[00:00:00] Greg Bronson: I am spending boatloads of time on underwriting on deal sourcing and negotiating opportunities that may or may not pan out. So it's really about identifying the right opportunity where we can deliver attractive risk adjusted returns for ourselves and ourselves and our investors, because we like both property sectors overall. We've seen solid growth in both of them. We've had solid performance in both of them and being able to look at both also provides a helpful Value proposition or cost benefit analysis of 1 investment versus another relative value comparison.
[00:01:18] Tim Little: Hello everyone. And welcome to the journey to multifamily millions. I'm your host founder and CEO of ZANA Investments, Tim Little. And on today's show we have with us, Greg Bronson. Greg has nearly 20 years of industry experience, primarily focused on residential property sectors, including student housing, multifamily and senior housing. He heads acquisitions at Ashland Capital and has closed over 2 billion of transactions throughout his career across acquisitions, refinancings, and recapitalizations, leveraging his debt and equity relationships. Greg, welcome to the show.
[00:01:50] Greg Bronson: Thanks very much for having me, Tim.
[00:01:52] Tim Little: Yeah, and it's great to have you. You have a wealth of experience, so I'm eager to dive into this. But tell us how you got started in real estate and how you got to where you are today.
[00:02:01] Greg Bronson: Basically coming out of college, I worked for a couple of years at an investment bank called Lehman brothers, which is now infamous. And I worked there until the summer of 2007, for two years and transitioned to a real estate debt investment firm in the summer of 07. So the reason I highlight that time period is because it was just as Lehman was starting to tip. The subprime crisis was going on. The early innings of the GFC were taking place. And I basically moved from an investment bank that was about to blow up to a commercial real estate debt investment firm, investing in CMBS, commercial mortgage backed securities, B notes, whole loans, Mez, preferred equity. And so it was really all of the stuff that wound up going on fire, within six months of being on the job. Fortunately, the firm was very conservatively invested going into the downturn and it was a great place to be. And I got a lot of exposure to unique opportunities on the debt side from a financing, a refinancing standpoint, a lot of stress and distress. Not dissimilar necessarily to what we're seeing in the market today. and then from there, moved to a principal investing role for a private company backed by a family office, investing in senior housing properties and operating companies, as well as investing through a diversified investment. Family office, pool of capital where we were investing in student housing, multifamily retail, self storage, really everything under the sun. From there, I moved to a Middle East backed private equity firm. that was a hundred percent exposed to healthcare, real estate, leveraging kind of my seniors experience, but wanted to diversify. And they said, based on your experience in the market, what do you see as a similar opportunity set, as in the senior housing space. And I laid out for them the thesis around student housing. And, basically it was much more at the time than today, a very fractured ownership group, a lot of mom and pops that own the properties. very scalable and devoid of a lot of investor attention and appetite. Institutional investors weren't focusing on student housing at the time. since then it has become more of a, a. Mainstream semi mainstream, property type, but less than 10, 10 plus years ago when, when I started down this path, I scaled the platform for them from nothing to over 9, 000 beds. That was 10 acquisitions and 2 ground up developments. and then put up my own shingle. And started doing student housing and selecting other investments on my own, over time, I've had a number of capital partners, both L. P. and co G. P. partners. And I found my way to Ashland capital last year, where we're focused on value add multifamily and student housing, and really focusing in the Midwest and South Southeast markets and, have been, you In this seat working on acquisition opportunities as well as select credit investment opportunities because we're also raising a private credit fund right now where we're offering investors 12% immediate quarterly distributions. 90 day liquidity, which is a very differentiated fund vehicle than what you traditionally see in the market, where you have a 5, 7 year lock up and no sort of priority return. You may have. A preferred return in a waterfall, but not an obligation of the fund and that's a very differentiated structure that we have. I've been looking at opportunities, both in the equity investment side to buy. Multifamily and student housing properties as well as through another lens to provide preferred equity or junior debt on those deals and select other credit opportunities.
[00:06:12] Tim Little: Yeah. And it's such a varied background, which is what's interesting to me. I do want to get into some of those different types of firms that you were with, but before that, I want to go back to, to leave in. Cause as soon as you mentioned leave in circa 2007, I think a year later when people were walking out with their boxes, is And it's so interesting that you actually went to a real estate investment firm. I think, luckily if it was, focused more on the commercial side and they were conservative in their underwriting cause you know, many firms were not, then it sounded like you got off pretty lucky for lack of a better word. But what was it like? Kind of seeing the world burn around you, in terms of the industry while it seems like you stayed pretty safe, where you were at.
