← The Rent Roll with Jay Parsons
Loading summary
Transcript58 lines
- [00:03]
A
Welcome, welcome. It's the Rent Roll, your podcast on all things rental housing, apartments, single environmentals and build to Rent coming to you this week from the Florida Panhandle. And we're on episode number 91. And 91 reminds me of the number famously worn by Dennis Rodman during his time playing alongside Michael Jordan and the Chicago Bulls. You know, and he was fun to watch. I'm probably dating myself a little bit to say this for all the gen zers who may be listening. I don't know how many gen zers actually do, but if you are, I promise you the YouTube clips of Dennis Rodman don't do him enough justice. Anyway, here's the plan for today. We're going to share some data and some commentary on why the recovery of the apartment market from the big supply wave, why it's going to vary a lot, not just by market but also by submarket. A lot of divergence. And I'm going to share with you a very prominent example of that happening right now. Then in our in the news segment we'll cover some big headlines, another busy week of headlines. The latest on the road to Housing act. Then the big edict out of New York City that is freezing rents on rent stabilized apartments which is about half the city's apartment stock or more for the next couple of years. And how a very famous billionaire recently sold his stake in a rent stabilized portfolio for $0.06 on the dollar. And yes, I did say $0.06 on the dollar. And then we'll have a conversation today with with a guy who started his career 25 years ago as a leasing agent community manager and worked his way up to becoming the CEO of property management for a top 20 US apartment owner. Matt DeGraw with Bridge Property Management to be good talking about department leasing trends, the eventual recovery from the high supply period and some trends in the conventional apartment market rate market versus what's happening on the lihtec affordable side. So let's jump in and first let's give a big shout out to my friends at jpi, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com JPI is in the cutting edge of some exciting innovations in development and construction and they're expanding now entering or re entering some markets they've not been building in in a while from in in Austin, billing in there as well as into Florida and the Carolinas, Washington State. Check them out@jpi.com also big thank you to Madera Residential. Check them out@maderaresidential.com into Funnel, the AI and CRM platform you could find@funnelleleasing.com. all right, so as always, kick it off. A little section we call here's a chart. And today we got two charts for you. Two for the price of one. And since it's free, that's pretty good deal, right? So I want to start with a punchline first, and then I'll get to the charts and the data. Okay, so here's a question I get asked a lot these days. The question is some form of when will the apartment market absorb all the supply. We've built the biggest supply wave since the 1970s. When are we going to absorb all this stuff? And then when will the rents rebound? When will concessions burn off? When will all these units stabilize? And every. I think everybody just wants to give me. Wants me to give them a date. Like it's going to be October 2nd of this year, or it's going to be April 15th of 2027. And, you know, I. The reality is I really feel my find myself leaning in on the kind of the old economist trope or cop out that it depends.
- [03:43]
B
Right.
- [03:44]
A
And I feel bad saying it. And I'm not trying to be evasive. I'm just trying to point out a reality, which is that it really does depend a lot on where you are, what you have, what you're owning or managing, your management philosophy, and a lot of other things. It really does depend. So I want to highlight a really clear example of how this is actually playing out in. In real life. How it depends is actually a truthful answer that highlights a real nuance of what's happening in the market right now. Okay, so let's look at one of the highest supplied markets in the country, Phoenix. Phoenix ranks in, you know, top two or three for apartment absorption. So there's a lot of demand and yet has consistently seen some of the biggest rent cuts in the country. Rents there have been falling 4 to 6% annually since 2023. In fact, it's one of the first markets to see a pullback in rents after the high inflation period, all due to a massive supply wave, one of the biggest supply waves in the country. And Phoenix's supply wave is lasting longer than most other major markets as well. So it's easy to say Phoenix will be a later recovery market. But this is where it depends comes in. Okay, here's the nuance. I think this is really important things, everybody. Again, you want a simple mark, simple answer. What market's first in that, but it really does depend. And so here's a great example. So within Phoenix, it's really. And, and many of you know the Phoenix market, you already know this, but I'm going to give you some data to highlight this. Within Phoenix, it's really an east versus west story. Okay, so East Valley versus West Valley, eastern suburbs versus western suburbs. And so east we places like Scottsdale, Tempe, Chandler, Gilbert, Mesa, west would be places like Glendale, Avondale, goodyear, Peoria, surprise, etc. Okay, now look at this first chart for those you can see the screen and if not, I'm going to walk you through it. Okay. It shows the year over year supply growth rate in Phoenix's eastern suburbs versus western suburbs. Now, the two weren't all that different until 2023. And you'll remember that's when I said the rent started to fall there. Well, that's when the western submarkets really had a supply surge everywhere in Phoenix, but especially in these west suburbs. If you see the chart, it's like that blue line just shoots up even higher than the