August Biniaz on Duplex Developments, Cash Flow, and San Antonio Growth

August Biniaz – Cpicapital.com (00:00)
And the reason for that is yields. The rent to value ratios that exist in the United States are higher than anywhere else in the world. So in most of the deals on the built to rent side or multifamily, we’re heading the 1 % rule. And 1 % rule is a back at a napkin number where ⁓ a monthly rent on

a unit of a multifamily property that you purchase equates to 1 % of the unit purchase price.

Dylan Silver (01:57)
Hey folks, welcome back to the show. Today’s guest, August Biniaz, is the co-founder and chief investment officer of CPI Capital. He leads investment strategy, acquisitions, and asset management and has been involved in over 225 million in multifamily and built to rent assets over the past 15 years. He’s also completed the private equity and venture capital executive program at Harvard Business School, strengthening his ability to structure deals and work with institutional capital.

He’s the host of the Real Estate Investing, The Mystified podcast, where he breaks down complex real estate strategies and market dynamics. August, thanks for taking the time today.

August Biniaz – Cpicapital.com (02:35)
Thanks for having me and looking forward to this.

Dylan Silver (02:37)
Now you’ve been through multiple market cycles operating at a high level. What cycle are we in right now?

August Biniaz – Cpicapital.com (02:46)
great question. mean, real estate goes through these constant cycles of recession, recovery, expansion and hyper supply. And if I had to guess what cycle we’re currently in, we’re most probably in the recession ⁓ phase of the cycle right now. ⁓ Down cycle, bus cycle, as is also known. So, ⁓ yeah, post COVID, which was cataclysmic event, ⁓ the central banks around the world had to print a lot of money and literally send

Paychecks to people’s homes to make sure they don’t go to work and that resulted in a lot of inflation and People spending a lot of money you suppliers increasing costs of services and products which created inflation and ⁓ Central banks really have only one Mechanism to fight inflation and that’s by increasing in the US for example the feds funds rate and by doing so ⁓ They you know the interest rates went up

through the roof because the banks have to also make a spread and profit over the Fed’s funds rate where they borrow money from ⁓ the government really. So that resulted in real estate really slowing down. Both residential and commercial real estate are sensitive to interest rates. So we also had issues with ⁓ oversupply. When COVID hit, interest rates for the Fed’s funds rate was dropped, interest rates came down and a lot of developers alongside with acquisition groups started

developing a lot of product, multi-family, built to rent, even on the single family side. So a lot of supply came online, which has a downward effect on rents and also ⁓ occupancy. So a lot of these growth markets like the DFWs, the Austins, Tampa, for example, ⁓ Carolinas, they started having issues with rents compressing, with, you know,

with lot of supply coming online and ⁓ interest rates also went up. So was harder for people to, for investment firms or groups to sell their deals as well because their deals were not worth as much as they ⁓ were. So it sounds very negative, but as I’m sure your viewers and yourself are aware, real estate is cyclical. So, ⁓ you know, being in a down cycle because there is a lot of anxiety in the…

real estate market, a lot of times people sit on the sidelines and don’t acquire, but these are some of the best times to get into the market and acquire deals that make sense as long as you’re putting the right kind of debt on those deals.

Dylan Silver (06:06)
Now, build to rent assets. What’s the scope of this look like? What’s a typical build to rent asset?

August Biniaz – Cpicapital.com (06:14)
Build to rent, yeah, I mean, it’s best if I take a step back and kind of explain where this asset class came from. So build to rent falls under the commercial real estate umbrella, particularly underneath a multifamily asset class. But build to rent is basically when investment firms or developers ⁓ build, purpose-build rental communities. And by purpose, I don’t mean giving back. mean, the purpose is for it to be rental, not a for sale product, but a for rent product. So buying a piece of land,

developing either single-family homes or duplexes in a community. In some cases, there are amenities in that community as well. the plan there is for that project to be a rental project. So it serves a certain demographic in the US. Renters by choice rather than renters by necessity. These are individuals who can afford to buy a home, but they rather rent because they either want to be mobile, they’re either the boomer generation who are downsizing, they, ⁓ you know, they’re

They’re just maybe the newer generation who are more of a subscription-based generation who don’t believe in the same ideas as their parents or grandparents are buying a home and having the white picket fence. So it serves that demographic. And really the spawn of this asset class was post-Great Financial Crisis in 2008, the subprime mortgage crisis, which resulted in home values dropping 30 % nationwide in the US.

