3. Remember: Location, Location, Location When you’re deciding to bid on or build the first properties in your portfolio, location is paramount. Many executives prefer buying or building near their base of operations. They have good reasons: a knowledge of the local construction market, familiarity with the markets and submarkets, and the ability to take a more hands-on role at the property.
Young portfolios face enough risks without venturing into new geographical areas, Perrin says. “You can minimize your risk by focusing on the area where you have most of your expertise,” he says. “If we were to run off and build a property in Denver, we would be absorbing more risk than we are absorbing here in Phoenix because we don’t have the same subcontractors. For us to absorb those types of risks, on top of the typical market risks, doesn’t make sense.”
Millennium’s Greene notes that having his properties closely bunched in Southern California lets him become familiar with the key players in the highly competitive Los Angeles real estate market. “The real estate brokerage community knows you are a big player in the area,” he says. “If I had my 4,000 units spread out all over the country, I’d be a little player in every area. I try not to be a difficult buyer, and the brokers know they can get their full commission from me.”
Sticking close to home also allows a new multifamily owner to closely monitor its holdings. The health of a young, small portfolio depends on the performance of the few properties in it. If one apartment complex has operating issues, there may not be enough other properties to absorb the loss. So start-ups must keep close tabs on how each property is operating. Greene’s 4,000 units are all located within a 20-minute drive from his house.
4. Develop a Niche A geographic area is not all you must target. You also need to find a niche. “Whether it’s based on developing properties, getting entitlements, doing condo conversions, or buying class C properties and repositioning them to class B, having a strategy is a good idea,” Allen says.
By doing this, a start-up can be ready to act when a property comes on the market. “If you are going after a development, you need to know what areas you are going after and what type of product you will build,” Perrin says. “Be prepared in such a way that if you find sites, you’re not wasting a bunch of time coming up with product. You need to have something in mind so you can move relatively quickly.”
Product type can also be important in new development. Urbana Develop-ment’s Green discovered a market that he thought was underserved: young professionals seeking mid-level condos priced from $200,000 to $400,000. “We want to go above and beyond what you would normally associate with this price point,” says Green, who focuses on urban neighborhoods in the Miami area.
Another young Miami developer, Lissette Calderon of NEO Concepts, is also targeting a niche. Living in New York after college, Calderon fell in love with loft living. She returned to her childhood home in Miami, wanting to bring the concept there. So far, Neo has completed one 199-unit loft project and is working on a 443-unit project. The first property is sold out, and the second had 95 units sold in April–when ground was broken.
Millennium’s Greene decided his niche was to rehab older buildings. He began rehabbing when he lived in Boston more than 25 years ago and is now doing the same thing in California. “We have tried to focus on properties with quick turnaround possibilities,” he says. “I look for buildings that are rented below market value, though there aren’t a lot of those out there today. The idea is to buy a building, reposition it, do a minor rehab, and get rent increases as quickly as possible.”
