Street Smart Success

Investing in newer multifamily assets is a long-term conservative investment, but returns are low. There’s too much money chasing these deals, therefore the market is efficient. If you invest in heavy lift C Class properties, however, the returns are significantly higher. There’s far less competition to acquire these assets, and therefor better deals. Amy Rubenstein, CEO of Clear Investment Group, has an incredible track record acquiring and turning around distressed C class properties 300+ units in secondary and tertiary markets and achieving consistent double digit and even triple digit returns for investors. 

3rd party property management can be notoriously difficult and aggravating, but it can be successful if you manage it properly. To make it work, you need rigid processes, actionable metrics, and weekly meetings to hold property managers accountable. Chris Lento, Founder and CEO of EM Capital, has been successful managing properties in other states by finding great property managers that help him execute on his business plans. Chris acquires B Class multifamily properties across emerging markets in the Southeast. More recently, he’s begun to focus on newer properties starting with an acquisition of a 2022 build property.

As urban port neighborhoods have been redeveloped over the past few decades into residential and other uses, warehouse developers and tenants have moved to more inland locations. At the same time, ecommerce has created a need for tenants to be closer to their customer bases. These changes, which have created a high demand for inland urban infill spaces, has resulted in great opportunities for investors. Brian Ker, President of Snowball Investments, has built a portfolio of industrial properties in the Tri-State region of New York, Connecticut and New Jersey with proximity and ease of public transportation into Manhattan.

Even in challenging markets, it's hard to find great real estate deals because sellers are always slow to capitulate on price. One asset class, however, that promises steady cash flowing deals is sub-institutional industrial. These properties don’t have as large a buyer pool as multifamily or larger properties across other asset classes in general. Jonathan Hayek, Founder of Endurance Properties, has recently acquired cash flowing NNN industrial properties where the tenant is responsible for everything except for the roof and structure. On his most recent deal near Des Moines, it’s an Absolute NNN lease where he doesn’t even pay for the roof any other expenses.  

The multifamily market has faced major headwinds in many growth markets, but is gradually stabilizing. Occupancy levels are starting to rebound as there’s been absorption of new units, although rents are still largely suppressed. Phoenix, one of the country’s top growth markets, is finally coming off the bottom with record absorption levels. Jeff Sherman, Principal at FSO Capital Partners, oversees 2500 in Phoenix and other markets in Arizona. Over the past few years, Jeff has been hyper-focused on operations to maximize investor returns. Currently, he’s starting to see more opportunities as floating rate maturities are coming due. 

Fundraising for Private Equity and Venture funds has slowed as interest rate have climbed. Stalled exits and reduced distributions have followed. There are 50% fewer venture companies today than just a few years ago. As a result, multiples for acquisition targets have decreased, thereby presenting an opportune time for active funds with capital to acquire companies at attractive prices. Companies in secondary and tertiary markets, in particular, can be very attractive. Mark Flickinger is General Partner and COO of BIP Capital. BIP invests in mid-market early stage companies in the Southeast and Midwest.

Most new businesses fail within their first five years, but investing in a strong franchise system can enhance your odds of success. There are great, recession resistant franchise categories to invest in such as Home Services, Pets, Beauty, Kids, and many others. Investing in a successful franchise mitigates a lot of risk by aligning yourself with a proven concept and a leadership team that teaches you the critical components of a business and how to become successful. Kim Daly, the top franchise consultant in the country for a decade, helps match candidates with vetted franchises that fit their strengths, experience, and personalities.

Although Mobile Home Parks have been great investments over the past couple decades, they have not been immune to the same challenges that other asset classes have faced. These include interest rate escalations plus operating costs such as labor, supplies, and insurance. Despite these headwinds, however, prices have mostly held firm although imminent loan maturities may yield attractive buying opportunities. Jeff Cook, CEO of Cook Properties, is the largest Mobile Home Park operator in the state of New York. Jeff has enjoyed amazing success but has experienced growing pains over the past couple years that have impacted his latest fund. 

Even though prices on multifamily properties have come down 20%-30%, most of these still don’t make sense because higher interest rates and increased expenses have more than offset the price decreases. As a result, transaction volume for quality properties in great markets is still low. Brooks Mosier, Principal and co-founder of United Point Capital, is one of the largest buyers of single-family homes in Kansas City and has leveraged these profits into the acquisition of multifamily properties for his own portfolio. Brooks has syndicated his larger deals that require more equity.

To be successful in any niche, you need to find a market inefficiency and a discernible differentiator. Too many sectors within commercial real estate have become commodities as unprecedented volumes of capital have been deployed. One sector that remains relatively inefficient is small balance lending, or “Micro balance loans,” to smaller operators borrowing $200,000 - $1,500,000. Chris Carley, Managing Partner of Kirkland Capital Group, provides loans to this segment of the market where there’s far less competition and better returns.