Value-Add Multifamily Investment Opportunity In Dayton, Ohio

Long term hold strategies offer powerful advantages for passive multifamily investors. Today’s episode is a replay of a live webinar featuring Kira Golden, CEO of Direct Source Wealth.

Kira shared her strategies for multifamily success and thoughts on the multifamily landscape. She also discussed a recent 315-Unit Value-Add multifamily property in Dayton, Ohio she’s operating.

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Interested In Learning More About This Opportunity?

You can visit the official Multifamily Investor Partner Page for the Bridges of Pine Creek to:

  • Learn more about Kira’s multifamily strategy;
  • Get key details about this 315-Unit multifamily project in Dayton, Ohio;
  • Request more information from the sponsor.
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Webinar Highlights

In this webinar, you’ll learn:

  • What benefits a long term hold approach to multifamily investing offers.
  • Why a contrarian investment strategy targeting the midwest (as opposed to higher growth markets) can offer notable benefits.
  • What some of the most compelling trends in multifamily real estate are currently.
  • Which areas Kira likes to target for improvement to add-value to acquired multifamily assets.
  • How long term thinking can help investors better navigate economic upheaval and market fluctuations.

Featured On This Webinar

Bridges Of Pine Creek

Bridges of Pine Creek is a 315-Unite Value-Add multifamily investment opportunity in Dayton, Ohio. Minimum investment is $200,000, and the project is targeting an IRR of 22% in addition to a 15% Cash-on-Cash Return.

Learn More About Direct Source Wealth

About The Multifamily Investor Podcast

The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses passive investment offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.

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Webinar Transcript

Jimmy: Welcome to today’s webinar. We are joined by Kira Golden of Direct Source Wealth. She has a multifamily value-add, multifamily opportunity offering in Dayton, Ohio that she’s going to walk you through. And she’s also going to give her high-level thoughts on the current state of multifamily.

She’ll be interviewed by my colleague at multifamilyinvestor.com, Scott Hawksworth. Scott, without further ado. We’re one minute past the top of the hour, I think we should begin. I’ll turn it over to you, Scott.

Scott: Awesome. Thank you, Jimmy. And really excited about this webinar. And Kira, thanks for joining us as well. So to kick things off, basically what we’re going to do is we’ll have a roughly 15-minute conversation between Kira and myself, where she’s going to really give her insights on the multifamily landscape and her strategy, and sort of her perspectives there. And then we’ll move into her presentation for the investment opportunity at the Bridges of Pine Creek in Dayton, Ohio.

And then we’ll leave some time at the end for Q&A. So I guess with that, Kira, if you’re ready to share some thoughts and some insights here.

Kira: Oh, thanks, guys. Thanks for having me.

Scott: All right. Well, let’s do it. Kira, I think to really kick it off, I love your whole perspective on multifamily and really your strategy, which has a more long-term view. And I feel like there’s a lot of folks out there that have a more short-term view when they’re approaching assets. So I guess, can you, I don’t know, explain, you know, why do you think a long-term strategy for multifamily is effective and what’s really your approach there?

Kira: Yeah. So I would say it’s not even just for multifamily. I think in general, a long-term strategy proves to be most effective across most asset classes. And, you know, really it wasn’t me being all that creative or reinventing the wheel, I looked at, you know, where the greatest amount of wealth has been created in our country, what the people who are creating wealth in our country do, and I saw really two main verticals.

There were those that got into business and would create a business, and those can have multiple exits and create some intergenerational wealth. And the second place that I saw, which is both a store of value for the people who’ve already created wealth as well as an opportunity to create more with, I would say, the least amount of effort, generally speaking, is real estate.

I went out before I really started doing deals, and even as I’ve continued to, I’ve had the privilege of interviewing a number of very wealthy, very successful long-term real estate investors in their, you know, 60s, 70s, 80s, and 90s. And one of the questions I always was, you know, is there any major regrets? And the one consistent theme across the board was always regrets about selling property.

And even I would say the same and I only have a 20-year career, but, you know, if I have regrets, it’s really the properties that when they got to a difficult point or a tough point, the pressure to relieve the pressure and sell the property, or when, you know, the market seemed like it was at the highest it would ever be, and sell, you know.

