← The Kirsh Connection
The Kirsh Connection
Inside LaTerra’s $455 Million Chicago Portfolio Multifamily Acquisition -
00:46:48
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- [00:01]
A
Hi, I'm Andrew Kirsch, co founder of Sklar Kirsch. On this podcast I interview industry leaders. You'll hear their real time opinions on today's market, their background, unique career highlights and guidance for newcomers to the industry. This is the Kirsch Connection. Welcome to another edition of the Kirsch Connection. I get a lot of feedback on the podcast, which I appreciate. And one request was to do a deep dive into a recent real estate transaction. And so this week we have Chris and Charlie Tortolote on the show to talk about one of their or their most recent acquisition, a bellwether portfolio acquisition of seven properties, close to 1500 units, approximately a $500 million acquisition of of seven multi family properties in the Chicagoland area. So we do a deep dive into that transaction, how they sourced it, the equity, the debt, and why they like the Chicago market for multifamily. So I hope you enjoy my episode with Chris and Charlie Tortolot. Welcome to another edition of the Curse Connection. I'm here with Charlie and Chris Tortelat of Latera. Guys, welcome to my studio.
- [01:25]
B
Yeah, thanks. Great to be here.
- [01:26]
C
Thanks for having us.
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A
I know, Chris, you and I did a podcast. Maybe a year, could be even two.
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C
We did. Time is elusive. Might have been two years ago.
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A
I know we did it virtually. Now we get to do it in person with your father.
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C
Much better and your beautiful new digs. We love it.
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A
Yeah, no, it's fantastic to have Charlie in. And you know, we were talking before how several of my listeners have suggested or asked, hey, Andrew, you do so many transactions. What about doing a deep dive into one of your bellwether transactions of your clients? And so I thought no better than to discuss the one that you recently closed in Chicago. But before we get into that transaction, no offense to you, Chris, because my listeners already heard about you.
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C
Yep, yep.
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A
We want to hear about Charlie. We want to hear about, you know, your background, Charlie, how you founded Litera. So why don't you start from, you know, the beginning? Where, where did you grow up?
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B
Rhode Island. And when I'm in the LA area over the years I've learned that a lot of people don't know what that is. So I say it's a state back in New England. So. Yeah, but, but I migrated from there fairly early in life and went to Colorado from there.
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A
Okay, and when did you move to la?
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B
I moved to Southern California in gosh, I guess it was about. It was in the late 90s.
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A
Okay.
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B
Yeah.
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A
And how'd you were you Always in the, in the real estate business or what was your background?
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B
Yeah, always. It, it was even before I got out of college. I went to University of Denver and they have a really good business school there, the Daniels College of Business. And one of my professors lured me in to work with him before I even got out of school. And so he and I teamed up and bought 200 plus single family homes while I was still in college.
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A
Wow.
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B
And shortly then thereafter. But he was a real estate tax and securities lawyer so he taught me the skill of syndication and transactional work because he was just a master of really that too. So he was a really, I would say primary mentor of mine in business. And so we did and we formed a company to own and operate these and it began to be more than I really wanted in an operational way because I wasn't really built to be a property manager, but we did. I was running the company that ran the management, but ultimately that wasn't the right fit for me and I got, I got a good break and moved over to one of what was then one of the big six real estate syndication companies of the day. And it was the Robert McNeil Corporation. And I was hired to be in their western office to western US office to be an acquisition specialist. And so I learned how to, that's where I first learned to buy multifamily apartments, which is a skill set that just can't, I can't shake. I mean it's a, it's a thing I can't shake, I should say. And so then from there I went over to the Consolidated Capital across the bay, over to Emeryville. They were located in, in San Mateo. And so I went across the bay to Consolidated Capital and worked for them as an acquisition guy, multifamily primarily, and between the two ended up acquiring over 12,000 units.
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A
And what time period was this?
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B
Oh gosh, that one now is going to take me back a bit, Andrew. But I think it was, I think I was between the two about 10 or 11 years maybe. Yeah, a long time.
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A
But you were transacting in what, early 80s, mid-80s?
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B
Oh yeah, I would say that's exactly right. Early 80s, probably to start, not to
- [05:42]
A
date you, but just assuming, you know, dated, believe me. So, so when, when you're transacting in the multi family business or even in those single family homes and interest rates, you know, know what we heard about, obviously Chris and I didn't transact then in the mid to high teens and here we're complaining about, you know, a 5 6% interest rate environment. How did people make it work? How were you able to create cash flow with interest rates at that level?
