The Multifamily Investor Expo 2023, a premier event for real estate professionals and investors, recently hosted a pivotal panel discussion titled "Wealth Development Strategies with Multifamily." Moderated by Andy Hagans of AltsDb and WealthChannel, the session brought together leading experts in real estate investment, tax advantage structures, and family office management to dissect the enduring appeal and strategic advantages of multifamily real estate for wealth creation. The distinguished panelists included 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 discussion, held at the Multifamily Investor Expo 2023, underscored the multifaceted benefits of multifamily investments, ranging from consistent income generation and capital preservation to significant tax advantages, all contributing to the long-term growth of generational wealth. The event aimed to equip accredited investors, family offices, and financial advisors with actionable insights into navigating the current economic landscape and leveraging multifamily real estate for optimal financial outcomes.
The Enduring Appeal of Multifamily Real Estate
The core of the discussion revolved around why multifamily properties remain a cornerstone for wealth development. James Hance of Green Bison Capital emphasized the intrinsic value and fundamental demand for housing. "It’s the intrinsic value of a building, and it’s where people have to live," Hance stated. "People always need a place to live." He highlighted the stability offered by a portfolio of units compared to single-family homes, coupled with consistent cash flow potential. Hance also pointed to the operational aspect, where "value can be driven and forced appreciation through good operations of that asset." From a tax perspective, Hance noted the significant advantages for direct investors, particularly the ability to leverage depreciation to offset tax liabilities, describing it as a "deferred tax strategy."
DJ Van Keuren, who leads extensive research on family office real estate investments, corroborated Hance’s points, noting that multifamily consistently ranks as the top property type for family office allocations. His research, now in its fifth year, reveals a sustained commitment to this sector among ultra-high net worth investors. Van Keuren elaborated on the risk mitigation inherent in multifamily, explaining that the impact of a single vacancy is significantly diluted across a large number of units. He also touched upon the macro trends driving demand, such as rising home prices and student loan burdens, which increasingly push individuals towards rental housing, especially in high-growth urban centers with expanding job markets.
Ashley Tison of OZPros, often referred to as "The OZ Sherpa," brought a unique perspective on scalability and efficiency. Tison highlighted the ability of multifamily investments to "condense an enormous amount of people…into a very small area." This consolidation, he argued, leads to more efficient use of resources and reduced infrastructure needs compared to widespread single-family rentals. Tison further framed multifamily as an environmentally friendly choice, contributing to reduced urban sprawl and supporting public transportation initiatives by situating more residents in accessible locations. This "green" aspect, he suggested, could be a valuable narrative for developers seeking to navigate local zoning and community opposition.
Strategic Tax Advantages for Wealth Growth
A significant portion of the discussion focused on the sophisticated tax strategies available to multifamily investors, particularly for high-net-worth individuals and family offices. Ashley Tison detailed the benefits of Opportunity Zones (OZ), a federal program designed to encourage investment in economically distressed communities. He explained how the OZ program allows investors to defer, reduce, and potentially eliminate capital gains taxes. "The opportunity zone program allows me to defer those gains, and then ultimately what, you know, I invest in next," Tison explained, adding that it can eliminate depreciation recapture, a common tax liability in real estate transactions. He estimated that OZ investments can provide an additional 3% increase in Internal Rate of Return (IRR) due to these tax benefits, significantly enhancing the attractiveness of multifamily deals, especially in markets with lower cap rates.
DJ Van Keuren highlighted the 1031 exchange as another critical tool for wealth preservation and growth. He expressed surprise that a significant percentage of families do not utilize this provision, which allows investors to defer capital gains taxes by reinvesting proceeds from the sale of one investment property into a like-kind property. Van Keuren emphasized the compounding effect of tax deferral, noting how a 15% annual return can quickly escalate when taxes are continuously deferred. He also mentioned other tax-advantaged vehicles, including Low-Income Housing Tax Credits (LIHTC) and New Markets Tax Credits (NMTC), as well as emerging opportunities in carbon credits, underscoring the diverse landscape of tax-efficient investing.
