The Multifamily Investor Expo 2023, hosted by WealthChannel, recently convened a distinguished panel of experts to delve into the multifaceted strategies for wealth development through multifamily real estate investments. Moderated by Andy Hagans of AltsDb and WealthChannel, the discussion featured insights from Ashley Tison, founder and CEO of OZPros; DJ Van Keuren, co-managing member of Evergreen Property Partners and founder of the Family Office Real Estate Institute; and James Hance, founder of Green Bison Capital. The session, recorded for broader accessibility, highlights multifamily real estate as a cornerstone for building and preserving generational wealth, exploring its inherent advantages, opportune market conditions, and sophisticated tax strategies.
The Enduring Appeal of Multifamily Real Estate
The panel’s foundational discussion centered on the intrinsic strengths of multifamily properties as an investment vehicle. James Hance articulated the core appeal, emphasizing the fundamental human need for shelter. "People always need a place to live," Hance stated, underscoring the inherent stability of the sector. He elaborated on the concept of intrinsic value, where a property’s utility directly translates into consistent demand. The stability derived from multiple units, as opposed to single-family homes, mitigates risk. Furthermore, Hance highlighted the potential for direct value creation through operational improvements, a key differentiator for multifamily investments.
"The cash flow is there. You can get value out of the income," Hance explained, pointing to the asset’s income-producing capabilities. He further stressed the tax efficiencies available to direct investors, particularly the advantageous use of depreciation to offset tax liabilities. This "deferred tax strategy" is a significant draw for high-net-worth individuals. The ability to "drive that value, and force appreciation through good operations of that asset" was a recurring theme, suggesting that proactive management can significantly enhance returns.
Family Offices Recognize Multifamily’s Dominance
DJ Van Keuren, drawing on his extensive experience working with family offices and leading the Family Office Real Estate Institute, confirmed multifamily’s preeminent position within the portfolios of ultra-high-net-worth investors. "Multifamily has continued to be the main property type for families to invest into," Van Keuren noted, referencing data from their annual study. He echoed Hance’s points on ease of understanding and risk mitigation, explaining that a single vacancy in a 100-unit building represents a mere 1% loss of occupancy, a far more manageable scenario than in single-family rentals or larger commercial properties.
Van Keuren also cited macroeconomic trends contributing to multifamily’s popularity. "With the way that 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," he observed. This affordability gap, coupled with robust job growth in many metropolitan areas, has fueled demand for rental housing. Multifamily properties, he argued, offer the most accessible and affordable shelter solution in these high-growth regions.
Scalability and Sustainability in Urban Development
Ashley Tison, known for his expertise in Opportunity Zones (OZ) and tax-advantaged investment structures, highlighted the scalability and, perhaps surprisingly, the environmental benefits of multifamily investments. He described how multifamily allows for the "consolidation of an enormous amount of people… into a very small area." While Andy Hagans humorously likened this to a "Soviet" model, Tison countered by framing it as an environmentally conscious approach. "It’s really green," he asserted, suggesting that concentrated housing developments can reduce urban sprawl and the need for extensive infrastructure, aligning with principles often discussed by organizations like the Urban Land Institute.
Tison further elaborated on the operational efficiencies of multifamily, noting that managing a single apartment complex requires significantly less logistical overhead than managing dispersed single-family rentals across a city. This efficiency extends to various forms of housing, including mobile home parks, RV parks, and even strategically developed single-family rental communities, all of which align with the core multifamily concept of aggregated housing.
Navigating Tax Advantages for Enhanced Returns
A significant portion of the discussion revolved around the sophisticated tax strategies that amplify the returns of multifamily investments. Ashley Tison provided a detailed overview of the Opportunity Zone program, explaining its benefits for investors with substantial capital gains. The program allows for the deferral of these gains, and crucially, the elimination of depreciation recapture upon the sale of an OZ investment. Tison estimated this can provide an approximately 3% increase in Internal Rate of Return (IRR), a substantial boost in a market where cap rates have historically been compressed. He illustrated this with an example: a deal with a 3% cap rate appearing as a 6% cap rate when the OZ benefits are factored in.
