Opportunities In Urban Real Estate, With Sonya Rocvil

Multifamily plays a critical role in urban real estate by both delivering much needed housing supply and shaping urban communities. After an exodus from some population centers in the midst of COVID-19, many are turning their attention back to cities. Meanwhile, urban real estate in Sun Belt cities continues to be in high demand.

Sonya Rocvil, Principal and Founder of Bedrock Real Estate Investors, joins the show to explore opportunities in urban real estate for passive multifamily investors.

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Episode Highlights

  • Why multifamily properties are so critical to urban real estate.
  • How multifamily investors and developers can help foster urban communities while also
  • Unique challenges facing multifamily projects in urban areas versus more suburban and rural areas.
  • Where urban real estate, and multifamily specifically are headed after many left cities in the wake of COVID-19.
  • Challenges and keys to success for investing in multifamily projects located out of state.
  • Strategic considerations for exit timelines on multifamily deals.

Featured On This Episode

Today’s Guest: Sonya Rocvil, Bedrock Real Estate Investors

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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Show Transcript

Scott: Hello, and welcome to the “Multifamily Investor Podcast.” I’m your host Scott Hawksworth. Today, we’re gonna be talking, well, Multifamily, of course. But we’re also gonna be talking about urban real estate and housing in urban areas as well. And joining me to offer her insights and her expertise is Sonya Rocvil, who is the founder and principal at Bedrock Real Estate Investors. Sonya, welcome to the show.

Sonya: Hi, Scott. Thank you so much for having me on.

Scott: Absolutely. Thank you for being here. I’m really excited to dive into a topic that I think really deserves a lot of attention, and a lot of passive multifamily investors should really understand more about urban real estate. But, you know, before diving into all of that, I have it here, you know, you have a unique background, you began your career as an auditor, and then you later moved to finance, working in finance at a Fortune 500 company. What lessons and skills did you take in during your time there that have helped you in your real estate career?

Sonya: Yeah, well, thanks for asking that question. You know, financial statement audit is tough. You’re constantly on the go. I remember sometimes walking in the office and then just the notification that you have to fly out to do an audit somewhere else the next day. But one of the things is that you’re always looking for supporting evidence for the companies that you’re reviewing. So, it really requires you to have a very methodical and very facts-based approach to how you’re evaluating information. And then that really puts you a lot in the weeds. And so, what that does for me, is it’s given me the patience to kind of stick with a lot of the granularity that often occurs with everything. You know, they say, the devil is in the details. And sometimes you need that patience to kind of weed through things. And sometimes, you know, for the people around me, they’re like, “What are you doing?” But sometimes you do have to get pretty granular to understand things. So, I think that’s one of the biggest takeaways that I have from audit.

I think, first is, you know, you do have to understand the bigger picture. But then you’re always trying to find out why something is happening. Like, why is this happening this way? This is supposed to be how the process works. Like, why didn’t it work in this case? And then that causes you to kind of go to the next level. And I think about that in terms of when we do due diligence, or when we’re bringing on a new property, or even when we have the property and we’re trying to figure out what’s happening with our operations. You always have to ask that question why to get you to the plate so that you can fix the problem. So I think that’s what audit gave me.

And then in terms of working, you know, at a larger company, looking at a Fortune 500 in finance, one of the things that’s definitely part of any large organization, successful organization is the need for processes and systems. And that is something that you get, sort of, ingrained in you as you work at a company because you understand the culture and some of the things that need to be in place to make things to execute, and it’s working as you’re working as… And especially in a finance role, you know, depending on what your company’s doing, but for this particular company, a lot of it is marketing and market-facing. And, you know, under…knowing that you have to work in lockstep with all of the other people that are part of that process. So, even though you’re sort of, like, in your own group, like, your finance group, or your marketing group, or whatever it is, you do have to work in concert with other people. And so, one of the challenges, I think, going from a such a large company to sort of, like, starting on my own is that you don’t have all of those things laid out yet.

Scott: Right, you don’t have all those processes that are, like, yep, this is how we do it.

Sonya: Right. And you don’t have all of those people to do all the things. Like, you’re the CEO, you’re the chief information officer, you’re also the CFO, you’re also chief marketing officer. So you’re doing all of those things, and then it’s not until you kind of realize, okay, this is not really sustainable. You have to start building out your team. And so, that’s one of the things I really took away from that is that definitely the team aspect of it is really so important to success, especially in real estate. And then knowing how to find those people to help fill in the areas where you need additional help, that’s really important.

