The Money Game But, even a solid leadership team will not guarantee success. New multifamily firms must have an equity pipeline. Developing this is much easier when there is already a connection – usually from past jobs. Alfred Pace, president and CEO of Pacific Property Co. in Palo Alto, Calif., was in a situation where the contacts he made during his 17 years with his former company, SSR Realty, helped him out. “There was a significant comfort in the institutional experience I had developed at SSR, where I was investing on behalf of a pension fund,” he says. “When that same experience was marketed to private equity and debt sources [as owner of his own company], it was very well received.”
Gruendl also courted the private capital sources he had previously worked with. His goal was to have three years of projected overhead, which would keep BayRock afloat during lean times. Gruendl likes to diversify his equity sources. He usually goes to Wall Street and major money center institutions for this equity.
When a multifamily company is starting out and doesn’t have a well-established reputation, lenders may not be comfortable with the guarantees a new company is providing, according to Schwartz. But once a firm develops a reputation, things get easier. “Getting the first loan is always a challenge,” he says. “Getting the second is easier, getting the third one is a lot easier, and getting the fourth one is a no-brainer.”
Since the fall of the stock market, a number of investors are now looking at the multifamily sector as a place to put their money. While this pool of investors can give a multifamily company a larger amount of resources from which to tap, it also can drive up prices. The key to competing in this environment, says Stephen Lefkovits, principal of Joshua Tree Consulting in San Francisco, is to find a way to differentiate yourself from other sources of capital out there. Multifamily firms need a niche, such as being strong in property management, marketing, or having a strong operating strategy, according to Lefkovits.
If they can find this edge, have good financial relationships, come into the market at the right time, and have good partners and a little bit of luck, then they just might make it in the multifamily world. But, as any executive who has made the jump would say, it is not easy. “You are, in essence, living in paranoia,” Zanze says. “If you are adverse to risk, forget about starting your own company.”
Taking the Plunge Before starting your own multifamily company, there are a number of factors to consider. Executives who have already made the leap into ownership offer the following suggestions:
Know Your Market. Smaller companies have much less room for failure, so they must have an intimate knowledge of the markets and submarkets they are going into.
Differentiate Yourself. With all of the capital out in the market now, multifamily executives must set themselves apart from their competitors to have any chance of competing for properties.
Look for Deals. Because capital is so abundant and deals can be so scarce, multifamily executives must actively seek out deals. Some start-up executives go as far as to find sellers before properties even make it to a broker.
