Alex Rogers graduated from the University of Minnesota with degrees in finance and economics in 2009 after watching the Great Recession unfold in real time. However, that didn’t deter him from teaming up with a friend to launch his real estate investing career. Today, Alex serves as principal at Gray Duck Capital, a fully integrated real estate firm specializing in multifamily real estate. In this episode, he shares why he decided to take on third-party property management, how he selects clients, and his advice for scaling to the point of hiring full-time staff.
1. Launching a Third-Party Management Company
Alex and his partner opened East West Property Management in 2014 to begin offering third-party management to others while focusing on their own portfolio. “Property management is a truly thankless job,” he says, “but one of the most critical for executing a business plan.” There were several reasons Alex decided to take it on. Property management helped him to expand his network, but his main goal was to adequately staff his own property management firm to manage his own assets.
2. Client Selection
Alex and his partner are selective when it comes to their property management clients. They prefer to work with investors who have an interest in maintaining their assets. “We are the face of those rental properties, so anytime a tenant is upset that an improvement isn’t approved by an owner, we’re the ones that get the backlash,” Alex explains. “So we’re very picky with who we choose to represent to make sure that they are, in fact, on board with maintaining their assets and improving them for the better of the community and the residents.”
3. Advice for Scaling
Providing third-party management can help you to scale your business by building your team, systems, and processes while expanding your door count, Alex says. But he stresses that it’s tough work. “Always look for qualified vendors that can help you out in a pinch,” he recommends. “And then bring on teammates that can satisfy your maintenance needs, too.”
Alex Rogers | Real Estate Background
- Principal at Gray Duck Capital, a fully integrated real estate firm specializing in multifamily real estate.
- Portfolio:
- GP of:
- 200 units through syndication
- 100 units and approximately 50,000 sq. ft. of commercial acquired outside of raising capital with his business partner and additional JV partners.
- LP of one fund, one multifamily syndication, and one storage syndication.
- Based in: Duluth, Minnesota
- Say hi to him at:
- Best Ever Book: Who Not How by Dan Sullivan
- Greatest lesson: One of the greatest lessons I've learned was the strength of your immediate network and those you spend time with. A common saying is that "you are the average of the five people you surround yourself with.” I take this to heart and try to surround myself with people that are smarter than I am. If you're the smartest person in a room, you're in the wrong room.
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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 I'm here with Alex Rogers. Alex is joining us from Duluth, Minnesota. He's a principal at Gray Duck Companies, a fully-integrated multifamily real estate investing firm. They are currently GPs of 112 syndicated units. They also have 110 units of 50,000 square feet of commercial space owned outright with partners. Alex is also an LP of a fund, a multifamily syndication, and a storage syndication. Alex, can you start us off with a little more about your background and what you're currently focused on?
Alex Rogers: Absolutely. Thanks, Slocomb, I'm jazzed to be here. I'm from Minneapolis, Minnesota originally, and like you mentioned, I moved to Duluth to attend college. I graduated from the University of Minnesota Duluth in 2009 with degrees in finance and economics. As you can imagine, studying finance and economics in 2009 was really interesting, watching the Great Recession happen right in front of us and the meltdown of our entire financial system.
Upon graduating from UMD, I knew that I didn't want to join the corporate workforce. I didn't want to try to climb the corporate ladder. I wanted my successes to be completely derived from my efforts. So I partnered with a really good friend from high school and college to start investing in real estate. We started with two single-family assets in 2010. We pooled our funds together, two kids right out of college, so we didn't have much capital that time to invest. We had to finance creatively too during that time since capital was tough to acquire.
So we got our first foot in the door for two single-family assets in Duluth, Minnesota. From there, we slowly saved every penny we could, reinvested into the properties, reinvested into our portfolio. Working by day as realtors, selling single-family homes in a market that was completely different than it is today, not hot, and doing all the work ourselves. Working from 9 AM until 5PM in real estate, and then working straight until the evening, 2 AM, 3 AM, putting flooring in units, painting, everything.
But as time went on, our portfolio snowballed and we've made a lot of different acquaintances in the market, in the investor database world, and a lot of colleagues came to us asking for help with their rentals. So in 2014, we opened East West Property Management, and began third-party management for others, as well as focusing on our own portfolio. In 2018, we launched our construction company, and just last year in 2021, we completed our first indication of 112 units in Duluth. Today we have an 84-unit multifamily under contract in Robbinsdale, Minnesota, a first-ring suburb of Minneapolis, and are actively deal hunting in Cincinnati, Indianapolis.
Slocomb Reed: Nice. And I will say for our Best Ever listeners that Alex reached out to me, connected as a fellow Best Ever listener, he was coming into Cincinnati and we connected, and that's how I got to know him, and I knew that he'd be able to add value to our audience through getting onto the podcast. So a couple of things fully vertically integrated with an owner-operator background, Alex, and now syndicating. Let me ask first, why is it that you've decided in the last couple of years to get into syndication?
