Why Alaska Multifamily Investing Wins: Stable Rents, Better Caps, and Hidden Opportunity

Jesse Janssen (00:00)
And that’s what’s really interesting for investors when they look at our market is they say, hey, you know, this should be a six cap property, but that same property might trade at an eight cap here in Alaska or here in Anchorage.

partly because of the perceived risk of being outside of the core 48 states, but also just because of the limited supply in the Anchorage market.

Scott Bursey (00: 40) Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we’re talking about the deep financial strategies that separate the casual investor from the true market mover. Our guest, Jesse Jansen, is a master of finance who helps pros structure the big deals that most people think are out of reach. Jesse, welcome to the show.

Hey, thanks for having me, Scott. Really happy to be here.

Scott Bursey (02:19)
Yeah, absolutely. We’re delighted to have you. And for those of our listeners who may not be familiar with your journey, please tell us how did your career begin and what is your main focus now?

Jesse Janssen (02:31)
sure. So I live in Anchorage, Alaska and I’ve basically been here my whole life. ⁓ I was in commercial banking for about 24 years. I worked for a number of banks, regional commercial banks, ⁓ fintech lenders, ⁓ and then some more national footprinted banks, running commercial lending teams, ⁓ running a commercial loan portfolio.

And what I realized during my tenure in the banks is there was one underlying piece working with lot of high net worth clients, a lot of high net worth customers. Real estate was always a component of the balance sheets and what made the successful people successful. so seeds got planted early on in my 20s and going into my 30s about real estate. And I’ve always had an interest in it.

But what I finally started to do after 18, 19 years in the banking arena is I actually started taking some of the knowledge that I had gleamed for underwriting, for loan structure, financing structure. A lot of knowledge I was able to sort of gather as a banker. And I started to apply that in my own world. We started buying multi-family properties. ⁓ And I could talk a little bit about one particular deal here in a moment that really was an inflection point for us.

But essentially what we did is we started buying multi-family properties and we started to build that. And we built that primarily by way of finding B-class assets, maybe C-class assets. Very typical story, right? These are assets that were built in the 70s and 80s and in many cases they were long-time owners and in many cases they were slightly under-rented, under-managed, under-performing for whatever reason. ⁓ And so…

We pick those assets up and we boost the NOI. Typically it’s a combination of a management play and some like cosmetic upgrades. And over time, we refinance these things out as we can or we upsell. In many cases we’ll 1031 into a larger asset and we do that quickly. ⁓ We don’t normally hold these things five or 10 years. We’ll get in, our value and then get into a bigger asset. And what that’s allowed us to do.

is in about six years, we’ve built up a portfolio of about 200 units, just shy of, and a few retail commercial properties around the Anchorage area. We have a few outside of Alaska, but most of our portfolio is right here in the Anchorage area. And what we’ve actually done recently is we’ve done a little bit of foray into light development as well. And I can get into any details you want in that. But we’ve started building a few of our own complexes and enrolling some of our equity in these older.

high maintenance assets into some newer ⁓ assets that are a little easier to own and little easier to manage. And you have a little bit different tenant quality when you start to shift up your assets into newer construction.

Scott Bursey (06:17)
Well, that is an excellent journey, Jesse. And if you could tell our listeners a little bit about the Anchorage Market.

Jesse Janssen (06:25)
sure. Yeah, Anchorage is very unique. I’m not sure, ⁓ you know, what your audience knows about Alaska, but Anchorage itself is landlocked. And really what that means is we’re surrounded by mountains. And so there there is a limited supply of land. And Anchorage was primarily built up in the 70s and 80s at the back end of the or at the beginning of the pipeline development and the oil boom. So a huge percentage of our stock was built in a

you know, a two decade period and a lot of it’s aging, a lot of it hasn’t been updated and there’s not a lot of space to build new buildings and there’s not a lot of space for new development. So what that means is that what is here trades at a higher cap than you see in a lot of the lower 48 states.

And that’s what’s really interesting for investors when they look at our market is they say, hey, you know, this should be a six cap property, but that same property might trade at an eight cap here in Alaska or here in Anchorage.

partly because of the perceived risk of being outside of the core 48 states, but also just because of the limited supply in the Anchorage market.

⁓ Anchorage, as you may or may not know, is propped up by tourism, federal spending, military spending, ⁓ tourism. So we have sort of this three or four peg stool that really holds up our economy, and it insulates us. We don’t see the peaks and valleys, the ups and downs.

that you see in some of the big metros, know, during even during the 2008, you know, real estate, crash is what most people say, you know, we didn’t even have a dip in rents. And we didn’t even really have a decline in single family home values during that period. It flattened out for a few years, but we have never in the whole history of our market seen these big swings. Now, in that same vein, you’re not going to see the big spikes that you see in Arizona or Florida during

the ups and downs of the real estate cycle in general. what it does is it gives investors a very stable market. ⁓ I use that word stable just because when you look back historically, we don’t have those swings. ⁓ You know, it would take a black swan event, I think, in order to really have marked impact on our market, i.e. cut military spending or something that, you know, prohibits tourism in our state or and.

