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Welcome.
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It's the Rent Roll, your podcast on all things rental housing, apartments, single family rentals, and Build to Rent. It's episode number 88, the number of many great Dallas Cowboy wide receivers, Drew Pearson, Michael Irvin, Dez Bryant, CD Lamb. So for episode number 88, here's the plan. We're going to start by closing the books on the spring leasing season for apartments with a quick update on the spring occupancy and rent trends. Then we're going to cover a big busy week of headlines, including a big hit piece on affordable housing development, plus several headlines coming from the apartment REITs. And then later in the program, we're going to dive into a company that ranks among the nation's largest apartment owners. Yet in kind of the words of Rodney Dangerfield can't get much respect. And that's just because obviously it's a very respected company, but it unfortunately shares a name with one of the most respected companies in the world. And that, of course, I'm talking about Berkshire, the apartment ownership company versus Berkshire Hathaway, the very famous investment company that happens to be Warren Buffett's company. And so we'll be talking to Berkshire, the owner of apartments, not to be confused with Berkshire Hathaway, they are unrelated. And so we've got with us today the great Alan King, a partner, managing director and head of property operations at Berkshire. So we'll talk some of the Berkshire history, as well as dive in with Alan on what he's seeing playing out across the country right now. And Alan's a good guy to talk to because he's got apartments all over the country, coast to coast, a lot in the Sun Belt and has a very good pulse on the market. They've got about 37, 000 units across the country, which ranks them as a 26th largest apartment owner in the U.S. so, so here's the thing. Let me get into this briefly. This Berkshire, Berkshire Residential Investments. It was founded back in 1966 by two brothers, George and Douglas Krupp, and they wanted to improve the apartment living experience. Obviously, this is way before the institutional days of apartments. And they named the company Berkshire after a mountain range or a hill. Range of hills, man, what you want to call it in the Northeast, it was a popular vacation area. Some people also call it the Berkshires. And what they may not have fully recognized or appreciated at the time is that just one year prior to this, in 1965, a guy from Omaha named Warren Buffett took over a textile manufacturer named Berkshire Hathaway and Berkshire Hathaway. By the way, that name originated 10 years earlier when two textile companies merged together, that being Hathaway Manufacturing Co. And Berkshire Fine Spinning Associates. So the combined Berkshire Hathaway was a publicly traded company and obviously still is. And Buffett was buying shares in it, eventually took control of it, kept the name even as he obviously diversified far beyond textiles. And famously, of course, they shut down that textile business, I believe, in the 1980s. But the name lives on, which of course creates a lot of confusion in the apartment world as Berkshire Residential Investments is often assumed to be part of Berkshire Hathaway. But it's not. And so we'll talk to Alan about the headache that that name must create, although surely there are worse names to be associated with than Berkshire Hathaway. And we'll also, of course, talked about with him about what he's seeing happening across the country right now with Apartment Fundamentals. Okay, so before we get into all that, a quick shout out to our sponsors. First and foremost, a 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 Again, JPI is the cutting edge of some really exciting innovations in apartment development and construction. In an industry that really hasn't seen a lot of efficiency gains over the last few decades, JPI is really trying to change the game. There's also a big thank you to Madera Residential. Check them out@maderaresidential.com and to the sponsor of our interview segment each Week, Funnel, the AI and CRM segment. CRM platform that you can find@funnelleleasing.com okay, as always, kick it off with a section we call here's a chart. And we've got one chart for you this week. But before we show you that, I want to give a thank you to the sponsor of this segment, Butterfly MX. Installed in over 20,000 buildings with over 100,000 five star reviews. They help you boost revenue, reduce costs and increase resident satisfaction by making property access simple. See how@butterflymx.com okay, so again, just one chart this week and I just want to give you an update on the spring leasing season now that spring 2026 is officially in the books. We're here into summer. It's June, no longer spring. And spring is obviously critical in the apartment world and obviously to sfr, BTR as well. So after a few years slowed down by high supply, how did spring 2026 play out? And you know, I got to tell you, it's I don't Want to, I don't want to give the impression that it was some type of huge recovery, but I also would say that this is, I feel like the first year since COVID that the spring leasing season pretty much played out according to script, being a bit more predictable and in line with the mainstream expectations. And the expectations were not for a boom, but for a gradual improvement. And I say expectation, I think the mainstream expectations kind of a gradual improvement, nothing spectacular. And that's pretty much what's played out nationally. Not bad, not great. And as you dive into the details, still a lot of choppiness out there, a lot of concessions as well. Concessions have been very sticky, but broadly speaking, we're slowly trending in the right direction. In both April and May of 2026, month or month rent growth came in above the levels we saw from these prior few years. As you can see on this chart for those of you who see the screen. And so there was some improvement, as expected, but still it shows you if you're in this chart, if you're looking at it on, if you're able to watch the video version, you can see the blue line shows you these last 12 months. And what it shows you is this spring was stronger than the previous two years, but still below the pre pandemic norms. So again, still some work to do. As expected, April brought 50 bips a month or month effective rent growth for new leases. According to RealPage data. May was about 60bps. Again, not bad, better than what we were experiencing the previous two years. But, but, but, but, but, but the norms for April and