Andy Crawford is the director of investor relations at Prosper Capital Co., a vertically integrated value-add multifamily syndicator. In this episode, Andy breaks down his most recent acquisition of a 27-unit property as well as discussing how his lack of delegation early on cost him scaling opportunities.
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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 Andy Crawford. Andy is also joining us from Cincinnati, Ohio, like me. He is the director of Investor Relations at Prosper Capital Company, a vertically integrated value-add multifamily syndicator. He's also a senior director of corporate sales in the Generic Pharmaceutical Industry. Prosper Capital's current portfolio consists of roughly 200 units, while Andy's personal portfolio is 105 units. Andy, can you tell us a little bit more about your background what you're currently focused on?
Andy Crawford: Sure. Thanks, Slocomb. I really appreciate the opportunity to be on the podcast. My background is in the pharmaceutical industry. I've got quite a bit of experience; over 20 years I've been in the pharma industry. And I've been within the Cincinnati area most of that time. I've worked for a small, privately owned company, which has since been bought up by private equity. And several years back, I really was interested in getting into real estate, providing additional streams of income for my wife and I and our family, and fast-forward to today, here we are - I've got properties right around the Cincinnati area, some up in Dayton, some we actively manage, and some that are partnership opportunities.
Slocomb Reed: For you personally and for Prosper, is everything in the Cincinnati area?
Andy Crawford: Yes, everything is in the Cincinnati area for Prosper Capital. Basically, within the 275 loop.
Slocomb Reed: Gotcha. And Prosper - that general partnership, you focus on investor relations. How many partners do you have?
Andy Crawford: Currently, there's two of us. The general partner who has established Prosper Capital, and myself.
Slocomb Reed: Gotcha. I think you actually said that you self-manage your portfolio. When you say vertical integration for Prosper, what do you mean by that?
Andy Crawford: Well, I think the thing that makes us unique, Slocomb, is we've really figured out that control of the asset through the whole period is really ultimately going to lead to success of the performance of the property, retaining the proper tenants there, keeping expenses down... So we have focused on in-house property management, construction management, and asset management within Prosper.
Slocomb Reed: That's property management, construction management, asset management. Does the same team that manages for Prosper also manage your units?
Andy Crawford: No, I actually have a third party that manages some of my personal portfolio, and then my wife and I actually manage a handful of our property still, that were some of the original buys when we started to get into real estate investing.
Slocomb Reed: Gotcha. So with Prosper, given that you're property construction and asset management, what does that asset management look like? The cliché everyone wants to use is that the asset manager manages the manager; well, you're boat. So what is asset management for you all?
Andy Crawford: Well, we're just taking over the control of the performance of the property, ensuring that the P&L's are looking good for us, and ensuring that we're keeping our expense ratio to the lowest possible point as we can, increasing rents where we can... Making sure that the members within the leasing team and the property management team are doing what they're supposed to in order to get unit turns going, or vacant units occupied... And as well with the construction management piece with our unit terms.
Slocomb Reed: Andy, I'm imagining you have a conversation with yourself about how things are going and how things need to be improved. I'm also, in this regard - I do not syndicate yet, but I'm an owner-operator, so I have property management and construction management in-house, and I completely agree with you with regards to controlling the process, controlling the operations also gives you the best control of the outcome. When was Prosper's most recent acquisition?
Andy Crawford: Our most recent acquisition was on May 8th, and that was a property here within the Cincinnati community. And that is a 27-unit building near the [unintelligible 00:06:10.20] area.
Slocomb Reed: That's incredibly recent. What about before that?
Andy Crawford: The one prior to that would be a property in Silverton, which is our redevelopment project that we had acquired back in May of last year. So we're coming up on almost our year anniversary there; that was a complete redevelopment project, very heavy lift, and actually one that I brought on to a local REIA as the deal of the month, which was kind of exciting to share the process with a lot of our local REIA members.
Slocomb Reed: Andy, I want to speak to that process and that heavy lift. So can you give us some more details about that project? Tell us where it is currently; you're just about a year into it as of this recording. How's it going?
