Cottonwood, Dallas, Texas
Happy Tuesday (although it might just feel like Monday) and welcome back! If you were fortunate enough to get the day off yesterday – I trust it was enjoyable! I’m flying back home today after a great trip to Atlanta completing due diligence on a new deal we’re working on. Once again feeling truly honored and blessed to have 13 folks show up to help us with due diligence. We had some great weather (surprisingly comfortable) and got all 200+ units walked with time to spare. We decided to stay at the Kimpton next to the airport and have dinner there before heading to an old-school Atlanta ice cream shop. Work hard, play hard! Among the topics of conversation – crypto, interest rates, underwriting, business strategy – you name it we covered it. Always a great time.
MULTIFAMILY BOARDROOM
Last Thursday/Friday I was also able to attend The Multifamily Boardroom mastermind in Houston. Super event and really great way to spend a couple days working “on” the business instead of just “in” the business. If you’re an experienced operator or you are aspiring to grow your multifamily business 10X I would highly recommend looking into it. We had some excellent presentations on leadership and business growth that I thought were super helpful. Sometimes it’s not what you need to learn, but rather, it’s what you need to be reminded of.
DEAL UPDATE
The San Antonio deal webinar is tentatively scheduled for June 29th. I’ll shoot out a link later this week for sign up. Looking forward to kicking off this new deal. Still hard to believe that San Antonio had the highest percentage population growth in the ENTIRE country between mid 2020 and mid 2021. That is just crazy. I also did a little research – and back in 2008, this little town just leveled off during the downturn (vs Florida where parts of the housing market crashed 60% or more).
That leads me to the Stockbridge deal update. We’re wrapping up the raise on this one and are actually planning to close early, so if you’re interested please let us know ASAP. We don’t want to lose our loan terms by waiting too long.
WHAT DOES IT MEAN TO BE WELL-CAPITALIZED?
And now for part 1 of a 2 part series (had to break it up so you weren’t reading a book).
I thought it might be helpful to explain some of my thoughts around the importance of being well-capitalized in the real estate space and how we apply that here at REM. My goal, in part, with these CEO blogs, is to give you a window into how we operate and explain our unique value proposition as a company.
After 23 years and two market cycles, I’ve learned the importance of having a rainy-day fund. I’ve been blessed to work in a wide range of opportunities where I was able to develop my own thesis on how I wanted to run a business if I ever got the chance. I’ve failed a few times along the way. Most entrepreneurs tend to get smacked a couple times but those who succeed know the real goal is persevering until you’ve reached excellence. Let’s be honest, none of us rolls out of bed as an instant success.
One of the core principles I developed over the years was the need to be well-capitalized as a hedge against volatility as well as a hedge for opportunity. This applies both personally and professionally.
PERSONAL HEDGES
On a personal level, I’m one of those crazy people who paid off my house as quickly as possible. Not because it was the most profitable thing to do but because it gave me fudge factor. I knew I would have built in equity should I need it, and I had peace of mind that I could work at Home Depot and cover my living expenses if the world crashed (whether Home Depot would still be in business in that scenario is another discussion). Anyway, a few years ago my wife happened upon a great piece of land nearby that was selling at a great price because no one could get a loan on it. We used our HELOC to pay cash for it and that piece of land has now tripled in value. A hedge against volatility and a hedge for opportunity!
PROFESSIONAL HEDGES
From a professional level, being prepared for opportunity is more of a by-product of being well-capitalized. When it comes to REM, I’m usually more focused on hedging risk since we manage so much of other people’s money. As part of being well-capitalized, we set aside 6 months of working capital for each of our deals. It’s part of our 6-part, risk-based investing model. But in addition to that, at the corporate level we set aside an additional $1 million in spare working capital for each $100 million in AUM. That’s money that we could otherwise spend (fancy office space), distribute (plane, yacht, lambo), or re-invest (cash flow!). And sometimes, especially right now with inflation at 8.6%, it’s hard to see it sit in the bank account doing “nothing.†But it’s not really doing “nothing.†It’s part of a bigger/thoughtful strategy to hedge risk and lower volatility for our investors and our own team. I believe decisions like this, often times unseen, are what make us unique. I’m committed to doing the best I can to protect my capital and our investor’s capital. And I believe in doing so we’re building a sustainable model that will stand the test of time. If you’re looking for something like that, we would love to have you join us on this journey!