What caught you off guard the most during the pandemic?

The surprise came from the multifamily sector, which turned out to be an unexpected challenge. Our properties that previously operated at an average 95% occupancy suddenly found themselves at 100% occupancy round the clock. This unexpected shift meant a drastic increase in utility expenses, notably water and electricity. The maintenance teams had to work tirelessly to keep up with the heightened demand for repairs and maintenance. The changes in maintenance protocols and products also resulted in a 6% rise in costs. Upgrading cleaning supplies, enhancing housekeeping practices, and implementing more frequent cleaning schedules significantly impacted our operational costs.

How have your investment strategies evolved amidst these changes?

In the past five years, multifamily acquisitions have become increasingly competitive, particularly in the value-add segment. The surge in equity funds chasing multifamily properties on a national scale has inflated prices to a point where owner-managers like us find it challenging to ensure profitability. We’ve refrained from banking on future rent hikes to justify investments. Our investment decisions lean toward spending now to create value in an asset, even if cash flow might not manifest for 18 to 24 months. Taking advantage of prevailing low interest rates, we’ve strategically refinanced every owned asset. As interest rates are poised to rise, which seems inevitable, I anticipate that CAP rates and overall pricing for multifamily properties will become more reasonable as a result.