(upbeat music) Welcome, welcome. It's the Rent Roll, your podcast on all things, rental housing, apartments, SFR and BTR. Comedy this week from Scottsdale, Arizona, here for the Funnel Forum. So another episode from a hotel room. I think we're at three straight weeks from a hotel. So for better or worse, but hopefully you can tell no difference. And it's episode number 77. And for Dallas Mavis fans, like my family, that number 77, it's a painful reminder of the worst trade in sports history. Trading way, Luke Adoncich, of course, who wears number 77 in exchange for what? Maybe eight good games from Anthony Davis and not much else. And speaking of basketball, it's of course, March Madness Time. Hope your brackets are holding up. We have a family bracket competition. And for each of the past three years, I've been beaten by one of my kids, including three years ago. That was the year of all the upsets. My daughter won the competition just picking logos and mascots she liked the most. So that was rather humbling. So open this year is going to turn out a little better for me. I do have seven of my eight elite eight picks still in it. So there's a chance, but I'm not holding my breath. Anyway, lots of headlines touch on this week related to Singapore rentals and multi-family. Another big portfolio trade in the apartment world talk about another executive order from the White House. This one much better than the last one. Articles in the Wall Street Journal and related to both SFR and apartments. And yet another big case study, academic study, showing that the laws of demand still work. In this case, a big case study focused on Austin, Texas, the massive supply wave they're putting down to pressure on rent. And I know just even mentioning this is probably bringing some PTSD to those of you who operate or own in Austin. So sorry for that, but hey, the upside is approving that the supply is the best remedy to affordability concerns, not rent control or other populist boogie man theories. And then later in today's program, we have a conversation today about sub institutional multi-family. And I've not done a whole lot in this podcast about sub-institutional multi-family investing. And in many ways, it's just a different universe. As many of you know, it's different players, different asset types, often different resident profiles too. And with all that, different types of challenges and opportunities. And so we'll cover all that at a very high level. And we bring in Moses Kagan and Brett Bennett. Some of you know Moses from social media. He's one of the unofficial founding fathers of Retwit or Real Estate Twitter, where he has more than 180,000 followers on what's now called X. And his partner, Ret, runs ReSeid, which invests in sub-institutional multi-family shops across the country. And so we'll talk to them about the state of sub-institutional multi-family and what types of investments they're targeting. And I'll give you a little bit update on the state of the sub-institutional market as well. All right, so let's give a quick shout out to our sponsors for we jump in. First and foremost, a very big thank you to JPI, a leading Harvard developer, the state purpose to transform building enhanced communities and improve lives. Check them out, JPI.com. They are at the cutting edge of some real innovations and apartment development and construction. Also a big shout out to Madera Residential, leading owner, operator, base in Texas. Check them out at MaderaResidential.com. And thank you to Funnel, the sponsor of our interview segment. Check them out at funnelleasing.com. All right, so as always, kick it off with, here's a chart. And this segment is going to be presented by Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined. According to my friends there, I was checking out Mason Joseph. All right, so I'm not going to spend a ton of time on this section today. I do have two charts though I want to show you to just really set the foundation and quickly for our conversation later today on sub-institutional Multifamily Investing and really talk a little bit about how it's different from the institutional market. And I think that'll tee up our conversation later than Moses and Rhett. And of course, one of the challenges of this space and when the reason that I even get to talk about it a lot is that we don't have a ton of data. One of the better sources though that at least that I'm familiar with comes from a Chandan economics, economics from my friend Sam Chandan, who many of you know. His team puts together a port with Arbor, Arbor Realty Trust, every quarter on small multifamily investment trends. So I'm going to use the terms small multifamily and sub-institutional multifamily interchangeably. Obviously there's not a clear cut standard delineation point between the two between sub-institutional and institutional or small and large. Generally though, we're talking about a part in properties with fewer than 100 units. Maybe somebody will call it fewer than 50 units. Typically though, even sub-hundred, the only way that most institutions or larger regional and national investors are going to look at those types of deals as if they can own other sites nearby and then managing them, manage them as a grouping, which makes a more efficient investment. So let's get into this a little bit. Let's start with cap rates on small multifamily. And so you can see the chart here from Arbor and Chandan, showing small multifamily versus all multifamily. They're showing small multifamily cap rates of 6.1%, which they say is the highest in a decade and well above the cycle is low point of 4.7%. So I'm going to compare that to MSCI real capital analytics data for all multifamily, which is going to skew toward larger deals. And that trend went from-- although they do cover all multifamily-- but that trend went from a low of 4.5%, so I can bring that to 4.7 and small multifamily to the current average of 5.4%. So obviously we're generalizing a bit here. It's a different data sets. But broadly speaking, this data aligns with what we've talked about and we've heard about, which is this story of rewidening spreads. The fact that we went from a spread of basically 20 bips to now about 70 bips between small multifamily and all multifamily. And of course, we took it just large institutional multifamily. We're seeing deals in the sub 5% range again, trading in the fours, in cases mid fours. We're seeing that again, those spreads that are widening back out, which makes sense as we expected to see. And again, when you look at-- I've said this a lot, and everybody knows this. When you look at well located, newer vintage institutional