a lot of large institutions, including Blackstone, which is the largest private equity firm in the world, they realized that if they had an ability to buy single-family homes across the US, which at that time was pennies on the dollar, now, average home prices came down 30%, but in some markets, they even came down more, up to 70 % in some cases. So large private equity firms and other investment firms knew that if they could buy these homes and just hold them for…

a few years the market cycles would change and they could then just exit it for a huge profit. And that’s exactly what they did. Blackstone was the first firm that did that. They created a firm called Invitation Homes. They went out there and started buying tens of thousands of homes, scattered sites. These were not built to rent. I’ll get into the connection between this and built to rent. And they did tremendously well. They eventually bought 75,000 homes.

took invitation homes public and Blackstone exited invitation homes. Invitation homes still around and is a publicly traded company. Now by 2013, investment firms like Blackstone could no longer buy homes pennies on the dollar because market has definitely turned since then. 2008 was the start of the market market slowing down and you know, the…

distressed in the market, but the market bottom didn’t come till 2011. And that’s when the prices started ticking up. So by 2013, they couldn’t no longer buy these homes, pennies on the dollar. But they really love this model of owning and operating single family homes. And that’s when they started actually partnering with developers and building single family homes in these communities themselves. The epicenter of that was Phoenix, really. And that was a spawn of this new asset class, which is built to rent.

does tremendously well, our firm, CPI Capital, we’ve now done a project in San Antonio, in the Helotus market of San Antonio called Apollo Oaks. The project is just about to go vertical over the next few weeks. So we’re excited to bring on 30 duplexes onto the market, 60 units. But yeah, it’s an asset class that serves the demographic that I mentioned, people who don’t want to live in apartments, they don’t want to have somebody living next to you, living above you.

⁓ It has the security of having your own garage. It really feels like a home rather than an apartment in most cases. So yeah, it’s been ⁓ great for our investors and economics for investors in this asset class as well.

Dylan Silver (10:49)
Now, when building duplexes at scale, you mentioned 30 in Helotes. I’m imagining an undertaking like that. There’s got to be lots of permitting and the process for that takes a minute. But when you’re building a duplex community, that’s an interesting niche. I haven’t heard of that before. How do you decide, hey, we’re going to build volume duplexes?

August Biniaz – Cpicapital.com (11:10)
Yeah, so in our partnership with a local developer in San Antonio, there are firm that’s been around for 20 years. They’ve utilized the same model for the last 15 years of building duplexes. And the model is not your conventional bill to rent where an investment firm buys a piece of land, entitles it, starts building a rental product, single family or duplex. And then when the project is complete, they stabilize it and then either refinance and hold it for a few years before exiting.

or right after completion, they sell it to another investment firm, like more of an institution, like a reader and type. This model is a bit different. What we’re doing is these duplexes, we’re actually pre-selling them to investors who are coming in from California and other states to buy these for the cash flow they produce because they’re cash flowing day one. So it de-risks the project from having to wait and then exit to a larger institution because you’re pre-selling them as well ahead of time.

And the factor that they are duplexes, we’re selling the whole duplex to one investor. So now they’re owning two units. ⁓ Our property management firm manages the property, so it’s turnkey for them. They don’t have to have any concerns about bringing a tenant or managing the rental. So it’s a very unique model and it’s bringing a lot of interest that we’re being sold out, not only on the LP side, funding the equity needed for the construction process, but also on the investor side.

who are investors who are buying in these units. So yeah, they’re doing tremendously well. It’s one structure, the cost is lower compared to single family, two separate ⁓ structures. This is one structure with two units in it, but it’s been very interesting and we feel very bullish. We’re looking at another project as well ⁓ right now as we speak in San Antonio also.

Dylan Silver (12:54)
What made you pick San Antonio? Was it ⁓ partnerships on the ground or was there something specific to the San Antonio market that made you decide to build there?

August Biniaz – Cpicapital.com (13:04)
Yeah, San Antonio is really the sleeper city in Texas. When you think about Texas, you think about Dallas, Fort Worth, you think about Houston, Austin. San Antonio is the one that’s always missed out, but it’s a huge city, a city of 2.8 million people. ⁓ It’s got great economic drivers, very diversified. Not one economic driver is more than 20%. It’s very diverse, ⁓ great work-life balance. A lot of people start still moving to San Antonio.