May Pre Covid were 70, 80 bips each month. So we're behind that pace. And why is that? Well, again, the market is gradually recovering as supply levels drop off. And remember, FCS all the time supply has been the number one, number two and number three, headwind for apartments these these last few years. So supply is, is finally coming down in terms of completions, I should say are coming down here in 2026. But there are still a substantial number of recently built apartments and lease up, meaning apartments that completed in 25 or maybe even 24 that haven't yet filled up. So they're still offering big concessions and that's putting downward pressure on rents. And we had close to almost 100,000 excess units in lease up compared to what we had five years ago going into this spring leasing season. So we knew that was going to continue to put downward pressure on rents. That stuff's got to get leased up. And, and the good news is we, we did see some incremental occupancy improvement in the spring. I think most of the major data providers showed some improvement in occupancy these last few months, which is a seasonally normal thing. But it's good to see because we've been going through a few years, there's been more supply than demand. Now there's than supply. But, you know, we got to lease up all the, we got to finish leasing up these recently built apartments and you don't have a real rent recovery without occupancy improving first. And we're just not there yet. Again, still some work to do, but there's been some progress and we're seeing this trend all across the country, even the higher supplied markets in the mountains and the sunbelt regions. Again, the, the pace of recovery, the number of green shoots, you know, that's going to vary a lot by market, by submarket, by asset. Broadly speaking, you know, it still depends a lot on your micro market and where it is in the supply cycle. There are parts of MSAs like Dallas and Atlanta where we've seen a substantial drop off in supply and they're ahead of the pack compared to their peers, their peer submarkets, I should say, that are still wrestling with the tail end of the supply wave. And so as I say that, you know, I want to make this point as well. I'm sure some of you listening are thinking, you know, man, Jay, it's still rough out there. I'm just not seeing much improvement. Spring hasn't been all that great. And I get it. You know, again, I'm speaking to very broad trends. There's obviously going to be a lot of variation by market, submarket and portfolio and asset type and the like. And there's still a lot of choppiness out there by submarket and by asset. And I've said this before, I'll say it again, is, I think this is a very much a story of a two steps forward, one step back type of recovery. It's slow, it's uneven, and that's probably going to continue. Even, you know, a lot of people highlighted Atlanta as this green shoot market, and it is. But even in a place like Atlanta, it's not been a linear path upward, it's been bumpy, it's been choppy. And so I think we'll continue trending broadly in the right direction, even if it's at a slow and bumpy pace. This two steps forward, one step back. But assuming the economy holds up, and admittedly that's a big if I think we'll see gradual improvement continue as the year progresses and then once vacancy rates recover, number of lease ups normalize, that pace should then accelerate. All right, so we'll talk more about once we get all the Q2 data. We'll give a bigger update in July. But now let's do some rental housing trivia. All right, today's trivia is presented by Authentic. If you're an owner, asset manager or developer running multifamily, here's the truth about leasing in 2026. A couple of ILS accounts and cross fingers won't get you to stabilization. The properties that are winning are running a tight ship across paid search and social retargeting, email and SMS nurture, all coordinated with one accountable team. And Authentic built that system. They call it demand the door and it's one platform, one partner, one monthly number that scales to your Velocity targets. Pod listeners get 50% off setup fees for a limited time. Head to auth ff.comd2d to see how it works. Again, that's authff.comd2d to see HOW it works. A u t h dashff.comd2d okay, so today's trivia question is Berkshire Residential Investments is named after a mountainous region predominantly located in what state? So we're doing a little geography be here. Is the are the Berkshires or the Berkshire Mountains, depending what you call it. Is that in Maine? Is it Massachusetts, New Hampshire, New York, or Vermont? Okay, so, so put on your geography b hat, give that some thought and we'll answer that one in a bit. But next it's time for in the News Foreign. Okay, in the News when we talk about headlines impacting rental housing in the this past week. This segment is sponsored by my friends at Telecloud. If increasing noi is a priority, your telecom contracts may be one of the 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 is often higher than that. 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, busy week of headlines. Let's jump in. There's been a lot of time on this first one and then we'll go through some of the other ones fairly quickly. Okay, this first One comes from ProPublica and it says a low income housing program is pouring billions into housing. Many people can't afford. Okay, so this is a pretty lengthy, you know, kind of positioned as kind of an investigative piece. And, and just, you know, many of you know this LIHTC is the main vehicle for getting income restricted affordable housing built here in the US A low income housing tax credit, AKA lihtc. And it pained me to read this, and I've talked about this on social media as well this week, but it's that this article was kind of painful to read because it's such a critical topic. And I've talked about LIHTC on this program before and obviously there are reforms that are certainly needed. It's inefficient in many ways, particularly in how cities are able to add a lot of kind of pork barrel spending to it. But, and that's how we get to, you know, stories like LA where it cost a million dollars per unit to build affordable. So yeah, there's reforms that are needed. But this article, it reads more like an unchecked airing of grievances. It presents a lot of hot takes as unquestioned facts. It takes key details out of context and it cherry picks research that suits the narrative. And so I'm going to give you three quick examples. Again, I wrote more about this on LinkedIn this last week. Number one, it says independent researchers found little evidence