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May 23, 2024 | read

141. Planning for the Future in Multifamily and Portfolio Allocation with Park Capital Partners

Ben Isley

Richard Coyne and Bill Zahller are managing partners of Park Capital Partners. Park Capital Partners brings together investors to acquire apartment complexes.

The company seeks to identify exceptional properties in growing markets with incredible potential. Alongside their client investors, they seek to purchase and rebrand these properties to be consistent performers, and a valued part of the community that steadily increases in value.

In today’s episode we discuss Bill and Rich’s investment strategy and why they’re in the markets they’re in, how the price of construction materials are impacting supply, portfolio allocation, crypto, and more!

Bill began his real estate career in 2004 in the Scottsdale and Phoenix area, executing the BRRRR strategy. He would first live in the property as he rehabbed it. Upon completion of the rehab, he would rent it out. After accumulating several single family properties, he realized he wanted to transition to multifamily for larger multiples.

Rich has been in real estate for about 5 years. He began because he was looking for additional streams of income. They teamed up as they both realized they wanted to pursue multifamily.

Current Strategy of Park Capital

Bill and Rich focus on the Southeast in primarily B and C class assets, some A class assets, ranging from 100-300 units, with construction dates between 1985 and 2005. They look to add value to the asset to improve returns for investors and improve the buildings and quality of the units.

Right now, Bill and Rich are in Atlanta, GA and Greenville, SC. They have explored some secondary markets but have preferred the largest cities. They choose these areas because it’s a deep market. There are always many buyers and sellers, lots of turnover, and easy opportunities for exits. There are lots of jobs and growth, relatively low cost of living, and a high volume of transactions.

There’s a lot of competition, prices are getting bid up. We’re very disciplined in our approach, so there’s a lot of things we will pass on… I think, in the last 12 months, there’s almost double the supply of money in circulation, up 40%… depending on the velocity of money, there’s a chance for a real increase in inflation. A lot of our investors have been very interested in hard, real assets.

Greater Market Outlook

Bill and Rich have seen the money leaving certain sectors of real estate, such as office and retail, and moving more into the housing market. They still see a housing shortage, which means there’s still opportunity to develop multifamily properties, as well as adding value to existing properties to improve the buildings. Development seems to be continuing at a good pace.

The cost of materials is going through the roof. The cost of materials is so high that developers feel they need to build only class A properties so they can charge premium rents and get a return.

Bill and Rich have also been more conservative with underwriting. Instead of planning on standard 3% increase in rents, they have adjusted to a projection of 0% growth in year one, 1% in year two, and 2% in year three. Additionally, they have stopped moving to add value immediately. Instead, they’re waiting almost a full year for the property to stabilize before beginning the Capex and renovation schedule.

If interest rates move up a lot, assets will have price discovery and will be re-priced to match the spread created by the rise in interest rates. If interest rates move up significantly, there will be an adjustment in real estate prices.

Learn more about Bill, Richard, and their work: https://parkcapitalpartnersllc.com/