How do 2 guys working on their own build a $175M multifamily real estate investment portfolio in 7 years spanning 1,700 apartment units?
That’s $25M of real estate acquired…every year.
In this week’s podcast, I talk with Andrew Campbell about large-scale multifamily real estate investing.
After building a personal multifamily property portfolio of 76 doors ranging from single family homes to 4-plexes, Andrew switched to large-scale apartment complex investing – raising private capital to invest in 200+ unit apartment buildings.
Since real estate is a powerful vehicle for building wealth, I wanted to learn from Andrew how he transitioned from small-scale to large-scale investing and lessons that other real estate investors can apply to their own real estate portfolios.
We talk about:
- How Andrew grew his personal portfolio to 76 doors in 3 years, including how he financed all the properties
- How he pivoted step by step to large scale multifamily investing
- How he found his first large multifamily apartment complex deal, the purchase price, the financing structure, and what post-purchase actions he took to increase its value
- His investment criteria for evaluating apartment complex deals today
- The key skills he believes you need to succeed at large-scale apartment complex investing
Do you invest in multifamily real estate? If you made the transition from single family to multifamily investing, what’s your story for how you did it? What other questions do you have about apartment complex investing that you want answered? Let me know by leaving a comment when you’re done.
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My guest today is Andrew Campbell.
Andrew is a longtime real estate investor who started investing in 2009, grew his personal portfolio to 76 units across Texas, and then went full time into real estate investing in 2012.
He’s a co-founder of Wildhorn Capital, a real estate private equity firm, where he focuses on acquisitions and investor relations. Wildhorn currently controls a $175 million real estate portfolio of more than 1700 apartment units in Texas.
Andrew, thanks so much for joining us today to share insights, tips, and strategies all about multifamily real estate investing.
Andrew Campbell 1:57
Thanks for having me. Looking forward to the conversation.
Andrew Chen 2:00
I would love to start by learning just a little bit more about your background.
I understand you first started investing in 2009. You built your portfolio of 76 doors in Austin and San Antonio.
Can you talk a little bit about how you first got into real estate investing, what was your first deal, and how you then expanded your portfolio to 76 doors?
Andrew Campbell 2:22
Sure. I’ll go back a couple years before 2009.
I was born and raised in Austin. I went to UT. I got an advertising degree.
And then I moved out of state, lived in San Francisco, lived in Minneapolis, was working on big ad agencies, cool, fun accounts.
And in 2007, my dad got sick and I flew home. And he had a stroke and I ended up just staying, helped take care of him.
And that was a pivotal moment for me. I was on the corporate path before that.
I was 27 when that happened, and realized I needed to create some passive income. I needed to have a little bit more ownership of my time. I needed to be able to help take care of him. And that’s what got me into real estate.
So it took me a couple of years of reading and getting settled in Austin and getting back to normal life a little bit.
But I started buying duplexes, fourplexes, with the urging of a friend of mine, a mentor that had a few duplexes.
And a lot of it was dumb luck, buying in the right place at the right time. Austin in 2010, 2011, 2012 was on fire. And I was able to buy a fourplex, fix it up.
A year later, it’s almost doubled in value. Pull some of the equity out and go buy another one.
So we were able to build up a decent-sized portfolio with our own capital, cutting our teeth learning, managing it ourselves, doing the renovations. And I learned a lot and realized that it was a ton of fun.
Andrew Chen 3:50
Awesome. So now, today, how many units are currently in your personal portfolio, not counting the large apartment complexes that are acquired using outside capital by your investment fund?
Andrew Campbell 4:01
None. When we made the transition over the course of a couple of years, we started to sell off our personal portfolio.
And I think part of the desire was to just understand the economies and efficiencies in larger deals and putting all of my energy and effort into just the responsibility of raising other people’s funds and being a good steward of those.
The distraction of messing around with the duplex didn’t really make sense. And the property management in that space is a little bit tougher to find a good management company.
So at this point, we’ve sold all of that, and everything we invest alongside our investors in the large deals.
Andrew Chen 4:38
Awesome. I definitely want to jump into the large institutional investments you’re making now in a moment.
But just to tie up on the personal portfolio side, when you were investing personally, did you raise outside capital at all?
How did you finance the down payment for so many purchases? Were you getting conventional mortgages, commercial bank loans, line of credits, something else?
Andrew Campbell 5:01
It started out all conventional loans. You can get up to 10 loans in your own name. You can get creative and get a lender that will help you do that.
But with Fannie and Freddie, you can get 10.
And if it’s a four-unit or less, I think that’s another important thing.
So we were focused on four units, the fourplex. You could get 10 of those, so we would do that.
And like I said, we were lucky to buy at the right place at the right time, where we were getting a ton of appreciation.
But as the portfolio grew, I had a fulltime job. I was working, so we didn’t touch any of the cash flow.
We’d save up enough cash flow for another down payment and go do it again. And it starts to snowball and it gets to eight months before you can buy your next one. Then it’s six months. Then it’s four months.
And then throwing bonuses from work and things like that into the kitty, just really focused on trying to build the portfolio as fast as we could.
And honestly, at the time, the intent wasn’t to get into the large institutional deals and raise other people’s money. It was: “Let’s build a big portfolio and create a bunch of passive income and live life.”
And it evolved, but it was very much we didn’t figure out how to do it and don’t go raise money. We were just saving up and then letting the cash flow do its thing.
Andrew Chen 6:19
Got it. So what did you guys do for financing if you did take on debt after the 10 Fannie and Freddie conventional mortgages?
