Joe and Yusef will dive into a recent 172 unit deal that Yusef closed on and is adding value to. We’ll hear the numbers as well as Yusef’s partnership structure and how he’s scaled from single family homes to buying apartment communities. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“If you stay disciplined in your fundamentals, that usually creates longevity for the experienced investor” – Yusef Alexander
Yusef Alexander Real Estate Background:
- Co-founder, VP, and Business Development Officer at Real Estate Asset Partners (REAP)
- He has over 20 years of experience, repositioning commercial and residential properties
- Based in Los Angeles, California
- Say hi to him at https://reap.capital/
- Best Ever Book: Daily Stoic
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Yusef Alexander. How are you doing, Yusef?
Yusef Alexander: Hey, Joe. I’m doing great!
Joe Fairless: Well, I’m glad to hear that, and looking forward to our conversation. A little bit about Yusef – he’s the co-founder, vice-president and business development officer at Real Estate Asset Partners. He has over 20 years experience repositioning commercial and residential properties. Based in Los Angeles, California. With that being said, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Yusef Alexander: Background – I’m an old guy, I started in the mid to late ’90s, buying and selling homes in the blighted areas of Los Angeles. I went through both economic swings in the mid-90’s and 2000’s. I bought and sold high-end and small, distressed properties from Bel Air to Compton, and everywhere in between. So what I did was I created a resource of investors. From that activity I moved to multifamily, and now my focus is multifamily assets in South-East, North Carolina and mainly Georgia.
Joe Fairless: Okay, got it. So you are buying apartment communities in the South-East.
Yusef Alexander: Yes.
Joe Fairless: What have you bought recently?
Yusef Alexander: A 172-unit building in North-West Atlanta. It’s just an emerging area — well, it’s not emerging anymore, it’s just an established area… And in a — not a renaissance, but the working class population there has now become the upper-middle class.
Joe Fairless: Okay. How long ago did you close on it?
Yusef Alexander: Probably 7-8 months now.
Joe Fairless: Okay. Belated congratulations on the close… Let’s talk about some specifics of the deal. What was the purchase price?
Yusef Alexander: I put two million down, purchased it for eight million.
Joe Fairless: Okay, and what’s the business plan?
Yusef Alexander: The business plan is to — actually, a tiered approach. I wanna keep some of the population in the surrounding areas there, so I’m gonna do a tiered approach by having a light rehab, and then I’m gonna have a very high-end rehab. So I’m gonna offer apartment homes, pretty much, luxury apartment homes, and I’m gonna reposition it for low twenties as far as the price; twenty million or so. I’ll refinance it, and get on to the next project.
Joe Fairless: Okay, so you’re doing a light rehab, and then you’re also doing a high-end rehab. What percent of the 172 units are light rehab?
Yusef Alexander: Light rehab probably 5% to 10%.
Joe Fairless: Okay. And then the high-end rehab the rest?
Yusef Alexander: Yes.
Joe Fairless: Okay. And how do you determine that percent breakdown?
Yusef Alexander: Well, the building was owned with a previous partnership, so I have a lot of historical experience with that area and with the occupants. So studying the activity and know what the population is, and how the pulse of the market as far as the population in the area is, I’ve determined that I wanna keep some of the — I don’t wanna say lower-end… I just wanna keep some of the lower price points available for some of my occupants.
Joe Fairless: And will you repeat the partnership thing, so I’m understanding it correctly?
Yusef Alexander: I was a smaller partnership, meaning a 12% partnership, and now I’m a 100% owner with my new partner; we’re 50/50 partners.
Joe Fairless: Okay, so you had 12% ownership of the property, and then you and another partner bought out all those other partners?
Yusef Alexander: Yes, on a purchase.
Joe Fairless: Okay, on a purchase. So now you and the other partner are the ones that own this building together. Is that 50/50, or another breakdown?
Yusef Alexander: Yes.
Joe Fairless: In that structure, who brings what to the transaction?
Yusef Alexander: Well, we bring 50% of the equity, we bring 50% of the partnership, and we split it down the middle.
Joe Fairless: So you both tackle things together and it’s all 50% of the money, 50% of asset management… It’s all split down the middle.
Yusef Alexander: Yes. You know, with an asset there’s asset management, there’s leasing, there’s construction, there’s design, there’s a lot of activity and expertise that needs to happen, and however you align it – if you third-party it or if you do it in-house – then there’s fees and partnerships that can be split… Sponsorships, general partnerships that can be split. We can get into that, but it just depends on how you guys take it down, how the group takes it down.
