JF3328: Daniel Angel - From Ground Zero to $50 Million

Daniel Angel | Real Estate Background

•  Managing Partner / Apex Development Group
• Portfolio:
  • Mobile home communities (752 pads, $30MM AUM)
  • Multifamily (360 units, $50M AUM)
• Based in: Atlanta, Georgia
• Say hi to him at: 
  • https://apexinvestments.us/
  • LinkedIn
• Best Ever Book: Who Not How by Dan Sullivan
• Greatest Lesson: "Learning how to enjoy every step of the way, regardless of the situation."

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Transcript

Slocomb Reed:
Today's episode is brought to you by Presario Ventures, a private equity real estate firm based in the booming Austin, Texas market. To learn how you can invest in the future of Texas with Presario Ventures, visit info.presarioventures.com/bestever. That link is in the show notes.

Today we're joined by Daniel Angel. Daniel is joining us from Atlanta, Georgia. He is the managing partner of Apex development group, a vertically integrated value add multifamily investing firm. He's the head of the finance management team. He supervises their capital generation, their fund and their investor relations strategy. Their current portfolio consists of all multifamily, just over 50 million in assets under management, which is 360 units. Daniel, can you tell us a little bit more about your background and what you're currently focused on?

Daniel Angel:
Yeah, of course. Thank you for having me and for the invite here. Happy to share some of our background and trajectory. In my case, born and raised in Columbia, South America, had the opportunity to go to school in the States, specifically in Atlanta. And then I went back to Columbia for almost 10 years where I started my professional career. Basically, we're focused in the investment banking and structuring. And then I started my experience in the real estate world, working for a couple of institutional funds down there. Later on, had the opportunity to get back to the States, coincidentally back to Atlanta, where I worked for a cement and ready mix company and just wanted to try to get back into the real estate world and got into single family investments, then had the opportunity to work for corporate partners. I don't know if you're familiar with them. It's a large operator in the States. And after leaving them, just continued with our single family approach until we fully transitioned into the multifamily world where we currently are.

Slocomb Reed:
When you say we for Apex, who is we?

Daniel Angel:
Yeah, that's a very good point. It's me and my business partner, Daniel Gonzalez, also Colombian, born and raised. And we had the opportunity to meet back in early 2016. He was living in Miami doing something very similar on his own. And after meeting and seeing some common ground, we decided to join forces. He moved to Atlanta and here we are.

Slocomb Reed:
Side note, where did you go to school in Atlanta?

Daniel Angel:
Georgia State.

Slocomb Reed:
Georgia State. Gotcha. Nice. I went to Emory, but not likely at the same time. And I wasn't smart enough to go to the business school. The people I know who got into investment banking all went to the B school. So your portfolio, Daniel, where is it? What markets are you in?

Daniel Angel:
Right now we're mainly focused in Metro Atlanta. That's something we decided since the beginning, at least for a while to be focused in the area where we live. We like to be boots to the ground and close to the asset. So that's why we've decided to stay in Metro Atlanta for now. So just now specifically talking about sub-markets, part of our portfolio is in Southwest Atlanta and the other part is in Northeast of Atlanta.

Slocomb Reed:
When did you and your partner start Apex and start acquiring this portfolio?

Daniel Angel:
So that's an interesting story. As mentioned before, we're more in the single family space originally. Just. Basically step by step started with our own equity, our own funds, doing just straight flipping. That's how we started and how we got into the game. 2016, we joined forces. Daniel and myself managed to raise a couple of private equity funds in the single family space and got into the rental world. We stabilized those two funds into a 75 unit single family portfolio. Stabilize that. And then later in 2019, we decided after looking into how to get scale, how to get growth, after buying this single family portfolio of one house at a time, we realized it was about time to get into a different phase or take the next step. That's how we got into multifamily. That was late 2019. We decided to structure that in mid 2020, actually right after the pandemic.

We acquired our first multifamily deal and after that it's been so far one deal per year. So 2020 our first, 2021, 22 and earlier this year our fourth property.

Slocomb Reed:
Daniel with your focus on investor relations, I'm curious among your investors, how has the sentiment for value add multifamily investing changed? From the time that you started in this industry started raising capital until your most recent acquisition. And now that's a very broad question. I'm wondering how your investors are looking at the space in general and also looking at the kinds of returns that they want to get from value add multifamily now, if it's any different from what it was two, three years ago.

Daniel Angel:
That's an awesome question actually. And I'll try to break it down into a few pieces, if you don't mind. Also because our investor base has also evolved with time. So originally it was friends and family and very close people were probably less sophisticated and a little bit more like following our lead. Today, we still have a lot of repeat investors, which we love to continue having, but also we have a couple of family offices with us with a lot, a lot more sophistication added to that.

