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Robert Brunswick:
Hello, I’m Robert Brunswick with Buchanan Street Partners and I welcome you to another real estate podcast with my special guest today, Kevin Hampton, who runs Buchanan’s multifamily business. Kevin’s got years of experience in this business and I think you’ll find his comments and perspective on multifamily to be very educational and something we’ll enjoy. So Kevin and I are going to have a nice conversation today. I look forward to it. And with that, I think it’s probably an appropriate spot to start. Tell us a little bit about yourself and your career and how you got into this business.
Kevin Hampton:
Sure. I attended, I left Southern California to attend University of Colorado Boulder, with the intention of staying outside of California for real estate, to pursue real estate. As things happen with cycles here, when I graduated from Colorado, Colorado and Texas were in the midst of a huge energy recession, so there were no job opportunities out there at that time. I came back to Southern California and trying to figure out how I best get into real estate. I wound up going to work for Cushman and Wakefield as a broker. From there, I met an individual named Scott Sellers who went on to run Archstone. He was working for Lincoln Property Company at the time, and I started selling him hotel and apartment sites and he was a junior partner with Lincoln Property Company. After about a year of working with Scott, he offered me an opportunity to come learn in the development business and hired me for far less than I was making as a broker to go learn development.
So I went to Lincoln Property Company, learned all the fundamentals, was at this point in my life, I’d never seen an up market. Spent the first two years of my career doing workouts at Lincoln Property Company, which I learned a ton of how not to do deals. We weren’t doing very many new deals. And then from there, Scott went on to a prominent role in Archstone and brought me along with him to Archstone.
Robert Brunswick:
And what’s Archstone, just for everybody’s knowledge.
Kevin Hampton:
Archstone was one of the first big public REITs that was created in the nineties to take advantage of public capital and institution of capital to go chase, develop, buy, own real estate.
Robert Brunswick:
So you kind of started with Sellers getting you into the business and then fast forward, now he’s giving you an opportunity for his new platform, Archstone.
Kevin Hampton:
Yeah. Came along with him at Archstone, which started out as Security Capital. There were a bunch of companies that were incubatored under one big group out of Santa Fe, New Mexico, but they broke out and renamed themselves Security or Archstone, moved to Colorado, I followed him to Colorado, and we began developing and entitling multifamily communities across the United States.
Robert Brunswick:
So Kevin, correct me if I’m wrong, Scott Sellers today, he’s quite significant in the industry. He’s on the Irvine Company’s board if I’m not mistaken.
Kevin Hampton:
Absolutely, yeah.
Robert Brunswick:
For you to have him as a young person as your mentor is quite something.
Kevin Hampton:
Correct. Yeah. Yeah.
Robert Brunswick:
Yeah. So you learned from one of the best.
Kevin Hampton:
Yeah. It was baptism by fire. I mean, like I said, when I came up in the industry, it was all workouts and it was not a fun life and people didn’t like multifamily and you were not a welcome asset class coming into a community and trying to entitle or do a new multifamily community. People didn’t want you next door. Renters were not viewed as good neighbors back then.
Robert Brunswick:
So this is, we’re talking eighties, nineties.
Kevin Hampton:
Late eighties, early nineties. And then working with Scott at Archstone, I didn’t really see an up market until mid-nineties. And then it was go time. Everyone was buying and building across the United States and that’s when it became fun.
Robert Brunswick:
So give our listenership, if you can, a sense for how many units you have built from the ground up and/or bought existing in your career. Just to give people a sense for the scope of career you’ve had.
Kevin Hampton:
Since, let’s see, it was 1988, I believe when I joined up with Scott. Since that time it’s probably in excess of 15,000 units bought and developed on probably 13 different states and 26 different submarkets within across the United States.
Robert Brunswick:
Very helpful. Well, so you know what you’re talking about.
Kevin Hampton:
Yeah. Yeah.
Robert Brunswick:
That’s great. Well, I think the thing that you hear about today in the media and whatnot with what’s going on is the challenge for people to buy homes. So as I think about that when I grew up, that American dream of buying a home, is that still the American dream or has everybody adjusted their headset a little bit in that regard? How do you view that?
