Rising inflation rates, ongoing supply chain issues, and now rising interest rates have created a landscape of economic uncertainty. Yet, multifamily real estate investment interest and activity remains strong. What are the keys to multifamily success amid this economic uncertainty?
Maurice Philogene, Managing Partner at Quattro Capital, joins the show to offer his perspective.
Click the play button above to listen to the conversation.
- What makes multifamily attractive for investors, regardless of the economic landscape.
- How Maurice ended up in multifamily, and the story behind Quattro Capital.
- What can be attractive about regions outside the Sunbelt (such as Indiana where Quattro Capital has a recent property).
- Which recent trends in multifamily Maurice finds to be particularly compelling.
- Maurice’s insights on multifamily property types he and his team are drawn towards.
- Why communication with investors is so important, and how Quattro Capital does it effectively.
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Featured On This Episode
Quattro Capital is an investment firm focused on residential multifamily real estate such as apartment complexes, mobile home parks and the like that yield strong returns for our investors. Investing in real estate purposefully is the tool that helps more people achieve wealth and the freedom to live life well.
- Visit Quattro Capital’s Website
- Quattro Capital on LinkedIn
- Quattro Capital on Facebook
- Maurice Philogene on LinkedIn
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses attractive offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello, everyone, and welcome to another episode of the “Multifamily Investor” podcast. Scott with you once again, and so excited for today’s show because I have another great guest. I am joined today by Maurice Philogene who is a managing partner at Quattro Capital, and we’re going to be learning a bit about what they do, his story, and diving into Multifamily investing once again.
So, Maurice, welcome to the show.
Maurice: Thank you so much. I’m very happy to be here. It’s nice to finally get together with you.
Scott: Absolutely. Thank you again for being here. So, to kick things off, I always like to kind of start with a big question. And today, I want to talk about Multifamily investing, particularly in times of maybe economic uncertainty. So, to kick things off, why Multifamily? What makes it such an attractive real estate sector in your view, regardless of maybe the economic landscape?
Maurice: Yeah. I love that. And I have this conversation with investors all the time. I come from the single-family space when I first started. One of the reasons I love Multifamily so much is that if you and I have a 100-unit complex and one family doesn’t have the ability to pay, then there are 99 other families that are sending in that consistent revenue as part of the complex.
So, that’s the first thing. The second thing is just economies of scale. The larger the number of units, or let’s say, number of units under management, especially with the same property manager, the way that Quattro Capital is set up, the more I can reduce expense load over time, the more I can drive down the cost of materials for renovation, which is a huge issue right now with inflation.
So, that economies of scale matters. And then, lastly, just the inflation hedge, right? Everything is happening right now. Everything is getting more expensive. I answered the question for someone earlier today, “Why not a set of Airbnb rentals versus a Multifamily?” And my response was, especially in the affordable price range, let’s say $500 to $1,000 a month, that is affordable cost of living that many people can afford even in a tougher timeframe.
But when we get away from the affordable space and you start moving into mid-level or luxury space, the first thing that happens in a down market is people stop paying for luxuries and things that aren’t 100% necessary. So, they may downgrade. They might move their lifestyle down a level or two.
So, I like to stay in that space, and that’s why we love Multifamily so much.
Scott: I think that’s such a great point. And kind of sound like a broken record, but when you talk about Multifamily, you then look at, you know, the housing crisis in this country and how much housing is needed and the supply issues of that. And so, I think that really ties into what you’re saying there too when you talk about, well, even if there are economic downturns, people need housing and they need access to housing.
And so, I think that makes perfect sense and really kind of ties it all together. I want to find out a bit more about your journey into Multifamily and really the story behind Quattro Capital. So, what’s the story there about what you all do in the space?
Maurice: Yeah. So, I have four amazing partners, managing partners, if you will. So, there’s five of us in total. We started Quattro Capital about almost two and a half years ago at this point. And the way it started was I am very like-minded with my current partners. Actually, I was at a real estate conference in Boston.
