Maximizing Profits with Capital Efficiency: Secrets from Sergio Altomare

Sergio Altomare (00:00)
Our pivot to self-storage was really one where we believed that

⁓ Multifamily was ahead of what I consider a lot of ⁓ undisciplined poker players at the table, we exited multifamily back in say 2019 or so, that’s when we pivoted over to self storage. I think what we are seeing is right now there’s a lot of distress in a lot of ⁓ multifamily communities.

what brings us here today is that we’ve redefined what wealth is considered in our world. ⁓ We define wealth as being

purpose driven and really sharing in fulfilling opportunities.

Scott Bursey (02:22)
Welcome back to the Real Estate Pros podcast. I’m your host, Scott Bursey. And on today’s show, we are focusing on mastering institutional capital and value add strategies in the Philadelphia metro area. We’re joined by Sergio Altomare, the founder of Hearthfire Holdings, who brings deep expertise from years of successfully deploying private equity across the region. Sergio, thanks for joining us here today.

Sergio Altomare (02:33)
you

Scott, thanks for having me. Looking forward to the conversation.

Scott Bursey (02:52)
Absolutely. And for our listeners who may not be familiar with your journey, please tell us, how did your career begin and what’s your main focus now?

Sergio Altomare (03:00)
Yeah, so I’ve got a unique journey in the industry in the sense that my background started at working at the Federal Reserve. worked in

really high finance for many years. I was in the technology world and kind of grew through the ranks, started at the Fed when I was 18, eventually went back to school, graduated, but I did everything from project management, information security to enterprise architecture. What I didn’t realize through that part of my life’s journey is that I was really an entrepreneur at heart. And so,

reached a point in my life where I met my now wife and we decided that we needed to diversify our income and started to take better control of our own investing journey and started acquiring apartments in the Philadelphia market. Being the systems builder, myself, and loving anything that scales, we started to build a platform. ⁓ At its peak, we ended up

owning and managing over 175 apartments in and around the Philadelphia area before along the way we decided to do it full time. So Corinne left the Fed in 2016, I left in 2017, but we started back in 2012. from there, really it was about

taking what life brings to us and really exploring and looking for opportunities to grow. When we started raising capital, was really due to demand from friends and family. They saw what we were doing. They thought that it was a fantastic way to take and build wealth. Starting investing with us and I think there’s no bigger compliment or

obligation and sense of commitment than when friends and family want to invest in you. And so we took that as an opportunity. ⁓ is a great responsibility. As you know, to quote Spider-Man, with great power comes great responsibility. you know, we took that head on. ⁓

Our pivot to self-storage was really one where we believed that

⁓ Multifamily was ahead of what I consider a lot of ⁓ undisciplined poker players at the table, right? And I think we are actually, even though we exited multifamily back in say 2019 or so, that’s when we pivoted over to self storage. I think what we are seeing is right now there’s a lot of distress in a lot of ⁓ multifamily communities. We’re not seeing that.

making as many headlines, but doesn’t mean that it doesn’t exist. And that’s because there were a lot of individuals that kind of got into the space without the credit and financing discipline and really overextending. anyway, what brings us here today is that we’ve redefined what wealth is considered in our world. ⁓ We define wealth as being

purpose driven and really sharing in fulfilling opportunities.

And so we bring economic financial wealth opportunities to our community, but really are focused on bringing everybody together. And that includes our team.

Scott Bursey (07:25)
your focus on lifting people up, your community up. That is awesome, Sergio, in the competitive Philadelphia market, I must ask, what is Hearthfire’s biggest advantage for sourcing off market value add deals right now?

Sergio Altomare (07:28)
That’s right. That’s right. That’s, know.

So our focus hasn’t been necessarily off market, mostly because what we look is for opportunities that are either overlooked or that really checks off our buy box. we have 25 properties across 10 states and every one of our assets

whether it was some of our legacy assets when we first got into self-storage too today, was really about uncovering hidden value. We source and we go through a lot of deals. What we pride ourselves on is building scalable systems. So we look at hundreds and thousands of deals before we land on any one of them. But when we do,

We go into it with a very high degree of confidence that we can execute on our business plan. So for us, we don’t focus. mean, our start was in the Philadelphia area, right? first five, six self-storage properties were all in the Lancaster market, right? And we saw that as an opportunity where, ⁓ interesting enough, it was prior to COVID, ⁓ but COVID accelerated kind of the

outward west migration of people going to more suburban markets. you know, although it wasn’t as intentional as it may sound, we knew that there were opportunities outside of the major metros. So fast forward, and we’ve done very well. The properties we have acquired ⁓ have done, we’ve executed on our revenue targets and our growth targets for these assets by really

improving and going more towards institutional type of operations management. CubeSmart and Extra Space manage all of our properties today. Whereas when we started, it was our own management, self-branding. I I literally managed the property myself out of an RV, the first one we acquired, right? So my wife and I traded off who was doing the management. That’s how we had to learn the business. To today, we’re now, we are more

penetrating institutional quality assets, right? We’ve got an asset that we are ⁓ got an LOI executed in the Boston market. mean, this is, you know, over $20 million acquisition, institutional size, institutional quality. So we’ve evolved as a company to be able to target higher and better assets. And what we’re seeing right now across commercial real estate is a flight to quality asset quality, class A properties,

across the board, including office that has taken a beating since COVID, Class A properties aren’t struggling and now we’re understanding why.

