performance, and how relationships can change when deals become difficult.

19:37 Finding Opportunity in Big Markets
Kevin and August examine oversupply and distress in markets including Tampa and Dallas-Fort Worth. August distinguishes short-term cycle problems from the long-term population and employment drivers that can still support an investment market.

25:25 How to Stay Competitive
August explains how a middle-market operator can compete through broker reputation, reliable execution, extensive market research, transparency, and the ability to move more quickly than larger institutions.

28:37 The Build-to-Rent Model
The discussion turns to build-to-rent communities and the “renters by choice” they often attract, including families, newcomers, downsizing baby boomers, and renters seeking more space and flexibility without homeownership.

34:17 Walking Away (And Losing $100K)
August breaks down CPI’s 71-site Tucson build-to-rent deal and the decision to abandon it after rising rates changed the economics. The team accepted more than $100,000 in sunk costs rather than proceed with a variable-rate structure they could no longer confidently stress-test.

41:41 Advice for New Investors
August reflects on entering a new market, choosing an asset class with genuine conviction, assembling the right team, and balancing personality, experience, financial circumstances, and alignment when selecting business partners.

46:57 What Has Changed?
August discusses how his view of experience has evolved since 2020 and 2021. He now places greater value on wisdom from people who have operated through multiple market cycles and understands how unfamiliar risks can expose inexperienced investors.

Full Transcript

[Transcript begins]

Kevin Bupp: What happens when you’ve already spent more than $100,000 on a deal? Acquisition fees are within reach and the numbers suddenly stop making sense. Would you back out or would you push forward?

Today I’m turning over a few stones with my guest August Biniaz, co-founder and CIO of CPI Capital. I’m going to get into why he left the market that he knew intimately, who invests across the U.S.-Canadian border, what he learned when partners changed after the money was committed, and what happened with the 71-unit build-to-rent deal caught in a shifting market cycle.

There should be some great golden nuggets in here about risk, conviction, and knowing when to stop. Let’s get into it.

August, welcome to the show, my friend. I’m excited to have you here with us today.

August Biniaz: Kevin, me and my day just got better being here with you, with a beautiful view behind you. So looking forward to add value to your audience and having a great conversation with you.

Kevin Bupp: Yeah, no, absolutely, buddy. So, you know, I’ve read quite a bit about you. You’ve got quite an extensive background. You started in construction, home building, and development in your home country of Canada before co-founding CPI Capital and expanding into the U.S. multifamily build-to-rent market.

And so I’m excited today to dig into that journey, talk about multiple topics, but what you learned investing across different borders, the partnerships that you’ve had along the way, and just some of the hard decisions that you’ve had to make.

And so I guess to maybe kick this off here, you coming from Canada, your home country, you had a firm grasp on Canadian real estate and had already built a strong background there. And so what did you see in the U.S. real estate markets that made what I foresee to be the added complexity of investing in another country worth it, worth for you to make the leap of faith and move into another country?

August Biniaz: Yeah, I think that’s a great question. Initially, it was just yield, just the return on investment that existed in the U.S. But as I dug farther, I realized there were just so many advantages and so many disadvantages that existed in Canada.

Initially, I was introduced to U.S. real estate, commercial real estate, because I was researching strategies and the process on how to be able to raise capital and putting deals together, the syndication model, structuring funds, and so on.

And a lot of that content was coming from U.S. platforms, educational platforms or podcasts, YouTube shows, books. So a lot of the educational content was being created by U.S.-based individuals. So I was introduced to U.S. real estate through that process.

But when I started researching U.S. real estate, just by the fact that I was introduced to it, I realized, first of all, that the business model of multifamily value-add worked in the U.S. where it didn’t work where I was in Vancouver. And the reason for that is because the cap rates are compressed.

I’m talking about on an apples-to-apples basis. So cap rates in Vancouver on a 1980s, 1970s-built multifamily property are trading around 3%, whereas the same property in the U.S., there’s a 300-basis-point difference there.

If you look at multifamily asset class as a commodity, if you put your goggles on and look at it as a commodity, there’s an arbitrage there. If you’re investing in the U.S., you’re just getting more yield. You’re getting more profit.

And then the more and more you educate yourself in this space, you realize so many other advantages exist. There is more availability of debt. There are more types of lenders that exist, insurance companies. There are agency lenders in the U.S., Fannie Mae, Freddie Mac.

Now, Canada has an agency lender as well, CMHC, but CMHC is just an insurance provider to other lenders who lend on commercial real estate. They don’t actually fund it themselves. The U.S. agency lenders actually fund it themselves.

You have government-friendly laws that exist for landlords, for businesses. You have 1031 exchange deferral programs. You have depreciation. In almost all provinces across Canada except Alberta, there are strict rent-control laws.

The report came out a few days ago for BC, British Columbia, the province that I’m originally from, and the rent increase on an annual basis is capped at 2.2%.

Kevin Bupp: Oh, wow. Well, that’s below inflation, right?

August Biniaz: Yeah. So you have all these different reasons that exist. Again, landlord-friendliness, the process of if somebody’s not paying their rent, common sense says that they can get evicted. But here in Canada, the process is prolonged, and the landlord is made to be this evil kind of rapacious property owner, not somebody who’s trying to do business and build housing and create jobs.