deals, you get in the mid high fours, maybe low fives, small multifamily now slightly above 6%, and obviously these are averages so that they can vary. So that does create a good story for buyers in this small multifamily market who might be seeing better value again in certain spots. And then Chandon has some interesting details in what's driving that, particularly around refinancing, higher cost of debt, et cetera, and maybe some right sizing to new reality. So let me read this from the Arbor and Chandon report. They said, in the small multifamily sector, a combination of rolling maturities, shorter term agency loans in a late 2025 rate relief window led to a sharp increase in refinancing activity. This shift has pushed observed, caperates higher, and weighed on valuations, particularly among refinance transactions. Well, acquisition, pricing has shown greater stability, just by the way, is also 6.1, but it's been in that range for a longer period time. OK, brooding here. It says, elevated expense ratios and modest pressure on net operating income similarly reflect opportunistic refinancing behavior rather than sector-based operational stress. OK, so I think that's probably well said. And one more thing on the capital market side, we'll look at Freddie Mac's data on small balance loans SBL's program. They report on serious delinquency, which is anything 60 plus days delinquen. That delinquency rate is now about 3.5%. So that's pretty low, obviously, but up a little bit, and well above Freddie's overall multi-finality delinquency rate of about 0.44% as of last reporting. So that spread is not-- there's certainly a spread there, but it's not anything crazy abnormal. Now, on the fundamental side, the advantage does shift back to small multi-family, at least for occupancy rates. Shannon's data shows average occupants rates of 96.1% for small multi-family. So give or take about 100 basis points higher than what you already in real-page show for the broader multifamily market, which is skewing toward larger buildings. Now, all that said-- here's what's interesting, though. We're seeing that-- I've talked a lot about filter analyst program, the impact of supply on the broader market. And what we see here is that even small multi-family is not fully immune from all that new, more institutional apartment supply hitting the market. That's giving renters of all types a lot more options. And so occupancy, even the small multi-family segment, is down 96 Bips over the last year. And it's actually slightly below pre-COVID levels as well. So maybe a bit lower than usual. But again, obviously, 96.1% still a healthy rate. And presumably, like we see in institutional space, presumably higher in lower supply markets, which happened to be the markets where we happen to see a lot of-- or not coincidentally-- we happen to see a larger share of the subinstitutional small multi-family places like the Midwest and Northeast, parts of the West Coast, et cetera. These are markets that not only have less supply.
But they just also have a higher share of the market as older, smaller, and less likely to be owned by institutional groups. Even if they're institutional quality markets, they just have a lot of older product that's not institutional quality or ownership. So there you go. If you want to dig in more, check out the Q-Winterport on small, multi-million investing from Arbor and Chandon. All right, next up, it's rental housing trivia. All right. Today's trivia is presented by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multi-family leasing and marketing audit. They'll dig into your pipeline, leasing funnel, and comps and tell you exactly where things are breaking down. Plus, strategies on how to fix it. Listeners the Pog, if 50% off, so head to AuthenticFF.com and click on the banner to learn more and claim the offer. Okay. Today's question is what share of U.S. apartment properties have fewer than 100 units? So what share is going to be small, multi-family? Is it a 26%, b 36%, c 46% or d 56% what shares fewer than 100 units? All right. So give us some thought. We'll answer that in a bit. But first, it's time for headlines in the news. This segment is sponsored by TeleCloud. If increasing NOI as a priority, your Telecom contracts may be one of the easiest opportunities in your portfolio. TeleCloud helps multi-family asset managers consolidate internet, voice, and dial tone across properties. The average cost reduction is 40%, and it is often higher than that. So to make it easy, they'll start with a free Telecom audit to show you exactly where savings exist before you make a move. To learn more, at telecloudmulti-site.com. Okay. So we've got a bunch of headlines to cover this week. And I'll try to do this pretty quickly. First one comes in the Wall Street Journal. Headline is their home wouldn't sell. So they became America's latest accidental landlords. Home sellers who become unwilling landlords find it could be a nuisance and a hassle to contend with renters. So I'm sure they'll give some chuckles. Anybody who's been in the SFR business or even multi-million like that matter. So I thought this was an interesting story. Obviously, we've talked a lot about how it's trendy to blame Wall Street for the reduced for sale inventory. Obviously, it never had been reduced in over the last 10 years, but the perception has been reduced. But actually, in this case, your buddy next door could be more to blame for taking for sale homes off the market. That's the theme here in 2026, the rise of accidental landlords, those unable to sell their homes for a desired price. You have to move anyway, so now they're putting their homes, their former homes on the market for rent instead of for sale. And of course, more accidental landlords equals more rental supply and turn. More rental supply equals downward pressure on rent growth, which is exactly what's happened. And in turn, we've seen between the growth of accidental landlords plus the growth of BTR supply, built to rent. That's pushed single-family rental rent rent growth to a 10-year low. That's simply what we've talked about in the past and some of the reeds of highlight as well in earnings calls. So added supply from accidental landlords that could very well remain a moderate headwind for SFR operators until the home-buyer market picks up again. All right, next headline from the Wall Street Journalists has "Mondonny's mental plan risks pushing small landlords toward extinction. Giant multifamily firms take over more New York City apartments while mom and pop landlords struggle to stay afloat." All right, I don't know about that subheadline. Obviously, we've seen a