Making Money in Multifamily Real Estate Show

156 | Leveraging The Resources Of A GC To Be Competitive with Jeff Rosenfeld

July 19, 2021 Dave Morgia Season 1
Making Money in Multifamily Real Estate Show
156 | Leveraging The Resources Of A GC To Be Competitive with Jeff Rosenfeld
Show Notes Transcript Chapter Markers

Jeff's Background:

  • Executive Vice President of Adivo Contrsuction
  • Adivo is a national general contractor with over 50 years of combined construction expertise specializing in the value-add improvements of apartment communities.
  • They have completed over 100 projects over that time

In this episode we cover:

  •  04:59 - Deep value adds and what you have to look at upgrading
  •  14:12 - Highest return of your dollars
  •  18:10 - Interiors or Exteriors?
  •  21:10 - Don't force the market
  •  24:52 - What a full steam ahead project looks like
  •  29:44 - Doing (or not doing) business with people who want to cut corners
  •  36:58 - 5KQ1 - If you could only pick one trait that explains your success, what is that trait and why?
  •  37:24 - 5KQ2 - What is the most uncharacteristic thing you've done in your business and why did you do it?
  •  38:34 - 5KQ3 - Can you name any time where you felt like you were not going to end up successful? How did you overcome that fear?
  •  39:58 - 5KQ4 - Can you name a time where something in your business went perfectly and what did you do to make that a reality?
  •  41:04 - 5KQ5 - What have you been focusing on lately to improve yourself or your business?

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Intro:

Welcome to the Making Money in Multifamily show, where we discuss everything to do with multifamily real estate investing. We believe it's the best way to gain financial freedom and build lasting wealth. This is where you'll find it the best information and practices to help you succeed in your real estate business, whether you're already experienced or just starting out. Here's your host, Dave, Morgia

Dave:

Hello, listener, and welcome to the show. I'm your host, Dave Morgia. And with me today is Jeff Rosenfeld. Jeff, welcome to the show.

Jeff Rosenfeld:

Hey, Dave, thanks. And good morning to you hope everything's well on your side. Thanks for having me on the show.

Dave:

Yeah, doing great, Jeff, and appreciate you coming on. And just before we get going wanted to give the listener a little bit of an intro for you. Jeff is the executive vice president of Adivo Construction. And Adivo is a national general contractor. They have over 50 years of experience in the construction side, uncovering value add improvements, a bunch of opportunities. And over that time they've done over 100 projects. So we have plenty to talk about today, Jeff. Just with that, you want to give listeners a little bit more info about who you are what you focus on.

Jeff Rosenfeld:

Yeah, absolutely. As you said, my name is Jeff Rosenfeld. I'm one of the original founders of the company. We founded the company about eight years ago, we initially got started here in South Florida doing ground up construction of multifamily ourselves and recognize a number of years ago that the demand for asset owners looking for a good strategic partner to help them improve their property through value enhancement was needed in the marketplace. And we kind of switch gears at that point and became a redeveloper. And now our expertise is specifically in the evaluated rehabilitation renovation and oftentimes adaptive reuse of commercial assets into multifamily properties. And now everybody's definition of value add is different, there is no right or wrong way to do a value add evaluate could be a live value add, which means the property is in reasonably good condition. And I don't want to see you using vernacular but customarily asset classes are categorized by A, B, C, D, E, and F. F being, completely down. Condemned asset and A being a brand new construction out of the ground. Most typically, asset owners look kind of look for that sweet spot in that kind of C plus the B minus range where they feel that an infusion of capital can naturally increase the rent roll. And of course, if you're involved in multifamily, that adds to an increase in rent roll as a multiplier of your cap rate is going to add significant value to your assets. So regardless whether the disposition of the asset owner is to, improve the property, say 50%, and proof of concept and then retrade the asset, they're going to benefit from the bump up in basis of the 50% of the asset they improve. But above and beyond that, when they go to retrade the asset, and they see the enhanced cash flow, the value of the property will be significantly enhanced from the original purchase price they had. So there's a couple of different ways a lot of people buy assets that do light rehab, which may include paint in the unit, putting in new flooring, new plank flooring, maybe cleaning up the appliances a little bit. And then oftentimes, if it's 70, or older, vintage, and the person's really looking to get what they call a change in the renter population, because they're cognizant of the fact that with the improvements and increase in rent, the existing population is not going to be the population that occupies that asset moving forward, that oftentimes they're going to do it and enhance improvements at a property because you got to think about what you're competing against. With the dearth of inventory out there, there's only a limited amount of potential value-add properties that are available that can take a value improvement is also limited amount of space available to do ground up construction. So for ground up construction comes adjacent to one of your properties. You can do one or two things you can wait for that big sucking noise of destabilization because everybody's gonna move over to the newer asset, or you can do what we do when we evaluate an asset on behalf of a client. We go around and visit the adjacent properties, look at the upgrades and finishes they put in, and then try to marry them as best as possible to make it a competitive asset to the one that's come out of the ground, but at a negative discount to what a brand new build would cost.

