On a recent August morning at the Omni Dallas Hotel, the “Apartment King” is trying to muster up the boomtown vibes of 2021 when multifamily was the golden child of real estate.
The button-downs who took the Friday off to hear Brad Sumrok preach the gospel of apartment investing are a tough crowd these days. Sumrok, tan, flashing bright white, still-crooked teeth, takes the stage through neon strobe lights and the din of air horns to a smattering of applause.
Unfazed, he launches into his sales pitch.
“Our mission is to lead and teach and inspire and mentor over a million people to achieve financial freedom,” Sumrok, 56, proclaims. “Investing in apartments is the best way I know how to do that.”
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.”
Two years ago, when the multifamily market was on fire, Sumrok had the receipts to prove it. His disciples’ deal volume surged by $1.5 billion as national multifamily investment smashed records. Sumrok would regularly parade star pupils onstage who’d banked stunning returns, according to some students.
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.
Multiple deals are now bleeding cash, some of which Sumrok invested in personally, according to Morningstar data and two students familiar with the matter. Others have already tanked, thanks to market conditions: rising construction costs that stymied value-add plans, soaring interest rates and slipping rent growth.
It’s a perfect storm that has disrupted deals done by industry leaders — particularly multifamily owners that borrowed with floating-rate debt — and threatened the solvency of syndicators such as Tides Equities that grew too big, too fast. But fledgling investors may have been caught particularly off guard.
That distress has descended on a new breed of buyer — small-time investors who shelled out thousands of dollars to learn the trade from so-called multifamily gurus.
Aided by the rise of social media and podcasts, a handful of multifamily mentors, each with their own program, have risen to prominence. Sumrok’s contemporaries, Michael Blank, Neil Bawa, Jake and Gino, Mark and Tamiel Kenney, and Joe Fairless, who claims to host the longest-running daily real estate podcast, have all amassed thousands of followers online.
Some Sumrok students, eyeing those distressed deals, lay the blame on their mentor’s teaching. They claim the guru and his coaches advised students they could borrow with floating-rate debt when financing tightened, and reviewed deals underwritten for outsized rent growth as the market turned.
In a statement, Sumrok’s spokesperson stressed that through his programs, Sumrok had a “successful decade-long track record of supporting students” to achieve “financial freedom by investing in apartments.”
“You’ll see a mad dash of people run to the back of the room to sign up and throw their money at him because they think they’re gonna get rich.”
The spokesperson added that neither Sumrok nor his team “approve or endorse student securities or investment opportunities, or provide financial advice.”
“Mr. Sumrok will not allow unfounded accusations and pure speculation to impact his efforts to improve the skills and lives of his students,” the statement concluded.
The Real Deal reached out to students featured in testimonials on Sumrok’s website. All either declined to comment or did not respond to requests for an interview.
At his August event, Sumrok acknowledged the economic downturn and the stress it had placed on the multifamily sector, but assured his audience the market was “stabilizing.”
“Some of you got into this business a year ago or six months ago and you’re like, ‘But Brad, it hasn’t panned out,’” he said. “Yeah, but it’s gonna pan out.”
Kiyosaki-bred
Sumrok peddles an alternative to corporate America. Through multifamily investing, students can be like him: Retire in five years, flaunt their net worth and pay nothing in taxes.
In his pitch, he bills himself as another college grad duped by the American Dream. He studied engineering, then scored an MBA in the late ‘90s from the University of Houston. Ultimately, he landed in a humdrum sales gig. A self-proclaimed slacker, he got fired, considered law school, but found Robert Kiyosaki’s investing book “Rich Dad, Poor Dad” just in time.
“Instead of going to law school, I went to a real estate conference,” said Sumrok, who now splits his time between Florida’s Gulf Coast and Dallas. He closed his first deal in 2002 and “retired” from his day job three years later. In 2013, he started his mentorship program.
The Sumrok Multifamily Mentoring playbook is getting novices to syndicate deals.
Through multifamily syndication, a sponsor or general partner finds an apartment building, secures financing, then taps a number of investors or limited partners to help fund the deal. Sumrok teaches how to be a sponsor, a limited partner or both.
Much like his peer Grant Cardone, Sumrok rode the syndication wave of the mid-2010s. The JOBS Act, passed in 2012, cut red tape around raising capital, opening the door for real estate players to tap cash from smaller investors. The SEC reported that syndicators raised $905 billion through private offerings in 2010. By 2017, the figure had hit $1.8 trillion.
Both Cardone and Sumrok aspire toward a rich man’s swagger. But arguably, only one pulls it off. Where Cardone’s conferences draw thousands, Sumrok’s typically boast hundreds. Cardone books A-list celebrities; Sumrok leans on Kiyosaki and Cardone himself.