Joe Fairless: Yeah, let’s get into it a little bit, just in terms of what you’re focused on for the property, and then what your partner is focused on to oversee the project.
Yusef Alexander: My focus is going to be stabilization. There’s a de-leasing situation that happens, because some of the units – or most of the units – are not gonna be occupied while the renovations are happening… So you de-lease it and you have to monitor the de-leasing as that happens, which I’m gonna be in charge of, and then once the rehab happens or the business plan is executed, then we’re gonna make sure we optimize the occupants and the leasing to that new product that’s being offered. It’s pretty hands-on, it’s pretty important; you’ve gotta be on top of everything.
And then there’s the construction management. The construction management has to do with the design, the execution of… Let’s see – we’re doing 3 million dollars of rehab, a certain amount a door, and that has a whole process to it as well.
Joe Fairless: With being on top of everything, what are some specific examples that if a Best Ever listener is undertaking a project like this and they hear that they’ve gotta be on top of everything, what are some things that you’d want to tell them “Hey, you’ve really gotta pay attention to this stuff.”
Yusef Alexander: Well, if I just talk specifically about leasing – you wanna be very granular about what the market commands, the amount. So if your project is — let’s just use $1,000 as a round number. So your stable project is gonna offer a $1,000 rent for two bedrooms, and the next door they’re offering some of the same amenities or more and their price is higher or lower – you need to put an application in next door, you need to drive comparable rents, you need to walk comparable properties and figure out the rental experience of that product that is competitive to yours, because you’re putting all of your focus and all of your resources into delivering a product at a certain price point, and that price point has to prove out over 200 units.
Once that price proves out over 200 units financially, and then your lending, and your investors, and things like that – all it takes into account. So if I’m talking to someone and saying “Be on top of everything”, be on top of the rental rates, the product, the comparables in your area.
Joe Fairless: And then on the construction management side, when you say “design”, are you working with a design firm, or what are you referring to with that?
Yusef Alexander: As far as the construction side – again, there are some very specific areas that need to happen on that side, but yes, you need an architect, you need a design. This is only dictated by the level of construction that you are undertaking. If you’re making a new leasing center, that might not be that much design-heavy. But if you’re doing a pool, and a bungalow, and a landscaped DG area for pets and families, you’ve gotta get in there and make sure it’s done right.
Joe Fairless: DG?
Yusef Alexander: DG is the dirt or the landscape kind of pathways that are in a lot of hardscapes now. I just use it because we use it so much… I think the name of it is disintegrated earth, or something like that. It’s just pretty dirt. You’ll see it.
Joe Fairless: I like that, “pretty dirt.” [laughs]
Yusef Alexander: When you go outside and you see those landscape [unintelligible [00:09:42].26] you see dogs and people walking on them, you’re gonna be like “Oh yeah, Yusef was talking about that.”
Joe Fairless: [laughs] So with this project you have one business partner. Was the other business partner in the deal before this as well?
Yusef Alexander: They were in the asset, and then the other business partner wanted to move in a different direction with their portfolio.
Joe Fairless: Okay, so there were only three people previously, and now there are two.
Yusef Alexander: Yes.
Joe Fairless: Cool. How does that work, when you’re three owners in a deal, and one wants out, two wanna stay in… What do you do?
Yusef Alexander: Well, if you are in a situation where the business owners are all kind of in the industry or in the same ilk of how they conduct business in this space, specifically multifamily, then usually it’s just a price; you come up with a price and you pay out an owner.
Now, I don’t know how many partnerships you’ve been in, Joe, but people are people. Sometimes there’s different seasons of life, there’s different issues… Who knows how a partnership would move into an equitable space if someone wanted to move out. There’s an infinite number of examples to that effect happening.
Joe Fairless: In your case it just had a price… So how did you value the price of their ownership?
Yusef Alexander: The price of their ownership comes from the price of the asset. The price of the asset is determined by the agreeable third party, and then that is split from the percentage of the partnership.
Joe Fairless: And then what type of third-party do you hire to do that valuation?
Yusef Alexander: You can do a broker’s opinion of value, you can do an appraisal, you can do kind of a desktop appraisal from a lender… There’s a number of ways you can get a third-party valuation for an asset.