Scott: I mean, I couldn’t agree more, I think those are such great points to make. And it makes sense that, you know, coming from your experiences there that you kind of realized, “Hey, the devil’s in the details,” you have to focus on the details side of things, you have to have a great team. And you have to, of course, have processes as well, whether, you know, you build them yourself or the team works on them, and then, you know, follows that, especially when you’re looking at just general deal flow and those opportunities, right?

Sonya: Right. Absolutely. You summarized it perfectly. But then with that, because you’re smaller, you have more flexibility. So that’s a good thing because you can be a little bit more nimble, you don’t have to get approvals from 10 different people to decide to move forward. You can make that decision on a more…you know, on a flatter basis, which is great. But that’s even why you kind of need the processes, even more, to keep you focused.

Scott: 100%. You know, I’ve been an entrepreneur for well over a decade now, and I’ve had a lot of opportunities to, you know, maybe go into large organizations. And one of the things that has held me back from making that kind of choice careerwise is realizing I do like to have the flexibility, and go in a direction, and have all of that, right? So, that’s great. I wanna shift gears a little bit and talk about, you know, urban real estate and urban housing. You are the treasurer of the Council of Urban Real Estate. Can you speak to multifamily’s role in urban real estate and why it’s so critical?

Sonya: Yes, yeah. So just a little bit of background on CURE because it’s a not-for-profit organization in New York, and it’s focused on diversity in the commercial real estate industry. And, you know, some of the things that we’re doing is just pulling in people from various aspects of commercial real estate overall. But, of course, in cities, multifamily is such an important thing because, especially in New York, you have such a high concentration of people that are living in the same place. And so, it makes you really have to consider, how do you really accommodate all of these people in such dense pockets, because also it’s their pockets of density. It’s not all across the city that’s extremely dense. There’re certain areas where there’s more building than, you know, in other areas, like, there’s zoning that’s kind of protective of certain areas in the city. So, you can have a certain type of housing stock there, but you may not have the large, you know, hundreds units-type properties in those same areas.

So, it’s really important to…you know, on so many levels, you’re thinking about, like, zoning, you’re thinking about infrastructure as well because some of the things is New York City is very transportation-focused, public transportation-focused. And so, once you have people that are just concentrated on, like, two particular subway stops, then you wonder, like, okay, are there enough…? Is the platform gonna can actually be able to hold all these people? In rush hour, do we have enough trains to manage, like, the higher concentration of folks that are living in the areas? You know, just even, like, do we have the electricity, water, all of those things that were built based on a certain level of density? Are we keeping up with that? And those are some of the questions that we’re always thinking about. And also, you know, in terms of development, too, planning development, are there enough green spaces because you have so many people, but you really do need to have those outlets where it’s recreational space? And, you know, we saw that during COVID, and people left the city as a result of that.

Scott: Absolutely. We’ll speak to a bit of that in a bit here. But I think you make some great points about when you look at urban real estate and thinking a lot larger than just, okay, we need the housing, but what is the area around it? Where are the green spaces, the public transit? You know, I’ve been to New York a number of times, of course, Central Park is, you know, the beacon there of green space in New York. So I think that shows you the importance of it. And then even here in Chicago, things are a little more spread out. We have alleys and we have lots of green space here. And I think that is something to really keep in mind. And also when you’re talking about multifamily, there’s this idea of community. I’ve interviewed so many folks on this show, and developers when they are trying to, you know, build a place where folks want to live, and they can be in a community. And you’ve spoken on multifamily’s role in having…in fostering diverse communities. And especially when we’re talking urban real estate, I think that just goes, you know, without saying that the diverse communities are critical. Can you, I guess, speak to that role that multifamily has, because especially on the show as well, we talk about doing well by doing good, and how, you know, if you develop multifamily properties, you can foster, yes, community and diverse communities. So can you speak a bit to, I guess, multifamily’s role in that?

Sonya: Yes, yeah. So, I mean, just the fact that you have so many people living together in so many different…it really lends itself to diversity, because you’re gonna have people from different backgrounds, and income levels, and family situations that, you know, really provide different perspectives. And I think one of the things that makes New York and neighborhoods, I should say, you know, so unique are really the people that live there. You know, a lot of times, it’s like, you wanna live in that neighborhood because of, you know, just the fabric that they’ve already created a fabric for that community. And sometimes some of those people that are the fabric, they are not owners in the area. So they are more subject to higher prices and having to move and leave. And I think these are some of the biggest challenges that, you know, investors and developers face when they come into new areas, because all the time there may be…there are changes needed, you know, bringing in those new condos or those new buildings. You’re gonna get…you’re erasing sometimes some of that initial fabric that was there, and the people who built that community.