My now partner, Erin Hudson, was on the stage talking about her philanthropic efforts in Nicaragua. She was building homes for people down there. I donated…I don’t know what it was $5,000 or $10,000 to her charity on the spot and we just became friends over time. A little bit later that year, she called me about a potential deal and asked me to sponsor that deal.
I did. It was with two of my now partners as well. And what happened is we did that deal so seamlessly together. It was very clear that our skillsets were very complimentary to each other, so we decided to stick. And that’s kind of how Quatro Capital was formed. Our first deal was January of 2020. Our 23rd and 24th complexes are under contract now.
So, it’s been a very fast pace over the past two years, but very organic in nature. And what we are is add value investors, we’ll, you know, go into great emerging markets or stable markets, we’ll find a property, you know, that may have 1990s or 2000 finishes that haven’t been renovated in quite some time, force appreciation into the property by doing renovations.
But I’ll add to that, we are also, very much a market research entity in that we want to find those emerging markets so investors can also benefit from the natural appreciation too. And that’s the secret sauce, right? If you can get natural appreciation and force appreciation at the same time, chances are your exits will be a little bit faster or your cash events will come to you much quicker.
Scott: Absolutely. And I love that story too, when you kind of talk about your team and sort of having that lightning in a bottle of, “Wow, we’ve got a lot of great complementary skillsets here, and that’s making all of this run smoothly.” One of the pieces of advice I give Multifamily investors is when you’re looking at a deal and you’re kind of evaluating a sponsor, look at the team, look at the skillsets, ask those questions, have those conversations, because that’s going to really help you discern the sort of best opportunities and you can feel confident in your investments, right?
Maurice: That’s right. that’s right.
Scott: So, you were kind of alluding to some of your past projects. I’m curious if you could speak to maybe some current or recent projects that you have going on at Quattro Capital that you’re particularly excited about.
Maurice: Yeah. So, you know, we will do 506B and 506Cs. So, we have a couple of 506Bs in progress. So, I can’t talk about those by law, but one that we closed December 21st of last year was our Evansville portfolio, 270 units across two properties in Evansville, Indiana. I think that purchase was a $24 million purchase.
Great returns. Will probably exit somewhere north of $40 million in the future. In that case, I feel like the raise was somewhere around $11 million or $12 million. I can’t quite remember the numbers, but what I love is that that particular market is missing BB++ style quality properties. And there’s a demographic that really need it.
So, there’s a hole in the market there. We’re filling a hole in the market and renovating that particular complex to compete with some of the A-class properties, but just a slight step lower so it can be more affordable to people in the area. And then Evansville itself as a market is just solid. Those are the markets that I like. I born in New York, raised in Boston, live in DC.
So, I’m all East Coast, big city, everything, right? I don’t invest here anymore. It’s not feasible. It doesn’t make sense. I like the secondary and tertiary markets that are close by larger metropolitan areas. There’s just less competition, but it’s very, very good product, right? So, Evansville, Indiana; Dalton, Georgia; Huntsville, Alabama, certain spots in Texas, we’re in North Carolina as well.
I get very excited about those tertiary and secondary markets, and that Evansville deal is a good good example of one.
Scott: That’s such a great example. And I think it’s so interesting too because in the conversations I have, there’s all this focus, and you were just listing off a number of locations, there’s a ton of focus on the Sunbelt and for good reason, but I just think that’s so interesting when I was looking across Quatro Capital and what projects you guys have on your website, I noticed that Evansville, Indiana project. And so, I’m just curious, if you could tease it out a bit more from just like a regional aspect, why are some of the areas in the country that Quattro Capital, you guys do have properties in, why are they particularly attractive for Multifamily beyond, you know, what you were saying about Evansville, but even in those other areas?
Maurice: Listen, everything is market, everything is jobs, and everything is population. Market, jobs, and population. Let me talk about Huntsville for a second because it’s the most recent one on my mind. But Huntsville is starting to be, and kind of was before, but it’s on steroids now, Washington DC 2.0. U.S.
