← The Rent Roll with Jay Parsons
The Rent Roll with Jay Parsons
EP#77 Moses Kagan & Rhett Bennett | Sub-Institutional Multifamily Update
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A
Welcome, welcome. It's the Rent Roll, your podcast on all things rental housing apartments. SFR and BTR coming to you this week from Scottsdale, Arizona, here for the Funnel Forum. So another episode from a hotel room. I think we're at three straight weeks from a hotel. So for for better or worse, but hopefully you can tell no difference. And it's episode number 77. And for Dallas Mavs fans like my family, that number 77 is a painful reminder of the worst trade in sports history. Trading away Luka Doncic, of course, who wears number 77 in exchange for what, maybe eight good games from Anthony Davis and not much else. And speaking of basketball, it's of course March Madness time. Hope your brackets are holding up. We have a family bracket competition and for each each of the past three years I've been beaten by one of my kids, including three years ago, that was the year of all the upsets. My daughter won the competition just picking logos and mascots she liked the most. So that was rather humbling. So hoping this year is going to turn out a little better for me. I do have seven of my eight Elite eight picks still in it, so there's a chance, but I'm not holding my breath. Anyway, lots of headlines touch on this week related to single family rentals and multi family. Another big portfolio trade in the apartment world to talk about another executive order from the White House. This one much better than the last one articles in the Wall Street Journal and related to both SFR and apartments. And yet another big case study, academic study showing that the laws of demand, laws of supply and demand still work. In this case a big case study focused on Austin, Texas and the massive supply wave there putting downward pressure on rents. And I know just even mentioning this is prob bringing some PTSD to those of you who operate or own in Austin. So sorry for that. But hey, the upside is of proving that the supply is the best remedy to affordability concerns, not rent control or other populous boogeyman theories. And then later in today's program, we have a conversation today about sub institutional multifamily. And you know, I've not done a whole lot in this podcast about sub institutional multifamily investing. And in many ways it's just a different universe. As many of you know, it's different players, different asset types, often different resident profiles too. And, and with all that different types of challenges and opportunities. And so we'll cover all that at a very high level and we bring it in. Moses Kagan and Rhett Bennett, some of you know Moses from social media. He's one of the unofficial founding fathers of Retwit, or real estate Twitter, where he has more than 180,000 followers on what's now called X. And his partner Rhett runs Reseed, which invests in sub institutional multifamily shops across the country. And so we'll talk to them about the state of sub institutional multifamily and what types of investments they're targeting. And I'll give you a little bit update on the state of the sub institutional market as well. All right, so let's give a quick shout out to our sponsors before we jump in. First and foremost, a very big thank you to jpi, a leading apartment developer. The stated purpose to transform building, enhance communities and improve lives. Check them out jpi.com they are at the cutting edge of some real innovations in apartment development and construction. Also, big shout out to Madera Residential, leading owner and operator base in Texas. Check them out@maderaresidential.com and thank you. To Funnel, the sponsor of our interview segment, check them out@funnelle leasing.com all right, so as always, kick it off with here's a chart and this segment's going to be presented by Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends there. Let's check them out. Mason Joseph all right, so I'm not going to spend a ton of time on this section today. I do have two charts though, I want to show you just to just really set the foundation and quickly for our conversation later today on sub institutional multifamily investing and really talk a little bit about how it's different from the institutional market. And I think that'll tee up our conversation later with Moses and Rhett. And of course, one of the challenges of this space and one of the reasons I don't even get to talk about it a lot is that we don't have a ton of data. One of the better sources, though, that at least that I'm familiar with comes from Chandon Economics, Economics run by my friend Sam Chandon, who many of you know, his team puts together a report with Arbor Arbor Realty Trust every quarter on small multifamily investment trends. So I'm going to use the terms small multifamily and sub institutional multifamily interchangeably. Obviously there's Not a clear cut standard delineation point between the, between sub institutional and institutional or small and large. Generally though, we're talking about apartment properties with fewer than 100 units, maybe some, some people call it fewer than 50 units. Typically though even sub 100. The only way that most institutions or, you know, larger regional and national investors are going to look at those types of deals is if they can own other sites nearby and then managing them, manage them as a grouping, which makes it a more efficient investment. So let's, let's, let's get into this a little bit. Let's start with cap rates on small multifamily. And so you can see the chart here from Arbor and Shandon showing small multifamily versus all multifamily. They're showing small multifamily cap rates of 6.1%, which they say is the highest in a decade and well above the cycle's low point of 4.7%. All right, so I'm going to compare that to MSCI real Cap analytics data for all multifamily, which is going to skew toward larger deals. And that trend went from, although they do cover all multifamily, but that trend went from a low of 4.5%. So compare that to 4.7 in small multifamily to the current average of 5.4%. So obviously we're generalizing a bit here and it's a, you know, different data sets, but broadly speaking, this data aligns with what we're, we've talked about, we've heard about, which is this story of rewidening spreads. The fact that we went from a spread of basically 20 bips to now about 70 bips between small multifamily and all multifamily. And of course, you know, we look at just large institutional multifamily, we're seeing deals in the sub 5% range, again trading in the fours, some cases mid fours, we're seeing that, that again those spreads that are widening back out, which, which makes sense as we're expect, it's what we expected to see. And again when you look at, well, I've said this a lot and everybody knows this, when you look at well located, newer vintage institutional deals, you get in the mid high fours, maybe low fives, small multifamily, now slightly above 