Where Smart Capital Is Moving in Multifamily & Workforce Housing

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Show Summary

In this conversation, Dylan Silver interviews Dean Zuleger, an investor specializing in multifamily housing, particularly workforce housing. They discuss the current trends in the multifamily housing market, the impact of economic factors, and the importance of employer partnerships in determining the viability of housing investments. Dean shares insights on market dynamics, investment strategies, and emerging trends in industrial and tech real estate, emphasizing the need for adaptability in a changing investment landscape.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Dean Zuleger’s Email Address: [email protected]

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Dean Zuleger (00:00)
  know, commercial rental ability because folks like us stay at home and how we can, how we can convert that into housing space. Looking at, you know, like, is there competition? And this is something that I think people need to look at from NGOs, private housing providers, nonprofits, HRAs. Are you going into a market space where your county HRA, your city HRA is competing against you and they can be subsidized?

  So you have to kind of look at the pantheon of risk in a market area to figure out what the good deal is.

  Dylan Silver (02:06)
  Hey folks, welcome back to the show. Today’s guest, Dean Zuleger is an investor specializing in multifamily, specifically workforce housing. He’s based out of Minneapolis and he will be the fund manager of the Charis Fund. Dean, thank you for coming on the show today.

  Dean Zuleger (02:22)
  Thanks for having me, Joan.

  Dylan Silver (02:24)
  When we talk about multifamily housing, I come from the single family space, but there’s so much interest right now in multifamily housing from all areas. I mean, you’re seeing so much development really all across the country, wherever there is space, it seems like. In Texas, where I’m licensed, it just went bananas with workforce housing, with multifamily housing specifically.

  What was the driving factors of this over the last couple of years? Were there, you know, regulations which which made it or maybe tax incentives which which spurred this on? Or was this just an opportunity for investors to to create multifamily housing?

  Dean Zuleger (03:03)
  Well, I think you have a lot of folks that ⁓ kind of subscribe to the Ken McElroy ⁓ system of, let’s start syndicates, let’s start Reg D investment companies. Real estate has always appreciated, so there’s a return there. I also think that there was a need in multifamily low income housing because of the immigration policy, which I think is now coming, you know, full circle.

  with the Trump administration having some of those folks leave the country. So I think there was a demand. And I also think that there was what I would consider to be the age old philosophy that real estate is always going to appreciate. ⁓ And so I think those are the driving forces, especially in some of the areas that are gaining jobs, that, you know, we’re out migration from certain states that have regulatory ⁓ environments that don’t make it favorable.

  Dylan Silver (03:44)
  Yeah.

  Dean Zuleger (03:59)
  Let’s use California to Texas, for example, Dylan, ⁓ or any of what I would consider to be some of the more regulatory stringent states to where it’s not as stringent. So Nashville, Austin, Dallas, Atlanta, ⁓ Arizona, kind of states that are really, you you’ve seen a lot in Las Vegas right now. So people are investing where people are going. ⁓ And that’s what you saw in the last couple of years.

  Dylan Silver (04:27)
  Now, when we talk specifically about, you know, what good looks like and what is a good deal in multifamily, we can certainly also see the opposite of it too, because over the last couple of years, there’s been a lot of you mentioned new syndicators ⁓ who had variable rate debt, and they probably thought, you know, what’s the worst that could happen with this? Well, the worst that could happen is you have COVID, you have rates double, you know, you have rents go ⁓ sideways, sideways or stabilize.

  And then you have so much new construction that it effectively is like a downward force on what you would have thought would have been massive appreciation in some of these markets.

  So going forward, are multifamily investors more cautious and how are they maybe underwriting deals different?

  Dean Zuleger (06:03)
  Yeah, I think that multifamily lenders are being more cautious. ⁓ I have tried to put a couple of deals together here recently where there’s a market service area or a population threshold. We can’t do that deal because you’re under 200,000 people who are you gonna rent to, that type of thing. ⁓ So we’re also seeing a tightening up with credit analysts who ⁓ don’t wanna necessarily

  play with syndications or investor groups. They wanna see liquidity, they wanna see putting a lot of collateral up as ⁓ guarantees. So what we’ve been doing is we’ve been kinda looking at market analysis by the size of the MSA, where there are major employers. You said what’s a good deal, Size of the MSA, good employers, what that employer base looks like. ⁓

  What the employee base looks like, are there people to rent to? New product opportunities. I’m watching a couple of products that I like in Florida, the company called Lifestone that’s building hurricane resistant housing down there. There’s a eco panel in Knoxville, North Carolina, or Moxville, North Carolina that does energy efficient housing. We’re looking at conversion deals right now, especially in downtown areas where people are, have lost.

