Audubon Crest, Oakwood, GA
Welcome back to another exciting week! Hope all is well with you, and I trust your week is off to a good start. The last couple weeks of travel were very productive on my end, but I’m glad to be home (for now). I miss seeing the fam and even though the drama sometimes drives me crazy, I wouldn’t trade it for anything! It’s also nice to get back focusing on our Avenue33 closing that is coming up in a couple weeks! We moved up our original closing (to lock in our super low rate). Here’s the link to reserve your spot if you’re interested.
PLAYING DEFENSE TO WIN
On last week’s CEO blog, I talked about what it means to be a well-capitalized operator (and why that’s especially important now). This week I want to talk about what it means to be “defensive” in times of uncertainty so that you can reduce your stress and make critically better decisions during times of uncertainty.
Defense…offense…how does this apply to multifamily? Offense is taking advantage of opportunities. Defense is preparing for opportunities that don’t turn out. Not all opportunities are successful. Not operating with this reality is a great way to redo 2008/2009. However, you can’t really start/run a business without playing offense. It’s the nature of entrepreneurship. You take a calculated risk, you work your tail off, you get paid. That’s offense. We do it every day. Defense is preparing for the unseen. It’s being a good chess player – when life throws a hundred moves at you, have a thousand moves in your repertoire ready to go!
As an example, we’re working on a second development deal that will encompass over 70 acres of a master planned site with potentially 800 multifamily units, multiple commercial pads, and a little bit of retail. It’s going to be an absolutely amazing project. However, it’s a big one for us and I can’t afford to have any major hiccups. Given where the economy is at today and the potential for a recession, we’re also playing defense by giving ourselves options as we develop this piece of land. One option we’ve created is to split the 800 units into three phases. That way if we finish one phase and decide/realize that the market is too soft to handle the next phase, we can pause the development and wait. We’re out the cost of the land (temporarily) but at least we’re not floating another $100MM in debt. That’s defense.
Another example of defense is our insurance program. Thus far we’ve used one-off policies to handle coverage. Now we’re developing a master policy that will allow us to both manage risk better, get better coverage, AND achieve portfolio wide savings. Furthermore, that master policy will be a segue to a true captive program where all three of those benefits will really accelerate. By lowering our operating expenses we’re giving ourselves more fudge factor which means our deals will stress test even better!
From an operational standpoint, we’re playing defense by building out our own CAPEX teams throughout the country. This lowers our overall cost of completion but also gives us better quality control and visibility. I want us to have the best value for the rent so we stay full if things get rocky. It’s all part of our strategy to provide a sustainable investment that withstands the test of time. If this is something you’re looking for, we would love to have you join us on this journey!
I’m really excited about being able to add such a beautiful, newer asset to our portfolio – and in such a great market. I continue to see job and population growth all over the Atlanta metro. North Atlanta is very pricey, admittedly, which is why we search for growth pockets that are less over-worked by everyone else. Avenue33 sits in one of those pockets and benefits from the ongoing growth of the airport, industrial and retail trade, and health care expansion. We’re also seeing an uptick in potential resident traffic as home ownership becomes increasingly unaffordable for folks. With interest rates pushing the cost of home ownership way past the cost of renting, apartments managed by true operators will really outperform over the next 1-2 years as the economy struggles through this inflationary period.
I found out yesterday that we just locked in our onsite manager – someone we’ve been wanting to bring on the team for a while. The right people and the right deal! We’ve also internally raised our rent projections since the property is already exceeding our year 3 projections. I like being in that position. I can’t wait to roll out our HVAC upgrade and watch the work orders drop, the turnover drop, and the numbers start climbing. Combine that with some strategic interior renovations and a modern farmhouse look and it’s going to be fun seeing the positive response.
Even though interest rates have gone up quite a bit recently we were able to lock in an interest rate back when we started this deal that allows us to begin our monthly distributions immediately after we close. Here’s a cool stat – interest rates would have to double and stay there for five years before we would need to dip into our rainy day fund. I stress tested the deal at 8.5% we were still able to refinance. But since we’re fixed for 5 years it’s kind of a moot point. My bet is that we’re actually lower on rates in 5 years than we are today. And I rarely mention this except in the webinars – but we’re also expecting a larger than usual tax loss (because of the recent renovations that were done by the current management company) and a 70%+ profit distribution to our investors when we do our refinance. This is why we like multifamily!
Video Promo Nothing beats being able to see the property and its surrounding areas. We’ve put together a nice video showing highlights of the area.
Live Webinar Replay
If you really want to dig into the details but didn’t get a chance to see the live webinar, here’s the replay.
Here’s the short version of the webinar replay – just the slide deck!