green line, which was also high. So at peak, supply was growing 9% in the west suburbs. So it's nine new units for 100 that existed on an annual basis versus the east was 4 1/2 percent. So 2x on one side of the metro, 2 versus the other. And this isn't just one submarket versus this is basically the entire east side versus the west side. Okay. And I kind of took out the middle. And that supply wave that's still working through the system that was still left to be completed, it's disproportionately heavy in the West Valley. It's not that there isn't any supply left on the east because there's been plenty of supply there. And that supply is certainly having a real impact, but it's far heavier in those western suburbs and therefore the impact is heavier. So now look at the second chart. So now we're looking at, it's again east versus west, but this time it's year over year rent change. And if, if you're not, if you don't care about Phoenix too much, that's okay, I'm making a point here, but just follow along with me and I'll get to that. Okay, so what you'll see from this chart is two things. Number one, so as I mentioned earlier, rents have fallen across the metro area, but the cuts have been deeper in the West Valley, where there's a lot more supply. And then number two, and here's the real key point. We're starting to see some actual momentum on the east side again. Your Scottsdales, Tempe, Gilbert, etc. Yet no such momentum to the West. And so again, it's all about supply. Everybody wants to, I say this all the time, everyone find some other reason, get tired of talking about supply. They want to make some of the reasons affordability, it's demand and yada, yada, yada. And certainly, you know, would there be better demand if the job market was stronger? Absolutely. But the absorption numbers have still been pretty good and actually really good in Phoenix and elsewhere, even if not quite as strong as they were at the peak. So it's not an absorption issue. It's all about supply. Now, there's certainly supply supply pressures on the east, but they're mitigating much faster than their counterparts to the West. And so like many other high supplied markets, we do see pockets of green shoots in the East Valley. Rents are still negative, but less negative than previously. Rents are down 3.3% year over year through May in the eastern suburbs. That's 230bips better than what it was in Q4 of last year. And it's one of the better numbers they've seen collectively in these past couple of years. So that's momentum again. It's not a rebound, but it's momentum. It's a green shoot. It's moving in the right direction. Rents are still falling, but not nearly as much as previously. Now we're on the flip side. In the West Valley, we do not see that momentum. Rents are down 6.4% year over year through May, which is kind of stuck in the same range it's been now for these, you know, last year or so. It's actually worse than it was at the same time a year ago. So to summarize, rents down 3.3% in the east versus 6.4% in the west. Both are still soft, but that's a 300bps swing and that is, is significant. And so when we talk about the recovery pace and say it depends, this is an example of what I'm talking about. The pace of recovery is not equal everywhere you look, certainly not between MSAs, but also even within the same MSA. So when we look at some of these supply drenched submarkets across the US Some of them that finish that supply wave earlier, they may rebound this year or at least substantially move in the right direction. Others may be spring or summer of next year, and still others may take even longer. And So a lot of it. Well, it just depends on how much supply hit that immediate area. It depends on how much of that supply is still left. It depends on obviously the timing of the lease up activity. It depends on the asset class and the rent level and the management strategy. It depends on local demand drivers. It depends. It depends. It depends. So the next time someone tells you it depends, it doesn't necessarily mean that they're avoiding an answer. It could mean that. Of course it could. Or it could mean that they've got a thoughtful reason for all. Well, it just depends. Okay, so next up, it's time for rental housing trivia Foreign. So there's no it depends to this. There is a right answer. 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 will not get you to stabilization. The properties that are winning are running a tight ship across paid search and social media, retargeting, email and SMS nurture, all coordinated and with one accountable team. Authentic built that system. They call it demand to 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. That's D the number 2D to see how it works. All right, so the question is, and we've asked a similar question before, but this is going to be very specific to the apartment market. Excluding California and New York, where is the greatest discount for renting an apartment versus owning a house in terms of your total monthly cost? Okay, so all in monthly costs, renting an apartment versus owning a house for a new homeowner versus a new apartment renter, is it Austin, Boston, Chicago, Miami or Salt Lake City? Where is that discount? Greatest one of those five. And again, we're excluding California and New York. The the biggest discount is no shocker here, the California Bay area. And this data comes from John Burns Research and Consulting, which calculates and estimates the total cost of owning a house if you were to buy today. So with mortgage, pmi, insurance, taxes, et cetera, et cetera, versus the average pardon rent. So we'll revisit the answer here in a bit. But next it's time for in the news. Okay, in the news, when we review headlines impacting the rental housing market, investors and renters. This segment is sponsored by 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 it's often higher