6%. And obviously again, these are averages so that they can vary. So that does create a good story for buyers in this small multifamily market who might be seeing better value again in certain spots. And then Chandan has some interesting details on what's driving that particularly around refinancing, higher cost of debt, et cetera and maybe some right sizing to new reality. So let me read this from the Arbor and Chandan report. They said in the small multifamily sector, a combination of rolling maturities, shorter term agency loans in a late 2025 rate relief window led to a sharp increase in refinancing activity. This shift has pushed observed cap rates higher and weighed on valuations, particularly among refinance transactions. Well, acquisition pricing has shown greater stability which by the way is also 6.1 but it's been in that range for a longer period of time. I'll keep reading here. It says elevated expense ratios and modest pressure on net operating income similar similarly reflect opportunistic refinancing behavior rather than sector based operational stress. Okay, so I think that's probably well said. And one more thing on the capital market side we'll look at Freddie Mac's data on small balance loans, SBL's program. They report on serious delinquency which is anything 60 plus days delinquent, that that delinquency rate is now about three and a half percent. So that's pretty low obviously, but up a little bit and well above Freddy's overall multifamily delinquency rate of about 0.44% as of last reporting. So you know that that spread is not it really. There's certainly a spread there, but it's not anything crazy abnormal. Now on the fundamental side, the advantage does shift back to small multifamily, at least for occupancy rates. Chan's data shows average occupancy rates of 96.1% for small multifamily. That's you know, give or take about 100 basis points higher than what Yardi and Real Paid show for the broader multifamily market which is skewing toward larger buildings. Now all that said, here's what's interesting though we're seeing that I've talked a lot about filtering on this program, the impact of supply on the broader market. And what we see here is that even small multifamily is not fully immune from all that new more institutional apartment supply hitting the market that's giving renters of all types a lot more options. And so occupancy, even the small multifamily segment is down 96 bips over the last year and it's actually slightly below pre Covid levels as well. So maybe a bit lower than usual but again, obviously 96.1% still a healthy rate and presumably like we see institutional space presumably higher in lower supplied markets which happen to be the markets where we happen to see a lot of or not coincidentally, we happen to see a larger share of the sub institutional small multifamily places like the Midwest, the Northeast, parts of the west coast, etc. These are markets that not only have less supply but they just also have a a higher share of the market as older, smaller and less likely to be owned by institutional groups. Even if institutional quality markets just have a lot of older product that's not institutional quality or ownership. So there you go. If you want to dig in more, check out the Q1 report on small multimillion investing from Arbor and Chandon. All right, next up, it's rental housing trivia. All right, today's trivia is presented by Authentic. If you've got a property that's underperforming and you can't quite figure out why, check out their multifamily leasing and mortgage marketing audit. They'll dig into your pipeline leasing funnel and comps and tell you exactly where things are breaking down, plus strategies and how to fix it. Listeners of the pod get 50% off, so head to authenticff.com and click on the banner to learn more and claim the offer. Okay, so today's question is what share of US apartment properties have fewer than 100 units? So what share is going to be small multifamily? Is it a 26%, b 36%, c 46% or d 56%? What share is fewer than 100 units? All right, so give that some thought. We'll answer that in a bit. But first, it's time for headlines in the news. This segment is sponsored by Telecloud. If increasing NOI is a priority, your telecom contracts may be one of the easiest, easiest opportunities in your portfolio. Telecloud helps multifamily asset managers consolidate Internet voice and dial tone across properties. The average cost reduction is 40% and it is often higher than that. So to make it easy, they'll start with a free telecom audit to show you exactly where savings exist before you make a move. So learn more@telecloud multisite.com okay, so we got a bunch of headlines covered this week, and I'll try to do this pretty quickly. First one comes from the Wall Street Journal. Headline is Their home wouldn't sell, so they became America's latest accidental Landlords. Home sellers who become unwilling landlords find it can be a nuisance and A hassle to contend with renters. So I'm sure they'll give some chuckles anybody who's been in the SFR business or even multifamily for that matter. So I thought this is an interesting story. Obviously we've talked a lot about how it's trendy to blame Wall street for the for the reduced for sale inventory. Not obviously not even been reduced over the last 10 years, but the perception is has been reduced. But actually in this case, your buddy next door could be more to blame for taking for sale homes off the market. That's the theme here In 2026, the rise of accidental landlords. Those unable to sell their homes for a desired price and they have to move anyway. So now they're putting their homes, their former homes on the market for rent instead of for sale. And of course more accidental landlords equals more rental supply. In turn, more rental supply equals downward pressure on rent growth, which is exactly what's happened. And in turn we've seen between the growth of accidental landlords plus the growth of BTR supply build to rent that's pushed single family rental rent growth to a 10 year low. And that's something we've talked about in the past and some of the REITs have highlighted as well on the earnings call. So added supply from accidental landlords. That could very well remain a moderate headwind for SFR operators until the home buyer market picks up again. All right, next headline from the Wall Street Journal. It says Mamdani's rental plan risks pushing small landlords toward extinction. Giant multifamily firms take over more New York City apartments while mom and pop landlords struggle to stay afloat. All right, I don't know about that sub headline. Obviously we've seen a couple bigger players take do some deals lately, but they're not particularly giant in the national scheme. None of the real big apartment operators are active in the to any degree, any large degree in the rent stabilized market. But anyway, regardless of that, I don't nitpick too much because this is a really good article. There's a lot of good stuff in here. So kudos to the Wall Street Journal for