⁓ you know, the federal government releasing a lot of the lands that they own and thus pushing down prices and these things are so unlikely to happen that a lot of people have lot of confidence in this market sort of remaining where it is. We get light growth, stable growth every year, but we don’t see the spikes.

Scott Bursey (09:05)
It sounds like it’s extremely stable and that is ⁓ it’s easier to operate I would imagine. ⁓ Tell us Jesse if you would about some of your core strengths of your operation.

Jesse Janssen (09:13)
It is.

Well, great question. So when you’re trying to build a portfolio, you know, one of the hardest things to get control of are your third party costs, management being one of them. What we did that has paid dividends and still pays dividends today is once we built our business up to about 80 units,

⁓ we had a, a mix of myself managing these, and then I had some on third party management, and then I had some that weren’t really managed at all. And so what we ended up doing is we, hired our own employee and we created our own management company. Now, a lot of people vertically integrate like this. We don’t take third party. So basically I started a management company just for my book and I have one employee and one VA, but they’re on fixed costs.

And so what that did is that.

As we grew ⁓ upwards of up to about 200 units now, we still are running the portfolio with those same two employees. And so my per unit management cost goes down every time I add a door. Obviously we’ll hit a point where we actually need another FTE, but what it’s allowed me to do is with as many doors as we have today, our core management cost is a fraction of what we would pay in the open market. We probably have active management cost of 4%, maybe 3%.

just because it’s fixed for us and every time we add units that cost gets defrayed even further. And I have one person that manages our entire book, she knows it inside and out, we give great service, we’re responsive, ⁓ and we know where we want to spend money, where we don’t. And having that level of control for us over a multi-family portfolio was a game changer.

Scott Bursey (11:36)
I can imagine how many doors do you have?

Jesse Janssen (11:39)
Well, I feel like it’s always shifting. I think today we’re just shy of 190 because we just sold off a 15 unit building a couple weeks ago in anticipation of doing a 39 unit development in South Anchorage later this year. there’s always something that we’re buying and selling. Typically we’re trying to upsize and do a bigger asset or like I mentioned earlier, we’re foraying into light development and so…

⁓ So that’s what we’re doing now. in the process of building 39 and ⁓ our active portfolio today is just at like 188.

Scott Bursey (12:16)
What do you feel is ⁓ the biggest opportunity right now? And this could be like a market shift or a new offering, something of that nature.

Jesse Janssen (12:25)
Great question. know, from my perspective, ⁓ this is a market specific answer for you. And that is that the city, the city of Anchorage is actually offering tax abatements for new development. So what that will do and what that is doing is you can take advantage of 20-year tax-free money, ⁓ property tax, basically a full 20-year property tax abatement, 25 years in some cases, for developments of eight units or more.

So that’s a phenomenal opportunity if you have the ability to do that type of development. If you don’t, if that’s not your bucket, that’s not your game, there are still a lot of opportunities here in that you can still find 20, 30, 40 unit buildings in some cases that have had the same owner for 20 or 30 years. And that owner is sort of getting to the point where they’re to phase out. And there are still under managed, under utilized assets that you can pick up in this market that

In some cases, it’s just a better management or applying better management can get you huge value add lifts in certain cases. Obviously, you need to clean these properties up and make them physically attractive, cosmetic updates in many cases, but you can still find those deals here. And I know in a lot of markets, those are hard to find, but we still have them here in Anchorage in some cases.

Scott Bursey (13:48)
And let’s shift gears here just a little bit, Jesse. As far as AI is concerned, are you incorporating AI?

Jesse Janssen (13:56)
that’s a great question. I struggle with this one, Scott, trying to figure out how to use it, where to use it. And obviously, it’s the way of the world. It’s the way things are going. Right now, we are just on the precipice of folding AI into our management software. ⁓ We’re in the process of actually developing an add-on that will help with our customer service. We haven’t implemented it yet. It’s in process. I use a VA out of the Philippines, and then I have

⁓ staff member here in the office. But what this AI tool will do is it’s basically going to be the interface at the initial client level and then it’ll feed the request whether it’s a maintenance item or whether it’s you know a complaint of something. It’ll filter to the right person but it will alleviate that initial first step, that first contact and it’ll filter that request where it needs to go. So we will be implementing AI for that purpose and I’m sure as time goes on

even more so, but that’s where we’re starting.

Scott Bursey (14:57)
And that should help with your responsiveness.

Jesse Janssen (15:40)
absolutely. And it’ll get into the right person the first time.

