FIRST PERSON: Resource’s Alan Feldman on Multifamily’s Enduring Value
May 25, 2018 |Beth Glavosek | Blue Vault
|Alan F. Feldman serves as Chief Executive Officer of Resource and for its sponsored REITs, as well as CEO and Trustee for its Liquid Alternative Funds. Mr. Feldman joined Resource in 2002 and has over 25 years of real estate investment experience.
Prior to joining Resource, Mr. Feldman served as Vice President at Lazard, a global investment banking firm specializing in real estate advisory work. Previously, he served as an executive at the Pennsylvania Real Estate Investment Trust. Mr. Feldman began his real estate investment career as Director at Strouse, Greenberg & Co., a full service real estate company.
Mr. Feldman received a BS and MS in chemical engineering from Tufts University and an MBA in Finance and Real Estate from The Wharton School at the University of Pennsylvania. Mr. Feldman is a CRE and is also an active member of ULI, ICSC, and is currently an adjunct faculty member at The Wharton School.
Blue Vault recently had a conversation with Alan Feldman, Chief Executive Officer (CEO) and Chairman of the Board of Resource Real Estate, a longstanding sponsor of multifamily investment portfolios. We asked him about the multifamily sector’s enduring qualities and what makes it attractive in today’s environment.
First, let’s talk about Resource’s history. How did you get started, and how have you remained successful?
Resource has more than a 25-year track record that goes back to 1991. Initially, we worked with institutional investors, and in 2004, we began offering limited partnerships and other private real estate opportunities to qualified investors. In 2010, we sponsored our first non-traded real estate investment trust (REIT) for retail investors and have since sponsored two more REITs and two interval funds. Resource Apartment REIT III is our open REIT.
Throughout our company’s history, Resource has navigated various economic cycles. We weathered the financial crisis and have remained strong by focusing on our fundamental approach: we maintain a credit-oriented philosophy and always have our eyes on downside protection.
Why is Resource keen on apartments in particular?
Quite simply, people must live somewhere, and not all are able to own a home. Our latest estimates show that there are 330 million people living in the U.S., and there are 126 million households. Of that large pie, an increasing number are renting instead of owning.
How did the housing bubble affect the multifamily sector?
In 2005, we saw a homeownership rate of about 70 percent in the U.S. because of pre-crash lending practices. After the economy imploded and then began to recover, banks simply aren’t lending in the same ways. Today’s homeownership rate sits at roughly 63.5 percent, so about six percent of the pie has moved from owning to renting.
This is a tectonic shift in multifamily demand, which has driven rental rates up. No housing expert today believes that this trend will change soon or that homeownership rates will return to 2005 levels. Therefore, we’re seeing an increasing number of people wanting or needing to rent.
Who are today’s renters?
I tell people, “When you’re young, you rent.” The Echo Boom generation (children of Baby Boomers), or Millennials, have delayed making big commitments like marriage and starting a family until much later in life. So, they’re not feeling any pressure to buy homes. They’ve also changed jobs much more frequently than previous generations. When you’re starting a new job in possibly a different city, it’s much easier to pick up and go when you’re not tied down and must sell your house.
Younger adults today also engage in what I call the ‘Uber-ization of America.’ They’re interested in sharing resources and are more open to living in a multifamily setting. To some extent, retirees and older Americans are also interested in simplifying their lives and living in these rental communities.
How does Resource decide where to invest?
Wayne Gretzky (hockey player) used to say, “I skate to where the puck is going to be, not where it has been.” I like to use that analogy when talking about our approach to uncovering investment opportunities.
We take a dispassionate look at the whole country and where jobs are going and people are migrating. These trends help us pinpoint which areas and which cities are growing. We focus on areas that are close to, but not in, major downtown areas. Wherever we observe a consistent migration of people is a preferred target area, whether it’s Dallas, Houston, Atlanta, parts of California, or Denver. Many of these areas have been careful about allowing new development; therefore, supply is low and properties are older. These properties sit in good communities with good schools, but their apartment complexes may be 20-to-30 years old.
How do you add value to these aging properties from a tactical standpoint?
It’s important to be sensitive to the needs of residents and how they’re living today. At a minimum, everyone wants updated kitchens and flooring. We invest capital to make our apartments modern and appealing. Having an on-site gym is also desirable, as it’s a nice alternative to a fitness center membership.
We also understand that residents want a pet-friendly environment. Gone are the racquetball and tennis courts of yesteryear; the space might be better used as a dog park or outdoor pet-friendly space.
Today’s multifamily communities can also be considered what we call “workforce housing.” There are people working from home, creating business start-ups, or studying for school. Therefore, making the environment conducive to these activities and having strong Wi-Fi in common areas is also important.
Finally, safety and security are key concerns. We want to add bright and plentiful lighting, provide parking with proximity to the unit, and implement reserved parking spaces when possible. We are also interested in making sure residents receive secure and safe handling of personal packages in this era of ecommerce.
With interest rates on the rise, how do apartments respond to inflation?
We believe that owning apartments is a great hedge against inflation. Because typical apartment leases are year-to-year, then month-to-month, we have great flexibility when it comes to moving rental rates up to adjust to inflation. We’re not stuck with long-term, fixed leases.
In closing, what would you like for readers to remember about Resource’s investment philosophy?
Every business must address a problem. For us, the problem we seek to solve is finding good sources of investment income that grow consistently over time. To do this, we seek out places where demand is high and income is not going to stay flat.
More on Resource
Resource is a wholly owned subsidiary of C-III Capital Partners LLC, a fully integrated asset management and commercial real estate services company, with over $8.8 billion in real estate and debt assets under management as of December 31, 2017.
Learn more about Resource on the Blue Vault Sponsor Focus page.