Kevin Hampton:
I think it is. I think everyone still envisions themselves owning a home at some point. I think what’s happened is in the past that’s been in their late twenties, early thirties, I think that’s with everything going on with the younger generations. They’re getting married later, having kids later, et cetera. They want to remain more mobile and have a lifestyle and be able to lock and leave, et cetera. So I think it’s still there. I think it’s just happening later in life. And we’re seeing the demographics in our renters not significantly older, but it’s definitely shifting. I mean, we have more tenants into their thirties and forties than we probably did 20 years ago.
Robert Brunswick:
So some talk about that just being a choice and some talk about that for economic reasons. Either they can’t qualify for a loan or maybe they’re not ready to settle down.
Kevin Hampton:
I think it’s both. I mean, what happened in the nineties, the late nineties and into the early 2000s, we saw renters change from a profile of renter by necessity to renter by choice. Prior to that, housing was very basic. If you think back in the seventies and eighties, all the product we call B and C product now are primarily C product. It’s very utilitarian. It all looked the same. It all had eight-foot ceilings. It wasn’t highly amenitized. It might have a small rec center or something in them. But in the nineties that changed and everything became catering towards renter by necessity. People who had the means, had the income to afford potentially even a house, but certainly higher rents but they wanted a lifestyle created around that.
So the design and construction of apartments went from what we think of traditional old apartments to condominium quality and with nicer appliances, nicer amenities, larger living spaces, larger closets, better proximity to work and play.
Robert Brunswick:
Helpful. So I think for our listeners, as I try and capture the description of multifamily or apartments, so you think about now the advent of for-rent housing. You got senior housing. You got workforce housing. You got all these what I’ll call segments or tranches of housing in our community. So when you describe or when you think about apartments or multifamily investing for the institutional investor that puts a lot money to work within the multifamily space. Tell me how you would describe the asset class, if you will.
Kevin Hampton:
Sure. So the space that we work in, and when you describe institutional quality, it’s generally a hundred units or more. More major metropolitan MSAs. You still have products that consist of A, B, and C quality. When you get in the institutional quality, less on the C, but from the B, B+ on up, and the Bs are going to be your value-add communities where you’re going in. And if it’s in a good enough location, the product has good enough bones, nine-foot ceilings, et cetera, it’s worthwhile coming in and renovating with new kitchens, cabinets, appliance packages, upgrading clubhouses, et cetera. And then you come into A properties which are core, core plus properties, which are typically less than 10 years old. They might have a slight small renovation component to them, all the way up to new build, which range from on-grade to wrap to podium to type one construction high rise.
Robert Brunswick:
So workforce housing as an example, I mean, there’s people buying hotels now and motels and converting them to apartments. Do you consider that as a adaptive reuse project? It’s providing housing. Do you consider that part of the multifamily space?
Kevin Hampton:
It certainly it fits within the definition of multifamily space, but not what we do. Those are very highly specialized, like assisted living, senior living, et cetera. And there’s not a crossover to the general population that we’re marketing apartments to from a conventional standpoint.
Robert Brunswick:
So that probably is a good entree for us to talk a little bit about what you particularly buy today and why. What is your investment strategy today as you look at the marketplace?
Kevin Hampton:
Well, so we focus on A quality assets, core, core plus in markets that have demonstrated and continued outlooks for job growth, high wages, quality of life, et cetera. And the reason we do that is because when we make an investment, it’s a long-term investment. We’re investing for seven, 10 years or more. So for us to buy an older eighties class asset, by the time we own it and sell it, it’s going to be a pretty old property at that time. So we’re buying it for cash flow, we’re buying it for appreciation, and we’re buying it for longevity. So we’re focusing more on 2000 and newer product in core, core plus locations, high quality, highly amenitized. It’s going to stand the test of time.
Robert Brunswick:
That’s helpful. So explain for me, I hear you often say that people are paying today as much for value add as they are for Class A finished assets. So help us reconcile that a little bit because it just doesn’t sound logical, but I know it’s the reality.