You look back later 10, 15, 20 years later, and you realize that all that moving around and buying and selling and transacting may not have really created additional value, it might have just made you kind of feel a little more proactive in the moment. But really, like, when you look over the long-term of wealth creation, long-term buy and hold, you know, I say time covers a multitude of sins, you know.

If you really have a long-term perspective, then, you know, if you buy a little higher or a little low or you spend a little more or a little less, it all sort of washes out, and in the end, those assets typically really produce very well over a long-term time period.

Scott: Right. And I think to that point, wherever the markets are going, wherever there’s economic upheaval or uncertainty, you kind of have this long-term view that just allows you to sort of push through all that, right?

Kira: Right. It allows us to stay consistent and stay active, which I think is really important. I mean, having said that, yes, you know, do we ebb and flow in terms of where we buy or how much we buy, you know? Yes, we adapt somewhat to the present market, but we really try to stay focused on the variables we can control.

And then making sure that we’re just putting in good long-term chips on the table and building a solid portfolio overall.

Scott: Absolutely. So I think kind of to that end, when you do acquire an asset and you’re looking to add value to it, I’m curious, especially with that sort of long-term perspective, what areas do you really target to achieve, you know, that growth and that additional value? What’s kind of your approach there?

Kira: Yeah. So there’s areas geographically and then there’s business areas. So I’ll answer both questions. You know, geographically, typically we’re staying… You know, I follow what I would call the Buffet method, you know, buy where others are fearful, you know, sell when others are greedy, right? My adaption to that is I avoid the markets where, you know, they seem like no brainers perhaps, like New York City or California, or, you know, very well established markets.

And we really focus on markets where we see opportunity and where perhaps we could bring a unique value perspective to that market that would allow us to take an even bigger return. So, you know, the Midwest is a big place that we’ve focused for the last 10 years, as well as Puerto Rico. Both of those markets have done pretty well for us overall.

Some, you know, learning curves and challenges, but generally, really good opportunities that are steady and have big upside and growth potential. The other area that we focus on are improvements that require less CapEx. So social media marketing, driving traffic to assets is an often overlooked value-add, you know.

You know, the blocking and tackling of improving a property through kitchens and baths, you know, that that value-add is very standard. But really focusing on optimizing the social presence and driving more traffic to assets has been a really helpful part of our strategy. And then also looking at bringing in what we call ancillary business services, additional services we can provide the tenants to increase cash flow.

So actually the property we’ll talk about today, Dayton, Ohio, was the first full rollout of our gigabit technology, our Last Mile Wireless company that we own with a group of our investors. And then on our properties, we install that technology so we can also provide the wireless internet and becomes an additional revenue stream.

Scott: Absolutely. And kind of to what you were mentioning there about sort of your marketing approach when we’re talking social, maybe branding, do you find that just helps in terms of just raising that occupancy, filling it up, getting more tenants that are ideal, that kind of thing?

Kira: Yeah. We definitely see a meaningful bump. You know, we track traffic like most, you know, deal operators. And so we’re seeing, you know, how many walk-ins we have, how many people are coming in and saw something on Google or off their phone. And, you know, it’s amazing if you go through and just drive around a neighborhood and see how many apartment complexes even just have something as basic as their Google pin, you know.

Because you have to actually do something to make that happen. You have to go online, click a button, they mail you a postcard, you have to claim, you know, your asset and explain it, link it to your website. So there’s some activity. So, you know, a lot of times it’s not done. So, you know, just doing that when somebody’s walking around and sees a property and pulls it up, if they can find it, pin it for later, send it to a friend, it tends to peak traffic.

The other thing is, I’m actually a bit… I’m probably overly active for my role in the business as CEO of the development firm. But when I can’t sleep at night, I’ll be on Facebook, you know, on Dayton Housing Facebook site sending, you know, pinging people looking for housing, “Oh, have you seen this property in Bridges of Pine Creek.” Or, you know, “Have you done this over in Indianapolis or whatnot?”

I encourage, of course, our staff to do the same, but, you know, that kind of just what I would call guerilla marketing or spot hits, we always see a spike of traffic when we’re doing those campaigns.