But, you know, one of the things I was mentioning earlier is just that, you know, a lot of times, like, investors and developers, they’re building in areas that give them the permission to be able to build there. And so, that means that, like I was saying, you just get this high concentration in certain areas, and then it does end up forcing people out. So, you know, how do you provide housing that is inclusive of the people that are in the area and provide them, you know, clean, newer places to live, but at the same time, doesn’t remove everybody that’s in there, doesn’t remove, like, the fabric of those societies? And I think that’s one of the challenges that’s facing. And I know that affordable housing developments, you know, they look to try to do that because they’re providing some of the housing at lower costs. And especially in cities like New York, you know, you’re seeing sometimes that incomes are not rising at the same level as rents are. And so, you have that huge gap and disconnect. And it’s really important, I think, for private and public partnerships to work together to solve it because I don’t think either can do it on their own.

Scott: Right. And, I guess, speaking to that, you know, if there’s developers out there or folks, you know, looking to invest in multifamily projects, let’s say in a New York City, what are the things maybe that they can do? Okay, they maybe partner with the public, but if they’re, you know, going in and they’re doing renos, is it the kind of thing where it’s as simple as, you know what, maybe not the granite countertops, maybe something, you know, a little less expensive so we can then not have to almost charge those higher premiums as a result. Is it that kind of thing? Is it, okay, we’ll section off certain, you know, units where, okay, we’re gonna really try to make it so folks from many different income levels can afford to be in this building? I guess, could you speak to a bit of some of the, where the rubber meets the road, so to speak?

Sonya: Yeah. And those are all really great points. And sometimes people do that when they’re creating these new developments. They’ll look at the units and say, “Okay, maybe we can have 10% of the units be for people of a certain income level.” And then, you know, with that, that means that this will be what the rent would be for those people if we’re looking at affordability and what makes sense for them, so they’re not spending 50% or 60% of their take-home pay or their salary on housing, because that’s not…you know, it’s not sustainable because there are other things that you have to buy. Sometimes it’s also the design of the buildings. And, you know, are there ways to make it more energy-efficient in some places so that maybe electricity bills are not as high? Maybe there are other things that within the operations of the property itself, or the appliances that you have, so that we’re not…you know, people’s money, where they have to divert their money is less, you know, when it comes to, like, their home, and that they don’t have to spend extra money on those.

And so, I think those are, you know, some of the things that people can do and developers could do. And I think it’s also understanding also your resident base, and understanding, like, to your point about, you know, what kind of appliances do I really need in here? Or, you know, we do this all the time when we’re, you know, investing in our properties that are actually outside of New York, but, you know, what is the level of upgrade that you need to do? Are you over-improving the property for the people that live there, because you’re gonna be very happy with still high-quality things that may not be as expensive? So, you know, those are some of the trade-offs that I think you can factor in, but at the same time, you know, prices have gone up and there’s really high inflation right now with materials and labor. So, there is the reality of the rising prices and costs.

Scott: Right, exactly. And I think, kind of navigating that, you know, as long as you sort of have that eye on, “Hey, here’s our goal. We wanna maybe preserve some affordability. We want to, you know, have a diverse community there.” I think that’s where you sort of can navigate some of those challenges, as long as your eye’s on the ball, so to speak, right?

Sonya: Yeah, yeah. Sure.

Scott: Now, you mentioned some properties that are out of state and you’ve spoken before on, you know, out-of-state multifamily investing. Could you speak to maybe some of the challenges and keys to success, because there’s a lot of folks who, you know, they are looking at deals and opportunities in states they’ve never been to? So what are maybe some of the challenges and keys there to getting it right?