having the guts to cover it because you know, I'll tell you what, reporting the facts on rent stabilization in New York is not going to generate a lot of clicks and high fives among your friends. But you know, the reality is decades of bad policy has turned too many apartments into poorly maintained time capsules in New York City. And now of course the new mayor is threatening to make it Worse. That's not his mind. It's not making it worse, but it will likely make it worse by tapping the same old playbook of blaming the landlords. Obviously some. You know, we had an episode on this topic recently with Kenny Burgos, who formerly sat right next to mayor mom Donnie when both were in the New York State legislature, I heard recently went to the same high school as well in the Bronx. So there. So small world. So check that out if you want to dive deeper. It's episode number 72. All right, next headline. This one comes from Pew Tradable Trusts. Also some of you know that name from Pew Research. This one says Austin's surge of new housing construction drove down rents amid robust demand and a wave of policy reforms. Texas Capital added 120,000 new homes from 2015 to 2024. Okay, so total flip side of New York. We have Austin, Texas, which has become exhibit A in showing that the ultimate tenant protection is a lot of new housing supply. So this new study from Pew Territable Trust shows how investors pain has been renters gain. Now obviously every apartment investor, operator, developer in Austin knows the story all too well. So I'm not going to hash out every detail in this. It's a great piece though, if you want to, if you want to see it, if you want to share it with your local officials on, hey, look, this is the real solution. We got to build supply. This, this is something I would point them to. It's not an industry study. This is done by a nonprofit charitable trust by a name that a lot of people know in Pew. So it's a good source. But let me just boil it down very distinctly. It says developers built a ton of apartments, rents fell even though people kept moving into Austin. Wasn't a demand issue. It's just they had a ton of supply that outpaced even strong demand. And the rent impact was felt not only on top of the market, but all the way down to the more affordable rent levels as well. So rents fell across the board. And then Pew cites a number of Austin policies that helped spur supply. They range from targeted rezoning to real to, to legalizing accessory dwelling units, to removing parking requirements for multi family buildings, to offering density bonuses and also for fertile housing, issuing municipal bonds. So all those things had an impact. And, and here's one more lesson that doesn't get as much discussion but I think is really important for cities to, to try to, if you want to exempt, it's not just about, you know, sometimes you'll make it, hey, it's just we get to do zoning or whatever the thing might be. It's not just that. You also have to think about what is the operating environment that they're going to build into. Because obviously an investor in new development, they're, they, they don't get a return their investment just from construction. It's when they sell it or operate it. Right. And so the opera operating is it really matters, not just the construction. And so you can't assume that developers are going to fall for the old bait and switch which we see some cities doing, which is, hey, we want to encourage investors to build housing only to then demonize them once they complete the project and start operating the housing. So in addition to making it feasible to build, you have to have an environment where it's feasible to operate. And you know, obviously that means not being forced forced to operate essentially like a non profit charity under the guise of a never ending list of so called tenant protection. So balance is important. Austin shows that and renters win in the long run as we've seen there. All right, call more. Next one comes from Multifamily Dive. It says Harbor Group International buys 11 property portfolio for $562 million. The Norfolk, Virginia based owner purchased the portfolio from REIT AH Realty Trust, which is divesting its hardened holdings and focusing on targeted real estate retail opportunities. Okay, so I'll reload it from this article. It says affiliates of Harbor Group International have entered into an agreement to acquire an 11 property portfolio totaling 2,436 units for $562 million in cash, expected to close in 20 in mid-2026. So these properties are all on the east coast, spread from Georgia to North Carolina to Virginia to Maryland. Four of them are in the Virginia Beach Newport News area, three in Baltimore, the others scattered across those states. And with the sale, the Virginia based ahrt, formerly some of you may still know it by its former name of Armada Hoffler. They will have followed the path of some of these smaller apartment REITs. Obviously they do more than just apartments, but it's still along the same trajectory of liquidating the majority of its partner portfolio. Obviously we've talked about this in the podcast with Varys, Residential Elm Communities, et cetera and potentially others. So by the way, on Harbor Group, real Quickly, they bought 27, 2700 units from another REIT Wing Dance portfolio. Of course, Amco much bigger name. So harbor continues to be opport an opportunistic buyer. All right, one more headline for us. This one comes from BIZ now it says Trump pushes to deregulate housing development with executive orders. And then it reads, the first policy directive calls on federal agencies to reduce regulatory burdens that the White House says are holding back development, including including rules around energy efficiency and permitting. The second executive order aims to make it easier for community banks, other small lenders, to underwrite more mortgages. All right, so I'm not going to get all the details here, but high level, this is good stuff. Some of you know, I've obviously been very critical of the prior executive order around institutional investors and single family market and the White House's support for the Road to Housing act as well, which would, would create this massive new bureaucratic layer over the single family rental market nationally and crush the business build to rent market. But hey, let's give credit where credit is due, and it is certainly due here. This executive order is good and it focuses on the real issue, which is supply. So this one's good stuff. Speaking of good news, that that's a good transition to our next segment. Good news, this one we got to highlight good news happening across the rental housing space because while we tend to focus on a lot of the negative things, there is a lot of good happening, too. And good news presented by friends at Apartment Life. Apartment Life coordinators help apartment owners care for residents by connecting them in meaningful relationships. This in turn benefits everybody from the residents to the property managers to the apartment