xhv8mzw7ge79waga35o97s2wbzpfr6 Building a Platform for Growth in Multifamily: From Zero to 15k Doors

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Grant Collard

– Redstone Residential –

For more information contact:

redstoneresidential.com or grant@redstoneresidential.com

  Video Length: 60 min

Building a Platform for Growth in Multifamily: From 0 to 15,000 Doors and 27,000 Beds in Student Housing.

- Grant Collard, CEO, Redstone Residential

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Background:

Grant is a founder and partner at Redstone Residential and serves as CEO. His responsibilities include business development as well as overseeing the financial operations of the company's portfolio. Since 2009, Grant has grown Redstone from 1,000 to just under 25,000 + beds of student housing, and has sponsored in excess of $400mm in closed student housing acquisitions. Grant is a graduate of the BYU Marriott School of Business, where he studied finance. Grant holds a real estate broker license in the states of CA, OR, UT, and WA and is a certified property manager through the Institute of Real Estate Management (IREM).

Text:

0:00  
Alright, thanks, guys. I feel like I should have worn shorts. After that, that intro. So,

 

0:10  
going to talk to you guys a little about student housing today.

 

0:14  
Student Housing is a really, really interesting niche in multifamily real estate.

 

0:21  
When I try and explain to my parents what they do what I do, they just give up their eyes glaze over after about 10 seconds, my mom tells all of her friends that I'm a dentist, so that that might give you an indication on kind of where we're where we're going with this.

 

0:39  
Student Housing about 10 years ago was still kind of a niche product. It was it was kind of seen as the ugly stepchild of multifamily housing.

 

0:51  
In the last 10 years, there's just been billions and billions of dollars of investor capital that's float into the space, a lot of that's foreign capital coming out of space, a poor in China mostly. And it's been really, really interesting to watch. So, we've had a lot of success as we've grown our company, but a lot of that is just kind of tailwinds as the sector has, has grown and matured.

 

1:15  
So just want to give kind of a quick anecdote. Student Housing is not for

 

1:23  
the faint of heart, we we have kind of,

 

1:27  
I would say some kind of catastrophe or some kind of interesting situation nearly every single day in our portfolio. About six months ago, I got a call from our manager in Pullman, Washington, Washington State University. And the manager said, Hey, just FYI, our buildings on fire. And I said, Okay, that's sounds about right. And,

 

1:51  
and we typically have, you know, some type of fire event, I would say, a couple times a year, unfortunately. And I said, Okay, what you know, what happened this time.

 

2:03  
And she said, Well, this is you're really gonna like this. So, we have a gentleman here, one of our residents and, and he was enjoying some marijuana in his, in his unit. And then he got very, very hungry, so he decided to start to fire up his gas stove. And he started Frank's of donuts. And during the time that he's frying the donuts, he decided that he wanted a shower. And, you know, an hour and a half later, he's in his in the shower, and he's forgetting that he has donuts frying. So the apartment proceeds to light on fire starts to burn down around him, he's able to make it out naked

 

2:46  
of his unit as the building's burning down. And then in his paranoia, he's realizing that

 

2:53  
he's probably going to get in trouble for this and and he realizes that he left his weed in his apartment. So he he runs back up the stairs into the apartment, grabbed his weed goes back outside, when the fire department shows up, he eats it to destroy the evidence.

 

3:11  
And in at the end of it, he's he sued us and said, Hey, we think that you should replace my personal belongings. So that was a pretty fun one actually, to fight. So that's just an example of kind of the the the day to day.

 

3:30  
Maybe we should just end with that. There's not not a whole lot to say.

 

3:34  
So I was hoping just to, you know, Utah Valley is an interesting place. Utah, in general has lots and lots of university students within about you know, an eight minute drive, we have over 60,000 university students proven or, um, have excellent market dynamics in terms of student housing. So I'm hoping to share some of my experiences with with you guys hoping that there's things that you guys can relate Kate, if you're looking to invest near universities, or tell you about some of our syndication deals and just kind of show you how, how Student Housing Works as an investment and and tell some silly student stories.

 

4:13  
Okay, just a little bit about us. We're a student, housing investor, developer and operator, started in 2009, with a very small acquisition, actually acquired a management company that ran about 600 beds of student housing.

 

4:29  
The any of you guys go to BYU?

 

4:32  
All right, so we, we, we acquired a small company that ran Centennial apartments, let's see what else Roman gardens anyone lived there.

 

4:42  
We actually remodeled it last year, so it's okay.

