Emily Cortright and Adam Roberts are co-owners of A&E Real Estate Group, which syndicates multifamily real estate. Their portfolio consists of $220M in AUM with another $60M that has gone full cycle. In this episode, Emily and Adam discuss their tactical approach to tackling high vacancy rates, why it’s important to know the sponsorship teams on your LP deals, and how they are becoming the bank on their single-family investments.
Emily Cortright and Adam Roberts | Real Estate Background
- Co-owners of A&E Real Estate Group, which syndicates multifamily real estate.
- Portfolio:
- $220M in AUM with another $60M that has gone full cycle
- Based in: Fort Worth, TX
- Say hi to them at:
- Best Ever Book: The Banker’s Code by George Antone
- Greatest Lesson: Get to know the sponsorship team of your deals well.
Click here to learn more about our sponsors:
TRANSCRIPT
Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed, and today I'm here with Emily Cortright and Adam Roberts. Emily and Adam are joining us from Fort Worth, Texas. They are co-owners of A&D Real Estate Group, which syndicates multifamily real estate. Their current portfolio includes 220 million in assets under management, with another 60 million that has already gone full-cycle. Emily and Adam, can you tell us a little more about your backgrounds and what you're currently focused on?
Emily Cortright: Yes, thank you so much. And we are so honored to be here today. I watched my dad work 30 years and not be able to retire after a career of investing in stocks and mutual funds, and doing physical labor in a 30-year career. And it led me to think to myself, "I have to do something different. I have to invest differently than the status quo." And when I met Adam, he invited me to an investing class, and I met him there and we showed up, and I find out it's a real estate investing class. And I'm like, "What are we doing here? We're not gonna invest in real estate." And I am so glad I stayed, because that class changed our lives. It showed us the numbers behind real estate investing, it showed us that real estate investing has the potential to provide financial security and financial freedom, and we knew after that night that that was the direction we were going to take.
We were both engineers working for GE Aviation in a corporate rat race job, and within a year after that class, I had quit my corporate job, we moved to Texas, and I started our real estate investing business. We started with single-family flips and rentals, and then we transitioned to large multifamily syndications or group purchases, and that has been an extremely successful business venture for us.
Slocomb Reed: Before you moved to Fort Worth, when you were both at GE Aviation, where did you live?
Adam Roberts: We lived in Southern California, Newport Beach.
Slocomb Reed: Oh, I was hoping you were gonna say Cincinnati, Ohio. That's where I am, and we have a large GE Aviation. They build most of the Boeing engines here, or at least they do the design work here.
Adam Roberts: So Emily was born and raised in Cincinnati, and we both lived and worked there for many years for GE, before relocating to California for a few years.
Slocomb Reed: Gotcha. That makes sense. I'd like to put some times on these transitions for you all professionally. When was it that you went to the real estate investing course training? When is it that you moved to get into flips and rentals? And then when did you make the transition to commercial multifamily and syndication?
Emily Cortright: 2012 was when we went to the real estate investing class, and it was actually in California. And during that class the instructor mentioned how hot the Texas markets were. So there were seeds planted. The Texas real estate market is booming. So in 2013, we had the opportunity to move to Texas. Adam found a full-time job in aviation in Fort Worth, and 2013 was when I left my corporate job, 10 years ago, to start real estate investing.
We did single family exclusively for the next four years, and then in 2017, we realized single family was getting to be a little bit of a grind, because I was self managing my rentals, I was being the GC on all my flips, and we wanted Adam to join us full-time in the real estate business. But single family wasn't getting us there with the strategies we were using, so we went to another training class for multifamily in 2017, where another light bulb went off, and our minds were blown again about the income potential. And within a year after that, 2018, Adam left his job and joind me full-time, and we've been working together in our business for the last five years.
Slocomb Reed: Gotcha. Do you still own some of those single families?
Adam Roberts: We have one single family rental left. So we sold everything else off to fund our multifamily business.
Slocomb Reed: I have a question about that... Because I know that there are a variety of answers to this question for people who go from other typically smaller rentals into multifamily. So when you sold your portfolio of single families to fund your transition into larger deals multifamily syndication, what is it that you were funding?
Adam Roberts: For us, we knew when we got into multifamily we wanted to be active investors; we wanted to be the deal-makers, the deal sponsors, so we needed a high amount of liquidity for earnest money deposit to get the deal started prior to investors. And as well today, more than ever, that liquidity helps to hedge risk in the marketplace. So balance sheet health, being able to fund deals if we absolutely needed to, things like that.
