Cultivating Your Niche:

We have a singular focus on acquiring sub-institutional multifamily and won't stray out of this buy box. Beautiful apartment building with a restaurant space on the ground floor? - it's a no go for us.

Why?

We've taken many reps in developing small to mid-size multifamily properties and have built a process around this strategy.

We know the ins and outs of the rental market we're in, permitting processes/timelines, the appropriate contractors to use for certain scopes of work, and the landmines that exist within the location/asset class (will write about this at a later date).

Anything outside of what we know well and are good at is ultimately a risk we're not willing to take.

Shaking Trees

One of the first things we do in a market is create our buy list. This is a compiled spreadsheet with every property in our target neighborhood(s) that fits our criteria and includes details on the ownership, their entry price, where the entity is domiciled, permit records, etc. This is a process we carry out while working extensively with brokers in the area- we share these lists with our brokers to see if there's any personal relationships/angles.

Without taking an initiative, we’re playing a waiting game on the MLS and ultimately sitting on our hands until that needle in the haystack comes through. Would much prefer to open myself up to as many interactions as possible and see where those lead.

For us- these properties need to be sub-institutional apartment buildings, located in supply constrained (whether that’s geography, historic districts, arduous permitting landscapes, etc.) markets.

Once we have our generalized list, we dig a little deeper. Is there a single owner or entity with multiple properties? What's the background behind the ownership? Are there any generational owners? What did they initially pay for the property? What’s the scope of the work that is needed (we can execute strategies ranging from core to value add so our range is wider here)? Based on their other projects, are they potentially looking to move assets off their balance sheet?

Typically, you’ll have the most room to wiggle with generational ownership groups/people who have owned the asset for many many years. They often don’t need to exit at a certain price per sq. ft (they’re walking away happy regardless) and don’t optimize operations (self manage, can be late to make repairs, don’t have necessary cap ex budgets, etc). These are all angles to add value.

From here, find ways to get in contact with them (the shaking trees part-leverage your broker(s) as needed). No need to be too direct, you’re just contacting a fellow property owner in your neighborhood.

Point the conversation to them then tell them about yourself, your company (we buy cool apartment buildings in cool areas and steward them well over the course of many years), and your other developments in the area. From here, we have a sense of familiarity and they know you can operate in this market.

Depending on the context (sometimes it’s fine to say on the first call, other times it’s better to wait for the next interaction- feel it out), indicate that you’d interested in buying the property should they ever consider selling.

The response may be, "Absolutely not. But, my friend Jimmy is looking to sell some portions of his portfolio" or "Not looking to sell, but I do operate my own roofing company should you ever need estimates." You never know where the conversation will take you.

From here, it’s a game of back and forth but at least you’re in the door and in conversation with somebody who is likely very interesting and successful.

Get the Feel:

One of the first things I do when scouting a city/market is to locate the people that actually make the "cool" areas cool.

The person that crafted the organic blueberry shrub for your $25 drink likely doesn't live in the area they work. Most of the time, they're accessing the same caliber of drinks and food but aren't paying the same rates.

From my experience in New Orleans, the young entrepreneurs, bartenders, servers, bar backs, hostesses, performers, musicians, you name it, don't live in the areas that are widely known as "cool" (yet).

Instead, they're concentrated in a handful of neighborhoods, which are cheaper by nature, inclusive, and provide a communal feel for those within it. Their current job is likely just a way to pay the bills while they pursue that other passion. Whether that's music, cooking, a start-up- you get it. 

These are also the areas where these entrepreneurs/creatives can take their first leap.

Whether that's opening the coffee shop of their dreams or a vintage clothing store, the owners in these areas are willing to take a bet on a first time operator and provide cheaper rates (naturally, bc of less desirable real estate).

The creative mind behind the really cool cocktail menu or venue is also molding the neighborhood in which they live, year over year (just like the other residents). 

Over time, these areas can become hubs for incredible cuisine, art, nightlife, and ultimately become widely known as "cool."

The fun part is finding these neighborhoods during the transitional period (careful not to be "too" early), witnessing the creative forces carve out what they hope to see within it, and contributing to the progress through strategic investments that will serve the community for years to come.

Once they're "cool", pricing power will naturally come into the equation and the next generation of these creatives will find another area to ultimately make their own.

Very much of the Richard Florida school of thought but a natural process I continue to seek out and track within our target markets.