  Dylan Silver (07:12)
  Yeah.

  Dean Zuleger (07:28)
  know, commercial rental ability because folks like us stay at home and how we can, how we can convert that into housing space. Looking at, you know, like, is there competition? And this is something that I think people need to look at from NGOs, private housing providers, nonprofits, HRAs. Are you going into a market space where your county HRA, your city HRA is competing against you and they can be subsidized?

  So you have to kind of look at the pantheon of risk in a market area to figure out what the good deal is.

  And one of the things that I really like in putting deals together, Dylan, is will the bank or the lender that you’re working with be able to use their Community Reinvestment Act credit and help you basically leverage what’s out there with your local communities and governments to get a little bit of help, maybe get the interest rate down.

  because they get to take advantage of that. There are mandates that they have to use that CRI, all right, of the CRI, excuse me, Community Reinvestment Act to be able to do housing lending and economic development lending. So you’ve got all these different metrics now, Dylan, that you have to look at before you go into a market. And my favorite is finding and find some employers that you can partner with, offer some deals to their employees, work along with them.

  so that you can keep that occupancy rate up.

  Dylan Silver (08:55)
  Now, the employers component of this, I feel like sometimes gets understated, right? Because you mentioned, know, lenders might be looking at, well, what’s the population in this area? We’re not going to look at it if it’s under 200,000. But also, you know, are employers interested in coming to your location? You know, that’s one of the probably you mentioned ⁓ ways to understand if this is going to be a good location is our employers looking at coming to the area.

  And when we talk about not just the employers themselves and where they’re looking at, but also the people who have the ability to make this a more desirable location, whether that’s everyday folks who have the ability to change the local laws and jurisdictions, or whether that’s almost like the vibe of the city. I’ve heard great things, for instance, about like Tampa, Florida, the West Coast of Florida.

  where it’s maybe a little bit more cost effective than South Florida. You’ve got a lot of real estate professionals coming out there. And then you’ve got the beaches on the West Coast of Florida. So it’s almost like a number of different factors.

  That’s not just tax incentives and the businesses that are already there. It’s also culture that could be driving people to a certain area.

  Dean Zuleger (10:51)
  Yeah, we see that, especially in the metro areas, although you’re seeing a decline in Minneapolis, which used to be kind of in vogue, uptown north, the north loop, those kinds of areas. In some of the areas that have been experiencing either regulatory oppression, I’ll call it that, or social strife, you’re starting to see that culture thing slip away.

  What we do is we try to partner with ⁓ our portfolio, which is food, good jobs, agriculture. And for example, we rent ⁓ to people that work in the poultry industry, poultry processing industry. We partner with Genio. We also partnered with Turkey Valley in Minnesota here. Those are tough jobs. We had to ⁓ rely on them helping us get the word out that we’ve got apartments that are affordable.

  We index to the wage rate so that we can make sure our rent, so we can make sure that we stay affordable. ⁓ But if you’re in urban areas, culture makes a big difference. If you’re in outlying areas, manufacturing to us makes a big difference because those jobs ⁓ pay it well enough that people can afford our properties and provide the economic stability. Also, remember, you know, those folks, you know, basically circulate dollars economically locally eight times.

  So you bring in a good employer and they drive the economic engine, which drives rent, which drives, you know, our ability to improve properties, those types of things. So we always look for that employer, ⁓ you know, kind of element when we’re going to go into a market. The second thing we look at then is because we’re doing low income tax credit housing or we’re doing affordable housing, you always have to have a backup plan for an economic downturn. So we’ll look at local agencies that can help us with rent help.

  so we can keep people in those job transitions in our apartments when they might have an economic downturn in their life.

  Dylan Silver (12:57)
  Now, when we talk specifically about workforce housing and you know, these businesses where these people are basically renters by necessities is the term that I have heard. Which markets are you most bullish on? Are there specific markets that you’re looking at and saying, you know, if you’re getting into workforce housing, that’s an area where you want to be looking at.

  Dean Zuleger (13:20)
  Yeah, I’m big on AI and data center areas or tech areas right now. And I think that provides a variety of different housing options. For example, you go down and you take a look at the small house village around the Tesla plant in Austin that I know you might be, you you take a look at what’s going on with mixed traditional neighborhood developments back in Detroit, which is having a Renaissance right now in terms of technology. You take a look at

  You know, some of those folks that are off are on shoring now, old manufacturing in like Indiana. ⁓ If you want to partner with state governments, ⁓ South Dakota is still very attractive. They’re looking for workforce housing and North Dakota under Governor Burgum and now, you know, Secretary of the Interior Burgum. ⁓ You’re taking a look at those kinds of areas. And like I said, if you take a look at federal regulation, I think that ⁓

  Dylan Silver (13:56)
  Mmm.