 

4:46  
And that was about it. There's there was a gentleman that that had been running them for about 30 years, and we decided to make a play in, in student housing, we kind of did things opposite of how I would do them. If If I were to start over, we started with a management company, and got very proficient at operating the asset. And then after that, we jumped into our own acquisitions. Today, I think I would start with the the investments and then do the management company after management company is is is tough, it takes a lot of work, and it takes a while to build up. Currently, we have about 27,000 beds of student housing around the country. We have an operation about 3000 beds in Canada, as well as a Brazil joint venture. So we think that there's a huge growth market in South America for student housing, actually think that you could spend the next 40 years just replicating us real estate innovations in other markets like like Latin America. We just barely put up the first student housing in South Paulo, Brazil, first one in the in the country. And it was it was a huge hit. You know, you never know when you first start, we partner with a high rise developer there. And it's it's been a lot of fun. Yeah, we have about $1.3 billion portfolio value, about 500 million of that our own products and the other the balances, people that have come to us and said, Hey, you guys manage a lot in this area. Would you manage for us?

 

6:13  
Right, some of you know, we run some of the kind of iconic projects in Utah Valley, we have about a 60% market share of complexes at BYU and a little higher than that at you view. Anyone live at Liberty Square, for example. All right, yeah. I think looking out, we bought that in 2013. I think about half the children in Utah County were conceived at Liberty Square. Not that's not scientific, but I think just a rough guess.

 

6:46  
What's that?

 

6:50  
Yeah, no, I know, that's,

 

6:51  
that's part of the joke.

 

6:53  
All right. This is just a little bit of our growth. We've really kind of run the tail winds here of the student housing and just

 

7:02  
Okay, so as an asset class, why why would you consider student housing after talking about buildings burning down? You know, children conceived out of wedlock. You know, General shenanigans, what why would you even consider this as an asset class?

 

7:19  
Yeah, stability. So, one thing that we really noticed, we started our company in 2009, which was kind of a bad time to start a company, we thought, and it was really, really interesting to watch. So as things were kind of falling apart, people in the multifamily industry, depending on their location, we're having a really hard time filling units. Student Housing was just just straight. I mean, we, in fact, we watched enrollments go up at most of our universities. And the reason for that is, you know, the economy gets really bad people think, oh, man, I need to get some more skills retrain, maybe finish that degree, maybe go back and get another degree. Or maybe they're just looking at their prospects, you know, coming out of high school and saying, this really, really, really, really makes sense right now. So there's a little graph here of revenue growth on

 

8:13  
on apartments versus student housing. And you can see that there's a pretty good dip on the apartment side, were a student housing in await Oh, nine 2010 was was really study. Now the flip side of that is when things really get ramping up. You know, when when the economy hits a stride, the student housing tends to not see the same year over year rent growth, multifamily can, but it's, it's considered,

 

8:39  
if it's not,

 

8:40  
some people will say the word recession proof, which kind of, I'm not totally convinced of that. Because that seems to be a crazy claim. But I would say it's a little bit more counter cyclical. So we actually experienced at BYU and oh, nine in 2010. On our budget properties, we actually watch for skyrocket. It was really, really interesting. So yeah, maybe some of you are sending your kids to student housing that six $700 a month right now. And you know, just writing that check, and in helping them out in the recession, that changes. You know, your, your sweet little girl gets her Audi a4, taken away and gets to live in budget, housing is kind of like the substitution behavior that we see. I know, it's rough,

 

9:25  
it's rough.

 

9:28  
So that's

 

9:30  
a little bit about kind of the recession, dynamics and the stability of student housing. It's also just people get it, right. Like most A lot of people have lived in student housing, a lot of our foreign investors, they actually understand student housing better than multifamily housing, because they may have come in and lived in student housing in the US. But basically, you're you're anchored to a university. And if you choose the right universities, generally, you know, tier one and tier two universities. They just don't go away. I mean, the last time that you heard of a major state school, just like closing up shop was, I don't know, I haven't heard of it.

 

10:11  
The flip side of that is if you're at tier three schools, maybe community colleges, we are seeing a an evolution of behavior, right. So online classes, you know, people able to just commute, right? You know, if it's if it's a school with a strong commuter presence, or or kind of history, then that might be a tougher thing. But generally, your top tier universities are really, really, really safe bets. I don't I don't see in the future BYU, just giving up and saying, Yeah, just kidding, we're going to start selling off buildings, it just doesn't happen.

