Buying Value-Add Multifamily in the Southeast: A Differentiated Strategy | A Student of the Real Estate Game

“We buy value-add multifamily properties in high-growth Southeast markets.”  There isn’t a more popular or less differentiated strategy in the multifamily space today.

This prevalent investment strategy was especially apparent after spending a few days at NMHC talking to brokers, investors, and other operators.

While it’s important to keep your pulse on the market, there’s something striking when you have ~30 conversations over the course of 48 hours with people of similar backgrounds and life experiences, who generally read the same things and talk to the same people. Everyone more or less says and believes the same things.

Real estate, and multifamily in particular, often lacks innovation due to its capital-intensive nature, reliance on investor and lender approval, risk aversion at larger firms, and the tendency of major players to mimic each other’s strategies. The negative impact of this phenomenon is succinctly captured in a quote by Sari Azout:

“A tradeoff occurs every time you get feedback. You become slightly more mainstream, slightly more aligned with the zeitgeist. You become marginally more of an exploiter than an explorer, standing on the shoulders of the giants who conceived the paradigm you’re striving to build upon. This is very effective when you want to align your work with others. But you also stray from the path you were exploring.”

At Atlas, we’re raising our first fund with the goal of acquiring ~$750M of value-add multi deals in the Southeast over the next few years. This is our first fund and we have ambitious growth plans, which is daunting.

When you spend a few days talking to large owners pursuing the same strategy, then listen to the various industry podcasts talking about the unprecedented level of dry powder allocated to value-add multi strategies, and then chat with brokers about how competitively bid deals are etc. etc., it’s tough to be optimistic about our chances of finding mispriced deals.

But as an acquisition guy, it’s my job to maintain a mindset separate from conventional realities. To quote what is probably my favorite article of all time from The Real Estate God, I’m Just Being Realistic:

“It’s impossible to find the needle in the haystack if you don’t believe the needle exists in the first place. The reason I’m able to find homerun-type deals is that I believe. I believe that there’s a land just over the horizon and that if I sail far enough, I can reach out and touch it and make it mine. I believe that every single day God himself creates new frontiers tailor-made for me to exploit. I believe that homerun deals exist. You can’t get caught up in the facts, in the statistics, in the probabilities. You have to drown yourself in delusion.

If you haven’t read that post, go read it now. I’ll wait. It’s that good.

It’s a simple concept that seems obvious, but if you don’t believe you can find great deals because the market is too efficient or there’s larger operators with cheaper capital and more experience seeking the same opportunities, you have no chance. You can’t talk to investors and ask them part with their hard-earned capital if you don’t truly believe that you can execute upon a strategy and deliver outsized returns.  

Pink polo Shorts shared a similar sentiment:

I don’t seek to “buy value-add multifamily properties in high-growth Southeast markets” but rather I look for deals that possess the following:

• The basis is so strong that we could sell today for a solid gain or hold and execute the business plan.
• We have conviction in the few major levers that drive most of the returns.
• We know exactly why someone would want to live at this property and within this submarket.
• We’re 100% confident in “what is true” about this deal and our ability to execute the intended strategy.

As The Real Estate God says, “Let everyone else live a “realistic” life in the real world. You should prefer to live in fantasyland.”