So, yeah.

Kevin Bupp: Yeah, I mean, then you’ve got, obviously, depreciation in the U.S., or in some cases to be able to pass through depreciation not only to your investors, but as an investor, if you’re a principal yourself, you can use those depreciations that exist.

August Biniaz: Here in Canada, you’re capped at 4%, 2% in the first year, 4% ongoing.

Kevin Bupp: Oh, wow.

August Biniaz: So, yeah, all of that combined. And it’s just a bigger market, right? Even if you look at not only as far as the size, obviously the U.S. is 10x the size, 10x the market, 10x the economy, but even on an apples-to-apples basis, their deal volume, the number of transactions, are higher in the U.S. than there are in Canada. So all of that combined.

Then I looked up—I mean, the last point I want to make on this, I don’t want to keep going on this—but the last point I want to make is on the institutional side. Canadian Pension Fund, which is the largest pension fund here in Canada, partnered with Greystar, the largest apartment owner and apartment manager in the U.S., to buy and build apartments in the U.S.

So that’s taking place on the institutional side. Why not a retail investor to be able to also have exposure to U.S. real estate, which was really the impetus for us starting CPI?

Kevin Bupp: Yeah, no, I love all that. And there was a lot there to unpack. I mean, I guess one of the last points you made was, what are the institutions doing, right? And typically, they’re following trends. And so, no, that’s a great point.

And, you know, the rent-control conversation, I think that could be a whole show in and of itself. And that’s probably one of the hottest topics internally in our company. We invest in 13 to 14 different states, and some of those states, while there’s no rent control, there’s chatter about it.

And it’s a hot topic. And it’s one that we have to keep our finger on the pulse of because it’s a real risk. And we’ve owned in markets historically that were not rent control that went rent control, New York being the one state that did. And I can tell you that there are a lot of limiting factors there. Again, it’s a whole discussion, conversation in and of itself.

But I want to go back. I want to back it up a bit. You made an apples-to-apples comparison. There are a lot of other benefits you laid out there as to why investing in the U.S. trumps buying Canadian real estate when you’re talking about the same types of real estate.

But the one comparison you made was the cap rates. C- or B-class, whatever—I forget the example you gave—but might trade at a three cap in Canada. The same thing in the U.S. would be a six cap.

How do you layer in and how do you think about the currency risk when investing U.S. dollars with Canadian capital? And I don’t—I was just in Canada, you know, a month ago, spent quite a bit of time there. And I don’t know what the exchange rate is today, but I do know that the U.S. dollar is significantly stronger than that of the Canadian dollar. And so how do you take that into the equation?

August Biniaz: I mean, that’s a very common question that comes up for our Canadian investors. So I can give you kind of my thesis on the matter, but also can tell you what we tell our investors.

And I’ll start with that. Really, when our investors approach us and say, “Hey, what is the currency risk that I have to prepare myself for?” we say that, look at the investment that you make with CPI as a U.S. investment.

At some point, you’ll exchange your funds from CAD to USD. Your investment into our deals is in USD. Your distributions are in USD. And at divestment, your return of principal and capital gains is going to be in USD. So look at it as a USD investment.

Exchanging, or kind of factoring in or calculating what the exchange is throughout the process, you will see that your investment is going up and down. So it’s best to just look at it as a U.S. investment. So that’s kind of advice that we give our investors.

So we require investors to open a U.S.-dollar Canadian bank account. Most of them already have a U.S.-dollar account. And we do a transfer into their—which is equivalent of ACH in the U.S.—into their account on a monthly basis or a quarterly basis.

And there’s a platform that we use called Wise. I’m not sure if you’re familiar with it, Wise.

Kevin Bupp: Wise.

August Biniaz: Wise is a platform that beats all banks, all financial institutions, all Forex exchange providers on the rates. So they can just open an account there. They get a preferred rate through us so they can make their exchanges there.

But, yeah, looking at the investment as a U.S.-dollar investment.

Now, our personal thesis on it overall is we’d rather have our funds in USD. Obviously, there has been a fluctuation over the years, but the Canadian dollar and U.S. dollar—the Canadian dollar has always sat approximately at 1.35 for one U.S. dollar on a per-Canadian-dollar basis. So it’s averaged out at that over the last 50 years at least.

So understanding that there’s going to be an exchange ratio that exists. So keeping it that. But I try to keep as much of my funds in USD as possible. So for investors, the same kind of idea is keeping a certain allocation in USD, investing in U.S. real estate.

Kevin Bupp: That makes sense. I appreciate you elaborating there.

I know that one of the early lessons that you learned when crossing borders wasn’t necessarily—the challenge wasn’t finding the real estate. It wasn’t finding the investments, but the lesson or the challenge that you faced was the actual structure around the investment, right?

There’s a whole additional layer of complexity that exists when bringing Canadian dollars into the U.S. What cross-border issues arose that surprised you the most?

August Biniaz: I mean, before getting into the structure—and I can get into that in detail—what surprised me the most is that a lot of times, many people who are experts or perceived experts, like CPAs, don’t have the skills or the guidance to give you the best advice.

So a lot of times people are advertised as, “Hey, cross-border accountant,” and so on. So we went through a bunch of different accounting firms and finally realized that to get the right guidance, we need to deal with a cross-border tax lawyer, a tax attorney.