Joe Fairless: Which one did you do?
Yusef Alexander: Broker’s opinion of value and a desktop appraisal.
Joe Fairless: And will you define a desktop appraisal again?
Yusef Alexander: A desktop appraisal for me is some type of financial group that loans money and they underwrite deals to make sure they position correctly in the money that they lend. So they do appraisals and valuations – that’s kind of what they do.
Joe Fairless: And did you all agree prior to getting the broker’s opinion of value and the desktop appraisal on who would be doing those?
Yusef Alexander: Yeah. Again, if I’m buying units in Georgia, I don’t want a broker’s opinion of value from a group in Hawaii.
Joe Fairless: Right. So you all identified “Here’s a broker we’re gonna get an opinion of value from. Here’s the lender that we’re gonna get a desktop appraisal from, and then we’re going to average those two and then come up with a valuation”?
Yusef Alexander: No, that’s a pragmatic way of doing it… It depends. If the numbers are the same or agreeable, then we just kind of use that metric – averaging them out, or using the one that’s most trusted… Or maybe even using the higher one, if you wanna get this done, and whatever is agreed upon in the partnership.
Joe Fairless: And what did you all do?
Yusef Alexander: We did the higher one.
Joe Fairless: You did the higher one, okay. And I imagine the higher one was the broker’s opinion of value, yes?
Yusef Alexander: Yes.
Joe Fairless: [laughs]
Yusef Alexander: Their motivation is what it is.
Joe Fairless: Right, right. That’s interesting. So that was your most recent purchase… And is that the largest property you have in your portfolio currently?
Yusef Alexander: No.
Joe Fairless: What is the largest one?
Yusef Alexander: The largest one is a 355-unit in Georgia.
Joe Fairless: In Georgia… Staying in Georgia.
Yusef Alexander: Yeah, there’s some opportunities here… But there’s opportunities in other markets as well; it’s just that one came up.
Joe Fairless: When did you buy the 355-unit?
Yusef Alexander: This one was purchased maybe five years ago. I’m a minority partner in that.
Joe Fairless: Okay. So you’re a passive investor in that one?
Yusef Alexander: Yes.
Joe Fairless: Okay, cool. It’d be interesting to touch on briefly then… So you’re an LP in that one… How many deals are you an LP in, approximately?
Yusef Alexander: Let’s say five.
Joe Fairless: Okay. And then how many are you a GP in?
Yusef Alexander: Two.
Joe Fairless: Two. So with the 172-unit you’re clearly a general partner; with the 355-unit you’re an LP… What things – if any – did you learn from being an LP in the 355-unit, that you apply to the 172-unit.
Yusef Alexander: Well, again, I’m a deal junkie, and I like to get deals done, and sometimes the way to insert myself in a deal to leverage my capital, or to leverage my knowledge – my participation is determined by that. So the LP deals – I could have been a general partner, but the sponsorship was already established: who’s gonna reposition the asset, what the business plan is gonna be, and the management of the asset. That was already established. The limited partner was available; they were raising – I forget; maybe 3-4 million dollars – and I was able to insert myself and leverage the capital.
So I’m always learning in deals. I’m a deal junkie… Not a deal junkie — I like to look at deals, but I also like to participate in deals that are in alignment with my business goals and my experience and my career.
Joe Fairless: Okay. So what did you learn from being an LP in that deal, if anything, that you apply to actively managing the 172-unit?
Yusef Alexander: It’s not really a cross-over. I’m trying to put both hats on. If I didn’t know about the risk factors are the experience and the duration of taking an asset from acquisition to disposition – if I didn’t know that as a general partner, would I have invested in that as an LP? No, I probably wouldn’t. So by being a general partner, it allows me to have comfort in being a limited partner.
Joe Fairless: But weren’t you a limited partner before general partner, right? Or am I missing something…?
Yusef Alexander: No, I bought assets as a general partner throughout my career.
Joe Fairless: Oh, got it.
Yusef Alexander: This is the current activity now…
Joe Fairless: The current portfolio. I’m with you. Yeah, alright.
Yusef Alexander: We can go back and talk about deals…
Joe Fairless: Yeah, okay. Got it. Fair enough. With the other property that you’re currently a GP on, which one is that?
Yusef Alexander: The 172 units.
Joe Fairless: Right, one is a 172-unit, but I thought you mentioned you’re a general partner on two deals.