Emily Cortright: And specifically, each deal we've invested at least $100,000 in. So we've done eight deals so far, and like Adam said, the earnest money in multifamily was so much more than in the single family world. In multifamily, the earnest money could be $300,000, $500,000, up to a million dollars, so we would need to bring all or a portion of that. So we had to grow our liquidity to be able to be competitive deal sponsors in the Dallas, Fort Worth market.
Slocomb Reed: Gotcha. But you were also taking LP positions in your own deals.
Adam Roberts: Correct.
Emily Cortright: Yeah. That $100,000 minimum that we invest in our own deals, that is an LP, a limited partner position.
Slocomb Reed: And is that in addition to the earnest deposit that you're putting down? Or are you taking part of that deposit and rolling it into an LP position and getting back the rest of your deposit?
Adam Roberts: Exactly that. We'll get back some of our deposit, and we'll leave the remaining as an investment, an LP position.
Slocomb Reed: That makes a lot of sense. And the reason why I'm asking the questions the way that I'm asking them, Emily and Adam, is that I know a lot of syndicators who sell their owner-operated rental portfolio for the sake of liquidity. That liquidity, however remains as reserves and money for them to live on while they get their first few deals. They don't necessarily use it to take LP positions in their own deals or anyone else's deals. It sounds like you're using it for both.
Adam Roberts: We are, and we took somewhat of a conservative path. We had some good income coming in. I still had a W-2 job to make sure that we could pay the bills and things of that nature.
When we got our first large multifamily syndication acquisition finished, that brought in quite a bit more income. I was able to leave my job... Still, it wasn't like a one-for-one on expenses, but I knew that by joining her full-time, I could focus a lot more and we could get our second acquisition done, things of that nature. So to your point - yes, it was both.
Slocomb Reed: I have so many questions about this, for the record, because I'm one of those investors who still owner-operates a portfolio, and it has a lot of my net worth tied up in equity and properties... So that's where these questions are coming from, for the record. I also have friends who have not necessarily burned the ships, but definitely sold them in order to put capital in the bank, that they could use to transition to a more syndication style of investing.
So it sounds like you're not only creating a personal buffer for yourselves financially, but also creating those liquid reserves that would make it more possible to take swings on larger properties while putting down earnest deposits, taking those LP positions, and also having money in the bank in the event -- well, let me ask, actually... Eight deals, two of them fullcycle, six of them still under management... Out of those deals thus far, and the capital that you set aside for doing these deals - how many times have you had to deploy your capital after acquisition when something didn't go as planned?
Adam Roberts: We haven't had to do that yet.
Slocomb Reed: At all.
Adam Roberts: At all. So far, the deals have been self-funding, no issues. But to your point, in this type of economy, the deal sponsors are responsible for keeping some liquidity just in case.
Slocomb Reed: Do you all co-GP with other people on these deals? How big is your team?
Emily Cortright: We do. There's one other couple that we work with. So we're a two couples partnership.
Slocomb Reed: Within those two couples, four people, specific to Adam and Emily, what are your primary responsibilities?
Emily Cortright: So my role on the team is acquisitions, building our investor database, so I'm out teaching classes on passive investing, working with the brokers to analyze deals and get deal flow... Adam is more of the operations side. So once we own the property, Adam is working with the property management company. He's helping implement the business plan... More of the frontend operations.
Slocomb Reed: Asking about both acquisitions and operations... We're in Q2 of 2023 as we record. With both of those things, how is it that you all are experiencing the market of the moment? Interest rates, and -- the thing everyone is saying is that sellers and buyers are just not meeting on expectations, and there's not as much inventory out there when it comes to acquisitions. Also, operationally speaking, both revenue and expenses have been fairly volatile the last couple of years. It's good to hear you say you haven't needed any of your capital. It's also a little bit surprising. I know a lot of syndicators who have had to dig into their own personal war chests here recently, with some of the volatility we've seen particular to revenue and expenses, while even operating well. So the market of the moment and acquisitions and operations - what are you guys feeling?
Emily Cortright: So in acquisitions, I do see a similar gap between what sellers want and buyers can pay. We're offering on a property tomorrow, putting in an LOI... It's a $42 million list price, and I'm going to offer around 38 million. So it's about a 10% reduction in what I can offer, versus what they want. And we'll see where that goes. But this property is already at a discount from what you could have bought it for a year and a half, two years ago.
So it's amazing that we are starting to see some price per doors come down, very attractive price for doors for the asset class compared to the past year and a half... But there is still that gap because of the interest rates and the loan terms. So that's exactly what we're seeing in the real time market.
