In this episode, we are joined by Craig Berger, CFA CPA, CEO, and President of Avid Realty Partners (ARP), a commercial realty firm focused on Hotel and MFU Apartment assets. He’s here to talk about how multifamily investing directly impacts not only the investor but the life of its tenants. Thanks to his years of experience specializing in private and off-market real estate deals, Craig discovered ways to stand out in the competitive real estate market. He shares those strategies with us today and offers his insights on diversification and finding deals that makes sense.
[00:00] – [05:25] From Wall Street to Multifamily Investor
- Getting out of the world of theory and living in a world of doing through multifamily investing
- His journey to become an entrepreneur, owner, and operator
[05:26] – [11:05] Diversifying Across Asset Classes
- Bigger properties can be easier to deal with than smaller properties
- How Craig and his team started by buying Class D assets
- Breaking down the pros and cons of different asset classes
- If the economy goes into a recession, higher earners get laid off more and have more risk of job loss.
- You can’t really know the risk for each asset so it is best to manage the risk by diversifying
- Real estate investing journey is different for everyone, you don’t have to go through the cycle of buying Class D to C or B to A
[11:06] – [18:03] Standing Out From The Competition
- Find out what makes Avid Partner Realty different from others
- On deals that have come back around with price adjustments, you have to asses thoroughly and decide if this is an asset you want to be for the next X years
- It’s harder to raise equity nowadays due to the current economic condition
- How to stay in front of investors during uncertain times
[18:04] – [19:43] Building Wealth and Building Life
- Here’s how Craig is providing great tenant experience
- Creating a sense of community in the property
- Renovations to provide quality life and home living experience
- Partnering on some corporate level for a give-back program
- Hiring better employees
[19:44] – [21:06] Closing Segment
- Reach out to Craig!
- Links Below
Tweetable Quotes
“You buy an asset, you’re stuck dealing with it for the next. 4, 5, 6, 7 years. You really have to make sure that that’s an asset you want to be with for the next X years.” – Craig Berger
“It starts with some deep introspection and then goes to reassessing the numbers and ultimately having discussions with the brokers and sellers about what price it can really get done.” – Craig Berger
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Connect with Craig Berger by emailing him at craig@avidrealtypartners.com and visiting his website at avidrealtypartners.com.
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I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Craig Berger: If the economy goes into a recession, you know, higher earners get laid off more and, and have more risk of, you know, vacancy and concessions and the high-end product where maybe the low-end product and the lower end residents, you know, you always need security guards, people fixing your cars, you know, teachers, restaurant workers, I just feel like the job resiliency in the low end might be more stable than then in the high end.
[00:00:43] Sam Wilson: Craig Berger’s passion is owning multifamily apartments and other assets that deliver the best possible customer experience while generating robust risk and manage returns for his investors. Craig, welcome to the show.
[00:00:54] Craig Berger: Sam, thanks so much for having me. Really appreciate it.
[00:00:57] Sam Wilson: Pleasure is all mine. Craig, there are three questions I asked every guest who comes to the show: in 90 seconds or less, can you tell me where did you start? Where are you now? And how did you get there?
[00:01:05] Craig Berger: Where did I start? I started on Wall Street. As an equity analyst analyzing semiconductor companies wanted to do something more. I spent 12 years there. But after a while, I wanted to do something more. And so I left to roll up my sleeves and be a little more entrepreneurial. And fell multifamily was a great place to be so where am I now we’ve acquired close to 2000 units. We’re past the startup phase, I guess I’d call myself an emerging manager. We’re hiring and scaling the company across senior and junior positions. And where are we going? We’re going bigger.
[00:01:42] Sam Wilson: I love it. I love it. Semiconductor research. You did that for 12 years?
[00:01:51] Craig Berger: Yes, sir.
[00:01:51] Sam Wilson: Wow. Okay. Forgive me, but I would think and again, I’m not a semiconductor. I’m not an engineer by any stretch. But in the end, I would think that would get very repetitive going, okay, another company they’re building semiconductors. Okay, another company has that wrong? Or am I on my thumb there?
[00:02:07] Craig Berger: Well, it was hey, which companies are good stock longs or good stock shorts. So how to how to trade the stocks, which companies are coming out with, you know, groundbreaking material. It’s all about sort of, you know, predicting quarterly earnings, annual earnings, who are growing well, who’s not growing? Well, how do you make money trading stocks?
[00:02:28] Sam Wilson: Right, right. How I mean, that’s a completely different set of skills than what we have here in the multifamily investing space. I mean, we’re looking for, you know, good opportunities that produce solid cash flow that we can predict, you know, well into the future. Not, hey, what’s the stock price gonna be tomorrow? Was that one of the attractors for you?