Scott Bursey (11:14)
a great breakdown. Sergio, if you could walk us through what value-add assumption like construction timelines or tenant turnover must be drastically adjusted when underwriting Philadelphia projects and other projects too in the 10 states you’re in.

Sergio Altomare (11:29)
Yeah, so our value add drivers can vary. We love ground up construction and we love expansions, right? I’ll tell you a story that when we first acquired some of these assets, had the value add is the primary focus is always just operations management improvement, right? But that is that’s like a need on a haystack nowadays, right? Because a lot of those assets have either transacted already or

not as readily available at the size that we are looking for. These are properties that come to market through brokers, et cetera, et cetera. So beyond that, we love expansion plays. We are very data driven. So what we look for is markets that are very undersupplied, that can support some higher rent growth than what’s already in place.

And then we like to expand those properties to bring new inventory to the market. Beyond that, we love ground up development. So, give you an idea of our ability to scale there. We’ve completed seven ground up and expansion projects over the last, you know, 10 months, right? And that was ⁓ through

having an amazing team that can execute, and then partnering with GCs ⁓ nationally to be able to deliver. We’ve built in everywhere from Illinois, Indiana, ⁓ Virginia, and beyond. So that, to me, is really where the opportunity lies, is not in the individual asset, but being able to scale the platform.

Beyond that, it’s really about driving revenue and outperforming competition in any given market. Those are the kind of value add ⁓ opportunities we look for and really comes down to execution. It’s one thing to have a business plan. It’s another thing to be able to execute on it, right?

Scott Bursey (13:30)
Absolutely, you must be able to perform. Project execution risk is often underestimated. Adjusting for local construction challenges and permit timelines is essential for protecting the value-add model.

Sergio Altomare (13:37)
That’s right.

That’s right. That’s right. Yeah. mean, and truthfully, when it comes to anything development, whether it’s permitting and beyond, like the craziest thing that we are experiencing more recently is the utility companies, right? Utility companies basically hold you hostage. And in many cases, that is the last

five to ten percent of a project. ⁓ In our case, we’ve had some issues where just getting an elevator to be able to be used has taken months upon months. those are things that can’t be understated. Municipalities are crunched with resources. ⁓ You know, any government and municipal service, they don’t care about your project timeline, right? It’s up to you to be able to

do what you have to do to be able to drive them to deliver on what they need to deliver on. And that’s not easy to do. Not to mention cost of construction is way up and all the things associated.

Scott Bursey (14:53)
What are the core strengths of Hearthfire Holdings right now? What are some of the things you’re excelling at as a company?

Sergio Altomare (15:01)
Yeah, I would say that the number one thing that we’ve been focusing on is talent, right? Is the people that we have at the company. You know, when we started our journey and our company, was really Corinne and myself. And then once you realize that you need help, then the demand for us changes. Now it’s less about

underwriting and acquisitions and doing all the things and wearing all the hats. But now it becomes more about how do you find the right people to come in and help and support. We started with, because we couldn’t afford kind of any kind of meaningful payroll, we started with partners, right? We brought in partners saying, hey, you do this, I do this. And that worked to a point to where

you bring in the right people and they’ve got talent on their own, they may want to go out and do their own thing. And that actually did happen.

And so eventually we grew to the point where we had enough scale to where we can acquire some talent and invest in people. And that has been really the core focus for myself is how do I, number one is identify

talent and we’ve had some mishaps, a lot of mishaps and identify the talent. But once you do, because we don’t have the size and scale of companies that are much larger than us, now I’ve got to sell a vision, right? What is the opportunity? Why would you want to join Hearthfire? Right. And from there, it’s really about.

showing that I’ve got a relentless commitment to our success. And when I say our success, it’s collective. It’s us as a team, it’s our investors, et cetera, et cetera. And that’s what drives me. That’s what gets me up out of bed every morning. That’s what I lose sleep over. Am I it my all? So it starts with the people. then from there, it’s about

having that vision and then getting out of the way to be honest with you, right? Letting the people with the talent do what they do best. And for people that start a company and probably in the same boat, like that’s the hardest thing is to let go, right? Let go of what you think your value is and continue to evolve. And that’s kind of been my focus. ⁓ Easier said than done though, right?

Scott Bursey (18:17)
Absolutely it is, but ⁓ it is the right direction to pursue. And what do you feel is your biggest opportunity right now?

Sergio Altomare (18:28)
So the biggest opportunity, you know, kind of talking a little bit about it before is really getting or accessing and acquiring properties at a lower cost basis than you would in

other markets. So we don’t our underwriting is very conservative. So we are underwriting to what the market is doing now.

As I mentioned earlier, that the market is primed for a strong turnaround. Now, when is that relative to timing wise? Unknown, but I would say that

if you and I are talking, say, in October,

what we are going to be talking about is

the market in 2026 and in our case it’s the spring summer markets primary leasing season for self storage. The market has fared better ⁓ than it has in 2025 but 2027 is really primed for some explosive growth and that’s what we are right now focus on is positioning right is really about you can’t time the market as they say.