Space Command. So, the Air Force’s space command is moving down there, Redstone Arsenal’s down there, the FBI’s down there. Toyota just announced, I think, is $4,000 jobs moving into the area. The area is starting to generate six-figure salaries, right? That’s significant. And when you have those six-figure salaries and good industry, cross-industry, right? Manufacturing, government, healthcare, when you have good salaries following cross-industry, housing is going to need to keep up with the needs of that base.
That’s what we’re seeing. We’re also seeing, and this is happening all over the U.S., in my opinion, to the Southeast, there’s just a big migration of people moving from the Northeast and Midwest down to the south. I think COVID had a lot to do with that. People want a different quality of life, but those folks are moving into areas where there’s no new starts of construction going on.
So, you got to a look at the existing class of property, the existing class haven’t been renovated in quite some time, ’70s, 80s, 90s builds. So, as long as you can use relationships to find, especially off-market deals, right? Someone who might be exiting who’s in his or her ’60s or ’70s, they’ve been operating for a while, they don’t want to do the next reposition.
That’s where things get really, really great. So, when we look at a market, we’re looking more so, at the demographics of that market, the population increase or stability, the salaries, like how are they going to be able to pay for the rent? And then, of course, then we will shake the trees and find the right property once we realize that the market’s the right place to be.
Scott: Right. And if you can add value to that property and if there’s real opportunity there.
Maurice: And then some. And then some. For sure.
Scott: So, beyond, you know, location, and, you know, population migration, I guess, what are some of the current intriguing trends that you’re seeing in Multifamily, if you could kind of tease out some of those?
Maurice: The trend that I’m seeing is one where people are overpaying quite a bit. And maybe that’s an abstract trend, per se. To get to one…. And we have a good track record now, and we’re starting to be known in the industry for our ability to close and make deals happen and what have you, but to get to one contract, we’re having to go through about 160 to 170 views of properties.
Multifamily is such a good asset class for all the reasons that we’ve talked about, that we’re now seeing non-skilled, or let’s say, newer operators or unskilled operators coming in and paying that four cap. I’ve seen some high three caps just to try and get their hands on property. To me, it’s a challenge because you’re setting yourself up for an issue, not giving considerations to things like inflation, cost of goods, salaries of the potential residents.
So, I don’t like that trend because it’s artificially inflating prices of Multifamily in certain cases. But the other case is there is a lot more demand for Multifamily from residents, potential residents, because COVID just changed the game.
Instead of going to buy a traditional home, there are a lot of mid-market employees and people where they could afford a $200, $300, $400,000 home, they’re choosing to go into apartment lifestyle instead. And the supply is just not there. And part of the reason is because materials have gone up so much, you’re not seeing as much of the new construction starts because it’s just cheaper to get something that’s preexisting or what have you.
So, I would say those two trends are intriguing. So, I’m not scared to buy Multifamily at the moment with, you know, things being more expensive, but I’m much more selective and then you feel better because the demand is truly, truly there. There’s just more people who want apartments than has ever been at any other time.
Scott: I think that’s such a great point. And it’s certainly a trend I’ve observed. I actually want to dive in a bit more because there are so many different property types when it comes to Multifamily, be it class A, B, C, you have high rises, you have smaller apartments. I know there’s investors out there trying to figure out, you know, “Which property type am I even interested in?”
So, you’ve kind of alluded to this a bit, but, is there a property type that you all have found to be particularly enticing as you’ve been going along, and what do you tend to like about those when we’re talking about maybe slightly older construction as opposed to brand new, or whatever it may be?
Maurice: Yeah. I think the first thing about the types of property we like is they have to meet our mission. We’ve got a four-prong mission. It’s kind of on the website, people, property, profits, and philanthropy, right? Always taking care of residents and investors, people. Got to pick the right property to generate the right profits and then we take a certain portion of our profits and do philanthropic efforts with it, whether it be local to that community or somewhere else.
Part of our mission is to provide affordable housing to good people. That’s our mission. So, yes, we could go do class A, we don’t. It’s not a user base that we are… There’s nothing wrong with it, but that just doesn’t meet the mission of what we wanted, right? We want to do quality homes. So, that’s the first thing.