couple bigger players take, we do some deals lately, but they're not particularly giant in the national scheme. None of the real big apartment operators are active in the 10-year, maybe large degree in the rent stabilized market. But anyway, regardless of that, I'm going to pick too much because this is a really good article. There's a lot of good stuff in here. So, Kudos to the Wall Street Journal for having the guts to cover it because I'll tell you what, reporting the facts on rent stabilization in New York is not going to generate a lot of clicks and high fives among your friends. But the reality is, decades of bad policy has turned too many apartments into poorly maintained time capsules in New York City. Now, of course, the new mayor is threatening to make it worse. His mind is not making it worse, but it will likely make it worse by tapping the same old playbook of blaming the landlords. Obviously, some of you know we had an episode on this topic recently with Kenny Burgos, who formally sat right next to Mayor Mom Donnie when both were in the New York State legislature. I heard recently, with the same high school as well in the Bronx, so there is a small world. So check that out if you want to dive deeper. It's episode number 72. All right, next headline. This one comes from Pew Treadable Trust. Also, some of you know that name from Pew Research. This one says Austin Surge of New Housing Construction Drove Down Rents. The Mid-Robust Demand and a Wave of Policy Reforms, Texas Capital added 120,000 new homes from 2015 to 2024. Okay, so total flip side of New York, we have Austin, Texas, which has become exhibit A in showing that the ultimate tenant protection is a lot of new housing supply. So this new study from Pew Treadable Trust shows how investors' pain has been renters gain. Now obviously every apartment investor, operator, developer, and Austin knows this story all too well. So I'm not going to hash out every detail in this. It's a great piece though. If you want to see it, if you want to share it with your local officials on, "Hey, look, this is the real solution. We got to build supply. This is something I would point them to. It's not an industry study. It's done by a nonprofit charitable trust by a name that a lot of people know in Pew. So it's a good source. But let me just boil it down very stinkly. It says, "Developers built Son of Apartment's Rents fell even though people kept moving in Austin. Wasn't a demand issue. It's just they've had a ton of supply that outpaced even strong demand. The rent impact was spelled not only the top of the market, but all the way down to the more affordable rent levels as well. So rents fell across the board. Then Pew sites a number of Austin policies that helped spur supply. They ranged from targeted rezoning to legalizing accessory dwelling units, to removing parking requirements for multi-family buildings, to offering density bonuses. And also for affordable housing, issuing municipal bonds. So all those things had an impact. And here's one more lesson that doesn't get as much discussion, but I think it's really important for cities to try to, if you want to exempt, it's not just about, you know, sometimes you'll make it, "Hey, it's just we get do zoning," or whatever the thing might be. It's not just that you also have to think about what is the operating environment that they're going to build into. Because obviously, in an investor in New Development, they don't get a return, their investment, just from construction. And they sell it and operate it. And so the operating, operating is, it really matters, not just the construction. And so you can't assume that developers are going to fall for the old bait and switch, which we see some cities doing, which is, "Hey, we want to encourage investors to build housing, only to then demonize them once they complete the project and start operating the housing." So in addition to making it feasible to build, you have to have an environment where it's feasible to operate. And obviously, that means not being forced to operate essentially like a nonprofit charity under the guise of a never-ending list of so-called tenant protection. So balance is important. Austin shows that, and renters win in the long run, as we've seen there. All right, call more. Next one comes from multifamily dive. It says, "Harbor Group International buys 11-property portfolio for $500,000,000. The Northfoot Virginia-based owner purchased the portfolio from RE-AH Realty Trust, which is divesting its hard-to-holdings and focusing on targeted retail opportunities." Okay. So I'll be right from the starter call. It says, "Ephilates of Harbor Group International have entered into an agreement to acquire an 11-property portfolio totaling $2,436 units for $500,000,000 in cash, expected to close in mid-2026." So these properties are all on the east coast, spread from Georgia to North Carolina to Virginia to Maryland for them are in the Virginia Beach, Newport News Area, three in Baltimore, the other scatter across those states. And with this sale, the Virginia-based AHRT, formerly, some of you may still know it by its former name, of our Mata Hoffler, they will have followed the path of some of these smaller apartment rates. Obviously, they do more than its departments, but it's still along the same trajectory of liquidating the majority of its apartment portfolio. Obviously, we've talked about this in the podcast with various residential, Elm communities, et cetera, and potentially others. So by the way, on Harbor Group real quickly, they bought 27-hundred units from another READ wine-gots portfolio. Of course, Amco, much bigger name. So Harbor continues to be an opportunistic buyer. All right. One more headline for us. This one comes from Biz Now. It says, "Trump pushes to deregulate housing development with executive orders." And then it reads, "The first policy directive calls on federal agencies to reduce regulatory burdens that the White House says are holding back development, including rules on energy efficiency and permitting. The second executive order aims to make it easier for community banks, other small lenders to underwrite more mortgages." All right. So I'm looking at all the details here, but high level, this is good stuff. Some of you know, I've always been very critical of the prior executive order around institutional investors in the single-final market. And the White House's support for the Road to Housing Act as well, which would create this massive new bureaucratic layer over the single-final market nationally and crush the build-to-rent market. But hey, let's give credit where credit is due and it is certainly.