A lot of public infrastructure is going in. If you ever drive through San Antonio, you can see these raised highways going up. ⁓ The airport project, the update to the airport is going in, a one and a half billion dollar project. So, a lot going on for the city. ⁓ Excited about San Antonio. And also the idea here is that a lot of experts are talking about, because of San Antonio’s proximity to Austin, it’s just around an hour away from Austin that…

the experts are saying that San Antonio might be a San Antonio and Austin might turn out to be the Dallas Fort Worth where two cities come together to combine as they’re growing because we’re seeing that as well as San Antonio expands as Austin expands their sittings are really overlapping as well so super excited about that city.

Dylan Silver (14:15)
You you mentioned the urban sprawl of San Antonio and Austin. I’m actually smack dab in the middle between those two places in San Marcos and I can feel it. You you see, okay, well, these places that are further and further out are now becoming commuter cities and then your commuter towns and you’re seeing these areas that were maybe previously nothing out there now becoming their own sort of city center. And people are saying, hey, do we commute into Austin or do we basically just have our whole lives be out here?

And then instead of having to even commute, they’re just again basing their whole lives in that one area. I’m curious to get your perspective on that idea. This urban sprawl, you mentioned Helotes, right? There’s a lot happening in Helotes specifically. For folks who are looking at getting into the built to rent space, should they be looking at the outskirts of the city, that urban sprawl, so to speak, or should they be looking at more central downtown areas? What’s your perspective on

August Biniaz – Cpicapital.com (15:11)
Well, the built to rent business model doesn’t really work in the kind of downtown urban ⁓ areas because to be able to build to rent, need a sprawling land, as you mentioned, you need to have the project we’re building at Helotus is eight acres. So imagine trying to buy a piece of eight acre piece of property close to a downtown core. So usually you do have them a bit outside of ⁓ the downtown core of the cities as Helotus is around 15 minutes away from downtown San Antonio.

And then as far as investors looking to get involved in Build to Rent, I mean, it’s an incredible asset class, it’s doing tremendously well, institutions have been in it since 2008. So it’s just, yeah, educating yourself in this space, sourcing a few different groups that are investing in Build to Rent, booking a call with them and seeing what their business model is. Now with CPI, not only we’re doing these,

⁓ pre-sold ⁓ units to investor type of bill to rent, but we’re also looking to do long-term bill to rent where we hold it for a longer time. Now for our LPs, these deals have a much faster turnaround. We’re in and out of them in less than two years. Whereas your classic bill to rent model usually is the whole time, the term is usually around five to seven years. So depends on the investor’s appetite and their…

risk profile and how long they want to have their funds locked up in as well. but hopefully as soon as we have one of our bill to hold projects, ⁓ we could have both options for our investors that the quick turnaround sale, sale bill to rent or the more classic bill to hold type of bill to rent.

Dylan Silver (17:28)
I’m seeing more momentum in built to rent as a whole, even from builders who are built to sell and they’re thinking, hey, if we can get the capital, let’s hold onto one of these ourselves. Massive hold-in costs of their, of course, when you’re building to rent for yourself versus selling to a third party. Are more and more people from that traditionally construction builder background now looking at, maybe we should hold onto these?

August Biniaz – Cpicapital.com (17:55)
Yeah, I mean, that’s a great point. Why? I mean, I’m Canadian. I lived in Canada most of my life. I made the move to the US a few years back. Both of my sons were born here in the US. our firm, CPI Capital, was initially a Canadian firm focused on US real estate. So you might ask a question, hey, what are Canadians doing investing in the US? Currently, 70 % of our LP equity is coming from Canadian investors, 30 % from US investors.

You might ask why would Canadians go through all the headache when it comes to cross border tax and the compliance side of things with the SEC and Canadian regulators, why bother?

And the reason for that is yields. The rent to value ratios that exist in the United States are higher than anywhere else in the world. So in most of the deals on the built to rent side or multifamily, we’re heading the 1 % rule. And 1 % rule is a back at a napkin number where ⁓ a monthly rent on

a unit of a multifamily property that you purchase equates to 1 % of the unit purchase price.