than that. To make it easy, we'll start with a free telecom audit to show you exactly where savings exist before you make a move. Learn more@telecloud multisite.com okay, so we got some news on the Road to Housing act, the big housing bill we talked about on the podcast last week. It passed, as many of you know by now, with bipartisan support through both chambers of Commerce, Commerce, chambers of commerce, excuse me, both chambers of Congress, and I think the Chamber of Commerce did actually support it, the revised version. I should maybe shout out to those guys. But then President Trump canceled a bill signing ceremony at the last minute and told Congress to instead go pass his voter ID law first. So that has cast some doubt over the future of the bill. But then we get this headline from Politico. It says, Johnson says housing bill will become law. House GOP leadership has warned Congress would override a presidential veto. And in an interview with Politico, House Speaker Mike Johnson said President Donald Trump is still deciding whether he'll sign the bipartisan housing bill or just let it go into effect, whether it's within 10 days of receiving the legislation while Congress is in session. And he said there won't be a veto. This is Johnson speaking, by the way, not Trump. He said, and the go, this is the full quote. He said there will not, there won't, there won't be a veto. He's just trying to decide whether he's signing it or not. And Politico reported that congressional leadership told Trump they have the votes to override a veto if it came to that. But the House speaker seems confident it won't get to that. So again, after 10 days, the bill does become law if it's not signed or vetoed by them. Okay. So obviously it's been very dynamic. So by the time you're actually hearing this, the situation may have already changed. But we shall see where this goes next. Headline comes from Gothamist and it says, New York City Rent Guidelines Board approves two year rent freeze fulfilling Mamdani campaign pledge. Okay. So by now many of you probably heard this. Big news. New York City's political appointees, which is an important piece of this. The appointees on its Rent Guidelines board just approved a two year rent freeze on the city's rent stabilized apartments. Which represent about a million of the city's apartments. So I think just over half and mostly mom and pop sub institutional market. When you look at rent stabilized, of course there are some exceptions and this did pass with just one nay vote. And that one of course came from an actual academic who studied this topic and tried to put together a very thoughtful reason why it didn't make sense. And yet of course, the board of political appointees did it anyway. So now remember that New York City has a very unusual system of rent control, or in this case they call it rent stabilization. It just obviously sounds like better marketing. Now in other places we've seen happen in some of the west coast markets is it's CPI or inflation CPI plus some percent, some additional percent on top of inflation. But in New York City though, it's instead decided by this panel of political appointees. And in recent years it's become kind of a circus of sorts, attracting big crowds and protesters and speeches and media coverage all pressuring the board. And on top of that now of course we have this new mayor who campaigned on this big pledge to freeze the rents, which all depended on these political appointees kind of falling in line. So it's not terribly surprising to see that it ended at this, at this point here with the rent freeze going through. Even if wage growth has outpaced rent growth for rent stabilized apartments in recent years, even if New York City has more than 50,000 units sitting vacant because property owners can't get the rent needed to justify the renovations needed to make these units habitable again, even if the property owners aren't capped on their costs and should, sorry, say, even if the property operating costs are not being capped, so things like taxes, insurance, etc. None of that seems to matter, even if it's supposed to, which technically it is according to the instructions given to the rent Guidelines board and the law in New York there. But you know, it is what it is. And so this continues to put New York City's rent stabilized apartments on the trajectory of a rotting time capsule. I mean just at some point this isn't going to work, but it allows you kind of punt the, punt the ball down the field a little bit. Now I know affordability is a serious concern, especially in a high cost city like New York. And I don't want to be dismissive of that at all. It is, it is real. I mean that and there's real people who came out and gave speeches, talked about the need for it. I don't want to in any way discredit that like there are very real concerns here and we have a lot of renters who really do need help are going to benefit from a rent freeze in the short term. But I want to add this. It sure seems lazy and uncompassionate for the city to just pass the buck again and again and again to property owners to shoulder that entire burden, or at least the vast majority of that burden. It's easy to tell someone else what to do. It's harder to become part of the solution yourself. It's harder to put your money where your mouth is, or in this case a taxpayer's money where your mouth is as an elected official or an appointee. But the reality today is that New York City rent stabilized apartments have become, with all this stuff that's happened between this and obviously the 2019 law that enacted vacancy control in the city, you know, the rents table apartments have become borderline illiquid investments. You know, I can't even imagine the investment case today unless you really think that the city is somehow going to reform the program sometime soon and those values are going to rebound and