do here. This executive order is good and it focuses on the real issue, which is supply. So this one's good stuff. Speaking of good news, that's a good transition to our next segment. Good news. This is when we got to highlight good news happening across the rental housing space because while we tend to focus on a lot of the negative things, there is a lot of good happening too. And good news presented by friends at apartment life. Apart in life coordinators help apartment owners care for residents by connecting them in meaningful relationships. This in turn benefits everybody from the residents to the property managers to the apartment communities bottom line. So if you own or operate apartments that aren't already partnering in apartment life, check them out at apartmentlife.org. All right, so here's a real example of how relationship building in your community kept the bottom line. So this is this week's good news for you. It's a good story. Okay. This comes from an apartment community in Jacksonville, Florida called Pickwick owned and operated by Hilltop residential. Okay. So you'll enjoy this story. I quote, so several years ago, a small group of widows started meeting for dinner once a month. Nothing super formal just just dinner and they kept getting together. And then they added card games twice a week and they started calling themselves the golden girls after the TV show. And over time, that inner circle has become the relational heart of this apartment community in Jacksonville, gradually drawing others in. So last year an older man in the community, he had lost his wife. And the golden girls pulled them into their group. And he was shy and obviously grieving, but they just kept inviting him kept giving them that warm welcome and kept knock on his door when even when he didn't show up to say, Hey, you know, check it out. I'm inviting him just to hang out. And the more he started to show up to dinner and to card games, the more he started to come out of a shell and warm up to everybody. And today, I'm told he's one of the most outgoing personalities there at the card table. So then fast forward a little bit. A few months later, another woman starts to get pulled into the group. This is a divorce woman in her 40s, also painfully shy. She happens to run her own house cleaning business. And after a lot of persistent invitations, she finally shows up to an event. She seated next to this older widower and they began to talk. And when she heard his story, she was so moved that she insisted on, you know, because she had this cleaning business, she insisted on cleaning his apartment for free. And, you know, just showing what what a close knit community this had become. All right. So here's here's how this all comes together. Here's the business impact. It really highlights the power of community. So Pickwick consistently is in winning property awards. Over the last five years, 85% of residents have chosen to renew their lease each year. And they get they're getting positive reviews online during major renovations because residents see it as a home. So when you're when you're we have close friends living next door, you just don't want to move. So it's a good reminder that relationships do matter. And that's our good news story of the week. So if you have good news story to share, email them to
[email protected]. And we may feature it on a future podcast. All right. Let's get back to today's rental housing tribute question. The question was what share of U.S. Was it 26% 36% 46% or 56% and if you guessed see 46% give yourself a pat in the back. You got to write that that is according to NMH season analysis of data from HUD and the census. So we've have seen that share go down over the years. Used to be more than half ball apartment properties. That's 46%. Since obviously in the recent decades, the vast majority of new construction has to be larger. Her units plus. And that's just because of efficiencies of scale and of course, capital's preference for larger check sizes in general. All right. Next up, it's time for today's interview sponsored by funnel, the AI and CRM software, trusted by four of the six major reads and many more leading operators like BH and Cortland to learn how funnel can help your property centralized operations and automate everyday tasks, visit funnel leasing.com. And as I mentioned, I'm here in Scottsdale today for the funnel forum. So I'm excited to see many of you here in person at the at the conference. Okay. So our guest today are two influential leaders in the world of sub institutional multi-family investing and operations. Moses Kagan and Rhett Bennett. Moses heads up adaptive realty at a Southern California where he manages a portfolio of mostly sub-institutional apartments. And his business partner, Rhett, he is based in Birmingham, Alabama. And he is the CEO of ReCEED, which invests in sub-institutional operators across the country. So let's jump in. All right. Now we enter the enter the interview portion of today's podcast. And I'm honored to welcome in Rhett Bennett and Moses Kagan. So gentlemen, thanks for being here today. Thanks for having us. Thanks for having us, Charlie. All right. So I always like to start off just getting the story. So tell us how you got into the wonderful world of multi-family. Yeah, I can kick it off. So Rhett Bennett, I took a little bit of a wandering path to be honest. I have always been a generalist investor started in consulting and then ultimately ran a large multi-family office, not in the sense of multi-family office in real estate, but single-family offices, first multi-family office. And when I was there, we episodically made real estate investments. A lot of time there was around distress. I then worked, was a president of a long short equity hedge fund where we did some read investing and then went to run a large single-family office around 2018. And that's when I started to focus primarily on real estate and then ultimately whittled down to largely focused on multi-family and some industrial. Great. And I am not a generalist investor. My family always owned a small apartment buildings in upstate New York. So growing up, I was like in the