Dave:

Yeah, and a lot of what you guys get into it sounds like Jeff is kind of more of these really more in depth repositioning, like, like you said, there's nothing wrong with that core plus asset that you got to add a little bit of value to but there's not a lot, or as many, as you'd say, moving pieces to that type of play. But these plays, like you mentioned, where you're completely re-tenanting a property because the delta on rents goes up 150- 200, whatever the percentage, or nominal number is, can we just kind of dive into those types of properties? And really what you got to look for? We spoke earlier before the show, too, it was a lot of it is, inventory base in the market. If there's a market for that, then you really have an opportunity to kind of pounce, but yeah, you just want to dive in for me?

Jeff Rosenfeld:

Yeah, sure. So absolutely. So when you talk about the more comprehensive value adds or renovations or repositioning, which is what we get involved with, let me take a step back and explained a little bit about our company and just some slight differentiation. So you can understand the methodology by which we approach a client and why we feel we're a good strategic partner. We're a self performing self supervising company, we're a general contractor, as opposed to a construction management company, a construction management company does if it's a good company, will do a phenomenal job in identifying operational efficiencies at the property and getting the property effectively leased up post renovation. But quite candidly, we've been doing this for many, many years, I've never had a property manager tell me how to more effectively renovate a unit, nor do I go to them and tell them how to more effectively stabilize the asset. So with that being said, we look at job every job on its own merits. So there's a couple of factors that we look at, where is the asset located? What are the adjacent property? And what are the conditions of the adjacent properties? And what is the asset owner looking to achieve? Are they looking to achieve $100 rent bump, a $250 rent bump is their disposition to hold the asset for three to five years, demonstrate proof of concept and then retrade the asset or is their intention to hold the asset in perpetuity, in which case, most cases they'll renovate the complete property because they want to capture all of that increase in rent bump and all that contribution to the value of the asset. Now, customarily, nobody holds an asset forever, there's always a price that somebody is willing to pay for an asset, but a lot of the clients we work with, understand the merit of natural appreciation, the asset so above and beyond the capital improvements that we do, ie putting in new laminate count, excuse me, new quartz countertops, new backsplashes, stainless steel appliances, plank flooring, putting in new electrical boxes if need be. If the asset is old, it may not be up to code, you may have to enhance the electrical and the plumbing systems. Oftentimes, in a situation where the strategy of the company is such that they want to pick up an asset and stabilize as I said, they'll do 50% of the property in a situation where they want to cash flow into perpetuity, they'll do 100% of the property. And now let me get to your question, what does that involve? So a lot of the product we work on is 70 and 80, vintage, walk up garden style property. When you get to those properties, they just look old and tired their 70s It looks like you're walking in. And this is no disrespect, anybody's grandmother, but it looks like you're walking into your grandmother's old apartment, wherever that may have been domiciled. So our intention is to go in and take a look at the property and upgrade the interiors to bring it into the 20th century and customarily, what a renovation of that type will include is hard plank flooring in the wet areas, including the kitchen and or the bathroom or tiling carpeting in the bedrooms, a complete repaint of the unit customarily new cabinetry, we have our own CNC shop. So we cut all our own cabinetry out of American plywood and import all our hard surfaces from Spain, Italy and Brazil. So you don't end up with a situation where you're ordering a flat pack type kitchen. And then when you assemble it, you find dead spots in the kitchen that could be usable cabinet space. So we come out and custom measure every kitchen template it and then cut it and fabricate it and then ship it by 18 rolls back to the project. So it allows the asset owner regardless of the configuration of the unit to get maximum usable space out of the kitchen and bathroom areas, and customarily when people ask me. Jeff, if I have a limited budget, or if I want to deploy capital towards one element of improvement, where am I gonna get the biggest rent bump? And, that's not really a simple answer. It's