Slocomb Reed: If I ask a follow-up there before we switch topics... Emily, list price of 42, offer price of 38... Where is the guidance from the broker on this? Are you expecting to have a chance at this one?
Emily Cortright: I'm not sure, because the guidance from the broker is at 42 million. And 38 is what we can pay. It's what provides a cash flow for the investors. And we're working with the broker's lender, the in-house lender for the broker. So we've found that that would hopefully give us a heads-up with the offer, so I will have to follow up with you and let you know if we make it to the best and final.
Slocomb Reed: Of course, you should be making the offers that actually work with your underwriting, that deliver the returns necessary for your business plan. It just seems like a lot of people have been writing those offers and not coming anywhere close to what other people are willing to write still, and that's the reason why I asked. Transitioning, Adam, operationally, what are you guys seeing right now?
Adam Roberts: For us, you're really spot on; everything's been volatile. And I would add to the P&L volatility, just resident profile volatility, if we can call it that...
Slocomb Reed: Tell us about that.
Adam Roberts: It really started over the holidays, I feel. And usually, most holiday seasons are a little choppy, from a leasing and eviction and past due payments standpoint. But for us anyway, and a lot of my colleagues, that holiday hangover extended well into February and March, and we're just starting to come around the corner there. But for us, we're seeing a definite shift in apartment demand in Dallas, Fort Worth. It's not catastrophic. We're not talking about losing 20 percentage points of occupancy necessarily, but there's definitely been a shift. An apartment community that might lease at 98%, 99% occupancy routinely is now down into the lower 90s. And a lot of us operators are still scratching our heads a bit, saying "Where's everybody going?" And I think at the end of the day, we have reached a breaking point on rents and apartment demand, and we're seeing a little bit of a reset in the marketplace.
Slocomb Reed: Are you pivoting in your operating plan to get back to 99% occupancy? Or are you deciding to remain content in the low 90s? Are you reducing rent to get higher occupancy? Are you creating other tenant incentives? Or are you just going to take higher vacancy with the rents and incentives currently in place for tenants?
Adam Roberts: Yeah, we definitely took a tactical approach to occupancy early on during the holiday period, and we handled it like we would in any other holiday period, where we were offering some rent specials here and there, depending on the community. But that's more or less gone away. We are starting to feel things heat back up a little bit here in Dallas, Fort Worth, and we are relying on some other outside the box thinking. For example, we have a property in Houston where we elected to take six units on a 300-unit property, and hand them over to an Airbnb short-term lease partner of ours. They fully furnished the units, they do their own marketing... So for us, that's instant occupancy, because we sign a lease with the vendor, and they're actually seeing very good occupancy rates on their end as well on a short-term rental basis. So we're doing little things there too, just to take advantage of whatever the market is giving us at that point in time,
Break: [00:15:28.04]
Slocomb Reed: Have you taken actions or made changes to your plan that have led to concrete results already?
Adam Roberts: Yes. Beyond that, we've also been implementing some additional amenities at properties that we may not have, based on the performance of other parts of our portfolio. For example, we have some nicer properties where we have installed smart technology, keyless entry, smart thermostats, motion sensors, things of that nature; video doorbells. And we said, "Hey, you know what - people in the A class communities are paying for this. What about the C class communities? Can we get some demand there?" And we actually are. We elected to install that technology on a 1960s construction recently, and I've got tenants paying $50 a unit for those amenities. So to your point, occupancy may be taking a little bit of a hit early this year, but we've still seen very positive trends in our financials because of some of those amenities and business decisions we've made.
Slocomb Reed: Adam, adding an amenity to increase revenue and increase NOI at the end of the day - is that the result of demographic or generational transition, do you think? Is that something that you expect will be ubiquitously applicable in C class rentals?
Adam Roberts: I think you have to be very careful with the household income level. So for us, we tend to not take too many risks from that standpoint. We picked a property that was C class thrown through. However, the area is very healthy. Good schools, good jobs. We haven't looked at it in a couple of years, but the median household income is probably approaching mid $60,000, $70,000 a door. So those folks can definitely afford it. Would I take it to a lower-income neighborhood? Probably not. But at the same time, different dynamic in that neighborhood. I may not be dealing with occupancy issue there. I may not be raising rents as much.
Slocomb Reed: That makes a lot of sense. Part of my portfolio is in neighborhoods where you just can't push rents for anything... So our operational focus is how can we deliver a quality place to live as affordably as possible, so that we can keep rent low where the demand is for the area, and still deliver a quality product with an NOI. So I totally get where you're coming from.