[00:02:50] Craig Berger: It was, I mean, there are some common skills like how to underwrite companies or properties, how to how to predict the future, what is the economic environment look like, you know, don’t fight the Fed, everything’s a cycle and economic cycle, right, buy low, sell high. So a lot of those concepts are transferrable, but a lot of new skills have had to be developed as I moved over and became what I call an entrepreneur and an owner and an operator you know, you have to kick your cushy off corner office to the curb, and you know, roll around in the mud and the muck to build a business like this.
[00:03:28] Sam Wilson: That’s really insightful what you said about the common skills and not something I would have thought about is the research that you were doing all these companies it’s, I mean, it’s the same thing just moved into a different asset class and its own right.
[00: [03:24] Craig Berger: It is a lot of overlap but again, a lot of new stuff the whole operational skill people management, you know, daily operations, making your assets perform all of that is is new, which is what I wanted, I wanted to get out of a world of theory and judging other people’s actions and into a world of doing that I felt multifamily was a great way to generate investor returns hopefully do good things for our residents that are you know, on-site and deserving of great things and hopefully be able to be a good community citizen.
[00:04:16] Sam Wilson: Yeah, absolutely. That’s really really cool. When did you know you were on to something? I mean, again, these are kind of two different animals. So how did you know that oh, hey, I’m gonna get out of being a researcher and then I’m gonna go into multifamily.
[00:04:31] Craig Berger: Sure. Well, I bought my first multifamily asset in 2015, about six months after I left my job, but I also bought and sold a couple of hotel assets Along the way, I’ve bought and sold a net lease asset along the way. So we’ve dabbled in, in different food groups and thrown spaghetti at the wall. And all of that was sort of a process of self-discovery and learning and growth and ultimately trying to figure out who I want to be when I grow up in this business, so to speak. And that’s, that’s an ongoing process and some of those experiences that I had along the way, I hope to be able to leverage and grow into a business in the future. Right now. I’m solely dedicated and focused on multifamily right now.
[00:05:14] Sam Wilson: That’s great. I love love the word focus in your like you said, you’re solely focused on that. And that’s, that’s, that’s really, yeah, something I could use more of in my own life. It’s a little bit more focused. Tell me this? What is one thing? You know, you’ve been buying multifamily since 2015? What’s What is one thing that you would say, it’s probably been the biggest surprise for you in the last seven years?
[00:05:36] Craig Berger: Wow, what’s the biggest surprise for me, I’d say the bigger properties can be easier than the smaller properties, you get more support, more scale, more, more third-party management support, more contractor support, and even though it’s, you know, hard work to come up with money and, and credentials, to borrow from banks and get big mortgages. A lot of other aspects of this business, I’d say, you know, a 300 unit deal is probably easier to own and manage than a better 90 deal.
[00:06:08] Sam Wilson: Yeah, and that’s, that’s something we’ve talked about a lot on this show is it’s, it’s just as much and or more work, the smaller the asset, which is, you know, the reason we scale into larger, larger properties, you guys have found an opportunity in the multifamily sector, is there a particular asset or particular class that you’re buying? Or, you know, you’re kind of spread out in the, in the geographic locations, but as a particular, ABC? And if so, why?
[00:06:33] Craig Berger: Well, our story is, you know, starting from scratch, and building a business from there. And so we started with, I’d called class Class D assets, and clawed our way up to class C, and then, you know, got some institutional partners and maybe started buying some B’s and A’s. So part of that is just sort of earning your way up to scale and, and having credentials. But, you know, I’d say going forward, we want to buy a mix of newer construction Class A and an older, older, vintage, you know, class C plus and Bs, we want a diversified demographic exposure in a diversified geographic footprint to basically manage risk, manage cycle risk, manage market risk, and not be overexposed to, you know, high demographic or low demographic and hopefully have a mix.
[00:07:27] Sam Wilson: What risks do you feel are potential in each asset, or each class of multifamily right now, and why are you diversifying that way,
[00:07:35] Craig Berger: You know, older assets just don’t have as much remaining useful life, you know, rents, rents tend to be lower in class C, you know, the resident challenges can be a little greater than nonpayment of rent issues can be a little greater, but I think you also potentially have larger in percentage increase in top-line growth, you know, move from 750 of rent to 1000 of rent is, is, you know, 33% growth in top line. So, we, you know, we want some of those challenges and exposures. On the other hand, you know, the class A rents are already high. Is there a lot more upside from here? Maybe, maybe not? I think it depends on what markets you’re in. Obviously, the assets tend to be newer, nicer, a lot more expensive per door, you know, if the economy goes into a recession, do you know higher earners get laid off more and, and have more risk of, you know, vacancy and concessions and the d product where maybe the low-end product and the lower end residence? You know, you always need security guards, people fixing your cars, you know, teachers, restaurant workers, I just feel like the job resiliency in the low end might be more stable than then in the high end. But you know, I don’t have the answers, and not having the answers is probably why I want a diversified mix of product, asset classes and vintages and price-per-door price points.