[00:06:57] Greg Bronson: Yeah, so that's a great question. I would say that there was no better learning experience during the course of my career than basically. Trying to survive while the world was crumbling around us. you hear people again today saying survive through 25, talking about getting through debt maturities and through the wall of refinancing issues and things like that. And it's a similar mindset then. To what we're in today, the difference was the fall of many large investment banks and financial firms, during the GFC. It was a very strange thing for me because. It was only my 2nd job out of college and here I am on the phone on a Sunday when I was in the office that day. Before Lehman filed for bankruptcy, and speaking to my former colleagues as they were packing up boxes and trying to move to other firms, it was a very jarring time in the market to say the least. The other side of it, though, is I learned a ton from it, and I value that experience and that exposure because. It really is. It drives how I invest today and, that was 16 years ago and I remember it like it was yesterday.
[00:08:10] Tim Little: Yeah, I thought that might be your answer, you know, focusing on the value that you got, from what you were able to learn. During such an unprecedented time. And it's funny, like during that period, 2007, 2008, I was in the military still, on active duty. And so I was blocked from all that. It wasn't part of my world. Cause I was in Iraq pretty much all of 2007. So I was insulated from all that. So it's like when I got back, it's like, what is going on? and then I started my MBA program, 2008, 2009, I'm in my MBA program. And a lot of professors were just at a loss because they hadn't seen anything like this. and everyone was just trying to make sense of it. going back to like where you went after that And you talked about working at a family office for a little bit for the audience Can you explain what a family office is because I think there's a lot of confusion Surrounding that they think it's just, some rich family and, they decide what they're going to invest in. Maybe it's a couple of people that do that. And maybe that's not too far from the truth, but talk about it a little bit from your perspective.
[00:09:12] Greg Bronson: Before I get to that, just let me say, thank you for your service to him. Yeah, I have all the respect and appreciation in the world for our military. So thank you with respect to. To what a family office is. It can be one of many different things, quite honestly. And a lot of groups hover around that term because it captures the idea of wealth. So a family office can be a single high net worth or mega ultra high net worth family that is deploying, that is investing period. And it can be across anything and everything. They are set up more like an institutional investment firm, then, a person in front of their computer would otherwise be because, often they have a team looking at acquisition and investment opportunities and working as, working as an investment firm for them. Now, that's it. In a single family office, that structure can also exist in a multifamily office where a few families put their wealth together and invest in deals together. Or, it can, a firm can operate as a multifamily office and provide those services to different single family offices. just to bring it back to the question, what is a family office? It is investing on behalf of an individual or group of individuals whose net worth they are representing and putting out. It isn't any different, quite honestly, than an investment firm of any other kind, where there is some amount of capital. They look at opportunities, they pick and choose their spots. They may have a portfolio strategy. They may specifically have a real estate strategy, or they may be wide open to, the great beyond and, look at anything and everything, but it comes in a lot of different shapes, sizes, and colors.
[00:11:05] Tim Little: Okay. Yeah. And you answered the question that I was going to ask next, which is, are there any special nuances associated with a family office versus, private equity firm or, just a general real estate investment firm. And it sounds like they're still doing a lot of the same things, right? they're underwriting properties. They have their buy box of what they're looking for, etc. But are there anything that's Particularly unique about a family office when they're looking to acquire or invest.
[00:11:33] Greg Bronson: they, while they may have a buy box, Generally, they are investing their own capital, although sometimes, as I said, family offices may pull together and, and have an overarching strategy over, the pool, which is a little bit more like a fund type approach, but generally speaking, the primary difference is that an institution or a fund may have a specific, Obligation a specific mandate that they need to follow because of as his guidelines or fun docs that they have said that they would adhere to. So they may have. Specific risk parameters geographies they can and can't go to property types that they can. And can't invest in family offices are generally viewed as being more flexible and having an ability to have a bigger mandate.
[00:12:24] Tim Little: Okay, got it. And then, moving on to your next position. That one is one that I haven't really heard much before on the show, which is working for what it sounds like is a foreign entity. In order to invest, you said it was a Middle East backed private equity firm. Can you talk a little bit more about that one, how that opportunity arose for you, how you got connected with them, and then what kind of work you were doing for, on their behalf?