And unlike Cardone, who dabbles in teaching sales and recruiting new investors in his own deals, Sumrok is more narrowly focused on minting new landlords and apartment investors.
In his lectures, Sumrok paints apartments as the most fruitful investment. Sponsors have control over valuation, he says. They can raise rents, make repairs and ultimately boost their profits.
“Multifamily is different. It’s completely independent of what’s happening in the markets,” Sumrok explains in a video on his website.
For Sumrok, each new student can equal tens of thousands of dollars in revenue.
Sumrok’s target audience is “six-figure income earners,” he has said, would-be investors with the capital to get in on deals and afford Sumrok’s programs.
His Foundations program costs $8,000 for 18 training modules, a Facebook group of over 1,000 members and a few networking events. Personal mentoring with Sumrok’s coaches runs about $30,000. At one point, students say, they could buy one-on-one coaching with the guru himself for $100,000.
An application for Sumrok’s personal mentoring asks for net worth and investing experience, according to his website. The $8,000 course only requires a credit card number.
Conferences like August’s event attract the masses, a path to pull in “fresh meat,” as Sumrok put it at the event. A construction worker from Calgary, a mortgage broker from Ontario and a receptionist watching remotely from her desk in Miami all dropped a few hundred bucks to sit in. TRD paid for the three-day event and attended over Zoom.
Some of those prospective students appear to know little about syndication.
“What does GP mean?” one attendee typed over Zoom. When Sumrok asked his audience what a net worth was, there were crickets.
“Cheesy used-car salesman”
Convincing white-collar workers that a man who dances onstage to Calvin Harris has cracked the code on getting rich isn’t necessarily an easy sell.
One student, a finance worker who said he found Sumrok’s group around 2019, at first pegged the guru for a “cheesy used-car salesman.”
A former Sumrok student, a doctor, said he was skeptical of the mentor, noting his frequent quips about his ever-growing net worth. Sumrok sports designer suits with French-cuff shirts, drives a Ferrari with the license plate APT KING and posts selfies with a roughly $5 million private jet.
Still, both signed up.
“At the end of the day he’s got a compelling pitch,” said the finance worker, who claimed he paid $30,000 for Sumrok’s course in 2020. Sumrok’s success stories sold him.
“You’ll see a mad dash of people run to the back of the room to sign up and throw their money at him because they think they’re gonna get rich,” the doctor said.
In 2019, the doctor dropped $7,000 to become a Foundations student; the following year, he spent $30,000 to unlock the personal mentoring.
And at first, Sumrok’s so-called “ecosystem” seemed golden, the doctor said. He partnered with other students to invest $50,000 in three deals in 2019. One deal tripled the doctor’s money when he exited in 2022.
At the time, Sumrok and his coaches promoted fixed-rate deals, according to the doctor, who said he spent hours of face time with the mentor. In theory, fixed-rate loans insulate borrowers from the risk of rising rates.
That all changed in 2021. The influx of deals drove a more competitive lending market, and syndicators turned to floating-rate debt for a quicker close.
Some students said Sumrok and coaches encouraged mentees to switch to bridge debt but advised general partners to secure rate caps, a hedge against rising rates.
Still, the finance worker grew concerned that some students didn’t seem to understand the forward curve — an indicator of where rates might land — or how to escrow funds to afford future caps.
Morningstar loan data supports that lending shift. Many student deals in 2019 and 2020 were primarily financed with fixed-rate loans. Floating-rate financing dominated acquisitions made in 2021 and 2022.
For the finance worker, evolving underwriting standards were a red flag. By 2022, rates were rising as the Fed waged war on stubborn inflation; the record pace of rent growth had begun to slow. But some deals done by Sumrok students — and reviewed by coaches — were still banking on boom-year revenue jumps.
“I just did not understand how everybody was making the numbers work, because I was looking at the numbers and they just didn’t work for me.”
The Rosemont Timberglen in Dallas is one example. A 10-party sponsorship team of Sumrok students, all of whom had partnered with the guru on other deals, projected per-apartment rent growth of $333 when they bought the property in early 2022, according to Morningstar.
The ratings agency cut those expectations to $240 per unit, saying the deal’s high leverage — an 86 percent loan-to-purchase price ratio — and “weak sponsorship” could result in an “expected loss above the … average.”
Students claim Sumrok’s team should have been aware of that underwriting. Before marketing a deal to limited partners, students had to fill out a disclosure form, the doctor said. The form required students to attest that the “deal and financial projections have been reviewed by the Sumrok team,” according to a copy obtained and reviewed by TRD.
Disclaimers on the mentor’s site outline some of the risks associated with investing.
“Any earnings or examples of income are only estimations of what we believe you could earn,” one disclaimer reads. “There is no guarantee you’ll do as well if you rely upon our information.”
Still, two students said mentees routinely brought prospective deals to Sumrok coaches, who reviewed them.
