The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
Remaining nimble and able to adapt in the ever changing real estate realm allows you to make surprise money in various areas. For instance, if a property you’re interested in, and have strategized for, can be combined with a neighboring property, this is a bonus or surprise type of scenario you should be able to prepare for or adapt to. Without being able to adapt, you may have to lose out on these lucrative deals or opportunities.
Richard Wilson: Since multi family properties have been popular institutions for some time now, what niche or type of multi family assets do you focus on still and you can still make money in that area?
Teddy Hendricks: Thanks, Richard. We actually look for properties that are owned by institutional groups and larger owner operators. The larger owner operators sometimes streamline operations so much that we find opportunities to tighten expenses or increase our revenue just by simply changing management. You know, oftentimes these larger operators they do things a particular way and they deploy that over thousands of units, and we’ll find very quickly opportunities to either cut that or drive revenue by things that have just been neglected over time. So that’s one area that we try to focus on. We also try to covet properties that are in smaller tertiary markets, much of the older apartments in stock in the larger markets, the primary markets, they’ve often been renovated and sometimes 4 to 5 times by various owners in one real estate cycle. So we’ve established hyper local knowledge. You know, what we’re doing within our investment platform is not only looking at strong tertiary markets but the micro-location within that tertiary market.
So, finding a well located property is critical, obviously, but in being nimble enough to dive into these very micro locations, we’re often finding value in places where institutional owners often overlook for various reasons. And then I’d also say additionally given the nature of our fund and the structure of our fund, it’s landed itself to a variety of different options in terms of our value creation strategies. Anecdotally we were able to buy a property in North Carolina with the full intent of deploying a very particular or specific value creation strategy and inadvertently the neighboring property was able to be acquired off market. So we acquired that property, merged the two properties, totally revamped our value creation strategy to a holistic approach to encompass two assets and managed them as one.
So, just ability to be flexible and nimble and adjust different strategies as needed has been very successful for us.
Richard: Yeah, and that’s great. I just got back from a trip because I’m on the board of a real estate company and they did the same thing. They had a multi family property, they went to get permission on the easement on the property next door and ended up buying that property and expanding it, and relative to your comment earlier about tertiary markets it used to be that people went to Denver or Nashville for the better quality deals and now there’s enough competition that I know a lot of firms are looking in places like Jacksonville or Tallahassee or, you know, St. Petersburg, Tampa, or kind of another half-notch more tertiary than it might have been maybe 5 to 7 years ago or 10 years ago. Trying to stay a half step ahead of the institutional flow of capital that’s searching for that cap rate they need, so appreciate you sharing all of that.