business in the sense of like taking calls from perspective tenants and shoveling the buildings on snow days and that kind of stuff. But really fell into it as a professionally right as the GFC was starting my family, my brother, my parents, my brother and I bought a bodybuilding here in LA. And then the GFC happened in real estate when I was on sale and I had a buddy who was swimming in cash at the time and there weren't a lot of places to put cash. I don't know if you remember that, Jay. But some of your listeners may be getting PTSD. But so anyway, so at the time everyone thought that there was going to be a lot of inflation and that hard assets were a good thing to own. So he backed me to start buying and renovating apartment buildings. And we have renovated more than 110 buildings in LA since 2008, currently own 40-ish little buildings in various partnerships. And then we have a property management company through which we manage those buildings. And another, I think we're up to 125 buildings for third-party investors. Yeah. And Moses real quickly, you know, I'll appeal to you on social media. I just looked at it. 178,000 followers on X/Twitter. How big has that been for you and growing your presence? Oh, it totally changed my career. I mean, not to side drive the conversation, but I started, I built my original capital base and we used to have a brokerage business and then we built a property management business largely by writing online. So first at Kagan's blog, which is a blog, mostly back in the pre-social media days. And then yeah, I started writing on Twitter maybe six years ago and yeah, totally, totally transformed my life in a lot of ways. Yeah, it's good to get out, to get yourself out. You've been a model for some of the other people across the industry, both multi-family and otherwise in bacon and presence out there. So you mentioned this a little bit, but could you talk a little more about the portfolios that you all have today and where they stand, what are comprised of? Yeah, sure. So you really can think about our business in two parts. So our your Moses is references online, the Y-Comminator of real estate. I mean, there's a lot of places where we differ, but what we're doing is we're going and finding either providing seed or growth equity for up and coming real estate operating partners. So in a lot of the way that we've recruited folks or or gotten distribution is through what Moses is talking about, his Twitter presence and LinkedIn presence. But so we will back emerging operators largely focused on buying sub-institutional multi-family and industrial. And then we alongside that, we raised first round of capital over $2 million to go by small apartment buildings and industrial assets across the United States. So we've deployed a little over $100 million so far in 13 assets across a number of different markets. Great. And part of the thought process was my portfolio that I described you earlier is exclusively in the Los Angeles area. And we have learned an enormous amount from doing all those rehabs and managing those buildings for a long time. But as you and your listeners know,
the asset class can be capacity constrained. In a sense, there aren't always enough good deals for the amount of capital that you want to place. And so I was kind of in this position where I was like, I've learned a lot, but I actually don't see a lot of buying opportunities in LA. This is going back to roughly three years ago when Rhett first reached out to me about starting receipt our business. And so Rhett was coming to me and saying, "Hey, look, there's an opportunity to take what you have learned "from making all these mistakes and doing horse rehabs "in Los Angeles and apply it across deals all over the country." And that was kind of the genesis of the idea. And it's worked out. I really enjoyed getting a chance to mentor and really engage with as a partner the operators with whom we work. - Yeah, so let's talk more about this. It's a fascinating model. And Rhett, you just shared some of the numbers, 120 million or so deployed, 13 deals, believe you said, even 100 million in dry powder, investing in mostly sub-institutional operators and real estate across the country. So just to back up a little bit, what led y'all to, I guess you're going to give in some of this a little bit already, but give us some of the more context of the creation of receipt. But more importantly, tell us about some of the deals and the people you've invested in. - Yeah, for sure. Maybe I'll start with just the context. And as you said, we'll back up a little bit. So starting in 2018, I was building a real estate portfolio for a large family office, where we were really thinking about, if we want to own real estate for the long term and we want to lean into a lot of the tax benefits, what's the right structure and what's the right part of the market. And as you and your listeners know, the upper end of the apartment market is very efficient and very competitive. But the vast majority of the number of assets, last week of the assets are very small, right? Sub-100 units. And so we started partnering with local operating partners, buying smaller assets. At that point in time, the opti set was really interesting in tertiary markets. So kind of the first couple assets we bought were, you know, ones in Bendorgan, white fish Montana, saw pre-COVID. And so that went really well, but it was very hard to scale. And so, you know, the same time as Moses had mentioned, I'd reach out to Moses and said, "Hey, really like what you're doing, "we'd like to deploy capital." If that point time LA wasn't that interesting, we even looked at, I was living in Boulder at the time, we looked at its assets in Colorado. And then I went to Moses' conference reconvene. And for me, that's when the light bulb went off. I said, "Okay, as a person that, you know, I have four kids "and don't really want to be on a plane, "all day every day talking to brokers, "trying to find the next operating partner." It was obvious there that Moses had unique distribution. And so we could use that channel to recruit operating partners. And so that's really the genesis of the