The Multifamily Investor Expo 2023, a premier event for real estate investment professionals, recently hosted a pivotal panel discussion titled "Wealth Development Strategies with Multifamily." The session, moderated by Andy Hagans of AltsDb and WealthChannel, 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 at Green Bison Capital. These thought leaders delved into the multifaceted advantages of multifamily real estate as a cornerstone for building and preserving generational wealth, offering insights relevant to both seasoned investors and those new to the asset class.
The expo, a significant gathering in the alternative investment landscape, typically convenes asset managers, family offices, and high-net-worth individuals seeking to understand and leverage diverse investment vehicles. This year’s focus on multifamily real estate underscores its persistent popularity and proven efficacy in wealth creation. The discussion, which can be viewed in its entirety on YouTube, provided a comprehensive overview of why multifamily properties remain a favored choice for sophisticated investors.
The Enduring Appeal of Multifamily Investments
The panel’s opening discussion centered on the fundamental reasons behind multifamily real estate’s robust appeal. James Hance of Green Bison Capital articulated the intrinsic value proposition, emphasizing that "people always need a place to live." This fundamental human need provides a stable demand base, distinguishing multifamily from more volatile asset classes. Hance highlighted the stability offered by a diversified tenant base within a single property, contrasting it with the higher risk associated with single-family rentals.
"The cash flow is there. You can get value out of the income," Hance stated, pointing to the asset’s income-generating potential. He further elaborated on the ability to "drive that value, and force appreciation through good operations of that asset." This operational control is a key differentiator, allowing investors to actively enhance property value through strategic management and improvements.
Beyond operational control, tax efficiency emerged as a significant advantage. Hance noted that direct investment in real estate, particularly multifamily, allows for substantial benefits like depreciation. "As opposed to owning a paper asset, you can really take great advantage of what real estate provides, which is depreciation," he explained. This tax deferral strategy is particularly attractive to high-net-worth individuals aiming to optimize their after-tax returns. The concept of "value-add plays," where investors increase income and decrease expenses to boost property value, was also underscored as a powerful wealth-building mechanism.
Family Offices’ Endorsement of Multifamily
DJ Van Keuren, whose work with the Family Office Real Estate Institute provides unique insights into ultra-high-net-worth investment strategies, confirmed the consistent dominance of multifamily within family office portfolios. "Multifamily has continued to be the main property type for families to invest into," Van Keuren reported, citing findings from their annual global family office real estate investing study.
He echoed Hance’s points on understandability and risk mitigation. The inherent diversification within a multifamily property, where the departure of a single tenant represents a minimal occupancy impact, is highly appealing. Van Keuren also connected multifamily demand to broader economic trends. "With the way that, you know, student loans have been so expensive or has caused a lot of people not to be able to buy a home, homes have really gone up in price over the years. And so, you know, the easiest way for that shelter is to rent," he observed. This dynamic, coupled with migration patterns to areas with affordability and job growth, fuels consistent demand for rental housing.
Andy Hagans, the moderator, added context by referencing a white paper by Scott Hawksworth, their business development director, which detailed multifamily’s resilience during economic downturns. This historical performance reinforces its role in capital preservation, a crucial element for investors focused on long-term, multigenerational wealth.
Scaling and Sustainability in Multifamily
Ashley Tison of OZPros, known as "The OZ Sherpa," highlighted multifamily’s scalability and efficiency, particularly for high-net-worth investors. He emphasized the ability to "condense an enormous amount of these people… into a very small area." While this might sound "Soviet" at first, Tison reframed it as an environmentally conscious approach. "It’s really green… It’s an ability for us to be able to consolidate the amount of sprawl that’s happening," he argued, aligning multifamily development with sustainable urban planning principles often discussed by organizations like the Urban Land Institute.
The efficiency extends to infrastructure and management. Consolidating residents reduces the need for extensive infrastructure and allows for more streamlined property management compared to dispersed single-family rentals. Tison noted that this efficiency applies even to horizontal multifamily concepts like mobile home parks or RV parks, and in build-to-rent single-family communities.
Tison also brought the conversation back to tax advantages, specifically the Opportunity Zone (OZ) program. He explained how OZs offer a powerful wrapper for multifamily investments, allowing investors to defer capital gains taxes from the sale of other assets. The OZ program provides three key benefits: deferral of capital gains, potential for stepped-up basis on new investments, and elimination of depreciation recapture upon exit. For investors realizing significant capital gains, the OZ program can effectively transform taxable income into tax-free growth on a new multifamily investment, often leading to an estimated 3% increase in Internal Rate of Return (IRR). This "real estate investing nirvana," as Tison described it, significantly enhances the attractiveness of multifamily projects within designated zones.
Navigating Tax Advantages: Beyond Opportunity Zones
The discussion then shifted to other tax-advantaged strategies available to high-net-worth investors. DJ Van Keuren identified the 1031 exchange as another cornerstone strategy, noting that a significant portion of families still underutilize this powerful tool for tax-deferred real estate transactions. "80% of families don’t use 1031 exchanges, which is pretty astonishing to me," he stated, attributing this to a lack of education. The 1031 exchange allows investors to defer capital gains taxes by reinvesting proceeds from the sale of one investment property into a "like-kind" property, fostering continuous wealth accumulation through compounding returns.