But you can pretty much look historically and time market cycles, right? mean, we are, without

going back to the technical recession that was COVID,

these last two years, there hasn’t been a technical recession, but it sure as hell has felt like it. So I believe that we’re really primed for another leg up in the overall growth of the economy.

Scott Bursey (20:04)
Yes.

Well said. In addition to that, Sergio, anything you’re watching closely, like market risk, competition, access to capital, that sort of thing.

Sergio Altomare (20:22)
I think it’s the groups and businesses that succeed in this new economy are really the ones that can harness some of the power of what we’re seeing related to like AI, ⁓ capital efficiency. As I mentioned, there’s a lot of money that’s been on the sideline that’s ready to go. ⁓ Some of it is being deployed.

There’s a lot of cautious capital, but lenders are financing properties. You can always tell the overall health of the economy, ⁓ especially in commercial real estate, by the liquidity from lenders. what I can tell you is, ⁓ money is not as cheap as it was three, four years ago, obviously. ⁓ However,

It is there and that liquidity is and that capital is moving, right? It’s more expensive than it was, but it’s moving. And now it’s just a matter of just being able to find the right deals, get them capitalized and then roll from there.

Scott Bursey (21:37)
Speaking of which Sergio, what’s your management strategy in let’s say the next 12 to 18 months?

Sergio Altomare (21:45)
It’s from a property perspective, you know, we partner with CubeSmart and Extra Space. So we don’t dictate how they go about managing things. However, we influence how they manage our properties related to kind of our business plan and goals. And the strategies that we’re employing right now are

focus on occupancy, right? I mean, it’s trying to get to peak occupancy and then driving ⁓ ECRIs, existing customer rate increases from there. So our goal is to come out of the spring and summer with very high occupancy, ⁓ driving revenue, and then from there holding onto it through the end of the year. I mean, that’s the focus right now. ⁓

Keep smart an extra space. mean, there’s a lot of jockeying for position out between the REITs. mean, anybody who’s watching the headlines saw that, you know, the big mergers, the big acquisitions that have recently transpired in the industry ⁓ that, you know, and then their strategies behind, between the REITs are really about,

pricing dynamics, ⁓ occupancy, et cetera, et cetera. So things are changing as the economy kind of gets back on track.

Scott Bursey (23:13)
That is some great focus, laser focus. Sergio, Do you have any advice for our audience?

Sergio Altomare (23:20)
I would say that if you’re active in real estate, ⁓ this is a great opportunity to make sure that you’re underwriting standards, your focus is on discipline primarily. Going back to the analogy of the undisciplined poker player is you don’t want to compete.

where you shouldn’t compete, i.e. get into bidding wars and that kind of thing. ⁓ Seek value, but also take any opportunity where things are a little slower to focus on processes, establishing goals for growth. think the future of all business is exponential growth. the big reason behind that is you look at

You you go back to years when, a couple years, when AI just kind of surfaced, right? It was a lot late, 22, 23, where chat GPT started to enter the market. And then you look at it today, the growth, the capabilities are tremendous. And so that growth is going to continue. I mean, it is, it is not a linear model. And so

You’ve got to use the harness that power into your own business, into your own life. you can, anything you wanted to learn 12 months ago, you can learn in half the time today. and so to me, you’ve got to apply that philosophy. You’ve got to apply that to everything you do. Right. It’s, it’s the stakes are really high. So, so my advice to your listeners are to, you know,

Focus on growth, right? Personal, professional, health, mindset, family, and be keenly aware of how the world is changing, right? mean, it’s evolving very quickly. And if you don’t pay attention right before you know it, you’re going to be like, what the hell happened?

Scott Bursey (25:34)
Sergio, excellent advice, tremendous perspective. And we love fostering connections here at Real Estate Pros. For the listeners who want to follow your journey or collaborate with you, what’s the best way that they can reach you?

Sergio Altomare (25:47)
Yeah.

Yeah. So a few different things. ⁓ One is look me up on LinkedIn. I’m not as, you know, I’m not one of those guys that’s active every day, but do share between personally and our company page. ⁓

Sign up for our mailing list at hfirecapital.com or shoot me an email. My email is [email protected].

I answer, I’m not the kind of guy, don’t, I’ve never aspired to be kind of a real estate influencer. I’m really a guy that likes to build. So I’m the guy behind the scenes trying to make sure that everything is executed properly. just follow along, shoot me an email. I’d love to connect, stay in touch. And yeah, especially if you’re in the area, come find me.

Scott Bursey (26:39)
Sergio Altomare everybody Sergio. Thank you for joining us today.

Sergio Altomare (26:44)
Thanks Scott, I appreciate the time.

Scott Bursey (26:47)
This has been an absolute master class. And for our listeners, we appreciate you. If you found value in today’s episode, please subscribe. We have more conversations coming up with exceptional operators, like Sergio. Until next time, keep your standards high and your vision clear.

We’ll see you in the next episode, everyone.