Scott: Right. And I think it’s such a good point to make too, because, of course, we do have a housing shortage in this country, so, you know, the supply isn’t meeting the demand. But even with that in mind, people still have choices. It’s still where they’re going to live. And so I think those kind of little extra touchpoints, that little extra, you know, maybe slightly better branding or what have you, I mean, do you find that that really can make that difference?

Kira: It makes a huge difference. Even when I used to just do my couple single-family homes. So, you know, human beings, in general, are kind of, in my opinion, sort of lazy. Tend to think that things that show up in our space are serendipitous or meant to be. But typically what shows up in our space is a result of someone who cares more and works harder getting it in front of us.

And then we’re like, “Oh, look, that’s right there. Like, let’s do it.” And so, like, you know, even with single families, I had to harp on my managers, “Take flyers and go to the mall across the street and hand out flyers.” You know, it’s amazing how much people just think, “Oh, there’s that right in front of me, I’m going to do what’s right in front of me right now.” And so we definitely see results from those kinds of efforts.

Scott: Absolutely. Okay. So taking a step back and maybe looking at the larger multifamily landscape, what are some current trends that you’re seeing that you find particularly compelling, especially as you move forward with your projects?

Kira: Yeah. So we’ll talk specifically about this project in Ohio and, in general, I’m really loving what’s happening in Ohio. I mean, north of us, there was… they did a great job, won a big contract, brought in a big employer, and we’re seeing more hospital development build-out. The mayor of Dayton is very aggressive in terms of detracting and building jobs.

But to your point, there was a pretty bad tornado a few years ago, wiped out, I think, over 10,000 dwelling units. I’m sorry. Yeah. Yeah, 10,000 dwelling units of inventory right just in our little area. And, you know, when you go look at the permits, right?

So, you know, it’s like, you can, sort of, predict the future because certain things take a certain amount of time. To build a new house, to build a new apartment building, it takes a certain amount of time. So from the moment the permit’s filed until there’s competitive inventory in the marketplace, it takes a couple of years at a minimum. So if you keep an eye on these leading indicators, you can get a sense of what’s going to be happening. And there just hasn’t been enough permits even being pulled because the cost of new build is so high.

It would be my opinion. So we’re just not seeing…not only is there not enough product now, there isn’t visibility two to five years in the future for new product. So demand’s only going to get greater. The other thing is, you know, everybody’s talking about what’s going on with interest rates, where interest rates are going to go, what they’re going to do, etc.

And we actually just had that impact project here that the proceeds that we were going to get for our construction rehab were reduced as a result of some of that economic uncertainty. So, you know, it definitely has an impact, but again, because we take a long-term perspective, you know, it’s like, okay, we keep moving forward with the things under our control, doing what we can do, and as the market moves around us, we respond and we’ll make it through those troubled waters, whatever it is, whatever it throws at us.

And so, you know, as we look at the market right now, you know, yes, interest rates may be going up, but that means pricing will probably come down, right? So, you know, that means that ultimately those things will sort of adjust themselves. So people spend a lot of time trying to figure that out exactly perfectly, but unless you have a three or a less time horizon, within five years, that kind of all washes out on it pro forma.

So, you know, I kind of encourage people, “Just stick with those fundamentals.” Is there product, are there people, can they pay rent? You know, if we’re building around that, then the rest of the noise around will sort of quiet out eventually.

Scott: Right. Do you find, too, that the sort of long-term perspective… because right now we’ve seen rent increases across the country, that are, you know, quite frankly, really significant and unsustainable, some think. Do you think that that sort of long-term view also helps you ride the wave of, “Yeah, great, rents are going up, but that’s not going to change what I’m trying to do,” when you’re approaching a project?

Kira: Absolutely. And actually, that’s a great example. So, you know, as we’re seeing rents go up really, really high, property “values” are going up, right? Because you take the NOI, you take the cap rate, and that’s the value of the property. But what we’re finding is that across the board, the debt coverage ratios that are allowed on banks are getting more conservative.

So people think, “Oh, values are going up, rates are going up, you know, this is all going to make more money.” But bankers, who really drive, at the end of the day, most of this, they’re going to be anywhere from 50% to 80% of the capital stack. They make adjustments on their end to make sure their risk is controlled. And so, again, just like looking at permits that are being pulled, I look at what the banking industry is doing in terms of how they’re underwriting deals to see where are we headed in the future.