that it's expanded the overall housing supply beyond what the market would have produced without it. Okay, well, I think this is just to me at least an insanely naive thing for anybody to say. I don't think anybody who understands LI Tech development and construction financing would say this is true for the vast majority of LI Tech apartment deals that get built. I mean, you could find independent research that probably says about anything you want to say, but I think that's a low bar. And furthermore, even if you cite that, you need to point out the fact that it's a contentious view. It's, it's a cont. Not everybody shares that view. And I think if you have academics who come to this conclusion, from what this article is saying, I'm guessing they probably haven't raised capital for an apartment development deal geared toward renters at 60% of the area median income. And so I, I would question some of the methodology here that would come to that kind of conclusion. Second thing, the article cites a LI Tech critic and he says he recommended diverting the money into rental vouchers for tenants instead of into the supply or else changing the tax credits rules to reward only developers who build units in genuinely short supply. Those affordable table at the very bottom of the income ladder. The ideas never went anywhere. Okay, so let's break down both of these points. First, the article heavily pushes the idea that we should invest in rent vouchers instead of housing supply. And I support vouchers, by the way, and for a lot of reasons. However, Econ 101 teaches us that you can't just subsidize demand and not supply. There'd be too little supply, which would just jack up rents. And that would result in either, number one, driving up the cost of vouchers, or number two, just reducing the impact of vouchers. Either way, renters lose at the end of the day. Okay. Secondly, the article says LIHTC should be geared toward ultra low income renters. And that's a fair argument. I mean, others have made this argument as well. But if you're going to make that argument, you need to point out the obvious reality that goes alongside with that. And this article completely ignores it. Okay, so here's the thing. The lower the income, the higher the subsidy you need to make the project work, which means fewer units get built unless you just dramatically increase the pot of money that goes into this construction. So that's, that's a big deal. So there's a, there's a give and take here. You have to, you can make the case that we need to be, you know, a lower percentage of ami, meaning lower end of the affordability spectrum. But you have to acknowledge what comes along with that, which is likely going to mean fewer units getting built. And there's a, and there's a fair debate to be had on, on, on what really serves a low income part of the market best. Because again, if you have people coming at 60AMI, they're coming out of even cheaper units. And that's going to open availability for, for those who wouldn't necessarily have that, at least in some place. And this is a complicated topic. Again, you could have that debate. Okay, and, but again, I think that's an important detail worth mentioning. The article did not. And the third thing I want to point out, here's a quote. It says, in the Portland suburb of Gresham, federal rules cap a two bedroom apartment built with low income housing tax credit at 1675amonth. Zillow puts the equivalent market rate apartment at $1525 a month. Okay, So, I mean, wow. This article seems to be implying that the capped or max LIHTC rent is the actual LIHTC rent, which is often not true. And furthermore, that LIHTC rents are higher than or equal to market rate rents. That's sort of.
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It's not.
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They don't directly say that, but sort of implied by the word choices in this article. But here's what it doesn't point out. It's very common today for LI Tech properties. I mean, if you know this all too well, it's very common today for LI Tech properties to be below the max allowable rent. Because here's a headline, you know, kind of narrative buster here. Incomes have been growing faster than rent. AMI is the area median incomes have been growing faster than rent. And why would you not point this out? This is kind of a big deal. And why is this happening with LI Tech rents where LI Tech operators aren't able to achieve the capped rents? Well, it's just filtering. That's a topic we've talked about on this podcast. The generationally large supply wave that deliver these past three years has put downward pressure on rents across the board, even down to the affordable housing level. And that is an absolute win for affordability by any objective measure. But once again, you know, this article kind of prunes out the facts that don't support the narrative. So all this said, again, totally fair to point out Lytec's flaws again starting with making it more efficient and more streamlined, but we got to get the facts right and this article doesn't do that. All right, so again, a lot of time on that. I'm going to start picking on the pace here. Next one comes from the Minneapolis Fed, the Federal Reserve bank of Minneapolis. It says housing policies in St. Paul yield mixed results data and developers say, okay, so so many of you know by now that St. Paul, the city of St. Paul, enacted rent control a few years back. Well, this new research paper from the Minneapolis Fed goes to great pains to basically say in the nicest possible way their rent control has been a total disaster for St. Paul. And but in all seriousness, it's a great paper and it reiterates some of the negative impacts about, about rent control. I'm not going to get all those things here. Talk about this a lot. But it also, it also highlights one unintended consequence of rent control that we don't talk about very much. At least something I've not talked about as much and that's this rent control has devalued apartments and thereby shifted a larger share of St. Paul's tax burden onto homeowners. The authors write, quote, with operating costs rising and rent increases constrained, the per unit sales price of apartments has fallen with lower market valuation of multi properties, homeowners are paying a larger share of the property tax levy. Okay. That's an important fact and something that voters in Massachusetts and elsewhere should be aware of prior to voting on the rent control ballot measure there in Massachusetts in November. Obviously, we're talking about St. Paul, Minnesota.
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We're not.