Andy Crawford: It could always be a little bit more ahead of schedule. There's always hiccups that you run into, and any sort of large project. This project, the interesting thing about it is the property at one point in time in its life was a motel; about a 24-key motel. It was located right off Montgomery Road. It's about 1.7 miles from Kenwood Mall, so it's in a great location as far as where it sits in the area and that community. Heavily distressed... We picked it up directly from a seller with a really great broker relationship that we fostered over some time... And basically, after acquisition, we got in there, there was very little occupancy left; those tenants that were left, we made sure that we took care of them, and gave them notice and got them in a place. It was very unsafe living conditions; some of the boilers were leaking water, the electrical room was a disaster, so to speak... But we got in there after completely vacant, and our demo crew came in, we got a commercial GC on that project that has literally over 20 years of experience in the local area, doing strip mall developments, redevelopment projects through the commercial space, and even building some restaurants.
So having a great member on the team like that has truly been imperative in our process and the success of that process so far. But basically went in and gutted that building down to the cinderblock; not even the studs, but the actual cinderblock. And we completely redesigned the interior of the building with an architect.
Our goal, obviously, was "How do we take this asset and maximize the income potential as much as we could?" And that really involved in redeveloping the layout of the units, the type of units that we were putting in there, how many units could we fit, and what building... It's comprised of two buildings that sit right next to one another. And where we are today, after the heavy demo, and the process of working on some large capital improvement projects like the roof, and some of the heating and cooling, we have now gotten to a point where we are framed out, we've got flooring in, drywall in, all the mechanicals are in... And by this time next week, cabinets in completely in one part of the building. So very, very exciting. It's been a long road.
Slocomb Reed: No tenants currently.
Andy Crawford: No tenants currently, yeah. We're hoping to have lease-up start sometime in early June.
Slocomb Reed: June is a great time to be leasing, for sure. And I know cabinets feel like there's light at the end of the tunnel, even though you're still in the tunnel.
Andy Crawford: Yes.
Slocomb Reed: How does the actual construction timeline compared to what you projected?
Andy Crawford: I'd say we're probably about six to eight weeks behind schedule, in full honesty. We would have liked to have a lease-up done about by now, or at least initiated, and part of the buildings leased up... But one of the things I've really learned, Slocomb, through this process with the partner on the project, and with our construction management team, is inspections, inspections, inspections. And they really will hold up a project. We have been very fortunate enough that the GC that we have has had some foresight to schedule inspections concurrently through the project. So for instance, you have an inspection on your above-grade plumbing rough ends, even insulation has an inspection, which I was not even familiar with prior to this project... So lots of inspections that can really slow things down.
One of the big pieces that we were concerned about before starting the project was just supply chain. Were we going to be able to get the materials that we needed for the project? We all really took the reins on certain pieces of the supply chain procurement through the partnership... For instance, I was in charge of flooring, somebody else might have been in charge with HVAC... So it was really a team effort to take down, ensuring that we had the actual products that we needed to execute the project. Huge learning experience.
Slocomb Reed: This is not a fun question, of course, Andy, but six to eight-week delay in a construction this magnitude - what is the impact to the budget into your reserves for the project?
Andy Crawford: Well, I was having a conversation with another colleague in the investor space here in Cincinnati about a project they were looking at... It was a redevelopment project. And that person asked me "What's one thing I can learn from your experience?" And I've gotta say, "Always have extra reserves, because you're gonna probably run thin, and you're probably going to run over your timeframe." So obviously, there's debt on the property, most any property or most any projects we do. So debt costs money. So the longer it takes to get this property completed, the more we have an overage and debt payment. But we are actually projected to hit still under budget, believe it or not. So I think the partner and I really took the conservative approach.
As I mentioned before in regards to procuring materials, you've really got to get out there and shop around, make sure you're leveraging your network to understand that you're getting the best possible price on certain goods that you need to finish a project of this magnitude. So I'm very happy with where we are now, even though we're behind schedule.
Slocomb Reed: Your conservative budgeting for the rehab, it sounds like, is offsetting at least some of the additional carry costs of debt and utilities and things like that. That's good stuff. With a project like that, I know you said you have a general contractor and construction management in-house. How does that work? When you say construction management is in-house, how does that break down for you all?
Andy Crawford: Great question. Well, really the construction management team comprises of the project manager that is taking on the entirety of the development project. Myself and the partners, we assist in making the role decisions.
Slocomb Reed: And that project manager is part of the general partnership?