Andrew Campbell 6:29
Commercial banks started it. As we got close to the 10, we started looking at talking to commercial banks and local banks, showing them what we were doing, what the portfolio looked like today, and start to build the relationship.
But honestly, I think once we started down that path is one of the factors that drove us into the larger deals.
It’s great if you can get a 30-year fixed rate loan on an investment. It’s a lot tougher for things to pencil if you get a commercial loan with a 20- or 25-year amortization.
Best case, rates aren’t as good. You’re signing on the note.
It started to feel different. And it’s like, “Well, if we’re going to do that and go commercial loans, let’s go get really big loans.”
Which is a little bit counterintuitive. But as you start to get in the non-recourse debt and get into the Fannie-Freddie programs for the institutional type deals, it was just a better path for us.
Andrew Chen 7:25
Got it. So I think it would be fair to say that most real estate investors will not graduate up into the large institutional type of deals. Most people will still stick with the fourplex and below.
And so your path into transitioning to large scale multifamily investing is super interesting.
How did you make the pivot actually? And what were some of the concrete actions you took, the sequence of events that happened, the relationships you formed that were critical, and the process you followed to successfully make that transition?
Would love to hear the story and timeline for how that happened.
Andrew Campbell 8:02
Once we had north of 50 doors or whatever it was, it’s a full time job.
We were managing them. We were finding renters. We were dropping off air filters once a month.
And I had a full time job. We had a family.
And my wife urged me. We had a long conversation five or six years ago, and she’s like, “You’re a really miserable bastard” was her quote.
And the day job, you can just tell, it’s in the way. And you’re up until 2:00 am every night working on this real estate business, looking for the next deal.
That’s clearly where your passion is. How do you go, “Let’s go do that full time”?
So I think that obviously was very freeing. It was nice to have her support and push you in that direction.
I certainly didn’t go quit my job the next day. It took six months or so of wrapping my head around what does that look like, walking away from your benefits and a high W2 salary and just the comfort of everything that provides.
But then figuring out, “Okay, if we’re going to go down that path,” the one thing we had seen in our portfolio was the bigger the deal, the better the metrics were.
A duplex performed better than a single family. A fourplex was better than a duplex. A 10-unit was better than a fourplex.
Just economies of scale and efficiency. So it made sense to me that the bigger you could go, the more efficient.
And as you started doing research and reading about different property management strategies, you start to see it’s really 100 plus units where it really starts to get efficient.
And then above that, 250, it’s even more efficient. But it’s obviously a huge leap to go from four or 10 at a time to 200.
But we just decided, “If it’s 100 plus, that justifies an onsite manager.” That’s the piece that I didn’t enjoy and I knew was the biggest time suck in our portfolio.
So if I was going to go scale, I didn’t want to have to do the property management. And I wanted good property management. And you need onsite managers to really get that quality that we were looking for.
So at that point, we just started building relationships.
I knew we were going to have to raise money. So for the first time, we were going to be out talking to investors and friends and things like that.
I knew we would need to go build some new relationships on the property management side, build that team.
So I spent probably a year having those conversations. It was easy for me to sit down with close friends or just colleagues or whatever.
And most people knew I had this investment portfolio on the side, and I said, “Look, I’m going to start doing this with larger deals and raising money and partnering. Would you be interested?”
And I told them what we had been doing and how these were going to look a lot like what I’d been doing, just a little bit bigger.
So I had the confidence we could put some amount of money together to go close on a larger deal and then just spend a lot of time underwriting the big deals, touring properties, just to build that relationship with those brokers, to know that I’m new, but again, I leverage my story on the portfolio we had.
But just consistently show up. Tour those deals. Give them feedback.
You’re not going to get the first deal, but it was a very focused effort over the course of nine months or so to get to that point where you get the first deal.
Andrew Chen 11:17
You have an investment partner. Had you met at this point? When did you two come together?
Andrew Campbell 11:23
We met during that process, during that timeline.
As I was talking to potential investors and friends around town in Austin and met with brokers, I started going to conferences and just getting into that space.
And so we actually met at a conference and chatted over a couple of beers, kept up after the conference, talked.
We were in a similar space. He had done some different deals. Very complementary skillset.
And so that all happened because I was taking the action and looking for not necessarily a partner. I didn’t know I needed a partner, to be honest. Now I certainly know that’s very helpful, if not necessary, in this space.
But just being out there and planning to go down this path led me to meet him.
Andrew Chen 12:11
Gotcha. So, as you were having exploratory conversations with friends and colleagues who might potentially be limited partners, and also with brokers and potential property managers, as you were developing these relationships, were you basically securing capital commitments first and then going to brokers to demonstrate viability and seriousness, or were you going to brokers first, without capital commitments?
What’s the right order of operations for that?
Andrew Campbell 12:43
It’s a little bit out of sequence. I got a lot of hypothetical yeses, and so I would have hypothetical deals.
Here’s the type of deal I’m looking at, something we just underwrote. This 120-unit deal, and this is what the return metrics would be.
“If I brought you something like this, would you be interested?” I’d get a lot of hypothetical yeses. $100,000, $50,000, whatever it is.
And I had a target that first year. I wanted to have five face-to-face meetings every week, basically one a day, whether it was coffee or breakfast or lunch, didn’t matter, happy hour, with someone new or someone I hadn’t talked to in a long time on the equity capital raising side.
So we had a ton of conversations, but we didn’t have any funds in the bank. And we had not raised funds ahead of time.
But as we got confident and we knew we could raise $X amount of money, that would size the deals that we could go look at.
And that’s something I was talking to a guy this week who was wanting to get into the space. And I said, “You have to build your team. If you can’t qualify for the debt, it doesn’t matter.”