community's bottom line. So if you own or operate apartments that aren't already partnering Apartment Life, check them out@apartmentlife.org all right, so here's a real example of how relationship building in your community help the bottom line. So this is this week's good news story. It's a good story. Okay, this comes from an apartment community in Jacksonville, Florida, Florida called Pickwick, owned and operated by Hilltop Residential. Okay, so you'll, you'll enjoy the story. So several years ago, a small group of widows started meeting for dinner once a month. Nothing super formal, just, just dinner. And they kept getting together and then they added card games twice a week and they started calling themselves the Golden Girls after the TV show. And over time, that inner circle has become the relational heart of this apartment community in Jacksonville, gradually drawing others in. So last year, an older man in the community, he had lost his wife and the Golden Girls pulled him into their group. And, you know, he was shy and obviously grieving, but they just kept inviting him, kept giving him that warm welcome and kept knocking on his door when, even when he didn't show up. Just say, hey, know, checking in on him, inviting him to, to, to hang out. And the more he started to show up to dinner and to card games, the more he started to come out of his shell and warm up to everybody. And today I'm told he's one of the most outgoing personalities there at, at, at the card table. So then fast forward a little bit. A few months later, another woman starts to get pulled into the group. This is a, a divorced woman in her 40s, also painfully shy. She happens to run her own house cleaning business. And after a lot of persistent invitations, she finally shows up to an event. She's seated next to this older widower and they began to talk. And when she heard his story, she was so moved that she insisted on, you know, because she had this cleaning business, she insisted on cleaning his apartment for free. And you know, just showing what, what a close knit community this had become. All right, so, so here's, here's how this all comes together. Here's the business impact really highlights the power of community. So Pickwick consistently has been winning property awards over the last five years. 85% of residents have chosen to renew their lease each year. And they've get, they're getting positive reviews online during major renovations because residents see it as a home. So when you're, when you're, when you have close friends living next door, you, you just don't want to move. So it's a good reminder that relationships do matter. And that's our good news story of the week. So if you have good news story to share, email them to info parsons.com and we may feature it on a future podcast. All right, let's get back to today's rental housing trivia question. The question was what share of U.S. apartment properties have fewer than 100 units? Was it 26%, 36%, 46% or 56%? And if you guessed C 46%, give yourself a pat on the back. You got it right. That, that is according to NMHC's analysis of data from HUD and the census. So we have seen that share go down over the years. You see more than half of all apartment properties stay it's 46% since obviously in the recent decades, the vast majority of new construction has to be larger 100 units plus. And that's just because of efficiencies of scale and of course, capital's preference for larger check sizes in general. All right, next up, it's time for today's interview sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelleleasing.com and as I mentioned, I'm here in Scottsdale today for the Funnel forum. So I'm excited to see many of you here in person at the conference. Okay, so our guest today are two influential leaders in the world of sub institutional multifamily investing and operations, Moses Kagan and Rhett Bennett. Moses heads up Adaptive Realty out of Southern California where he manages a portfolio of mostly sub institutional apartments and his business partner Rhett. He is based in Birmingham, Alabama and he is the CEO of Reseed, which invests in sub institutional operators across the country. So let's jump in. All right, now we enter the enter the interview portion of today's podcast and I'm honored to welcome in Rhett Bennett and Moses Kagan. So gentlemen, thank you both for being here today.
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B
Thanks for having us.
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C
Thanks for having us, Jay.
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A
All right, so I always like to start off just getting the story. So tell us how you got into the wonderful world of multifamily.
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B
Yeah, I can kick it off. So Red Bennett, I took a little bit of a wandering path to be honest. I have always been a generalist investor. Started in consulting and then ultimately ran a large multi family office. Not in the sense of multifamily office in real estate, but you know, single family offices. First multi family office. And we when I was there we episodically made real estate investments. A lot of times it was around distress. I then worked, was the president of a Longshore Equity hedge fund where we did some reinvesting and then went to run a large single family office around 2018. And that's when I started to focus on primarily on real estate and then ultimately whittled down to largely focused on multifamily and some industrial great.
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C
And I am not a generalist investor. My, my family always owned small apartment buildings in upstate New York. So growing up I was like in the business in the sense of like taking calls from prospective tenants and shoveling the buildings on snow days and that kind of stuff. But really fell into it as a professionally right as the GFC was starting my family, my brother, my parents, my brother and I bought a, bought a building here in la and then the GFC happened and real estate went on sale and I had a buddy who was swimming in cash at the time and there weren't a lot of places to put cash I don't know if you remember that Jay. Probably some of your, some of your, your, your listeners may be getting ptsd, but, but, but so anyway, so, so at the time everyone thought that there was going to be a lot of inflation and that hard assets were a good thing to own. So he backed me to start buying and renovating apartment buildings. And we have renovated more than 110 buildings in LA since 2008. Currently own 40ish little buildings in various partnerships and then we have a property management company through which we manage those buildings and another I think we're up to 125 buildings for third party investors.
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A
Yeah, and then and Moses, real quickly, you know a lot of people know you on social media. 100 and I just looked at it. 178,000 followers on X Twitter. How, how big has that been for you and growing your presence?