business was taking what we were doing on a small scale, left the family office, using Moses' distribution to then recruit and attract various operating partners, you know, across the country. So if you want to talk about something-- - Yeah, I mean, the one piece of this puzzle that Red has left out because he's being modest is that, when Red came to me with the idea, it was like, "Okay, this is amazing "because I could feel the capacity constraints "in our strategy." So I mean, and again, I knew we knew a lot about renovating operating buildings. And so I was excited to operate a larger scope, but none of this would have been possible without the capital relationships that Red brought to the table. So I went down to Birmingham, Alabama, which is where Red's from and where much of our capital is based. And I guess I didn't even know on that initial trip, kind of what to expect, but Red introduced me to a series of like, extremely successful people who had known him for a long time and were prepared to back him with very large amounts of capital. And so what on the surface looks like somewhat of, and kind of is a little bit of an experimental model in the sense of finding these operators, providing them with some Cedar Growth capital and then getting the right, but not the obligation to invest in their deals. That's like a little bit of an unusual, I mean, not a little, that it is an unusual model in real estate. And so the missing piece was having like, significant amounts of capital that we're willing to come in and back us to do that. And it's worked out. - Yeah, clearly. So just circling back then. So can you give us kind of a success story of a particular deal or operated that's been good for you all? - Happy to, I mean, we're really proud of the, kind of portfolio of operating partners we built and we have a lot of conviction that a number of them will go on to build large businesses. One that we've been very active with, kind of the last 12 months is a, Scott, by the name of Alex Wall, he is based in San Francisco. He worked his early career. He was a broker. He then went, you probably know this about San Francisco, but there are two very active buyers, Ballas Point and Veritas in San Francisco, kind of pre 2020 or pre COVID. And then, so Alex worked at Ballas and really understood kind of all the nuances of San Francisco. And, you know, as we all know, we know that story. People got very negative on the city. We were able to get Alex on board it onto the platform and then we made a couple of investments. When you're in markets like San Francisco, they have pretty high rents. Oftentimes that's where we will kind of execute Moses core, very heavy diet, playbook. And so Alex is, we have a couple of assets that are very close to, you know, coming back online. So we have a number of, putting a number of A to U's in place. And so that is a, you know, that's a great example of what we do. - Yeah, let me jump in and add a couple of things. - Sure. - One of the things I love about Alex is, like third generation real estate family. His dad's a contractor like literally will swing a hammer. So he grew up with this stuff. His family has managed parmin since before he was born. So he combined an institutional mindset in terms of evaluating opportunities with like a real kind of scrappiness that I don't think that you can really teach. And so first of all, like great background. And then from his perspective, I mean, having seen how these institutional operators have to act. In other words, they're IRR driven. They have to use a lot of debt. And as you and your listeners know, like, you know, that has not worked out so great for some of those institutional operators, just put it that way. And so I think for Alex, and I really want to speak for him, but I think it's fair to say that the opportunity to work with receipt where we're coming in and saying, they look, we'll buy these deals all cash. We have no particular exit timeframe. We'll even fund renovations in cash. And then at the point when it makes sense as long as the debt market squat break, we'll put some leverage on there and return some capital to the investors. Like that is a very appealing pitch to someone who has kind of like come up the more of like an institutional short term background. - Yeah, I know that makes a lot of sense. So that's a great example. But tell us as you look to the next chapter of this, look at other deals and operators to invest in, you know, what are you looking for? What's the winning formula look like? And I know you do multiple asset ties, but particularly in this, you know, sub-institutional, smaller multi-family space. - Yeah, Rhett, maybe if you let me start out with this one and you chime in. So the thought process behind receipt is that there are a bunch of these smaller assets, often older assets that are in well-established neighborhoods where it is very difficult for various reasons to add supply. And so the owners of these assets have, who are usually families of various types, have generally been content to sort of sit there and own them and just clip coupons for decades as the rents rise often faster than inflation because there's demand in these nice areas and no one's building anything. These assets individually are too small, typically, for institutional investors to buy. And also finding them is not so easy. It's not like you just get on some CBRE distribution list or something, it's like very often, I mean, I'll give you an example, we have a deal that we're working on right now where the operator first contacted the seller three years ago and has been texting or calling him every two to four weeks for three years to unlock this asset. And I don't want to misspeak, but I think that asset hasn't been sold in 30 or 40 years or something like that. So we've got these local people in various interesting markets kind of digging under rocks and finding these really appealing little situations where we can come in and basically sort of replicate what those families have been doing which is to say, "Only these things." Now we're willing to put some more capital than probably they are to make the assets even better in general.
