The Multifamily Investor Expo 2023, hosted by WealthChannel, brought together a distinguished panel of experts to dissect the intricate strategies behind wealth development through multifamily real estate. 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 at Evergreen Property Partners and founder of the Family Office Real Estate Institute; and James Hance, founder at Green Bison Capital. The panel, held at the expo, aimed to equip investors with actionable knowledge on leveraging multifamily assets for long-term financial growth and preservation.
The enduring appeal of multifamily real estate as a cornerstone for wealth creation was a recurring theme. James Hance emphasized the intrinsic stability of this asset class, citing the fundamental human need for housing. "People always need a place to live," Hance stated, highlighting the resilience of multifamily even in economic downturns. He further elaborated on the inherent value proposition, pointing to the potential for steady cash flow and the ability to actively drive appreciation through effective property management and operational improvements. Hance also underscored the tax efficiencies available to direct investors, particularly the benefits of depreciation, which can significantly offset tax liabilities. This multifaceted advantage—income generation, capital appreciation, capital preservation, and tax efficiency—makes multifamily a compelling choice for sophisticated investors.
Echoing Hance’s sentiments, DJ Van Keuren drew upon his extensive experience working with family offices, entities that often manage generational wealth exceeding hundreds of millions of dollars. Van Keuren revealed that multifamily consistently ranks as the primary property type for family office real estate investments. He attributed this to its inherent understandability and risk mitigation. Unlike single-family homes or commercial properties, the impact of a single vacancy in a large multifamily complex is significantly diluted, maintaining a higher overall occupancy rate and, consequently, more stable income. Furthermore, Van Keuren pointed to the current economic climate, characterized by rising home prices and student loan burdens, as factors driving increased demand for rental housing, making multifamily an attractive investment from both an economic and societal perspective.
Ashley Tison, known as "The OZ Sherpa," brought his expertise in Opportunity Zones (OZ) and tax-advantaged investment structures to the forefront. Tison highlighted the scalability of multifamily investments as a key attraction for high-net-worth individuals. He noted that the concentration of residents in a single location minimizes infrastructure needs and operational overhead compared to managing dispersed single-family rentals. Tison also introduced the environmental benefit, framing multifamily development as a more sustainable approach to urban growth, contributing to reduced sprawl and efficient resource utilization. This "green" aspect, he suggested, could be a valuable point in discussions with planning commissions and in mitigating "Not In My Backyard" (NIMBY) sentiments.
The discussion then pivoted to the critical aspect of tax advantages, a crucial component in maximizing net returns for investors. Andy Hagans underscored the importance of "triple net" returns—what an investor can actually take home after all expenses, including taxes and fees.
Leveraging Tax-Advantaged Structures
DJ Van Keuren emphasized the significant, yet often underutilized, potential of the 1031 like-kind exchange. His research indicates that a substantial majority of families do not leverage this powerful tool, largely due to a lack of education. The 1031 exchange allows investors to defer capital gains taxes by reinvesting the proceeds from the sale of one investment property into a similar property. This mechanism, Van Keuren explained, facilitates the compounding of wealth over time, significantly enhancing returns. He also briefly mentioned other tax credit programs, such as Low-Income Housing Tax Credits and New Markets Tax Credits, as potential avenues for investment, alongside emerging opportunities in areas like carbon credits.
James Hance corroborated the widespread use of 1031 exchanges within his investor base, noting that approximately 20% of capital raised by his firm over the past two years originated from 1031 transactions. He highlighted the unique opportunity to utilize 1031 exchanges within syndication structures, allowing investors to transition from active property management to passive investment while deferring taxes. This strategy, he observed, is particularly appealing to those looking to exit active real estate management and embrace a more hands-off approach, thereby maximizing their return on time and capital.
Ashley Tison elaborated on the intricacies of Opportunity Zones, explaining how they offer a compelling alternative for investors seeking to defer and potentially eliminate capital gains taxes. The OZ program provides three primary tax benefits: deferral of capital gains taxes on reinvested profits, reduction of the deferred gain by 10% after five years and another 15% after seven years, and elimination of capital gains taxes on the appreciation of the OZ investment itself if held for at least 10 years. Tison illustrated the significant impact of OZ investments, projecting an average increase of approximately 3% in Internal Rate of Return (IRR) when layered with traditional real estate benefits. He contrasted this with the challenges of navigating estate tax implications post-2025, when the lifetime estate tax exemption is set to decrease significantly, suggesting that OZ investments offer a way to freeze the value of the contributed capital for estate tax purposes.