[00:12:48] Greg Bronson: Sure. the way the opportunity arose was that a recruiter reached out to me and said, hey, would this be of interest to you? and. After a few conversations with them, it proved out to be something that I was very interested in. So I moved over there, as far as how they were set up and how they were investing. It's quite honestly, quite common in the market today to see foreign investors investing in the U. S. real estate because of. Because of the opportunity to 1 get exposure to high quality real estate and to get a dollar denominated investment, which in certain other parts of the world. maybe viewed as a favorable place to put long term income or long term capital rather. So dollar denominated investments are viewed favorably by a lot of the world because, because of our financial strength as a country, I forgot the last part of the question you asked me, though.
[00:13:48] Tim Little: No, it was just the type of work that you were doing for them and then you know, how you got introduced to the opportunity.
[00:13:54] Greg Bronson: Yeah, so the type of work that I was doing for them was,I joined as their 1st dedicated real estate hire. I was set out to expand their real estate exposure. and to broaden their mandates, so they had previously partnered with a group on a number of senior housing transactions. And they wanted to diversify their exposure to US real estate. And so I laid out a thesis for them to pursue student housing because it was similarly fractured and scalable from an ownership standpoint. And there were both asset level returns and the potential for a portfolio aggregation return. So what I mean by that is: You know, you may identify 3, 5, 8, 10, whatever properties over time, build up a portfolio. And while those individual assets are delivering a project level return and could exit at, let's say, a 6 cap, right? The portfolio premium is that of some groups, larger institutions. We'll be more inclined to invest not in the individual deals because it's just too much brain damage for them, too much expense for them to pursue smaller transactions. They need the portfolio in order to deploy their capital. So they need X tens or hundreds of millions to put out in order to have a deal be worth their while. And so the thesis was, we can. Underwrite these to exit. Let's say a 6 cap. I'm just using where we are today. It was probably tighter back then. exit at a 6 cap now on an individual asset basis, or we build up this portfolio and maybe get. A little bit of cap rate tightening because there's a group that really wants to invest in U. S. student housing and they're willing to pay a premium for the portfolio because it will give them a big enough foothold in the U.S. student housing market that makes sense. So maybe that 6 percent turns into a 59, a five and three quarters cap rate, which just. Increases the value that much more. So you get the asset level return and the portfolio aggregation return.
[00:16:51] Tim Little: Yeah, it sounds like they're working off that economy of scale because they have the pocketbooks big enough to do which is nice. alright, so going into that as we fast forward a bit, you move. More primarily, it sounds like the value-add multifamily and student housing space helps the audience understand the differences and similarities between those two types of assets from the investors, the passive investors perspective, right? I think they know the obvious, both have tenants, we're a place where people sleep, et cetera. But what are the key differences and considerations if someone is thinking about potentially investing in, say, student housing versus multifamily? Sure.
[00:17:35] Greg Bronson: I, I would say that they are Overall, fairly similar from a sticks and bricks standpoint, right? The real estate is very comparable. One of the operational differences with student housing or the many operational differences on student housing versus multifamily, because I'm going to assume that multifamily is pretty widely understood, it's owning an apartment building and leasing the units, those leases. Role on an irregular basis, right? Their annual leases, but your overall rent roll has staggered lease maturities, over the course of a year, high likelihood of renewal in certain markets, lower likelihood of renewal in other markets, all of that stuff with multifamily. With student housing, there's a few specific differences that are important to understand.When we talk about student housing, we're talking about really purpose built student housing. properties that specifically cater off campus to the student population, there's no restriction on having other tenants in the building. because that would violate fair housing. Act standards, but generally. You find the majority of those residents are students. Now, while on campus dorms may have academic year leases or semester leases, student housing has 12 month leases. we don't get stuck with that, those summer months where nobody's paying rent, which is different than on campus student housing. Another thing that we have with these leases is we get parental guarantees. Because, a 20 year olds credit, if they're going to school, is probably not significant enough to support the lease payments. the biggest operational thing about student housing, that's different than multi family though. Is when the leases roll over In a multifamily property, you're leasing throughout the year and you have a few units that turn every month. Maybe more in certain months, maybe fewer in other months, but it's pretty staggered. Student housing leases start at the beginning of the academic year, and they go for an entire year through that summer. So they start in August of, 20, 24, let's say. So this coming fall for the 24-25 school year, they start in August of 24. They end in July of 25. At this point in the year, break summertime, spring break time at a lot of college campuses, you want to be fully leased for next fall. And in certain markets, that process is done, leases are fully signed. where your rent roll is going to be by next fall. October, November, December of the prior year. So the operational nuance or operational focus of student housing is really making sure that your third party operator or your captive operator on the ground management company knows the nuances of the leasing cycle in the market and can get the property leased up. After that, it's just Resident interactions, maintenance and things like that through the academic year. But a student, as soon as school starts the following year, you have your team on the ground starting to get renewals and starting to get new leases because. It's a very operational process.