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B
Well, you know, remember I started in the single family acquisition business.
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A
Right.
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B
So at that time, that was the run up, I think it was. Jimmy Carter was president at that time. And I think, I don't know if prime went to 20 or 21 or it went way up. And it created part of the opportunity, which was to buy from owners who were kind of stuck in their homes. But we bought them, I would say, mostly VA and FHA assumable loans. And so at that time that was sort of an easier thing to get done. Right. Because we. That was the senior debt on the deal. And so we just put a little bit of equity on top of each. Each one. And that was the syndication part of my experience.
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A
Yeah. Chris, could you imagine transacting in an interest rate environment that your dad was transacting in?
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C
I could not. I can barely imagine it today.
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A
Yeah, we can't even imagine 6%.
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C
Yeah, exactly.
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A
Triple that. And so take us through your career. You know, what, what did you do next?
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B
From there. And that was a long time. But from there after the. It seems like political influences change my destiny sometimes. But the 86 tax act came in and that caused the syndication business to ultimately flame out because there were not. It was funny, a lot of people don't know that tax benefits went away with that act. And even though it was Ronald Reagan, it was. The tax benefits really were significantly diminished. So I would say, you know, after a while, after the 86 tax act and not long after, I went off on my own, became entrepreneurial and did my first deal actually with Jay Kaplan, who was president of Consolidated Capital. And we bought a property in North County, San Diego together. And that was a value add deal. So that was my first value add apartment deal.
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A
And then when did you end up forming litera?
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B
2009. Okay, 2009. So there was a little bit of gap in between those two things. Right. And so we can just skip over a little bit of the golf parts. But when things were really tough after the 86 tax act to really continue to get deals to done, we. I went into the golf business with Pete Dye's older son, Perry Dye, who's a good friend of mine from Denver. And he, I don't want to say I used it already, but lured me in and he kind of did. Smoking cigars at his pool in Paradise Valley, Scottsdale area. He said, charlie, why don't you come over and Work with me, you know.
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A
And so what did you do in the golf business?
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B
And so I did. He said, you know, we got people over here to know how to design golf courses, but nobody knows how to. Nobody knows how to buy any real estate around here. So he said, but you're going to learn how to play golf. And I didn't know how at that time. So I went over there and we started a subsidiary called die equity. And die Equity, as soon as I got there, there was a set of golf club. Perry met me with a set of golf clubs in my new office and said, you're going to learn how to play golf and get your bags packed. We're going to Japan. So we got in an airplane and went to first Tokyo and then some other places, Osaka and a couple other places. But he had relationships around the east, the Far east, that just loved Dye as a golf course architect who wanted to invest in US Golf and related. So went over and did a deal with Dunlop Sports of Japan and then another company, Fuji, not the food, not the film, but the bread company there. And those were two very good starts for us. We came back with quite a bit of money in just one trade. Committed capital, I should say.
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A
And so did you. Were you buying golf courses or.
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B
Yeah, the game plan was buy and develop and also operate at some point. So we did. We had golf courses all over the country, from Orange county at the Los Alamitos racetrack to. To New Jersey and. And. And Chicago. We had one in Algonquin in suburban Chicago. Longest par 5 in the state of Illinois. And. And so. So I did learn how to play golf. I learned about golf. I learned about design, and I learned about how, you know, where the landing areas are supposed to be and things that I suppose should make me a better golfer.
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A
And are you?
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B
I'm gonna say I. I don't think I am. I. I can only say I want to be better.
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A
Well, there's only two types of golfers. Those that have vanity handicaps, and those handicaps are a lot lower than they really shoot.
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B
Right.
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A
Or there are sandbaggers who are much better than.
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B
We don't know yet which one I am. Do we?
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A
I know that. Not together, but separately. We have played one of the. I don't know, is it the most secretive or unpublicized, unbelievable golf course in California called the Institute?
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C
Yeah, it is. It's called the best golf course you'll never play. That's the one review that I read online from Makaddy, but it's immaculate. And very well done. Yeah, owned by the. Yeah, owned by the Frye family. We have a venture with them on, on various Fry's projects. And it's very, it's a cool, exclusive little club with, you know, Steph Curry and other cool members.
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A
Victor Coleman was sitting in your seat, Charlie, a month ago. And he's an avid golfer. I think he's a. He said he was a member of Hillcrest and Riviera, maybe Bel Air. And I told him about the institute. He said I'd never heard of it. And he thought he had known every, you know, top end golf course in America. I said, well, you got to play the institute.
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C
Yep.
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A
So what led to the start and the founding of Litera in 09?
