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Robert Brunswick:
Welcome, I’m Robert Brunswick, Chairman of Buchanan Street Partners. Glad to be with you today for another session of our Counting Capital podcast. It’s very exciting for me as I think about our guest today, as he started out as an employee early in his career and has gone on to do some amazing things, which you’ll hear more about. So in today’s session we’ll really learn about Marco Vartanian, who today is the President and CEO of Fairgrove Property Management, and we’ll hear more about his job there, his entrepreneurship, and maybe a little bit about his past, so Marco, welcome to you.
Marco Vartanian:
Thanks Robert.
Robert Brunswick:
So much fun to have you here.
Marco Vartanian:
Thanks for having me.
Robert Brunswick:
Yeah, absolutely.
Marco Vartanian:
This is awesome.
Robert Brunswick:
This is going to be fun. So our conversation today, I think we appropriately should start off with a little bit about your start in the real estate business.
Marco Vartanian:
Sure.
Robert Brunswick:
Your career, so did you take lots of college classes in real estate? Did they have a college program or not?
Marco Vartanian:
Sure.
Robert Brunswick:
So take us back.
Marco Vartanian:
Yeah. I caught the real estate bug at a young age. I grew up in and around the apartment business. My family owned a small apartment building in Downey, which is where I’m from.
Robert Brunswick:
Sure.
Marco Vartanian:
And I just always was interested in what was happening with our property and kind of tailing my parents around. After college, I got a business degree at USC, I was in the entrepreneur program there, and after college really felt like commercial real estate was a way to blend what I learned about as a kid growing up with a business degree. And so went to work for John Cushman’s company, Cushman Realty.
Robert Brunswick:
So one of the arguably most famous guys in the real estate brokerage business.
Marco Vartanian:
Yeah. That’s a theme we’ll talk about a bit, which is I’ve been blessed to be around these phenomenal entrepreneurs, you being one of them, Robert, in my career.
Robert Brunswick:
That’s nice of you to say.
Marco Vartanian:
And it’s just really influenced how I run my company today. And so Cushman Realty was an amazing star in Downtown Los Angeles is where we operated.
Robert Brunswick:
Sure.
Marco Vartanian:
And from there I was with McGuire for a time.
Robert Brunswick:
Rob McGuire. Yeah.
Marco Vartanian:
Rob McGuire’s company, yet another larger than life entrepreneur.
Robert Brunswick:
And so a little different, one was a broker, one was a iconic developer.
Marco Vartanian:
That’s right, but what’s interesting is stylistically at their core, hard chargers, grit, passionate about their crafts, but as you said in different ways. And then was fortunate enough in 2006, as you said, to join Buchanan Street. And by 2012 had felt like I really learned the vocabulary, the language of institutional real estate, how you put a property together, structuring debt, equity, all the things that we learned along the way. And in 2012 was confronted with a unique opportunity to join a startup out of the Bay Area that was buying distressed single family rental homes. I think when I joined we had about 2000 houses predominantly in Northern California, and we had just started to buy in Southern California and sprinkle some markets Eastward.
Robert Brunswick:
So just pausing for a minute.
Marco Vartanian:
Yeah.
Robert Brunswick:
So that company, that business model, they were really one of the early pioneers in what today has become a very significant asset class within real estate, which is the single family rental housing space.
Marco Vartanian:
Correct.
Robert Brunswick:
Correct. So talk a little bit about those early days were what? Buying houses on the courthouse steps.
Marco Vartanian:
Absolutely. It was the Wild Wild West, there were no real institutional players, no institutional equity in that space. We were really pioneering an asset class and we were passionate about it, but recognized that it would take a mix of technology, people and processes to scale that business. I think the smart thing about the early days of that company was we were dead focused on building a business from the start that could scale well. So while we were owning a couple of thousand units in those early days, we were iterating the business so that it could translate into a much larger company.
Robert Brunswick:
I think it’s important for our audience to kind of understand that transition from Waypoint being entrepreneur, buying in the courthouse steps to attracting institutional capital and really taking on, because you might mention, yeah, I’m going to get it wrong, it was Colony Starwood became some of the partners to your company.
Marco Vartanian:
That’s right.
Robert Brunswick:
Or Waypoint I should say.