Kevin Hampton:
I wish I could rationalize it. I don’t quite understand it because in a lot of these markets, brand new class A product is selling for only 5% to 10% more per door than older eighties and nineties product that you have to put a substantial amount of money back into it. And the reason probably is because that there’s companies that do that, that have funds, that chase that. Theoretically there’s a larger return at the end of the rainbow. If you do it right, the market cooperates. But that just hasn’t been something we’ve focused on. We tend to gravitate towards a more predictable return.
Robert Brunswick:
That’s helpful. So real estate’s expensive today. How do people capitalize real estate? Obviously debt and equity. So tell me a little bit about the debt side of the equation. Tell me a little bit about borrowing money and what that process is like and who provides that capital.
Kevin Hampton:
Obviously, I mean, there’s an endless amount of ways to finance real estate. From our perspective, we believe in lower leverage. We believe in that for a lot of reasons. One, staying power, longevity, and weather some storms if we hit a recession or whatever may come, COVID, et cetera. I mean, nobody sees it coming. If you’re not over levered, these properties will consistently give you a good predictable return, relatively risk free. So there are companies out there that will leverage up with mezz debt and higher loan-to-value loans, but in our case we tend to… Our maximum debt is in the 65% range.
Robert Brunswick:
So could you give our readership, listenership, a sense for how does Fannie Mae and Freddie Mack and HUD, how do they participate? Are these government-sponsored programs? They seem to be one of the primary lenders in the multifamily space.
Kevin Hampton:
Yeah, I mean they’re government insured and they come and go, like everything. Everything runs in cycles. I mean, there’s periods of times where they’re the most competitive. And then there’s periods of times like this last year, life companies have been more competitive. And it just ebbs and flows with the risk profile in the market, with where treasuries are, with where there’s a component on Fannie and Freddie that sell to private investors. What that desired or necessary yield is on that component compared to where treasuries are and everything. So it ebbs and flows and we finance with both. Fannie, Freddie is a great vehicle when they’re competitive, but there’s times when they’re not.
Robert Brunswick:
Sure. So you source the market for the most competitive?
Kevin Hampton:
Source the market for the most competitive.
Robert Brunswick:
For that particular project’s needs.
Kevin Hampton:
Yeah. And for what we do, the long-term financing and the lower leverage and everything else, life companies and the agencies are the two best sources for us.
Robert Brunswick:
So the team you lead, what does your team do as it… You got cradle to grave on a real estate investment? Right?
Kevin Hampton:
Yeah.
Robert Brunswick:
So are you managing the assets, or? Tell us what your team does and what you don’t do.
Kevin Hampton:
We asset manage the investments once we own them. We hire third-party management companies in the respective markets that we make investments in. And the reason for that is because we, in order to self-manage, we would have to staff up with a whole management team and we would not be as effective in the marketplaces as the third-party managers are. They’ve got buying power. They manage a number of properties within a certain submarket, and so they see trends and have abilities to, we feel they’re more suited to manage for us than can do a better job than we can. But that’s with close supervision. We are very active at weekly calls and we’re a very hands-on asset manager with our third-party managers.
Robert Brunswick:
So I’m hearing acquisition, asset management and then ultimately disposition at some point.
Kevin Hampton:
Ultimately disposition, yeah.
Robert Brunswick:
So talk a little bit about acquisition. It’s a tough time to buy things today.
Kevin Hampton:
Tough time, yeah. It’s all about relationships. It’s all about reputation. We’re not a volume shop and there’s a lot of shops out there that buy 15, 20 properties a year. We’re going to buy two or three a year. We’re very targeted. We have very deep relationships with brokers in all of our markets that we want to own in. A lot of these relationships dating back 20, 30 years, guys that I’ve worked with. So we have a reputation of when we go after something, we get it and we close it. We don’t chase a lot of stuff and the brokers know that. So they know we’re a known entity. We’re a certainty to close. And so they…
Robert Brunswick:
Fewer and better approach.
Kevin Hampton:
Fewer and better. Yeah. I mean, and our approach is not can we buy it, should we buy it.
Robert Brunswick:
I got to believe for sellers that are going to sell something to you, they’re very appreciative of the diligence and extra hard work you do on the front end to know that asset. So there’s not going to be some surprise pre-closing.