DJ Van Keuren emphasized the ubiquitous yet often underutilized 1031 exchange, a mechanism that allows investors to defer capital gains taxes by reinvesting proceeds from the sale of one investment property into a like-kind property. He expressed surprise that only about 20% of families utilize this strategy, citing a lack of education as a primary barrier. Van Keuren also pointed to other tax credit programs, such as Low-Income Housing Tax Credits (LIHTC) and New Markets Tax Credits (NMTC), as potential avenues for tax-efficient investing.
James Hance corroborated the significance of the 1031 exchange, reporting that approximately 20% of the capital raised by his firm in the past two years originated from 1031 exchanges. He highlighted that these exchanges can be effectively executed through syndication structures, allowing investors to transition from active property management to passive participation in multifamily deals, thereby realizing both tax benefits and a significant return on their time.
Market Dynamics in 2023: Opportunities Amidst Higher Interest Rates
The panel addressed the pressing question of investing in the current market, characterized by significantly higher interest rates. James Hance cautioned that the era of cap rate compression is likely over. He stressed the importance of rigorous due diligence on sponsors, favoring vertically integrated operators with proven track records and strong capitalization. Hance believes 2023 presents opportunities, particularly for properties experiencing distress due to debt challenges. "We’ve seen it recently where one property came about because the current sponsor, current operator, wasn’t capitalized well, didn’t have a good business plan executed the last few years, and they had to… They couldn’t refinance the debt," he explained, indicating that such situations are becoming more prevalent.
DJ Van Keuren echoed this sentiment, noting that family offices, having learned from past market cycles, are now more proactive in seeking opportunities. "This time, families have learned from that. And so, now they’re like, ‘Okay, I wanna take advantage of this.’" He advised investors to remain grounded in fundamental market analysis—considering cost of living, quality of life, and demand—rather than solely reacting to market downturns. Van Keuren warned of a "reckoning that’s coming" for less adept operators, and emphasized the need for thorough stress testing of potential investments, including scenarios with increased vacancy rates and higher interest expenses.
Ashley Tison, while acknowledging the need for practical considerations, maintained an optimistic outlook. He highlighted that investors in Opportunity Zones, driven by program timelines, are often motivated to deploy capital. Furthermore, he pointed out that the inherent value-add potential in many OZ projects provides a buffer against market fluctuations. "There’s usually upside there because of where they are, and that there’s growth coming," Tison stated, suggesting that well-chosen OZ investments can offer significant upside even in uncertain economic conditions.
Learning from Generational Wealth Builders
In a segment focused on long-term wealth preservation, DJ Van Keuren shared key lessons from successful family offices. He emphasized patience and disciplined decision-making as paramount virtues. "The biggest things that they can learn is patience, you know, and making good decisions," Van Keuren asserted. He stressed the importance of finding trusted partners and maintaining a long-term perspective, leveraging real estate’s illiquid nature to prevent impulsive actions. Van Keuren also advocated for rigorous due diligence on sponsors, encouraging investors to ask probing questions about how potential investments would perform under adverse conditions.
Ashley Tison further elaborated on the importance of intentionality in family wealth management. He suggested that families create core value statements and family constitutions to guide decision-making and ensure the transmission of values across generations. This structured approach, he argued, is crucial for maintaining wealth and preventing its dissipation, a common pitfall observed in successive generations of affluent families. Tison stressed the need for families to be as intentional with their wealth management as they are with their businesses.
Navigating the Current Investment Landscape: Ground-Up vs. Value-Add
In a rapid-fire question regarding the current investment environment, the panelists offered their perspectives on ground-up development versus value-add strategies. James Hance favored value-add, citing his personal preference for lower risk-return profiles and a less demanding timeline compared to ground-up projects. Ashley Tison, however, indicated a preference for ground-up development within the Opportunity Zone framework, as achieving the "substantial improvement" threshold required by the program often necessitates new construction. DJ Van Keuren provided a more nuanced view, suggesting that the optimal strategy depends on the specific property type and market conditions, acknowledging that both approaches can yield significant opportunities if thoroughly analyzed.
The discussion at the Multifamily Investor Expo 2023 underscored the enduring strength of multifamily real estate as a wealth-building asset class. By understanding its fundamental advantages, leveraging sophisticated tax strategies, and maintaining a disciplined, long-term investment philosophy, individuals and families can effectively navigate market complexities and cultivate lasting financial legacies. The insights shared by Tison, Van Keuren, and Hance provide a valuable roadmap for investors seeking to optimize their portfolios in the current economic climate.
