Banking on Apartments for the Long Term
LOS ANGELES?With young people graduating with debt and moving into apartments for longer periods of time, some don?t see homeownership as the American dream, which bodes well for apartments, Gelt Inc. partner Keith Wasserman tells GlobeSt.com. As we recently reported, the Los Angeles-based real estate investment and asset-management firm has acquired from TruAmerica Multifamily 3300 Tamarac, a 564-unit apartment community in Denver, for $74 million, marking the firm?s largest apartment-property purchase to date in terms of both units and price, as well as its first acquisition in Colorado. We spoke exclusively with Wasserman and partner Damian Langere, both under age 40, about the firm, its accomplishments in 2015 and their expectations for next year in multifamily.
GlobeSt.com: The majority of your firm?s leadership is very young. Tell us how you got started and how you have proven yourselves in the marketplace?
Wasserman: Yes, we are young and very ambitious Millennials. Damian and I launched Gelt in 2008 when we were in our 20s. It was at the height of the recession, and Damian was let go from an environmental consulting firm in Santa Barbara. He moved to Los Angeles, and we decided to form a real estate investment firm to buy distressed multifamily properties. My family has a real estate background, and we enlisted my dad, Steve Wasserman, to be a partner and mentor to us. We approached our family and friends and scraped together the little we had to make our first investment of a fourplex in Bakersfield. Over the course of eight months, we bought 16 fourplexes. We began moving beyond our family and friends and brought in one investor, then four, then 10. We really started seeing the snowball effect by adding more capital and graduating to bigger and bigger apartment assets. To date, we are a company of nine and have a base of more than 200 high-net-worth investors, which is not only local, but comes from Australia, China and Israel. For our most recent investment, we were 20% oversubscribed and had to return money.
GlobeSt.com: Looking back on 2015, what has worked for your firm?s growth?
Langere: Personal relationships are definitely key; however, we have proof that investors tweet. We have been able to foster and procure investors in a non-traditional way via social media. Social media has been great in getting the conversation started. We also launched our investor login page on our website, which has been an effective communication tool and a channel to grow our customer base. Technology is definitely a key driver in our success. We do almost everything online with our Apple devices.
Our biggest challenge this year has been making the strategic decision to sell or refinance assets. We have created value for several of our larger assets well before we had planned on it. Last year, we made the decision to sell a property in Tempe, AZ, and made a $7-million profit over a 13-month time frame. This was the right call because it helped us show our investors we had their interest in mind, and we were able to have their support for new acquisitions this year. In addition to our largest acquisition to date in Denver last month, we acquired a 628-unit portfolio in Salt Lake City for $67.5 million. It is hard to find assets there because very few trade hands; however, we now own about 1,000 units there in three communities.
GlobeSt.com: In your opinion, what changes will occur in the multifamily sector next year and in coming years?
Wasserman: We have seen a lot of cap-rate compression over the last two years?no one knows exactly what will happen, but our firm?s strategy is longer holds. Pricing has a lot to do with interest rates, and we plan on locking in long-term fixed-rate loans of 10 years or more, whereas a lot of the deals we executed in the recent past were shorter-term financing and a short-term hold.
Although valuations have gotten on the lofty side, we feel fundamentals will stay strong and vacancy will remain low. It is going to be interesting to see what the future holds, but what we do see is a major shift in the renting trend nationwide. Today, young people are graduating with debt and moving into apartments for longer periods of time. Some have no intention to ever own a home because Millennials don?t see that as the American dream. What they really want is easier, quicker access to the places they want to go. At this point, we haven?t see a lot of job growth. When the job market starts to expand, there will be an even higher demand from people in all stages of life. Renter demand is only going to get stronger in the coming years.
GlobeSt.com: What is your investment strategy for 2016?
Wasserman: We are going to buy more properties in key markets aggressively in the Western states. We are looking for older product in well-located areas. We have had a lot of success in dealing with older properties, which typically have larger floorplans, are more affordable and allow us an upside. We are looking to acquire at least 2,000 units next year. Because we sold a few properties recently, we went from owning more than 4,200 units to owning 1,700 units, so we want to build up our portfolio once again.
GlobeSt.com: A few years ago you launched a technology platform called Domuso. Can you tell us what it is and its success to date?
Langere: Our mission was to create an online platform that would simplify renting and minimize the hassle of rent payments. Domuso ultimately takes a transaction that is cumbersome and painful in all respects and makes it streamlined for both the renter and manager. We are a direct lender to renters that covers their move-in payment, which can include first month's rent, security deposit, fees, pet rent, last month's rent, etc. Most of the time move-in payments are required to be paid by cashier?s check or other certified funds, which means you have to go to the bank, pay money to get it, and then take it back to the leasing office to make the payment. You can?t do credit card or personal check ? it has to be cash and there has never been a better way. It isn?t always easy to come up with $2,000 to $12,000 (depending on where you live) for this initial payment. If you are looking at renter demographics, there is a large portion of renters who are cash strapped. They can afford the rent, but can?t afford the move. Domuso offers the ability to get rid of the cash transaction to provide convenience for the renter at a low finance rate, as well as the owner. The renter can also make monthly payments through Domuso.
To date, Domuso is operating on more than 150,000 units nationwide and growing. We have raised $2.7 million for the platform and are raising our first official series-A round the first quarter of next year.