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B
Well, I guess it's fair to say that if, if I had a golf company, I left Dai because the Japanese had a slower economy occur. And they said, they called me one day and said, charlie, we're, we're out. And a super friendly, just great, great people. And they said, we're out. Let's divide everything up and go our separate ways because we can't invest anymore. And so then I started my own golf company and with Parry Dye's blessing, and he said, take any deal you want with you. Just give me the design work, if there is any.
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A
Wow.
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B
And so I did just that. And at the time, I was working at a downtown Chicago site of old rail yards at Lakeshore and Wacker in Chicago. And owner was Metropolitan Structures. And I'll never forget this, Bill Purdy of Met Structures. I called him up and said, I need to come see you. So I walked in his office because we had been talking while I was at Dye, and he wanted me to do a die course there on those rail yards. And so I walked in his office and he said, I gave him my new business card. He said, it doesn't say DAI on it. And I said, no. He goes, oh, great, who's in your new company? And I said, you're looking at them. So that kind of shocked him a little bit. And he thought for a minute. We walked over to the window. I don't know if it was 80th floor. It was way up there, right? And I was starting to get vertigo. And he. I remember this. I was in my early 30s, right? And he said, you mean you want me to, you want me to lease you that land, that valuable real estate down there for 15 years to do a golf course? I said, yes, I do. And he thought for a minute and he said, this must have Been the golfer in him. He said, okay, if you can deliver dye and get the money, I'll do it. And I already knew I had dye. I just didn't know yet where the money was coming from. I shook his hand, walked out the door and said, called my attorney. I said, start drafting the ppm. We're going to go raise some money. And I walked up and down La Salle street for I don't know how long. And I like to say I knocked on 99 doors and everybody said, get out of here, kid. What are you crazy? We're not doing that. I said, okay, so I'm going to keep going because I just believed in it so much. And I went to that hundredth meeting and I'll never forget this. I remember Jack last day at Rodman Renshaw looked at me and he said, charlie, I love this deal. I said, you do? You do? Yeah. Great. And so he said, I can raise the money almost overnight for this. And he did. And with Dye and Wadsworth Construction, we built a nine hole best of die par threes.
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A
This is the one in the middle of downtown Chicago, right? Right off Lakeshore.
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B
Yeah. I can't believe that I had to get it approved. And with the alderman, you know, the city stuff works. But I did and built elevators because it's all multi story streets there, you know.
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A
So is it still there or did they build. I thought they built a hotel on it.
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B
Well, it was right where the Swiss Hotel and the Fairmont is. But the site itself was zoned for office and nobody's building office. That's why they needed an interim land use and that's why it was a 15 year land lease.
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A
I see.
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B
But we had takedown parcels, right. So every time a building had to be built, they took down a parcel and we designed it so that it could go as long as it could as an operational golf facility. We had 100 station driving range, double ended driving range with natural bent grass tees, and a clubhouse. And I mean it was, it was super successful.
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A
I remember I went to North. Well, I went to Northwestern undergrad, but that's in Evanston. But I also went to Northwestern Law School.
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B
Oh, you did?
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A
Chicago Avenue in Lakeshore Drive. And I always was fascinated by this par three golf course in the middle of downtown.
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B
We had 17 at Sawgrass, the, the replica hole. Yeah, just like it.
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A
Just incredible experience.
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B
Yeah. So it became very popular and Erdie Banks joined my company just as a kind of advisor on the board. And we went public and so took it public, ran it as a nasdaq, not just that golf course, but I think we had a dozen or more around the country at that point and took it public and ran as a NASDAQ traded company for two, three years. And then another company made us an offer that we couldn't refuse. I know it was public, but I did have a large block of the stock, so we sold. And then after having sold, then this transitions me to the next and almost final preceding business. Before Latera, I moved to San Diego and I just on the street ran into somebody I knew who was in the apartment business. And he said, hey Charlie, let's. I heard you got some money in a balance sheet. Let's go build some houses. I've got a lot. I've got seven houses going to go build some houses together. And I said we are. I said, I don't know anything about building houses, so I know how to buy apartments but not build any. So. So he said, so we did and we got started and he didn't know as much about building homes as I had hoped. And so ultimately I had to buy him out and take over. And then I continued on and built. I don't know, between me and my team, we probably did almost a thousand homes. Wow. Which became a pretty big home building operation. Successful.
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A
What was it called? Sorry, what was it called?
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B
It was. The last was Shoreline Communities. Okay, okay.
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A
So what's more difficult? Building golf courses or building homes?