So that was the best guidance. And even through that process, we learned lots because every time you get on a call with a CPA, they have their own interpretation of the treaty that exists between Canada and the U.S., and the tax laws that exist.

And so we learned that, and then we would take detailed notes every time we were on a call with a CPA. Eventually, we realized that if we want to follow a certain guidance, that we have a tax lawyer actually draft us a memorandum, a cross-border tax memorandum, that acts as a guide to us in every step we make.

Now, over the last six years, that memorandum has been updated and has many more moving parts to it that encompasses different deals that we get involved with, if it’s a development side or an acquisition side, depending on what lenders are involved in the deal.

So that’s on that side of the surprise part. But overall, when you’re dealing with cross-border, you’re dealing with the tax regulations that exist, and you’re dealing with also securities regulations that exist.

So on the tax front, there’s a treaty between Canada and the U.S. that allows Canadians to be able to not get double taxed and pay their taxes in the U.S., and those taxes be recognized by the CRA. And then our tax advisors are licensed cross-border, so they’re licensed here in Canada and in the U.S., and they can provide us guidance on both sides.

When it comes to securities and on the compliance side, when it comes to securities compliance, we have to adhere to the laws that exist in the U.S. under the Securities and Exchange Commission.

And then here in Canada, every province has its own Securities Commission. So depending on what province we’re raising capital, we have to adhere to rules and regulations that they’ve put in place. That creates another layer of compliance items that we have to jump through.

But, yeah, entities as well. A lot of times in the U.S., LLCs are made to be very fashionable in the U.S. and used in a lot of real estate deals because of the favorable terms they provide on the tax front and on the liability protections that they provide.

But the best entity to actually utilize for syndicated deals is a limited partnership. For example, when Blackstone launches a billion-dollar fund or a $10 billion fund, they don’t structure that in an LLC. They structure it in a limited partnership. It’s just a better vehicle to use.

So Canada Revenue Agency actually recognizes a limited partnership, whereas an LLC—distributions that are paid through an LLC, they see that as dividends, so they’re taxed differently.

So that’s something we learned early on, that sometimes your U.S. legal—even though they’re a lawyer—they might be advising you something that’s inefficient for cross-border and Canadian tax regulators.

So we structure all of our deals in limited partnerships. We adhere to regulation when it comes to capital raising and the exemptions we use on the Canadian side, the exemption we use on the U.S. side, and so on. So, yeah, that’s on a high level, I guess.

Kevin Bupp: Yeah, no, I appreciate that. I think the moral of the story is you’ll find the tax and securities experts that have cross-border experience, right, and lean on their expertise. Get the right people on the bus to have the knowledge and the power and to know how to make it happen appropriately.

You know, I know when you guys started investing with CPI and started doing your first couple of deals, you took an approach which I love here, and I’d love to unpack this a little bit.

Your first three U.S. deals were co-GP investments rather than CPI leading the charge directly as the primary syndicator. From your perspective, why was giving up some control what you felt to be the right trade-off while you were learning this new market?

And when I say market, I mean the U.S., right? I know you’re in a number of different submarkets, but just generally speaking, why did you take that approach?

August Biniaz: I mean, it was a need, not a want, right? It was a situation where, starting CPI, we saw how much time and effort is going into building the investor relations function of the company.

And then to be able to build acquisitions and asset management at the same time, it just seemed cost prohibitive, and it seemed that it was going to be too complex and difficult to do that.

And we had to kind of perfect the process as well. And not having a track record was another difficulty that we had. So it made sense to partner with a couple other groups who had done a few deals and had a few notches on their belt to start the process.

But even through that process, we learned lots as well. Not only did we leverage other people’s track record to be able to get a few deals done, but putting our cross-border structure together, initially on those first two deals that we did, we actually required our investors to file U.S. taxes.

And then on our third deal, we had a lot of complaints from investors about having to file U.S. taxes. So this structure we created in conjunction with our legal team was a structure that they didn’t have to file U.S. taxes, and the partnership would file on their behalf.

So there was a lot of learning that took place. But, yeah, it came from basically—I don’t want to call it desperation—but we wanted to get deals done. It was a really hot market in 2019.

It was going to take too long for us to build those other divisions. So we said, “Hey, we’re just going to partner and get a few deals going until we feel comfortable enough and have the right team members on board to do our own deals.”

Kevin Bupp: Yeah, no, I think it’s a great approach. I mean, I think one of the bigger challenges with that approach—and I’d love to hear if you’ve got any feedback or insights there—is just choosing the right partners.

From face value, it’s easy. Once you get into the weeds, there’s a lot of additional complexities there. So any lessons, any takeaways from just those first couple of co-GPs that you did, the partnerships, the good, the bad, the ugly, and everything in between, anything that you took away from it that you could share?

August Biniaz: Yeah, of course. I mean, I would say that great marketing doesn’t always equate to great operations and great partners.

Some groups might be good at—I mean, including ourselves as well—I think some groups might be great at marketing, but when it comes to track record and performance, it might not be as such.