Alex Rogers: Well, we looked at the different markets that we wanted to enter, and then you look at what is the best use of your resources and where are the best returns made, and many of the better returns are made on projects that are largely scope, where your own capital can't do the full job. So we turned to raising capital for others so we can provide a solid return for our investors, while also being able to execute a business plan alongside our own capital for a better return. And that's what generates our drive towards syndication.
Slocomb Reed: Gotcha. So I'm an owner-operator myself, as you already know, Alex, from our conversations... As an owner-operator with a portfolio smaller than yours, I ask myself often whether or not I should do something like get into third-party property management in order to generate the revenue to help build out the team that manages and helps me force appreciation in my own portfolio and my own acquisitions, and generate a little more revenue, generate a little more income personally, because I have most of those pieces in place.
The vast majority of people I come across like you and me, Alex, who are owner-operators, every chance I get, I ask the question, "Did you ever consider third-party management?" and almost always, they say, "I considered it and I decided against it." You started into third party management several years ago now, in 2014, you said. Why is it that you decided to take on third-party property management at that point in the growth of your portfolio?
Alex Rogers: That's a great question. Property management is truly a thankless job, but one of the most critical for executing a business plan and being able to see these properties through. We got the property management as our foot in the door, to expand our network.
We had a lot of colleagues looking for help. At the time, there was one other property management firm in our market, and at that time, we had built up our own portfolio, systems, processes of vendor database, and were positioned in a way to grow our own system and company, but we did require additional units to manage, to really make it feasible from a financial perspective, because it's not inexpensive to have a staff of maintenance technicians, administrative staff, and accountants. And that was really our drive to open up to third-party property management so that we could adequately staff our own property management firm to manage our own assets.
Slocomb Reed: Tell us, Alex, what those numbers look like. Where did you find your portfolio at the time that you decided to take on third-party management? And now separating your own personal investment portfolio, thinking specifically about how large a management portfolio needs to be to have the scale to justify full-time staff and get yourself out of the day-to-day operations of the portfolio, where was your portfolio at the time you decided to make that leap into third party to increase the management portfolio? And where did you need to get the portfolio to in order to be sustainably sized to have that full-time staff?
Alex Rogers: You know this just as well as anybody that the rental rates of an apartment community can differ significantly based on the market. So the unit count to make it feasible to have a property management company in Seattle, Portland may be way different than Duluth or Cincinnati. For us, when we opened our management company, we were sitting around 45 units that we owned. We immediately had 150 units that were looking for a home though to help. So basically, day one, we stepped in with a management company, managing about 190 units.
Slocomb Reed: Gotcha. So you effectively quadrupled the portfolio day one, it sounds like. Now, what did it take to get those 150 units for third-party management? I imagine they didn't just fall in your lap.
Alex Rogers: They kind of did. We're a tertiary market, and at the time, there wasn't too many other options for property management. So when we were opening, we already had a relationship with the owner, and they were looking for something new, somebody that could help fill units and hit market rates and make sure that the maintenance was in line so they maintain their asset.
Slocomb Reed: Gotcha. So there was not much competition for property management then where you were.
Alex Rogers: At the time, no. Today, there's a few other really great options in our market for property management outside of our own company.
Slocomb Reed: Are you still managing third party?
Alex Rogers: We are, for very select clients.
Slocomb Reed: How do you select those clients?
Alex Rogers: Those that have an interest in maintaining their assets - we are the face of those rental properties. So anytime a tenant is upset that an improvement isn't approved by an owner, we're the ones that get the backlash, so we're very picky with who we choose to represent, to make sure that they are in fact on board with maintaining their assets, improving them for the better of the community and the residents.
Slocomb Reed: In Cincinnati, here I personally often use property managers as deal finders, because I know a lot of people when they're experiencing distress with their rental properties, especially If they're invested at a distance, the first people to know are property managers. Usually because they are shopping for one, because they feel like they need change in order to get their portfolio to perform. Have you found that offering third-party management services has put deals in your inbox in the form of distressed owners who are reaching out looking for third-party management, when what they really need is just to sell?
Alex Rogers: So the first indication that we closed on last year in 2021, the 112-unit, that was a portion of 150 units we onboarded back in 2014. So that was a portfolio that we managed for seven years before we had the opportunity to acquire it. So that is an ancillary value of growing your third-party business, is potentially being able to work with those owners down the road for deal flow.
Slocomb Reed: Gotcha. Have you had a lot of distressed landlords reach out to you about your management services to get their properties back to performance?