So that's kind of like to explain a little bit of how broad our investor base is in terms of expectations and how they are seeing the value at space. I think it's a combination of understanding where the market is right now, considering what's happened with rent growth, inflation, vacancy and whatnot. And understanding that probably it's a lot harder to support rent bumps after a heavier lifting value add. So it's also been our decision to try to find, let me call it more like lighter value add approaches, understanding that the investor base will more than likely expect a very similar return than what we used to have a couple of years ago. But given that in our case is just making sure we can have a little bit of a safer play or a safer bet rather than going very heavy on value add. I don't know if that makes sense.

Slocomb Reed:
It does. What kinds of returns are you targeting right now?

Daniel Angel:
As far as underwriting, mid to high teams on a mid scale value add, we're not the kind of group that's going to get into the more opportunistic or heavier lifting lease up kind of deal. We will usually get into, especially in this kind of market these days into a deal that's cash flowing with a higher occupancy. And then just try to add either interior, exterior, either or both approaches and try to get into more solid cashflow. Still solving for those 17, 18% project level returns and then just depending on the structure with some kind of promote in the middle.

Slocomb Reed:
Reminding the audience of the disclaimer, they've already heard Joe Fairless say we're not making any particular offerings here. So we're not talking about any individual deal that's being pitched, but you're talking about an internal rate of return to investors in the mid teens with a project level IRR 17 or 18. And I assume that's based on a targeted five year hold period.

Daniel Angel:
Yeah, that's correct. And that's a very good point. So usually what we structure is a five to seven year hold with a renovation, depending on the unit count, anywhere between 12 to 18 month renovation period. And then a lease up to the 95% that we tend to structure occupancy. At some point, probably year three or so try to either do a refinance or supplemental loan, just to de-risk a little bit and then just drive it home from there to that 50 year, that's the general structure. And to your point, this is not a specific deal, but that's kind of like what we're trying to solve for.

Slocomb Reed:
Thank you. That's very helpful, Daniel. I want to return to the question of investor sentiment. On our way back down that path though, are you all still finding deals that will lead to the same IRR as the deals that you were first acquiring?

Daniel Angel:
That's an awesome question. The short answer is not as many. The longer answer is there's still deals out there. It's just a matter in our experience of keep underwriting, just stay true to our model, stay true to our business plan and to our execution. I think it's just a matter of understanding that with today's market, there's a little bit more than just an IRR that you're solving for. So we're talking about a tougher interest rate environment. We're talking about a dislocation between expectations from sellers and whatever's penciling in terms of in place cap rates or going in cap rates, whatever we're assuming in terms of rent bumps after a value add and whatever rent growth you're assuming and then trying to solve for that theoretical expansion on the exit cap rate. So I think in a normal conversation while you're underwriting and driving towards an acquisition. You're just having to have a lot more variables in mind before you decide or determine if it's a right deal or not. We managed to acquire a deal earlier this year, that was in April, with today's market and we managed to put an agency loan on it and it's writing really well. It's just not a lot of those out there as you probably intend with the question, obviously.

Slocomb Reed:
Yeah. Well, I was leading somewhere with that question. Of course, Daniel, thank you for answering it the way that you did. I guess investors who are engaged in this kind of investing, let's be specific to value add multifamily syndications during a massive bull run, they grew accustomed to very high returns that were not going to survive as the market cycle shifted. So really to oversimplify, stating in advance that I'm oversimplifying, they effectively have three options. One of them is to hang on to their return projections and wait and only do deals that they're already familiar with that will have those return projections, which may involve not deploying their capital right now or not deploying all of it. Or they can shift their return expectations and stay in value at multifamily or they can pursue the same level of returns by going into higher risk value add multifamilies or trying to shift and find some other asset class or some other investment vehicle. So the hold tight to my expectations from three years ago, stay in the asset class and accept lower returns or change asset class or risk profile to maintain the returns. If those are the three options, 

Slocomb Reed:
What do you see investors doing right now?

Daniel Angel:
In our most recent experience, I think it's more like the second. We feel there's more of a sidelines kind of approach and just waiting for the perfect deal to come up, at least that's what we've seen and we're talking Q3, Q4, 2023. In my mind, we feel is as long as you're being cautious in terms of rent and what you're assuming for that value at play. Even if you have a three year, five year, seven year hold, I think we're headed the right way. But for now in whatever we've been getting close to either sending LOIs or actually pursuing, we felt on the investor side, a little bit more like pause, sidelines, and go with the less deployment for now.

Slocomb Reed:
Daniel, transitioning the conversation here with assets under management at 50 million and that being 368 units. That brings the value per unit just under 140,000. Based on my experience with crunching very quick, simple numbers with all of my guests on the podcast for quite a while, I was hearing unit values averaging around a hundred thousand. Yours is above that. Are you focused on more class A or class B locations? What leads to that higher value per unit?

Daniel Angel:
We're more focused in the right now, Class C markets or Class C properties, that's where our current portfolio looks like. A small percentage of that is more the Class B minus maybe, but most of it is Class C, Class C plus maybe. The reason why it comes shy of 140, I think is more the 100,000 per door times are gone, at least in Atlanta, and that's been our experience.