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B
Homes. Golf courses are relatively easy once you start. It's really a big landscaping job.
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A
Right.
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B
For the most part. But so we built a lot of homes and then the music stopped in. What was that, 0607 and had to do a little, you know, sweeping up from all that. But I kept going after. In 2009, that's when Latera started. I still had a little bit of money left and a lot of good relationships. And the banks started calling and they said, hey Charlie, you did great for us. Can you take over some of the land? They had a lot of reo. A lot of the banks and lenders. And so we started buying land from lenders and re entitling, repurposing and ultimately then reselling back to home builders. And so we didn't build any for really any Latera. We just had a big land portfolio. We had, I don't know, 400 million at one point maybe in land all over LA county mostly. Sure. Which is what caused me to move to la because from San Diego, because there was just too much business here and not enough in San Diego. So. So that's how Latera started as. As a land entitler and. And designer and reseller, and we made pretty good money at it.
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A
Yeah, I remember those days during the gfc. I was at Goodman Proctor. We had been representing Lennar. We were representing Sun Cal.
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B
Yeah, all those guys.
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A
I know, David Schwarzman involved during those days. And those were some interesting times.
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B
We became the forward planning department for a lot of the public home builders because nobody wanted to have land on the balance sheet. So once a month or so I'd get a call from one of the public saying, hey, Charlie, what do you have this month for land that we can buy? Because we had lots, you know, we were basically paper lot ready to go.
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A
Yeah.
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B
And so it was an interesting time, which really brought me to changed the company just organically because a broker who was selling land said, hey, Charlie, would you ever consider doing a multifamily deal instead of single family? I've got this site in Orange county and the city just won't do townhomes or single family anything. You got to build something that has bulk and mass. And I said, you know, yeah, let's give it a go. So we did. And it was in a kind of a transitional area. Very difficult. Chris remembers this because this is right before you joined, I think. Yep. And so it was hard to find LP money, just like today. I mean, it was, you know, no LPs were out there looking for kind of stuff like that.
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C
Yeah, I think we got a. That was another example of, you know, a hundred no's, basically.
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B
Yeah, yeah.
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A
No, to me. I mean, from that golf story to this particular story of at some point do you just throw in the towel and give up and say there isn't going to be capital for it, or you just keep chugging along and you will not accept that there has to be someone out there that believes in this project, just like you guys.
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C
Yeah, I can almost answer that for you because, you know, having joined Latera right at that time, it's the latter. You know, I was largely on point for that capital raise alongside my dad. And the feedback was always, keep going, keep going. You know, you just got to find the right group at the right time. And we did.
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B
Right? Yeah.
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C
That ended up being one of our most. One of our.
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B
One of the most profitable and successful projects we ever did.
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A
Yeah.
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C
Built it for.
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B
I don't.
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C
Around 70. Sold it for 100 million not long after TCO. Ended up being a great project.
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A
No, it's amazing. I know the development world has gone through, I don't know, a metamorphosis. Right. Like today, if, you know, clients contact me asking, you know, do I have capital relationships that are interested in doing development? And maybe I'm not going to 100 groups, but I'm going to a couple dozen and it's pretty much no that they're, they could buy below replacement costs. There just isn't capital for ground up development. I assume you're seeing the same thing. And talk about the transition of Litera and how you guys have been a development company and now you're seeing other opportunities.
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B
Yeah. And I'm going to say, because this is, we're right at the point of our history where Chris joined.
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C
Right.
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B
And first I want to say I never dreamed I would be this blessed. And I say that because I have the most incredible wife and two amazing sons, one of whom I'm building a generational business with and he's sitting right here.
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A
That's amazing.
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C
Yeah, it's. No, that's, that's very nice. It's been super rewarding to work with my dad. It's, it's really quite special. So we're fortunate. And yeah, to answer your question, I mean it's, there really isn't capital for ground up development today. It's starting to come back slowly. There are a couple of groups with some capital, but it's tough, right? I mean, when you can buy brand new apartments for 20, 30% below replacement cost, it makes it really tough to justify building. Now that's not every deal and that's not every location. And new supply is falling off a cliff and we think that'll create some outsized rent growth in a couple years. And so it's probably a good time to put a shovel in the ground. But that being said, we think it's a phenomenal time as well to buy existing multifamily assets. So we're seeing, the Chicago portfolio is one example, but we're seeing really, I call it generational buying opportunities. I guess it depends, you know, how many, how old you are, if you use that term. Right. But like it's really, really quite incredible. So we're, you know, we're pretty active in that space and we can, you know, we will for sure continue to grow and raise capital for, for that.
