The multifamily real estate space has not been impacted as severely by the pandemic and resultant economic slump as other property sectors. However, it obviously did not escape unscathed, given lost rental income, deferred rent, etc.
Moreover, CBRE predicts that multifamily will see a 6 percent increase in net effective rents in 2021 and make a full recovery in 2022. Given that runway, it is obviously prudent to consider what lies ahead, and how multifamily investors should best proceed within a market that is destined to heat up quickly.
As someone who has been a licensed broker since 1979 — and who has extensive banking and financial experience as well — there are certain principles I adhere to. Here are a few worth noting.
1. Know your niche
It’s extremely important to zero in on what you do well, as opposed to trying to be all things to all people. It’s entirely too easy to be distracted by other seemingly great ideas and stray out of your area of expertise. By staying in your lane, your target audience will come to identify you with a certain niche — above all your competitors.
In the case of MZ Capital Partners, we have zeroed in on innovative apartments in suburban areas, notably outside Chicago (where we’re located) as well as Houston, Dallas and Knoxville, Tennessee. We consider several factors that drive our product type, like population growth, the accessibility of high-speed internet and accessibility to different modes of transportation.
So, I think after determining your niche, it’s a matter of figuring out what other factors increase your odds of success and focusing on those areas.
2. Delegate
Individual focus is no less important. Leaders need to stick to their areas of competency and delegate those tasks that fall outside that sphere. Time is a valuable and precious commodity — just like money. If you waste it on things you do not excel at, the day goes by and you’re not able to execute anything.
I try to stay focused on the broad demographics and the financial end, as well as the larger strategic planning issues of a particular project or of business in general, while delegating to others details like construction planning, the flow of contractors, sales and leasing.
Writing for the Harvard Business Review, author and speaker Deborah Grayson Riegel noted the many upsides of delegating responsibility — how it improves morale, commitment, productivity and ultimately, the bottom line.
She also outlined the various steps of delegating properly, concluding that it’s a matter of finding the right person for the job at hand, making objectives clear, encouraging creativity, being a motivator and tolerating occasional missteps.
3. Be ready to pivot
“Pivot” has become a very, very important word in the last year, has it not? Everyone has had to pivot, whether in the business world or outside of it. Interestingly, though, the shift within the multifamily space has not been so much a 180-degree turn as a midcourse correction that was coming anyway.
Virtual tours and online applications were already in vogue at many properties before the pandemic and have become more widely used as a result of social-distancing protocols. Same for things like online portals that enable residents to make payments or arrange service calls.
One of the changes that has led to widespread disruption was the pivot (that word again) toward remote work. Globest.com cited a Newmark report that concluded that 11.9 percent of the American labor force worked from home in 2019, and as much as 35 percent did so after the pandemic began. What is more, 64 percent of companies plan to continue to make remote work the norm after this public health crisis subsides.
That means that the changes made within the multifamily space — reconfigured common areas and reshaped units — are likely to become permanent. But the larger point is that investors in this sector need to continue to be agile in the face of disruption.
4. Be where the puck is going, not where it is
I love this hockey analogy, as it points out the need for those in the multifamily space to anticipate where opportunities will arise, as opposed to waiting for them to materialize. I also believe that our firm, with its entrepreneurial bent, is uniquely positioned to move more swiftly than institutional investors.
Where those enterprises might need to negotiate various layers over an extended period of time — committee approval, gathering capital, performing studies, etc. — we can spot an emerging trend and forge ahead.
That underscores something else I firmly believe: Sometimes, the best approach in real estate is “ready, fire, aim.” A big institutional capital provider is very busy “ready/aiming” for a year or two, and then firing.
By then, we’ve already taken advantage of a given opportunity. This is not to say that we don’t do considerable homework during the “ready” stage — it’s just to say that we don’t necessarily need all the details nailed down before we “fire.”
The bottom line is that the multifamily space continues to evolve, and investors must do the same. In such an environment, it pays to be aggressive when an opportunity emerges, but only while doing the requisite homework within one’s area of expertise.
Michael H. Zaransky is the founder and managing principal of MZ Capital Partners. Founded in 2005, MZ Capital Partners, based in Northbrook, Ill., deals in multifamily properties.