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I'm talking about now, I'm alluding to the, the ballot measure and coming up in Massachusetts, but I think voters should be aware of that. And I'm sure there are a lot of sympathetic homeowners who see us in the ballot and without knowing all the facts, all the research, all the negative impacts that we've seen document all across the country, I'm sure they want to know that and they want to know that their city's tax rolls could be negatively impacted by this vote. So hopefully those facts get out there. So then we got a few headlines impacting. You're talking from the apartment REIT this week, some news releases. I'm going to cover these pretty quickly. First one, Avalon Bay Communities and Equity Residential announced leadership team for Combined Company. Okay, so previously all that had been announced for this merger was that the board chair, Steve Starrett, he'd come from Equity. The CEO, Ben Shaw would come from Avalon Bay. And now we have an announcement on the broader C suite swing. This merger goes through from Equity Residential. The coo, Michael Manellis, he keeps the COO role from Avalon Bay. Their coo, Sean Breslin, becomes the Chief Investment and Growth officer. The current Avalon cio, Matthew Berenbaum, he becomes the Chief Development Officer, focused on new construction. The CFO would also be from Avalon Bay. Kevin o' Shea and the General Counsel would come from eqr, Scott Fenster. The other two big roles that were announced, the heads of Asset Management and Human Capital Administration, Pamela Thomas and Elaine Walsh, both of those from the Avalon Bay side as well. So interesting to see for those counting with the CEO, that's six members of the leadership team from the Avalon Bay side, two from the Equity Equity Residential side, plus the board chair from EQR as well. Another headline this week, center Space announces outcome of strategic review. $245 million of planned dispositions. Okay, so Center Space, which is heavily focused on the Midwest, plus some Mountain west, some of you may remember they had previously announced that ominous strategic review of alternatives, which is usually Wall street speak for potentially putting it up, putting itself up for sale. Well, they completed that review. They're not selling themselves right now, but instead, they're planning to sell about $245 million worth of apartment assets they're planning to sell. It totals to 12 apartment properties, so presumably a little bit smaller properties based on the price here in 2026, 12. They plan to sell one of those in Denver plus. And the others would be a full exit from two tertiary markets, Bismarck, North Dakota, as well as from Rapid City as well. So they'll use the proceeds, they say, to pay down debt and they expect to see an improvement in ebitda. And they also said there may be a special distribution to investors as well. One last Reid headline this week, Elm Communities reaches apartment. Sorry, Elm Communities reaches agreement to sell last remaining asset. Okay, so if you remember Elm Communities, this was the DC And Atlanta apartment REIT that has been liquidating its portfolio starting with a big sale to Cortland. Well, they just sold off the last remaining apartment property. This one's in Bethesda, Maryland. It's 193 unit property. They're selling to cap rate for $59 million. So once that closes, Elm Communities will be yet another apartment REIT that fades into the history books. It's sad to see. I hate losing apartment rates. I've said this before, but it is what it is. So congrats to my friends at Cap REIT on the acquisition and to all those at ELM who have successfully finished off the liquidation process. Okay, one last headline. We've had a lot, but I have to give you an update in this one. And it's a story I mentioned last week. It's from the Dallas Spring News. It says, grapevine council reverses decision enabling multifamily and hotel development. Okay, so I mentioned this last week, so I want to give you a quick update. I mentioned that Grapevine had denied this project. It was a proposed apartment and mixed use development from Trammell Crow. I was very critical of Grapevine for blocking apartment development next to the big mall in a city that prides itself as being a tourist town, yet blocking housing that can serve those working in the tourism and hospitality industry. We had some council members who are quoted in the article from the prior week saying that, hey, we don't need more apartments, we just need single family houses. Well, one leak, one week later, we have some good news here. The city of Grapevine has reverse course and good on them for doing this. So this deal was that in Grapevine they needed five votes to pass this. They only got four because one council member missed the meeting. So they came back and requested that the measure, one of two of the council members came, said, hey, we need to bring this back to vote and they did. And then the council approved it on June 2nd. So well done Grapevine for righting a wrong. Next up, it's good news that's we got to highlight good news happening across the rental industry because there's plenty of good news happening too, even if we don't talk about it as much. And good news is presented by my 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, the on site staff to the bottom line. And so if you don't know I work with Apartment Life, check them out@apartmentlife.org it's a faith based non profit that's been around for nearly three decades. Okay, so a few weeks ago there was a very sad story that turned out to be a good one. A drowning incident in an apartment community in the Houston area. It's hard to even read this but tell you the story. There's an 8 year old girl who was found unresponsive in the pool. Her mother pulled her out. Residents are gathering around. Well, it happened to be that two Apartment Life coordinators were nearby, Ashley and Hugo, and they rushed in to help. Ashley was CPR trained. She coached the mom and another woman on through compressions and breathing, struggled for several minutes. Everyone you know, a lot of concern obviously. And the middle of this chaos, Ashley and Hugo began praying out loud asking God to bring this child back to life. And after, after a few minutes, after about five minutes, they said suddenly she started coughing up water, began breathing just as the ambulance arrived. And in the days that followed, the child's mom said Pete Kelly told him the story. So the child's mom said, jesus brought my daughter back to life. So what an amazing story and very thankful for that Apartment Life team having to be at the right place and the right time. And if you've got good news to share, send it to infojparsons.com okay, so let's get back to today's rental housing trivia question of the week. It was Berkshire Residential Investments is named after a mountainous region in predominantly located in what state was it Maine, Massachusetts, New Hampshire, New York or Vermont? The answer is Massachusetts. And I mentioned this earlier in the episode. Some of you know this region as the Berkshires. It's a range of mountains or hills depending on who you ask. Others call it the Berkshire Mountains, popular vacation spot in western Massachusetts. There's a Berkshire county as well. It's the westernmost county of Massachusetts. And that mountain or hill range extends into Northwest Connecticut as well. And by the way, Berkshire county is also where Berkshire Fine Spinning Associates was based. And that's where Berkshire Hathaway got the Berkshire and its name from the same region of Massachusetts. So there you go. If you didn't know that already, both both Berkshires were named after that region. And Berkshire Residential Investments maintains its headquarters in Massachusetts today, although on the other side of the state in Boston. And unlike Berkshire Hathaway, it's not publicly traded, privately held. And that tees up today's interview and today's interview is 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 okay, so by now you know Our guest today is Alan King, a partner, managing director and head of property operations at Berkshire, which is not Berkshire Hathaway but is the 26th largest apartment owner in the US according to NMC. Top hidey list I had a chance to sit down with Alan in person to record this conversation at the Conservice Connect Multifamily event recently in Park City, Utah. So big thank you to the Conservis team for hosting us. Here's my conversation with Alan.