Marco Vartanian:
That’s right. And when you look at the early pioneers of the single family rental business in 2012, it was a mix of institutional commercial real estate brains that put that together because back to what we described earlier, it took the institutional vocabulary, you had to know the ins and outs of how to capitalize that particular asset class. And we were able to translate what we learned in commercial to single family rental. It started to move quickly around 2014, as you said, Starwood Capital was a early partner of ours a joint venture partner. We ultimately took our portfolio public, which was about 6,000 units. I remember the day we went public and it was like, “Oh my gosh, 6,000 single family rental homes.”
Robert Brunswick:
Sure.
Marco Vartanian:
And what I felt was just such an accomplishment that we started with a thesis, we refined it, which was really more my role over the years was really refining our operating platform. And then when I left the company at the end of 2018, we were 82,000 single family rental homes.
Robert Brunswick:
So wait, so you went from the first house to 6,000, going public to now 82,000 houses that are rented out.
Marco Vartanian:
Yeah.
Robert Brunswick:
You’re moving, correct me if I’m wrong, to Dallas …
Marco Vartanian:
That’s correct.
Robert Brunswick:
… now you’re uprooting your family, you’re moving to Dallas, you’re part of Invitation Homes, which is really Blackstone …
Marco Vartanian:
Which were owned by Blackstone. Uh-huh.
Robert Brunswick:
And you’re off and running in corporate America real estate.
Marco Vartanian:
Yeah.
Robert Brunswick:
And what happened?
Marco Vartanian:
Yeah. I learned very specifically that there are individuals who like to build businesses and excel in the chaos and spinning plates of building a company. And then there are a whole set of other real estate executives and professionals who like managing and running a large stable public company.
Robert Brunswick:
Sure.
Marco Vartanian:
And so upon relocation to Dallas, I clearly was getting that itch to get back to my entrepreneurial roots and had kind of missed the grind of building. We had sort of solved the riddle, we had answered the questions in the industry, and it was time for me to try my next venture and put on my next hat.
Robert Brunswick:
Sure.
Marco Vartanian:
And so that was at the end of 2018.
Robert Brunswick:
So 2018, you’re still a very young person.
Marco Vartanian:
Uh-huh.
Robert Brunswick:
You’ve always had that entrepreneurial itch.
Marco Vartanian:
Yeah.
Robert Brunswick:
This was your chance to do it.
Marco Vartanian:
Yeah.
Robert Brunswick:
But what three things can you say you really took away from your Blackstone, Colony experience, Starwood experience with Waypoint that you were able to bring forward to being an entrepreneur?
Marco Vartanian:
Yeah, A couple of things, I talked a little bit about people. People were the most important ingredient along the way, people who have the right attitude and the right mindset to scale something.
Robert Brunswick:
Sure.
Marco Vartanian:
Because it’s a difficult row to hoe, so that would be one. Two, is using technology, we think of technology in my company today as more of an enabler versus a replacer, but I was so blessed to be a part of this group, again, being based in the Bay Area, and we had some of the smartest tech minds in the area, able to help us accelerate our growth, so technology was a key ingredient. And then the third is, as I said earlier, thinking about scale at the outset. As an entrepreneur, you think, “Well, I need one customer.” Well, build your recipe so that you think, “How does this work if I had 10 customers?” And start that as your starting point and then build the business around something as if it has already scaled, so that as you scale, you’re prepared for that growth.
Robert Brunswick:
Well said. So now let’s fast-forward to you come back to home if you will …
Marco Vartanian:
Yeah.
Robert Brunswick:
… your three kids and wife and “Honey, I’m going to be an entrepreneur.”
Marco Vartanian:
Yes.
Robert Brunswick:
“But wait, you had this great job in Dallas and we were all set.”
Marco Vartanian:
Right.
Robert Brunswick:
And now what are you going to do?
Marco Vartanian:
Yeah, so I came home, I promised my wife I would take six months off. I think it was about three, so we looked at the small multifamily business and I saw many analogs to what we ultimately built in single family. I saw a highly fragmented market, I saw a large addressable market, and I saw a lack of institutional players, a lack of institutionalization, really professionalization, if that’s …
Robert Brunswick:
So Marco, are you talking two unit properties? Are you talking single family again? What exactly are you describing?