really contingent, but I can give you some generalities that we've seen in our experience that have been most profitable for the asset owners. Clearly, attacking K and B or kitchen and baths, which are probably the most to utilize room other than the time you're sleeping, is what the first thing that a tenant will potentially look at is the kitchen new. Are the appliances updated is it clean, is a unit freshly painted, and when I go into the bathroom is the bathtub or the shower still in good condition? Is it a nice new toilet bowl, does it look fresh and new. And that's what the look we try to achieve. Now, customarily, a lot of our clients want to get the maximum rent bump, and usually they look for anywhere, depending upon the market, if it's workforce housing, it could be $100 rent bump, we've been in, level five markets where the asset owner has achieved at 250, sometimes 300, sometimes $400 rent bump, above and beyond. And you can only imagine based on cap rate, what kind of contribution that will make to the value of the asset. So what I always and, and we go by this mantra, we never want to over improve a property we never want to have you deploy capital that you're not getting an ROI for. But conversely, we never want you to hold back a small amount of money in an effort to save money on the renovation and leave money on the table. And the analogy I use is that the capital improvement component of a value-add is a one time expense that you can depreciate over a period time. Cash flow goes on in perpetuity. So don't save $1000 or $15 00 to try to cut corners on your renovation, when you may be giving up $50 of additional rent bump that you collect in perpetuity. And that's kind of the example I utilize. But no, as I can indicated it early, not every type of renovation is appropriate for every type of asset. Now we work on Section 8 properties where it needs to be clean, neat and pass government standards relative to the people that occupy that. So you're not going to put in three cm quartz, there a backsplash, stainless steel appliances. And Rishi Lu lighting. Where you get to put in is probably laminate countertops, you're going to resurface the bathtub, you're going to paint the unit out, you're going to put fresh, nice clean flooring down. And it's going to be a very, very acceptable unit because the methodology there is not for rent bump the concept there is to get occupancy through the section eight owners. Now for a project that we did in Austin, for argument's sake, we did a level five project for a very large publicly traded company. I don't know if I should disclose the name or not. But I'll just leave it at that a very large publicly traded company that owned 5 billion buildings in the Austin or domain region of Austin, which is a very high end area, a brand new building came up just like I described in the beginning of the podcast. And they said, Let's as a defensive play, as the building was getting built, let's come in and do a K&B update. And that's exactly what we did. We did a comprehensive Kitchen and Bath upgrade with a high end finishes quartz. And then we redid the leasing office in clubhouse, and they recognize the rent bump that was almost $400 per dollar more than they had proform it out. So that's the kind of thing that gives us gratification because we come in as a strategic partner, Dave, we don't take an equity position, any assets. So it's particularly important to us as a company that we help the asset only not only achieve their fit and finish goals, but their financial goals as well, because we don't take an equity position in the asset, my disposition would be to work with you again, on future projects. That's not going to happen unless I exceed your expectations on the first project. So we're very client centric in the way we handle any asset. We walk the asset myself as ebp. And customarily, the president of the company himself walks every asset unit by unit, because a lot of times is a scope that's developed back that addresses all unit, but certain units have certain maladies that go below the line. So they have a list of items they can select from that allows them to not put a global scope out for all but allows them to adequately renovate the property to their expectations. Want to talk and I might not answer your question or look at you had a question there but I'm going to jump in. You asked about the different levels of renovation. We've worked on everything from a shell of a building with no sub floors, no AC, no electrical completely rebuilt out the sub floors. Put new windows reroof that and built out units. And then we work on, live value add where it may require just a replacement of flooring and a repaint, and perhaps some other amenity upgrades at the property to create enough traffic. So people understand that renovation work has been done in the asset.