Alex Rogers: We have. So the market that we're in in Duluth, Minnesota, the average age of our housing stock is exceptionally old; there's plenty of properties out there that were 100 years older than I am. So the bones are great, structurally speaking, they are sound. However, the systems within them need updating and improvements pretty frequently. So we do find that there's a decent amount of housing stock and rental stock in our market that could use some more love. And those rental owners usually do come to us or a few other decent management companies we have in Duluth. A lot of times they'll be self-managed beforehand.
Slocomb Reed: Gotcha. And you said you started a construction company as well. You know, I, coming from the owner-operator perspective, having my own portfolio and having my own construction needs, my attorney and my insurance guy both recommended that I have a different company that handled renovations, but that's really entirely within my own portfolio. Is that what you guys did in 2018, or did you start a company for doing renovation and construction third party for other investors?
Alex Rogers: We do offer our construction services to our clients that are third-party management for --
Slocomb Reed: Gotcha.
Alex Rogers: We don't offer it to the public. And really, the genesis or the catalyst for starting our construction company was, at that time the construction industry really started boom, and it was tough to nail down contractors to perform jobs that we needed done in a timely fashion. So we expanded our team, brought in some really great team players and were able to control that timeline a little bit better when it's in house.
Break [00:12:38] - [00:14:25]
Slocomb Reed: I'm feeling that right now. I have a little more than the 45 doors that you had when you started your management company, but I've effectively done the same thing. They're still technically independent contractors, but I make sure that I'm giving them enough work to keep them busy full time, so that I know when my work is going to get completed. It's a small group of guys because that's all I need at the moment, but I could see it growing, for sure.
Let's convert this into advice, Alex. I remember struggling to get apartments turned and even just some maintenance work orders taken care of if they were outside of my own capacity when my portfolio was smaller, and I couldn't afford staff. Or I didn't have the capacity to keep independent contractors busy all the time. So I was stuck using people who I found on Craigslist, or I tapped out every single person who had been referred to me within my sphere, and I was struggling to get toilets replaced, much less apartments renovated.
Going back to the owner-operator in that space who's scaling their portfolio, what advice do you have for an operator who needs to scale to get to the point of having full-time staff for the management of their own portfolio? What advice do you have for making that leap? Is it simply "Start a management company, you'll get a bunch of doors" or is it more nuanced than that?
Alex Rogers: It's definitely more nuanced than that, and it can be the chicken or the egg concept, too. Starting off with third party could help you with that, where you can build your team, your systems, your processes for yourself and others, while you can expand your door count. So it's feasible to have a team. But really, it's a tough thing. You need to make sure that you can service your own units, and if you take on any others and you're having trouble finding vendors to perform maintenance or improvements, you can be put in a tough spot. So always looking for qualified vendors that can help you out in a pinch, and then bring on teammates that can satisfy your maintenance needs, too.
Slocomb Reed: In your experience, how many units does it take to keep a maintenance person busy full-time?
Alex Rogers: It's going to really depend on your market. Here in Duluth, I think we're right around 50 units to really occupy a lot of time for one of our maintenance technicians, because of the age of the housing stock. Other markets that have newer housing stock, it could be a lot more units, so you need to have somebody on full time.
Slocomb Reed: Yeah. I am currently managing, let's call it around 80 doors, and every property that I've brought on recently, of course, had a lot of deferred maintenance, because I was acquiring them out of situations where the management was not as active as I am. Let's say it that way. But as soon as I've crested the hill of maintenance work orders, now I'm at a good point where I have to keep my guys busy... I'm effectively flipping a house on the side right now just to make sure that in between apartment turns and other issues that I know that I can keep my guys busy.
Alex Rogers: So like you mentioned, the flow of work orders can have its peaks and troughs. When we're at a trough and we have a shortage of work orders, we're very aggressive with making sure that we're able to get out and inspect units that we need to to make sure that they are in adequate shape. We aim for two inspections each year of every unit. You can find a lot of deferred maintenance. Some tenants are really good about reporting the leaky faucets, whatever it might be, and others just don't, and that can damage the property. So it's pretty critical to be able to go in and inspect the units as well, and that can occasionally generate additional work for your team.
Slocomb Reed: Yeah, absolutely. Get those furnace filters swapped out, for sure.
Alex Rogers: Exactly.
Slocomb Reed: Before we segue to the final segment of the show, Alex, I want to ask you, because we're recording in mid to late May of 2022, and you're actively looking for deals in a few different Midwestern markets. There's a lot going on with the economy, there's a lot going on politically, both in the world and in the United States... We're effectively still experiencing a pandemic, hopefully on the tail end. When you combine that with inflation and supply chain issues, very quickly rising interest rates, incredible volatility in the stock market and other investment markets, a lot going on right now, you're actively looking at deals. A couple of questions for you... The first is, are you seeing any changes in the deals that are brought to you by brokers now, as opposed to earlier this year? And are you changing the way that you underwrite or changing your own strategy for acquisitions right now based on what's happening on a macroscale and the economy in the world?
