Melissa Houston, Director of Sales at Juniper Square, spoke with Robb Bollhoffer, Managing Principal and Director of Acquisitions at 29th Street Capital, a privately held real estate investment firm based in San Francisco and Chicago. Robb’s responsibilities lie on the acquisitions side of the business, where he specializes in growing and managing the firm’s large portfolio.
Below is an excerpt of that conversation.
Before COVID-19, we saw pricing getting very expensive, so over the past 18 months, we sold roughly 20 assets—mostly in Las Vegas, Phoenix, Chicago and the Bay Area—and refocused or redeployed our capital to newer assets in other regions.
Right now, we really like Sacramento, and are building 3,000 units there. We believe that state capitals will continue to hire.
We know the world changes, and we don’t want to ever be put in a box. I want to be able to pivot. Single family overpriced? Go into multifamily. Multifamily overpriced? We sold it all and then went into core plus. Now, what’s next?
I believe strongly that brand new, Class-A product that’s just getting delivered will struggle. People aren’t touring units. They aren’t leasing. Our renewal rates across our portfolio are close to 80 percent. Everyone will say Class-C product is struggling. That’s the demographic that works in restaurants, hotels and that’s all over the news. I can tell you that is not true. That’s the demographic that’s benefiting the most from the CARES Act. They are getting unemployment and moonlighting and getting paid cash.
Regarding opportunities, we are looking hard at student housing. This product is a bit of a mess right now but I believe long-term the college experience is irreplaceable.
People aren’t touring 10 properties anymore. They’re touring two or three and then picking one. Affordability is a huge problem, so if you can get them in the door and offer a nice product for a reasonable price, you should capture them. That’s what we’re doing. Our product’s pretty affordable. Our A’s are stable, they’re renewing and we are retaining 96% occupancy. Collections are also around 97% so our portfolio is holding up well right now.
Communicating with investors
We send weekly or biweekly notes to investors, and they’re a thorough description of what is happening on the ground. Through this crisis we’ve been upfront saying, “We’re scared. We’re nervous. We’re fighting like hell to get you your money and preserve capital. But we’re also trying to be human and help people.”
The feedback we’re getting from our investors is, “Your communication is off the charts. Thank you. I have tons of headaches, but you aren’t one of them.” It’s hard to put numbers on that, but it’s definitely creating value and makes you sleep better at night.
I think people are accepting that it’s a different world right now.
Building for the future
Our focus has been on people. We’re acquiring some significant talent on the team. It’s reminding me a lot of 2000, right out of the tech bounce. We hired four people last month in our development team. We’ll hire five people in our general contractor company. And then on the acquisition and asset management side, we’ll hire six people.
The deal pipeline has been slow. All of us are still trying to figure out where the market is, so where do you focus? We are focusing on our current market that are “bold on” acquisitions so that we can control costs and leverage our existing platform.
There’s no discount right now. We’re 1.5 percent to 3 percent. Multifamily is holding on strong. The way you can look at it is single-family construction has stopped similar to 2008-2009 when we fell behind on supply. Now that it’s gone to zero, you’ll see a lot more demand. Apartments will be a good long-term investment. I wouldn’t be playing with office or hotel investments now.
The family office world is going to explode. It already has. In the late 1990s, it was very tiny. The fund world was big. REITs were massive. Now, REITs have gotten smaller. The fund world has picked the winners and they will get larger but the others will tread water. The family office industry will continue to expand. After the Great Recession of 2008 hit, people realized these funds aren’t incentivized the right way. Investors said, “I’m out but I’m not retired. I’m going to work with friends and continue to invest but become more active and create a family office.”
In this cycle, it’s going to get even bigger. Investors want more control and transparency. If you’re a private equity fund, you’re going to invest in 29SC. The fund gets a promote and we get a promote based on performance, so that’s about 600 basis points of spread. If you get with a family office and go directly to 29SC, we do no marketing but word of mouth, you’re going to get to me. And that’s about 250 basis points of spread, so it’s pretty big. If you go from a 20 IRR to a 14 IRR, versus call it a 16 IRR, when you’re talking millions of dollars, that’s pretty massive.
Creating efficiency with Juniper Square
Before I had to manage everything on paper documents. We have to do PPMs and investor documents, and make sure you’re a qualified investor. People fill them out wrong, and it’s a headache. Now with Juniper Square that process is so much more efficient. I have the ability to quickly send decks to hundreds of people.
Usually new investors will offer $50,000 as a starting investment. Before, we’d say no because $50,000 is a lot of work. I have to do a PPM, taxes, and legal documents so there was a large cost associated with each investor. Now, we can say, “Come on in. Put your foot in the water and see if you like us.” And that $50,000 can turn into millions very quickly. We went from 60 very large investors to 600.
Right now, a fund would take 12-16 months to raise but with our current deal-by-deal platform, we can execute on current opportunities. You know how massive that is? That puts me so far ahead.
Join our next live broadcast on Tuesday, June 30th to hear Robb share more of his thoughts and perspective: Managing Multifamily Assets: Perspectives from 29th Street Capital and Waypoint Residential.