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C
Oh, totally changed my career. I mean I you know, not to sidetrack the conversation but I started, I built my original capital base and, and our, and we used to have a brokerage business and then we, you know, been building property management business largely by writing online. So first at Kagan's blog, which is a, you know, a blog back mostly back in the pre social media days. And then yeah I started writing on Twitter maybe six years ago and, and it, yeah it totally, totally transformed my life in, in a lot of ways.
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A
Yeah, it's good to get out, get yourself out there. You've been a model for some of the other, you know, people across the industry, both multifamily and otherwise, in making a presence out there. So you mentioned this a little bit but could you talk a little more about the portfolios that you all have today and where they stand, what they are comprised of?
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B
Yeah, sure. So you really can think about our business in two parts. So our Moses has referenced this online, the Y combinator of real estate. I mean there's a lot of places where we differ but what we're doing is we're going and finding either providing seed or growth equity for up and coming real estate operating partners. So in a lot of the, you know, the way that we've recruited folks or gotten distribution is through what Moses talking about his Twitter presence and LinkedIn presence. But so we will back emerging operators largely focused on buying sub institutional, multifamily and industrial. And then we alongside that we raised first round of capital a little over $200 million to go buy small apartment buildings, industrial assets across, across the United States. So we've deployed a little over $100 million so far in 13 assets across a number of different markets.
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A
Great.
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C
And part of the thought process was my portfolio that I described to you earlier is exclusively in the Los Angeles area. And we have learned an enormous amount from doing all those rehabs and managing those buildings for a long time. But as you and your listeners know, the asset class can be capacity constrained in the sense that there aren't always enough good deals for the amount of capital that you want to place. And so I was kind of in this position where it was like, I've learned a lot, but I actually don't see a lot of buying opportunities in la. This is going back to roughly three years ago when Rhett first reached out to me about starting Reseed, our business. And so Rhett was coming to me and saying, hey, look, there's an opportunity to take what you have learned in from making all these mistakes and doing all these rehabs in Los Angeles and kind of and, and, and apply it across, across deals all over the country. And that's. That was kind of the genesis of the idea and it. And it's worked out. I've really enjoyed getting a chance to, you know, to, to mentor and really engage with as a partner the, the, the operators with whom you work.
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A
Yeah. So let's talk more about that. It's a fascinating model. And you know, Rhett, you just shared some of the numbers. 120 million or so deployed, 13 deals. I believe you said you have another 100 million in dry powder investing in, you know, mostly sub institutional operators and real estate across the country. So, so just to back up a little bit, what led y' all to as I guess you already gave in some of this a little bit already, but give us some of the more context of the creation of Reseed, but more importantly, tell us about some of the deals and the people you've invested in.
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B
Yeah, for sure. Maybe I'll start with just the context and as you said, we'll back up a little bit. So starting in 2018, I was building a real estate portfolio for a large family office where we were really thinking about if we want to own real estate for the long term and we want to lean into a lot of the tax benefits. What's the right structure and what's the right part of the market. And as you and your listeners know, the upper end of the apartment market is very efficient and very competitive. But the vast majority of the number of assets, Glassware's assets are very small. Right. Sub 100 units. And so we started partnering with local operating partners buying smaller assets. At that point in time, the opportunity set was. Was really interesting in tertiary markets. So kind of the first couple assets we bought were, you know, ones in Bend, Oregon, Whitefish, Montana, saw Pre Covid. And so that. That went really well, but it's very hard to scale. And so, you know, at the same time, as Moses had mentioned, I'd reach out to Moses and said, hey, really like what you're doing. We'd like to deploy capital. At that point in time, LA wasn't that interesting. We even looked at. I was living in Boulder at the time. We looked at some assets in Colorado. And then I went to Moses's conference reconvene. And for me, that's when the light bulb went off. I said, okay, as a person that, you know, I have four kids and don't really want to be on a plane all day every day talking to brokers, trying to find the next operating partner. It was obvious there that, you know, Moses had unique distribution and so we could use that channel to. To recruit operating partners. And so that's really the. The genesis of the business was taking, you know, what we were doing on a small scale, left the family office using Moses distribution to then recruit and attract various operating partners, you know, across the country. So if you want to, you can talk about something.
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C
Yeah. The one, the one piece of this puzzle that Rhett has left out because he's being modest is that he. When Rhett came to me with the idea, it was like, okay, this is amazing because, I mean, I could feel the capacity constraints in our strategy. So, I mean, and again, I knew we knew a lot about. About renovating and operating buildings. And so I was excited to operate a larger scope. But none of this would have been possible without the capital relationships that Rhett brought to the table. So I went down to Birmingham, Alabama, which is where Rhett's from and where much of our capital is based. And I guess I didn't even know on that initial trip kind of what to expect, but Rhett introduced me to a series of extremely successful people who had known him for a long time and were prepared to back him with very large amounts of capital. And so what. What on the surface looks like somewhat of and kind of is a little bit of an experimental model in the sense of finding these operators, providing them with some Cedar Growth capital, and then getting the right, but not the obligation to invest in their deals. That's like a little bit of an unusual. I mean, not a little. That is an unusual model in Real estate. And so the missing piece was having like significant amounts of capital that were willing to come in and back us to do that. And it's worth out.
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A
Yeah, clearly. So just circle back then. So can you give us kind of a success story of a particular deal or operator that you. That's. That's been good for y'. All.