Yusef Alexander: Oh, yeah. That deal – it’s actually closing right now.
Joe Fairless: Oh, okay.
Yusef Alexander: It’s being sold, and the deal is done well; investors – cross my fingers – will be happy with the returns, and we’ll do some other deals together, but that one’s being sold.
Joe Fairless: Nice. Well, congratulations on that. [unintelligible [00:16:15].13] Yeah, deal. How many units is that one?
Yusef Alexander: That one is 190 units. 193… I think we captured a couple of the units… 193, let me just say that.
Joe Fairless: Got it. And where is that?
Yusef Alexander: It’s in Georgia as well.
Joe Fairless: In Georgia. I’m noticing a trend. And what was the business plan and how long did you own it?
Yusef Alexander: The business plan was to buy it, do a value-add on it, take the asset, and actually change the class of the asset. The asset was probably a C asset in a B area. So it was an average asset in a very nice area, or nicer area… And then to change the class with the accommodating amenities to a nicer area, what the area would want.
Joe Fairless: Got it. Taking a step back, based on your experience, what’s your best real estate investing advice ever?
Yusef Alexander: The best real estate advice ever is — would it be to a beginning investor, or…?
Joe Fairless: Sure.
Yusef Alexander: Well, what I would tell a beginning investor is surround yourself with the right people, and experience. Get out there and have some real estate experience. I could drill into those if you like…
Joe Fairless: What about a more experienced investor? What’s something you would tell them?
Yusef Alexander: Be disciplined, stay disciplined. Because what happens with the experienced investors, which I’ve known and I’ve made this mistake as well – the market is very influential. There’s a lot of things happening in the market with interest rates. There’s a lot of things happening in the market with the movement of activity to different areas. This is a hot area, this is an emerging area. But if you stay disciplined in your fundamentals of why you buy property, what you’re looking for when you buy that property, and also what your plan is for exit – having multiple exits versus one or two exits – staying disciplined in that usually creates longevity for an experienced investor.
Joe Fairless: I like it. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Yusef Alexander: We’ll see. Let’s do it!
Joe Fairless: I think you’re ready. First though, a quick word from our Best Ever partners.
Break: [00:18:22].23] to [00:19:07].14]
Joe Fairless: Alright, Yusef, best ever book you’ve recently read?
Yusef Alexander: I like The Daily Stoic, Ryan Holiday.
Joe Fairless: Okay. Tim Ferriss talks about that a lot.
Yusef Alexander: Yeah. Pretty cool.
Joe Fairless: Best ever deal you’ve done?
Yusef Alexander: I was the second investor on a condo conversion. It pretty much quadrupled the returns. I bought in it for a million, sold it for over four million.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Yusef Alexander: Early in my career, 20-something years ago, I bought a home next to a gas station. [laughs] That was a mistake.
Joe Fairless: And that’s because of the loitering, or the environmental issues?
Yusef Alexander: You could stack 20 different reasons why. Looking back, with 20 years of experience – I never should have bought that. But anyway. I learned a lot.
Joe Fairless: Did I get the two big ones, loitering and environmental issues? Or is there something else?
Yusef Alexander: Yes – loitering, environmental issues, smell, noise… Usually the lighting on a commercial gas station has these lights that are like baseball stadium lights. So no matter what time at night it is, you have these — anyway, it was a mistake.
Joe Fairless: Note to self, never buy a property to live in next to a gas station, too.
Yusef Alexander: [laughs]
Joe Fairless: Best ever way you like to give back to the community?
Yusef Alexander: I’m a literacy advocate, so I like to give back through championing literacy projects, childhood literacy, emotional literacy and financial literacy.
Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?
Yusef Alexander: LiteracyUp.com is a website that we launched to help close the world gap with childhood literacy. My company’s site, Real Estate Asset Partners, or www.reap.capital, and I’m online, you can easily find me.
Joe Fairless: Okay, and we will include that in the show notes. Yusef, thank you for being on the show, talking about the 172-unit you’ve got in North-West Atlanta, the areas of focus, and how you structured that… And then with that transaction, how you structured the exiting of one partner, more so so that as Best Ever listeners we can know what to do if we are in a partnership and things need to go a different direction, how to do it fairly so that everyone is more or less happy with the outcome, as well as talking about different lessons you’ve learned from the other projects you’ve worked on.
Thank you for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Yusef Alexander: Thanks, Joe.