higher rents and maybe get a better yield. But fundamentally, we're just going to sit there and operate them well and generate what we hope will be attractive tax advantage yields for a very long time to come. Yeah, and I had a couple of things. I think one of the things, so we're trying to find operators that we feel really understand how to analyze real estate, as Moses outline, has the tenacity to just every single day wake up and search and try to find the right assets. But over time, what we're really trying to get at is we are looking across the US. And so one of our big advantages, and I think it's important to talk about this, is that we're not, when the Sun Belt was clearly pressured in terms of supply, and our view, the market had not reprised that risk at that point. We didn't have to operate our execute there. So you ask what makes a good operator or what makes a great asset. We want to find the right athlete, but we're also very happy to be active in markets at certain points in time and not in others. And so how that's played out in real life is we didn't do anything in 2023. We had capital because the up to you set wasn't that attractive. We started doing a little bit in 2024. And if you look at 24 and 25, our activities largely have been centered around the Midwest and then the coast. Now that opportunity, we think is, yeah, I mean, it's amazing how fast capital has come back to San Francisco. And now, I mean, as you've talked a lot about, Jay, I think the Sun Belt were for the first time in our mind starting to see a setup where maybe it's time to start by assets again. So as long as we're saying, we're looking at the operator, we're looking at the asset. We're also thinking about the market. And I think maybe Jay, let me add another thing here, which is that it's one thing to say that you're investing with different operators around the country. But I think part of the virtue, the virtue of the receipt model are that because of our relationship with the operators, we're able to dictate two, a couple of different things. One is the structure of the deals. In other words, we want to own stuff long term. And that has some implications for how the economics of those deals need to be structured. Right. And so part of the problem that Red Hat when he was allocating on behalf of that family was like, okay, you can find an operator and maybe they bring the deal, but then you find some other operator and they want to structure the deal entirely and do it with a totally different strategy. And so it's really hard to build a portfolio of long term hold assets when you're kind of being shown different things. And similarly, the underwriting is all different. Right. Like you different operators have different metrics, you use different assumptions, etc. So a big part of what we've done at receipt is to kind of from top down impose on the operators standards for underwriting and structuring deals such that as Red said, we're getting pitches from operators in different markets, which are more or less appealing at a given time. We have the ability to kind of look at them in a rational way and allocate to where we think that risk adjusted returns are best. Okay. Interesting. And I want to go back. It's up to that. You'll mention about San Francisco. I've shared the stat previously, but I saw Avalon Bay sold a deal at a 501 cap rate and I thought, "Oh, that's what seems about right." And then you realize it's a 50 plus year old building. It has rent control and it needs major catbacks, renovation work. It's like, "Ah, that's a pretty hot market if that's going through." Well, you mean, we're in circle. But yeah, absolutely. I think we bottom-take-it with the two deals that we did. And I mean, obviously, we would love to buy more and it's like it has a lot meaningfully more competitive. Absolutely. A lot of capital coming back. Let's talk a little about just the state of sub-institutional multifamily at large. Most of what I cover on the podcast tends to be more institutional oriented. So in the institutional space, you've alluded to this a little bit. Just some of the challenges around particularly high-leveraged deals in the past. But now we're at a point where I think there's a lot of appetite for multifamily among investors of all types. But it's really hard to access LP equity. And obviously, the larger the deal, the more complicated those cap stacks can get. They're finding debt, but still hard for equity. Is it any different in the smaller sub-institutional space given that these check sizes are going to be smaller? I do think it's different in that as you've alluded to, if you, it's a game of numbers and if you need a million or two million or three million dollars to make investment, there's just a lot more folks out there that can potentially provide that capital. But I think, we look a little bit different in that we're raising capital that's what's called semi-institutional. And we raise an initial round of capital and then we've got to put our head down. So I probably don't have your great insight into what it feels like to go raise on a deal-by-deal basis. But for sure, capital availability is challenged relative to what was three or four years ago. But maybe the more insightful comment is that it's very clear, like if you fit the institutional box, if you have a relatively new asset that's maybe a lease up story, a market that has growth potential, there's a lot of capital for that. The minute you get to something that's not financeable, and so we think a lot about what makes our capital advantage. So if you look at places, maybe a deal that they have an investment of the Capax and now we're 80% occupancy and that's a lot of examples. I think that those types of setups where leverage availability is fairly limited. I think that's where capital is scarce and where we're trying to focus our time. Yeah, let me give you an example, Jay. We bought a portfolio with our operator in Philadelphia of small, these are like 150-year-old buildings in a historic zone where it's impossible to add more supply. Gorgeous, walkable area, beautiful buildings. Actually, in reasonable shape, we bought it all, though definitely with a lot upside, from renovating the units to more modern standards. This is a portfolio of assets. The seller wanted to sell them all at once. These are like three and four unit buildings, many of which, like I said, they were reasonable shape, but putting together the financing for something like that would have been insane. I mean, I don't even know that it would have been possible. So our ability to come in, take down the whole portfolio, all cash, and one go, and then really work through what is effectively a series of little art projects in order to put these buildings back together. That's really unique. I think the seller obviously appreciated it. I think the operator also appreciates it because it's like where else do you find someone to put up the capital for that? In the end, we'll end up with literally an irreplaceable portfolio of assets in a great area. Nice. Then buying these is one thing, but operating them is a different thing. In Moses, you've talked about this very candidly in Southern California, but that's happening everywhere. Since COVID, we've seen increased regulatory costs, litigation costs, expense pressures, and that affects everybody of all sizes. What do you see? How could smaller operators drive operational efficiencies? I'll tell you a big theme, I hear among larger operators. They're talking about AI, they're talking about efficiencies of scale, a lot of other things. How can smaller operators drive efficiencies like that without having the efficiencies of scale of a larger provider? Red, maybe, let me take this to start with, then you can jump in. One of the things that has really surprised me about our business, because in Los Angeles, we operate all of our own buildings. We're not perfect. We make mistakes. Because I own the operation, we created it. We know how it works, and we're pretty efficient, I would say. As we started to assemble this received portfolio, what I think surprised me and I know surprised me as well was the standards for sub-institutional property management are, let's call it variable to be nice. One thing to say, and Red, I think we'll talk about what we've done to address that issue, but it is shocking how disorganized, irresponsible, incompetent, some property management companies are. My starting point would be we could talk about the systems and stuff you have to put in place if you're going to deal with a lot of these companies at the same time. But if you're just an individual operator and you own one or a couple buildings, and you've hired sub-institutional property manager to watch them, for the love of God, look at what they're doing because very often what they're doing is not okay. Yeah, I think that there's a lot we could talk about here. I think that we try to talk to our operators and some of our operators have their own property management business. And so, if I take step back, part of our diligence before we enter a market is me.