Dave:

Yeah. And, Jeff, I think going back to that one question that some of your investor partners ask you, that highest return on the dollars that ultimately is the crux for for us, right as the the sponsors, is to take it from a project level and say, what's gonna make it worth it, and it sounds like your company's totally aligned: you obviously, of course, want to get paid and continue to do business with all the project owners that you work with. And to do that, you're gonna have to basically make the money they paid you worth it, right. So like you said, you want to make sure that the dollars are putting in are not excessive, and that they're being put to the best use. You kind of mentioned, KB is the big one, on a project, say you talk about this kind of $400 unit bump, what what kind of, conversations goes over with with the project owner there as far as timelines, costs, and everything like that, because it's a totally different animal than, like you said, toward the end, they're just, the light value added, which might be, a couple of grand per unit just to kind of do the new and shiny stuff. So, so how does that conversation go on? What's kind of the expectations for, project completion returns and all that?

Jeff Rosenfeld:

Sure. Great questions. So before we even get involved in talking about the construction, we try to get a general understanding of the client's business model. obviously, these people hold large portfolios, they have a specific model in place by which they renovate the unit, there's a couple ways to go about it. We have very candid and open conversations with our clients. And we say to them, hey, rather than play the cat and mouse game and us underwrite what you think is the appropriate tell us what money you have, and we'll help you deploy that in a fashion to get you the best rent bump. What it's still a somewhat hard for me to comprehend is that we're working as a strategic partner with our client, and they seem unwilling at certain times to disclose what their ultimate goals are yet to kind of extract that information out of them. The clients that really drive the best benefit from us are the ones that are most candid and most forthright with what their objectives are not only from a ramp up standpoint, but from a whole period standpoint, and from a budgetary standpoint. And if somebody tells me the budget, Dave, we're not going to underwrite it, to get to the exact budget, that's not the kind of company we are, I think people are scared by that, right? I think we're scared of that right? on their cards too soon. Yeah, and then come back with a quota of 7,999,000, we're gonna write it as effectively as possible with a concept that I laid out before, we don't want you to leave any money on the table. But clearly, we don't want you to overspend and not get an ROI. Because in either of those situations, we're not being an effective partner to you. So a lot of the work that we do, even though we're a construction company, a lot of the work we do is on the upfront in research, we research the demographics, we research the adjacent properties, we research the upgrades and finishes in those properties. We research the demographic profile of who's gonna buy there. And then if they're looking to change the renter population, then we got to kind of think futuristically, what is that new renter population going to be looking for that exists in other properties that they want to derive their tenants from. So there's a variety of factors that come in. And then the fact that we self perform and self supervise and that our crews actually live on the job site is a tremendous, tremendous benefit to the asset owner. They get maximum working, regardless of whether it's your own third party management company, or a third party management company you hire. It gives a better interface with onsite management for the purposes of switching keys, logistics, identifying which rounds are available for renovation. And it gives us the ability to keep a cadence going on. Construction is not a nobody likes having construction. So we try to do it as effectively and as quickly as possible, and then move off the asset. Now not every asset owner says Hey, listen, I want you to blow through it. Oftentimes, they say, Hey, listen, I want you to do rounds of 15. But in concert with that, I want to be able to drive traffic to my property. So what should I do in a situation like that? And they always ask the question, What do the chicken the egg? What do you do first, you renovate the interiors first, or do you upgrade the exterior facade so people understand that there's a change in ownership or a change in management? And my answer to that is you have to do both at the same time, and it doesn't have to be a complete outside renovation but an exterior repaint or rebranding of the sign some loose landscaping because you can put 15 or $20,000, a door into a unit, if you leave the exterior facade intact from the way it was previously, nobody's going to understand that improvements have been made on the inside. So we always consultation heavily recommend a blend of exterior and interior improvements. But candidly, it's up to the asset owner and the asset owner knows, I mean, they have asset managers, they have project managers. Oftentimes, they have this specific methodology by which they want all their apartments to look the same. So they'll say to us, hey, Jeff, we want gray uppers and white lowers, and we want karrakatta, three cm quartz. So in that situation, we absolutely agreed. Now, if they ask our opinion, will make recommendations and say, Hey, perhaps, you can get the same look and feel by Value Engineering and using this product that will give you the same type of, deferred maintenance benefits, but it may save you a little bit of money. So we listen to what the client says, we take that all day. And we kind of conjugate that with what the company's strategy is. And then we'll come back and underwrite the deal based on all of those inputs. And then before we take on any job, regardless of asset, class, and or location, we're going to physically fly to the asset, walk the asset scope in hand with the asset owner, and make sure that we're absolutely reading off the same playbook, not only understanding what they want the final product to look like, but make sure we're moving along at the cadence that they exactly want to move along at. Because a lot of guys want to rip the band aid off, they'll buy an asset that's highly distressed, and understand that if they, destabilize the building, empty the building out and let us come in. And in two months, we completely renovate, they understand that the new rent will offset at a loss to lease that they recognize by emptying the building out. So like I said, Every strategy is different. There's no right or wrong strategy. But you got to make sure whatever value-add strategy you have you implement correctly, and it's an alignment with what your company's strategy is. Because oftentimes, oftentimes they want to have a value add that is not in concert with with what the company's strategy is. So when somebody comes to me and says, Listen, I'm, I'm a long term holder, I want to cash for this asset in perpetuity, but I'm only going to renovate 50% of the units, then I have to say to them, well, what's the thought process there? Are you keeping some classics? Because you're not looking for a rent bump? Are you only trying to improve half of them? Are you not swapping out the renter population? So the more questions you ask the more in depth and get into understanding why they bought the asset, and what their ultimate exit strategy is, makes us more prepared to suggest to them what we believe to be the best value added program.

Dave:

And of course, it would, it would be, kind of a disservice if you were pretty much trying to propose a different project schedule, just based on your own needs versus what they actually need to get done. It's funny, you mentioned that, the project on paper could look different than what they're actually proposing they happen. Like, like that, like that situation there with a seller who only wants to turn 50. If they're going to be buying and holding long term, there's, there's no reason not to, continue to hit those rent bumps. Unless the market doesn't meet that. I suppose that's the only reason maybe they do that. But yeah,

Jeff Rosenfeld:

Yeah, and you're absolutely right that where maybethere's a rationale.. Now maybe it's a workforce housing type environment, where they recognize that regardless of the upgrades they're going to do, they're only going to get half of the people to absorb those bigger units, we have to people just don't have the financial wherewithal, and they don't want to destabilize the asset. So you got to figure out a different way you got to you got to put. And the benefit that we have is we sat on both sides of the table. We built our own properties, we manage our properties, we were asset owners. So we bring that depth of experience to the asset owner that's looking to renovate their property as opposed to a construction management company or a street construction company that essentially just takes an order and doesn't put any type of how should I say? cognitive thought process into what they're telling their claim. We just don't say okay, yeah, that's if somebody says to me, Listen, I'm going to put $30,000 a door and I'm looking for a $50 rent bump. I gotta say, Hey, hold on a minute. That's not happened. Dave, I've never had,

Dave:

I hope you don't get those conversations.