I would also say that a lot of times when you’re starting out in any space, you kind of have that newcomer, that kind of greenhorn feel where you don’t feel confident enough to ask questions and the right questions and ask for transparency, which is the initial kind of dead giveaway if that’s somebody you want to partner with, is when you start asking questions and see how transparent the potential partner is.

The other side of it is, it might be just basic human psychology, but a lot of times when situations are all smiles in the front, when things do not go the best—that happened with a couple of deals that we did—attitudes changed and emotions changed.

Somebody who was very courteous and somebody who was very respectable turns into this rough person, right? So that’s something that you learn in life and business. And sometimes you learn from those mistakes to make sure you don’t repeat the same mistakes when you’re in that position.

Kevin Bupp: Yeah, no, I love that. It’s difficult. I mean, you know, I always like to say a partnership, it’s a marriage, right? And if you don’t get a chance to date long enough, it’s very difficult to know the person that you’re going to marry and what they’re going to be like once the papers are signed.

Florida’s always on the map, you know, the West Coast as well. Phoenix, Arizona seems to always be the markets that, you know, they boom and they don’t necessarily bust, but they definitely always have these boom cycles.

And lots of new supply gets built, and then you get into a situation where there’s meaningful oversupply or lots of new supply that’s coming down the pike that ultimately could have a negative effect on occupancy, lease-up periods, even as much as rents. Rents could ultimately take a dive down instead of continuing to trend upwards.

And so do you still see opportunity in Texas and Florida despite some of the supply pressure that currently exists today?

August Biniaz: Yeah, we’re definitely in the bust phase of the cycle currently. So as you said, some of these great markets like the DFWs, the Phoenixes, Tampas, even San Antonio, which is smaller compared to those other markets, its pro is also its con, where the markets are doing so well.

You have so much population growth. You have so much employment that’s moving there that results in a lot of developers also coming in and building a lot of supply.

And that supply coming online has a downward effect on rent and occupancy. So that’s something that’s going to continuously take place like it has in any market, in any market cycle, be it equities or real estate.

It’s just something that we have to brace for and prepare ourselves for. That doesn’t mean those markets are bad markets just because there are phases of oversupply. But the important key drivers are there.

Like the Tampa market, you’ve got the work-life balance that exists there. You have not only retirees moving there, but people are moving there for jobs as well.

In St. Pete, which is a submarket of Tampa, which we have an asset there, just in that city alone, there’s four Fortune 500 companies there headquartered.

So, yeah, of course there’s going to be a correction when, during COVID, you have thousands, tens of thousands of people moving to the state and moving to these areas. And now some of those people have to go back to work and they’re being forced to go back to work and people move.

But I think long term, you’ll keep having those drivers that exist. So I’m very bullish on Tampa long term.

DFW as well. DFW is going through a very difficult time with oversupply that’s taking place, a lot of distress. I got a stat recently that I haven’t double-checked myself, so take it with a grain of salt, but there are over a thousand apartment communities in DFW that are currently sitting below one DSCR.

Kevin Bupp: Wow. Yeah, that’s a big number.

August Biniaz: Yeah. It’s a scary number as well, right? So you have a lot of distress that’s in the market.

But DFW by 2050 is looking to—the population forecast to be 30 million people living there by that time. So, I’m sorry, forgive me. I think it’s 15 million, double the population currently. So 8.5 to 15 million, almost double or just about double the population by 2050.

So, and you know, I mean, it’s a metroplex because two cities have grown. I was talking to an investor of ours about DFW, and he said he made the drive from Dallas to Fort Worth, and he said that there was nothing there. I think he did it a couple of decades ago, but he’s like, there was nothing there. It was like no man’s land as he was walking through.

And today when you drive from Dallas to Fort Worth, you never notice that you’re going from one city to the next. So the metroplex has really grown.

So I think we go through these phases of recession, recovery, expansion, and hyper-supply. And that’s just the way that markets work. We just have to be cautious and put the right—

I was actually watching one of the shows that you had recently done as well, and you guys talked about how conservative you are, and you never had to do a capital call on any of your deals, and you’ve been cautious on what type of debt you put on as well.

And that’s what you learn when you do deals for a long time and you’ve been through a few market cycles.

Kevin Bupp: What would have to change or break in order for you to pull back from one of these markets that we’re just discussing here today?

August Biniaz: I think the easiest kind of answer there is if we’re deciding not to invest in a certain market or move away from a market, it’s if we’re not able to perform for our investors.

I can sit here all day long and tell you how great a market is and what the forecast it has and what are the drivers, but when you exit a deal and you’re not able to provide the returns that you’re hoping for to your investors, you can go back to them and sing all the song you want, but they’re going to be like, “Hey, you just weren’t able to perform, so I’m not going to be able to invest with you.”

We’re somewhat dependent on the access to the equity that we have. So if we’re not being able to perform in a certain market, it’s going to be very—or if there are losses.

Now, at times, you just can’t—sometimes real estate investors get overexcited and overeager.

We have a partner of ours, one of our largest investors, that he is in trouble on one of the deals. He invested with a sponsor in DFW. And I went to him recently with a deal we have under contract in DFW.

And he’s like, “I just can’t invest in that market because I’ve lost my shirt in that market.” Not because I don’t believe in it long term, not even because I don’t feel like this is the only way I can recoup my funds from coming in at the bust phase of the cycle. “I just can’t bring that back to my investors after losing money for them and say, ‘Hey, let’s go back and invest in DFW again.'”

