Why Multifamily Operations and Culture Create Long-Term Investor Wealth

Arleen Garza (00:00)
Yes, we’d like to buy. We’d like to buy, you know, four to six assets this year. We’re sitting in, you know, beginning of May. The market has been somewhat slow ⁓ as people tried to, you know, work through loan maturities, owners working through loan maturities, et cetera. But we really are well positioned to be able to buy, you know, properties in this market. I think

We’re close, if not at the bottom of the market.

Michelle Kesil (02:03)
Hey everybody, welcome to the Real Estate Pros Podcast. I’m your host, Michelle Kesil. Today I’m joined by someone I’m looking forward to chatting with, Arleen Garza, who is the co-founder of Reep Equity, a vertically integrated multifamily investment firm in Texas. So excited to have you here today, Arleen.

Arleen Garza (02:26)
Thank you, Michelle, for having me. I just love opportunities to talk to investors, owners, you name it, in the real estate world. think we learn a lot from each other and from listening to podcasts such as yours. So thank you for your dedication to your podcast.

Michelle Kesil (02:42)
Absolutely, let’s dive in. So first off, those not yet familiar with you and your work, can you share what your main focus is?

Arleen Garza (02:52)
Sure, we are a vertically integrated ⁓ real estate investment firm that focuses on buying multifamily assets and managing multifamily assets. We’ve got a strong team of just under 180 people that work every day to create a really great resident experience, which then in turn will create a great investor experience. So we’ve been at this 14 years.

have purchased over 35 assets, 6,000 units, again, all in Texas. And currently, we’ve sold some, we’ve sold 12 assets, and currently we are sitting just under 4,300 units, again, all in Texas.

Michelle Kesil (03:36)
Awesome. And what do you feel are some of the main keys that have allowed your business to grow and run successfully?

Arleen Garza (03:45)
Sure, think one of the keys is focus. ⁓ A lot of times you hear investors or groups who are dabbling in industrial or they’re dabbling in multifamily or retail. ⁓ But for us, being focused in our strategy of just buying multifamily assets has worked. And also our focus in the Texas market. So we are in three of the top Texas metros.

We are ⁓ shopping in Dallas-Fort Worth, which is the fourth ⁓ other metro in Texas, with 75 % of the population lives in these metros. And so that is why our focus has been there. The other big piece, I think, that has contributed to our success, as I said before, is our team.

We’ve got a dedicated team. when we even before we buy an asset, our teams are involved in the pre due diligence, the pre acquisition work. ⁓ And then we do our own due diligence, we do our own underwriting. And then after we acquire it, we turn it over to our team, our represidential team, who then focuses on managing the asset, completing the renovations and ensuring that we create value at the property.

so that we have ⁓ an opportunity for a good cash out or a ⁓ good sale or disposition on the back end.

Michelle Kesil (06:05)
Awesome. And why is multifamily specifically your focus?

Arleen Garza (06:13)
I think it’s, don’t think I know, it’s because we are providing housing. ⁓

you know, home is one of the most emotional words in the dictionary because people place a big emphasis on home. And that doesn’t necessarily have to mean a home that you own, but a home that you live in. And so for us, being able to provide ⁓ quality housing ⁓ across our markets is very important. And I know that if you look at the data, ⁓

across the U.S. we’re under supplied in multifamily or in rentals. And so we feel like we are meeting a need and we’re focused on meeting that need in a very quality way.

Michelle Kesil (07:02)
Yeah, absolutely. And how did you get to the type of leadership and operational excellence that you are at? Were there specific obstacles or hurdles that you had to overcome to reach this state?

Arleen Garza (07:22)
Sure, so I was in banking for 20 years before I got into this industry. So I had a background of the lending side of our business and ⁓ the lender is typically making up 65 % of the equity stack when you buy a new property. So understanding how lenders think, how they work, how they underwrite has been very, very important. And I think it’s a skill that I brought into the business.

And then beyond that, goes back to, you know, our focus from the very beginning was ensuring that we understood how multifamily properties operate, how they work.

And in our case, our very first asset that we bought and then subsequent to then we managed ourselves. Literally, I did the leasing, I did the accounting, I did the underwriting, I did every bit of that for that very first asset to ensure that we understood what was important to the resident and how you make money. ⁓ Ultimately, you want your investments to make money. And so that was very practical experience that we gained from managing these

these assets and so we managed our first five and then we tried third-party management which just means hiring somebody to manage our properties and that didn’t go well for us because I think we we’d had enough knowledge to know that you give up some control when you you turn it over to someone else for example

You don’t get your reports until almost a month after the activity has happened. So you can’t really impact what happens at a property when you’re doing it ⁓ kind of on the backside versus actively like we do with the assets that we own and manage. So I think that’s been a big piece of it. And the other piece of it is hiring the right team. In the beginning, it was two of us. And then, you know, we slowly added the key pieces. Accounting to me was a big one because

My degree is in finance, not in accounting, and you need to make sure that your reports are accurate, that your information is accurate. So that was key. And then the on-site management, hiring leadership to help manage the managers. That has been very, very important. And like I said today, we have just under 180 people on the team and they are intimately involved in everything that happens at the properties. And then we have our corporate team.

that does the standard things like human resources, marketing, accounting, et cetera. So team is key. know, people, this is a people business. Not only are we renting to people, but we also have a lot of people whose job it is to make sure that we take care of our residents.