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All right, welcome to the podcast today and we are thrilled to be in beautiful Park City, Utah with the Conservice Multifamily Connect event and I am joined by the great Alan King here in Park City. So Alan, thanks so much for making time for this.
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Thank you. Thank you for inviting me.
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So yeah, thank you to the Cons Service team for holding hosting us.
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So before we get all the fun topics, Alan, tell us how you got into multifamily, the wonderful world of multifamily.
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I did it. I was working my way through college and I actually worked for a landscape company that had a contract with the largest owner manager in Gainesville, Florida did that. Then the owner developer approached me and said hey, we want to take this landscape business in house. And I did that. I got my two year degree from a community college and was going to the University of Florida full time. I said I can't do that anymore and I can work part time but I can't do this job full time. And they offered me a part time leasing position making somewhere between six and seven dollars an hour, no commission free one bedroom apartment. And at that time I thought I was living pretty large but it was really to help me worked my way through college and they worked around my schedule. I worked every other Saturday and it was, yeah, it was fun but that was my introduction into the business. And then ultimately a couple years later my. While I was in my last semester of school, my father was killed in car wreck and I went to work for full time for the developer. And at the ripe age of 26 I became general manager of his organization and did that. I went back to school at 30, completed my degree and then graduated on a Saturday and moved to Orlando on a Sunday and started with Johnstown American as a regional in that time. So pretty interesting.
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That's a great story.
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And a lot of people listening probably have no idea.
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Johnstown America was a huge name at this time. So. Yeah, can you tell us a little about that name for those who don't know it?
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Well? Yeah, Johnstown was one of five of the top big original syndicators. You know, they at the time, Johnstown owned probably 15% of the multifamily inventory in most of the major markets in the country. And they were a big player and very successful. Were known for, for their. They were the first group to introduce computers, PCs at the site level, tremendous training facilities and they kind of wrote the handbook on the next generation of multifamily.
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Yeah, yeah. You had a Fred Tuami on the podcast talking about that experience.
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Yeah, I work with Fred for.
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Yeah, I'm sure. So now you're at Berkshire.
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Yep.
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And I'm sure you've probably get tired of being asked this, but how often do you always get confused with Berkshire Hathaway, Warren Buffett's company?
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Every time I meet somebody brand new and. And you know that if you're going to be confused with the company, Berkshire Hathaway is not a bad one to be confused with. And then I have to tell the quick story, you know, and no affiliation.
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So where did the name come from?
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Douglas and George Krupp, who founded the company six years ago. I named it after the Berkshire Mountains. They love the Berkshire Mountains and both of them have places up there. And so that's where it came from.
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Where?
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The Berkshire Mountains.
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Just, I think just north of Boston. Oh, okay. Yeah, yeah, Boston, Vermont area, I think.
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Yeah, I'll.
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I.
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There was a time on LinkedIn I had somebody going on this rant in
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one of my posts about how Berkshire Hathaway was buying all these houses.
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I'm like, well first, no, Berkshire is not buying houses and Berkshire Hathaway and Berkshire are the same companies. But I'm sure it creates some confusion for everybody. But hey, it's a good company to be compared to. Yeah, exactly. It could be worse.
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Yeah.
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So I guess there's no, no reason to change it if it's a good.
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Not at all. It's work, but worked very well after six years, like we're celebrating six years this year.
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Wow. Wow. So tell us a little about Berkshire. You tell us some of the, the history, ownership, unit count, geographic footprint or
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anything else you could share.
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I joined in 2006 and we were, it had been historically a family portfolio. They had just launched, they had done a big deal prior to my joining with Goldman Sachs and Blackstone. A billion dollar portfolio. We're liquidating that. And so at that point they had decided, well, we want to make sure that we can sustain a portfolio. So they had launched their first value series funds and fund one had been launched and fund two was in the process. And that's when I joined and at the time that had about 3 billion of assets under management. And back in those early funds they were true heavy lift B B minus quality where you went in to complete renovations, got the premium and were very successful with that. But some of that changed during the, the Great Recession. Any, any value add profit during that time period. If you had not executed, you stopped that process. If you had executed, you were, you know, you had trouble getting your premiums until the market started recovery. Yeah.
- [33:38]
A
And so you know, to kind of take us through today and what the
- [33:42]
C
portfolio we, we, we. Back then our average unit price was probably somewhere in the low to mid-40s. Now our average unit price is approaching $500,000 a unit. We were at roughly 42,000 units under management, all owned, all market rate across probably the top 25, 26 major markets in the country. Big, big commitment. Our biggest concentration is Texas. The four big markets in Texas. We're in the Southeast, we're up in the mid Atlantic. We've recently expanded into New Jersey. We've always been. When I joined they had one property in Denver and one fee managed deal in Portland, Oregon. So I had worked for Arkon, Goldman Sachs prior and I had run the west coast, everything from Texas west. And they started expanding out west with some development. We probably developed 20 properties out there. We were not the developer. We had partnership with national and regional development partners and grew that west pretty big. So we're in Pacific Northwest, north of San Francisco. We've just acquired two properties in San Francisco. We've always had a presence in San Jose, Louisiana. We're in la, got quite a big number of assets under an la which was problematic obviously during COVID Sure. San Diego, Phoenix, everywhere. Yeah, everywhere. Pretty much everywhere. We have a little bit in Chicago, a little bit and Columbus, Ohio. But that, that big horseshoe for the most part new at Northeast all the way to Pacific Northwest.