One of these larger properties that we currently own, we acquired it 105, the other one was 112, and that was pre-value add, or pre-execution of the renovation. And we're talking class C, so I think that's where we are right now.

Slocomb Reed:
I think that has a lot to do with your market. I was just gonna say, Daniel, my first real apartment commercial apartment acquisition was at 26,000 a door. Cincinnati, Ohio is not Atlanta, Georgia first of all, but also in the West side of Cincinnati, people have been tracking when was it a $25,000 a door market? What was the 35, 45, 55? And people have been appalled to see 65 and even 75, 70, 75 a door for some of this vintage apartments. But you're absolutely right. The times have been a changing for a while now.

Daniel Angel:
Right. Absolutely. We don't have to go that far. Atlanta eight years ago, you could perfectly per door. In our case, our first multifamily, that was just mid 2020, we acquired it 72.5 per door in North Atlanta, smaller deal. And we just managed to exit at almost 162 per door.

Slocomb Reed:
Let's talk about that for a minute and then we'll transition the episode. Daniel, you acquired in 2020 and some of the best low interest rate times that we've experienced in the last several decades. And the value of that property more than doubled with interest rates also more than doubling. Tell us more of that story.

Daniel Angel:
Of course, that was our first multifamily deal. As I mentioned, smaller deal, I wish it was a larger deal. We acquired it 72 a door. At the time, in-place rents were $799 shy of $800. And our underwriting was to drive them after renovation to around a thousand dollars a unit. At the time we were just transitioning from single family to multi-family, just getting familiarized with the asset class and we weren't sure who we were gonna execute on that. We ended up renovating, stabilizing, 100% occupancy and our average rent ended up being 1300 per apartment, which definitely drove that NOI a lot higher than pro forma. As you mentioned on a very compelling and accretive debt scenario. But at the time then according to our original plan, and that was three years in, we were stabilized, pretty much optimized at pretty much the topic. What we would even think of. And our two routes were either refinance, de-risk the deal or test the waters and see what was out there.

We ended up selling after that three year mark. I think it was $5,000 more per door than what our original pro forma looked like. So it was in our mind, just a no brainer to call it a day, close out that exercise, full cycle the deal and just bring a very nice return to our investors in a shorter period of time.

Slocomb Reed:
Yeah, that's exciting. That makes a lot of sense. Daniel, you ready for the best ever lightning round? What is the best ever book you recently read? 

Daniel Angel:
That's a good question. I think it would be Who Not How. Dan Sullivan and Benjamin Hardy I think.

Slocomb Reed:
Yep. What is your best ever way to give back?

Daniel Angel:
In our case, giving back to our community. And I think in our case being both my business partner and myself from Colombia giving back to the community in terms of where the residential space is, making sure we're offering a better way of life with renovations and the whole value add programs and just a better place to live. And in our case, we didn't discuss this earlier in the episode, but most of our team works from our home country, our home city in Medellín, Colombia, giving back to our community, giving back by employing people back home. I think it's something that is something that really fills us.

Slocomb Reed:
Daniel, on the deals that you have done, the properties that you have acquired, what's the biggest mistake you've made and the best ever lesson that resulted from it?

Daniel Angel:
I think the biggest mistake, it seems like you never learn enough, is underestimating renovation budgets. The best ever lesson has been just trusting the process, trusting ourselves and our plan and staying true to our business model and just driving.

Slocomb Reed:
I want to dig into that response a little bit more. When it comes to the cost of renovations, are you saying that it is a lot of us during the pandemic and even now are getting caught making assumptions about what material and labor expenses will be because they are fluctuating mostly. Fluctuating is like code for increasing. They're fluctuating a lot right now. Is it that or is it because the scopes of work required to get the apartments up to market were changing?

Daniel Angel:
I think it's both and actually pretty interesting that you also mentioned free and post-COVID. In our case, I'll just talk about the two aspects of it. In our experience, it's been pre-COVID and post-COVID. And what you just said, the code for increase, it's just that labor and material, it's just a lot harder to predict. So just allowing for that, some kind of cushion always pay off. And then in terms of the scope, in our case, most of our portfolio is high 60s, low 70s vintage. So anything that you're actually doing, in our case, we're doing a lot of kitchens, bathrooms and whatnot. There's always going to be something behind those walls that's just hard to estimate. So those two things added up are definitely key to our experience.

Slocomb Reed:
Daniel, what is your best ever advice?

Daniel Angel:
Best ever advice, trust yourself.

Slocomb Reed:
Last question, where can people get in touch with you?

Daniel Angel:
Multiple places in my case, particularly LinkedIn, Daniel, our website, apexinvestments.us that's apexinvestments.us or my email personally, just feel free to reach out. The angel at apexinvestments.us.

Slocomb Reed:
Those links are in the show notes. Daniel, thank you. Best ever listeners. Thank you as well for tuning in.

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