[00:20:51] Tim Little: Yeah. And I think it's like any asset, right? there's pros and cons to which one you choose. From the value-added multifamily perspective, it would really scare me to have all these leases,expiring at the same time, which is the whole reason why we stagger. So we don't have the concern for that lease up in one big chunk, But if you've specialized in that and you know it's coming, then you can prepare for it. And then on the pro side, I would see for student housing, you have the predictability of occupancy once you've signed those leases for that period. So I could see that being positive.
[00:21:27] Greg Bronson: That's exactly right. There's a lot less churn. Within a year in student housing. It has been viewed very favorably over the last couple of years, and even through coven. last 4, 4, plus years, because it's pretty recession resilient and it's a very sticky tendency. through coven, while a lot of schools were shut down going online for a semester, or for the academic year, student housing occupancy remained. Solid. It outpaced, market rate, multi, multifamily occupancy and rent growths have been really solid in this space as well. We view both property sectors as attractive risk, return, and opportunities. It's really about identifying the right specific opportunity to invest in. When we choose, whether it's value add multi or value add student, we get very into the nuances of the sub market, the sticks and bricks itself, and, understanding all of the risks and opportunities within an investment.
[00:22:31] Tim Little: Yeah. And that goes to my next question with the current environment you talked about some of the headwinds that we're facing right now. And, people coming up with their cute slogans, you survive till 25 and stuff like that. Because there are some challenges for sure. it's at least in the multifamily space, I can say that I'm not in the student housing or, the, elder care or anything like that. But I imagine they're facing some similar issues with you having these two different asset types and, and constantly underwriting, I assume the two different asset types. Are you guys,leaning one direction or another, just currently based on rates, insurance, whatever the case is, headwinds that exist right now, or is it a matter of having that diversity? Within your portfolio so that you're safer in the long run.
[00:23:20] Greg Bronson: I would say we, we like the diversity, and in terms of where I'm spending or we're spending more of our time given the state of the market right now and the disconnect between buyers and sellers. I am spending. Boatloads of time on. Underwriting on deal sourcing on negotiating opportunities that may or may not pan out. So it's really about identifying the right opportunity where we can deliver attractive risk adjusted returns for, for ourselves and ourselves and our investors, because we like both property sectors overall. We've seen solid growth in both of them. We've had solid performance in both of them and being able to look at both also provides a helpful Value proposition or cost benefit analysis of 1 investment versus another relative value comparison.
[00:24:16] Tim Little: Yeah, and I think it's like you said earlier, it really comes down to identifying the individual deals. We may have to underwrite a lot more than maybe we did, a year or two ago, but there are still deals that exist that, get the returns that we're looking for, despite that buyer seller disconnect, which is another interesting point, because I've had a lot of smart people on this show and several months ago they were saying, Oh yeah, that gap is going to close, it has to, and it seems like it hasn't really closed yet. And I'm wondering what is preventing that, that reality from setting in for sellers. and when do you think we're going to start to see that gap close and more deals getting done?
[00:24:57] Greg Bronson: It's a great question. I would love to have the right answer for you. I think, there's a lot of, there's a lot of. Headwinds in the market that are just making it difficult for people to decide. Do I want to, do I want to take this offer right now? Or do I want to wait, for the last year plus, we've all been debating, is the Fed going to stop? Are they going to cut rates? What's the Fed's position? And, early predictions were that the 2nd half of this year, actually, the 2nd half of 2023 was going to be a big pickup from the slow. Last three quarters of 22 and the first half of 23. Now that hasn't proved out because the fed continued to raise and then just stopped. And the indications are that the economy isn't in a place where the Fed is going to slash rates dramatically. So I think what's happening is. The market is just taking a lot of time to really come to terms with this new environment, which fortunately or unfortunately is more in line with historical norms. It's just that we've had the benefit of a zero interest rate environment for the last 16 years. And when we have a hard time looking at a four plus percent treasury rate, but That's where the long term average has been. So it's really just forcing a recalibration of the market, real estate, not being the only market that's getting impacted by this. everywhere, valuations are being impacted because, you've seen the cost of debt capital go up five and a quarter to five and a half percent. And that has a serious impact on valuations and on whether, a seller on the other side feels that they need to take this price today. Eventually forces will come to fruition forces will be at hand that they will have to make a decision. They can't just sit there forever and say. I'm not certain because there are refinancings or sale obligations for assets and for funds that are going to drive a lot more activity in the market. But we're still, I'd say, a year plus or minus away from seeing significant transaction activity. Pick up in the market.