Marco Vartanian:
Yeah, our sweet spot today, Fairgrove today manages a little over 5,000 units.
Robert Brunswick:
So let’s talk about Sullivan, Fairgrove’s former name. Is this a name you started? Or what happened?
Marco Vartanian:
So the very first company we acquired, it was a company actually founded in 1976, small business that a gentleman Joe Sullivan founded in 40 plus years ago, and it was 900 units. And I recognized as an entrepreneur that this would be a catalyst, this would be a toe hold to allow me to kickstart a much larger company, which in three years we’ve gone from about 900 units to 5,000.
Robert Brunswick:
So for the audience as opposed to just coming back, you had some capital, you had some reputation, and just taking on your first project, you said you’re going to really expedite this entrepreneurship with a purchase.
Marco Vartanian:
Absolutely.
Robert Brunswick:
And I think part of your model was to buy small property management businesses, not just Fairgrove, which you ultimately bought as a way to kind of do an arbitrage on what was somewhat of an inefficient space.
Marco Vartanian:
Correct. Correct. So to date, we’ve acquired four small management companies. And I want to say though that I’m most proud of, if you look at our 5,000 units we manage today, I’m most proud of our organic growth. We’ve grown by about half, about 2,500 units have been just organic. And that’s the marketplace validating that Fairgrove is doing a great job each day. That to me as the entrepreneur, is a far better indicator of how we’re doing than just acquiring additional companies.
Robert Brunswick:
So I want to talk more about property management and its evolution with technology and PropTech in one second.
Marco Vartanian:
Sure. Mm-hmm.
Robert Brunswick:
But you own apartments yourself.
Marco Vartanian:
Correct.
Robert Brunswick:
So you’ve taken some of your learnings over the years and you’ve put them to work in exactly this product type.
Marco Vartanian:
Exactly.
Robert Brunswick:
So you had a good sense for the what I’ll call operating side’s thesis.
Marco Vartanian:
That’s right. And the inefficiencies because I experienced them firsthand.
Robert Brunswick:
Sure.
Marco Vartanian:
So in today’s market, let’s say you and I owned 200 units in partnership, the challenge we would have is we’re too large for a neighborhood property management company, a local management company that maybe is just defined in one neighborhood or area, but the converse is we’re also not large enough to really have the attraction of a large institutional property management company like a Greystar or Cushman or a much larger player. So Fairgrove operates in this giant white space in between where we have institutional owners who require high regularity of communication, they require proficiency in their financials, high operating expectations, but we’re still able to provide that one-to-one touch. We’re still able to provide, again, using technology as an enabler versus a replacer, we’re still able to give an owner like a Robert and Marco, that mid-size owner, everything they’re looking for.
Robert Brunswick:
So it strikes me that we see today many people that are trying to disrupt the property management business.
Marco Vartanian:
Mm-hmm.
Robert Brunswick:
And some have thought it through and others are so tech-laden with their experiences, they maybe don’t understand the hard asset class.
Marco Vartanian:
Yep.
Robert Brunswick:
So what are you finding that PropTech is doing to benefit this somewhat ma-and-pa industry of the past?
Marco Vartanian:
Sure. It started with the resident experience and we really pioneered a lot of that back in 2012 with the single family rental space. That was out of necessity when you had scattered rooftops all over the country, you needed technology and different tools and apps to be able to execute that business. And so what’s been fun is to see the rest of our industry, the multi-family industry, adopt elements of our playbook from single family. It’s been really fun to see that come to full fruition, to see the industry really embrace the technology side. The challenge with technology is if you take it too far, there’s just so much, again, fragmentation. It’s a product type residential small multi-family that has a lot of variability. And so anytime you have significant variability, it’s hard to standardize a technology stack fully around that for every outcome.
And so again, that resident experience is driving the tech I would call evolution in my business just because that resident is demanding touch-less entry, that resident is demanding self showing, that resident is demanding being able to interact with my company through resident portals. So that’s really been more of a catalyst than the owner side, the owner side is catching up to it.
Robert Brunswick:
Are most of your tenants tech-savvy?
Marco Vartanian:
A thousand percent.