Alex Rogers: Great question. In terms of what we're seeing from brokers, we do see that some owners are now a little bit more aware of the volatility in the debt markets. So their pricing guidance has been reflective of that; where previously you could find some good long term debt for 3.25%, 3.5%, that's not the case anymore. So when doing your underwriting, the brokers know that if this deal was financially feasible January 1, today it's not where the debt markets are anymore. So they're taking that into account and that is impacting pricing guidance.
In terms of our underwriting, not much has changed from our underwriting perspective, other than where we can get debt currently. We're still pricing expansion in cap rates for all of our underwriting to be conservative. We're still conservative with our after-renovation rents, and still pretty conservative with our vacancy rates when we go into these markets.
Slocomb Reed: Gotcha. How much of a difference are you seeing in the pricing guidelines you're getting from brokers? It's May now. Compare now to January. How much of a difference is there now?
Alex Rogers: It depends. We were looking at a deal that was brought on market in February with call to offers earlier this month, and they had known that there's going to be some price adjustments of about 10% is what they were expecting, so pretty substantial. Not every deal is going to be like that, obviously, but that one in particular... And you know, it's coming from a broker, so they're already pricing at the top of market, and that's not necessarily where the buyers are going to come in at.
Slocomb Reed: Yeah. And keeping in mind, of course, the broker works for the seller, as their responsibility is to get the seller the best deal that they can, but also, they have to bring realistic buyers who are able to close the table and get them to make compelling offers.
Alex Rogers: Exactly. And most buyers need to be able to cash flow. So if the debt can't work for you, it's not going to work for either party.
Slocomb Reed: Yeah, that makes sense. Alex, are you ready for the Best Ever lightning round?
Alex Rogers: Let's do it.
Slocomb Reed: Awesome. What is the Best Ever book you've recently read?
Alex Rogers: Joe's book was great, but I would have to say Who, Not How by Dan Sullivan.
Slocomb Reed: You know, I read that book myself recently, and it was one of those things that I read it already knowing that I was going to agree with everything that was said, but I still needed to hear it. And I have, since reading it maybe a month ago, onboarded two more people to help me with things, because I was finally asking "Who can do this for me?" instead of "How can I make room for these things that I'm just not performing on because I'm too busy?"
Alex Rogers: Yeah. It's critical for growing your team, yeah.
Slocomb Reed: For sure. It's not just critical for growing your team, but it's critical for recognizing that you need to grow your team because you're too busy.
Alex Rogers: Truth.
Slocomb Reed: Alex, what is your Best Ever way to give back?
Alex Rogers: Well, I volunteer my time. Giving back to community is really important. I'm very passionate about animal welfare. I sit on the board in numerous committees for our local Animal Humane Society.
Slocomb Reed: Nice. Thus far in your commercial real estate investing career, Alex, what is the biggest mistake that you've made and the Best Ever lesson you've learned from it?
Alex Rogers: Biggest mistake I've made... It probably goes back a little bit to Who Not How, and not adequately empowering my team. Early on, I don't want to say, but I would almost micromanage, and not allowing my team really to go in and advocate for our and our clients' best interests. So that was probably the biggest mistake I made early on.
Slocomb Reed: Yeah, I totally get that. When I went through Traction, the first core value that I came to was trust. And I lead with that whenever I hire anyone in any capacity now. I let them know that my number one core value is trust. I've hired them or I'm working with them because I know that I can trust them. I don't have the capacity, I don't have the bandwidth to micromanage, so you're going to be on your own. You're going to be reporting back to me. Sometimes, there will be other people to hold you accountable, and sometimes there won't. I have to know that I can trust you. That's number one.
Alex Rogers: Yeah. Micromanaging burns them out just as much as it burns you out.
Slocomb Reed: Right. I don't have the bandwidth for it. So I can only hire people that I know that I can trust for sure. I've experienced that as well. Alex, what is your Best Ever advice?
Alex Rogers: To surround yourself with people that are smarter than you. If you want to grow in real estate, join a mastermind, go to meetups, book your trip to the Best Ever conference... If you're the smartest person in the room, you're in the wrong room.
Slocomb Reed: Absolutely. And where can people get in touch with you?
Alex Rogers: You can reach me at alex@greatduck.co, or through LinkedIn.
Slocomb Reed: Awesome. Those links are included in the show notes as well. Alex, thank you. Best Ever listeners, thank you as well. If you've gained value from this conversation with Alex Rogers, please subscribe to the show. Leave us a five-star review and share this with a friend you know we can add value to through this conversation about scaling your portfolio and your business as an owner-operator and in the current investing climate. Thank you and have a Best Ever day.
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