you got a really strong conviction for that. Otherwise, who wants a low ceiling, low floor investment where you are constantly portrayed as the bad guy and you're just trying to find the funds to properly maintain a building that was probably built for your great grandparents. So you know, that's tough and you got to have some thick skin, strong conviction for that or operate as not even a non profit, operate willingly at a loss. And obviously not all of are in that situation, but certainly some are, you know, otherwise, you know, and I'm not by the way, of course I'm not a cfa. This is an investment advice. But you know, if it were my money, I'd rather just invest in a, in a, in T bills or high yield savings account than in rent stabilized apartments. All right, and speaking of this illiquid market there, here's another headline for you. This one comes from Bloomberg. It says Sergey Brin's steep loss highlights New York Landlord's pain. Okay, this is Google co founder Sergi Brin. He sold his stake in New York city rent stabilized department fund or in one particular fund for 6 cents on the dollar. Sold it back to the GP that he invested with. According to Bloomberg, 6 cents on the $94 lost. Now here, here's the thing. Obviously nobody needs to be sympathetic for Bren and he's not asking for anybody's sympathy. I certainly didn't shed a tear myself over his loss here. No one probably is but 6 cents on the dollar is wild. I mean that's incredible value destruction. And obviously I'm just speculating here. I'm assuming this is the guy who just wants to get out of this. It's been enough. He wants to get out of it. And by the way, I believe this happened prior to this recent rent freeze vote. The bigger issue here, impacting values was not the most recent rent freeze. There's been a number of rent freezes over the years. It was really that 2019 law I mentioned earlier that installed vacancy control, which means rents do not reset upon market, reset to the market upon vacancy like they do in, in other markets and a lot of other markets that have some version of rent control. But instead that rent is caps when the rent guidelines support set rent is not just for someone renewing their lease. It's also caps the rent at the same levels for those who upon vacancy, if somebody moves out, somebody else moves in, that cap stays in place. So, you know, and by the way, I also want to point out there's been so many bad takes in this whole situation. I shared this article on social media and a bunch of people started popping out saying that, you know, Brent is an oligarch and he's getting what he deserves. And obviously this guy is incredibly wealthy, but he's also, I mean, if you looked at the article, I mean he owned a non controlling minority stake in a company that owns something like zone 0.6% of the city's rent stabilized apartments and you know, probably what, something like 0.3% of the total apartments in the city. So if you look up the word oligarch in a dictionary, I don't think someone will qualify as an oligarch of the apartment market if they own a non controlling minority stake in a company that has 0.6% of the rent stabilized market. So call me crazy, but that just doesn't seem to add up to me. All right, one more headline this week and this is a big one. It's a little bit wonky, but it's a big one from Novogradac. And this is research using data from HUD, the U.S. department of Housing Urban Development. And it's, it's a, it's, it's a. Some of you may see his headline maybe slipped by some folks, but I think it's a big deal. It says newly released HUD LIHTEC tenant data continues to show majority of residents earn 30% of AMI or less. Okay, so I know it's a little bit acronym soup. We got HUD LI Tech ami. So obviously Housing Urban Development Low income Housing tax credit. And then AMI is area median income. And just as a quick refresher, we talk about LI Tech and there's a lot of nuance to this. We're generally talking about serving renters who are making 60% of the area median income. Okay. And this article is saying that's actually serving people and majority of the residents are actually making 30% of area median income or less, meaning lower income than what's being targeted by this development. Okay, so, so here's why this is a big deal. And I've talked about this before on this podcast. You know, we've got crazy people on both sides of the aisle in red states and in blue states who think the low income housing tax credit doesn't really serve low income renters because most of it targets renters making 60% of area median income. And these conspiracy theorists, they say, hey, you know these, these, there are market rate rentals that are affordable to making 60% of AMI in some cities. So we don't need this stuff. Or the program needs to be redesigned to serve renters making much lower income. And by the way, if you do that, it'd be a lot more costly and lead to fewer units being built because building a lower AMI requires much higher subsidies. And so there's just fewer means, fewer dollars go around. More dollars per unit equals fewer units being built. And so this cynicism is usually and often based on misrepresenting the data. And this happens way too much. I highlighted recently in a story that came out, it was, you know, so called investigative article and these conspiracy theorists assume that the max allowable rent, so let's say you're allowed to charge 60, you know, you're targeting 60% of the area mean income is paying 30% of income on rent. So that would be the target max rent. They focus on that number, the conspiracy theorists do. But just because that's the max allowable rent does not mean it's the actual rent. In fact, it rarely is the case, particularly in these higher supplied markets. And that's what this new research shows. The study finds that despite theoretically targeting renters making around 60% of area median