[00:27:13] Tim Little: Yeah, I agree. I think it's just taken a lot longer than people have expected. and then, especially for the fed, I think, I think he's sitting back saying it's taking a lot longer than he expected. and so that's why he's not going to cut rates right away. And if he does, it's not going to be dramatic. I think you bring up an important point about the historic context, right? Like we need to have a little perspective here and realize that two to 3 percent mortgage rates are not normal. They were never normal. They were artificially low and it was great while it lasted, the party's over and now we have to get back to reality. however uncomfortable that may be, especially for those of us who were like in the lead up when rates started to rise. And, that's hurting a lot of assets right now, all the deals from this point forward, you should just adjust your expectations and go off of that. especially, in underwriting and stuff like that.
[00:28:02] Greg Bronson: Yeah, that's exactly right. I agree with you completely.
[00:28:05] Tim Little: All right, so this has been some super interesting conversation, but we do need to get into the turbo round. So I'm going to ask you three questions that I ask every guest I have on the show. And I just ask for a quick, honest answer. Are you ready? All right. First question. What is one red flag? Every investor should look out for
[00:28:24] Greg Bronson: I would say when looking at deals, the underwriting and the projected returns and how real those assumptions are relative to historical norms and to future expectations in the market. We're not, we're not seeing 5 percent annual rent growth on multifamily deals. Out through year six in a five year hold, where we can underwrite super inflationary growth, because as you highlighted, the Fed is stymieing that. there's a recalibration of what to expect.
[00:28:57] Tim Little: exactly. And I think that's an important point that a lot of investors don't think about as much in terms of recalibrating their own expectations when it comes to returns. and being able to incorporate that when they're looking at that due diligence, Hey, maybe I may not be getting this crazy pref or the this crazy equity multiple that I was seeing during the boom times of kovid and having my deal go full cycle in three years that those things have changed and the expectations for Investors as both passive and active need to adjust accordingly. all right What is a myth about this business that you would like to set straight?
[00:29:35] Greg Bronson: I would say that now is a bad time to invest. I think it is. It is a good time to invest. Actually, I think it is harder to find good deals, but, as we were talking about, things are slowly starting to break and slowly starting to,calibrate or recalibrate. there are opportunities to invest in this market. It's just an issue of doing that due diligence, picking and choosing spots carefully and understanding the fact that Real estate is fundamentally cyclical. Just like all markets are, are cyclical. we may be at the low end of the range from a valuation standpoint in the real estate market right now. So I think now is a very good time to invest, even though rates are higher and people are a little skittish about what's going on. long term There's a lot of value to be created
[00:30:30] Tim Little: Yeah, I completely agree. there's always deals out there. You just have to be prudent in how you find them or who you invest with. But I think it's, just like the stock market in the sense that you can't really time it, right? Being in it is your best bet over the long term, not sitting on the sidelines with cash being,due to inflation saying, Oh, next year looks like it'll be better because you're probably only hurting yourself because we are notoriously bad at timing any market. All right. Final question, Greg. What does success look like to you?
[00:31:04] Greg Bronson: that can come in many forms, whether it's personal or professional. I would say. Professionally, continuing to execute on the sorts of opportunities that we're executing on and growing, our successful investments, opportunities and working with. Investors and partners that know and trust us and feel good about us. because ultimately, while we're not doing a civil service by investing in real estate, I do believe very fundamentally in relationships and so I want to make sure that, the investors and partners that we're working with, feel good and comfortable with everything that's going on and that we're able to, grow, Together and not, not any other way than, you know, in partnership.
[00:31:49] Tim Little: Yeah, absolutely. All right, Greg. Hey, this has been awesome. Please tell our listeners how they can get a hold of you. And if there's anything else that you'd like to share.
[00:31:58] Greg Bronson: I can be found on LinkedIn.I have a LinkedIn profile. My email is greg@ashlandcapitalfund.com you can connect with me on LinkedIn. You can shoot me an email. And, I'd love to, love to connect and love to speak.
[00:32:16] Tim Little: Awesome. we will certainly have all that information in the show notes. Greg, I appreciate you coming on and I look forward to continuing to see you do big things on your journey to multifamily millions.
[00:32:27] Greg Bronson: Thank you very much, Tim. It's been a pleasure.
[00:32:29] Tim Little: Same here.