Van Keuren also touched upon less commonly discussed tax credits, such as Low-Income Housing Tax Credits (LIHTCs) and New Markets Tax Credits (NMTs), as well as emerging opportunities in areas like carbon credits.
James Hance corroborated the impact of 1031 exchanges within his firm’s capital raising efforts, reporting that approximately 20% of capital raised over the past two years came from 1031 exchanges. He highlighted the feasibility of utilizing 1031 exchanges within syndication structures, particularly for investors seeking to transition from active property management to passive investment. This strategy offers not only tax deferral but also a significant return on time investment, especially when entering cash-flowing assets.
Ashley Tison, drawing from his legal background, provided further depth on 1031 exchanges and their integration with Tenant-in-Common (TIC) syndications. He described this as "buying real estate by the gallon and selling it by the scoop," where syndications allow for pooling capital to acquire larger, more impactful properties. Tison also introduced a critical consideration for high-net-worth individuals approaching the $10 million net estate threshold: the upcoming reduction in the lifetime estate tax exemption. He pointed out that while 1031 exchanges offer a step-up in basis at death, the OZ program offers a unique benefit by freezing the contributed amount against the estate, rather than its appreciated value. This distinction can be crucial for long-term estate planning.
Investing in the Current Environment: Navigating Higher Interest Rates
A pressing question for investors in 2023 revolves around the impact of higher interest rates. Andy Hagans posed a direct query: "Is this a good time to invest? Have cap rates expanded enough to really compensate for the fact that interest rates are so much higher?"
James Hance offered a nuanced perspective, stating that "the days of cap rate compression are over." He stressed the importance of investor astuteness, particularly in vetting sponsors. "You have to be particularly astute to look at the sponsor and make sure this sponsor is rock solid from an operations standpoint, preferably vertically integrated, that they have a great track record, that they’re well-capitalized." Hance indicated that opportunities are already emerging due to properties facing distress, often stemming from the inability to refinance debt or mature loans.
DJ Van Keuren noted that many family offices have been strategically holding "dry powder," learning from past recessions and the COVID-19 pandemic to avoid entering the market too late. He emphasized that while fundamentals like cost of living, quality of life, and demand remain paramount, "you can make money in any market." However, he cautioned about the "reckoning that’s coming" in the debt markets, suggesting that a more rigorous underwriting process, including stress-testing deals against potential interest rate hikes and increased vacancy, is essential. "If you take those considerations in consideration, and see what those returns come back and you’re like, ‘I can live with that,’ then definitely go ahead and invest," he advised.
Ashley Tison, while acknowledging the need for practicality and stress-testing, also highlighted the "exuberant optimism" often found in investors, particularly those utilizing Opportunity Zones. The time constraints imposed by OZ investments can drive a proactive approach to deploying capital. He also pointed out that many OZ projects still offer significant value-add potential, providing a buffer against unfavorable market shifts.
Learning from Generational Wealth: The Family Office Approach
Andy Hagans then turned to DJ Van Keuren to explore lessons high-net-worth investors can glean from family offices managing generational wealth. Van Keuren acknowledged that while some families struggle to maintain wealth across generations, successful ones embody key principles. "The biggest things that they can learn is patience, you know, and making good decisions." He stressed the illiquid nature of real estate as a positive attribute, encouraging a long-term perspective.
Finding a trusted partner is paramount. "You find a good partner, somebody you like, you trust, that you have a good relationship with, that they’ve been successful in the past, be patient, make good decisions, you know, quantify," Van Keuren advised. He reiterated the importance of rigorous due diligence on sponsors, including their ability to articulate and withstand various market scenarios. Referrals and networking, a hallmark of family office operations, were also highlighted as valuable strategies.
Ashley Tison shared an anecdote about a client who faced significant capital gains tax implications after investing speculative gains into the market, underscoring the importance of meticulous planning and professional guidance. He emphasized the need for caution and avoidance of impulsive decisions, particularly when dealing with large sums. The core message resonated across the panel: the necessity of surrounding oneself with qualified professionals, educating younger generations about wealth management, and fostering intentional family planning.
Ground-Up vs. Value-Add: A Lightning Round
In a rapid-fire session, 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 spectrum and the complexities of ground-up development in the current uncertain environment.
Ashley Tison, however, leaned towards ground-up development, particularly within the context of Opportunity Zones, where the "substantial improvement" threshold often necessitates new construction to qualify for the full tax benefits.
DJ Van Keuren offered a more nuanced view, stating that the optimal strategy "depends on the property type." He pointed to situations where stalled development projects could present ground-up opportunities, or where underperforming properties might offer significant value-add potential. Ultimately, he stressed the need for thorough analysis to ensure the return justifies the risk, regardless of the strategy.
The panel concluded with a reiteration of the value of expert guidance. Andy Hagans emphasized that the event’s purpose is to connect investors with trusted professionals like Ashley Tison, DJ Van Keuren, and James Hance, who possess the expertise to navigate the complexities of wealth development through multifamily real estate. The insights shared at the Multifamily Investor Expo 2023 underscore the enduring power of this asset class, combined with strategic financial planning and expert partnership, in building lasting wealth.