 

10:48  
And another thing that's really cool about it is there's there's an opportunity to create a lot of value through management in student housing. So what do I mean by that?

 

11:00  
It's a very management intensive business, meaning things that can go can go really, really well or really, really bad. And so there's, there's lots of opportunities to purchase student housing, where it's been very, very poorly managed.

 

11:13  
But my favorite play lately, I was actually on a houseboat with with some of these guys. And one of my neighbors said, Yeah, my daughter lives in this in this complex at BYU. And

 

11:24  
it's the worst they they charge you for 12 months rent, even though she's only there, like nine months. I'm like, Yeah, that would be me, I think thank you for your contribution.

 

11:35  
But that that's a that's a home run. I mean, if you find a 10 Plex, or a 12, Plex, or, you know, student housing or multifamily close to a university here in Utah, that's doing contracts on an eight month basis, like immediately, you should just be like a home run 50% revenue increase just by making that switch. And that's that's something that's kind of a nap a national standard. Now, that Utah's catching up on.

 

12:00  
Alright, cool. So let's talk about what students actually want and what what today's

 

12:08  
today's students actually looking for. So on the left here, we have Maslow's hierarchy of needs. Right? We're talking about flowery nice stuff, like self actualization pursue inner talent, creativity, fulfillment, but in reality, they don't care about any of that. They just want fast internet.

 

12:25  
And so that's, that's our number one play is

 

12:29  
we actually sent out a poll a little while ago, and

 

12:35  
Wi Fi actually ranked higher than a couple pretty important things. One of them was indoor plumbing, so

 

12:42  
so make that what you will. But But are you know, even even buying old stuff, just bringing in fiber internet that's like gigabit internet is is, you know,

 

12:54  
honestly, for me, I'd be good with it. So,

 

12:57  
okay, so what do you actually want besides Wi Fi?

 

13:01  
Student Housing is interesting in that people aren't necessarily looking for sticks and bricks, right. So they walk in the door to your model, they walk in and they tour your unit with you.

 

13:12  
They probably don't care about the courts countertops, they really don't and stuff that we might notice somebody like you, right, like, you know, if you walk in and you see eight foot ceilings, or you don't see three tone paint, or nice moldings, you know, on the walls, or base in case stuff, stuff that might drive us nuts, they just don't care about right. And so what they're really looking for is is an experience that they're going to have with their friends with their roommates, and Utah and Idaho, we have to train our people different on leasing. Because the number one thing that they're thinking when they walk into your office to treat your unit is, oh my gosh, I'm going to meet my husband or my wife here. This is crazy, right? like kind of a lot of pressure. So yeah, that's what they're looking for as a spouse.

 

13:59  
Second thing is academic focus. So

 

14:03  
I would say 10 years ago, we were seeing a lot of apartment complexes being built at universities that were far away from campus, maybe, you know,

14:15  
maybe two miles out, right, which for student housing might as well be like 1000 miles, it doesn't, you know, it's hypersensitive, and they're putting in bowling alleys and lazy rivers and in sweet, you know, jetted hot tubs really kind of like over the top stuff. And they really actually don't care about that they don't necessarily want that what we're seeing now today, we're going in, we're replacing movie theaters with study rooms, with CO working office space, with places to just hang out clubhouses, libraries, even kind of like, like hipster, like, you know, old, I don't even know how to describe it, like kind of like an old school feeling library, just just cool spaces. Instagram bubble is kind of what we're looking for. Right. So you have one spot in your property, and there's a line of people to take duck face selfies in front of it.

 

15:10  
Okay, and then privacy. So we've really seen a shift in, in behavior over the last 10 or 20 years.

 

15:20  
Students that are coming out, they don't want to share a room with three or four other people, right, they don't want to have a bunk bed in a big room, they want a private room. And, and in the rest of the country, this has been kind of standard for maybe 10 years, but we're just barely getting there in Utah, just because we're price sensitive here. As consumers.

 

15:40  
Developers now are pushing for private rooms that have in sweet bathrooms. And I think that's a that's a great evolution. But privacy is is a huge trend. Still though, at BYU, about three quarters of of your students are going to be in a shared room arrangement with a bunk bed or with a roommate, you know, loudly snoring next to them. So it's still very, very price conscious.