Sonya: Yeah, yeah. So I would say, you know, one of the things that I knew living in New York, that it was gonna be a challenge for me to invest in New York, there are just higher barriers of entry, the pricing, the, you know, favorability less towards landlords, and sometimes it’s warranted, I have to say, but sometimes it can be very onerous on, you know, smaller groups, especially, and you really need those deeper pockets. So, for me, I just thought that it would be great to look at other markets where there was more return. So, one of the things that you have to do for that, though, is you really have to have a strong property management team, that’s gonna be your face every day, you know, with your resident base. They’re the people who you’re relying on a lot of their operations to ensure that you are gonna be able to provide the housing that you need for the individuals in your community and then that you’ll also be able to collect the rent and to get the income for providing those services. So, that is so critical. And it’s even better if you have other touchpoints, other people that you know within the market. Because one of the things that really came to light, particularly, with COVID, being here in New York, having our properties in Georgia, there were travel challenges. We couldn’t just go there.

Scott: Right. So you had challenges just getting down there.

Sonya: Getting down there. But what was very fortunate for us is that we have people that live in the market that were very close to that, could go by and just, you know, double check to make sure that things are going on okay or just to do a drive-by, make sure the property still looks good, some of the things that we would have done anyway, you know, during our trips down there to see the property. And so, though, that is very important to you because you do have to have that, some boots-on-the-ground perspective. And you can build that up over time. So let’s say you don’t know anybody, you’re going into a new market, you don’t know anyone, it’s just gonna take you a longer time to really have that grasp. You have to go to the market though. You have to see what’s happening in the market and you have to understand, you know, the context of that particular property that you’re looking and the city overall. That’s really important. And then you build those relationships over time.

Scott: Right. And then that makes, you know, the next deal, deal number two or three much easier because you’ve already established those relationships. And you yourself, I would think that over time you start to learn that market more yourself as well.

Sonya: Yeah, absolutely, absolutely. But, you know, it’s hard for people, especially if you’re looking at, you know, or you feel like, I can’t touch it, I can’t go and just see what’s happening. And that is a challenge. That’s the biggest challenge that you feel that you don’t have, you know, the direct control, but there are other things that you can do that you can work out with your property manager, and having weekly meetings, and, you know, they can send you pictures of how things look, and then, again, going to the market visiting and establishing your own context so that you can have other people there in the market that can help you.

Scott: Absolutely. You were talking a bit ago about the larger economic landscape we’re seeing, we’ve got inflation, we’ve got supply chain challenges, material costs going up. You know, now we have interest rates going up as well, kind of trying to combat inflation. What’s the impact you have seen on multifamily, especially when we talk about urban real estate and urban areas?

Sonya: Yeah, so, I mean, with the overall, the higher costs, I mean, what you’re seeing is definitely when you have turn or turnover, there’s definitely just higher costs to renovate apartments to get your apartments ready for the next resident. And with that, that, you know, the challenges is, are your rents in line with the costs that it takes to maintain and manage the property? And so, you know, making sure that you are in a place where you can attract the resident base that you need to be able to provide those services. So that’s really important. And when we talk about, it’s even further highlighted because, you know, you have to feel that you’re in a place where you’ll be able to get the residents who can afford the properties that you’re…and the units that you’re selling…that you’re renting to them. So I think that’s a really important thing.

And just in terms of the, you know, overall inflation and, you know, rising interest rates, I think it also lends itself to a shift in the environment. I know last year was very so competitive in some of the markets that we were in, where you had, like, you know, 20, 30 people bidding on deals. That was such a challenge to deal with it. But because of the lower interest rates, I guess, they could kind of make some of the deals make sense for us. A lot of them still did not make any sense. And, you know, there could be, like, a little bit of forgiveness with that, but not too much, actually. But now, with the higher interest rates, it’s not the same environment. And I think right now, there is definitely, like, this delta between, you know, sellers, who saw properties being sold eight months ago, you know, like…

Scott: Right. And they’re like, this is the price.

Sonya: Yeah, this is the price and it’s, like, this is not the price anymore because some things have changed. And so, you know, you’re buying the property at a higher amount, and you, as a result, have to have the income to support that newer price that you’re purchasing at. And if you have now debt service that’s, like, 200 basis points higher, like, it’s not…it doesn’t work, it just doesn’t work. And I think, you know, with that, there’s some people who kind of jumped into multifamily because there was some opportunities there last year. I think you may be seeing some of those people kind of pull back a little bit because they may be going back to the different asset classes that they were in previously. I think that you’re seeing that, you know, people are just feeling like, okay, you don’t have the low-interest rates anymore, so I’m not gonna play in this game, so they kind of shifted out.

Scott. Right, right. Cash up the chips there.