So if you’re buying a 100 unit apartment community or you’re planning to build a 100 unit bill to rent project and you figure out what is your acquisition cost for buying the apartment community on a per door basis or what is your total cost for construction of a bill to rent project, your monthly rent should at least try to be 1 % of the price. So if you’re

buying an apartment community for, let’s say for simple matter, $100,000 a unit, or if you’re a bill to rent project for $100,000 a unit, you want your monthly rent to be $1,000 a month. That’s 1 % of that. And that’s the yield that it produces, because if you’re getting that 1 % rule, you’ll have enough surplus to, you’ll have enough income to pay your carry costs, to pay your…

management costs to pay all your expenses and have enough ⁓ money to pay your investors five to percent percent cash on cash returns on an annual basis. So ⁓ I’ve looked around the world including Canada and nowhere in the world comes anywhere close to the rent to value ratios that exist in the US and that’s really the draw for built to rent as well to answer your question. As long as the rent to value ratios are there as long as you can you know build either duplexes or single family for

a reasonable cost and your rents cover all your expenses and give you some cash flow, then it makes sense all day to keep doing bill to rent.

Dylan Silver (20:22)
Bonus question here for you August. As we’re seeing more and more people who are interested in built to rent, also duplexes as well, do you think we’ll start to potentially see a trend where instead of single family or single apartments or two bedroom apartments being what people are looking for, will we start to see more and more people interested in renting homes as a whole?

August Biniaz – Cpicapital.com (20:46)
Yeah, I mean, that’s another great point you bring your bang on today. We had a meeting with our property management firm who ⁓ services mainly BTR and there was a multifamily project going right next door to a built to rent project that we’re currently looking at. And my question to our property manager was, hey, ⁓ are we going to get any donor ⁓ tenants potentially from this community or could we?

possibly lose some of our built to rent tenants to an apartment community and their response, and they have much more experience than I do because they’ve been dealing with built to rent for the last decade and they deal with thousands and tens of thousands of units. And their response was the tenant profile that goes after built to rent is different than your classic apartment ⁓ tenant. The built to rent is, it yields higher, it requires higher ability to pay higher rents because they, on a per square basis, they,

demand higher rents. So it’s a different tenant profile that comes after ⁓ a bill to rent single family, particularly because the cost is more. But as yeah, I mean, the draw is always there. People always rather to live in a single family home. Another great point that I haven’t mentioned so far is historically, if you were a tenant, even if you were a tenant by choice, not tenant by necessity, and you were renting a single family home, there was a level of stigma for you to be the only

renter in a owner’s community. People talk, people are friends usually in the communities they live in, they talk to people and when they find out somebody’s a renter there might be a level of stigma there. When you live in a built-to-rent community everybody’s renting. So you’re not only renter in a homeowner community, everybody’s also renting with you so it gives you that you know that comfort as well. So ⁓ but yeah I mean I see potentially especially with the new generation that are here

⁓ They are more of a subscription-based generation. They know how much income they make. They know what portion of that goes to their shelter, what portion of it goes to ⁓ food and entertainment and so on. So they are much more inclined to be renters. And I think built to rent, be it duplex or single family, serves the newer demographics. So I think more and more you will see ⁓ people not wanting to own and rather wanting to rent as long as rent prices stay reasonable.

Dylan Silver (23:09)
We are coming up on time here August, any new projects that you’re working on and then what’s the best way for folks to reach out to your team?

August Biniaz – Cpicapital.com (23:18)
Yeah, our acquisition team are working on new deals all the time. We’re both in Florida and Texas. So we’re looking at ⁓ multifamily value add acquisitions and bill to rent projects in both of those markets. And currently I’m looking at a deal in Tampa, which is a townhome development, bill to rent, purchasing that from a merchant builder. And then we’re looking at our next project in San Antonio, which is going to be again, a duplex project. So excited to chat about that.

As far as reaching out and connecting, I’m very active on LinkedIn. I’m a LinkedIn top voice. So I create a lot of great content on LinkedIn. ⁓ Send me a message, send me a connection request. I’m definitely happy to connect with you and chat about Build2Rent or other multifamily or other investments. ⁓ Our website’s cpicapital.com. A lot of great information and content down there. You can download our back of the envelope underwriting model. You can watch some of our webinars that we’ve hosted in the past that are only available

on our website or you can get a link to our podcast as well. So a lot of, a lot of information there.