The finance worker claimed a group of Sumrok students recently marketed a deal as “Sumrok-reviewed” that projected 5 percent annual rent growth for the next several years. The sponsor had screenshotted a CoStar report from last summer — a very different market. National rent growth turned negative this August, according to Apartment List.
“I just did not understand how everybody was making the numbers work, because I was looking at the numbers and they just didn’t work for me,” the finance worker said.
Skeptical of those standards, he said he sat on the sidelines, opting not to invest. But others stayed in the game, including the doctor, who claims deals he invested in between 2021 and 2022 aren’t “giving us cash flow of any kind.”
On one deal, the doctor and his partner have discussed taking a 20 percent haircut just to get some money back.
Restricted investments
Sumrok teaches syndicators how to raise funds through a private placement, or a Rule 506(b) offering, according to his online videos.
The Securities and Exchange Commission’s Rule 506(b) allows sponsors to raise cash from an unlimited number of accredited investors — essentially, people with a net worth over $1 million — and a limited number of unaccredited investors.
This type of offering is the most common way real estate syndicators raise money, according to Joan MacLeod Heminway, a law professor at the University of Tennessee.
Through Rule 506(b), syndicators can cast a wide net when appealing to accredited investors, but the offering contains a crucial carve-out. The SEC requires syndicators to have a “substantive relationship” with the investors they market to, meaning the sponsor understands an investor’s finances and investment history, according to attorneys.
“That could all happen in a 10-minute conversation,” Sumrok said in one online lesson, defining a substantive relationship and discussing SEC rules. Sumrok added that viewers should consult an attorney or Google for further information.
A securities attorney said a substantive relationship could theoretically be developed in 10 minutes, but he did not think “any lawyer would suggest that.”
Who gets burned
Just two years out from that syndicator-enabled investment boom, industry observers say the distress is already mounting and many deals cannot be saved.
Some are already looking to capitalize on the carnage. Nuvo Capital Partners launched a fund in August to partner with syndicators, work out troubled deals “and keep them from losing it all,” according to the firm’s head of analytics, Brian Underdahl.
Nuvo has underwritten about $500 million in acquisitions that emerged from mentorship programs; less than $100 million could be restructured. Underdahl said he was unaware if any were done by Sumrok students.
“The reality is, the equity is gone,” he concluded.
On salvageable deals, general partners will first pay back the lender, then pay themselves with whatever equity remains. That could leave many smaller investors — the conference attendees swayed by an easy-money pitch — with nothing.
Bigger syndicators have a better chance of being bailed out. Last month, Tides Equities touted a sweeping number of loan workouts across its distressed portfolio.
But smaller outfits without a proven track record may, instead, face foreclosure.
Take Gajavelli’s Applesway. Instead of working with the borrower, lender Arbor Realty Trust foreclosed on the 3,200-unit portfolio after Applesway defaulted on loans.
Sumrok has worked to distance himself from that fallout.
“We don’t provide investment advice to anyone,” Sumrok posted in his “personal students” Facebook group after the foreclosure, referring to Gajavelli not by name, but as a previous Sumrok student.
“AND what can be done as LPs or GPs if it’s not going as planned. Options from a financial perspective include capital calls, bridge financing or GP contributions when possible,” he wrote.
Meanwhile, Sumrok, who last month viewed Mount Everest from a private helicopter between sips of champagne, is busy fending off his own distress.
At Uptown at Cole Park, a Dallas deal he co-sponsored in August 2021, cash flow is only covering 75 percent of monthly debt service payments, Morningstar shows.
As early as November 2021, servicer commentary said that the property “struggles with relatively weak cash flow given the debt service payment.” The update noted “an increased POD [probability of default] and elevated refinance risk.”
And this year, Sumrok broke bad news to limited partners on a 1,000-unit Dallas-area portfolio he’d bought with WindMass Capital in 2021, properties valued at $207 million: He needed more money.
He made a capital call on the deal, one student said. The student had nearly invested but declined after getting “bad vibes,” he explained. WindMass did not respond to a request for comment.
Sumrok and his partners were pulling in less than one-tenth of the revenue needed to pay the loan’s debt service, which had surged 68 percent, according to Morningstar. Net cash flow, projected to hit $10.9 million by 2024, had dropped from $8 million at underwriting to a pittance — $1.3 million — in March.
At his August event, Sumrok took a moment to separate himself from the crop of syndicators struggling with their deals.
“Some of those people aren’t going to do well,” Sumrok told his audience.
He seized on that fallout as a cautionary tale, a means to lift himself above the fray.
“They came in and they bought deals that were bigger than maybe their skill set,” he warned.
The Apartment King, he said, treaded carefully and “followed a formula.”
“I’m going to talk to you this week about why my deals haven’t lost money,” he said.