meeting property management companies, looking at their accounting standards, visiting some of their properties, looking at their website and content, just to see if they, if we wanna entrust them with an important asset. So, but some of our operators have their own property management businesses, which can be helpful at this point. But I think the main point is, especially in this area, and maybe up the scale, there's a fine line between property management asset management. For us, we're not drawing that line. It's, we have to really be all over the property managers, and we're looking at data on a daily basis. We're making sure that when we get leads, they're converted very quickly. And so every aspect of the business, you just have to manage it very aggressively. That's the bottom line, but, you know, JD, your question that doesn't always scale. And so, you know, there's a, but at the end of the day, we're trying to be great fiduciaries and less worried about how it scales and more of, how do we impact asset performance? - And I would say that, what, I think one of the surprises that the operators have experienced working with us is, we are extremely hands on. We are devoting an enormous amount of resource at the receipt level to like literally go down to the transaction level in the books of the property management companies and basically rebuild the financials. And then, and then, - Do they like us? - No. (laughing) Well, but it's like, you know, as Red said, like we're fiduciaries, like at the end of the day, we've created a business where like we are handing large quantities of capital to operators who we like and we've got to know, but like fundamentally, Red's reputation, in my reputation on the line here. And so we just can't, it's not like I hear some money, like, you know, cause back in a couple of years when you're ready to exit. It's like, look, no, we're serious about this. And that means like being all over the operators and then, and their property management. - Absolutely. So, I think that leads to another question then. So, in a place like Los Angeles, you've also mentioned San Francisco, obviously, you know, great cities, but they've been tough to operate in. And we've seen some larger operators just say, hey, look, like we don't want to be there, but that also creates an opportunities for local sub, particularly sub-institutional operators. And so the question I want to ask you, is I think you guys have unique, you know, purview or a view of this, is that how can smaller operators who know these markets really well and take advantage of the fact that maybe there's fewer large-roppers in these markets because they see the regulatory, the political risk, the headwinds, but at the same time, still account that you do have heightened risks outside of your control. - It look, it's a tough one. A couple of things to say is one, we have had, and I think this is reflected in how we've raised money for the San Francisco deals that we've done at RECID and also how we've raised deals for buildings in Los Angeles. It is typically the case that local investors are more open to taking that regulatory risk than national investors would be. In other words, like it was surprisingly difficult to convince someone in Alabama that they should maybe invest in San Francisco, but it's actually, but people who live in San Francisco and are seeing the city turn around and all the jobs and the rent growth and everything are like, yes, I would, you know, like, where do I wire the money? So that's the first thing to say is I think that it, you ought to kind of try to match the capital to the market, that's one thing to say. Another thing to say is, and this is, I think a virtue of the RECID model, there's this tension for operators where if you're a local operator, you're going to tend to be concentrated in your local market. And therefore, as I am in LA, you are extremely vulnerable to changes or, you know, to worsening in the politics. And so what is, one of the things that's interesting about the RECID model is that we can, because we're across a lot of different markets, we kind of can make those risk-proward decisions and not be so concentrated in any one particular market that a regulatory issue in one market kind of ruins our lives. - Yeah. - No, that's a great answer. - The only thing I'd add is that, I mean, it's also just a communication challenge, as you know, Moses said. And we are, we tried to help our investors understand that oftentimes those markets that have the best supply dynamics come with this regulatory pressure, right? So like, you're going to face, you know, I'm in Birmingham, Alabama, you've talked a lot about Huntsville. So yes, it is a lot easier to operate in Huntsville, Alabama, but I can assure you that San Francisco's not going to see a 20% increase in the year. - That's right. - In the year, three years, right? - That's it. - So there's puts and takes in all these markets and just making sure that we communicate that clearly. And that the strategy that you're executing is a lie into the dynamics of that market. - Yeah, that makes a lot of sense. And I think that's why it seems like a lot of capital leave sub-institial and institutional, like some of these Midwest markets right now, because you don't have the supply risk and you don't have as much of the regulatory risk in some of these cities. - Yep. - Well, gentlemen, this has been great. I appreciate your time. Thanks, let me pick your brain. And best of luck is you're selecting the next round for receipt and excited to see what comes next. - Really appreciate it, Jay. Thanks very much, Jay. (upbeat music) - And that's a wrap on episode number 77 of the Rent Roll. Big thanks to Moses and Rhett for being our guest today. And thank you to JPI, Madera, Funnel, Mason, Joseph, Authentic and TeleCloud for sponsoring today's podcast. And thank you to all of you for spending part of your day with us. We'll see you next time. (upbeat music)
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