“Do you have somebody that has a big enough balance sheet you can qualify for the debt? How much money can you raise?”
If you can raise a million dollars, that sizes the sort of deal. There’s no point in looking at a $50 million deal if you can only raise a million dollars.
So we were doing some of that backwards math and figuring out what size of deal we think we could go chase.
But we showed up at a ton of deals with brokers to walk them that I knew we couldn’t buy or we weren’t interested. It didn’t meet our criteria.
But it offered us the ability to get more face time with them, to say, “Hey, I’m new, but I’m going to be here and I’m going to consistently show up and give you feedback on why we think this works or why it doesn’t.”
And also just a good way to learn the market. You can see where things are trading at and how some people are underwriting deals and just say, “Oh my gosh, they’re paying that much for this deal. What are we missing?”
And you learn that way.
Andrew Chen 14:48
How do you get a broker to take you seriously if you’re not able to show at the initial meeting proof of funds that can actually acquire a size of deal that you’re about to go walk the property for?
Andrew Campbell 15:04
Yeah, that’s interesting. I have never been asked to show proof of funds.
And I think some of it was just the way we were going about it, having relationships and building those and starting out. Invite them to a coffee or to lunch and leverage what’s your story.
And my background is marketing and advertising, so I can always fall back to that. But what is your story? How did you get to this point?
And for me, I’d talk to you about the portfolio we had and what we’re doing and “Now we’re going to move into larger deals.”
That’s a pretty common path. They’ve certainly seen other people that have done that and had been successful, so it wasn’t totally foreign.
But it wasn’t like, “Hey, let’s meet at a deal and I want to buy this deal.”
It was “Let’s get introduced, have a coffee. Let’s follow up.”
“Let’s go to lunch in a couple of weeks. Let me start touring some deals.”
The other thing that I did that I think was helpful is I would reach out to the younger brokers in the office.
So I wasn’t going to the top. I was going to the 30-year-old guy who was looking to build a portfolio, a roster of clients, and we had a lot in common.
I’m 39, so it was the mid-30s starting this whole thing, about early 30s.
So I tried to find somebody that you had a lot in common. You both have young kids.
I always joke with people. It allows me a little bit of a leg up as most of the brokers that I deal with look a lot and talk a lot like me.
They’re 40-year-olds, went to a college in Texas, has young kids. It’s easy to connect.
And so that was something that we did. There were a lot of similarities and just a lot to talk about outside of just real estate.
Andrew Chen 16:49
Gotcha. That makes a lot of sense.
As you were getting hypothetical yeses from potential investors, it sounds like nobody was signing any kind of commitment papers at that point or anything like that.
It was just that you were confident that if you came back next time with not a hypothetical deal, but an actual deal, that they actually would be kicking in roughly the amount that they were indicating interest in before.
Is that roughly correct?
Andrew Campbell 17:17
That’s right. Yeah.
Andrew Chen 17:19
Gotcha. Okay, cool.
So how did you then find your first large multifamily apartment complex deal? Can you take us back and walk us through the story for how that happened?
Andrew Campbell 17:30
Yeah. Like I said, we were walking a lot of deals, underwriting a lot of deals, putting in offers, just trying to build our credibility, learn the market.
It was a marketed deal. They were two properties at the same time. We liked both of them and felt like we had a decent chance.
The first deal we ever bought, we didn’t get it initially and we were super disappointed. And they awarded it to somebody else. So we turned our attention to the other property.
And a couple of weeks later, I got a phone call that said, “Hey, those guys dropped out” or “Their equity dried up. If your offer still stands, you’ll get the deal.”
And so we had to make a decision.
I think the very next day, we were about to get awarded this other property. We didn’t quite like it as much. It was a little bit smaller.
We called them and said, “Hey, we just got another deal. We can’t get your deal as well.”
But it was a good lesson for us. Just stick to your numbers and say, “Look, this is what we think we can pay for it.”
And it’s happened to us a couple times now where you don’t get a word of the deal out of the chute, but something happens and you hang around the hoop and something will fall your way.
Andrew Chen 18:39
What was the opportunity or value you saw in the deal that you ultimately closed as your first deal?
Andrew Campbell 18:47
It met just almost every criteria we were looking for as far as a value add, it had been owned by a REIT for 12 years.
And REITs, they don’t spend money. They keep the property up, but they’re not into making investments and doing renovations.
So it had been pretty well kept up. There wasn’t a ton of deferred maintenance. It was in a really good area called a B plus type area that we like.
And it had a very clear path for how we could go make interior improvements and amenity changes to rebrand and fix it up. So it was right down the fairway as far as what we were looking for and still what we continue to do today.
Andrew Chen 19:24
Got it. So it sounds like this was not a situation where you had direct contact or relationship with the owner beforehand.
This came through a broker. It was properly marketed. Is that accurate?
Andrew Campbell 19:37
Yeah. And to this point, every deal we’ve done, there’s been the involvement of a broker.
And that’s been one of our focus points, again back to really trying to create good relationships with them and respecting that their job is to call people all day every day.
They know every asset in town. They know who bought it 10 years ago and how many times it’s been bought and sold. And they know the story.
Now, I’d say half of our deals have been off market where a broker called us and said, “Hey, I’m working on this and you’re the only group.”
We actually have a deal under contract right now where that happened, where we were the only group to get a look before anybody else did.
So we know a lot of other owners and operators at this point and talk to them, but we’ve never bought anything directly from them. It’s been very much a decision and a focus point to work through and with brokers to keep bringing you deals.