And they become sort of the guardrails that regress everything back to the mean, which is why, again, I think a long-term perspective makes sense because as debt coverage ratios start to cap the amount of debt people can get. And there’s a property we looked at in Ohio… I mean, sorry, in Colorado, appraised it a little over 28 million, but with the debt coverage ratio restrictions, the amount of debt that could be achieved on the property was only about 65%.

So then you have to put in more equity. Equity is more expensive than debt. And your deal underwriting terms sort of become the same as they were a year ago on an asset where debt coverage ratios were higher, values were lower, you needed less equity, you had more debt, but in the end, like, the ultimate economics of the deal all sort of work out to be about the same over time.

Scott: Absolutely. And I think that’s a great place to sort of end this portion of the webinar and this discussion. And thank you, Kira, for sharing all those insights there. I want to turn it over just you to present the investment opportunity here in Dayton, Ohio.

Kira: All right. So, this is actually a perfect example. I want to touch on briefly before I jump into the specific opportunity. What we started talking about with long-term investment, I deeply understand that not everybody shares one viewpoint.

The way I look at things, my strategy is not the only strategy, in fact, it’s probably the minority of syndicators in particular. I think a lot of individual owners use a similar approach, but when we buy as partnerships or groups, this is less common. And part of navigating that is being able to match people who have a long-term perspective to be long-term and hold on to the property, and people who have a short-term perspective, we can leverage each other to make sure everybody wins.

And Bridges of Pine Creek is a perfect example of this. We started this property, this project, it’s a multi-phase, master-planned community, 315 units across 3 separate properties. And we did the first property actually back in 2015, I want to say. So we started in 2015, and over a couple-year period, went in and renovated and stabilized each one of these various phases.

And in order to facilitate that, we had three different types of investors, right? We had what I would call long-term equity, the people who share our long-term buy and hold strategy who want to buy properties. And I buy properties so our grandkids’ grandkids can own real estate and have cash flow together. People who share the idea that through refinances and value increase, we can optimize an asset that we know well and continue to pull cash out of it over a lifetime, and yet maintain that asset that we know and maintain the standard of which it’s owned and operated.

And then there are people who are more interested in a shorter duration horizon. And so we invited an A share class into the deal. The A share class has a preferred return, but no long-term economics. So the B share has a preferred return but continues to participate in the deal. The A share simply makes its return of principle back and its preferred return.

And then when the A share is refunded from the deal, they’re out. And so that, obviously, allows us to achieve a higher leverage amount for the long-term equity, and ultimately, ideally more cash flow long-term on an asset. And then there’s debt.

And so we had a partner debt tranche that was part of this project as well, to get us to this point. So now as we’re entering into the third phase, essentially each phase has an equity share class, A share, B share, and now we’re doing a C share as we’re entering into the third phase. The new C share offering will actually have the benefit of participating across all three phases. So, that’s really exciting because somebody can come in now on an asset that we own and have optimized, but, you know, provide the equity to do the third phase and yet pick up some of the value that’s created on phase one and phase two as well as offset some of the risk in a deep value renovation by having the cash flow.

So I’m going to jump in here. All of our investments are offered through share net securities. So the purpose today is really just to make an introduction to what we’re doing here, the strategy. But if you’re actually considering making an investment, that is sold by PPM and would require an additional conversation to explore if it’s a fit for both parties.

So, I’ve been doing… So, you noticed. We couldn’t find a picture of the post-COVID hair, so I’m blonde in this photo, but that is the same person. Direct Source Wealth has been a company since 2014. I’ve been in real estate since 2004.

So, just pressing on 20 years here. And we’ve done over 250 million in transactions, 15 multifamily projects. So, a fair bit of market experience. But in addition to Direct Source Wealth through my other adventures, we’ve done a number of other focused projects in, you know, single-family fix and flips, and industrial, and Airbnbs, a ton of different…private mortgage bank.

Basically, every aspect of the real estate world. But our focus here is on this multifamily. Again, it’s a 315 value-add. We’ve already completed 116 units on phase 1, 103 units on phase 2. And now we’re bringing in phase 3, which is 96 units. A couple of things that I think make this an advantage.