income, LIHTC or most LIHTC renters, I should say, actually earn 30% or less of the area median income. Or so this is huge, it's very big news and it shows the, I think a success story of LIHTC in that it really is penetrating to the lower income levels of the market. And it also shows you don't have to build affordable housing at 30% AMI to serve low income renters. It happens organically. Not because LI Tech operators are just being incredibly generous, but because the laws of supply and demand are pushing those rents far below what they're allowed to charge. Particularly for probably these older LI Tech buildings that, that have a hard time competing with the newer ones and with also with competing with, you know, class B market rate apartments, they're going to have to lower their rents and that's going to reach people at lower income levels. And so again, that means in turn LI Tech units are serving even lower income renters. So if you want to improve, improve affordability, you don't have to do crazy things like that are going to stall housing production. In fact, that's just going to backfire. You don't to do that, you don't have to change all the AMI rules. Just keep building, Just keep building, keep it coming. Even on the Li Tech side, you build more LI Tech, that's going to put downward pressure on the older lighthead and you build new market rate. That puts pressure on the BNC market rate units, which in turn competes with lihtc. So just keep building. All right, let's get back to this week's rental housing trivia presented by Authentic. Again, the question was excluding California in New York, where is the greatest discount for renting an apartment versus owning a house in terms of the total all in monthly costs? Was it Austin, Boston, Chicago, Miami or Salt Lake City? If you guessed Salt Lake City, pat yourself on the back, you got it right. And Salt Lake is where our guest today, Matt De Graw, he's based there. And the discount is 60%. So it's 60% cheaper to rent an average apartment in Salt Lake City than to own a typical house. And with all the total monthly costs for a new home buyer compared to a new renter. And that is indeed a larger gap than anywhere in the country outside of New York or California. So according to John Burns data, And so that 60% discount to rent versus buy, that amounts to $3,903 per month in total monthly costs. And that's a nice chunk of change. So obviously, you know, you know, I tell people this all the time, you know, cash flow in finances, that's not the only factor in deciding do I rent or do I buy. But at 3,900 bucks or 60% plus, that's likely going to keep some folks renting longer than they otherwise would if that gap was smaller. Or so you'd think. All right, next up, it's time for today's interview sponsored by Funnel, the CRM and Agentic AI platform trusted by four of the six major REITs whose AI recently beat three major competitors across six independent third party conducted blind studies. Nearly three and four renters preferred funnels chat AI and two and three chose their voice AI. So visit funnelleleasing.com to see it in action and try it for yourself. Okay, Today's guest is Matt De Graw, the CEO of Bridge Property Management, a guy who started his career as a leasing agent and community manager 25 years ago and worked his way up to becoming the CEO of what is today the nation's 17th largest apartment owner with nearly 60,000 units, according to the NMHC Top 50 list. Bridge is the property management arm of Bridge Investment Group, which was formerly a publicly traded company and asset manager until it was bought last year by Apollo for $1.5 billion. And Apollo, of course, is a big New York based asset manager. So I had a chance to sit down with Matt at the Conservis Multifamily Connect conference recently. So a big thank you to the Conservas team for hosting us. Here is my conversation with Matt.
- [29:28]
C
All right, well, Matt, thanks so much for being here.
- [29:30]
A
We are here in Park City at
- [29:32]
C
the beautiful Montage Resort at the Conservice Multifamily Connect event. And so thanks for making some time for the podcast.
- [29:39]
A
We'll have some fun. So Matt, before we get into all the fun of this, just tell us
- [29:43]
C
a little about how you got into multi family.
- [29:45]
B
Yeah, it's. Look, most people know I started out as a leasing agent in this industry, but before that, a good friend of mine's dad named Jerry Green hired me to be an application processor.
- [29:58]
C
Wow.
- [29:59]
B
So before leasing agent, I processed applications. This was pre Internet. Uh, he taught me how to score credit, how to, you know, make sure, call their employment, make sure they had a. A job and income. And basically we came up with a scoring scale and they were either approved, approved with an extra deposit, or declined. And through that, one of the assistant managers at an Archstone property mentioned that they were having a job fair and said I should come apply. I had just recently been married, needed health insurance and Art Stone's health insurance was great. So I looked for the job and, and yeah, started. I was in college at the University of Utah and started leasing apartments here in Salt Lake City.
- [30:47]
C
That's amazing. So you're telling that story about, you know, processing applications that you annually. It makes me think of like bouncing a checkbook or something. We just don't do that, you know, physically anymore.
- [30:56]
B
I know, we don't. We don't. We, those, those skills are lost and we should probably practice them.
- [31:01]
C
Well, I also have a lot more fraud right now. It makes a little bit harder to do that manually as well, I'm sure. But so I'm curious to ask you. Obviously there's not a lot of CEOs that started their career on the, on the ground as a leasing agent. So how did that experience shape how you lead your, the company today?