Andy Crawford: Yes, he's part of the project in some aspects, yes. And that really goes back to the genesis of why we're doing this... It's really to create a team within prosper that involves in all different aspects of the management process, whether it be property management, construction management, our maintenance technicians... We go further together, basically.
Break: [00:13:35.15]
Slocomb Reed: This project is not going to be a good example of how you do property management in-house. Generally speaking, with the other properties that Prosper has, in-house property management - what does that mean for you all?
Andy Crawford: Basically, we manage all the lease-ups, the unit turns, we have maintenance techs... One of the big metrics that we always take a look at is average response times and our maintenance tickets. And I think on average, when I was doing some of our Investor Relations reporting for Q1 of this year, we're literally executing some of these maintenance tickets 90% of the time same day, which is a big deal in tenant satisfaction. So as you well know, being a property owner maintenance is a constant need over your portfolio, so ensuring that you have some really good maintenance technicians on your team and a really good leasing agent is going to ultimately lead to your success.
Slocomb Reed: Pretty much every owner-operator that I know, syndicators included, people who have maintenance in-house, is going to say that the speed with which you resolve maintenance issues is the number one factor for tenant retention. Tenant retention means less turnover, less vacancy, less leasing cost, and it drives the bottom line very significantly, if not more significantly than anything, for sure. Interesting question for the operators and property managers and asset managers, frankly, who are listening in, and the LPs who like to ask these kinds of questions of their own sponsors and operators. Understanding that all markets are different and that all properties are different, what is your number of units per maintenance technician?
Andy Crawford: We have two full-time maintenance technicians that manage most of the portfolio properties. And some might say, "Wow, you're spreading yourself thin", but one of the things you have to remind yourself of is we strategically purchased properties in the vicinity of neighboring properties that we own. So it's all about economies of scale, and efficiencies... And when I said before the vast majority of our properties are within likely 15 or 20 minute drives, some even within just a minute or two. So we utilize those maintenance technicians pretty efficiently.
Slocomb Reed: I think there's some other variables too to this conversation as well, Andy; it depends a lot on your business plan. I personally tend to do heavier lifts, and so when we're going in, we're going to end up with almost all new plumbing fixtures anyways, if not all new plumbing fixtures... So we're replacing the things that tend to break down the most often, basically because of how old everything is when we take over the property.
So I know some operators even in the Midwest who are as low as 60 units per full-time technician, because they just have a lot of maintenance calls. I know especially on your heavier lifts in Silverton, I would suspect you're not going to have a lot of maintenance issues early on. It's not going to take the same amount of a technicians time to handle those properties, but also, it means that you're not going to be hitting the P&L nearly as hard with maintenance issues, because everything's going to be new.
Andy Crawford: Exactly.
Slocomb Reed: Specific to that full gut, to-the-cinderblocks renovation, what kind of returns did you project for it when you acquired it? And are you still on that mark right now?
Andy Crawford: Yeah, I think we are. Obviously, lease-up will really tell more... I believe that our projections for that specific property are going to be very much in our favor. I'd say that collectively, just round numbers, if we were to look at the opportunity, the post-renovation appraisal came back for that property around 3.3 million; significant meat on the bone for us on that one, and I think that post lease-up we'll have a better idea of that number. We kind of know what we think we're gonna get, specifically for per-unit rent, but things are leveling out a little bit in Cincinnati, so more to be told there.
Slocomb Reed: Tell us what you mean by "things are leveling out in Cincinnati".
Andy Crawford: Well, I feel like rent isn't softening, but it seems to be not increasing as rapidly as it has been in the last 12 to 24 months, as you may or may not have experienced. Location of the property definitely matters on what it can command, but conservatively, we're not looking for significant rent growth in the next two years here in this area.
Slocomb Reed: Andy, when did you start acquiring rental properties?
Andy Crawford: I think we started [unintelligible 00:20:11.06] my wife and I back in 2019. So we have not been in this game for very long.
Slocomb Reed: What would you say has been your biggest struggle thus far?
Andy Crawford: Well, I'll tell you, one of my biggest struggles has been delegating. And it always has in my life, because I like to execute tasks on my own. And one of the things that I feel like I've done better as we've tried to scale is just delegating tasks to others that can really do this for you. So that's been my biggest struggle, self-managing properties in the beginning, maybe passing off a couple buildings to a third-party management company... Kind of hard for me to let go of some of that control in order to control costs and overhead. So I feel like that's kind of been my biggest struggle. But I'm getting better at delegating, and really refining my processes in order to bring somebody in to fulfill that role, so it gives me more time to scale the portfolio with Prosper.