We didn’t touch on this in the beginning, but right now, the current inventory on real estate, a lot of it is very over insulated. And so what we wanted to do when we did this offering is create the opportunity for investors to come in at a more reasonable basis with some reduction in the risk variables for execution. What I mean by that is that we are working with the same construction crew that did project one and project two.

We’ve worked with them for a long time since 2015… 2017, we started working with them, excuse me. And we’ve prepurchased materials. Our labor contracts have all been negotiated. That has proved to be a huge asset as the cost of the supply chain continues to go up. So we have that pricing locked in.

And we will be closing the loan Friday, according to our lender, to finance the renovation portion of phase three. So phase three’s renovation budget is in place, queued up, and ready to go. So what’s nice coming into this project, you can look at the previous two phases and see what the cash flow is, what the rent is.

So when we’re anticipating the value that’s going to be created and added on phase three, it’s not very speculative, it’s really driven by appraisals and knowledge of exactly what’s going on, not just in our submarket, but within those 22 acres. So as I mentioned before, Dayton, Ohio is experiencing a huge resurgence, and the mayor is doing an amazing job of accommodating that both in investing in what they call the corridor projects.

So they’re investing in all of the major corridors into the city, of which our project runs right down the third corridor. And attracting new employers and new opportunities. We’re definitely seeing an upswell of people moving back, so to speak, to the suburbs, moving out of the big metropolitan areas, and moving into what I would call mini-metropolitan areas of which Dayton is part of.

So, you know, what’s nice about Bridges of Pine Creek, it’s those 3 properties across 22 gated acres. There’s, you know, hills, there’s beautiful bridges, there’s creeks. That’s why it’s called Bridges of Pine Creek. Great, like, little picnic spots. Very beautiful, sort of rustic, but also just a 10-minute drive right into the heart of Dayton. So, you know, we pull from people who are working in Dayton.

We also pull from the military base that’s north of us, about 30 minutes. And we’ve had an amazing range of residents at this property. So just, again, to kind of illustrate before and after. You know, when we took this over, part of our passion, our mission is to really revitalize areas that were completely destroyed.

This was a very sad story because this property, the mayor, not the current mayor, but a previous mayor in the ’70s actually lived at this property. This property was one of the premier locations to live in Ohio for a very long time. And fell into disrepair and disregard. Eventually, went through multiple foreclosures. There were five owners before us who bought this property out of foreclosure or bought a banknote and then failed to be able to stabilize it.

So I am incredibly proud of the work that this team has done, both the onsite team and the investment partners so far. And am privileged to welcome in people who are coming in now when it’s already really had its heartbeat restored. So the investors who are joining us now get the opportunity to participate in essentially just a fairly standard value-add deal.

But it’s part of making a revitalization to this area that’s really been unprecedented. Occupancy at the property was literally 0% when we purchased it, and then broke it into the 3 separate parcels, did the master plan development, and then began setting out with capital in each one of those phases. So you could kind of see again the condition before, and then, you know, these units after.

This is just the entrance. The kitchens, we actually did a… you know, we knocked down a wall, took this kind of old 1980s kitchen, opened it up, gave it a breath of fresh air. And now have these beautiful modern kitchens. You can kind of see from the angle now that pony wall where the full wall was.

And just a much more warm and inviting space. Same thing, updated. You know, you can see kind of the cheap vinyl bathrooms and all of that. And really came in and, I think, you know, brought it back to life. So again, one of the benefits of this project is coming in on the C share offer where there’s still upside in the project and yet the upside is quite verifiable based on historical achievement.

Again, I feel like that’s the time to say, past performance is not a guarantee of future results. It is however helpful data by which to anticipate the trends and the trajectories in which things are heading, and the feasibility of achieving them. So, you’ll notice across all three properties, because again, we just did phase one, and then phase two, and now we’re starting phase three.

Just last year, we were at 43% occupancy. And now, we are approaching 80% across the board where it’s 76%. And as we onboard the third property and the third phase, we’ll be able to be fully stabilized. Similarly, looking at this in terms of, instead of percentage, dollars and cents.

You know, last November we were at $32,000 in collected rent, and that has nearly doubled over the last year. And again, in addition to just what’s already happened, as we’ve talked about previously, we will be able to continue increasing rents.