 

16:06  
Okay, um, so

 

16:07  
yeah, what what to look for in a student housing deal? Or if you're out buying multifamily that's close to a university, what might you consider as as some really important things? So the first thing is, you know, the right university? How do you really determine what that might look like? The first thing that we do when we start analyzing a potential student housing deal is, you know, let's underwrite the growth of that university, that university is really your economy. Just another kind of anecdote, we survived the recession, just fine. Here 2009 through 2011, you know, smooth sailing, no problems. But if you guys remember, in 2012, they changed the missionary age from

 

16:56  
Yeah, they they dropped it, right. And what ended up happening was enrollments across the state dipped by 10%. So that was our great recession, right there. And, and effectively, even if the economy's booming, and something bad happens with enrollment at the university, you're, you're really in trouble. So the first thing that we do is go underwrite the university. And there's data sources, most universities will publish what their enrollment trends are going to be, they'll tell you, hey, we're going to grow at 5% per year, we're going to grow at 2% per year, or, hey, we're capped out we're not going to do anything.

 

17:33  
That's the biggest thing. And that's part of the reason that it's not is correlated to the general you know, US economy not correlated to kind of, you know, portfolio betas across the the the the the general economy is because it's tied to one university. Second one is pedestrian, a campus. I don't know about you guys. But as a freshman, it BYU, I would roll out of bed, like maybe three minutes ahead of my first class, put on gym shorts in a hoodie and kind of trudging and that's what students are looking for. They're looking for the ability to get to class very, very quickly. It's a huge plus, if they don't have to jump in their car, circle the parking lot at the school for 30 minutes, find a parking spot, make it in the class, it's a really, really big deal, we're seeing probably a 20 to 30% Premium in rents for the same product if it's right next to the school versus even four or five blocks out. So that's, that's huge. I mean, some of the best opportunities that that I've ever seen personally, or through our company, our you know, maybe a 10 Plex, right next to campus, it's not being rented as students, to students, it's being rented just as kind of market rate multifamily, and you go convert it to student and it's, it's unbelievable, what people are willing to pay for that convenience of being right next to the school.

 

18:56  
Okay,

 

18:56  
a value add element. So what do I mean by that? You know, what can you actually do the building, so we bought Liberty Square in 2013. And, like most student housing assets in a lot of markets, they're just tired, right? I think it had been 10 years since they'd seen any kind of a remodel. You know,

 

19:18  
the carpets are just like, you know, like, you would never want to lay down on that, right? It's just,

 

19:22  
it's a little scary. So we take kind of a three tiered approach to,

 

19:30  

to our renovations and adding value, we go into the units and we just do a light remodel, you know, typically we're putting down a, like an LGBT plank, kind of a foe wood floor looks nice.

 

19:44  
Whenever my students do anything bad, I realized I remember back to my freshman year, and I remember sitting in the kitchen, throwing a knife into the door over and over again and stabbing the floor for no reason at all.

 

19:57  
But

 

19:58  
we get kids like that, right? I got it's kind of karma

 

20:01  
in a way.

 

20:03  
But you know, we the Lv D playing floor, you just pull one up and put another one down, you realize that it's kind of Animal House To some extent,

 

20:10  
we'll go in and we'll shoot paint will replace all the appliances that's actually pretty high, you know, least for women's apartments, and then we'll replace furnishings. So inside, we'll just do a quick, quick gut, on the outsides will work on curb appeal. So, you know, that might just mean

 

20:31  
a lot of buildings,

 

20:31  
we buy our 70s and 80s buildings with Mansard roofs and pretty ugly honestly, if you've seen Liberty Square, a lot of the stuff around BYU will just go and say, Okay, let's hire a designer, tell us what to do to put lipstick on this thing. And we'll shoot it, you know, gray or something like that, and put some more,

 

20:51  
some better colors on it. And then the third thing is going to be your amenity spaces. So really getting into places where they can study where they can interact with their friends, where they can meet people, where they can have a good time.

 

21:05  
Okay,

 

21:06  
and then the, the last thing that we look for is just value add element in terms of management. So we've done this probably 10 or 15 times in in Utah, where historically rents have just been for eight months. In then the building sit vacant for for the summer, or maybe 10 or 20% occupancy, pretty low will go in there. And in some markets, it's easier than others. We're doing it right now at Dixie state and and you know, it's a little bit slower. But at BYU and you view now the market standard is a 12 month contract. So if you're able to go find buildings with eight month contracts in place, and then you know, renovate it. And as part of that renovation, you're asking for a 12 month contract, that's just a huge, huge value add without necessarily having to spend a lot of dollars. It's just being a little bit smarter about how you're doing it. renegotiating contracts. I mean, in Rexburg, we just renegotiated our internet from you know, $10, a bed to $3. There's little things like that where you can pick up a lot of kind of incremental cash flow. And then in terms of underwriting like, what are you actually looking for, for investment performance? Typically, for for student housing, we're looking for a stabilized cash on cash return of at least 8%. It's been a little bit leaner, sometimes lately, because yield is tough to find in the current economy. We bought a deal at U Vu last August. And I think there was 35 offers on the deal. I mean, just absolutely insane. And the way that we want it was we waived all of our due diligence. Day one, I went hard with $250,000, which, you know, kind of gives you a little bit of like pause, you're like, I think I'm in the wrong profession.