- [34:58]
B
Happy to. I mean, we're really proud of the kind of portfolio of operating partners we built. And we have a lot of conviction that a number of them will go on to build large businesses. You know, one that we've been very active with kind of in the last 12 months is a guy by the name of Alex Wall. He is based in San Francisco. He worked his early career. He was a broker. He then went, you probably know this about San Francisco, but there were two very active buyers, Ballast Point and Veritas in San Francisco, kind of pre 2020 or pre Covid. And then so Alex worked at, at Ballast and really understood kind of all the nuances of San Francisco. And you know, as we all know, we know that story. People got very negative on the city. We were able to, you know, get Alex onboarded onto the, the platform and then we made a couple investments. When you're in markets like San Francisco that have pretty high rents, oftentimes that's where, you know, we'll kind of execute Moses core, very heavy value add playbook. And so Alex is. We have a couple of assets that are very close to, you know, coming back online. So we've a number of putting a number of adus in place. And so that is a, you know, that's a great example of, of, you know, what we do.
- [36:25]
C
Yeah, Let me, let me jump in and add a couple of things. Sure. One, one of the things I love about Alex is like third generation real estate family. His dad's a contractor, like literally will swing a hammer. So he grew up with this stuff. His family has managed apartments since before he was born. So he combined an institutional mindset in terms of evaluating opportunities with like a real kind of scrappiness that I don't think that you can really teach. And, and so, so first of all, like, great background. And then from his perspective, I mean, having seen how these institutional operators have to act, in other words, they're, they're irr driven, they have to use a lot of debt. And as you and your listeners know, like, you know, that has not worked out so great for some of those institutional operators, let's put it that way. And so I think for Alex and I Don't really want to speak for him, but I think it's fair to say that the opportunity to work with re seed where we're coming in and saying, hey, look, we'll buy these deals all cash. We have no particular exit time frame, we'll even fund renovations in cash. And then at the point when it makes sense, as long as the debt markets cooperate, we'll put some leverage on there and return some capital to the investors. That is a very appealing pitch to someone who has come up and of like an institutional short term background.
- [37:53]
A
Yeah, no, that, that makes a lot of sense. So that's a great example. But tell us as you look to the, you know, next chapter of this, looking for other deals and operators to invest in, you know, what, what are we looking for? What's the winning formula look like? And, and I know you do multiple asset types, but particularly in this, you know, sub institutional, smaller multifamily space.
- [38:12]
C
Yeah, Rhett, maybe if you let, let me start out with this one. And, and you chime in. So the thought process behind receipt is that there are a bunch of these smaller assets, often older assets, that are in wellestablished neighborhoods where it is very difficult for various reasons to add supply. And so these, the owners of these assets have, are who are usually families of various types, have generally been content to sort of sit there and own them and just clip coupons for decades as the rents rise, often faster than inflation because there's demand in these nice areas and no one's building anything. These assets individually are too small, typically for institutional investors to buy. And also finding them is not so easy. It's not like you just get on some CBRE distribution list or something. It's like very often, I mean, I'll give you an example. We have a deal that we're working on right now where the operator first contacted the seller three years ago and has been texting or calling him every two to four weeks for three years to unlock this asset. And I think the, I, I, I don't want to misspeak, but I think that asset hasn't been sold in 30 or 40 years or something like that. So it's, it's, so we've got these local people in various interesting markets kind of digging under rocks and finding these really appealing little situations where we can come in and basically sort of replicate what those families have been doing, which is to say own these things. Now we're willing to put some more capital in than probably they are to sort of to, to make the assets even better. And generate higher rents and maybe get a better yield. But fundamentally we're just going to sit there and operate them well and generate what we, we hope will be attractive tax advantage yields for a very long time to come.
- [40:12]
B
Yeah, and I'll add a couple things. I think one of the things, so we're, we're trying to find operators that we feel really understand how to analyze real estate, you know, as Moses outlined, have the tenacity to just every single day wake up and search and try to find the, the right assets. But you know, over, over time, our, what we're really trying to get get at is we are looking across the US and so one of our big advantages, and I think it's important to talk about this, is that we're not, you know, when the Sunbelt was clearly pressured in terms of supply and in our view the market had not repriced that risk at that point in time, we didn't have to operate or execute there. So you ask like, what makes a good operator? What makes a great asset? We're, we're, we want to find, you know, the right athlete, but we're also very happy to, you know, be active in markets at certain points in time and not in others. And so how that's played out in real life is we didn't do anything in 2023. We had capital because the opportunity set wasn't that attractive. We started doing a little bit in 2024 and if you look at 24 and 25, our activity's largely been centered, centered around the Midwest and then the coast. Now that opportunity we think is, you know, I mean, it's amazing how fast capitals come back to San Francisco. And now, I mean, as you, you've talked a lot about, Jay, I think the, the, the Sun Belt, we're for the first time in our mind starting to see a setup where maybe it's, it's time to start to buy assets again. So that's a long winded way of saying we're looking at the operator, we're looking at the asset. We're also thinking about the market.