Sonya: Right, right. And then also, you know, then it kind of opens the opportunity, potentially, for people to be really creative in how they’re setting up their financing with deals. And I think that’s some of the uniqueness in what’s happening now, or at least this part of the cycle, that’s what’s happening now, you know, and trying to narrow that gap. Some sellers are okay, you know, they’re kind of getting there. But it’s…that’s the biggest thing right now that there’s that delta because we’re not in the same environment that we were 12 months ago, or even 10 months ago.

Scott: Right, right. And really getting folks to realize it is not the same environment. But then I would say, yeah, challenge does create opportunity. And that’s where, you know, maybe folks where there was just, you know, so much cap rate compression going on and folks just saying, “Okay, we’re just gonna pay it.” Now maybe the folks that have stuck it out and they’re still kind of looking through deals, there can be opportunities if they keep looking, right?

Sonya: Absolutely agree. Absolutely agree. So, I feel like now is the time to keep looking at more deals, keep, you know, looking at it, because then you’ll be able to actually see what’s happening in the market. You’re not gonna know what’s happening unless you’re actually in it and you can see the price changes, you can see, you know, some of the creative things that are happening. It’s such a game, real estate, that you gotta be… I guess, it’s like the lotto, right? You gotta be in it to win it. You have to be playing in order to get the benefits of it. So, I’d say keep looking at deals.

Scott: Absolutely. We’re talking about, you know, urban real estate. You mentioned it closer to the top, you talked about COVID’s impact. And COVID’s impact on cities was pretty significant. And I speak from what I saw here in Chicago, a lot of cities lost a lot of people, there was a lot of migration out. And I think some of that has returned. But depending on the market, we still have seen, you know, maybe some cities trying to recover a bit in terms of their populations and the folks that wanna live there. I guess, what’s your sense of how recovery has gone? Are people returning? Will it continue the other way in terms of people saying, “Ah, I’m gonna move out of these urban areas”? And what might multifamily’s role be within that?

Sonya: Yeah, I mean, such a great question. I think what…some of the things that we’re seeing is, you know, there were some people who were probably gonna be leaving the cities anyway. So what COVID did was that just helped to exacerbate that. That just made them…

Scott: It just accelerated the timeline.

Sonya: Yeah, absolutely. Because they were planning on leaving, the families, they wanted more space. You know, whatever their situation was, COVID just kind of pushed them further to that. So, that happened. I think what also happened was, you know, with a lot of the entertainment centers of particularly New York, just being shut down. I mean, so much…

Scott: Right, Broadway.

Sonya: …of the appeal… Yeah, Broadway, just going to, like, bars, and restaurants, and just being able to have that social interaction, because that’s so much a part of what New York is, just having that ability to being able…

Scott: That’s one of the reasons you wanna live in New York.

Sonya: Yeah, that access to all of these different things. And so, when that was gone, people also left, especially people who came from out of state, they’re like, “Why am I paying, again, $5,000 to, like, not be able to have access to the things I want to do to work from home?” You know. So that was also a group that left, and I think that we definitely saw that. I remember seeing, I perfectly just think a lot of moving trucks, like more than usual, you know, over those past two years. And then there were some rent risk concessions that did come. So there were apartment, brand new developments that, you know, people were getting some good rates at that time.

But then it was just as this was, like, 2020. But then things started shifting back in 2021 with being able to build out restaurants. Like, so some of the sidewalks have been built out now in the city. It’s really amazing what some of the restaurants have done to kind of create that outdoor space, and in some cases, double, you know, their footprint from what they had inside to, like, being able to build that outside and having that restaurant, having the restaurants have that space on sidewalks has really helped that industry quite a lot. And you’re seeing now, you know, people coming back, tourists coming back. I saw so many tour buses a couple of days ago when I was actually in Manhattan. And, you know, that is coming back. So I think depending on the city, I think, it’s so market-specific. But I think really depending on the city, I think that some cities will have that appeal to keep, like, pulling people back in. And I think you will see some migration back into the city. And, you know, people come here for, like…to meet other people, to experience what it’s like to live in New York. And I feel like some of those things, they’ll completely go away and you’ll get some return back. And also rents have kind of gone back up too in relation to that.