 

22:55  
But it's it's hyper competitive right now. And so a little bit tough to find yield. Overall.

 

23:01  
throughout the life of the investment, which we're typically looking at five to 10 years, you're looking at a 15 to 20% IRR. So taking into account both cash flow as well as appreciation over time.

 

23:13  
Awesome.

 

23:15  

Okay, pitfalls. So,

 

23:18  
there's,

 

23:21  
there's a lot of things that can go wrong,

 

23:22  
right? And and I love to come and just tell everyone how great everything is. And you know, every time we get up to bat, we hit a Grand Slam. And, you know, we're so smart. But there's a lot of bad things that that can happen and a lot of things that people have learned. The first one is just small universities without develop student housing, markets, commuter schools, tier three schools. And then and then a lot of times, it's just places that cannot absorb the demand. So we're in Lubbock, Texas, right now, at Texas Tech. And it's just an absolute bloodbath. And the reason is, because there's about 15,000 beds of student housing, I think in 2017, there were 4500 new beds delivered into a market of 15,000 beds. What do you think that does to a student housing market locally? I mean, it absolutely destroys it. So we went from, you know, two years ago, we were $450 on a 12 month contract, plus utilities. And I think our latest specials, you know, at the low point, we were $298 a month on 12 month contracts concessions everywhere. I mean, just please, please, please sign a contract. And in our competitors, nationally, it's just not a very creative space. And so what happens is just gift cards come out, please sign you know, I'll give you a gift card, I'll give you an iPad, I'll give you a pony, whatever you want, you know, to sign to sign a lease, please just do anything. It's very tough. You know, I think the other thing is, location is just huge. So this secular asset is about two miles out, it's got a shuttle that goes into campus, if you if your property has a shuttle, or if you're considering investing in a property that has a shuttle, think again, it's it's it's too far away.

 

25:14  
Okay, inexperienced or independent management? A lot of times you can just run into these things. And, you know, we step in and take over management or we buy from a lot of people that you'll go in and you'll say, Wow, we thought this was a multifamily deal. But these these students, they'll just leave in the middle of the night. They won't pay the rent. Maybe they're guarantors were fake, right. I mean, so the difficulty in in leasing to students might be that they don't have any credit built up, right. So you run credit checks on them, and they have none effectively and you know, they don't have any income. That's why they're going to school. So that can be that can be very, very difficult to manage that. So typically, what we're doing is we're running credit on their parents on their guarantors.

 

26:03  
And then a background check on the on the students so we're not letting little little criminals, right.

 

26:11  
deferred maintenance. This is this is huge. I mean, a lot of people will walk in to a building kind of a Class D, you know, there's plenty of Class D i, solid Class D student housing, very, very rundown. And they think, oh, it'll buff out, you know, no problem. Just put a little paint on it. And you might be dealing with antiquated systems. We,

 

26:34  
Roman gardens actually

 

26:36  
has it BYU.

 

26:38  
They've got a 1960s chiller system with a cooling tower outside, really, really antiquated equipment. And every single July, I think our team has a panic attack, because they just know that thing's going to quit. And it does. And then there's one person in the world who knows how to fix it, because you know, the equipment's 50 years old. So those types of things can be very, very problematic and very expensive mistakes to get into in terms of deferred maintenance, then over overly optimistic underwriting, I think that is a huge problem for any kind of real estate investment. Internally, at redstone, we call it, we call it spreadsheet porn. Because you just change it until you know it looks good, right? And it's like, oh, well, hey, this, this, this deal models out perfectly if we're just raising rents 10% every single year, and if we're cutting expenses at the same time, and nothing ever goes wrong. Wow. That's That's fantastic. But unfortunately, as you guys know, if you made real estate investments, it doesn't always go that way. So,

 

27:46  
as you're evaluating potential investments, you know, how does it really stack up against the comparables in the market? You know, are the are the expenses realistic to what have historically been been encouraged that sort of thing.