And the nice thing about, again, using this longer-term buy and hold strategy is that we’re not necessarily going to be as constrained, where a buyer might be constrained in their ability to get leverage for the full value of the property. We’re able to use PACE financing as well as debt and equity to achieve a really favorable capital stack with great long-term returns.

So, your investment would be coming into a partnership. You’re going to get a K-1. We expect to be fully stabilized in the second quarter of next year. There’s a 3% asset management fee and 10% construction management fee, which is deferred and not collected until fully stabilized.

And then the class C preferred return. So class C investors are coming in, getting an 8% preferred return. Over the next few months as we stabilize, as I mentioned previously, the A share leverage, which does not participate in long-term economics, will be exited. And then the B share, which was the early long-term equity will be exited by the PACE capital that’s coming in.

And then when the whole 3 phases of the project are stabilized in Q2 2023, we anticipate doing a project-wide refinance and returning somewhere around 50%, half, 5-0, of the C share equity with that ongoing cash flow upside. So, these guys are phenomenal.

I love working with them. They make it very easy for you all. You can go right to their website, multifamilyinvestors.com/partners/bridges, and download the investment kit. You can also give me a call or text or email, and we are…this is currently open and ready to go. We’re going to be bringing in capital ideally over the next 30 days and then closing out the offering.

So, look forward to hearing from you guys, and we can open it up for any questions.

Scott: Awesome. Thank you, Kira. Really, really excited here. So we are going to be taking questions. This is the Q&A portion. And be sure to use your Q&A tool there in Zoom. And we already have some questions pouring in here.

So Kira, first off, we had Andy wondering why the property income decreased significantly from June to August 2021.

Kira: Yeah. June to August 2021. So we are in… Let me go to the slide so I can speak to it more articulately and make sure I think of the right timing there. You’re talking about from the 48 to 43 from July to August, I believe?

Scott: Yeah. June to August ’21. Yeah.

Kira: Yeah. So, we did a big push to turn the tenant demographic. Great eye, by the way. June was when we finalized and stabilized phase two. So picture this, you’ve got one property, Meadow Bridges, and we’ve got it leased up and we’re charging…

I’m going to throw out a number, but we’re charging on average $800 a month in rent. And now we just put online 103 units in phase 2. So for a while there we were having to compete with ourselves, so to speak. And so we lowered our tenant credit requirements. Like typically we take two and a half…you know, they have to have two and a half months of income, a certain credit score, etc.

We eased up on that a little bit to get people in the property, right? To get the property filled up. By June, we were filled up on our second phase and stabilized, and that meant we were able to now start turning the demographic. Now, that we don’t have more inventory to compete with, we can start increasing the standard of the tenant. What goes with that are some eviction.

Some evictions or some skips and a dip. So every time we have a jump…not every time, almost every time we have a jump on an optimized asset, it’s because we’ve made a strategic adjustment in our tenant base. We’ve taken out what I would call our bottom 20% of tenants and replaced them with a new demographic and increased the rent.

So that’s why you see that movement there, where it jumps down and then it pops back up. And then it’ll continue to pop back up as tenants turnover. We, actually, just went through that again, with the most updated financials, you’ll see that in April or May. With phase three, we did another rent increase and then increased the tenant requirement. Moved out about $12,000 of bad debt tenants and brought in a new demographic.

So we just keep…part of our buy-and-hold strategy requires that we don’t get lazy with our property. We always keep going back and looking at it like it’s a brand new asset, and how do we keep optimizing it?

Scott: Awesome. Awesome. Kira, can you go ahead and go to the last slide so folks can see your contact info there.

Kira: Oh, yes.

Scott: So we’ve got a couple of great questions here. So, “Is there a dividend schedule for LPs planned for after the refi?”

Kira: Dividend schedule for LPs planned after the refi? Yes. Let me clarify because the refi is a slippery term on a deal, a property with so many…or a project with so many properties. So we just are about to close a construction refinance. We’re going to fund on phase three the construction.

Phase two is going through a refinance soon, which will be a combination of the Freddie Mac’s stabilized loan and PACE financing. So two tranches of capital. In Q2 of 2023, when we do the full stabilized refinance, meaning project three is complete and now being refinanced, then the dividends will be sort of at their peak fully optimized level.

So the answer is, yes. If you text me or email me, I can send you that pro forma schedule. There’s one number that starts basically as soon as we have the A shares exited, and then there’s another number that’ll kick in when the renovation and that final refinance is completed.