- [42:03]
C
And I think maybe, maybe. Jay, let me, let me add another thing here, which is that it's one thing to say that you're investing with different operators around the country, but I think part of the virtues or the virtues of the reseed model are that because of our relationship with the operators, we're able to dictate to a couple of different things. One is the structure of the deals. In other words, we want to own stuff Long term. And that has some implications for how the economics of those deals need to be structured. Right. And so part of the problem that Red had when he was allocating on behalf of that family was like, okay, you can find an operator or maybe they bring you deal but then you find some other operator and they want to structure the deal entirely and do, and do it with a totally different strategy. And so it's really hard to build a portfolio of long term hold assets when you're kind of being shown different things. And, and, and similarly the underwriting is all different. Right. Like you, different operators have different metrics, use different assumptions, etc. So a big part of what we've done at Recede is to kind of from top down, impose on the operator standards for underwriting and structuring deals such that as Rhett said, when we're, we're getting pitches from operators in different markets which are more or less appealing at any given time, we have the ability to kind of look at them in a rational way and allocate to where we think that risk adjusted returns are best.
- [43:33]
A
Interesting. And I want to go back to something that you'll mention about San Francisco. You know, I've shared the stat previously but I, I saw Avalon Bay sold a deal at a 5:1 cap rate and I thought oh, that seems about right. And then you realize it's a 50 plus year old building, it has rent control and it needs major capex renovation work. It's like wow, that's, that's, that's a, that's a pretty, pretty hot market.
- [43:58]
C
If that's going well, the rents are going to.
- [44:00]
A
But yeah, absolutely.
- [44:03]
C
I think we bottom ticked it with the two deals that we did. And I mean obviously we would love to buy more and it's like it has got meaningfully more competitive.
- [44:12]
A
Absolutely. A lot of capital coming back. Let's talk a little more about just the state of sub institutional multifamily at large. You know, most of what I cover on the podcast tends to be more institutional oriented. So in the institutional space, and you've alluded to this a little bit, just some of the challenges around particularly high leverage deals in the past. But now we're at a point where I think there's a lot of appetite for multifamily among investors of all types. But it's really hard to access LP equity and obviously the larger the deal the more complicated those cap stacks can get. They're finding debt, but still hard for equity. Is it any different in the smaller sub institutional space given that these Check sizes are going to be smaller.
- [44:57]
B
I, I do think it's different in that, you know, as you've alluded to, if you, it's a game of numbers and if you need a million or 2 million or $3 million to make an investment, there's a lot more folks out there that could potentially provide that capital. But I think, you know, we, we look a little bit different in that we're raising capital that's, let's call it semi institutional and we raise an initial round of capital and then we've kind of put our head down. So I, I probably don't have great insight into what it feels like to go raise on a, on a deal by deal basis. But for sure capital availability is challenged relative to what it was, you know, three or four years ago. But you know, maybe, maybe the more insightful comment is that it's very clear like if you fit the institutional box, if you have a relatively new asset that's maybe a lease up story at a market that has growth potential, there's a lot of capital for that the minute you get to something that's not financeable. And so we think a lot about what makes our capital advantage. So if you, if you look at places, you know, maybe a deal that they haven't invested the capex and now we're at 80% occupancy and they, you know, that's a live example. I think that those type of setups where leverage availability is, is fairly limited. I think that's where capital is scarce and where we're trying to focus our time.
- [46:23]
C
Yeah, let me, let me give you an example, Jay. We bought a portfolio with our operator in Philadelphia of small, where these, these are like 150 year old buildings in a historic zone where it's impossible to, to add more supply. Gorgeous walkable area, beautiful old buildings, actually in reasonable shape when we bought it, although definitely with a lot upside from, from renovating the units to like more modern standards. And it's like this, this is a portfolio of assets. The seller wanted to sell them all at once. These are like three and four unit buildings, many of which, like I said they were reasonable shape. But like putting together the financing for something like that would have been insane. Insane. I mean, I don't even know that it would have been possible. And so our ability to come in, take down the whole portfolio, all cash in one go and then really work through what is effectively a series of little art projects in order to put these buildings back together. And that's really unique and I think the seller obviously appreciated it. And I think the, the operator also appreciate because it's like, where else are you going to find someone to put up the capital for that? In the end, we'll, we'll end up with literally an irreplaceable portfolio of assets in, in a great area.
- [47:41]
A
Nice. And then, you know, buying these is one thing, but operating them is a different thing. You know, and Moses, you've talked about this very candidly in, in, in Southern California, but that's happening everywhere since co, We've seen increased regulatory costs, litigation costs, expense pressures, and that affects everybody of all sizes. And so, so what do you see? And how can, how can smaller operators drive operational efficiencies? Let me back up a little bit. I'll tell you, like a big theme I hear among, you know, larger operators. They're looking at, you know, talking about AI, they're talking about efficiencies of scale. They're, you know, a lot of other things. How, how can smaller operators drive efficiencies like that without having the efficiencies of scale of a larger provider?
- [48:24]
C
Well, Rhett, maybe if you let me, let me take this to start with and then you can jump in. One of the things that has really surprised me about our business because. So let me back in. In Los Angeles, we operate all of our own buildings, okay. And we're not perfect. Like, we make mistakes, but like, I, you know, because I own the operation, we created it, we kind of know how it works and we're pretty efficient, I would say. As we started to assemble this Reed portfolio, I think what I think surprised me, and I know surprise Rhett as well, was the standards for sub. Institutional property management are, let's call it variable, to be nice. So I think one thing to say and Reddit, I think we'll talk about what we've done to address that issue. But it is shocking how disorganized, irresponsible, incompetent some property management companies are. So my starting point would be like, you know, we, we could talk about the systems and stuff you have to put in place if you're going to deal with a lot of these kind of companies at the same time. But if you're just an individual operator and you own one or a couple buildings and you've hired some institutional property manager to, to watch them, like, for the love of God, like, look at what they're doing. Because very often what they're doing is not okay.