- [35:40]
A
Yeah. It seems like nowadays a lot of portfolios either you know, coastal or Sunbelt, you got the balance. Yeah. And a ride both ends of the waves there. The high diversity. So. So you've spent more than 30 years in operations I believe starting on the ground. As a leasing agent. I'm curious just to ask you to just to zoom out for a moment. Like how different is it to manage apartments today versus when you first started? And maybe what are some of the biggest differences and the biggest step that
- [36:06]
C
obviously the technology has changed greatly. When I started you pegboard system of no computers on site, you, you know you had the traditional staffing part time leasing, assistant manager, property manager. I did start. Back then apartments were really alternatives to single family homes. But I did start the developer I worked for had the highest end apartments in Gainesville. So we were at the top of the market. It was very competitive. I remember when I was a general manager, literally student property. It's obviously Gainesville in the University of Florida. But I remember setting rates for our top tier property and everybody wait for us to set rates and then they would cascade down appropriately based on where they thought the market was and very little concessions. Back then there was not enough product to really get the surplus like we've had the last several years.
- [37:14]
A
And I'm curious when like today information is real time. I mean you're seeing when you could probably pull up your phone and see what your occupancy rate is in any of these places. How does that change management versus the period when time when you know, you may not have the data until a month later or whatever when these reports all get compiled. And like how does, how does that change the game?
- [37:35]
C
It changes it greatly. You know having the experience with student properties because you've got a lease up cycle that is much more compact. With that you learn to be forward looking. Here's what we expect the turnover to be, here's how we turn. We had a 244 unit property and we turned 60% of those units in less than a week's time. But you did prepare for that. But everything was on a 30 day notice. Now everything's on a 60 day notice. You're sending out renewals 90 days in advance. And so you've got information real time. Anticipating what your availability is going to be and then trying to make sure that you're filling that or moderating that availability over the course of that 60 day notice period or at least that 90 day notice period. And back then it was just a guessing game. You had no idea. And even back then they were supposed to give you 30 day notice, but many were not. And in those days being student properties too, they were waiting to the last minute to make those decisions. Sure, the information you have to look forward and make decisions in real time really help today. But you're also dealing with much greater sophistication, much greater marketing effort, much greater concessions and people trying to optimize their own occupancy, rent, street rate, renewal rate, and read that right balance and that's the mastery of it. And you're doing it in a vacuum, just in your own world and hope you get it right.
- [39:19]
A
Yeah, and I was, obviously we have more data. That means the probably the central office is much more hands on with some of those decisions as well.
- [39:25]
C
Absolutely. And you know, back then you're, you know, I wouldn't say there was the focus on as much resident retention back then. You know, it was not like it was a lot of turnover people. It was not the way it is today. You know, the cult, you know what you're doing from a resident retention, resident satisfaction, all of those surveys that you're doing to kind of sense what you're doing right, what you're doing wrong. What do I need to fix? How do I address that? None of that was around then.
- [40:02]
A
Yeah, I want to ask you about your retention because I think this is a fascinating topic and I'll run this by you because you know, when I
- [40:08]
B
share data, one of the things we'll
- [40:09]
A
share is hey, retention rate's been going
- [40:11]
B
up over time and a lot of
- [40:13]
A
times people's instant reaction as well.
- [40:14]
B
Mortgage rates are high.
- [40:15]
A
Like therefore people can't buy a house. And that's why we're 10. People are renewing their leases.
- [40:19]
B
And I, what I try to point
- [40:20]
A
out is like, hey look, they still have options.
- [40:22]
B
People can move out to another apartment
- [40:23]
A
if they're not buying a house. And so it seems to me my theory, and you would know better than me, my theory is that the living experience for a renter has gotten so much better. We're building better apartments, we have better technology, creates a stickier living experience. As you said, hyper more focus on retention, heads on beds. You know, it feels to me like all of these things are, and obviously
- [40:43]
B
people are Waiting longer to, you know,
- [40:44]
A
lifestyle change that contributes. But all of this seems like a much bigger topic than just, oh, mortgage rates are high. Is that fair?
- [40:50]
C
No, I think it's very fair. You know, the reality is people. I have four daughters, and every one of them, they had a certain place they wanted to be. It was. They migrate to a neighborhood, they have friends, They've heard, this is where you should be. If you're a college graduate or you're someone who wants to go to college, you want to live in these certain areas. So they go to those areas, they find the two or three places they might be willing to live, and they make a decision. And until their lifestyle changes, for whatever reason, graduate college and move off to take a job, or they decide to move in with their boyfriend or get married. But the reality is, as long as they're happy, they're very satisfied. Today's product is much greater. The quality of it is much greater than what it was in those days. But the reality is they're making those decisions and they're going to the neighborhood, and that is there. As my daughter who lives in Buckhead says, I love my bubble. She doesn't like the rent, and I'm still helping pay part of that rent. But the reality is they like to be in their bubble until there's a life event, they're not changing. And it's funny talking about retention, when we had great recession, the GFC at that time, two things we've seen that we didn't see with this Covid issue. People would not move because of credit problems. They lost their job, they had layoff. So if they were in a place, they would not risk moving. So you saw retention rates escalate significantly in what I would call B A minus product because they didn't want to go through the screening process again. But what we did see in that environment, with concessions in the top end of the market, a product, you saw people move down in class for affordability. Now, we didn't see that during the COVID years.