So there’s a step function when that third property is completed.

Scott: Fantastic. Kira, a quick question, “Is the Dayton project in or qualify for an opportunity zone?” I think that’s like a yes, no.

Kira: The answer is no, it’s right on the line.

Scott: Okay. Got a couple of more here. “Could you explain the multiple classes again and, you know, how the time horizons vary across those?”

Kira: Absolutely. So I’ll just go in alphabetical order. A share is a senior preferred. Think of it like debt sitting in equity. They have a 12% preferred return, but no participation in the long-term equity of the asset.

So the A share is in the process right now of being exited. The A share helped us…you know, for their economics, they assisted us in getting from a vacant unit to where we are now. And now their piece of the puzzle is done and they’re being exited. The B share is what I would call the longest-term economic equity partner. So the B share came in as part of the early phases to stabilize the initial asset.

And the B share economics will be…the equity will be refunded through the PACE financing when phase two is completed and the Meadow phase is done. But they will continue to participate along with the C share on the long-term dividend.

And then the C share is the most recent capital coming in on a de-risk deal where we have now this, you know, sort of 0% occupied. And Lord only knows, to proved out rents, proved out occupancy, leasing, etc. The C share investor will invest their capital now.

And upon the refinance, next year we anticipate being able to pay back 50%, 5-0, half of their initial. So put in 250,000, get 125,000 back at that point. And ongoing stabilized dividends at that 8% minimum. But we actually, by pro forma, we expect to see those closer to 12% of ongoing cash flow.

It could be as high as 15%, it just depends on where we’re able to continue pushing rents to go. But I think 12% is a comfortable number to think about on that. And then that you would stay in that at that dividend for three to five years, at which point we would do another refinance to exit the remaining capital. And now you have… But now, both the B and the C share are in the investment long-term pro-rata sharing the equity distribution to infinity and beyond.

Scott: Love it. Love it. I got another question here, “How do I get a PPM?” So I can take this one. You can go to the URL that’s on the presentation deck right there. You can scan the QR code. I think the URL’s also been posted in the chat by Jimmy there.

So you can go that way. And Kira, did you have anything to add to that?

Kira: You can also call and text me. Happy to chat directly.

Scott: Awesome. Awesome. And then we have another question. I kind of like this one. “Who are the big employers in Dayton?” I think that, you know, everybody’s always wondering about sort of the job markets there when it comes to multifamily.

Kira: Yeah. So the hospital is one of the largest employers, for sure, especially in our particular submarket. There’s a couple of them. And then Wayne Wright air force base is another place we pull a lot of tenants from. Those are probably our two biggest demographics. We also have a public school right behind us.

We have a number of families that either work at, you know, teachers or whatnot at the public school that are near us. I couldn’t speak to it whether those are actually Dayton’s largest employers, to be honest, but I know our demographic and where we’re pulling from, those are our three largest by far. That makes up well over 70% of our tenant demographic. So one of the things we do as we analyze where to put our marketing dollars to draw tenants, is we put together these preferred employer programs.

And, you know, we’ll do like lunches or go handout flyers, a lot of, like, the old school marketing stuff with some of those employers in the area.

Scott: Absolutely. So let’s see. I mean, I think we’ve covered a lot of that. I’m curious just in general because we were talking about rents going up. And I’m curious how that sort of impacted this property for you, Kira? If you could kind of speak to that and what you’re seeing in Dayton.

Kira: Yeah. I mean, this actually is a great example of why buy and hold, right? So we underwrote this project. I underwrote this project in 2015, rents were between $275 and $400 a month. So the townhomes were $400 a month just…what is that?

Seven years ago. And, you know, we did a standard, I did a standard, you know, 3% rent increase, blah, blah, blah, you know, everything you plug-in on a spreadsheet. And we’ve been very blessed that it’s been significantly outperforming that. So, you know, we’re seeing rents, we’re about to broach on the townhomes over $1,000 a month.

So $400 to $1,000 a month over that time period. So we’re seeing significant rent increases. I will say though, that I still default back to best practices, you know, 3% to 4% rent increases on my pro formas because things often regress to the mean, you know. You hit a ceiling at some point and start to see, you know, either collections get affected or something.