So I would say that’s kind of one of the reasons you would leave a market, is if you haven’t been able to perform.

Kevin Bupp: Those are big markets. DFW, I think everyone, even large institutions, everyone’s got their—it’s on their radar. Tampa Bay being another one. Lots of these large markets.

Everyone else sees the opportunity there. They see the growth cycles. They see that inevitably time will heal all wounds in these markets.

And so I guess how does a small- to mid-market operator like yourself, I mean, how can you become competitive and stay competitive?

I know there’s distress, but ultimately there’s also other folks that are eyeing up that same distress and have a lot of liquidity and capital ready to pounce on any of those opportunities that come to the marketplace. How do you guys stay competitive?

August Biniaz: That’s another great question. That’s a conversation we have lots here internally of how do we stay competitive.

I would say that middle market, you know, that middle market when you’re between that $15 and under $50 million number, you are dealing with kind of somewhat smaller boutique groups. You’re not going out there and competing with the juggernauts of the space. So that kind of gives you an advantage there as well.

The other part is performing. Again, this is not performing for your investors—of course, performing for your investors—but I’m talking about performing for the brokers that you deal with.

So trying to be as transparent as possible. If you’re involved in a deal, not going in there trying to retrade a bunch of times, and trying to close on time and building a reputation for yourself, I think that’s another very key, important part of it as well, staying competitive in that sense.

Doing extensive market research. We got on a call with a broker on a deal that we were working on in Tampa, and the broker told us that from all the groups that he was on a call with—and I think it was over 12 groups—that we had done the most extensive market research.

So even if you’re a nimble group, if you’re able to put the time and resources in doing research on the market and on that particular asset or the submarket that you’re looking to go into, it’s going to give you the advantage, to have a certain level of advantage over other groups who are in that market.

Anything helps to be able to have some level of advantage over your competition that’s in that market.

Kevin Bupp: Yeah, you’re obviously ambitious and you’re a hard driver. And I truly believe that there’s opportunities for everybody. I mean, if you’re willing to work harder than the next group in line, then there’s always going to be opportunities.

And so, no, that’s a great point. And I also do believe that the nimble factor is huge.

You know, when you’re going up against a larger, more institutionalized type group, they’ve got formalized investment committees. They’ve got a whole rigmarole that they have to go through before they can get formal approval to actually buy and deploy capital.

And so I do believe that if you work hard and you can remain nimble, that there’s still opportunities even in the most competitive market. So, I mean, we see the same thing and I love the size that we’re at.

Obviously, we have ambitions to scale, but we’re still very intentional about remaining nimble, knowing that we can move faster than a lot of our competitors. And for that reason, we get awarded deals when even we might be lower in price point than a couple other folks that are in line to buy that same asset.

So, no, that’s great points that you made, August.

So I know that you guys—we’ve been talking about multifamily quite a bit. I know that you also are very involved in the build-to-rent space, and you made a comment and described, I guess, the traditional build-to-rent tenant as renters by choice.

I’d be curious to know your thoughts on how different is that renter from what we know as the traditional apartment renter. Are they the same individual? Are they incredibly different? And if so, give me a general overview of what that renter is that you’re seeking in the build-to-rent space.

August Biniaz: Yeah, these are not my opinions. These are kind of the research I’ve done and the information that I’m providing.

So build-to-rent is a much newer asset class. So it is newer in the space that it’s in, but it’s also newer in the sense of the vintage of the property.

I mean, BTR really started post-GFC. 2013 or so was one of the first BTRs that came out and kind of started expanding in that space.

So the property is much newer. The floor plans are much larger, the square footage much larger. It’s more infill, closer to downtown cores of these markets. So obviously the rent is going to be higher as well.

So the closest comparison to apartments we can make is families or individuals—the consumer that lives in an A-class apartment is most likely to want to live in a build-to-rent community.

But historically, the tenant, the consumer that has gravitated towards BTR, is someone who is either in the process of purchasing a home. Maybe it’s just not the right time for them to purchase a home. They’re newcomers to a certain area and they’d rather rent. They come from the single-family rental market.

At times, I’ve even heard that people who rent single-family, they might be in a community that everybody else owns, and there’s a certain level of stigma for them because they’re the only renter in that community, but still want to be in a home.

They still want to have the convenience of having a garage and nobody living above them, nobody living below them. So they go and rent build-to-rent.

They are stickier than their apartment cohorts because they stay longer. They cause less wear and tear. So there’s less of a turnover cost for the property manager and the team managing the project.

So overall, it serves a certain demographic in the U.S., which majority of them is renters by choice, not renters by necessity. And that’s really because of the price they’re paying.

BTR usually starts around $1,800 to close to $2,000 a month. So that individual in most cases could possibly buy a home, but they decide to rent for many of the reasons that exist today.

Kevin Bupp: Is there a cost-benefit analysis to the renters that are renting in the BTR space to what it costs today for them to own the same traditional single-family home, given where interest rates are at? Or is that pretty much at a break-even point?

August Biniaz: Yeah, absolutely. There is a delta that I’ve been following. Currently, there is a $1,300 delta between renting a median-priced home and a mortgage. So there’s a $1,300 delta there.