Robert Brunswick:
Right. So it’s probably an average age of between today …
Marco Vartanian:
I’d say 35 to 55 is really our sweet spot. And I remember the first time we rented a unit site unseen, and this is someone who’s interacted with us completely, virtually. They’ve made a decision, submitted an application, they’re going to move into an apartment from out of state, and they’ve never seen the apartment. And I went to one of our younger staff members and I asked, I said, “This is crazy, why would anyone ever move into something without having physically seen it?” And he looked at me and he said, “Marco, we’re picking a ride virtually, we’re getting in a car with someone and taking a ride share, we’re getting our delivery of our food, we’re picking a date without seeing it potentially.”
Robert Brunswick:
That’s great.
Marco Vartanian:
And it just clicked for me, well, of course you would be able to pick an apartment virtually, and so that’s where you’ve seen this, again, this catalyst in our industry, COVID has accelerated it …
Robert Brunswick:
Sure.
Marco Vartanian:
… for the resident experience.
Robert Brunswick:
So let’s talk for just a second about investing.
Marco Vartanian:
Sure.
Robert Brunswick:
So what makes in your mind a good investment or an interesting investment? And I’m going to say the non-institutional small multi-family space.
Marco Vartanian:
Sure.
Robert Brunswick:
How do you know what to look for? What are the attributes?
Marco Vartanian:
Yeah. Again, always back to our Buchanan days, we looked at what type of risk are we taking? Are we taking market risk? Are we taking asset risk? Are we taking operations or operator risk? And so we look at market, first and foremost, if you’re in the residential rental housing business, you want to make sure that there’s sufficient demand for your product. And so I love concentric rings around job centers, Southern California being really ground zero …
Robert Brunswick:
Ground zero, sure.
Marco Vartanian:
… for so many jobs, I think of our North Orange County portfolio, I’ll give you as an analog, we do so well in and around Disneyland, right? In and around Anaheim because it’s just this economic juggernaut that you have a large, large variety of jobs that will appeal to that, so that’s one. Two is look at the configuration of the units you’re seeing with the rise in inflation and the rise in rents, you’re seeing more doubling up, so square footage is key. And then is the building functionally up to date? But you’re looking for attributes that you can modernize with common areas that are maybe more attractive or appealing to the residents. Again, those access points are key, so can you set up remote access both into the unit and at the entrance to the property? Those kind of things.
Robert Brunswick:
I imagine most of the things that you’ve bought and you will be buying as part of your investment thesis have what I would call… they don’t have to have a renovation play, but probably most of them have a renovation component to them.
Marco Vartanian:
Correct.
Robert Brunswick:
So Marco, as I think about knowing you as well as I do.
Marco Vartanian:
Yeah.
Robert Brunswick:
I think about the many things you do at your business, whether it’s marketing, whether it’s HR, whether it’s recruiting, whether it’s talking to investors.
Marco Vartanian:
Sure.
Robert Brunswick:
As you think about your skillset and your aptitudes, what have you brought forward that is serving you well today as you succeed and build your business?
Marco Vartanian:
Sure. I think about what the ingredients of a successful entrepreneur really are. And it’s that intersection, it’s the intersection between your subject matter expertise and a passion or an interest of yours. And as I said, growing up in the apartment business, it is by and large what I enjoyed doing most. And so I just so happened to have built expertise in this area that I also am equally passionate about. And I think what happens as a leader of a company, my hope is that that permeates across the whole organization, that they feel it and they believe that they have a leader who has, again, the operating background and history and knowledge from scaling our last company, and then also is right there on the wall, is as enthusiastic and energized to grow our company, make a difference, and build our legacy together. Those are really the ingredients that if you can put those together in the right sequence, you can go really fast …
Robert Brunswick:
You can be magic.
Marco Vartanian:
… and build a big company. Yeah.
Robert Brunswick:
Sure. So let’s talk about that next chapter, and without specificity to today’s date per se.
Marco Vartanian:
Sure.
Robert Brunswick:
What does the future of Fairgrove look like? What does the future of Marco Vartanian look like?
Marco Vartanian:
Yeah.
Robert Brunswick:
… as you look at both market opportunity and moreover your own aspirations?