Scott: Right. Right. And I think that does sort of make the point in the sense of, well, rents are going back up because that demand is also returning. And folks are coming back into the cities, of course, again, depending on the market. But you are seeing that. And kind of, to your point, you know, Chicago here, you know, I’ve walked around in the city and you’re just seeing a lot more of that returning, a lot more people going to the restaurants, the tourisms coming back, all of this. So, I think that that does speak to, you know, a positive outlook on multifamily in urban areas from the sort of investment standpoint, right?

Sonya: I definitely agree with you. I think, you know, the cities have that magnetism and there is that demand still that’s there. And, you know, people really… I know that I’m not only speaking for myself, but I know that people really like convenience. You know, that’s one of the things that I find very appealing of where I live, just being able to just jump on the subway or, you know, walk across to the outside of the park, or quickly move and get this or that and not have to drive all the time to get somewhere. And those are just, you know, lifestyle conveniences that I think other cities are picking up on, too, and trying to be more expansive and creating those lower commute type situations and planning.

Scott: What are some of the maybe unique challenges that multifamily projects and deals face when they’re in an urban area versus a more suburban or rural area that certainly investors should be aware of?

Sonya: Yeah, I mean, I think when you’re in more of the urban areas, I think there are a couple of things in there. And again, this is just so…it’s very specific on the market. So I would, you know, definitely urge people to look and see, you know, their own specific markets. But one of the things that you have in, like, more dense or areas is that you just have less free space. You’d have less space, right? So, when you’re thinking about, you know, people having to shift into working from home and wanting to work from home, but then your home is, you know, 400 square feet, it’s tough to stay in that space for five days a week, and the weekends, and all day in there. So, when smaller footprint, smaller-size properties, which is very common, and not all apartments in New York are 400 square feet. You have some very, very large apartments. But you have a number of them that are definitely compared to other areas and definitely compared to their suburban counterparts or smaller footprints. And so, you know, I think that’s one of the challenges, just the space.

And then with that, you may have, you know, people that move quite frequently. So, because of that, and you have to factor that as an operator, that you’re gonna have higher turn costs. Because if you have a space where you can have a limited number of people in that space, then that means if I expand my family in any way, I can’t live there anymore. So, I have to move, unless I have other apartments within the complex that have more space, I’ll have to look for someplace else to live because my family situation has changed and, or my needs have changed and I need more space. I mean, those are some of the things if you’re in dense areas that you have to take into consideration. Whereas if you’re in more suburban areas, you definitely have…hopefully, you do have some of that space accommodation. You may have properties that are located also closer to parks or being able to have, like, dog runs, or things like that as well, like, on the grounds that are actual grass. Because still we have dog runs too in the city, but they’re different. They’re not as…

Scott: They’re a little different, yeah.

Sonya: Yeah, a little different. Some of them are self-cleaning, like, you know, spaces, which can be helpful, but it’s a different dynamic. But I also feel that some of the appeal in the urban areas and in the cities is really accessibility to transit. And, you know, I have to say though, for COVID, transit took a hit because nobody wanted to be in a subway at all. But that too has come back, and I feel that we’re, just from an observer, not with actual data from MTA or anything, but, you know, it feels like people are coming back a whole lot more than, you know…

Scott: I think so.

Sonya: …closer to pre-pandemic.

Scott: Yeah. Actually, I was just reading an article here about the CTA, Chicago’s public transit, and the numbers, they are not completely back, but they are close to pre-pandemic numbers in terms of ridership. I think it was focused on weekends. So, clearly, there is that return that we’re seeing. Now, I wanna shift because I feel like we haven’t talked that much about Bedrock and all the great things you guys are doing. I noticed as I was looking through your properties that you had a number of properties that you sold, and it was…looked 2021. Could you speak a bit to sort of the impetus on that, the sort of strategy there, and what, I guess, was going on in that environment?

Sonya: Yes. Yeah. So, for one of our properties, the largest that we had, we had in Georgia at that time, we had acquired it in 2019, right at the end of…sorry, 2018, right at the end of 2018. So during 2019, we were doing some of the larger projects like value-add projects on the exteriors of the property to get it ready because our whole business strategy was that we were gonna do some renovations that we thought were sustainable for our market. And we would have an opportunity to improve this complex and building and create some spaces that we thought would be great for residents. So, we were ready to pull the trigger on that, I would say probably the beginning of 2020, just before the pandemic.