- [42:56]
A
Yeah, we still haven't seen that.
- [42:57]
C
No. That's the only time, in my opinion, 40 years that I've seen that actually occur. And people were more concerned about having something they could afford and not have to go through the process again.
- [43:13]
A
Yeah, it's just as a brief aside, one of the most astounding stats to me is that consumer confidence is lower today than it was back then. And I remember that period very well. And obviously, people have their own opinions. And some people weren't of adult Age at that point. But that period was so much worse, unbelievably worse.
- [43:31]
C
And, you know, it's more about attitude and perception. There is no doubt in today's world we're much better off in so many ways. But it's, I guess you compare it to how do I feel relative to someone else? And that's the difference.
- [43:50]
A
Absolutely. And other questions, kind of how things have changed over time is what about the renters themselves? Obviously, people are, we're seeing the average
- [43:58]
B
age of renters gone up. People are waiting longer to get married,
- [44:01]
A
have kids, buy houses.
- [44:02]
B
Even prior to the mortgage rate spike.
- [44:04]
A
You know, there's, we have, you know, residents expect more things on demand now. The kind of the, you know, the instant gratification. Like how, how, how have you seen the, just the, the, the resident care piece of property management changed over the last few decades?
- [44:20]
C
It's, it's been, it has changed. You got two big demographics. You basically have what is the traditional multifamily. But we have seen 50 plus empty nesters. That's been one of the biggest drivers on the top end Class 8 product. We got 800 units, two towers in the Seaport district of Boston. And one is more traditional, higher end. The other one is a little bit more contemporary. And you've got Many of the 55 and older, 55, 65, 70, who go to the more contemporary product. And it's not a price point for them. It's just, do I like this decor? I want to be around a younger demographic. And you've got, you know, the walkability of the neighborhood. Walkability of the neighborhood and all those things. So it is the blending of those two generations, really. And for the most part, especially on the top end of the market, they blend together pretty well. You don't have the noise disservices, you don't have the parties. You don't have some Evander old parties. Yeah, it's very different.
- [45:37]
A
Yeah. I wonder too, is just because the last 20 years we built so many nicer apartments.
- [45:44]
B
I wonder if a lot of that
- [45:45]
A
crowd maybe previously would have gotten a condo and now you could rent an apartment. Apartment that's maybe nicer or as nice as a condo.
- [45:50]
C
You would have the obligation.
- [45:51]
B
Yeah.
- [45:52]
C
As we were talking earlier, it's like, you know, do you buy a second home or you use Airbnb or you rent an apartment? I've had, I had a friend who in retirement, his plan was, I'm gonna keep my primary residence, but I'm gonna go rent in San Francisco. And Spend six months, stay there and see everything there's in San Francisco. I'll do the same thing for both. And I'll do the same thing for Philadelphia. I'll do the same thing for New York and to buy a second home. But he got the. The quality of housing he wanted. Yeah, he could go and extend a vacation and ultimately decided where he wanted to live. And he ended up leaving Dallas and moving to Austin. That was driven. He loved Austin, but he had. He had three boys, and two out of three boys ended up in Austin. So that's why he moved there.
- [46:40]
A
Yeah. That's great. That's a good thing to do if you can do it. So let's shift gears to the current leasing season. Obviously, these last few years have been tough. Right. Whether you're A, B or C, you know, we've had the biggest supply wave since the 70s. It's been a tough, very competitive leasing environment. Now we're at the tail end of the supply wave. It seems like that big headwind is starting to mitigate. There's still some stuff to work through in some markets, like in Austin, but we're getting better. But there's also some choppiness in the economy right now. So what are you seeing play out this year relative to what you expected so far?
- [47:17]
C
We've, you know, we're always optimistic. We normally anticipate a bump in rent, and you'll see that typically in March and the last couple years, you would see an initial bump and it moderate. And we're kind of at that same point now. We are seeing. We've kind of got our portfolio divided into three groups. One is this is where the market's already turned. Most of that is the low growth markets, Chicago's and some of those markets, Houston relative to San Antonio, Austin, Dallas did not have the same level of development. So Houston turned first. So we're seeing a third of our portfolio roughly, that is turned. We've seen kind of a middle third that is gotten back close to even. And we're anticipating. We're holding occupancy pretty well. We're in. The third market is still the heavy supply is Tampa. It's San Antonio, which is our most challenging market. Austin and Dallas had tremendous supply, but their absorption had been really, really strong. So from a pure absorption standpoint and pricing power standpoint, I rake the Texas markets for our portfolio. Houston's the strongest right now. Dallas is a close second. Turning pretty well. Austin still too many concessions, but you're getting renewal increases at a reasonable rate. You're getting market rental increases. You're still giving away some cash concessions to hold that. And San Antonio is just, just tough. Not a lot of pricing power there. Good occupancy, good reservoir retention, good renewal increases. But that market's going to be probably the last market we have to turn.
- [49:20]
A
And San Antonio to me at least it's always been more of a slow and steady market as opposed to a Dallas and Austin, Houston. So, so you mentioned some Chicago's whatnot. Is, is the, the strength in your portfolio still the lower supplied markets? Is that still the story for now?
- [49:34]
C
Well, it's, it is. That's where we're seeing the biggest streng percent of our, our portfolio is in growth markets and so specific Northwest, I mean the, the northeast assets, Chicago, Pacific Northwest, San Francisco, San Jose, San Diego are kind of those markets that have really failed, fared very well. And it is the Southeast, the Texas that's holding the portfolio back a little bit. But we believe that everywhere. Yeah, yeah, we believe those markets, we know they're going to turn and it makes some of the acquisition challenges difficult because you're trying to when do you have the optimism to underwrite greater be more aggressive on a cap rate, more aggressive on a projected growth rate. And so in those high supply markets there's, there's a ton of stuff being shopped but the bid ask is still a little too far apart.
