Street Smart Success

It’s impossible to time the market, so it makes sense to buy at the right price relative to current markets. If you don’t stay active, you can miss out on great opportunities. It also makes sense to hold for long periods of time, because five years or less is often not enough time to expect precise execution of a business plan given the vagaries that are entailed. Peter Linneman, Principal of Linneman Associates, is a prolific multi-decade investor and founder of Wharton's Real Estate Department and the Zell-Lurie Real Estate Center. Peter Is bullish on Multifamily, despite short term headwinds in many markets.

For steady, predictable cash flow, few assets perform as well as Flex Industrial. There’s a dearth of supply where tenants can operate their businesses, and the cost of relocating is often prohibitive. There’s also little day-to-day management because the spaces are mostly warehouses with a minor office component. Ian Horowitz, Managing Partner at Equity Warehouse, owns 15 properties in the Southeast that are a combination of Flex Industrial and Self-Storage. He’s gradually selling them off to relocate his portfolio closer to Philadelphia and Baltimore, where he’s located. Ian has grown to recognize that it’s easier to manage properties closer to home.

Nothing negatively impacts apartment performance metrics like vacancies. That’s why it pays to take great care of tenants, and to have precise systems and processes to replace tenants when prior ones leave. Many apartment operators take up to 60 days to fill a vacancy. Jered Sturm, CEO of SNS Capitol Group, however, has a meticulously refined process that takes three days to fill vacancies from the day a tenant vacates. As a result, Jered has a 98.5% occupancy across his 1400-unit portfolio. Jered started out as a maintenance tech and has built a vertically integrated operation. The SNS portfolio is located in Cincinnati, where Jered lives and has resided his whole life.

Over 90% of U.S. businesses generate less than $5 million profit per year, yet these businesses are the backbone of our economy and employ the majority of U.S. employees. Whereas the majority of Private Equity investments are in larger companies, many smaller companies are investable and need access to capital and additional expertise to grow. Mason Myers, Founder of Greybull Stewardship, invests in companies with $5 - $25,000,000 million in profit and has a strong track record helping these companies grow and increase their value. He currently has $300 million assets under management.

Running multifamily properties in tertiary markets can have major challenges, especially finding qualified staff and drawing from a smaller tenant base. Despite these challenges, you can still acquire at a low enough basis where big gains can be made. Many of these properties are inefficiently managed by long-term local owners with little or no debt and rents hundreds of dollars per month below market. Seth Teagle, Principal of The Stream Group, vertically manages properties in tertiary markets, and has been able to create immense value through increasing revenue and net operating income.  

As investors tire of stock market volatility, and market awareness for private investments increases, allocations are increasing for non-traditional assets. In the past decade, and even more recently, retail investors have increasingly invested more money into privately held Real Estate, Private Credit, and Private Equity. With the right investment strategies, there’s predictable cash flow and limited volatility. Successful investing is a game of survival that results in the accumulation of wealth over the long term. Brad Johnson, Founder and Managing Partner of Evergreen Capital, helps clients preserve and grow capital by investing in proven alternative investments.

The affordable housing issue persists in this country as homeownership becomes further out of reach for most people. One of the most viable solutions to this issue is manufactured homes, or Mobile Home Parks. They can be great cash flowing assets, but there’s a lot to know to be able to manage them effectively. Daniel Weisfield, co-founder of Three Pillar Communities, has built a portfolio of 70 communities across 14 states. Unlike a common misperception of old, poor-quality parks, many parks are great communities with modern amenities like nice pools, pickleball, kid’s play areas, and clubhouses. Three Pillar Communities is committed to providing a high standard of living for its tenants and intents to own communities for the long-term.

As the cost of acquiring existing multifamily assets has escalated over the past decade, it’s been more lucrative to construct these projects from the ground up. Although borrowing and material costs have gone up over the past couple years, ground up construction has historically rewarded investors with higher returns than acquiring existing assets. AJ Klenk, Managing Partner of Catalyst Capital Partners, started out as a multifamily broker before expanding into ground up development. He has 15 projects under construction and four completed. Andrew is also an owner and Managing Partner of Capstone Apartment Partners, the largest privately owned multifamily investment sales brokerage in the United States.

Many multifamily syndicators are facing major headwinds including interest rate increases, record new supply, escalating expenses, and vacancies. In order to thrive in this environment, you have to have an excellent organization that executes meticulously on business plans and maintains healthy working relationships with their lenders. Bikran Sandhu, Co-Founder of Rise 48, has never made a capital call or missed a debt payment. In the face of unprecedented rate increases starting in 2022, Bikran accelerated the pace of renovations and completed almost 2000 units in 2023. This enabled him to increase net operating income enough to continue making debt payments and distribute cash to investors on most of their properties. 

Most people who bought multifamily properties back in 2008-2010 wish they had bought more. Since then, multifamily values have soared.  We never know when we’re at the bottom, but it’s possible we’re at a bottom now. Multifamily prices are down over 25% from the peak, and demand will ultimately again exceed supply as new construction projects get absorbed. Also, more people are renting as a lifestyle choice and as the cost of homeownership continues to increase. Brad Sumrok, the #1 nationally known educator and mentor for apartment investing, is currently trying to acquire more C and B class properties, mostly in Texas. In Brad’s mentoring business, he has helped his students purchase over $5B in apartment buildings (over 500 apartment complexes) and over 60,000 units.