But even putting that aside, putting affordability aside, you can also see that the consumer that does rent BTR is baby boomers who are downsizing. They want to be there, or baby boomers who are downsizing who want to be closer to their grandkids.

So this is data we’re getting from a lot of merchant owners of BTR, that that is a big portion of their tenants, is boomers wanting to be closer to their grandkids or downsizing. So they’re not coming there because of affordability issues. They’re just coming because of convenience.

You’ve got a certain level of educated immigrant population who are coming into either interstate migration or international immigration that are coming into a market. They’d rather rent before they know where they want to be because, you know, instead of just renting a home, they want to rent in a community that they don’t have to deal with maintenance and so on.

When you talk about younger families, that’s more of an affordability case. So today they’d rather rent than own a home because in the U.S., unlike Canada, mortgage terms are 30 years. In Canada, they’re five years on average, so you can go back and renew and try to renegotiate your terms.

Whereas in the U.S., now you’re locked in for 30 years on that mortgage rate. So it’s a sword that cuts both ways because if you lock in at a 3% or sub-4% interest rate for a home on a 30-year term, you kind of hit the lottery.

So you don’t want to let that go, and it kind of gives you the golden handcuffs. But it cuts both ways where when the rates are high, you’re losing—today it’s close to $1,300 on a monthly basis.

Kevin Bupp: Yeah, it’s huge.

August Biniaz: On your expenses, yeah.

Kevin Bupp: Yeah, no, absolutely. And then again, I think in the rental space, you gain the flexibility as well, right?

There’s obviously a meaningful delta, much cheaper to rent today in the markets that we’re talking about, but also this gives you quite a different type of flexibility to—you know, I know they’re sticky residents and they tend to stay for a number of years, but again, you still have that flexibility to move if you so choose to, right?

August Biniaz: Yeah.

Kevin Bupp: Whether grandkids or children or friends or work or whatever it might be, still have the opportunity to, at the end of your lease, get up and leave.

You know, I’m a huge fan, August, of case studies. I know you’ve done a lot of transactions. And hopefully, as successful syndicators, the majority of them go incredibly well.

But there’s always those deals that just never—they don’t work out as planned. And, you know, it could be for a variety of reasons.

So I’d love to unpack the Tucson deal. You know, I believe it was back in 2021 or 2022, you went under contract on a 71-site build-to-rent community there in Tucson, Arizona.

And this is right around the period of time where the Fed started moving the rates. Lots of changes were happening. And obviously, you know, it was a really challenging period of time.

I remember a number of very specific deals we were working on at that point where you’ve got to—you’re always re-underwriting deals right before you close, but at this stage of the game, right, it’s like a moving target trying to re-underwrite and understand if the deal economically still makes sense.

And I know this is a deal that, after spending a significant amount of money on legal and diligence and travel and just your personal resources, you decided to walk away.

So we’d love to know. And I think, knowing what I know, the context that I do know, I do believe that you made the right decision. That’s a decision that not everyone always makes.

A lot of folks get too personally involved in the deal. They get attached to it emotionally and sometimes make the wrong decision because of that.

So we’d love to know, on that particular deal, what changed?

August Biniaz: Yeah, it was just going through the process of the debt environment that we were in and the Fed going on a tightening cycle and increasing the Fed funds rate, which—it just made no sense to me because it also didn’t seem like they were going to stop anytime soon.

Inflation was at an all-time high at 9% in the U.S. So the Fed was trying to play a catch-up game to try to get inflation under control.

And for us to try to do a build-to-rent deal, which had so many different variables, it just made no sense.

Now, there is a sunk cost fallacy that takes place for GPs because a lot of that upfront capital that we’re putting up is our own capital.

In some strategies that exist, we can recoup a portion of that on the deal that we eventually close. But if the deal doesn’t go through, you lose all of that.

So at times you have this voice in your head that’s trying to motivate you to still close the deal and so on.

And we had discussions with a lot of investors. We had created our entities. We had paid our fees for our lenders to work on the deal, obviously travel costs, other costs associated with the deal.

And that’s aside from any kind of sweat equity, the timing that we had all put into the deal. I would say probably it was well over $100,000 that we had actually spent.

But at some point you have to kind of see: Is it the right deal to do? Is it the right time?

And being newer in the space, I think one of the biggest motivating factors was, if you have been in the space for a long time and things happen, the deal goes sideways, your investors understand that.

And you can work with your investors if you lost money to recoup that, maybe charge them less promote on the next deal or whatever creative ways you can come up with keeping your investors happy because you’ve made them a lot of money over the years. A deal goes sideways, makes sense.

But for us, that was one of our first deals on our own. And it was, I think, the first deal we were doing on our own as a lead sponsor.

And I was signing on the loan personally myself, which was a recourse loan as well. So there were just too many variables there.

And the question was, if this deal does go sideways because of the type of debt that we had on it, the construction loan and so on, which was a very convoluted type of loan that it was—it was a forward-purchase contract, so we had to close on these tranches of homes as they came in.

So it wasn’t technically construction. It was acquisition-type debt. But at some point, we made a decision internally that we have to kind of walk away from the deal, even though we’ve had those losses, and overcome all of those voices in your head that tell you otherwise.