- [50:41]
A
Well, I'm curious that you mentioned your spot in San Francisco.
- [50:43]
B
Is that how is that buying environment right now?
- [50:45]
A
It's got to imagine there's a lot
- [50:46]
B
of capital coming into there right now.
- [50:47]
C
There's a lot of capital. You know, that particular deal was, was a, an individual owner that had been managing himself his. It was essentially four properties. It had some hair on it from a standpoint of the product type and he had split some units without getting them permitted and approved and so a lot of people just wouldn't touch it. And we chased that for a year and a half probably and, and ultimately got it. And we're able to get comfortable with the city being able to allow us to permit those units and things like that. But it was a very unique opportunity, unique seller and it was just great profit in great location in downtown San Francisco. But it's just not a product that a lot of institutional investors would have spent the time on.
- [51:53]
A
Yeah, that's the opportunity to buy what. But others aren't Right. So more broadly, Alan, what, what's, what's Berkshire's strategy right now in terms of is, is it time to buy again
- [52:02]
B
and if so what type of product
- [52:04]
A
and markets is building hold? I mean what, what's the we.
- [52:10]
C
We have. I'll set this up a little bit. We have roughly $34 billion in 34 billion of assets under management. About 45% of that is our equity portfolio, 55% of that is our debt funds. We are the biggest buyer of our CME pools from Freddie. We have a big Bridgestone group that's a joint venture between Berkshire and another group and that's branded MF1. And we've been the biggest issuer of bridge loan debt over the last five years. And,
- [52:49]
A
and there's been a lot of need for that.
- [52:50]
C
There is a lot of need. And so that side of the business we have investors from all over the world and in times of uncertainty and for the equity investment side you got Geopolitical Dynamics, you got the election. What's going to happen if Trump gets reelected? What's happening with rent control and municipalities setting fixing rates, not allowing you to increase rooms and stuff like that. So during times of those uncertainty we'll see those investors weight their investments. They still play in equity and debt, but they will wait more to the debt side of the business. And then now they're seeing quite a now is the time to shift. The question is when will that be? There is not a great appetite for heavy value add. We're on our sixth, we are. Our value fund series, our sixth issue is, has raised about a billion dollars. It's going to be 1.5 billion I think by the time it's done and we're starting to place that well. But there's not an appetite for heavy value add anymore. So most of our I would say fund three, four, five and now fund six are what I would call a minus product that's 10 to 12 years old, maybe five years old. And it's that's basically upgrading appliances, new flooring, new light fixtures, new amenity packages addressing deferred maintenance. And there's been a lot of that given anybody who had variable rate debt had cash flow constraints over the last four or five years. So that's limited how a lot of this product, even the top of the market a class product has been maintained. So that is still what we consider value add but it's not the heavy value add. We do think there's an opportunity for development cycle. It's not quite here. A lot of our investors are not at this point interested in significant ground up development and the risk associated with that and the timeline for that but we're buying a lot of product that is brand new or one or two years old, and a big appetite for that. So a lot of our, our recent acquisitions, we're doing that and we have several separate accounts with some major investors, six or seven of those. So everybody's kind of looking at the same pool. They have different financing requirements. We got a core fund, we got core plus we've got separate accounts. We got the value fund series, which makes it, there's an allocation process to the acquisition pipeline.
- [56:06]
A
Yeah, so just go back a minute. So there's, there's been so much focus these last few years on, you know, debt over equity. So you're saying you think that's switching again?
- [56:12]
C
I, I, it's going to pivot soon. Yeah, it's going to pivot soon.
- [56:16]
A
A lot of people will be happy to hear that.
- [56:18]
C
And, and, and I think there'll be a window of time, like, I, I think there's a window of time now where people are watching and looking at it and, and I, there's an opportunity to buy at discounted rates to construction costs now. And we just, we're not quite, we need a little bit of help on interest rates coming down and a little bit more movement and growth, red growth, to really be able to underwrite those and who, whoever has the money, which we have plenty, and who can be aggressive and pick those markets. And they've got the timeline to hold those long enough to make sure you get that recovery. That's the next wave. And then I think, you know, the construction numbers are still 400,000 plus delivery now. So we still need, you know, maybe a year or so before. But whoever jumps into that redevelopment, that new construction cycle will be, will be rewarded for that as soon as they make that turn. So that's kind of where we see it yet.
- [57:32]
A
Yeah, makes sense. I agree. And yeah, I think once you get some rent growth and get off these new lease ups, you'll see a lot of capital coming in that's been waiting for it.
- [57:39]
C
Yeah, there's a lot sitting on the sidelines.
- [57:40]
A
Y well, Alan, this has been fun. Thank you so much. Might pick your brain and best of luck navigating the rest of this year.
- [57:44]
C
Well, thank you. I enjoyed it. Thank you.
- [58:05]
B
All right, so thank you again to the conservice team for hosting us, thank you to Alan for making time to be our guest today. And thank you to our sponsors, to JPI Madera Funnel, Authentic ButterflyMX, Telecloud, and also, big shout out to Apartment Life and thank you to all of you for spending part of your week with us. We'll see you next time,
- [58:24]
C
Sam.