Jeff Rosenfeld:

But I'm sure you understand. The point I'm trying to make that if somebody says something, listen, no, I have $7,000 I want to put a door but I'm trying to get a $400 rent bump I've got to say to them in an effort to achieve that rent bump up. Our experience has been that you need to go with these level of improvements in order to achieve your goal. However, if you do have 7000 we can do a very nice value add for you, but you can't get this and you can't get that you can't get this and you're rent bumpmaybe just this and that may be satisfactory to them.

Dave:

And that of course, is why you talk to while you're underwriting in the process of securing a property, the general contractor, whether it's you or whoever you work with, right? You need to have that input before you just slap a number on and don't have someone with the expertise to know what you're going to get for your dollar. So yeah, that's just criminal if you're not doing that, during the process of securing a deal.

Jeff Rosenfeld:

Yeah, research department that utilizes a variety of tools, even before we go out to an asset, we look at Eagle views of the asset, we look at the unit mix the configuration, we do a half mile radius and look at every property that surrounds that particular property, as I said earlier, to determine, those As Bs and Cs what type of finishes they have inside, should we replicate those finishes in an effort to get that same kind of rent bump. So a lot of the upfront work, even though it doesn't really involve physical construction is as important as swinging the hammer is when we get to the project, if you don't have a good plan, and know how you're going to execute that you're going to get to the field, and there's going to be confusion at the field. So we have pre construction meetings with the asset owner pre construction meetings with the onsite management team. All our our employees come out fully uniform. Yes, ma'am. Yes, sir. So we have a certain decorum that we keep at the properties in an effort to make sure that the asset owners comfortable not only with the construction work we do but how we conduct ourselves on the property.

Dave:

And we're kind of getting a good, I was just gonna say we're kind of getting to that realm of the actual day one or day zero or whatever. Have you construction. You mentioned earlier that you have your, your faculty on site for the whole project, can we go into how it gets laid out? And how you guys keep on pace? And let's just I guess, say maybe we'll just go into a specific scenario, maybe it is that huge, complete turn where you guys are all hands on deck, and there's no limit to the the pace for you guys? What would that kind of look like for you guys to set up?

Jeff Rosenfeld:

Well, first, what we do is we first determine based on the size and scope of the project. So say it's a project that you determine that it's a full full renovation inside and outside, we're going to first walk the job and know exactly how many units we're going to have in rounds one and two, we're going to have conexus on site with those connects loaded with whatever materials we need to complete round one and have round two as a backup for the very reason I stated earlier. You don't want to break in the cadence. So because of the rising commodity prices, then some supply chain constraints, we want to make sure that we don't disappoint our clients. So well over order on the upfront in an effort to make sure that we have adequate materials because sometimes for refrigeration and HVAC equipment, you're looking at 60 and 90 day lead times. So we always talk to our clients about making sure they leave themselves 60 days before they want to get involved with the first unit. So once we get our context is on site. And all the materials on place on site is a project supervisor or project coordinator and a project manager that lives on site, we established an office at the property which becomes our command center for all the work done at the property. Any questions property management has or asset manager has, they don't need to call 20 people they come right to the property they can see exactly where we're at. In addition to that the Dana who is in before helping me with the technology is our VP of Marketing. So in addition to doing the construction work, we try to help the asset owner post construction with absorption. So we make up design boards of what all the new interior units look like we make up design boards or what the new Welcome Center and clubhouse looks like. We do email blasts about improvements at the property. We could help them with any kind of PR or marketing. So we're completely turnkey, from the point of which an asset owner decides Hey, I want to improve my property to the point at which they stabilize that last unit. We tried to walk in lockstep with Dave. And let me talk a little bit about I think you asked me a question earlier on and I don't know if it's still relevant, but I'm gonna answer it now. Where are we operating? So we've completed about 30 projects in Texas from Corpus Christi, all we have to Amarillo, I don't know if you can see behind me, I'm on my math textbook, or Yeah, yeah, we're starting 10 project in North Carolina, not part of a portfolio. It's an individual asset owner that sees the merit in the strength in the north and south carolina markets and bought 10 individual assets we're starting on. We're working on two comprehensive repositions in Phoenix. We're active in Cincinnati. We're active in the Midwest. We're very active in the Mid Atlantic, we just completed a $10 million job for Mitt Romney's private equity firms Sundance Bay, and did a subsequent project for them as well. So the the differentiation between us Dave and other companies is that we're 100% agnostic to location and market class. So for the companies that just have a static workforce in one particular location, they can serve as the guy in Pine Bluff, Arkansas, they can serve as the guy in Corpus Christi, Texas. And if they do so as a construction management company, they're tapping into the local labor pool, which is not going to give you the level of finish you're working with. So the guys that work on my assets in Austin that we win renovation, the Year award are the same crew that goes down to potentially Corpus Christi, so there's no diminution in the quality of work, I can give you that same quality of work, regardless of where your asset is located. And that gives a level of assurance to asset owners that are in very challenged market, I'll give you a perfect example. A very large competitor of ours, I won't mention the name that took a tremendous amount of money from a foreign country has now went into bankruptcy protection right now, they were under contract with a client or a contract that we were working in Oklahoma City, you cannot find qualified labor in Oklahoma City, if you paid $100 an hour, it just doesn't exist there. So in a situation like that, you have to find a company that has the capability to move their crews to where the asset is. So you can get that level of improvement and enhancement that you can get in downtown Austin or in, in in Louisville, Kentucky for argument's sake.