- [31:18]
B
Yeah, that's a good question. You know, I think, I think most importantly, it gave me a lot of understanding and I think through that understanding, it gave me empathy and relatability to the folks on site. I remember the feelings I had when a senior person in the company would show up and not recognize me, not shake my hand. And so I'm on site a lot and if I see an employee, I make sure I walk up to them, shake their hand and look them in the eyes and introduce myself. I just remember how much that meant to me as an employee. And at the same time too, it gave me a lot of understanding of what our, of, of what it feels like to be an employee of a company and, and how much you want to look up to and respect the leaders of the company. And also just, just the understanding from the customer's perspective. You know, I remember, I remember the mistakes I made as a leasing agent and an assistant manager and, and a manager on site from. You know, I remember one time one of my move ins had moved in and, and handed me their money orders in an envelope and I pulled out what I thought was everything in the envelope, but apparently I had thrown away, you know, the $250 money order, but I entered the, the other two $500 ones and, and how mad they were. Right. And so, and, and that experience plus many others, just, you know, those leasing agents, they're the, they take the brunt of all of the customer complaints. And so I think, you know, just I can empathize with them and understand what they're going through on a day to day basis. They also luckily have a lot of residents that love them, bring them cookies and food and, and thank them. But a lot of the time it's a thankless job on site because you're dealing with housing. And those people that live on site, that's their biggest check every month is their rent payment. So I can understand what the folks on site are dealing with on a day to day basis. And I think that helps and that affects my approach to my job every day. I don't sit in my office a lot. I'm on the road probably 65% of the time seeing the real estate and seeing the people and thanking them and, and so, yeah, that, that's how it shaped it.
- [33:41]
C
Yeah. And you told me, one thing you told me last night was you try to talk to every single person on site you could find.
- [33:45]
B
Yeah.
- [33:46]
C
You know, but I'm just curious, like, how does that, like what, what, what, what do you gain from that that you're not going to see on your bi dashboard?
- [33:54]
B
I, I don't know what I'm, what I gain. I think it's, I think it's more just a personal thing. I, I like to, I like to look at people in the eye and just say, hey, my name's Matt and thanks for what you do all day. I think it's more for me.
- [34:10]
C
Well, I'm sure that's gotta give you a better feel of the portfolio as well when you, when you're getting down to that level.
- [34:16]
B
Yeah, you, you, you kind, I think you kind of can feel the energy of the team. You can, you can sense if that individual is happy with their job, if they like their supervisor, if, if, if our company's doing a good job of, of, of making sure this is a place that feels, you know, happy and a place where they can, you know, be successful and, and like their job.
- [34:38]
C
Yeah. All right, so tell us a little about Bridge today. Portfolio, the strategy footprint.
- [34:44]
B
Yeah. So Bridge. Bridge Investment Group spans multiple verticals from multifamily to senior housing to debt to industrial. But I, I just, I'm, I'm really just in charge of, and oversee our, our multifamily assets and those. We have about 173 multifamily properties that we own and manage. I think that's just under 63,000 units right now. It's, it's mostly Sunbelt Southeast. But we do have, we, we do have some assets in coastal markets and
- [35:20]
C
obviously under new ownership now. And what's, what's that change been like for Bridge?
- [35:24]
B
Yeah, I think the, the better question is what, what hasn't changed? Not, you know, Bridge is still Bridge. You know, I feel like we have a partner now that's helping us be better at what we do and, but, but nothing's changed. It's the same team, same people and, and same strategy. So not much has changed.
- [35:42]
C
Yeah, well, certainly more broadly beyond just Bridge, it's just, it's a tough environment right now. It's, it's been three years of high supply. I wish we've had higher rents, I'm sorry, higher rates in softer rents, which has kind of been a, a tough double whammy. And so from a capital side like what works right now, what are you buying and what's, you know, what's the profile of deals that still work?
- [36:08]
B
Yeah, that's a good question. The transactions are low and we are buying but at a much slower pace than historically. But I think that's because a lot of, you know, we can underwrite deals and we can make them work to market. Unfortunately, sellers aren't market sellers right now. I think we need them to realize that the value of the asset is probably 10% less than what they think it is. And if we can underwrite to that, we can make it work. And so we are buying when that happens. But the majority of sellers, there's many times we've underwritten deals, offer on them and then they pull them off the market because it's, it's not the price they want.
- [36:53]
C
Yeah, yeah, I know there's many brokers who do these bovs just to go nowhere. So it's, yeah, it's just the market today. So, you know, longer term, where do you see the opportunity in multifamily? Is there, is there something that you see is like maybe not in favor today, but five, 10 years from now will be, will make a lot more sense or look better.