And so, our strategy was going to be to increase, you know, do these larger value-add deals that would then…like, larger value-add updates to increase the rent. And in that environment, with the uncertainty of collections, we were still in a workforce area, we just didn’t think that that was the best strategy timing-wise to execute for that property. So, what we ended up doing was we really focused on just the operations of the property, doing updates, but not to the level that we thought that we were going to do before. And as a result, we weren’t going to be able to get or charge the rent that we were planning on charging in our business plan. So, you know, with a lot of thought to this, you know, we were thinking about the execution, our business plan, when would we be able to do that? And we had lost some time because of the fact that we were not executing in the way that we had planned on doing at the very beginning.

So, it was really a thought of, okay, we do have some runway left in the loan that could be assumed. Assuming a loan at that time was actually really good because you didn’t have to have those large reserves because you were taking the loan in place. And so, we felt that we had a unique period where, you know, another operator could still have a good amount of upside to execute on a plan like this. And then for us, we thought we’d be better able to deploy that capital in other places. So, it was really because we thought, you know, the execution of our business plan was gonna be delayed at that point. And for our investors, it probably…there were better ways for them to get better returns for their money. So that’s why we decided to sell that property. And then we had another property that was about two hours away from there. And since we were in the larger market with the larger property, we were also just coming out of a heavy value-add deal there where there was bridge financing. And we were just at the point where we had to make a decision, you know, we could keep it and refinance it or we could sell. And since we were already gonna be exiting one property, it really made sense that probably, you know, for us to exit both of them because the other property was further away, was further outside of the main city.

So, those were some of the things that nick. And then with that, you know, it was just a good timing overall because there was still a demand, strong demand for multifamily. So it was a few things that kind of were not exactly how we expected the business plan to execute, but then at the same time lined up well with what was happening in the external environment. And I think that’s, like, one of the important things with having that flexibility in your plan to make shifts. When you see that things are shifting, you need to be able to move with those shifts. And I think that, you know, I’m really happy that we were able to do that on behalf of our investors for that.

Scott: Absolutely. I mean, again, that flexibility aspect, it’s something I’ve heard a number of folks on this show talk about and really lean into it because you can go in and you have an idea of what your business plan is, what your strategy is, but if the environment shifts, you need to be able to shift with it and do what’s best for your investors, right?

Sonya: Yeah, absolutely. Absolutely. And that’s something that we’re constantly looking at. And then that’s why sometimes we’ve sold much faster than we thought we did because we were able to get the returns that we were projecting, you know, years down the line. So, you know, while sometimes it’s an asset, like, “Wow, if we still had that today, what would we, you know, be able to…?” But, you know, in this business, especially when you’re doing syndications, you’re looking to really maximize return for your investors. So that’s, you know, you have to think about what’s happening now and are you making the best decision based on what’s in front of you now.

Scott: I wanna talk about markets really quick here because, you know, you have properties both current and former that have been, you know, across the Sunbelt. And then there’s two areas here, it was, yeah, Birmingham and Atlanta, so there was Alabama and Georgia. What do you like about Birmingham and Atlanta from a multi-family perspective?

Sonya: Yeah, so we entered the Atlanta market a few years ago, and more recently, it actually ended last year, the Birmingham market. But some of the things that really drove me to Atlanta were what we were seeing in terms of population growth, in terms of job growth, and job centers, the expansion of the airport in the city. Those are things when you see cities investing in themselves and investing in their own infrastructure, these are things that I think are very positive signs because they’re investing for what they believe to be new growth, and, you know, they have skin in the game for that as well. So, I really like to see that happening in cities. And so, for me, when I was looking and seeing some of the competition that we had in Atlanta, you know, it did have me take a step back and just think about, you know, what are other surrounding markets that could also be viable as well that don’t have the spotlight on them as much?

Scott: Right, not the same spotlight that Atlanta might have, yeah.

Sonya: Yes, yes. And so, while Birmingham is not the same good at all as Atlanta, there were some really positive things that I saw that were happening. So first of all, last year, I found out that Birmingham was going to be hosting the world games. And I didn’t know what the world games were, but I soon found out they actually just ended earlier this July. And it was really in hosting, like, some type of…it’s almost like the sports that are not officially now in the Olympics but are looking to be in the Olympics.

Scott: Right. It’s kind of, like, the hopeful.