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A
Yeah. You want to do our deep dive into Chicago. Let's, let's get into it. So first, why don't you just from a high level, talk about the number of properties, the purchase price, the number of units involved.
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C
Yeah. So it's seven properties, 1500 units, 1495 to be exact. And it's really, it's really a very special deal. The really the way we got the deal under contract was through my dad's relationship with Terry Considine, the founder and chairman of aimco and ultimately some of the senior folks at aimco and my dad's very good friend Tim Hoyer. So we got the deal under contract and it's very special and unique in that a couple things. One, there is in place assumable agency financing in the low 4% range. So we bought it at really a low 6% cap rate. And you do that math, the math maths really well that ends up with like a low double digit cash on cash which, you know, which, which is really quite, quite unique in today's market for sure.
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A
It's almost unheard of. Let's talk about how you even got the deal. I know through your personal connections. But what was the largest deal you guys had done prior to the Chicago deal in terms of both asset value, purchase price and also unit count?
- [25:58]
C
Yeah, I mean I think our Burbank development intro Burbank that we're building with Quadrille, that's 573 apartments. We closed $198 million construction lo and the all in budget on that is in whatever mid to high $300 million range plus minus. So that's a big project for us and we've built other large projects in Southern California. But in terms of acquisitions, this is $455 million. That's pretty substantial for us or for anybody I guess. But so that's for sure our biggest deal to date.
- [26:33]
A
Yeah. And so when you got the phone call or how did it work and where, where your friend said hey, would you be interested in this? What was your reaction like can we take down 1500 units?
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B
I didn't think of it that way, Andrew. I thought of it more like where are they and what are they?
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A
Right.
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B
Because I knew and I always know for the right deal there's always capital, always. And it's proven to be true for me. And so, so he said look, you know, this was the now president of aimco and my friend Tim were together in Miami and they called me and they said look Charlie, we're going to market, we're going to market with this portfolio in Chicago. And they had been working to sell their Boston portfolio. I think Harbor Group, Harbor Capital Group maybe or Harbor Group bought it. And so now we're going to market and sell Chicago, but not yet, if you want to buy it, we're going to give you first shot at it before we do.
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A
Why? Why would they?
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B
Because my friend Tim convinced them that I was the right guy to get it done and they could get it done quickly. And they really had planned to sell them one at a time. Right. And so there was a protracted along process to get that done. They didn't really look at it as a portfolio disposition for them initially. And so I said, look, okay, let me look at it. We looked at it and we underwrote it and spent a lot of time on it internally. And then we, we said, look, okay, we'll buy, we'll buy these three, maybe four. And. And the. Then the answer came back, no, it's all seven. Yeah. If you really want to do it that way, then we're just going to list and market them and do it that way. And so I thought, you know, no broker, direct to seller, and in a market that is just steaming along now, and a lot of people don't even know that. And so I said, you know what?
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A
We'll do all seven. Let's dive into that right now. The Chicago market, we do. Last year we did 180 transactions. And we have a map at the end of the year, we email it as to where our transactions have taken place. It was over six and a half billion dollars in 2000, in 2025, and it's still the same states. There are some groups who will transact on the west coast or some groups who won't for a variety of reasons. Still the Sun Belt, and now we're seeing the Upper Midwest. But I had been transacting in towns like Columbus, Lansing, Indianapolis, hadn't done Chicago. So did you have to get convinced that Chicago was a great market for multifamily?
- [29:26]
C
We did, but we had good information. Right. On these particular assets, and we were actually pretty blown away. So lease tradeouts at the properties were 7, 8, 9%. Right. So rent increases, annual rent increases. The occupancy rates had been hovering around 98, 99 on some of the properties, 100% leased. No new supply in Chicago, like 0.5% of the existing stock in construction. So no supply.
- [29:52]
A
And I'm sorry, I didn't mean to cut you off, but just so my listeners know, are we talking about downtown Chicago? Are we talking about suburbs? Give us a highlight as to where these are located.
- [30:03]
C
Yeah, well, I would say the answer to the question of the market is really all of the msa, I mean, even including downtown. But in particular, kind of these first ring locations outside of downtown or where we're seeing, you know, the best fundamentals. So the portfolio that we bought, the seven properties are in markets like Evanston, where Northwestern is. Right, of course, where you went to school, Lombard, Elmhurst. So these are, these are sub markets with strong incomes, good schools, you know, not far from downtown Chicago, but suburban. So really only one of the seven is in city of Chicago. The other six are not in the city of Chicago.