Kevin Bupp: Live to fight another day, right?

I mean, I do think that you look at successful investors that have been in the space for 30, 40, 50 years, and there’s been many of those tough decisions they’ve had to make along the way. There’s transactions where there’s sunk costs that they’re just never going to recoup.

Now, those are significant dollar amounts, especially when you’re just at the beginning stages of your investing journey, right?

But I think those that find themselves out of work, or no longer they’re in the investment space, and they just got wiped out, are those that find a way to rationalize a deal like this, right?

Even given the tough environment and the moving target that you guys were facing, I’m sure that one could have easily—you could have easily financially engineered this on your pro forma to make it work, right?

And I think there’s probably groups out there that did just that, a number of them that ultimately are maybe in trouble today. Maybe not for that same exact reason, but probably a few that definitely are.

And so I do believe you made the right decision. It’s a tough one to make, but again, I think it’s more important to live to fight another day. There will always be another deal around the corner, another opportunity around the corner.

And so did you have any challenge with the rest of your teammates? Were there any teammates that were trying to keep that deal going forward?

August Biniaz: I mean, I’m so lucky. The team members that I have with me, our executive team there, we’re very much aligned. So we are in sync when it comes to decisions. So there was no issue there.

But one more thing I want to touch on is, aside from the sunk costs that exist, there is also the acquisition fees that are going to be coming in.

So at times, as human beings, you’re already making plans for that money that’s going to be coming in or that’s going to be going.

And for larger firms, those acquisition fees at closing is also what keeps the lights on within their company as well.

So when you’re about to walk away from the deal, you’re not only thinking about the sunk cost. You’re not only thinking about the acquisition fee that’s going to come in and help you out, but you’re also thinking about the talent that you’ve hired and the employees and the contractors and the service providers you might have to let go if that funding doesn’t come in.

So it gets even harder. And I’ve seen that—not with us—but with larger firms that had to slow things down. And a lot of them just didn’t want to because they knew that by slowing things down, it meant that they had to let go of a lot of great talent.

Kevin Bupp: Yeah, lay people off.

August Biniaz: Which took many years for them to acquire and retain, this great talent. And now they had to let it go because things had slowed down. And I saw that across the space, really.

Kevin Bupp: Was there an opportunity, if a retrade was possible in this, where you could get that at a lower basis? Was that an opportunity or did that not exist?

August Biniaz: Getting a retrade, even a price reduction, it didn’t really change much.

I mean, it would change the investor economics on a deal, but it didn’t change the anxiety that existed with what was happening with the rates.

It was a variable rate that we had secured through a lender at the time of purchase. So that wasn’t going to change.

So as the 10-year was going up there, we couldn’t control that. So, you know, we had to kind of try to stress-test it, but there were just too many variables. It just didn’t make sense at some point.

Kevin Bupp: Your experience—you’ve been doing this for a number of years, entering into a completely new country, again, learning through a variety of different types of partnerships, now lead sponsor, again expanding into the BTR space, still focused on doing deals in multifamily in what I would call a rapidly changing market, right?

Things still aren’t entirely stable. We’re at various parts of the cycle depending on what submarket you’re in. And again, there’s still quite a lot of noise and movement happening. But where that noise exists, there’s opportunity as well.

And so I guess if you were passing on some insights or knowledge to another investor, someone that’s looking to maybe take a similar path to you, entering a new country, a market, what would you do differently?

Is there any advice you’d give them as to what they should do differently than maybe the path that you took?

August Biniaz: I could write a whole book on what you should do differently.

But, I mean, so many lessons I’ve learned in this space. But there’s also not one way to achieve the final goal.

I’ve seen the success I’ve seen in this space has been groups that started out small and kept building their way up, bought a 20-unit and worked their way up, and now they’re buying 200-unit communities and so on.

I’ve seen groups that came into the space and they had one investor that funded all the capital for their deal, which is, in my opinion, near impossible to achieve.

I’ve seen other groups who started on an institutional level day one.

It’s just breaking into the space and trying to gain some traction is the most difficult part. How you achieve that is really through the team that you can put together eventually and the conviction you have in the asset class and the business model you’re going to be utilizing.

That is an important part to realize, having conviction in what it is.

Now, finding a way to scale and do your first deal and keep doing deals, that’s something that you will overcome.

Is it a space that you’re currently in? Like a lot of people I know, they own short-term rental properties and some of them have talked to me about starting funds. And people I’ve talked to in different asset classes are looking to start a fund.

Are you starting a fund just because it’s fashionable and you’ve seen some videos on YouTube about people that own multifamily, or are you believing in multifamily because that’s what your thesis is, because you’ve been in the space, because you’re a stakeholder?

That’s the part that you’ve got to focus on: what is the conviction that you have in what asset class, in what business model?

Now, to then go out and raise money and put together syndications and funds, you will figure it out eventually. But what that’s going to be, and then bring in the right team who’s going to help you get to the next level, that’s really the most important parts of it, I would say.

Kevin Bupp: Any advice that you could give in order to attract the right team that are in your corner, willing to fight, share your vision, share the company culture, live out your core values? Any thoughts there?

August Biniaz: Yeah, I mean, read the book Traction, and that’s a good start.