  Dean Zuleger (14:19)
  what’s going to happen under HUD and secretary Scott Turner, who I think is the best cabinet member that Trump has. And I have other folks that are friends that are on the cabinet. think secretary Turner is going to partner with Tim Scott and they’re going to expand that opportunity zone, those opportunity credits to kind of help build back metropolitan areas. They’re even making federal lands available to purchase at a decent price. So you have to take a look at where you’re at.

  and you have to take a look at what the market provides. But I think in tech and the on-shoring of high-tech manufacturing jobs, robotics, blockchain, stuff like that, that’s an area that you could build some workforce relationships around.

  Dylan Silver (15:42)
  You know, you talked about tech and robotics. And I’ve also seen a huge this is a different segment, I’ve seen a huge increase in both the number of deals and then also the number of operators that are interested in like industrial warehouses. I’ve seen what I was speaking with someone that had a Bitcoin mining warehouse. So that’s a new one for me. But then I’ve also seen ⁓ because of the the

  increase in the number of online services and the number of online retailers that these people need a place to store their goods. And so you’re seeing whole warehouses being utilized for, you know, online retailers as well. So because of all of that, you’ve really had more interest than ever in that industrial space.

  Dean Zuleger (16:33)
  I think you’re seeing that in Minnesota. And I would say to you that Minnesota is not a environment that I would maybe build new ⁓ affordable housing in because of the regulatory environment, especially out of the attorney general’s office. They’re going after landlords all the time. ⁓ But you are seeing a lot of warehouses and storage spaces and logistics spaces be built in the second tier suburbs.

  ⁓ of Minneapolis and St. Paul. ⁓ I actually, you know, live very close to one where I’ve watched a warehousing park that’s opened up with probably 180 dock doors. ⁓ And that’s supplementing e-commerce. It’s supplementing, ⁓ you know, a lot of construction supplies. The other thing that I’ve been watching is there have been two really big data setters that have been built that I’ve been watching where

  When the data center got announced, okay, and those are labor intensive in construction and then maintenance as you go along. I’ve watched affordable housing go up within a quarter mile of both of those places. So I think that if you’re taking a look at what’s going to drive in the tech space, workforce housing, it’s going to be data centers, blockchain, maybe some of this crypto stuff that we’ve been talking about and robotics and high tech manufacturing that’s going to kind of onshore.

  ⁓ basically repatriate business here in the United States.

  Dylan Silver (18:09)
  Yeah, I mean, this is a new time to be an investor in real estate, honestly, you know, when we talk about real estate being cyclical, we’re in I feel like a new cycle, you know, the strategies that worked five years ago, maybe some of them are going to be returning, I’ve heard, you know, fix and flip might be might be coming back. And there’s still obviously some fix and flippers who are doing business, but you’re to have more people getting into, you know, workforce housing, you’re to have more people getting into alternative housing, ADUs, you know, in places like

  Los Angeles, I hear there’s tons of ADU development happening. And then you’ve also, I’ve seen a rise in manufactured housing as well and in modular housing, right? And so people finding ways to get into the on-ramp of both being an investor or just a homeowner as well, there’s definitely a lot that’s changing right now. So it’s an interesting time to be getting into the business for those who getting are. We are coming up on time here though, Dean.

  any new projects that you’re working on and then also what’s the best way for our audience to reach out to you or your team.

  Dean Zuleger (19:13)
  Yeah, if you wanted to talk to us and we do have a checklist that I’d be more than happy to send to your investors that go through this regulatory market and lending environment analysis. I can be reached at Charis Dynamics, Charis Dynamics, C-H-A-R-I-S, Dynamics LLC at Gmail. ⁓ That’s where we’re at right now while we’re forming this group. know, one of the projects we’re working on is affordable housing and we’re taking a look at this eco panel, Lifestone.

  kind of concept to build energy efficient, weather resistant, hurricane resistant housing. And you’re going to see some of those projects going on. The other thing I want to do, and I’ll give a shout out to a fellow guy like you Dylan, is that there is someone that I think that really looks at this thing granually better than anybody in the country. So if you’re on LinkedIn, take a look at Jay Parsons. Jay Parsons at Madeira does some of the best kind of granular analysis in this space. Follow him.

  and you’ll just learn so much from him. You know, I always want to add value when I’m on these things. And I think Jay Parsons is a guy that adds value to anybody in this space, just like you, Dylan, anybody in this space is life.

  Dylan Silver (20:25)
  Dean, thank you so much for your time today. Thanks for coming on the show.

  Dean Zuleger (20:28)
  You bet. Thank you, Dylan.