The Multifamily Investor Expo 2023, a premier event for those seeking to leverage real estate for financial growth, recently hosted a pivotal panel discussion titled "Wealth Development Strategies with Multifamily." Moderated by Andy Hagans of AltsDb and WealthChannel, the session brought together a distinguished group of experts: Ashley Tison, founder and CEO of OZPros; DJ Van Keuren, co-managing member at Evergreen Property Partners and founder of the Family Office Real Estate Institute; and James Hance, founder of Green Bison Capital. These leaders shared insights into why multifamily real estate remains a cornerstone for building and preserving generational wealth, particularly in the current economic climate.
The Enduring Appeal of Multifamily Real Estate
The core of the discussion revolved around the fundamental strengths of the multifamily sector. James Hance of Green Bison Capital highlighted the intrinsic value of multifamily properties, emphasizing that "people always need a place to live." This basic human necessity provides a stable foundation for investment. Hance elaborated on the sector’s advantages, including consistent cash flow potential, the ability to force appreciation through effective property management and operational improvements, and significant tax efficiencies. As a direct investor, he noted, real estate offers unique benefits like depreciation, which can be leveraged to offset tax liabilities, effectively acting as a deferred tax strategy.
DJ Van Keuren, drawing from his extensive work with family offices and his leading annual study on their real estate investment habits, echoed the sector’s popularity. His research consistently shows multifamily as the preferred property type for families managing substantial portfolios. Van Keuren pointed to the risk mitigation offered by the sheer number of units in a multifamily property. Unlike a single-family home or even an office building, a vacancy in one unit of a 100-unit complex represents a minimal occupancy loss, thereby reducing overall risk. He also cited broader economic trends, such as rising home prices and the burden of student loan debt, which have made renting a more accessible and desirable option for a growing segment of the population, further fueling demand for apartments, especially in areas with job growth and affordability.
Ashley Tison of OZPros underscored the scalability and efficiency of multifamily investments. He described how the sector allows for the "consolidation of an enormous amount of people" seeking housing in a concentrated area. This density, Tison argued, not only meets a critical need but also contributes to environmental sustainability by reducing urban sprawl and requiring less infrastructure compared to dispersed single-family housing. He noted that this approach aligns with urban planning principles promoted by organizations like the Urban Land Institute. Tison’s expertise in Opportunity Zones also highlighted how this sector can be integrated with tax-advantaged investment vehicles.
Navigating Tax Advantages and Investment Structures
A significant portion of the panel was dedicated to the tax advantages associated with multifamily investments. Ashley Tison elaborated on the benefits of Opportunity Zones, explaining how they allow investors to defer capital gains taxes, reinvest those gains into qualifying Opportunity Zone Funds, and ultimately achieve tax-free growth on new investments held for over 10 years. He highlighted that the program also eliminates depreciation recapture upon exit, a substantial benefit when combined with the depreciation deductions available from real estate investments. Tison estimated that the combination of Opportunity Zone benefits and real estate depreciation can yield an approximate 3% increase in Internal Rate of Return (IRR) for investors.
DJ Van Keuren emphasized the critical role of the 1031 exchange in wealth preservation and growth for high-net-worth investors. He expressed surprise that a significant percentage of families do not utilize this powerful tool, attributing this to a lack of education. Van Keuren explained that 1031 exchanges allow investors to defer capital gains taxes by reinvesting the proceeds from the sale of one investment property into a "like-kind" property. This deferral enables capital to compound over time, significantly enhancing long-term returns. He also mentioned other tax credit programs, such as Low-Income Housing Tax Credits and New Market Tax Credits, as avenues for tax-advantaged investing, alongside emerging opportunities in areas like carbon credits.
James Hance confirmed the strong uptake of 1031 exchanges within his firm’s investor base, noting that approximately 20% of the capital they have raised in recent years originated from 1031 transactions. He also highlighted that these exchanges can be effectively structured within syndications, allowing investors to transition from active management to passive participation while still deferring taxes. This is particularly beneficial for individuals who have inherited or managed properties and wish to simplify their investment strategy. Hance also touched upon the challenges some investors faced with Delaware Statutory Trusts (DSTs) in recent years due to squeezed returns, leading them to explore syndication structures for their 1031 exchanges.