- [30:41]
A
And so you get this opportunity, 1500 units, you know, close to a half a billion dollars of real estate. What do you do? What's next?
- [30:51]
C
Next we got to go find the money, right? You got to go find the money. So we had a great opportunity. We felt like the portfolio price was really good. Like it's kind of like a sum of the parts is greater than the whole, right. Because of the portfolio nature of the buy with really, you know, in a really good market with really good fundamentals. And I told you about the kind of the cash on cash, right? The math was really good. And we went out to capital and capital, you know, would say, wow, we, we cannot find positive leverage, let alone, you know, a low double digit cash on cash deal, really anywhere we're looking. But I would say the, you know, the capital raise process was challenging and really that's for a couple reasons. One, because it was a big deal, right? So people knew that Chicago was a good market. Some LPs said, believe it or not, like we are only focused on Chicago and San Francisco right now because we think that's where the future rent growth is. Which was nice to hear. But 455, that's a big deal. So not a lot of groups can do that large of a transaction, right? So that was kind of one of the filters.
- [31:55]
B
I would add to that that once we got on an airplane, went and looked at the, and walked them all. And once we did that and talked to the leasing agents and brokers and really got to understand the market for what it is today and saw the quality and maintenance level of these assets, we said this is a good deal because these are long term. AIMCO put money in them for the long term. They were a long term holder and, and they were in good shape. So while we're going to today, we're going to add some more value through improvements because you know they're not new, right? So but they're just quality, quality like Chris said, first ring type locations. And so once we saw that, we said, okay, this makes sense. And the Leasing agent's telling us about what lease tradeouts we're doing and how much, you know, every time, you know, they had, I guess, 13 tenants for every one vacancy showing up.
- [32:56]
C
Yeah, it's pretty. It's pretty amazing. Remember in the movie the Big Short, when, like, you got to go to, you know, you got to see what's happening in Florida. Like, you won't believe it.
- [33:04]
B
Yep.
- [33:05]
C
And he goes. And he goes to the strip club, and he's like, I don't want to dance. I just want to know, how many homes do you own? She's like, six. And then he walks short.
- [33:13]
A
Everything.
- [33:14]
B
Right.
- [33:15]
C
That's what it felt like. We would tour these properties, like, we got to see this for ourselves. And the managers are like, we're getting 10% rent growth. Like, there's a wait list. You know, we're 99% leased, 100% leased, and we watch buy everything. You know, that's kind of what it felt like.
- [33:29]
B
And our valuation really got better as we were doing diligence through, you know, kind of what ended up being a little bit longer escrow period. So. So that inured to our benefit, what
- [33:40]
A
is driving that rent growth? I mean, you hear, at least through media, you know, the. The migration of people from Chicago and other big cities to the Sun Belt. New jobs, new companies. I mean, what is creating this?
- [33:57]
C
Yeah, I think the bottom line is there is no new supply in Chicago. Virtually nothing has been built. And you can't say that about most markets. Right. Including the Sun Belt, of course, where there's, you know, thousands of units being built. Right. And you have negative rent growth, negative effective rent growth, and occupancies are dropping in Chicago.
- [34:16]
A
There's.
- [34:16]
C
There's no supply. Right. So there are wait lists. Additionally, there is job growth in Chicago, you know, in various sectors, including AI. And so Chicago. Chicago has proven to be a great market. And there's also shifts within Chicago. Right. And one of those shifts is a move a little bit out to the suburbs, to those first ring locations. So these properties sit in those first ring locations. So in particular, these properties have. Have benefited. Benefited from that.
- [34:43]
A
And what is the. So you're assuming debt on all seven properties. And so what is the portfolio levered at?
- [34:53]
C
Yeah, so, I mean, that, you know, the. The agency debt came in, you know, around 310 million plus minus on a purchase price of 455, you know, and I'll say we're very, very fortunate that in our kind of search for a capital partner, we met this fantastic group out of Fort Lauderdale called Respark. And we got along really well with them on a personal level and a professional level. And they're, you know, they're just great. And so we formed a venture with Respark and together, you know, we went non refundable and purchased the portfolio. You know, that was, that was really fortuitous that we met them and it's just been a great partnership.
- [35:38]
A
And to talk about the business plan from a capital market standpoint, from an equity standpoint. I know we've had discussions of what that business plan is like. And then also how much term do you have on the agency debt?
- [35:56]
C
Yeah, so the agency debt on average goes for another five years or so.
- [36:00]
A
Oh, that's great.