Coming back to some of the comments that I made earlier - for our listeners, one of which I will say is named Slocomb, who has not decided to sell the owner-operator portfolio of smaller properties yet, who's considering doing so to springboard a larger property syndication style portfolio, what is the top tips for getting started and making sure you're starting on the right foot?
Emily Cortright: For us personally, we sold off our portfolio little by little, and it was basically as tenants moved out, we would fix up the unit to be sale-ready and resell.
Slocomb Reed: I will say that's a fairly single family specific strategy though, isn't it? Because depending on the neighborhood, depending on the property, the price you'll get for it when you put it on market for an owner-occupant is very different than for an investor, right?
Emily Cortright: Correct. And I would say all of them pretty much went to owner occupants, because at the time the owner occupants were paying the most for the assets. So little by little, we sold them off; that benefited us from tax strategies. So if we sold a couple properties a year and had gains, our depreciation from the multifamily offset those gains each year. So we actually haven't had to pay any gains taxes on sale of any of our 11 rentals so far. We've essentially kicked that tax can down the road. So that little by little benefited us because we didn't make a huge profit in one year that we then had to offset or pay taxes on.
Slocomb Reed: So the number one piece of advice, sell little by little, if applicable to your portfolio. What other advice do you have?
Emily Cortright: Our last property that we are exiting, we are actually selling on an owner finance note. As we want to diversify our portfolio more, instead of selling outright, one thing that we probably should have done with a couple more of the homes were to sell them on owner finance notes, so that we can then make interest by being the lender to the buyers, and allow us to have a recurring monthly income without any of the maintenance or tax and insurance liabilities on those properties. So that's what we're doing with our last single family asset, but we probably should have done it a little bit more, had we known what we know now.
Slocomb Reed: The downside of that strategy is the lack of liquidity upfront though, right?
Emily Cortright: Correct. That wouldn't have been good for us at the very beginning, because we needed the liquid funds. Today, we don't necessarily need the liquid funds. I just don't want to self-manage my rentals anymore. I don't want to deal with them. But I would love to have monthly income come in from a note and interest payments.
Slocomb Reed: That makes a lot of sense, given your position currently; eight deals under your belt, a couple of them full-cycle.
Adam Roberts: And I'll add one more thing that brings full circle, Slocomb, what you talked about earlier. In the multifamily space we may not have had to fund our own deals with emergency funds yet, but we definitely have been cashflow-constrained due to all the reasons you mentioned earlier: interest rates, volatility in the marketplace... So that's our paycheck to some extent, right? As well as many of our investors. So Emily's point about "Hey, just diversifying, doing some other types of investing that brings in more of a steady cash flow", it's not a bad thing for the portfolio, it's [unintelligible 00:23:16.13] to diversify.
Slocomb Reed: Okay, hypothetically speaking, I now have more money in my bank account than I've ever seen before, because I've sold off most of my small portfolio. What do I do next?
Emily Cortright: Well, the path we took was we were interested in being the asset managers for multifamily. And having that capital made us attractive partners, because we could contribute to the earnest money, we could put our own investment into our own deals, some skin in the game, and we were willing to do the asset management work, because we had previously been doing the real estate investing work with single families. And that creates a very lucrative cash flow stream. The deal sponsors for multifamily have three different streams of income, and one of those streams is monthly; we get paid a monthly asset management fee. So if you're willing to do the work, and to lead the multifamily group purchases, it is a very lucrative monthly income stream.
Slocomb Reed: Looking back on how you all started in syndication, what do you wish you had done differently?
Adam Roberts: I think the only redo that we talked about is the multifamily game is very relationship-based. You're using a lot of investor funds, you are also investing your own money into other people's deals... So we made a couple of investments as passive investors, limited partners, in a few deals that - yes, we had an SEC-compliant relationship with the sponsorship team, we knew who they were... But did we really know about their track record of success and what their total resume was all about, and all that? We probably should ask more questions.
When I look at our passive investment portfolio, we've had deals do great, we've had deals that haven't done great, and it's usually tied to how much of a relationship we have and how well we know the sponsorship team. That's what I always back on.
Slocomb Reed: On that note, are you ready for the Best Ever lightning round?
Adam Roberts: Yes.
Emily Cortright: Yes, we are.
Slocomb Reed: Awesome. What is the Best Ever book you've recently read?