James Hance provided practical insights into the adoption of these strategies. He reported that approximately 20% of the capital raised by his firm over the past two years has come from 1031 exchanges. Hance pointed out that these exchanges can be effectively structured within syndication deals, allowing investors to transition from active property management to passive participation while still deferring taxes. This is particularly appealing to individuals who wish to exit active roles in family-owned properties and seek professional management and passive income streams. He also noted that some investors who previously pursued Delaware Statutory Trusts (DSTs) have found syndications to be more attractive in recent years due to potentially squeezed returns in DSTs.
Navigating the 2023 Investment Landscape
The panel also addressed the current economic climate, characterized by higher interest rates, and its implications for multifamily investment. James Hance acknowledged that "the days of cap rate compression are over." He stressed the increased importance of due diligence on sponsors, emphasizing the need for vertically integrated operators with strong track records and robust capitalization. Hance suggested that the current environment, marked by rising interest rates, is creating opportunities, particularly for distressed properties. "We’ve seen it recently where one property came about because the current sponsor, current operator, wasn’t capitalized well…and they had to…couldn’t refinance the debt," he noted, indicating that more such situations are likely to unfold throughout the year.
DJ Van Keuren indicated that family offices, having learned from past market cycles, are positioning themselves strategically. Unlike in previous downturns where they waited for the market to rebound, many are now actively seeking opportunities. However, Van Keuren cautioned investors to remain grounded in fundamental analysis, considering factors like cost of living, quality of life, and local demand. He advised rigorous stress-testing of deals, projecting potential returns under adverse conditions such as increased vacancy rates or higher interest expenses. "If we are an operator and you start investing in 2012 and you didn’t make money, well, you probably shouldn’t be in this business," he remarked, emphasizing the importance of experienced and resilient operators.
Ashley Tison echoed the sentiment that while exuberance is important, it must be tempered with practicality. He highlighted that investors in Opportunity Zones often have a "clock" due to program deadlines, creating a sense of urgency to deploy capital. This can lead to a more bullish outlook, especially when combined with the inherent value-add potential in many OZ projects. Tison also noted that the need for housing, particularly in high-growth areas, continues to be a strong fundamental driver, suggesting that opportunities exist for those who can strategically navigate the current market conditions.
Lessons from Generational Wealth Management
A key takeaway from the panel was the wisdom that can be gleaned from the practices of family offices managing generational wealth. DJ Van Keuren shared that while the creation of wealth can be impressive, its preservation across generations is a significant challenge. He stressed the importance of patience, sound decision-making, and a long-term perspective, which are hallmarks of successful family offices. Van Keuren highlighted that the fundamental principles of real estate investment remain consistent, regardless of the scale of investment. He urged investors to rigorously vet sponsors and to ask probing questions about their projections and risk mitigation strategies. "The biggest things that they can learn is patience, you know, and making good decisions," he stated.
Ashley Tison elaborated on the need for intentionality in family wealth management. He discussed how many families, especially those with recently acquired wealth, often lack a clear mission or set of values for their financial endeavors, unlike the structured approach they apply to their businesses. Tison advocates for developing a "family constitution" that outlines core values and guides the distribution of assets, ensuring that wealth is managed and passed down responsibly. He emphasized the critical role of education for younger generations to understand and maintain wealth, rather than simply inheriting it without the necessary acumen.
Andy Hagans concluded by reinforcing the idea of humility and strategic partnership. He noted that successful investors, regardless of their background, recognize the need to surround themselves with experts. For high-net-worth individuals who may have amassed fortunes in industries outside of real estate, partnering with experienced multifamily operators and knowledgeable advisors like Tison, Van Keuren, and Hance is paramount. Hagans stressed the importance of selecting sponsors who have navigated multiple market cycles, underscoring that their track record is a critical indicator of their ability to manage capital effectively through diverse economic conditions.
The panel, part of the broader Multifamily Investor Expo 2023, served as a comprehensive guide to leveraging multifamily real estate for wealth development. The insights provided by the expert panelists offer a clear roadmap for investors seeking to build and preserve capital in the dynamic real estate market, emphasizing strategic tax planning, diligent operator selection, and a long-term investment philosophy. The event underscored that while market conditions may fluctuate, the fundamental strength and strategic advantages of multifamily real estate remain a powerful engine for sustained wealth creation.
