On a recent episode of Ritter on Real Estate, host Kent Ritter sat down with Mark Khuri, Vice President and Co-Founder of SMK Capital Management. With more than 17 years of experience and over $1 billion in transactions, Mark has seen multiple market cycles—and more importantly, he’s adapted at every turn.
In this conversation, Mark shared his journey, the strategic pivots that shaped SMK Capital, and how he’s evaluating deals in today’s shifting real estate environment
From Corporate America to Real Estate Entrepreneur
Mark’s career began in finance in the early 2000s, but real estate was always a side passion. After years of hands-on investing—fixing up distressed properties, partnering with family, and managing projects—he left Corporate America in 2010 to launch SMK Capital with his father.
The company initially focused on heavy value-add investments: distressed assets, foreclosures, and bank-owned properties. By 2017, however, Mark noticed shrinking margins and fewer opportunities. It was a pivotal moment. Instead of competing in an increasingly crowded value-add space, SMK shifted its model—moving from direct operations to raising capital, underwriting deals, and partnering with best-in-class operators across multiple asset classes.
That pivot allowed SMK to diversify, reduce risk, and give investors access to a broader range of opportunities—from multifamily and student housing to self-storage and industrial.
The Market Has Changed—Here’s How
When asked about the last 18 months, Mark described a landscape that looks nothing like early 2022. Key shifts include:
– Rising interest rates: Over 500 basis points of increases have dramatically altered deal structures.
– Rent growth slowing: After 15–30% spikes in 2021, many markets have flattened, though some regions (like the Midwest) continue to see healthy gains.
– Cap rate expansion: Increases of 50–200 basis points have lowered property valuations, creating both challenges and buying opportunities.
– Operational stress: Higher vacancies, more bad debt, and tougher management conditions mean operators must work harder to drive returns.
– Transaction slowdown: Deal volume is down 70% year-over-year, making pricing discovery difficult.
“The world looks a whole heck of a lot different,” Mark explained, emphasizing that successful investors now need to stress test deals, focus on conservative assumptions, and prepare for multiple outcomes.
Underwriting in 2023: What Matters Most
Mark highlighted several underwriting considerations in today’s environment:
- Cap Rates: SMK has always underwritten cap rate expansion, typically 50–150 basis points, to remain conservative. While much of the expansion may already be priced in, stress testing remains crucial.
- Debt Structure: SMK avoids floating-rate loans in favor of fixed-rate, long-term debt. “The way you lose money in real estate is by being forced to sell at the wrong time,” Mark noted. Fixed debt with longer terms allows operators to ride out cycles.
- Expense Focus: With revenues under pressure, controlling expenses is critical. One strategy: investing in tax-exempt apartment deals where local municipalities provide 99-year property tax abatements in exchange for affordable housing commitments. Eliminating property taxes—the largest line-item expense—creates immediate cash flow advantages.
- Diversification: By investing across asset classes, regions, and operators, SMK spreads risk and balances income with growth opportunities.
Balancing Income and Growth
For passive investors, Mark stressed the importance of analyzing where returns are coming from. Deals heavily weighted toward appreciation (often 70–90% of returns dependent on sale) carry greater execution risk.
Instead, SMK seeks a mix: some investments skew toward stable cash flow, others toward growth. When combined in a fund, investors benefit from both income and upside while reducing risk.
Keys to Success
To wrap up, Mark shared his perspective on success and sustainability in real estate investing:
– Ask the right questions: If evaluating a sponsor, Mark’s top question is: How are you being conservative in your projections?
– Be willing to pivot: From leaving corporate life to shifting SMK’s strategy, Mark’s career shows the value of adapting to market realities.
– Focus on repeat investors: Today, 60% of SMK’s investors reinvest, with over 20% holding five or more active investments.
– Keep learning: Mark credits his drive and thirst for knowledge as the foundation of his long-term success.
Final Thoughts
Real estate today looks vastly different than it did just 18 months ago. Rising rates, expanding cap rates, and slower rent growth require a sharper eye, a steadier hand, and more conservative underwriting than ever before.
Mark Curry and SMK Capital’s story is a reminder that diversification, patience, and adaptability are key to building durable wealth in uncertain markets.