Dave:

Now, and that's an important tool for you guys to have is to point to property a wherever it is in the nation and say you see that property, we can replicate this because the same exact crew will be on site for your build. So yeah, that's a very powerful tool that you guys have. And I guess talking to some potential clients, who may be kind of wary of, price of construction, and some people are very short sighted at times and want to cut corners, and maybe, put lipstick on a pig versus really going through and doing the right things on a property. How do those conversations kind of go for you guys as far as convincing someone to do the things that they really should be doing?

Jeff Rosenfeld:

Yeah, what, like I said, there's no right or wrong way to do a value add. But and this is with all due respect to all asset owners out there in the world, a person that's going to come and do a substandard job is not going to be a client we work with I mean, if somebody is looking to cover up maladies in a property by throwing a coat of paint on or putting new carpeting down over crap, just create or a defective sub floor is not the client we want to represent. And that person is going to do a disservice to the next asset owner because they're going to misrepresent the structural integrity and the quality of the product. Now, with that being said, if there's a difference between lipstick and a pig and a light value add, but when you say that sounds like somebody is trying to do a quick flip and get a a larger return out of a limited amount of capital that they're deploying to the asset. That's not the business we're in, we're in the business of helping people improve their properties maximize the value and re trade them at a higher value than they purchased them for. So in that scenario, we don't deal with lipstick on pig clients.

Dave:

Now, and that's, I mean, obviously,

Jeff Rosenfeld:

that those guys want to work with us anyway. Because when you talk to them about when you get down to the nuts and bolts of it and ask them what their real objective is, they can't answer that battery of questions that I would ask you as an athlete. You must want a 250 unit asset, the assets in the 70s. What is your intention with the asset? Well, Jeff, I want to get a $250 rent pump. I want to hold this asset in perpetuity because I own an asset down the block. And I want to add to the portfolio. When you get a guy that's doing lipstick on a pig and he asked him what his strategy is, it's to paint it and to get somebody to pay more money than I paid for. And that's that's not the client base that we work with. We're a professional organization. We work with publicly traded companies, we work with REITs, we work with private money, but the one thing we don't vacillate is from our level of professionalism and giving advice to our clients that we feel is in the best interests of them maximizing their investment.

Dave:

Yeah, and and those types of projects, if you were to take them on would come back and each year, you'd hear that on your name, right? You'd hear stories of people saying that you did a subpar job and not that it was what you want it to do, but it was just what you were told to do. So just not taking those jobs is probably the best approach. I agree. 100% Jeff, is there anything?

Jeff Rosenfeld:

I'm sorry. Go ahead, answer your commentary and just say that multifamily is a very small, big industry, the first time you do a bad job, you're essentially telling on yourself a reputation is enormously important. So we do good work for a lot of reasons, we want to make sure the assets are going to happy. But we want to make sure that people recognize the fact that when we come to a job, they can walk away from the job completely unsupervised, and come back and find a product that exceeds their expectations. And with that being said, a lot of the owners we have a remote now the guys out in California are sick of pay in California taxes, they're buying in Texas, buying in Arizona, the buy in in Florida. So without having to have that asset owner fly out every three weeks or every month to see how the rounds are, we have a portal that was developed by our marketing department that allows them to login under a unique ID that allows them to see the progress at the project without physically visiting it. So what does that allow the asset owner to do a lot of times when they hire a construction management guy, they got to put a project manager there, they got to put somebody to take photographs. And the other problem is a construction management company hires subcontractors. So that construction management companies got to cross their fingers and pray that those subcontractor is going to show up every day. Otherwise, half of the unit's getting done and then what happens to you the asset owner, you're suffering loss to lease. So now all of a sudden, your $12,000 renovation because your assets been down for two months, is now costing you $15,000, where if you went with a qualified general contractor on the front, the unit would have been returned back to you and that $15,000 we've been adding to the value of the asset rather than been suffered as long as the lease if that makes sense to you