Slocomb Reed: There are a lot of people who struggle with delegating and trusting other people to handle things that they wouldn't be naturally inclined to do themselves... What would you say is the greatest opportunity cost of that, in your experience, Andy?
Andy Crawford: The greatest opportunity cost is really not focusing on your highest and best use. I think as we continue to gain experience in many aspects of life, whether it be real estate investing or not, is "Is what I'm doing gonna give me the best return on my time, and return on my investment?" And I think when you try to maintain too much control either over certain aspects of your property portfolio, certain aspects of not bringing on additional team members to control costs, you really are short-sighted in seeing the bigger picture of "I can really scale bigger and faster with others." And I've learned that partnerships in real estate - and we all know the cliché, saying it is a team sport, but it really is. And I think the opportunity cost of not relenting control in some aspects is going to really restrict your growth.
Slocomb Reed: I introduced you as an investor relations person. What do you see as your strengths, and what do you see as your weaknesses that you really need to be bringing partners in the cover?
Andy Crawford: Well, I feel that my strengths are definitely networking and really explaining the opportunities within the investments that we bring to our limited partnerships. One of the things I really rely heavily on is I'm very competent in underwriting, but there are partners that we brought in that have very strong underwriting and analytical skills; not necessarily my strongest suit, but nor do I like to do it that much... So I feel like that's something that I'm lacking in, and that a partner fulfills. Really the day-to-day management piece that's really heavily relying on my partner - that's not something I'm really excelling at, or have really the bandwidth to do. So I feel like that's really where we're at right now.
Slocomb Reed: That makes a lot of sense. Andy, are you ready for the Best Ever Lightning Round?
Andy Crawford: Let's do it.
Slocomb Reed: What is the Best Ever book you've recently read?
Andy Crawford: I would probably say "Who, Not How" by Dan Sullivan and Benjamin Hardy. That's a great one. It really correlates to delegating, which is something I'm trying to continue to improve upon.
Slocomb Reed: I've said this several times on the podcast, but Dan Sullivan even Who-Not-Howed the authorship of the book. He found someone else to write it for him, because he thought he could write it better. And now Benjamin Hardy has written a bunch of books for Dan Sullivan. What is your Best Ever way to give back?
Andy Crawford: Prior to having way too many kids, I really was involved in St. Vincent DePaul, to really support their mission, whether it be directly or indirectly. I really like to give back through that organization.
Slocomb Reed: Real quick, what does St. Vincent DePaul do?
Andy Crawford: Well, St. Vincent DePaul works through the Catholic Charities network. They do many different things, whether it be medication assistance through their charitable pharmacy within the Ohio area, or even within their thrift stores... And they also have food pantries located in different demographics throughout the city, to help those in need.
Slocomb Reed: Pertinent to us as well. They've had a pretty strong Rental Assistance Program since COVID really significantly impacted some of our tenant bases. In fact, I'm working with a St. Vincent DePaul for one of my tenants right now. Great organization. Andy, thus far in your real estate investing, what is the biggest mistake you've made, and the Best Ever lesson that resulted from it?
Andy Crawford: I'd say the biggest mistake I've made is trying to do everything by myself and scale a personal portfolio without success... And really, I guess, minimizing the benefits of partnerships. So I believe that that's probably been my biggest failure, but it also led me to current partnerships I'm in now, and really understanding how important they are if you want to grow and scale a business.
Slocomb Reed: What is your Best Ever advice?
Andy Crawford: My best ever advice is get out there and network, because that's how you're going to meet people. You're going to meet lenders that way, others that might be mentors to you, other owner-operators in this area or within whatever area you're looking to grow in... And also just to kind of keep you grounded. I think networking is the most underrated skill and function that we could do in any industry... So keeping that working.
Slocomb Reed: Awesome. How can people get in touch with you?
Andy Crawford: You can find me on LinkedIn, Andrew Crawford on LinkedIn, and also through Facebook. And you can visit our site anytime at prospercapitalco.com.
Slocomb Reed: Those links are in the show notes. Andy, 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.
Andy Crawford: Thanks, Slocomb. I really appreciate the opportunity.
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