 

28:01  
Let's see how we doing on time.

 

28:05  
I supposed to go in under 10 minutes, 15 minutes, just telling you to stop.

 

28:10  
It's done.

 

28:11  
Okay, so this is

 

28:12  
just quick case study. This is a deal at at BYU that we bought in 2016

 

28:19  
called liberty and freedom, we actually things went really well at Liberty Square, and we're like, maybe they won't notice if we named all of our properties liberty, something, maybe they'll they'll think it's a Liberty Square. So this used to be called University villa.

 

28:34  
Kind of your your classic value ideal.

 

28:38  
cinderblock prison is how we might describe the construction, but very, very tired, right? It's a mid 1960s build, you know, pretty antiquated lot of functional obsolescence with the equipment, with places that walls were ceiling heights, all that all that sort of stuff.

 

28:59  
But we decided that to go for it. Basically, this is just kind of how how we ended up doing on on the deal. This was one of our best ones. That's that's happened. But But you know, somewhat typical for a heavy value ideal. So we went in, in 2015, before we purchased it, net operating income, or income minus expense was about 762 K.

 

29:21  
cap rate was about 5.7%, we thought we were nuts for buying it for 13.1. Just because you know, a sub 6% cap rate on a 1960s building. You know, maybe there's something wrong with us for thinking that that's a good idea. But there was a lot of the the typical stuff that that checked all the boxes, right? So it was close to campus, you know, fairly, fairly close to campus, I call it a B plus location. It had only eight month rents, and they weren't charging for utilities, they weren't charging for communication fees, the typical stuff, they weren't quite at market.

 

29:59  
So it looks really really good.

 

30:02  
In in 2018, so last year, our trailing 12 net operating income income minus expense was was now 1.6 million. We, you know, when we create value that quickly, typically

 

30:19  
aren't investors are wanting us to hold it for 10 years, because you know, they want cash flow for the long term, not necessarily just a quick pop. And we the appraisal came in around 28 million, were able to refinance out all of our equity and just keep on going and it still makes distributions. So we're pretty happy about that when that was a great, great deal. We've done that a handful of times. And it's not just the larger deals, you can do this. And I've seen people do this time and time again, on anything as small as a duplex. Next week University, right. It's just looking for that pickup. It's looking for that that juice in the deal.

 

30:59  
So yeah, even with all of our equity back, it's it's returning a 20% return on our you know, our original financials, current internal rate of return, realize 138% and we'd return all the capital by by year two, with in a tax efficient way.

31:16  
All right, this one is a little bit more of a horror story.

 

31:21  
So we decided to go to St. George the Dixie state, it actually turned out really good. It was just really bad during

 

31:29  
the whole project part. But there hadn't been any new student housing built it Dixie state in about 30 years. And in the last two years have been to and it's been really good because it's modernizing the current student housing stock. But yeah, we went in, we we built the deal that actually shares a property line with the university that's like the Holy Grail. I mean, if you if you find a piece of dirt that shares a property line with university, just just buy it, I mean, it'll work out long term.

 

32:01  
Total cap x is about 15 and a half million, we thought it would perform it about a 7.1 yield on costs. So net operating income divided by our total costs, raised $4 million to get it done. And this was really this is really tough. You know, with student housing development,

32:20  
you have to

 

32:21  
be ready. when school starts, right. I mean, so basically, your buildings being built, and you're promising all these students non stop. Oh, yeah, it's gonna be ready in August. No problem. No problem. No problem. You're saying this in January, February, then your contractor calls you in, you know, March April and says, Hey, about that. We think it actually might be more like September, is that that won't be a problem. Well, it, you're like, yeah, except for, you know, the hundreds of kids and their parents showing up to move in. Not a problem. So last year, across the country, 35%, a student housing projects delivered late, which is very, very tough situation. What that means is that you're paying the hotel bill for hundreds and hundreds of students. And if you don't know what that feels like, there's a period of my life for about five weeks or every morning, I would wake up, and I had a little American Express notification that says your your card has been charged by, you know, Marriott, something for $9,000. That was every single morning, I thought, I can't do this.

 

33:30  
But it worked out, we were able to get in, we got a crazy offer. We got, you know, a sub five cap offer from a 1031 exchange buyer in California. And he said, Hey, I'll give you 22 and a half. And we thought, yeah, that's probably about what we think it's it's worth. But there's so much headache here that we might as well, Bill.

 

33:48  
So let's, let's get out.