Dave:

know, that makes sense. It could end up being more pricey because of the hours and then to boot you're not even getting the rents because the unit's not back. So yeah, that's, that's those are those are the scary stories. And that's about the last email you want to send out to investors from my perspective is to say that the project is going sideways because we had some issues of stuff that we could have controlled from day one. So yeah, Jeff, is there anything we kind of missed on the I mean, we've kind of coached investors through the the kind of yeses and noes of what to look for when getting in bed with the GC. But is there anything we kind of missed? You just wanted to highlight before we get into the five key questions?

Jeff Rosenfeld:

Yeah, I think most of the points we touched on are the most salient the fact that we self perform, we don't serve any of our workout. The guy that's been doing my interior paint lines for units have been doing it for nine years, he cuts razor lines, I would never cross discipline him with the guy outside doing t 111, or hv AC repairs or window installation. The fact that each one of our workers is specialized in the particular skill set they have only further exemplifies the fact that the asset owner is getting an exemplary product.

Dave:

Now huge levers and huge advantage to be able to be able to tell that for every project that you get into So yeah, that's definitely a confidence booster and working with you. Yeah. So Jeff, as long as you're ready, you want to hit these five

Jeff Rosenfeld:

key questions. Yeah, but let me let me just make one other point. The other thing is that we try to keep our office, there's myself and probably eight or nine other people in our corporate office, but we have 500 workers out in the field, and never want to encumber an asset owner with enormous overhead. You see these giant companies got 50 guys out there selling 50 project managers, well, what do you think all that expense goes into it goes to the expensive project. So we try to operate leanly and effectively at the corporate office and put the money out in the field where their actions can positively affect the value of your property?

Dave:

Yeah, if you're, if you're paying admin costs indirectly, that can kind of kill you too. Right. So yeah, that's, that's

Jeff Rosenfeld:

great. And then one final point, and then you can go into your five questions. The other thing about a GM, a third party management company, third party management companies often try oftentimes tried to apply a three to 5% cost structure on top of the actual construction costs. It's absolutely duplicitous. We do everything they do. It's just a money grab. And if you're doing a five or $6 million project, the last thing you want to do is give 5% of that to your property management company who should be focusing on getting the property stabilized. So it also for the asset owners that utilize third party management companies, it allows them to mitigate additional incremental expense that those companies may charge them.

Dave:

Now that's perfect, Jeff, let's dive into these ones. So first five, key question here. If you could only pick one trait that explains your success, what is that trait and why?

Jeff Rosenfeld:

That one, trade is self performing. If I only pick one, it's self performing. The fact that we do the work ourselves that we have the qualified labor, we don't have to go outside and pick somebody up from Home Depot that I have no idea what his skill set is, I think is a significant differentiator from any other company out there performing that work.

Dave:

And then what is the most uncharacteristic thing you've done in your business and why did you do it?

Jeff Rosenfeld:

Well, you No, I think the most uncharacteristic thing we probably do, we try to help all our clients. But in a situation where the client is asking us to do something that we believe is either a life safety issue or something that is not professional in nature has something like kind of like you reference, we would just respectfully decline, we're not going to get involved in trying to Band Aid up something that needs to be completely renovated, and then be tagged as a construction company that was involved in that project, because that makes us everyone's gonna take that over and say, Hey, who's the construction company that worked on this project previously, they're not going to understand that the asset owner gave us that direction, they can say the construction company did a bad job. So I would like to say that we're very selective the same way our clients vet us, we vet our clients, we want to make sure that we're working with honest, forthright people that are doing the right thing, not only for themselves, but for their investor base as well. We work with the syndicators. So we want to make sure that not only the GP is taken care of, but the LPS are taken care of as well.

Dave:

That's all we're trying to do. So yeah, it's got it's got to be there. Right. So can you name a time where you felt like you were not going to be successful? And how did you overcome that fear?

Jeff Rosenfeld:

Yeah, what, if anybody tells you differently, where are the we're in the business of solving problems. When you get involved with the construction, you encounter problems all the times, the difference between our company and the other companies out there is that we price units and projects in their entirety. If we encounter something that's a problem, we don't go running back to the asset owner, we solve the problem and move on this spirit of a good relationship, as opposed to providing some unrealistic low price to the client, and then whacking them with change orders. And they have no ability to track what their true renovation causes. So we try to be forthright and we walk the assets so comprehensively that we try to identify all the known unknowns, what we can identify is the unknown unknowns, ie we can see through the walls. But if we do encounter a problem like that, we try to make it as simple a process for the asset owner as possible change orders, there's no benefit to anybody by time I get a change order out to the field, the field guy approves it, he gets it back to you, as he asked me, you approve it, it goes to my accounts, receivable department, they bill you, you pay me, we essentially swapped dollars, I'd much rather suck that up in the spirit of a good relationship. And you recognize the fact that we're working in your best interest and try to squeeze enough of $50 out of job.