[00:[09:15] Sam Wilson: I understand that finding deals that make sense is probably the first step. But inside of that, is there a portfolio allocation percentage that you go to, you’re like, Okay, I want 30% in class C one 20%. And there’s anything like that, or is it really just does the deal make sense?
[00:[09:33] Craig Berger: I think it’s more the latter. You know, I think for folks like a Blackstone or Carlyle and folks that have those kinds of resources, then portfolio allocation decisions probably make more sense. You know, for us, we’re trying to find three, four or five, really good deals a year. And next year, maybe it’s, you know, five, six, seven really good deals a year. So we don’t sort of have an allocation today. But hopefully, in the future, we will have that problem.
[00[10:05] Sam Wilson: Do you feel that everybody kind of has to go through that cycle of buying Class D to C to B to A, like you did? Or is there a better way?
[00[10:15] Craig Berger: There’s probably a better way I didn’t do I didn’t do the better way, but I think it’s you know, it’s go work for Blackstone or Angelo Gordon, or, you know, other smaller investment firms that are still doing large volume of business, you know, work for 24 months, and two or three different jobs, build, build relationships inside and outside the company. And then when you’re ready to lateral over and do your own thing, you’ve got more credentials and experience. You know, for me, after working for 12 years on Wall Street for other people, I was thirsty to go out and do something on my own and create a company with the type of company culture that I wanted. But it’s a much harder road to travel, you know, than what I described a moment ago.
[00:[11:04] Sam Wilson: So right, right, what’s one thing you’re doing right now that separates you as a buyer, when you’re going out and competing for assets?
[00:[11:13] Craig Berger: Wow, well, you know, 45% of the country rents, there’s a lot of multifamily operators. So honestly, I don’t think anything separates me from, you know, the other 1000s and 1000s of operators out there. There are a few things that I think we do well across asset management being hands-on with our assets, in terms of specifically in terms of acquiring assets and the process. I mean, you know, we try to source off-market and we have different resources that we utilize to do so we obviously bid a lot on market we underwrite a lot of deals, we make a lot of offers, we hang around the hoop deals that we bid on six or seven months ago are coming back to us as broken deals, just given the market dislocation and interest rates and pricing. And so there’s no single thing but close broker relationships. nonrefundable deposits really help on you know, underwriting and bidding on a lot of deals really helps acting with integrity. So when you say you’re going to do something, you do it and brokers and sellers in rely on that, those are a few things that hopefully help us get close. But it’s a highly competitive process. And, you know, it’s even in this environment, even though prices have come down. It’s really hard to source. You know, a good…
[00:[12:30] Sam Wilson: It most certainly is difficult to find a good deal not impossible. When these deals come back around with some price adjustments built in, I guess at this point, it does that what I’m hearing, you’re saying that you’re seeing prices come down. What do you guys do when that deal comes around? And you get a second shot at it? I mean, you watch what’s your strategy from that point moving forward? Is it re-underwrite it, see where they are today? And then just make another offer? Or what’s your process?
[00:[13:56] Craig Berger: Yeah, well, first thing we ask ourselves is, hey, do we really, really want to own this asset? Because, you know, you buy an asset, you’re stuck dealing with it for the next four, five, six, seven years, and you really have to make sure that that’s an asset you want to be with for the next X years. But yes, we re underwrite it, we read, you know, updated financials, updated interest rate and debt, environment inputs, updated cap rate assumption, you know, but we generally feel like we know what it’s worth from before, you know, it’s harder environment to raise equity and today than it was a year ago. So 60s or 70s, build deals are just harder to get done, or a tertiary or quaternary markets are just a lot harder to get done. And so maybe I was willing to buy something a year ago and today I feel like possibly it’d be harder to get investor support for that kind of deal. So that sort of starts with some deep introspection and then goes to reassessing the numbers. And you know, ultimately having discussions with the brokers and sellers was about what price it can really get done.
[00:[14:07] Sam Wilson: Right? No, I think that’s really insightful. You said it’s harder to raise equity. Now, can you explain that a little bit?