But I would say, if you’re enjoying spending time with these individuals, always look at it: you’re going to be in battle with them. Are these the people that you’re willing to go shoulder to shoulder into battle with?

And then you’ve got to find kind of that perfect spot for the personality type.

If this person has the right qualities to partner with you, sometimes it’s difficult to find that. But you don’t want somebody, for example, that’s too much of a pushover, that you become overbearing and they’re just yes-men, and now the emperor is wearing no clothes.

At the same time, you don’t want somebody that’s too strong-minded who’s going to kind of try to veto you in every case.

So it’s got to be kind of a perfect balance about the personality type and how you have synergies with the individual.

You’ve got to see where they are in their life, the stage they’re in. Their age is a very important part.

Sometimes we get older and, you know, we’re not hungry enough to try to work in a startup. Sometimes we’re too young and we don’t have enough experience and we’re too erratic to try to start a firm and give it our all.

So a lot of those variables. Age is one part of it. Personality type is another part of it. The part of their life they’re currently in, family, kids.

If you’re trying to create a startup, there’s not a lot of funding coming in. Does this individual have some sort of other income to keep themselves above water while the company picks up?

We thought starting in 2019 that we’re going to be swimming in cash in a matter of a year or two. And next thing you know, COVID hit in 2020. And we know what happened after that for the next couple of years and how the market shut down after that.

So definitely hasn’t been an easy time for us. Having that alignment day one allowed us to stay afloat and stay resilient.

So you’re not going to be able to find a perfect person, but at least getting rid of some of those red flags and issues early on is going to be a huge, huge kind of push and the rocket fuel you’re going to need.

Kevin Bupp: I love it. I love it.

You mentioned 2020 there. So final question here, and I’m going to revolve around that timeframe because that was a very different period of time, but it wasn’t that long ago.

So what’s one belief about real estate investing that you held in 2020 or 2021, in that general timeframe, that you no longer believe today?

August Biniaz: Ooh, I thought Grant Cardone was going to go bankrupt, but then the U.S. government started printing checks and sending checks to people’s homes and then bailing out everybody.

I thought everything was going to blow up, but then I couldn’t imagine that just the U.S. government alone was going to print $5 trillion and just hand it out to everybody, to a tune that people started using, you know, unscrupulous ways to kind of make money off that whole thing and what have you.

But, no, frankly, I mean, one thing I’ve learned is experience is such an important part.

Just listening to people that, you know, some news came out with some large real estate influencers that at the time when they were putting deals together in 2021 and 2022, they didn’t know what a rate cap was. And now they’ve found that out.

So, I mean, experience and having some gray hairs is a big part of that. I think I’ve learned that.

I always was against that idea because I was always that young, entrepreneurial-driven individual that kind of hated the fact that I didn’t have the experience and always kind of wanted to prove the elders wrong, that young people can do it too.

But now, getting myself—I’m 45 now—I really respect wisdom and experience.

And anybody I want to do—I mean, it depends as well, right? There are right times to bring these hungry young individuals who are driven to do certain things within an organization or even as an associate or as somebody that you do business with.

But when you’re looking to work with someone or get guidance from someone or partner with someone, that experience is immense, the fact of what they’ve been through.

So I’ve really had a new respect for age and wisdom.

Kevin Bupp: Well, 45, my friend, you’re looking really good. I don’t see any gray hairs on that head. And for those that are watching the video, I’ve got a bunch of them, unfortunately, so I guess I’m showing my age there.

August Biniaz: Yeah, you’ve got a full head of hair, though. That’s a good thing.

Kevin Bupp: Yeah, that is a good thing.

August Biniaz: Yeah, thanks my father and grandfather.

Kevin Bupp: And it’s funny, you brought back some interesting memories about 2020, 2021, of thinking the world was going to end and real estate’s going to—people are going to lose their deals, everyone’s going to go bankrupt, everyone’s not going to pay their rent.

And I remember very vividly March of 2020 and April of 2020, literally having multiple conversations daily with the team about how are we going to run triage on this and exactly what’s going to happen when folks can’t pay the rent, because we felt that that was absolutely coming.

It was going to be an inevitability. It was just, you know, how are we going to manage this, and how are we going to have that conversation with investors?

Ultimately, that didn’t occur. Thankfully, that did not occur. And it was quite the opposite of what we had ever envisioned.

But, you know, needless to say, it was a very stressful period of time. And I’m glad that it did not implode like I thought it was going to.

In any event, buddy, this has been great having you on the show, August. I really, really, really appreciate you coming on, man.

I think it’s been a fun conversation. Very insightful. Appreciate you being vulnerable and sharing some of even the pain points along your journey and lots of insights about investing cross-border and all the amazing things that you’ve been able to put together.

So it’s been a pleasure having you, my friend.

August Biniaz: Yeah, thanks. Great conversation with you, Kevin. Great questions. And I really enjoyed our conversation.

Kevin Bupp: And for everyone listening here today, we’re going to include all the information about August and his firm, CPI Capital. We’ll include that in the show notes for you.

And as always, if you’ve enjoyed the episode here today, I know I did, please do us a favor. Subscribe to the show. Leave us a rating and review. And then do share the podcast. Share this episode with someone that you think will benefit from hearing August’s story.

So until next time, this is Kevin Bupp. Thanks for listening, guys.

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