Andrew Chen 20:34
Yeah, makes sense. So from the broker’s perspective, what is the motivation for not doing a proper marketing roadshow?
Even if they know you, they could call you direct and say, “Hey, we’re going to give you a peek before everybody else.”
But isn’t it in their interest in terms of setting up a good, efficient auction to get the best price possible for their seller to market it properly?
I just think about it in terms of even in the residential market, it’s generally in the best interest of the seller to list it on the MLS and all that.
So what’s the motivation for a broker to execute a transaction entirely off market?
Andrew Campbell 21:20
I think similar to the residential space, there’s a host of factors.
Number one, just time. So if I put a deal on the market today, I’m going to have to go tour it 50 times, talk to 50 different groups, and answer 50 sets of questions.
If you look at the compensation model, if you’ve already hit the higher end of what they think it will sell for, they’re not getting a huge lift out of that. I think they’re also looking at it for the relationship.
They sell it to us. Are we going to list it with them when we sell it in five years, seven years? They get that second bite at the apple.
Just the hassle factor is a little bit.
I think it goes back to where we focus on being a good buyer, having a good relationship.
If you get known for being really difficult to work with and just going over everything with a fine-tooth comb. Not that we don’t, but if you’re super difficult, they remember that and they know who the difficult buyers are.
So I think there’s a host of factors at any given deal. The levers move up and down a little bit, but I think those are the big reasons.
And then I think from the seller’s side who ultimately allows that to happen, maybe there’s a timing issue. Obviously, if they can sell it quicker, maybe they’ve got a loan coming due.
Or the time of the year, if it’s about to hit the fall and the winter where things slow down a little bit, their numbers might dip slightly. They take some risk off the table.
So it’s a host of factors.
Andrew Chen 22:52
You mentioned a moment ago this notion that if you are known to be difficult to work with because you’re going over things with a fine-tooth comb. Can you say a little bit more about that?
Does the difference between being easy to work with versus difficult to work with, is it just being very “80/20” about where you ask the broker to do due diligence and things like that?
Because as an investor, I assume you’re going to be a careful steward of your investor’s capital. You’re going to want to analyze things in a really detailed way.
So how do you strike that balance is really the question: between having the rigor that you need vs. being easy to work with.
Andrew Campbell 23:37
Yeah. I think some of it is not as much about the rigor. It’s just being a professional.
If you look at our due diligence process, I think it’s very detailed.
We walk 100% of the units. So every single unit, we’re going to get inside and we’re going to make sure that what we view in the actual unit is reflected on the leases, down to the number of pets, the number of people that appear to be living there, and the condition of the unit.
We do a full file audit.
So I think we have a ton of rigor there reviewing contracts and everything. It really comes down to how you handle if there are issues.
And are you asking for a $15,000 relief on a $35 million property, or saying “Hey, this is the seller’s responsibility, so I’m not going to go re-trade somebody on an issue that’s $30,000. We’ve built in a contingency.”
And that’s oftentimes part of, if you get down to where they’re actually being interviewed on phone calls with the seller, they want to know what sort of contingencies you have.
So you’re right. There’s a fine balance and you 100% want to be a good steward of investors’ money and not just say, “It doesn’t matter. He’s going to buy the deal no matter what.”
And we’ve had several difficult conversations.
There was a roof warranty on a deal we bought where it was being questioned if the warranty would transfer to us.
And it was a transferable warranty. That’s what we were told, and we were sticking to that.
It’s like “Well, you can either deliver the warranty. You can deliver us a huge check to cover anything that might come up.”
And that was a little bit of a difficult conversation. A lot of lawyers involved in the contract language.
But we called that seller today and that broker, and they both said “It was a great experience. We absolutely would work with them again.”
I know there’s plenty of groups out there where people are like, “I don’t ever want to work with that guy again. Such a pain in the ass.”
Andrew Chen 25:30
So in that specific example, how did you get the outcome you needed but still have everybody walk away with a good experience?
Andrew Campbell 25:40
We ultimately did get the warranty transferred to us, and the seller worked with the guys that did the roof.
Basic negotiation. What’s in their best interest? What are we trying to get done?
“I don’t want to cost you money, Mr. Seller. Ultimately, the bad guy here, who we need to get to talk to us, is the roof company.”
“Let’s put some money in an escrow account. And if you can deliver the warranty for us within 60 days after we close, you get that money.”
“I don’t want it to cost you anything, but I need you to deliver what you told us we would get.”
So it was being a little bit creative in the structure there, but also just the way we approached it.
And I think a lot of that just comes down to, in general, we try to be pretty nice guys.
We’re a boutique firm. I tell people Reed and I make all the decisions. There’s not a big investment committee.
We’re not overly greedy. Our return structures for investors are simple.
We are trying to just be easy to work with, not trying to be painful across the whole board. It’s just a philosophy, an abundance type mindset.
Andrew Chen 26:50
Yeah. I think that’s really critical in terms of playing the long game.
So if we go back to the first transaction again, that first large scale multifamily apartment complex that you purchased, you identified it, and then how did the negotiation for getting the offer accepted actually transpire? Were there challenges in then closing the transaction?
For folks who mostly have experience in the residential space or four units and below, I’d love to get your perspective on how that process compares to the large institutional apartment complex type of deal. What are the similarities and differences?
Andrew Campbell 27:37
Sure. It’s a very similar process. It’s just a bigger scale.
We talked about the due diligence and walking all the units. That’s the same as on the residential side.
You’re going to have all your inspectors come out. You have your option period on the residential side. Rather than a week, you get 20-30 days to get it done on a big property.
But you bring out your plumbers, your roofing inspectors, all of the services, all of the systems. You’re getting everything looked at.
