Our background in healthcare and biotech might seem worlds apart from real estate, but we have found surprising parallels that give us a unique edge.
Both healthcare, through our founder Hart Cohen, and biotech through his son, second generation Evan Cohen, require extremely high degrees of education and discipline. They have helped us hone our skills in advanced study, rigorous testing, and methodical problem-solving.
These same skills have proven invaluable in real estate investment. We approach property analysis with scientific precision, using data and analysis to drive our decisions and strategies.
However, real estate has also taught us to adapt our analytical mindset to a field rich in human interactions. We have learned to balance our data-driven approach with an understanding of resident needs, market psychology, and community dynamics.
This blend of scientific rigor and human insight allows us to identify opportunities others might miss and to execute our strategies with both precision and flexibility. Our medical and biotech background has not just been relevant to our real estate endeavors—it has become a cornerstone of our success.
Challenges in the Human Element
The most significant shift in our transition to real estate has been the heightened importance of human interactions. In healthcare and biotech, we operate in a controlled, scientific environment where variables were carefully managed. Real estate, however, introduced us to a world where human behavior plays a central role.
While our analytical skills from the healthcare world serve us well in assessing properties and market trends, we have had to develop new competencies in managing relationships. From negotiating with sellers to addressing resident concerns, every aspect of our work now involves the human aspects of the real estate business.
This element introduces variability and unpredictability, requiring us to be more adaptable and responsive. We have learned that success in real estate is not just about numbers, it is about understanding and managing people's needs, expectations, and behaviors. This challenge has pushed us to adapt our approach, blending our scientific mindset with a more nuanced understanding of human factors.
A significant challenge we face is managing resident relationships, especially when taking over ownership of a property. Residents can be unpredictable in their responses to new management and ownership teams. Their varied reactions and expectations require us to adopt a flexible and responsive approach. We have learned to anticipate diverse resident needs and concerns, adapting our communication and management strategies accordingly.
Importance of Property Management
Our experience has taught us that effective property management is fundamental to success in real estate. It is crucial to assemble a team that shares our vision and values and that has deep experience in property and portfolio management. Without this alignment, the property may continue its previous trajectory, rather than moving towards our strategic goals.
Successful property management demands a delicate balance. We seek out team members who excel in customer service, treating residents with respect and providing high-quality service. Simultaneously, these individuals must remain focused on our broader business objectives and investment strategy.
Ultimately, we require a management team that embodies both compassion and strength. This balanced approach enables us to care genuinely for our current residents while making the necessary decisions to achieve our business objectives. Creating the right team is essential for driving a given property towards its full potential.
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Our Approach to Property Acquisition and Management
Our strategy for property acquisition and management has been refined over time to maximize the value we create for both investors and residents.
Identifying Investment Opportunities
In our search for potential investments, we concentrate on properties with unrealized potential. Our focus is on relatively newer assets, typically constructed in the 1980s or later.
These properties often possess excellent structural integrity and significant potential for improvement, despite having been neglected by previous ownership or management.
Location is pivotal in our investment strategy. We focus on properties near employment hubs that offer a cost-effective alternative to urban residences, typically targeting professionals seeking proximity to city centers without the premium of downtown living, balancing accessibility with affordability in our property selections.
We aim to provide an appealing middle ground for the demographic caught between the allure of central urban living and the financial benefits of suburban areas. This allows us to capitalize on the demand for quality housing that balances accessibility with affordability.
Self-Management Strategy
Direct oversight is essential for optimal property performance. We know this not just on a theoretical level, but from our experiences with third-party management companies, which often lack the necessary motivation to excel due to limited financial stake in the property's success.
Our self-management model ensures that on-site teams operate in complete alignment with our vision and standards.
We maintain direct control over property operations, allowing us to implement our strategies effectively. However, we recognize the importance of tailoring our management approach to each property's unique characteristics and requirements.
For smaller properties, we employ creative solutions, such as transitioning from full-time to part-time on-site management as the property stabilizes.
This flexible, hands-on strategy enables us to closely monitor each property's performance and implement rapid adjustments when necessary.
Executing Value-Add Strategies
Our approach to value-add investments is tailored to each property's unique characteristics and potential.
Renovation Process
The scale of a property significantly influences our renovation strategy. Contrary to initial assumptions, we have discovered that smaller properties often allow for a more expedited renovation timeline. With a 50-unit property, for example, we can efficiently turn over units at a faster rate, enabling us to execute our business plan more swiftly on these smaller assets.
Larger properties present distinct challenges in the renovation process. Renovating 20% of a 200-unit property, for instance, involves simultaneously updating 40 units, which demands meticulous planning and coordination among contractors, maintenance teams, and leasing staff.
It is important to strike a balance between the pace of renovations and the property's capacity to absorb these changes. For smaller properties, our objective is typically to complete all unit renovations, achieve stabilization, and maintain steady market rent growth within an 18 to 24-month timeframe. Larger properties generally require a more extended timeline of 3 to 4 years to achieve similar goals. This measured approach ensures we can effectively manage the renovation process while maintaining operational stability and maximizing returns.