- [36:01]
C
And some of these loans like in Evanston, which is an amazing location, right. That property is next to, to a Whole Foods, next to Northwestern. And like the, you know, we're talking like high twos on that deal, interest only. And so it's, you know, that goes on for quite some time. So call it like an average of five years. You know, one thing we're doing on this deal, in case any of your listeners are interested is we will do a portion of post close syndication. So we've got the equity we closed of course with Respark and we're, you know, we're in a great position but we're, we've made the decision early, before closing that what the business plan contemplates is we'll buy down a portion of the closing equity with a little bit of a syndication. And that's been going really well. And we'll close that out. It's not going to be too huge, it'll just be a little piece. So that's ongoing and that's going well. And our plan is to hold this thing for several years, collect cash flow, sell the assets kind of one at a time at the appropriate time in the market.
- [37:03]
B
Super compelling economics when you think about it. Because with 100% bonus depreciation back so you could get tax benefits and cash flow at the same time. Right. So now, you know, if you can get all your cash flow covered by in the first year 100, you have excess tax benefits maybe 1.3x on your money.
- [37:26]
C
That's incredible.
- [37:27]
B
Yeah, that's year one, but still with bonus depreciation, it's an incredible economic package for investment.
- [37:40]
A
What is next for you guys? You took down this big elephant and possibly adding to the investor roster for the portfolio. Are you looking to take down large portfolios like this in the Chicago area? In other locations I think we talked about is this litera 3.0.
- [38:09]
B
3.0 is what we're feeling right now.
- [38:12]
C
Yeah, yeah. So the Chicago transaction became the catalyst for Latera Capital Management. And Litera Capital Management is the vertical within Litera whereby we will take high net worth capital, we'll take family office capital and institutional capital and we will invest in existing cash flowing assets that could include some self storage, but for sure multifamily. And we've got on the heels of the Chicago portfolio, we've got a couple other things cooking, a couple other portfolio deals and some interesting off market single asset deals that are well below replacement cost. We'll still selectively do development. We've got some legacy land positions in our portfolio that we think are really attractive and you know, but, but the acquisition strategy is something we're keenly focused on. We think it's just such a great time.
- [39:01]
A
Yeah, I know we worked on one together in the, in Marina Del Rey. Hopefully that will turn out to be a great development.
- [39:07]
B
That's a premier site.
- [39:09]
C
Premier site, yeah. So we're, look, we're, you know, you got to kind of move and be nimble with the market a bit. But we're, you know, we are going to be leaning into the Latera Capital Management and existing asset acquisition strategy. We think, we think we got a couple years of Runway with this.
- [39:25]
A
Are there markets like a Chicago that you guys are eyeing where perhaps capital may not see the value in that market and that you have to educate them as to look what is happening in this particular market? So another type of Chicago.
- [39:45]
B
Yeah.
- [39:45]
C
It feels like every deal we do there's a level of education of capital, you know, maybe because they poke holes or whatever. But like yeah, Chicago was a really, really good example. Maybe the best example. I think San Francisco, you know, everybody wants to be in San Francisco right now. I think California though, Southern California is probably another example of that. Right. Where you got to explain to people that LA is very different then Burbank, then Orange county than San Diego, then Riverside. Right. So I think within Southern California there's a lot of education.
- [40:18]
A
My clients that have portfolios throughout the country of multifamily, both here in Southern California and in the Sun Belt. They've all said over the last 24 months their properties in Southern California have performed infinitely much better than those in the Sunbelt.
- [40:37]
B
Well, we've got, you know, almost 5,000 units in our, in our company portfolio right now either develop in development or leasing. Right. Or fully leased. And now Chicago is in that number. But. But I would say that our, you know, as we think about Southern California, all our properties that we've completed are fully leased and stabilized and. And getting rent growth, really. And so that's a good barometer for us. And so we see it almost weekly and monthly in our leasing numbers and velocities. So I think if we look at other markets, Southern California, we're here. It's one we know well, but we know some others and we've been working on markets that have a lot of oversupply but still have good growth. Right. In terms of population and employment, like Dallas and Phoenix and Atlanta and markets where oversupply has forced sellers to want and have to get out. And so this is where you can buy, like Chris said earlier, at 30, 40% below replacement costs because they built new stuff and they've got to sell. Yeah.
- [41:51]
C
It's probably easier today to get capital for a market that's a high growth market where there's in migration and population growth, but at the same time there's a lot of supply, like a Dallas, for example, than it is to raise capital for a market with supply constraints. But potentially questionable in migration, such as parts of Southern California. But it depends on the investor.