So, you know, we’re taking them. I mean, I’m not going to look a gift horse in the mouth. We are aggressively increasing rents to market. but at the same time, I’m not necessarily pro forma-ing a $200 rent increase every 4 months, you know, or 6 months or whatnot.

Scott: Right. So last question here, you know, especially when I talk to folks and look across deals, there’s so much hype for the Sunbelt, the Southwest, all of this. And you have this great opportunity here in the Midwest, and so some people wonder, well, why isn’t the Midwest market growing as much as those other areas?

And then, Kira, why in spite of maybe growth differences, are you still so bullish on the Midwest?

Kira: Yeah. So I didn’t know what this expression meant. I find it sort of offensive. But apparently, according to most bankers, these are called the flyover states. There’s not enough reason to stop in them. I don’t love that. But, you know, I would say that there’s a little bit of a catch-22 in our business.

There’s a tendency towards what I would call groupthink. I don’t call it groupthink. Groupthink is what people call this behavior. So, you know, when we look at a market that seems to be having growth, then bankers who are very risk-averse and like to only move on what they can tangibly see and know…

And none of this is meant in a negative way, right? It’s just a description of the various puzzle pieces of what we do.

Scott: It just is. Yeah.

Kira: The bankers who tend to be pretty conservative will focus on markets like Texas or Florida or whatnot. Those are markets they’re focused on. And so that means that the capital flowing into those places is more liberal. And when capital flowing into a place is more liberal, then it also means prices tend to rise up. So it’s sort of a self-fulfilling prophecy.

What I like about the Midwest, Puerto Rico, and even, believe it or not when I was investing in my original market in Phoenix, which now I don’t do as much in anymore because it’s become more like Florida or, you know, Sunbelt, all that. But, you know, back when I was starting, I was in Phoenix. I like markets where there’s less liquidity because it creates more stability, in my estimate, right? So there’s less of a frenzy.

There’s less of a huge spike up, less of a big crash down. If you look at markets that become very favorable where liquidity is really, really, really high, those markets overinflate and they overcorrect. And again, being a long-term investor, and maybe my investor sentiment is stability. So we’re still picking up a lot of really good growth, but it’s much more consistent and stable than what I see in those other markets over, you know, let’s call it a 10-year time period.

Scott: Fantastic. And actually, Kira, we had another question come in from David Adams. “Will phase three be the same as the other two phases, layout and rehab?” So in other words, you know, plug and play. Can you speak to that?

Kira: Great question. So, yes. With the caveat that phase three doesn’t have any townhomes, so that particular unit type is not there. But the one-bedroom and two-bedrooms will be plug and play from phase two and phase one. That’s one of the major advantages of this project. You know, literally, we go to our supplier and say, “Okay, we need 10.”

And all of that just kind of execute. And that wasn’t a small feat, getting that operating that way was an investment.

Scott: Fantastic. If we don’t have any more questions, I think we might be concluding this here and putting a bow on this webinar. Kira, I wanted to thank you so much for joining us here and sharing this fantastic opportunity. And, of course, we’re going to have a replay of this on multifamilyinvestor.com across all our channels and everything.

And we’ll send it out to attendees today as well. And Kira, did you want to add anything before we break here?

Kira: First of all, I appreciate you guys hosting us and all the great questions. The one thing that I think is special about this deal… I’ve been doing real estate for a long time and, you know, every deal has its own unique reason it’s special.

They’re all special. They’re like kids. They’re all special but they have their own reasons for being special, right? And not all the reasons resonate with everyone, right? But for the right people, what will resonate on this project is not only the impact we’re making in the community, but in the current market landscape with how crazy pricing has gotten, the ability to come into a deal that is well stabilized but still has value upside and at the basis essentially.

You know, if we were to take this and go sell it, if we weren’t a long-term investor, if we were short-term and just wanted to monetize our equity and move on, we would be selling it at a much higher number than what the opportunity is. So there’s that built-in upside. And I don’t see a lot of deals that come through like that. So I would just point out that that’s one of the uniquenesses about this project that I think is an awesome opportunity.

Scott: A hundred percent. Thanks again, Kira, and thank you, everyone, for attending. And enjoy the rest of your day.

Kira: Thank you, guys.