Emily Cortright: We recently read a book called "The banker's code" by George Antone. I read it first, and I went to Adam and I said, "When you read Rich Dad, Poor Dad, that was kind of a decade-defining book." I went to him and I said, "The Banker's Code is our decade-defining book for this decade." Because it truly changed our mindset and our business strategy in terms of diversification into more notes, mortgages, with the mindset of becoming the bank, and being the bank. And it has literally opened my mind to a whole new set of real estate investing opportunities that we can progress into
Slocomb Reed: George Antone as an author is still not on audible.com. You can't get his books on Audible. I was saying ADHD earlier - I've listened to hundreds of books on Audible, but George Antone is an author who's just not there, so I haven't gotten to that one yet, because sitting down with a physical book is more of a struggle for me than for most. What is your Best Ever way to give back?
Adam Roberts: For the past several years I have been hugely involved with an organization called "Share the love." It's a charitable organization that donates wheelchairs to folks in need of mobility. It's highly-concentrated in Central and South America, Mexico, a lot of Hispanic countries... And essentially, what we do besides donate or invest in their charity, we also fly out and meet the wheelchairs in the small villages, and help to acquaint the new wheelchair owner with their new form of mobility. We've been doing that for the past four years or so, and we absolutely love it.
Slocomb Reed: Nice. Specific to the assets you all have acquired, these eight commercial multifamilies, what is the biggest mistake you've made with them, and the Best Ever lesson that's resulted from that?
Emily Cortright: I would say with our very first property, we still actually sold it too early. Probably. It was heavily affected by COVID. It was located right near an outdoor shopping mall, restaurants, retail, everything... So a lot higher percentage of those tenants were affected than at our other properties. So as soon as COVID kind of rebounded, and prices kind of came back, we decided to sell, because we were nervous about COVID 2.0, would we have to go through this slump again. Even though the state and a lot of different organizations came in and helped with the rent, we decided to sell. And I think looking back, we sold too early. We made profits, the investors made profits, everybody was happy, but had we waited another year, it would have been much more lucrative for everybody.
Slocomb Reed: I want to cut out some of the hindsight bias here... Emily, what was the conversation you were having when you decided to sell? What did continuing to hold the portfolio look like to you in the moment? It's an obvious answer now, but that's not fair. What were you thinking in the moment?
Adam Roberts: In the moment it's a matter of "If we sell, we can hit our investor projections. So that's the decision you make, because the future is unknown."
Slocomb Reed: So you were taking care of your people, being frank... And especially when you consider how much of your tenant base is not only attracted to, but employed by the highly COVID-impacted areas there, if you're able to hit your projection, I don't know there are a lot of investors who wouldn't make that decision. So I'm going to ask, what is the other biggest mistake that you've made, and the Best Ever lesson that resulted from that one?
Emily Cortright: We're kind of perfectionist, so... [laughter]
Adam Roberts: Gosh, was it all the homes we've never bought? And we're like, "Oh, gosh, if we would have bought all those homes, we'd be on a yacht somewhere."
Emily Cortright: As we were getting into the industry and making offers, we lost out on a deal because we wouldn't go up by $15,000. And the deal was $9 million. So we were at 9.3, and the other guy was at 9.35. It was a matter of pennies in terms of the big picture... And we didn't win, we came in second place; our colleagues won the deal. They made millions of dollars. And our takeaway from that was that never again will we lose a property for $100,000 or less. If that means I'm going to win this property, I'm going to go up that 50 or that 100 and we're going to buy it.
Slocomb Reed: Now, that is a true mistake from a perfectionist.
Adam Roberts: That's right. [laughs]
Slocomb Reed: That qualifies. On that note, Adam, Emily, what is your Best Ever advice?
Emily Cortright: I think that a lot of our success really stemmed from a very simple habit that we've been doing for over 10 years together, and that's tracking our financials. Every month, we sit down, we look at our personal income statement, income and expenses, our balance sheet, our assets and our liabilities, and we look at our financial picture and we say, "Where do we need to invest more? Where do we need to pull back? How does our cash position look?" Every month we take a strategic look at our finances, and I think that that has been a defining factor in our decision-making over the last 10 years, and our risk factor. Because when you see that the funds are there, and they can be invested, I think you're more inclined to take the action.
Slocomb Reed: Last question, where can people get in touch with you?
Adam Roberts: They can log into www.aemultifamily.com.
Slocomb Reed: That link is in the show notes. Emily, Adam, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you, and have a Best Ever day.
Adam Roberts: Thank you, Slocomb. We appreciate it.
Emily Cortright: Thank you, Best Ever.
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