Dave:

And I'm pretty much opposite to that one. Can you name a time where something in your business went perfectly? And what did you do to make that a reality?

Jeff Rosenfeld:

Yeah, I mean, a lot of our jobs go perfectly, and I can't think of one particular situation. Are there hiccups that make it does the job go perfectly from beginning to end? Absolutely not. But do we eliminate the hiccups. So at the end of the day, the client feels that they get a perfect outcome. Absolutely. And that's just a function of doing good research, and having a comprehensive field crew that can identify those problems and resolve the problems at the field level without calling the asset owner without calling the office. And we give our workers the autonomy and the ability out in the field, to have some latitude to think on their feet to help the asset owner retrieve what they're looking for. So there's no perfect job, if anybody tells you, they're going to come in and do a perfect job, and there's not going to be any hiccups. I would hang up that phone and one as quickly as you can. Because the first thing I tell any client I get on the phone is there is going to be issues with the construction. But the difference between us and the other company is we're going to resolve them and move on and help you get that asset off in cash flow.

Dave:

Anyone that tells you everything's gonna go exactly the plan is either delusional or lying to you. Yeah, definitely situation to be prepared for. And then last one here, Jeff, what have you been focusing on lately to improve yourself or your business?

Jeff Rosenfeld:

Yeah, well I always try to improve myself. I do podcasts I listened to, industry experts. I speak at Marcus and Millichap shows prior to COVID. When they had those, I read a tremendous amount of industry publications, just to keep myself abreast of new design trends and what's going on but what we see very prolific in the market right now. And this is a subset of the dearth of available valuated inventory. A lot of the savvy multifamily operators are now looking at suite style hotels and hotels, because they're easily convertible to workforce housing, with a lot of with not a lot of structural augmentation. So we've been getting involved In a lot of what I call adaptive reuse, and that's taking over commercial loft space, or a motel style suite style hotel and converting it into multifamily. And that's been a trend. In addition to that, we've been doing some adaptive reuse within the confines of existing properties. And what I mean by that we worked on a luxury tower in Fort Myers where they had larger size units, three twos that weren't getting adequately absorb, because they had a millennial population that couldn't afford it. So we went in split them into two ones in studios, and they got 100% absorption. So it wasn't a true value added play. It was more an occupancy play, but it satisfied the needs of increasing their cash flow.

Dave:

And that sounds more like market needs play than anything. Right, just seeing that there wasn't any units available for what was actually out there. And then Jeff, just before we sign off, you want to have a little sir know how they can reach you today in case they want to

Jeff Rosenfeld:

reach out. Yeah, absolutely. So the name of the company is Adivo construction. A website address is the name of the company www.adivoconstruction.co m. We can be reached Toll Free 8338252425 On our website, there's a chat box and hello Divo. Where if somebody does want to get on the phone, they could just put a question on the website, and either myself or one of the people in the office would respond back to them and answer the question as comprehensively as we could

Dave:

really appreciate the time. It's interesting to hear a general contractor's perspective on projects, always nice to kind of remember that there's more than one moving piece to a project and you can't just slap numbers to paper and pretend that everything's gonna be okay. You got to put some realistic expectations on things and make sure you have the right partners like yourself to be able to get the job done. And ultimately, so yeah, Jeff, really appreciate your time today. Thanks for signing on.

Jeff Rosenfeld:

Hey, Dave, it was a pleasure. Thank you so much for your time, and I hope this information was beneficial to you and your audience

Dave:

absolutely Thanks, Jeff.

Jeff Rosenfeld:

You bet. Have a good day.

Dave:

Thank you for listening. This has been the Making Money in Multifamily Podcast. If you have any questions, comments, or would just like to connect, please feel free to check out the show notes for how you can connect or visit longviewacquisitions.com

Deep value adds and what you have to look at upgrading
Highest return of your dollars
Interiors or Exteriors?
Don't force the market
What a full steam ahead project looks like
Doing (or not doing) business with people who want to cut corners
5KQ1 - If you could only pick one trait that explains your success, what is that trait and why?
5KQ2 - What is the most uncharacteristic thing you've done in your business and why did you do it?
5KQ3 - Can you name any time where you felt like you were not going to end up successful? How did you overcome that fear?
5KQ4 - Can you name a time where something in your business went perfectly and what did you do to make that a reality?
5KQ5 - What have you been focusing on lately to improve yourself or your business?