The 2023 Investment Landscape: Interest Rates and Opportunities
As interest rates have risen, a key question for investors is whether the current market presents a favorable entry point. James Hance cautioned that the era of cap rate compression is likely over. He stressed the importance of investor due diligence, particularly in vetting sponsors for their operational strength, vertical integration, track record, and capitalization. Hance indicated that the current environment is ripe for opportunities, especially with distressed properties emerging due to refinancing challenges and maturing debt. He anticipates more such situations throughout 2023, favoring well-capitalized investors.
DJ Van Keuren noted that many family offices have been strategically holding "dry powder," having learned from past recessions to avoid entering the market too early. This time, they are more inclined to capitalize on opportunities as they arise, rather than waiting for a full market recovery. He advised a fundamental approach, focusing on market fundamentals like cost of living, quality of life, and demand. Van Keuren stressed that while opportunities exist, investors must rigorously stress-test potential deals, considering scenarios like higher vacancy rates or increased interest rates. He highlighted that operators who have thrived since 2012 likely possess the resilience needed for the current market, and that the industry will see a clearer distinction between strong and weak operators.
Ashley Tison acknowledged the need for practical analysis amidst optimism. He pointed out that many investors in the Opportunity Zone space are driven by a time-bound incentive, creating a sense of urgency to deploy capital. This often leads to a focus on ground-up development, which is frequently necessary to meet the "substantial improvement" threshold required by the program. Tison suggested that while current market conditions require careful underwriting, the presence of value-add opportunities, particularly in high-growth areas, remains a significant draw.
Learning from Family Office Strategies for Generational Wealth
A recurring theme was the importance of long-term perspective and disciplined decision-making, principles deeply embedded in successful family office operations. DJ Van Keuren highlighted patience and making sound decisions as key takeaways. He emphasized that the fundamentals of real estate investing remain consistent, regardless of investment size. Van Keuren also stressed the value of due diligence in selecting partners, understanding the potential risks through thorough stress testing, and leveraging referral networks, a common practice among family offices.
Ashley Tison shared an anecdote about a client who experienced significant capital gains from a business sale. The client’s initial fear of not generating immediate liquidity led to a misstep in the market, highlighting the critical need for caution and professional guidance. Tison emphasized that understanding the implications of tax deadlines, such as those associated with Opportunity Zones, and having a clear strategy for capital deployment is paramount. He also stressed the importance of educating younger generations about wealth management and financial stewardship to ensure the longevity of inherited wealth, a concern often faced by families after the initial wealth creator.
Andy Hagans concluded by underscoring the humility required for successful investing. He noted that individuals who have amassed fortunes in one industry may not be experts in another, such as real estate. The wisest approach, he posited, is to surround oneself with talented professionals—like the panelists—and reputable operators with proven track records through various market cycles. This collaborative approach, coupled with a clear family mission and values, forms the bedrock of sustainable generational wealth.
The Ground-Up vs. Value-Add Debate
In a rapid-fire round, the panelists addressed the current outlook for ground-up development versus value-add strategies. James Hance favored value-add, citing his personal preference for a lower risk-return profile and the complexities and longer timelines associated with ground-up projects. Ashley Tison, however, leaned towards ground-up development, particularly within the Opportunity Zone framework, where meeting the "substantial improvement" threshold often necessitates new construction. DJ Van Keuren offered a nuanced perspective, stating that the optimal strategy depends on the specific property type and market conditions, acknowledging that both approaches can present compelling opportunities when rigorously analyzed for risk and return.
The discussion at the Multifamily Investor Expo 2023 provided a comprehensive overview of multifamily real estate as a powerful vehicle for wealth creation and preservation. The experts collectively reinforced the sector’s inherent strengths, the strategic advantages of tax-efficient investment structures, and the critical importance of disciplined, long-term investing, especially in navigating today’s dynamic economic landscape.