- [49:43]
B
Yeah, I mean, I think that. Well, there's a lot we get we could talk about here. I think that, you know, we, we try to talk to our operators and some of our operators have their own property management business. And so, you know, if I take a step back, part of our diligence before we enter a market is meeting property management companies, looking at their accounting standards, visiting some of their properties, looking at their website and content just to see if they, you know, if we want to entrust them, you know, with an important asset. So. But some of our operators have their own property management businesses, which can be helpful in this point. But I think the main point is especially in this area and maybe, you know, up the scale, there's a fine line between property management and asset management. For us, we're not drawing that line. It's, you know, we, we have to really be all over the property managers and we're looking at the data on a daily basis. We're making sure that when we get leads, they're converted very quickly. And so every aspect of the business, you just have to manage it very aggressively. That's the bottom line. But Jay, to your question, that doesn't always scale. And so there's a but at the end of the day we're trying to be great fiduciaries and less worried about how it scales and more of like, how do we impact asset performance?
- [51:06]
C
And, and I would say that what I think one of the surprises that the operators have experienced working with us is we are extremely hands on. We are devoting an enormous amount of resource at the receipt level to like literally go down to the transaction level in the books of the property management companies and, and basically rebuild the financials and, and then, and then.
- [51:28]
A
Do they like that?
- [51:30]
C
No. Well, but, but it's like we're, you know, as Rhett said, like we're fiduciaries. Like at the end of the day we've created a business where like we are handing large quantities of capital to yeah. Operators who we like and we've got to know. But like fundamentally Rhett's reputation and my reputation on the line here. And so we just can't, it's not like, here's some money, like, you know, you know, call us back in a couple years when you're ready to exit. It's like, look, no, we're, we're serious about this. And that means like being all over the operators and then, and, and their property managers.
- [52:05]
A
Absolutely. So I think that leads to another question then. So in a place like Los Angeles, you've also mentioned San Francisco, obviously, you know, great Cities, but they've been tough to operate in. And we've seen some larger operators just say, hey, look like we don't want to be there. But that also creates an opportunities for locally sub institutional operators. And so the question I want to ask you is I think you guys have unique purview or a view of this is that how can smaller operators who know these markets really well and take advantage of the fact that maybe there's fewer larger operators in these markets because they see the regulatory, the political risk, the headwinds, but at the same time still account that you do have heightened risks outside of your control.
- [52:52]
C
Look, it's a tough one. A couple things to say is one we have had, and I think this is reflected in how we've raised money for the, for the San Francisco deals. We've done a receipt and also how we've raised deals for buildings in Los Angeles. It is typically the case that local investors are more open to taking that regulatory risk than national investors would be. In other words, like it was surprisingly, it's surprisingly difficult to convince someone in Alabama that they should maybe invest in San Francisco. But it's actually, but people who live in San Francisco and are seeing the city turn around and all the jobs and the rent growth and everything are like, yes, I would, you know, like where do I, you know, where do I wire the money? So that's the first thing to say is I think that, that, that it, you ought to, you ought to, ought to kind of try to match the capital to the, to the market. That's one thing to say. Another thing to say is, and this is I think a virtue of the reseed model, there's this tension for operators where if you're a local operator, you're going to tend to be concentrated in your local market. And therefore, as I am in la, you are extremely vulnerable to changes or to worsening in the politics. And so one of the things that's interesting about the reseed model is that we can, because we're across a lot of different markets, we kind of can make those risk reward decisions and not be so concentrated in any one particular market that a regulatory issue in one market kind of ruins our lives.
- [54:29]
A
Yeah, no, that's a great answer.
- [54:32]
B
The only thing I'd add is that, I mean, it's also just a communication challenge. It's, you know, Moses said and we are, we try to help our investors understand that oftentimes those markets that have the best supply dynamics come with this regulatory pressure. Right. So like you're going to face. You know, I'm in Birmingham, Alabama. You've talked a lot about Huntsville. So yes, it is a lot easier to operate in Huntsville, Alabama. But I can assure you that San Francisco is not going to see a 20% increase over three years. Right. There's puts and takes in all these markets and just making sure that we communicate that clearly and that the strategy that you're executing is aligned to the dynamics of that market.
- [55:19]
A
Yeah, that makes a lot of sense. And I think that's why it seems like a lot of capital leave sub institutional and institutional like some of these Midwest markets right now because you don't have the supply risk and you don't have as much of the regulatory risk in some of these cities.
- [55:31]
C
Yeah.
- [55:32]
A
Well, gentlemen, this has been great. I appreciate your time and thanks. Let me pick your brain and best of luck as you're selecting the next round for Reseed and excited to see what comes next.
- [55:41]
B
Really appreciate it, Jay.
- [55:43]
C
Thanks very much, Jay.
- [55:57]
A
Foreign. And that's a wrap on episode number 77 of the rent Roll. Big thanks to Moses and Rhett for being our guest today. And thank you to jpi, Madera, Funnel, Mason, Joseph, Authentic and Telecloud for sponsoring today's podcast. And thank you to all of you for spending part of your day with us. We'll see you next time. Sam.