Cottonwood Dallas, Dallas, TX
Well, this is always a sobering time of year for me. I’ll never forget standing on top of one of the buildings I managed in the NYC area and seeing the twin towers burning. It was a very sad day. I thought about all the good people who lost their lives. I thought about the job interview I had a few years prior on the 92nd floor for a job I really wanted at Morgan Stanley. I could have been there. Today I think about my duty as a father to teach my children the principles of liberty and self-government. To teach them that freedom isn’t free and that one day, they may be called to serve and protect our freedom. And to remember the principles upon which our nation was founded and study our history to understand why so many have given their lives for what we have today. It wasn’t free.
I think those same principles can be applied to our business as well. We work hard to ensure the ability of our residents to have a safe, comfortable environment by managing our investments in a way that rewards those who pay their rent and take care of their homes. Good principles make good business makes a good investment.
PERSONNEL UPDATE
The ultimate risk hedge is having the right people in place.
I’ve been on the search for a couple key positions recently, and I’m excited to say I’ve had some great interviews. There’s some great talent out there, and our recruiters have done an awesome job of helping us identify those folks.
Our first position is on the capital projects side of the house. I decided about a month ago that it was high time to bring on a director of capital projects. And once we started going down that path, I realized that we essentially needed to create a whole new vertical at REM to accommodate our growth. With all of the value-add renovations going on, we need an experienced, highly-qualified individual to run all of our capital projects. We’re $700k/month and growing in capital project expenditures in the budget. That’s an $8.4MM annual revenue stand-alone construction business. Not huge but nothing to sneeze at.
Our second position is on the accounting side. I hired a controller last year, and it didn’t work out. Now, with a much better “army” of recruiters assisting, I’m seeing some top-notch candidates and am working to hone it down to a few finalists. Leading the accounting department here at REM is no small task when your boss is a CPA. I also believe in the tremendous value that good financials and constant improvement can bring to the organization from the right person running the accounting/finance side of the house.
While interviewing is hard word, I’m very excited for what’s ahead as we get these roles filled and let our new team members help us drive forward.
ECONOMIC UPDATE
I’ve had some folks mention concern about the current interest rate environment, and its effect on our investments. It’s a fair concern. I think the rising interest rates will take a bite out of our cash flow returns in the short run. On the flip side, I see one challenge and two positives.
The challenge is to keep up with inflation. Money sitting around is losing value. Waiting for the winning lottery ticket to drop is a fool’s game. Therefore money should stay invested in hard assets that cash flow to hedge against inflation.
The two positives. First, I am positioning us so that we have a lower cost basis (15-20% discount) vs last year. That’s essentially “free” upside. And two, I’m utilizing debt that can be refinanced in 12-18 months so when the rates drop back down we can secure long-term fixed rate debt at a much lower cost.
In the meantime, our rents continue to increase quite a bit, and our cost segregation tax losses are intact at 100% until 12/31/2022, so I continue to believe in our investment thesis.
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