Kevin Hampton:
And that goes back to the certainty of close I talked about. A lot of our competition will write a lot of offers and the people writing the offers will be at more of a junior level and once they get control of something or start to get control of something, it has to go through a number of checks and balances still on the back end. And so there’s not as great a certainty of close, in the broker’s view sometimes in dealing with us versus dealing with some of these groups that don’t have all the Ts crossed and Is dotted upfront.
Robert Brunswick:
Kevin, as I think about real estate as an asset class today and the inordinate amount of capital flows that have come towards it, everything you read is that multifamily is the darling or one of the darlings of the asset class with more capital flows probably going to things like industrial and multifamily for a variety of reasons I assume. Has it always been this way? Has multifamily always been that preferred product type for institutional investors?
Kevin Hampton:
No, I don’t think so. It’s always been attractive to investors, but it certainly hasn’t been the preferred product type for cities and communities. Back when I started, apartments were looked at very negatively. Again, it goes back to the renter by necessity and that’s where the poor people live and they can’t afford a house. And if you put an apartment in my community, that’s where the crime’s going to be and so on and so forth.
Robert Brunswick:
Interesting.
Kevin Hampton:
Nowadays, the renter by choice, I mean a lot of these apartments are nicer than a lot of the condominiums or town homes that are in the communities. And our renters are frankly paying more than most of their neighbors in rent than they are in mortgages. So it’s changed over the years, but I think what gives it the favorite status is risk compared to return, if you look at it over the years, over recessions, over whatever gets thrown at you, it’s a very predictable and stable return. I think that’s why institutions and investors like it.
Robert Brunswick:
I imagine as an owner you like that. Lots of money coming to it. Provides predictability of liquidity if you need to exit. But I guess as a buyer that’s not so good, as more capital is competing for that same asset.
Kevin Hampton:
It’s harder and you just got to turn over more rocks and you find the properties that fit and the locations you want to be. We tend to zig and zag a little bit more. I mean, we don’t have to be, a lot of institutional money and bigger investors have to be in certain submarkets, and we don’t have to. We can pick and choose the up-and-coming submarkets and go out of the box a little bit. And again, because we’re long-term owners, we can find an emerging market or an emerging community that is just going to continue to grow over the next five, 10 years that maybe some of our other competition won’t look at.
Robert Brunswick:
Kevin, you’re still a young guy and you got a lot of career left, but as I think about the breadth of experience and life you’ve had in your real estate business, what do you like most? How do you like to spend your day? I mean, obviously you manage some people, you’re responsible for a portfolio, but what do you enjoy most about your job?
Kevin Hampton:
I think, I mean, the best part of my job is it’s different every day. And it’s problem solving. It’s a big puzzle. Every day is a different puzzle, a different set of problems, different roadblocks being thrown up between you and your goal, which is ultimately getting an asset to operate and perform at its highest level. So it’s never boring. There’s always something going on and it’s always… It’s just something new every day. That’s the biggest thing I enjoy about it.
Robert Brunswick:
And if you were to speak to a young person that was thinking about getting it into this business and what would you tell them today about a career in real estate and how they maybe should pursue that career in real estate and things they should think about?
Kevin Hampton:
Yeah, I think the biggest thing, especially it’s harder to do in smaller shops like us because of volume, but I think early on in your career it’s very important to see as many deals as you can, be a part of as many deals as you can. I know it helped me immensely. I’m much better at what I do now because I came up in a down market and with a lot of challenges and every day was a new set of problems and it wasn’t always fun, but you learn way more in down markets and in struggles than you do when it’s easy. And I think if you can get yourself in a position where you can see a lot of transactions, interact with a lot of people, it’s just practice, practice, practice until you can figure out where you want to specialize in and then you can pick a path.
Robert Brunswick:
Well, that’s a great answer and probably an appropriate wrap up. I hope you’ve enjoyed doing this.
Kevin Hampton:
Yeah, absolutely.
Robert Brunswick:
I know we had a chance to give back a little bit in our community and to clients and to people thinking about getting into our business. So I hope you’ve all enjoyed our time with Kevin Hampton, one of my partners, and proud to have him in our company and I think a great knowledge source for the multifamily and apartment space. We appreciate you tuning in again, and we’ll look forward to our next guest and resource. Thank you very much.