And then you’re putting together your loan, just like you’d work with your mortgage guy to get your loan. You’re putting that together.
And again, you’ve got to qualify and have who’s going to sign on the loan and what is their financial strength and background.
Definitely, as you’re getting going, you need to have somebody on your team that has some big multifamily experience that’s going to be a part of your general partnership.
They’re not just going to let anybody off the street. They’re not going to loan $15 million to a first time owner with nobody else on the team with experience.
So that’s all part of that team you need to build, that we had built prior to getting that deal under contract so that we could then just focus on getting the money raised and executing.
And it’s a little bit intimidating because the zeros are bigger, but it’s a very similar process to buying a home.
Andrew Chen 28:57
Got it. So in this case, for showing you had the multifamily background, was that you from your past personal portfolio? Or is that you and your partner combined?
Andrew Campbell 29:10
It was all of the above. So it was me and my experience. It was my partner has experience.
We actually had another guy as part of the general partnership that was our key principal that had a lot of multifamily experience that was probably the reason we were able to get really favorable terms and five years of IO on a first deal.
Andrew Chen 29:30
Got it. And so, as you were bringing out inspectors and appraisers, and lawyers were starting to work on the project, this is costing money. Who’s paying for this at this time?
Andrew Campbell 29:43
We are. It definitely cost money. And it’s a capital-intensive business.
The upfront, excluding your earnest money and all of that, there’s upwards of maybe $75,000 you can spend on the due diligence between all the physical inspections and the legal costs and getting a PPM created, etc.
So definitely it’s not free to start. I mentioned you got to have the earnest money and liquidity in the bank to qualify for the loan, etc. So it can be a capital-needy business.
But that’s the role we play as a sponsor and some of the risk we take to put the deals together.
Andrew Chen 30:23
So in that first deal, at this point, you hadn’t yet called capital from limited partners. So it sounds like you and your general partner were essentially spending out of pocket trying to get that first deal over the finish line. Is that correct?
Andrew Campbell 30:40
Correct. And that’s still a process for today.
We get a deal under contract. We’re putting up the earnest money. We’re starting to spend due diligence, legal dollars before we’ve ever sent it out to an investor or raised a dollar for that deal.
Andrew Chen 30:54
Oh, wow. I see. How much earnest money do you need for a deal of this size?
Andrew Campbell 31:01
It depends. The simple answer is the more, the better. The more you put down, the more attractive your offer will be.
Ours, it’s pretty typical to be half a million dollars. We have a deal under contract right now for north of $40 million and we’ve got half a million of earnest money. And they want more always.
And that’s where we leverage some of the boutique nature of ours, say, “Look, I can give you more, but this is my personal money.”
“It comes out of my bank account. It’s not from some fund. I’m not an institution.”
“That money is super meaningful to me, a lot more than $2 million from some hedge fund would be. Those guys, that doesn’t hurt if they lose it.”
“I can promise you, we’re going to be attentive.”
And so we bring in some of that narrative.
But it’s a lot of money to put up as earnest money.
Andrew Chen 31:56
Yeah, totally. So it sounds like even today, after doing so many deals, it’s not like you have institutional capital that you’re drawing a management fee from for the purpose of doing these type of inspections.
It sounds like you’re still using personal money to underwrite the initial parts of a deal. Is that correct?
Andrew Campbell 32:16
Absolutely. We’ve not done a deal with an institutional equity partner. We had had some conversations with them, but we actually really like talking and dealing with individual investors.
Either way, though, whether you’re raising money from an institution or you’re raising money from individual investors, as the general sponsor, we’re still going to have money involved and we’re still going to have these pursuit costs.
And before we engage with anybody, there’s dollars spent and then there’s dollars invested. Institutional hedge funds aren’t any different than retail investors.
What skin do we have in the game? And I like to tell people, “I have all my skin in the game.”
We’ve signed on a $20 million loan. If we screw up, it’s coming back on us.
We structure our deal to where we get paid after investors get paid. So all of our skin is in the game, even set aside from the $100,000 we might have invested in the deal.
I love it, but it’s capital-intensive and could be seen as a little bit risky.
Andrew Campbell 33:20
The loans you mentioned you’re signing your name on, and if they go bad, it’s on you, are these recourse loans or no?
Andrew Campbell 33:29
They’re non-recourse. Every deal we’ve done is non-recourse. I’ve been fortunate to be able to do that.
And there’s a variety of sources you can do.
Agency. Freddie or Fannie. You can do bank style debt or bridge debt.
But for the most part in the multifamily space, the lenders know to be competitive. They offer non-recourse.
Now, you’re still signing what they call the bad boy carve-outs. So if we go do something illegal or fraudulent, it triggers those clauses, and then all of a sudden, it’s recourse.
Andrew Chen 34:03
Gotcha. By the way, how many doors was this first deal that you did?
Andrew Campbell 34:08
Andrew Chen 34:09
Okay. So that is a very large deal. What was the final purchase price?
Andrew Campbell 34:14
A little over $16 million.
Andrew Chen 34:17
How was it financed percentage-wise between bank debt, limited partner capital, sponsor, co-invest, etc.?
Andrew Campbell 34:24
We raised total, including the co-invest, about $6.2 or $6.3 million of equity. That would be a $12 million loan, maybe a $13 million loan on there.
We had renovation dollars as part of the equity, so it’s somewhere in there.
Andrew Chen 34:45
I see. So you didn’t spend all the $6 million of equity for the acquisition itself. You held back some for the renovation costs.