- [42:15]
B
Right.
- [42:16]
A
And questionable political changes and legislation that could come down the pipeline at any time. And that is what concerns a lot of capital.
- [42:30]
C
Yeah. Some capital says we are only looking at red states, period. Right. I mean, they say it that clearly.
- [42:37]
B
Fortunately. Not all.
- [42:38]
C
Not all. No, no, not all.
- [42:39]
A
But, you know, it shifts. Right. That's what they say. And in six, by the way, two years ago, no one would go into San Francisco.
- [42:48]
C
Yeah. Now it's the hottest market.
- [42:49]
A
Now it's the hottest market. And so 12 to 24 months from now, the shift where capital is going. Who knows?
- [42:56]
C
Exactly.
- [42:57]
A
Yeah. You have time for one more question?
- [42:59]
C
Yeah.
- [43:00]
A
Okay. So family business, you guys, father, son and Charlie, your wife also works at Laterra.
- [43:07]
B
She does.
- [43:08]
A
I have clients that work in similar businesses where there's multiple generations and I guess just talk about both pros and maybe I don't wanna say cons, but just the realities of working. Father, son, husband, wife. Talk about how that dynamic is, whether it's internal, external. A lot of my clients are set up in a similar fashion and I'm always fascinated of what the working dynamics are.
- [43:46]
B
I'll just say that Chris came in with a ton of experience. So he's been with us now 11 years or.
- [43:54]
C
Yeah, I came from PGM.
- [43:55]
A
Yeah, I know.
- [43:56]
C
In San Francisco. And I think it's important, you know, when the son or daughter goes after college to work and sort of prove yourself otherwise. People are always wondering, did the apple fall far from the tree? You know, they don't know. Yeah, but maybe it did.
- [44:10]
B
I don't.
- [44:10]
C
We're still trying to figure it out,
- [44:12]
B
really, because of that long, you know, and good training Chris had, and that was really in. In. In development mostly.
- [44:19]
C
Right. Yeah.
- [44:20]
B
And.
- [44:20]
C
But I mean, I was up pjm. I was on the equity. Yeah. But, yeah, like, all sides invested in a lot of development, but.
- [44:25]
B
But because of that, so Chris came in, he was already hitting the ground running, so there wasn't a lot of certain kinds of training needed. Right. So today, 11 years later, Chris can do really almost any function in the company that's management level. And so. So that's a real break for me in that sense. Doesn't mean I do less. It just means that we can do more together. And I think that's really an amazing thing that we can do now.
- [44:53]
C
So, yeah, it's been awesome. I mean, I think it's, It's. It's very special. Right. You see these charts, like, you read about, like, you know, it's like your age and your time spent with different people as you get older. Right. Your kids go like this, and then
- [45:06]
A
it drops off after 12 years old, even.
- [45:08]
C
Yeah, yeah. And they say, like, time spent with your par. When you get to a certain age is, you know, is very low. And I, sometimes I see those charts, I go, wow, I'm lucky, because time spent with my dad, it's still up here.
- [45:18]
B
Right.
- [45:19]
C
So that's pretty cool. Yeah, there's. I mean, you know, it's hard to say, you know, negatives. I mean, I would say, like, there's probably times when he's like, man, this employee's, you know, talking to me like my son. Or it's like, hey, my boss is talking to me like my dad or whatever. Right. But like, you know, that's just kind of like normal stuff.
- [45:32]
A
Or when you guys are at a family function and do you want to talk about work or you end up talking about work? That has happened before at my kid's birthday party.
- [45:41]
C
Exactly. Well, that exact thing happened. Yeah. And like, you know, sometimes we'll be at a work dinner with people who may not know. Usually people do. And I'll grab a French fry or something. And like, you could do that when you're. You could, you know, when you're a
- [45:54]
A
son, you take a napkin and you, like, wipe French fries.
- [45:58]
B
You took us to lunch not long ago and you saw that very thing happen.
- [46:01]
A
I think I. I do remember.
- [46:02]
C
Yeah.
- [46:03]
B
Yeah, it was great.
- [46:04]
A
Look, look, I really appreciate you guys coming on into the studio. Charlie, it was amazing to hear about your background. Had no idea that you were responsible for that par three course in downtown Chicago. Unbelievable. I wish you nothing but success, both from the Chicago portfolio and latera 3.0. So thanks, guys.
- [46:28]
C
Yeah, thanks for having us.
- [46:29]
B
Thank you for having us.
- [46:30]
A
It was a lot of fun. And that is another edition of the Kirsch Connection.