- [37:10]
B
Yeah, I think, I think the value add strategy will, will look a lot better in, in five to 10 years. Right now it's the orphan. Yeah, right. And you know, we're in a recovery cycle and I think in recovery cycles, shiny pennies seem to recover fastest. And right now I think the shiny penny is newly built assets that you can buy under, under replacement cost. And you know, we like that too. Right now I think that's what people are moving to. I think it feels safe. But I think five to 10 years from now the value add strategy will be, will be, will be back in favor. Obviously we need, we need sellers to realize what values really are to reset that market. We need to see rent growth happening again. We need to see rent lag on those, on those rent rolls again. And once that happens, I think you'll see the value add sector come back. Obviously it will be, you know, dependent on, on the asset. I think, I think, you know, some, some property types will become obsolete over that time. But I think the value add strategy will be back in Favor over the, over the long term. Yeah.
- [38:25]
C
I want to ask you about, follow up on that point about some property types will be obsolete because in this last cycle we saw so many new investment groups, indication groups that were buying heavy value adds and really challenging submarkets.
- [38:37]
B
Yeah.
- [38:38]
C
And so does the value add strategy in the next cycle just become a little more targeted toward, I don't know, certain, some markets, certain types of assets that have more upside?
- [38:46]
B
Yeah, I think it's, it's, I think it'll be very neighborhood specific.
- [38:50]
C
Yeah.
- [38:51]
B
In these high growth, you know, cities, obviously you want, you want to, to invest in, in cities that there's population growth, job growth, all of those factors. But even in those cities it's going to be neighborhood specific. You know, there's, there's assets that, that don't have washer and dryer connections. Right. All of these newly constructed assets now have washers and dryers in every unit. And I think renters are expecting that. So I think you're going to have to be very careful on, on which asset you buy and which neighborhood of those cities.
- [39:23]
C
But no, I completely agree. I think, you know, we're going to, even these high growth markets like in where I live in Dallas, there's, I mean there's certain submarkets I think just going to be tough no matter how much economic growth we see in MSA overall. Well, let's talk about the current shift gears to leasing. Obviously, it's been a tough few years with high supply, softer rents, high concessions. A lot of these places, what are you. But now supply is coming down. What are you seeing play out this year on the leasing side relative to what you expected coming into the year?
- [39:59]
B
It's tough. I didn't expect it to be this difficult. The demand is still there. That's the good news. We are seeing demand. The difficult part is driving those leads. Where do you market? How much do you spend on marketing? Is it on Google pay per click campaigns? Is it spending more money on your search engine optimization? Is it AI driven? You have to be nimble and you have to be quick to adjust your marketing campaign. And that's been very surprising to me and very difficult to understand, to be quite honest. Luckily we have smarter people on the team than me that know how to figure it out. But driving the leads is the difficult part. The demand is there, the leasing is strong, but figuring out how to get those individuals to see your property online is the difficult part. And then, and the, the other part we're focused on right now is, is Back to a, a lead to show, you know, percentage. Right. We need those leasing agents and the people answering those emails and, and answering the phones to, to really convince those, those future customers to come see the property. And so, you know, training on that, how to, how to get good at that is, is, is top of mind right now.
- [41:23]
C
So if I could rephrase. So basically you're saying there's, there's really good demand, but it's very competitive to capture that demand and convert into a lease, correct?
- [41:32]
B
Yeah, I think, you know, just having built, you know, new properties, you, you spend a lot of marketing dollars. And so, you know, those of us that have, you know, class B properties and didn't really budget a big marketing, a big marketing budget, we're having to compete with those, with those leads. Right. Because the way you search for an apartment is evolving every day and how you spend the money to attract those leads is important. So yeah, the demand's there, it's figuring out how to compete for.
- [42:08]
C
Yeah, well said. So let's talk about the affordable side. One of the, one of the subplots that I know you're well familiar with, but I don't think a lot of the broader, you know, narrative, public narrative understands is that wages have grown a lot faster than rents and the max allowable LI Tech rents have grown a lot faster than what we're actually capturing on the litech side. And now with all the new supply in the market, it's put down our pressure on the B and C markets. And now you have, you know, LI Tech rents that are competing more with market rate rents. And I think that's probably temporary supply
- [42:39]
A
phenomenon related to the current supply wave.
- [42:41]
C
I don't think it'll last forever. But how, like, I guess just first and foremost like how. What are you seeing on the affordable side in terms of the increased competitiveness with the market rate?