Andrew Campbell 34:55
So our typical business plan is we’ll spend somewhere between 5% and 10% of the purchase price. Renovations, whether it’s exteriors, interiors, amenities, all of the above, $2 to $4 million.
And if it’s an agency execution, we have that money from the get-go at our discretion. If we’ve done bridge debt, then you do draws along the way.
But in the value-add space, you’re always spending money and investing it after you improve the property after you close.
Andrew Chen 35:24
What does agency execution mean?
Andrew Campbell 35:28
Freddie Mac-Fannie Mae. It’s institutional. Government agencies, but it’s the shorthand.
Andrew Chen 35:40
Makes sense. So what were some of the operational improvements that you made right away into that first property? And over what type of timeframe?
Andrew Campbell 35:50
We generally will hit all of the exteriors and the amenities right away.
We did the leasing center. There was a small gym and a clubhouse that was in the same building. And we tore the wall down and just made a really big gym.
We updated the pool area. We painted all of the exterior, added pet yards. We rebranded it.
And then we started renovating interiors, updated the paint and cabinets, resurfacing the counters. Just our normal process really.
Andrew Chen 36:30
Got it. Over what timeframe was all of this executed?
Andrew Campbell 36:37
Exteriors and amenities, we start immediately.
An example, we’re sitting here in the middle of January. We bought a property end of last September, and we’ve already completed the amenity work and painted the exterior.
So we want to do that right away to signal change, to help us start driving and pushing rents and saying, “Look, we’re investing in the property. You’ve got these new nice amenities, redone the gym, the business center, whatever we’re going to do.”
And that spreads across all the units. Even the units you’re not renovating, you can justify a higher rent.
And then we renovate units as leases expire.
We don’t go force people out, but if your lease expires in August of this year, when we get to August, if we’re going to renovate your unit, we’ll let you know that “Hey, we’d love to move you to a different unit, but we’re not going to renew that lease.”
And so that typically takes us 18 months to two years to fully finish all the interior renovations.
Andrew Chen 37:36
I see. So it sounds like you’re getting the exteriors pretty quickly, maybe within a few months. And then to actually get through all of the interiors, it might take 18-24 months.
Andrew Campbell 37:47
Yeah. And it’s just a rolling calendar as leases expire.
Not all your leases expire in the same month, and you wouldn’t want that sort of exposure. But every month, we can do 5-7 units for that first year, just really consistently. And then you’ve always got a new renovated product to lease.
Andrew Chen 38:07
And is that improvement plan or renovation plan all planned out and written down in your business plan before you even purchase the property? Or are things coming up even after acquisition? As you proceed along, you learn more?
Andrew Campbell 38:23
It’s all written down. But like any other plan, it adjusts on the fly.
And as you get in there and you start renovating your first few units, you see what sort of rent bumps you’re going to get.
Maybe we don’t actually need to spend as much money or do all of the improvements. Or after the first year, we may pause if the rent pops and say, “Well, we don’t need to spend any more money.”
So it’s written down and we know about what percentage of the units we’re going to do, what the general renovation plan is, but it always certainly adapts as you get on site.
Andrew Chen 38:54
Yeah, make sense. Okay, cool.
So thanks so much for taking us through that first deal. It helps folks understand the anatomy of a large multifamily deal from the get-go all the way through renovation.
So now you’ve done multiple of these deals. What do you look for now when evaluating a new potential multifamily investment?
What are the markers that indicate a property might fit your criteria? And what are some of the key metrics you look at?
Andrew Campbell 39:22
I think the first part we look at is just location and story.
I’m in Austin. We’re very much focused on Austin and San Antonio and being in good B plus locations in those cities.
So given where we’re at in the economic cycle, we want to be in good locations, either really close to good schools or in really good pockets of town.
We aren’t willing to bet that the city is going to turn left and grow this direction.
So that’s the first piece is location and really sticking to that. We’re in good locations. We’re getting B plus tenant bases.
A big part of what we do is we’re adding some fees. We’re adding services. If it’s a trash valet service, if it’s a package delivery service, that costs $15-20 a month.
Whether you make $30,000 a year for a C class resident or $80,000 a year, it’s the same $30 a month of fees. People aren’t going to leave your property over $30 if they have a high enough income.
So that’s a big part of that.
And we feel like B class is the safest investment. You’re not trying to do a two-year rental bump and turn the property in two years.
And we’re not trying to set the top of the market rent with A class.
It’s a good $60,000 midpoint income. We get a lot of professionals. They’re not one missed paycheck from skipping out on their rent.
So we really look at that location within those two cities first.
And then the second piece is what is their value-add opportunity? Where can we go make the business plan and increase NOI a little bit?
And again, we’re not doing huge renovations. We’re not taking occupancy to zero.
But there’s got to be some believable story that we can go push rents, add services, create amenities, do something really to increase the NOI from where it is. Generally, that’s adding services and doing renovations.
Andrew Chen 41:29
Got it. That makes a lot of sense.
And the B plus demographic is the sweet spot because it’s almost like when it’s boom times, C residents try to upgrade. And when there’s downturn or a downtime, A residents may downgrade, but the B tranche seems to be the most insulated.
Is that a fair mental shortcut for how to think about the B class segment?
Andrew Campbell 42:04
We certainly think it is.
I think what we’ve found too is that the B class really doesn’t want to move back to a C. So if they hit rough times, they’re more likely going to go move in with a friend or go back to live with Mom and Dad or something.
There’s quite a big difference between a B and a C.
Typically, the A and the B, it’s just amenities. It’s a newer product with a higher rent.
But that B class, I think you summed it up well. We feel like it’s probably the most insulated in that you’re not going back to a C if you can at all avoid it.