[00:[14:15] Craig Berger: Well, stock markets down 25% bonds are down 20 plus percent. It’s the first time in modern history where both stocks and bonds have fallen precipitously at the same time, usually its bonds or flight to quality when stocks are falling, or vice versa. This cycle, it’s there’s there are no safe havens. So you know, 25,30,40% of the dry powder capital on the sidelines has evaporated. And, you know, a lot of folks are concerned about a recession, whether it’s, you know, a slowdown or recession, clearly, there’s a lot of concern. So getting people to part with their cold, hard cash is just very challenging right now, that’s true, whether it’s individual high net worth, guys that we’re pitching institutional guys that we’re pitching, everybody’s being a lot more selective, right? Just like I’m being more selective with where I’m gonna buy a deal. And what vintage in this environment, that, you know, everybody’s being more selective and careful and holding on to their now shrunk in cash pile tighter and more carefully.
[00:[15:22] Sam Wilson: Do you feel like as a deal sponsor, that there’s something or that you and or us as sponsors, as a whole should be doing to educate our investors on this front? Because my contention, and it may be you can either agree or disagree, you know, whatever you want to do there. But my contention is that when everybody gets scared, and people stop investing is when you’re probably approaching the right time to begin investing, you know, maybe not entirely, I mean, there’s part of it, that there’s some, you know, wisdom in waiting and making sure that the right time, but, you know, investor psychology says that people typically invest at the completely wrong time. So is there something you guys are doing differently to make sure that you stay in front of your investors where you’re saying, Hey, let me let me build some competence into you into what we’re doing?
[00:[16:11] Craig Berger: Well, that’s a really insightful question. Look, prices have come down somewhere on the order of 10, to 20% in multifamily. So I think it’s a 10 to 20% better time to buy than it was eight or 10 months ago, you know, will it get worse, will prices get cheaper? I don’t know. But we are looking for opportunities now. And any deal that I buy, I have to have pretty good confidence that I can double our equity, you know, over a four to six year hold period. You know, there’s a lot of benefits for investors to going into multifamily. In addition to doubling your money over roughly five years, and I just look at the NASDAQ or the stock market, I just don’t think the stock market is going to double from here over the next five years. Unless the Fed starts easing and getting super loose again, in which case multifamily is also going to go haywire and shoot to the upside so I like multifamily, I think it’s a great time to be buying right now. If you can lasso together the resources. Obviously, if you’re one of the firm’s that has on balance sheet dry powder, it’s it’s a tremendous time to throw your weight around and scoop up assets. Could things be cheaper in three months or six months? Anything’s possible. You know, bridge debt is expensive folks that were over levered, are going to feel pain and in the coming year, it might be hard for them to refi with similarly high leverage, especially now with bridge that rates about 7%. So maybe, maybe things get worse. But I’d say we’re at least, you know, halfway if not more, from peak to trough pricing and multi and, you know, we’re out looking for opportunities and looking to double our investors’ money reliably. And predictably over you know, over a five-year hold.
[00:[18:03] Sam Wilson: I love it. I love the way you the way you’re thinking about that. That’s, that’s really, really great. Certainly appreciate you given some insight on that when it comes to the tenant experience. What is one thing that you guys are doing that you feel like is different maybe than other people are doing in the industry as it pertains to your tenants?
[00:[18:25] Craig Berger: Well, it’s a huge industry. So I think everything’s being done but we you know, we try to have resident events and resident engagements at least once a month and drive a real sense of community at the property level. We obviously are renovating the vast majority of our deals and looking to give our residents as high of a quality of life and quality of home living experiences as possible. You know, we’re working on some corporate-level give-back programs for residents in need. We don’t want to impugn property level performance by doing charitable giving at the property level but at the corporate level if there are you know, hardworking salt of-the-earth residents that then truly need a helping hands, I think it’s important to work to give back to those folks. We’re pretty small today but we’re working on establishing some formal giveback programs at the corporate level. You know, and you know, we try to hire really good employees maybe better employees pay a little more get some better quality employees to have that extend over again to the residents and the properties overall. Overall look, feel, and experience quality of life.
[00:[19:40] Sam Wilson: That’s cool. Craig, I love what you guys are doing. Thank you for taking the time to come on the show today and really share with us your story of transitioning from Wall Street to multifamily investor I love the overlaps that you talked about the common skills there early on that you shared that you found to be super valuable. I think it’s really cool that you just quit cold turkey and said, Hey, man, I’m going long in the multifamily space that takes a lot of courage and clearly you’ve done very well with it. Give it as much to think about here today. Certainly appreciate you coming on if our listeners want to get in touch with you or learn more about you and what it is you guys are doing. What is the best way to do that?
[00:[20:19] Craig Berger: Send me an email at craig@avidrealtypartners.com. You can also find us on LinkedIn or our website avidrealtypartners.com. Sam, thank you so much. This was really great.
[00:[20:30] Sam Wilson: Absolutely. And for those of you who are listening, that’s Craig, C R A I G @avidrealtypartners.com. Craig, have a great rest of your day. And thank you again.
[00:[20:39] Craig Berger: You too. Thanks