- [42:52]
B
Yeah, we're seeing that too. Area median income is, has come up. Right. And rents have softened. And so you are seeing some of the affordable rents, you know, price comparatively to market rents. And so when we are underwriting deals like that, we're underwriting through the cycle. I agree with you. I think it's temporary. You know, I remember this as a regional manager back in, in Orange county in 2009, where we had a tax credit community, 500 unit tax credit community right there in Santa Ana. And I had to do market surveys all the time and I was competing with the market rate properties and it took a couple of years to, to work through that and I think that's what, what's happening right now. You just have to ensure that, you know, you might not be able to charge the max rents right now at a, at an affordable community, but you need to be competitive because the application process at a tax credit community is a lot more cumbersome than at a market rate property. And you have to understand that. And so, you know, operators just need to be understanding of that. But I, I think it's temporary. I think the rents will come back up as, as supply is absorbed and, and, and the difference in, in the affordable rents and the market rents will, will, will change in the future. But right now, yeah, you have to underwrite through that cycle.
- [44:14]
A
And I'm curious, as you follow up,
- [44:15]
C
you mentioned that the, the, the application process is so different. The, you know, the, the red tape associated with leasing a tax credit property for. I'm just curious, like, how much of a factor do you think that is for an applicant where they, okay, I got to go through all these hoops versus, versus a market rate deal.
- [44:31]
A
Is that, is that a really, is that a major determining factor that, that
- [44:35]
C
hurts li tech deals when the pricing's similar?
- [44:37]
B
I think so. Yeah. And, and it's not just litec deals. I mean, there's a lot of, a lot of cities are implementing, you know, affordable requirements when you have, you know, 20% of the units are quote, unquote, affordable. Yeah, it's, it's, you know, you have to provide. I had a tax credit community. You have to provide every source of income right from, you know, I'm spacing the, the words I'm looking for, but you have to provide every source of income you have. And asking for that is obviously difficult for a leasing agent, an assistant manager. And then just providing it is. It's like, why, when I can go up the street and, and pay similar rent and all I have to do is fill out a simple application.
- [45:23]
C
Yeah. And then how, if at all, does that change your investment strategy with affordable going forward? Is it, is it, have you, does the profile of affordable deals that work going forward change, or is it more just playing the long game for the sector?
- [45:35]
B
Overall, I don't think it changes. I think it's playing the long game overall. You just have to, you just have to understand that again, it's neighborhood specific and submarket specific. So that problem might exist, you know, in, in, in downtown Salt Lake City where, where there's a lot of construction going on, but it might not exist in, in Indianapolis or Cincinnati where there's less Construction.
- [45:57]
C
Yeah. One more question for about Bridge. You know, obviously you were there very early time to where the portfolio is today. Going back these last couple of decades. Was there a, a moment or a decision, a pivot point that really shaped what Bridge has become and now being one of the preeminent names and multifamily.
- [46:18]
B
Yeah, yeah, it was, it was surviving and repositioning through the GFC at that time. I, I was recently promoted from regional manager to vice president and I remember the original partners at Bridge and they, they spent nights and weekends restructuring loans. I think one of the, one of the, the greatest things about the company and those individuals is not one apartment community was handed back to a bank, figured out how to manage. So everything I remember we had to work with our vendor partners. You know, sometimes there were assets where we couldn't pay the bill in 30 days. We had to work out a 90 day payment schedule. And there's great partners in this industry that were willing to work with us. That was the pivot point. And you know, and that was also the time where we moved from a syndicator to a fund manager. Bridge raised its first fund back then and I think it was 150 million plus or minus fund. And we really hit it out of the park on that fund and then raised fund too, and did great on that. But that pivot point is extremely memorable to me because I started a Bridge in 2004 and I think that was 2008, 2009 and that changed the game for the company.
- [47:46]
C
Yeah, being able to survive that obviously is good. That was a filtering process for operators in the space.
- [47:52]
B
Yeah, I remember we had no bonuses. We had to take pay cuts as employees. Those partners, I'm sure did the exact same thing. No bonus, probably very light salaries, but they, they kept the lights on at the company and, and it is. What is it is today because of that.
- [48:10]
C
Yeah. Well, congrats on all the success and Matt, best of luck going through the rest of this year.
- [48:14]
B
Thank you. Appreciate it. Thanks for your time and thank you.
- [48:30]
C
Foreign.
- [48:36]
A
And that's a wrap ON Episode number 91. Thank you to Matt for being our guest today. Thank you to Conservice for hosting us. Thank you to jpi, Madera Funnel, Authentic Telecloud and Apartment Life. And thank you to all of you for spending part of your week with us. We'll see you next time.