Andrew Chen 42:37
So you’ve decided to focus on Austin and San Antonio. Is that because you guys know the market really well there?
And have you guys thought about, or are you guys potentially thinking about later on going to other metro areas, even maybe going out of Texas?
Andrew Campbell 42:54
Obviously, I’m from here. I have the advantage of growing up here, of having great relationships, of knowing both cities really well. And I don’t have to go get on a plane to go chase deals.
I think it’s also just beneficial that they’re seeing explosive growth. The story of Austin is just unbelievable.
And the amount of jobs that are coming and the population that’s coming and the economic development that continues to happen. It doesn’t make a lot of sense to just walk away from that.
A couple of years ago, we did spend a lot of time going out of state, feeling like we needed to provide some geographic diversity for our investors.
And we had picked Atlanta and went to Atlanta six or eight times and looked at some deals and chased deals and realized, frankly, that the deals weren’t any better.
Cap rates were very similar. Return profile was very similar.
We were having to build all new relationships. An uphill battle, some headwinds into getting into a new market.
And we felt like that was a good lesson for us. Execute what you know and where you are.
If I lived in the Midwest somewhere that didn’t have as much economic development as Austin did, it might be a different story.
But we’re in a city that everybody wants to invest in and knows the story, and there’s so much money trying to get in. Let’s spend our time and energy turning over rocks and finding good opportunistic deals here.
Andrew Chen 44:17
Got it. So it sounds like, at least for the time being, you’re committed to staying in the tri-city area anyway in Texas.
Andrew Campbell 44:27
Yeah, I think so. And I think some of that is a focus point with investors as well.
You have confidence and trust that we are laser-focused. We don’t have wandering eyes. We’re not spread too thin.
What we do is value-add multifamily in Austin and San Antonio and B plus deals, period.
Andrew Chen 44:45
How many assets that fit that criteria would you say even exist in Austin and San Antonio, if you had to ballpark it?
Andrew Campbell 44:53
Andrew Chen 44:54
Is it more than 30?
Andrew Campbell 44:56
Oh, yeah. There’s hundreds.
If you think the amount of supply that there is and the stuff that was built in the ‘80s, the late ‘90s, even the early 2000s, now you’re seeing it as legit value-add product. It’s 15 years old and it’s trying to compete with something that was built the last 3-4 years.
So there’s no shortage of deal flow. There’s no shortage of opportunity between the two cities.
Just Austin City and San Antonio combined, there’s almost four or five million people. When you combine the two, there’s certainly differences between them, but as one large MSA, there’s a lot of population. A lot of deals.
Now, there’s a lot of bad deals and it’s frothy and cap rates are compressed, etc. You got to be disciplined.
I think last year, we bought one deal and we probably looked at 70. There was just a ton of it.
We’re always looking and underwriting and talking to people, but not that many of them that we feel fit what our profile is.
Andrew Chen 46:01
Got it. Okay, cool.
So you look at the neighborhood, location, obviously. You’re going for that solid lead B plus segment of the renter population.
What are other markers that indicate a property fits your criteria? What are some of the metrics you look for?
Andrew Campbell 46:18
We want to look at what’s the story.
Who’s selling it? Why are they selling it? How long have they had it?
We’re looking at what their occupancy is today, what the history of the property is a little bit.
And we know the areas pretty well, so I know the story there, what the schools are like, what sort of jobs and companies are moving in there.
So then we start underwriting it and start to look at anything that we’re seeing out of whack.
What’s their expense to income ratio? What are their payroll numbers looking like? Have there been any wild variations in occupancy over the last year?
So you start diving in the numbers and see what those tell you.
Andrew Chen 47:00
Cool. All right.
So if you zoom out, you’ve done many of these deals now. What would you say are the most important skills that you have to have to succeed in each of the steps for being a professional large scale apartment complex investor?
From finding leads to closing transactions to stabilizing and rehabbing to managing tenants or managing property managers and, finally, to disposing assets?
What are some of the most important skills you need to succeed in each one of those things?
Andrew Campbell 47:35
It’s a great question. To me, it points back to the need for partnership. And we talk a lot about it.
It’s a team sport because that’s a pretty varied skillset. You just walk through and you need somebody that’s very good operationally and that understands the financial underwriting and the numbers and how to manage a budget and stay on task.
And that’s your asset manager, your operations piece, your analyst.
Luckily for me, that’s my business partner’s forte. He’s a structural engineer by trade and he’s done a lot of ground-up multi and thinks like an engineer.
So he’s detail oriented. He knows how to manage construction under ideals. And he focuses on that piece.
On the other side, I’m focused on communications with investors, meeting new people and relationships with brokers. So that’s a people skillset.
I don’t consider myself a salesman at all, but just a marketer. It goes back to being a nice guy and just being out there and a little bit more of a communicator.
We send out a monthly email communication to all our investors, telling them about what’s the performance of the property, communicating with the onsite management team.
It is a varied skill set between being a likeable communicator and being a numbers-driven metric. It’s art and science.
And that’s the fun thing about real estate. It’s a little bit of both, and you have to marry.
The numbers don’t always tell the story, and the pictures don’t always tell the story.
You’ve got to find that balance of what’s the real centerpiece of this deal. And the numbers need to work. But you also have to have some creativity and vision in the plan you’re going to roll out and what does that look like?
So it’s definitely a team sport.
Andrew Chen 49:24
That’s a really good way to frame it.
How can investors, especially who are early or more nascent in their investing trajectory, or folks who are interested in doing the kind of things you’re doing on their own geographic area, develop some of those skills or that type of vision or creativity that you mentioned that really sets apart the great investors from the not as great?