That’s what will drive a majority of what we look for, where can we find affordable housing that we can improve such that it improves the lives of the people that are going to live there? The types of properties we look for is kind of what I alluded to before. I’m trying to stay away from 1980s, but we’ll do 1980s, 1990s, 2000 stock complexes where… And we’re seeing this a lot.
You have people who’ve owned them for 10, 15, 20 years, they know they can do another reposition, they just don’t have the mission, or the need, or the interest in going through another renovation period. But the residents who live there want to go from, you know, fold wood floors to actual wood flooring and good countertops, stainless steel appliances, those types of things.
If I can find a complex where we can change the standard of living, move it up a notch, then I feel comfortable raising the rent, commensurate to the change that we’ve made. I’ll just be blunt with you. I grew up in the inner city.
I don’t like rent getting raised just because it’s getting raised. There’s got to be some trade-off in value. If I can find a complex where I can trade value for additional rent and the residences are happy, that’s what gets me excited about a complex.
Scott: Right. I love that. Right. So, okay, we upgraded the floors here, we added this amenity, whatever we did, and then there is this rent increase, but it’s all done in making the place a better place to live, right?
Maurice: Yeah. Because you can. And I’ve had this experience. I mean, the market will… This is one of the mistakes I had. It was on a small Multifamily 12-unit. I raised the rent.
Best lesson learned I raised the rent because the market demanded it, right? But we raised the rent so fast. And even though most people didn’t move because it was still cheaper than the rest of the area… This is in the DC area. It made my complex acidic. The residents were acidic towards ownership because we raised the rent, but really didn’t provide any additional value for that even though the market justified it, right?
I don’t want that. That’s not in my mission set at all to just, “Okay, we’re just going to make more money off the backs of residents.” No. You find a way to generate additional value. And if you are going up because the market’s going up, find a way, even if it’s intrinsic value, or better communication, or an amenity, or a free month on their lease, something to get people value as you raise the rent.
Scott: I think that’s really, really great insight there, especially as we are kind of in this economic climate where markets are determining rents need to be raised all over the place. And so, kind of having that different approach, I can see how that can differentiate things, right?
Maurice: Yeah. I mean, and one last thing, just put an Amazon locker there, put free vending machines. Put fresh popcorn, something that people feel good about “why I’m having to pay a little bit more than I was, you know, last month.”
Scott: Absolutely. Shifting gears a bit, kind of for the investor side, there’s a potential investor out there and they’re kind of sitting on the sidelines, they’re unsure about passive investing in Multifamily real estate, what might you say to them to encourage them to maybe consider exploring it more and possibly even finding a deal and to taking the next step there?
Maurice: As a passive investor or as an active investor?
Scott: As a passive investor.
Maurice: As a passive investor. Yeah. Control. I mean, all the investors we have are certainly passive… We have a couple of JVs, but, in general, we do passive syndications. But every single one of my investors has the ability to call myself or my four partners directly. That means they have some level of influence and some level of control or input.
That’s really important. Yes, I’m in the stock market, and, yes, I own, for example, a lot of Tesla, but I can’t call the CEO of Tesla and say, “I really don’t think you should sell that product. Change your path.” Well, our investors can. We regularly get input from investors, so they have some level of insight into what’s going on a daily basis.
The other thing is exactly what I said to you at the beginning, which is, people will always need housing. Here’s my continued worry. The U.S. printed 40% of all bills in circulation in the last year, year and a half. That is insane. I have been to 100 countries over 300 times. I’m doing real estate projects right now, non-Qattro related in Cypress.
But I do business in the Turkish Lira. I do business in the British pound, and I even do some business in Lebanon as well. I have seen what currency devaluation looks like. I have seen that people place a certain value on a piece of paper and that value can shift at any given moment.