Marco Vartanian:
Yeah. I think in five to seven years, Fairgrove is fee managing a mix of fee managed and a very interesting investment management business, which we can talk about in a second. 25,000 units would be a target of us, we just our challenge today is how do we properly digest our growth? How do we ensure that we have the right systems, controls, personnel, training and processes in place to efficiently grow so that we’re built for scale?
Robert Brunswick:
That’s a nice overview, but I’m taken by the investment side. What are your aspirations there?
Marco Vartanian:
Sure.
Robert Brunswick:
How does that get built out as part and parcel of this?
Marco Vartanian:
Sure. And I think as I described earlier, based on that institutional background, without question, I view the investment management business opportunity for us as something that we’ll… that’s a mountain we’ll climb when we’ve really perfected our operations engine and we have quite a bit left to accomplish and grow prior to doing that. That said, all of the elements that we saw in single family, they exist in small multi on the investment side. And I think we can build a really nice portfolio of operating assets to compliment our property management business. I want to be clear that we want to be the best fee manager in the West. And so the key to doing that is each and every day, again, improving our systems, improving our personnel, improving our processes. And my view is if I can do that well and we can do that well as a company, it will naturally translate into a very good opportunity for a long term investment.
Robert Brunswick:
Investment side. Sure, I think the average investor would recognize right off the bat the competitive advantage you bring to bear by managing the asset and having that knowledge that you have.
Marco Vartanian:
Sure.
Robert Brunswick:
So if there was a young person that you were talking to, and I’m sure there are a number of audience members that are early entrants in to their careers and the real estate space, what suggestions might you offer about things that they should think about? What do you look for when you see someone come in to interview with Fairgrove?
Marco Vartanian:
Yeah, I touched on a bit, it’s really attitude and work ethic. And so I recall so often when we looked at who did best at our time together at Buchanan Street? It was folks who showed up every day with a great attitude and a great work ethic, and then prepare yourself for your opportunity. My opportunity really came in the financial crisis, and so I was prepared for that opportunity and was put in a position to do things for our company that would’ve probably taken me another 5 to 10 years, but not for the market conditions at the time. And so my point in sharing that is get yourself the subject matter expertise so that when the opportunity presents itself, you’re ready to go and you can take advantage of it. We saw the same in single family rental in 2012, I recognized that my background from growing up in and around small multi-family was a differentiator that I could help that industry really evolve and grow. And so again, that’s just another example of being in position.
The only other comment for a young person who maybe wants to be an entrepreneur, so often you’ll see entrepreneurs and you see the outcomes, right? You see the successful exits, you see all the highlight reel I call it, but to be an entrepreneur, you have to be as passionate and as motivated and as focused on execution as you do all of again, those great things that come along with it. It is very difficult, and you’ve been through it, Robert, and having gone through it, it’s a lonely trail, but I will tell you that the reward and the feeling of accomplishment to grow and scale something, there’s no amount of money that can take the place of that, it’s truly a exceptional ride.
Robert Brunswick:
Marco, this has been everything I thought it was going to be, it’s so fun having you on our podcast. I do want to ask you, because I know you’re an avid reader and I know that reading has contributed to your success …
Marco Vartanian:
Yeah.
Robert Brunswick:
… both in terms of your own personal development as well as your business savvy, are there a couple of books that come to mind that you’ve recently read that you might just share with our audience?
Marco Vartanian:
Yeah, I think especially for a young aspiring entrepreneur, Ben Horowitz of Andreessen Horowitz, his book is called The Hard Thing About Hard Things, it’s a manifesto. I’ve read it four times and …
Robert Brunswick:
Wow, there we go.
Marco Vartanian:
… literally every chapter, there’s something that you can apply directly to your business, so that’s a great book. As far as mindset, a lot of Jim Collins stuff is really good. I love to read, and that’s the last piece is constant focus on self-improvement, that’s why you and I get along so well. I think we’re always trying to find that next 1%, how do we improve ever incrementally so that over time we can really do some of the things we would like to do.
Robert Brunswick:
Beautifully said, and I hope you all enjoyed this session of our Counting Capital podcast, I know I have. Good learning is what I like to say, and I think we got lots of good learning today, so thank you, we look forward to seeing you all next month.