Sonya: Yeah. Yeah. So it’s still brought an international audience to the Birmingham market, which, you know, they had just recently done a lot of investment in some of their stadiums and they’ve been able to host this fantastic showing to the city. So I thought that was something that was impressive. The other thing that I saw, you know, was just from an economic perspective, the University of Birmingham in Alabama, so the University of Alabama Birmingham was actually…you know, people were talking about this a lot and I was like, “Oh, is it just the university?” But it’s really not just the university, it’s the research centers and it’s the heavy focus on medical research that’s concentrated there. And you know, the strength of their…that’s one of the main centers of the children’s hospital, that’s like the center, one of the key centers of the Southeast in Birmingham.

You know, those were things that I found to be very attractive in addition to some of the financial institutions that are there and some of the other companies that had recently located. Shipt has actually relocated their headquarters to there. And then when I’ve gone to visit, all the visits that I’ve gone to, I’ve just seen so much improvement and investment in the city. And one of the things I’ll just tell you from my recent trip was in preparation for the games, they had really transformed the underpasses in the city to make these phenomenal bright light places. Because coming from others, well, most places underpasses, under the superhighways, not attractive.

Scott: Yeah. Not so that you wanna, like, hang out.

Sonya: Very scary places, but they’ve transformed it into, like, parks, walking areas, there’s like a skateboard area there, really, really bright lights. And so, it makes it very family-friendly, very visitor-friendly. And I thought that was very, very, like, very thoughtful forward thinking. So I’m excited about the city.

Scott: Absolutely. And I think that’s such a…you’ve done a great job there of just really breaking down the kinds of considerations that I think any passive investor, anyone interested in multifamily should have when they are looking at markets. You know, are there specific events? You know, is there investment from the public into the city itself? You know, what are the regulators and the government decision-makers doing there to really invest in that? And I think then it all feeds into itself and makes it an attractive spot for multifamily deals, right?

Sonya: Yeah, absolutely. Absolutely. Yeah. Those are some of the things that we look at all the time in cities.

Scott: As we wind down here, I have this question I’ve been asking, you know, later guests that I’ve had. And what is the best piece of advice you’ve ever received for success in real estate and from whom?

Sonya: So, when I think about that, I think I’d have to say that there are actually two that I would share, and for two different mentors, but both within real estate. And the first one is, you know, you have to have a strategy. Like, you have to know when you’re getting in and then how you’re gonna get out. What are your exit triggers? Like, understanding that is very important to your property as well. Just not to saying, “Okay, I’m just gonna buy this property.” But just really having a thoughtful strategy. And then with that, what I’ve learned is that you also have to be flexible with that strategy because things in your external environment can change.

Scott: Right. As we were discussing earlier.

Sonya: Yes. Yeah. But it’s so important to have that in the beginning because then you know, because we had that strategy and we knew that things were not, like, changing, the things were changing in the environment, we knew that that was gonna be a challenge in executing it. And so, then we had to make that pivot. So, you know, we were able to make that shift. And then the other one is also from one of my commercial real estate mentors and, like, you know, multifamily mentor, the first one I had. And, you know, his comment was, sometimes the best deals are the ones that you don’t do. So, it’s like, you know, yes, it’s important to kind of hang in there. There’s no such thing as like an easy deal. Like, “Oh, yeah, we were just able to buy it. No problems. There were no hiccups.” There’s always gonna be a challenge. There’s always gonna be something.

But then sometimes you just have to, like, use the spidey senses. And I could think, okay, does this really make sense or am I trying to force something to work that doesn’t work? And, you know, that was, like, you know, we’ve walked away from deals where we knew we were moving forward with, we just knew it was gonna all work out, and then we got some information back from due diligence and we were, like, this doesn’t make any sense for our investors and we can’t take this risk. And so, you know, that’s part of the business too. And, you know, sometimes you come out of pocket for that, but that’s part of the business.

Scott: There’s a great power in being able to say no.

Sonya: Yeah, there it is, there it is.

Scott: Exactly. Sonya, thank you so much for joining me on the show today, sharing your perspective on multi-family, urban real estate, and all the exciting things going on at Bedrock Real Estate Investors. And for folks who want to connect, find out more, maybe be in touch on what your latest deals might be, where can they do that? Where should they go to connect with you?

Sonya: Well, thanks, Scott. You know, you can go to my website, bedrockreinvestors.com, and sign up for my newsletter, and then that will keep you informed. You can also reach out to me on LinkedIn, but please reference this podcast so I know that you heard me speak here, so I would appreciate that.

Scott: Absolutely. And we will, of course, have links to all of that on our show notes on multifamilyinvestor.com. Thanks again.

Sonya: Thank you.