There are a lot of people who go to work, work hard every day, like myself, I was in corporate America for 25 years. We use our time, we trade it for money, and then we have this piece of paper. I encourage people to take that piece of paper and transfer it into a hard asset, especially residential real estate, because people will always place value on somewhere to live.
Always. Where we’re starting to see shift is, how are we placing value on a paper dollar? Right? It keeps losing value. And that’s how I encourage, whether it’s Multifamily real estate or other, I just like it because of the residential side of it, but hard assets where you can put your money in where it grows, where it’s not liquid, and you can pull stuff out just based on an emotion.
That’s the value of Multifamily real estate. And then the economy is a scale, the number of units, the amount of revenue, it’s just a protection against a lot of different downsides in the investing world. But that’s how I would speak to an investor about getting involved in Multifamily passively.
Scott: Absolutely. And just thinking about that, you know, the government can’t just print and all of a sudden create, you know, tons of Multifamily units. It’s just not how it works.
Maurice: That’s right.
Scott: So, I think that’s a really good point too when you kind of consider, again, the landscape that we’re currently in. And you were also talking about communication earlier, which I just think is so great. It’s a lot more than just, you know, sending out a quarterly report. It’s about kind of having those conversations. Could you, I guess, speak a bit more to just how crucial that is when an investor is maybe considering a sponsor and how Quattro Capital really approaches the communication aspect?
Maurice: Yep. I’ll give you a little bit of quick background. Twenty-five years, senior executive at a global consulting firm, 22 years in the military as Lieutenant Colonel and federal agent, and 15 years as a street cop in DC, I did all those things kind of at the same time. In general, I can relate to blue-collar, white-collar, no-collar.
I understand where people are coming from, they understand where I’m coming from. I think it’s really important for Multifamily operators or just investors in general, to recognize that for someone to create $100,000, that was an enormous amount of time, an enormous amount of time. Just because someone sends you $100,000 as a wire doesn’t mean you should negate what they did to create that.
So, our philosophy is we don’t employ virtual assistance in between us and investors, we don’t employ analysts. We want anyone who invests with us to be able to reach out to us for any reason at any time because you should know what’s going on with your money and you should have some level of impact and availability. It’s important.
People want to know what is going on with their money. And also, people want to know how their money is having impact. I have a lot of investors, we will send feel-good stories from complexes, right? We bought a complex in Tennessee and we found a handicapped person living on the second floor and there’s no elevator. You know, she was wheelchair-bound.
So, we paid for her to live in a hotel. This is when we bought it. We paid for her to live in a hotel and then we moved her to the first floor and everything all worked out. We send those stories out because we want people to feel the impact of their money, not just, “Oh, I got my average rate of return that I anted.” Right?
Maurice: People remember how you make them feel, not what you say, always, right? So, I want investors to feel they can reach out at any time. I want investors to feel that I’m always telling them the reality of what’s happening. Not everything we send out is some positive, fluffy story. Sometimes we have to say, “look, dividends are going to slow down a little bit. Here’s why. This is what’s happening.”
Communication is key for all of this. So, for a passive investor who’s looking to get on with the operating team, make sure you are comfortable with their communication style, how often they do it, and then, you know, you have access to them when you need to.
Scott: I think that’s just fantastic advice. And, again, you know, investors listening, these are the types of things, when you’re looking at a deal and looking at an operating team, you know, consider, ask those questions, ask, “How is the communication going to go, and how are you going to inform me what’s going on?” Because I think that that is so critical.
Maurice, thank you so much for joining me on the show today and really offering a lot of insight and perspective on the things going on at Quattro capital and how you guys really approach it all. And if our listeners want to learn a bit more, they want to connect, where can they do that to connect a bit with Quattro Capital?
Maurice: Yeah. Our website is The Quatro Way. Q-U-AT-T-R-O-W-A-Y, thequatroway.com. You can track me down there. And then I’m very active on LinkedIn, talking about how passive investing and passive income, in general, affects people’s lives and lifestyle. So, I’d love to connect on LinkedIn as well.
Scott: Fantastic. And we will include links to all of that in our show notes. Thanks again.
Maurice: My pleasure.