 

33:50  
So that works out well. About two point seven 5% or 2.75 x return on equity and 81% annualized return.

 

34:01  
Okay, yeah, we have a little quick Canada venture. I think,

 

34:05  
kind of,

 

34:06  
like I mentioned the very beginning, there's a huge opportunity for international student housing development, Canada, in terms of its student housing, industry is where the US was maybe in 1990, or so. So it's barely getting started. So right now you can go in and buy land next to Canadian universities for next to nothing and build something and just achieve really, really good returns. So on the development side, it's it's really, really positive. If you're acquiring that cash flow is kind of already built in. And it's it's kind of US, US style returns.

 

34:41  
Our Brazil venture, gone really, really well. The returns are ridiculous in Brazil. But the downside is, you know,

 

34:48  
you have no idea what's going to happen, right? You don't know what's going to happen with exchange rates. You don't know if some dictator is going to show up and say, This is my building. Now. We really hope that's not the case.

 

35:01  
Yeah, ways to participate, how, you know, how do you guys get involved with student housing, if you see that that's a good thing for if you like that kind of stability through recessions.

 

35:11  
So one, if you guys are considering your own deals and and say, Hey, I have this 10 Plex, or I have a, you know, I'm going to buy my own deal next to campus, I'd be happy to give you my quick thoughts, you know, shoot it over to me, hey, Grant, what do you think, right? What do you see as the pros and cons, and usually in five minutes, we kind of identify the major, major issues that you might see. Or you might just get Wow, this is amazing. Can I please steal it from you?

 

35:36  
Just kidding.

 

35:38  
And then we're always looking to raise, we're always putting money into our projects. So typically, we're finding five or six deals a year, a lot of them actually come because of our management. So a lot of times we'll hear from a client that says, hey, we're actually thinking about selling this. You know, do you guys want to take a look at it for us and we'll say sure. In a we want to we can we can buy it or a lot of times we'll bring it to other clients and say, Hey, one of our clients is selling Do you guys want to look at it while it's off market? Think right now off market is the key, it's it's super, super tough to find deals before they go public. And everyone knows about them. But when you're negotiating for a deal, and and you know, you're the only person speaking with the seller, or even with the broker on a pocket listing, it's so much better than if it's a dog pile, and there's 30 people involved, it's just it just is not in your best interest to win those. Those deals, typically, unless you can do it on terms like quick clothes or something like that. Majority of our stuff is acquisitions and renovations, and we're looking at one to two developments per year. Most of those are an opportunity zones. So you know, if you have appreciated assets or stock or something else that come in, there's there's some good advantages to them.

 

36:51  
We've been going for 10 years, and we've gone to 27,000 beds, but we want to go to 250,000. And looking to continue to grow. So yeah, please, please contact me if if you guys would like to see some of our offerings as they come out. Or if you guys see deals, closest universities, and you just want kind of some quick thoughts, I'd be happy to help.

 

37:15  
Thanks, guys. Any questions?

 

37:17  
Yeah. So question is five to 10 year old?

 

37:21  
That's actually a really good question. So

 

37:25  
a lot of times, we're modeling a deal going in on a five to 10 year hold. The longer that you hold a deal, typically the lower the the IRR, the internal rate of return is because it's hard to keep on just getting a 20% annualized return. Usually your cash on cash returns are high single digits, low double digits. And so you're kind of banking on that appreciation at the end to prop up your returns. Most of our clients are modeling it on a five to seven year hold. But then when they get to five or seven years, you say hey, do you really want to sell this thing, it's the Replace well, location right next to it, you're never going to find a deal like this again, and it's producing good cash flow, maybe you should consider a refinance instead. So that's really what we're seeing almost everybody is is going long on these right now, especially when they're really well located. A lot of people that are holding assets that are further out from campuses are selling those because it's very, very clear that the trend is, for example, cap rates for a deal net next to campus versus one a mile away might be a full point difference, right? You might find a seven cap mile away, because it's very tough to manage in in a in a six cap right next to campus.

 

38:37  
Yeah,

 

38:38  
yeah. So how do you just control costs? That sort of thing? So your first question? Are all universities as good as BYU in terms of the market dynamics? I'd say the answer is no. We really like BYU for a couple of reasons. One, they're generally really respectful students. Right? So you're just not dealing.