What are some concrete ways they can learn some of those things?
Andrew Campbell 49:52
I think you just have to see some of it. Obviously, there’s tons of meet-ups, talking to other people.
Just touring apartments. If you’re serious and want to go start investing in apartments, go tour them.
You just show up and say, “Hey, I’m interested in living here,” or “My wife and I are getting ready to think about investing in a deal across the street. Can you show me what you’ve done?”
And see what’s being done on the interiors, what color schemes are popular. You start to see the popular amenities.
It’s not rocket science. And I tell people all the time, real estate is not complicated.
We’re not building anything out of the ground. We’re buying stuff that already exists and we’re tweaking it. We’re making it a little bit better.
So it’s not super complicated. Spend some time walking properties, seeing what’s popular. That’s probably the best way to learn and just see what’s out there.
And then you can add your own flair to it, what’s your vision for it for the property.
Andrew Chen 50:48
Gotcha. So if you look back, what would you advise your younger self now to do differently if you were to do it all over again, if anything?
That’s always an interesting question. I look at my path, and it really started with a down moment in my life when my dad got sick.
But looking back on it, I don’t regret that. If that didn’t happen, I wouldn’t have moved home. I’m probably not on this path today.
So if anything, I wish I got started with the bigger stuff a little bit earlier.
But I also don’t suggest skipping the duplexes and fourplexes because that’s where I cut my teeth and made some mistakes and figured out really how to do the management of this business.
So I don’t know that I would do anything differently. I wish I could start a little bit earlier, but I think your path is your path and you leverage the story and what’s gotten you to that point.
And then leverage your strengths.
I’m a marketing and advertising guy. That’s what I think about. That’s what I fall back on.
My partner is an engineer. That’s what he falls back on.
So I think leverage what your background is and what your skillset is, and that becomes the strength of your business.
Andrew Chen 52:00
By the way, I forgot to ask and I wanted to ask. Are you and your partner co-investing your own capital in every single deal?
And if so, what percentage of the deal are you guys invested in?
Andrew Campbell 52:14
Yeah, we do. We invest in every deal.
It varies on how much liquidity we’ve got at the moment, balancing some of what we talked about on the backend of needing the post-closing liquidity requirements of the bank and all of that.
But we certainly invest alongside every deal.
Andrew Chen 52:32
I see. And how much are you investing in terms of percentage of the deal?
Andrew Campbell 52:37
The GP will usually have five to 5-10% into the deal. In raw dollars, it’s maybe somewhere between half a million and a million dollars.
Andrew Chen 52:48
Andrew Campbell 52:49
Andrew Chen 52:49
Gotcha. And then I assume you have some type of preferred structure where your limited partners will get back a hurdle return before the GPs take anything.
But if that’s not accurate, we’d love to understand how do the returns distribution waterfall roughly look like for a limited partner to understand?
Andrew Campbell 53:10
Yeah. The last several deals, we’ve got a structure. And I think we’ll continue forward with this where everything is a single purpose entity, limited partnership.
We’ve got two classes of equity. Based on a lot of our conversations, understanding that some people are interested in passive cash flow and mailbox money, and some people are more interested in upside and wealth creation.
So we’ve created a structure where the A class investor gets a 10% preferred return. And that’s paid immediately and paid current.
And then a class B investor, there’s a 7%, preferred return. They’re getting what’s left over off the cash flow. Typically, it will be 4-6% on a current basis and the differences it accrues.
And then over the course of a, say, five-year hold, typically we see that’s a 1.9 multiple, 1.8 plus annualized type return for that class B.
Andrew Chen 54:06
Got it. So for you and your partner and the other GPs, is there some kind of promote? How does your carry actually enter into the picture?
Andrew Campbell 54:16
For the class B, above the 7% preferred return, it’s a 70/30 split. 70% to LPs.
Again, back to simplicity, we don’t have a super complicated waterfall structure with multiple hurdles. At a 7%, it’s a straight 70/30. We don’t have any disposition fees or bonuses beyond that.
Andrew Chen 54:38
Gotcha. Well, Andrew, this has been super insightful and helpful.
It’s really fascinating to hear your story from how you took a personal tragedy and turned that into basically a new career path where now you’re investing professionally in large apartment complex buildings.
Where can people find out more about you, your platform, your business? And importantly, what are you looking to do next in your business, and how can folks help you with that?
Andrew Campbell 55:06
Sure. I’ll start there.
What we’re looking to do next is just continue to find good deals. Keep our head down. And every day, we’re looking for what’s next.
We’ve got a goal of maybe three to four deals a year. But like I said, last year, we did one deal.
We felt like we only found one that was a good deal. It had the returns we needed.
We are a boutique by nature and there’s no gun to our head to go do deals that generate fees. But we’d like to do three to four deals a year if we find the right three or four.
As far as reaching out and finding us, the website is wildhorncap.com. My email is andrew at wildhorncap dot com. We’ve got a Facebook account, Instagram, and LinkedIn.
But email and the website is probably the best place. We’ve got a blog that we put on there as well.
I would love to connect with anybody and answer questions and talk about investing passively or getting started to buying their own first deal, whether that’s a duplex or a 200-unit.
Andrew Chen 56:11
Awesome. Well, we’ll link to all those resources in the show notes. And I really look forward to sharing your insights with our audience when this episode airs.
Andrew Campbell 56:20
Yeah. Well, I’ve really enjoyed the conversation and appreciate your time.
Andrew Chen 56:23
Cool. Thanks so much, Andrew. Take care.
Andrew Campbell 56:25
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