Financial Considerations
When evaluating potential investments, we prioritize key financial metrics to ensure a solid foundation for our value-add strategy. Currently, our target for initial capitalization rates typically falls between 5% and 6%, providing a stable base for future growth.
Our return projections are carefully calibrated to align with our renovation timeline and property stabilization process. We aim for initial cash-on-cash returns of at least 3% in the first year, with the objective of having our management team increase these returns to 5-6% by the second or third year. This gradual increase reflects the progressive implementation of our value-add strategy and the property's stabilization.
Our financial strategy extends beyond property-specific metrics to encompass broader market trends. We actively seek opportunities in markets with strong growth potential, such as the Raleigh area, which can provide additional uplift to our investments, and areas where our property management team has the most intimate knowledge and experience.
Meticulously balancing renovation costs with projected rent increases and anticipated market growth helps to optimize returns for our investors while at the same time, enhancing value for our residents. This allows us to capitalize on both property-level improvements and favorable market dynamics. Having a knowledgeable and experienced management team in-house that is familiar with the local market conditions is essential to getting our original assumptions right and to executing on the subsequent business plan.
Building Resident Relations
Our success in property management hinges significantly on our ability to build strong relationships with our residents. We have found that engaging with residents early and consistently is crucial for smooth property transitions and long-term success.
Engagement During Property Takeover
When acquiring a new property, we place paramount importance on swift and personal communication with existing residents. Our standard protocol involves personally posting takeover notices on each resident's door, ensuring direct and immediate engagement from the outset of our ownership.
This helps to create valuable interactions with residents. We find that residents often initiate conversations, expressing their likes and dislikes about the property. These candid discussions yield crucial insights into the property's strengths and areas for improvement. The feedback we gather during these initial interactions plays a pivotal role in shaping our forward strategy.
Creating a Positive Community
Our primary objective is to cultivate a sense of community and shared purpose within our properties. We recognize that residents universally desire a well-maintained living environment and a sense of belonging. By proactively addressing resident concerns and demonstrating our commitment to property improvements, we transform residents into our partners in the pursuit of property enhancement efforts.
Experience has taught us that developing a strong rapport with residents can turn them into valuable partners. When residents feel heard and respected, they often become extensions of our management team, providing crucial insights and feedback about the property. This collaborative approach not only elevates resident satisfaction but also aids us in guiding the property through its transformation over a 5 to 7-year period.
However, we remain prepared to make difficult decisions when necessary. In instances where certain residents are unwilling to embrace planned changes, we rely on property managers with the fortitude to address these situations effectively. This sometimes requires making tough choices to maintain the property's trajectory towards improvement.
Long-Term Vision in Real Estate Investment
Our real estate investment strategy combines a steadfast long-term vision with the agility to respond to changing market conditions.
Adapting to Market Changes
We recognize that the real estate market is dynamic, and our strategies must evolve accordingly. As such, our approach involves continuous monitoring and analysis of property performance, including regular reviews of operational metrics and financial data.
We conduct thorough assessments on a monthly and quarterly basis, identifying opportunities to enhance Net Operating Income (NOI) and overall property value.
This ongoing evaluation process enables us to anticipate market trends and evolving resident preferences. Rather than adhering rigidly to an initial strategy set at acquisition, we maintain a flexible approach. Our focus remains on consistently optimizing property performance and value through strategic adjustments and timely interventions.
Balancing Short-Term and Long-Term Goals
While we focus on long-term value creation, we also recognize the importance of short-term performance. Our goal is to maximize NOI while steadily improving the property's overall value. This balance requires careful planning and execution.
Our experience has taught us that the most challenging work begins post-acquisition. The true test lies in effectively implementing our business plan throughout the typical 5 to 7-year hold period.
Throughout this duration, we continuously evaluate property performance against our initial projections and current market conditions. We strive to remain flexible, allowing for strategic adjustments as necessary. This may involve accelerating renovation timelines, refining our management strategies, or even considering an earlier exit should market conditions prove exceptionally favorable.
This balanced method, combining long-term vision with short-term adaptability, enables us to optimize returns for our investors. Simultaneously, it allows us to create lasting value for our residents and the broader communities in which we operate.
Conclusion
In conclusion, our foundation in healthcare and biotech has not only provided us with a unique edge in real estate investment but has also become a cornerstone of our success. The rigorous analytical skills, methodical problem-solving abilities, and high level of discipline honed in the medical and biotech fields have translated into a systematic and data-driven approach to property management. This disciplined approach, coupled with an adaptive understanding of human interactions, enables us to make well-informed, strategic decisions that others might overlook.
Ultimately, the ability to blend technical expertise with a nuanced appreciation of human factors has allowed us to excel in real estate. Our experience in managing complex variables in healthcare has equipped us to handle the unpredictability of human behavior in property management. This intersection of scientific rigor and human insight continues to drive our success, proving that the lessons learned from healthcare and biotech are accretive assets in our real estate ventures.