Navigating Market Dynamics in 2023
The conversation shifted to the current market environment, with a particular focus on the impact of higher interest rates. Andy Hagans posed a direct question: Is 2023 an opportune moment to invest in multifamily, or should investors hold cash for future opportunities?
James Hance acknowledged that the era of continuous cap rate compression has likely ended. He stressed the paramount importance of due diligence on sponsors, emphasizing the need for vertically integrated operators with proven track records and strong capitalization. Hance anticipates that the current environment, characterized by higher interest rates and potential property distress, will present significant opportunities, particularly for well-capitalized investors who can acquire assets from owners facing refinancing challenges or loan maturities.
DJ Van Keuren echoed this sentiment, noting that many family offices have been strategically holding "dry powder" and are now poised to capitalize on market dislocations. Unlike past downturns where investors entered the market late, current family office strategies reflect lessons learned, aiming to enter at or near the market bottom. Van Keuren cautioned that while opportunities abound, fundamental analysis of market demand, cost of living, and quality of life remains crucial. He stressed the importance of "stress-testing" potential investments, considering worst-case scenarios such as increased vacancy rates or higher interest expenses, to ensure that projected returns remain viable under adverse conditions.
Ashley Tison, while maintaining his characteristic optimism, agreed with the need for prudent risk assessment. He highlighted that for investors utilizing Opportunity Zone funds, the inherent time constraints of the program can create a sense of urgency to deploy capital. This can lead to a more bullish outlook, particularly for ground-up development projects within OZs, which often offer significant value-add potential. However, Tison emphasized the importance of balancing this enthusiasm with practical considerations and surrounding oneself with knowledgeable advisors.
Learning from Generational Wealth Managers
A significant portion of the discussion centered on insights that individual high-net-worth investors could glean from the practices of family offices managing generational wealth. DJ Van Keuren pointed out that while the creation of wealth is often a testament to entrepreneurial drive, its preservation across generations is a more complex challenge. He identified patience and disciplined decision-making as key virtues. Van Keuren advised investors to find trusted partners and maintain a long-term perspective, recognizing that real estate’s illiquid nature necessitates this approach. He also stressed the importance of rigorous due diligence on sponsors, advocating for a thorough understanding of their operational capabilities and their ability to navigate market downturns.
Ashley Tison added a layer of strategic planning, suggesting that families emulate the structured approach of businesses by establishing core value statements and mission principles. This intentionality, he argued, is crucial for guiding investment decisions and for effectively communicating legacy intentions to future generations and trustees. Tison underscored that while business acumen is vital for wealth creation, the same level of discipline and foresight is required for wealth preservation and intergenerational transfer.
Ground Up vs. Value-Add in the Current Market
In a rapid-fire segment, the panelists addressed the question of whether ground-up development or value-add strategies offer a better outlook in the current environment. James Hance favored value-add, citing his personal preference for lower risk and a more manageable investment horizon compared to the complexities of ground-up development. Ashley Tison, however, leaned towards ground-up development, particularly within the context of Opportunity Zones, where the "substantial improvement" requirement often necessitates new construction to qualify for the full tax benefits. DJ Van Keuren offered a nuanced perspective, suggesting that the optimal strategy depends on the specific property type and market conditions, acknowledging that both approaches can present compelling opportunities if thoroughly analyzed.
The panel concluded with a strong emphasis on the importance of humility and expert collaboration. The panelists collectively advised investors to recognize their limitations, surround themselves with trusted professionals—such as attorneys, accountants, and investment advisors—and partner with experienced operators who possess a deep understanding of market cycles and risk management. This collaborative approach, they argued, is fundamental to building and preserving wealth effectively, ensuring that capital is not only grown but also protected for future generations. The insights shared at the Multifamily Investor Expo 2023 provided a comprehensive roadmap for investors seeking to navigate the complexities of real estate investment and achieve their long-term financial objectives.