Scott Bursey (15:45)
Absolutely, efficiency goes hand in hand with that. Any challenges you’re watching closely, market risks, competition, things of that nature, Jesse?

Jesse Janssen (15:54)
sure, you know, I

You look at the greater economic things going on right now and oil prices are a big one for us. Interestingly, when oil prices swing, that has an effect in our market. Now, these shorter swings, less so, but we’re always concerned about a big spike in prices and what that will do for ⁓ additional capital coming into our market. If those are inflated for a long period of time, are you gonna see less investment in this arena or more? ⁓ The other areas that we’re really kind of keeping an eye on

are with some of this additional development that we are planning to see over 2027-28, that’s going to bring a lot of additional units to our market. so vacancy control is going to be something we need to focus on because you’re bringing in better supply. What is that going to do to the buildings that are a little older, some of these older units? You know, there will be a push up in vacancy and I feel like it’s the operators that can be responsive.

have good customer service, stand out in some way that will excel in retaining clients and minimizing vacancy and runoff for these units that you have in your portfolio.

Scott Bursey (17:12)
If you could fill our listeners in on some strategy you may be employing in the next 12 to 18 months as an organization.

Jesse Janssen (17:20)
Sure, as it pertains to vacancies, we’re getting ahead of it more than we ever have.

⁓ You know, historically we were sort of one of those operators that we would touch bases with the tenant, you hey, your renewal is up, you here’s your new lease, please sign. We’re being much more delicate with that process. Now, when I say delicate, we pick up the phone, we call the tenant three, four months ahead of time, and we say, hey, how are things going? Are you happy? How can we keep you? Type question. And in a lot of cases, what that means is that we give them maybe a new washer, maybe a new dryer. We do a little bit of light negotiation, but we’re locking in our…

renewals early, much earlier than we did in years prior. In some cases, we’re renewing four months before renewal, three months before renewal, because it gives us peace of mind to know that we’re not going to have a big runoff in any given month. So we’re trying to get ahead of things that way.

Scott Bursey (18:11)
That’s outstanding. I’m pleased to hear that. And what sort of advice or golden nugget, any takeaways that you could provide for our listeners here today?

Jesse Janssen (18:24)
geez, for me I have, I guess for me I have found that ⁓

It costs a lot less to turn over a unit than to keep it released. So I’m sticking in that same vein that we just talked about. Our profitability, when you look year over year, building over building, ⁓ it’s gone up leaps and bounds by doing better tenant retention. We do that by trying to offset ourselves in the market by always getting ahead of the renewals and we always offer something on a renewal. Everybody has a specific market and there are market specifics, but for us,

being that extra step involved, going ahead and saying, what can we do to keep you? Has actually paid dividends on our bottom line over the last couple of years. Our turnover rate has gone down in almost all of our properties in the last 18 months by just spending a little bit of extra time on the renewals. A lot of people automate the renewal process and they just push it forward and they go and they’re focused on other things. But we’ve found that spending a little additional time in that vein.

has actually improved our bottom line.

Scott Bursey (19:34)
With your banking background, Jesse, if you were starting over right now with $100K, what would be your move?

Jesse Janssen (19:43)
Great question. I wish I would have done this earlier Scott, know, knowing what I know now, hindsight’s 20-20. I wish I would have been buying properties when I was 20, you know, I didn’t start until my mid-30s, but if I had $100,000 today, I would go…

Honestly, I would skip a lot of people do the the single family then the duplex and the triplex then the this then the that and they work their way up they stair step it up I would jump right into a multifamily deal if I could even if I had to you know Maybe maybe bring in a partner or find additional capital ⁓ If you can get into a five unit you control your destiny at that point because everybody knows You’re using sales comps if you’re valuing a one to four family where when you buy that five unit building

You find something that’s under rented just a little bit, get that NOI up, manage it little better. I would start there. I would find that five or six unit building. I would get the value up and then I would, I would basically turn that equity over into a bigger building and go from there. Keep scaling up and up and up.

Scott Bursey (20:44)
Jesse, that was incredible. What a breakdown. The value you’ve delivered today to our pros has been immense. And for all of our listeners who want to follow your journey or collaborate with you, what’s the best way that they can reach you?

Jesse Janssen (20:59)
⁓ sure, we have a website, ⁓ eightstarsenterprises.com and ⁓ on our website we kind of show our projects, we show what we’re building, we show what we have coming up. That’s probably the best place. We don’t ⁓ have an extensive Instagram or we do have a Facebook page also eightstarsenterprises.com but the website is what we keep most up to date.

Scott Bursey (21:21)
Thank you for joining us today, Jesse.

Jesse Janssen (21:24)
Thank you.

Scott Bursey (21:25)
And to our listeners, we appreciate each and every one of you. If you get value from today’s episode, please subscribe. We have more exceptional operators, just like Jesse on the horizon. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.