 

39:03  
So we

 

39:04  
have we have some units at UC Santa Barbara, right. And every year when we go in, it's like, this is a total redo. Like, I mean, you're like pulling sheetrock off the walls, because it's just like, who's lived here? What have they been doing in here? This is This is crazy. This was new, you know, 12 months ago, BYU, we might be seven to 10 years on a replacement schedule for furniture and flooring, replacements and paint that sort of thing. So they treat it better. Number two, BYU controls, all the housing has to be contracted. So you have a built in barrier to entry. If you want to go develop student housing right next to BYU, you have to have their stamp of approval, which is pretty tough to get in. And part of that is gender separation, and they have to approve of the plans. And it's tough to get the densities that you want. So it's it's tough to make those projects pencil in terms of just kind of day to day management.

 

39:55  
Yeah, it's a lot of checklists, right? It's a lot of walkthrough is it's a lot of checkups, it's in Utah, we do cleaning checks a lot where it's just, you know, it's funny, but people want to

 

40:06  
roommates actually want someone to come and make the roommates clean once a month, just getting inside your units to so it's not a mystery of what's going on in there.

 

40:16  
Yeah.

 

40:20  
Yeah, parking.

 

40:21  
So it's tough. Most projects that were built in the 70s and 80s have a parking ratio of about 50.5 per bed, right? So 50% of the beds will get a parking spot. The true number in Utah that brings cars is about 73%. Most cities are requiring anywhere from 65% to 80% to go in. So it's tough, right? I mean, you're going to have situations where your brand new project won't have enough parking. That can be good. If it creates a scarcity. That means you can charge for it. But it can be tough for residents as well. If you're hunting for a parking spot every single night. That's that's kind of a disheartening thing. Yeah. And you know, Provo, there's a lot of people parking on the streets. It's gotten better lately in the last 10 years with with new developments.

 

41:15  
Yeah.

 

41:16  
So So the question is, what are the other kind of ancillary income sources on student housing?

 

41:24  
It really depends on the market, in, in a lot of markets, everything is all inclusive, so you pay for rent, and that covers everything. In the Utah market, people are more sensitive to the base price of of,

 

41:36  
of the rental. And so it's almost like the airline model, right? Like, if you're on like Spirit Airlines, it's like, oh, you want to go to the bathroom? That's five bucks,

 

41:43  
right?

 

41:45  
We try not to be that

 

41:47  
evil. But you know, you're probably in in most Utah markets, you're going to be paying a base rent, you're going to be paying for your utilities, you're actually on gas and electric, you're going to be paying for internet and cable, you know, through some kind of communication fee, maybe a parking fee.

 

42:06  
Some of them get like crazy, like out of state, sometimes there's like a like a, like an activities fee mandatory. Like

 

42:13  
it's like, all right, maybe we should stop with this. But that generally, it's 10 to 15% of total revenue

 

42:20  
is kind of like the market for

 

42:22  
extra income.

 

42:25  
Yeah, so

 

42:27  
I would say that is a market, for example of BYU, the market occupancy during spring summer is about 70%. Right. So those are the ideal properties to buy. Because, you know, Liberty Square, for example, was I think it was 8%. During what No, it was 8% 12 month contracts, we bought it and then it was 30% during the summer. So that's just a huge opportunity, right? I mean, you have spoilage of this whole summer period. So if you find properties like that you should buy them. If they're doing fall, winter only contracts, and then spring, summer only contracts, and then you should roll it to 12 month contracts. It's difficult if you don't do anything, or you don't offer anything for that. So you need to go in and remodel. And then you say yeah, after the remodel, it's a really nice property. And now it's only 12 month contracts. It works every time.

 

43:17  
Yeah,

 

43:18  
yeah.

 

43:24  
I like to I just barely, we just barely did a market tour down there. The issue with Suu is the average rents are ridiculously low. So if you look at the the construction down there, even new stuff is going to be the cheapest possible construction. You know, maybe I just heard a deal that had eight, you know, rooms per unit, like, you know, eight beds per unit. And I'm just like that that's a nightmare, right? I mean, the, these roommates will end up hating each

 

43:51  
other on day one, there's so many of them.

 

43:55  
If rents would come up at Suu, we would you'd see a lot more investment down there. But the last time I looked at average was like $250 per bed to justify new development, you really need to be hitting a minimum of 450 to 500 base rents in Utah, outside of Utah, that's going to be more like six or $700. If you're not there, you just you just can't make it work.

 

44:14  
Yeah.

 

44:17  
Any other questions, guys?

 

44:20  
Awesome. Hey, thank you so much.

– Fourplex Investment Group –

IREI SUMMIT 2019