Michelle Kesil (10:49)
Yeah, amazing. And when you say you’re vertically integrated, what does that all encompass?

Arleen Garza (10:56)
Good question, because sometimes people don’t understand that term. It just means we have in-house management and we do everything in-house, including the construction, the renovation of the assets, the asset management, the investor relations. Every bit of it is done with our team. ⁓ And it can make a big difference, as I said before. ⁓ You can control the dollars. For example, renovation dollars. We typically will bring

A million to two million when we buy an asset to improve it. And it’s our team that is managing the budget, managing the quality of the work that is done at the property so that we can turn around and get better rents and better income, which then increases the value of the property. having all of that in house, the only thing we don’t do in house are roofs and painting whole buildings because we don’t want the liability nor do we.

have the equipment and expertise to do that, but everything else is done by our team.

Michelle Kesil (12:03)
And what are you most focused on solving or scaling to next?

Arleen Garza (12:10)
Yeah, right now it’s scaling our visibility to attract additional investors. This is a market where there are still a lot of very interested investors because the pricing of assets is at such a big discount that it makes it attractive to buy. So it’s attracting more qualified investors. We have a strong marketing effort and strong investor relations team.

that ensures that we are communicating with our investors ⁓ frequently. In fact, we provide monthly reporting on the assets they’ve invested in. And we’re also working on increasing the ⁓ inflow of opportunities. Right now, it’s primarily off market. There are some marketed deals, but it is providing ⁓ those opportunities for our team to underwrite.

and to be able to successfully move forward on transactions. So as an example of the things we’re seeing, ⁓ last year we purchased an asset directly from the lender. And so we were able to buy it at the loan balance. so coming in the door, we felt like we had a strong equity position because of buying it at the loan balance. And it was strictly an operational play, getting the asset from

call it 70 % occupied, up to 90 % occupied was the biggest piece of the business plan and that’s something we know how to do. So it made a lot of sense and those are the types of deals that we’re starting to see more of. ⁓ And so those are the things investors get excited about.

Michelle Kesil (13:55)
Yeah. And how do you partner with investors? What type of investors are you looking for? Is there any criteria that stands out to you?

Arleen Garza (14:06)
Sure, well we work with both sophisticated and accredited and sophisticated means that they have knowledge of the real estate investment, etc. Accredited just has additional requirements for net worth, etc. But we work with both groups, we work with individuals who have IRA dollars or 401k dollars that have been sitting maybe in a retirement account not earning much and so we work with them also to invest and so

In a typical investment, we set up a single member limited liability corporation and then we bring in our money. We’re typically bringing five to 7 % of our own money and then we’re bringing investors for the rest of it. And in a typical transaction, about 35 % of the dollars are raised in partnership with investors and the other 65%, as I said, is typically coming from a lender to close that.

that asset. So

investors are very, important to us and that’s why we have a strong team that focuses on investor relations, staying available for investors for any questions they have. We use an investor portal which makes it very easy for investors to track distributions, to track the monthly financial reports that we send to them on a monthly basis.

Michelle Kesil (16:10)
Awesome. And how do you guys go through lead generation to find the best type of multifamily assets for your business?

Arleen Garza (16:24)
So we have great relationships with brokers. We’ve established those from the beginning and these are the brokers that focus on multifamily. And so cultivating those relationships and staying active. Last year we underwrote 180 opportunities. We only bought two because those were the two that made the most sense. However, brokers… ⁓

in their interactions with us know that we want to buy, we’re looking to buy, and so they keep sending us opportunities. Some work, some don’t, but we look at every single one of them and we go through our underwriting process and due diligence process to ensure that one, it’s in a great location, and two, that the asset has the ability to improve either in performance or through renovations or whatever our business plan may call for.

Michelle Kesil (17:21)
Amazing. And what have been some of the major lessons that you’ve learned in your career that you wish you had earlier on?

Arleen Garza (17:34)
Yeah, so I think the big lessons are that, you know, multifamily operations isn’t easy, but it’s also not rocket science. So if you are an investor or if you are an owner, understanding the operations side of the business is a big one. I think, you know, from the liability side, ensuring that you are, you have the right coverage. ⁓

You know, luckily we haven’t had a lot of claims, but you want to make sure you protect your investors by ensuring you have adequate levels of insurance for the properties. That’s a big one. And the other one is truly ⁓ developing the right culture. I can’t speak enough about that because you will attract the right people to your team with the right culture. And if you don’t focus on culture, people don’t stay.

they will leave to the next ⁓ property for 50 cents more an hour. having the right culture means that you can have longevity in terms of your team. And the more they stay with you, the more they understand your vision, the more they understand how you want to operate the assets, and ultimately makes them more profitable.

Michelle Kesil (18:55)
Yeah, absolutely.

Arleen Garza (18:57)
Mm-hmm.

Michelle Kesil (18:59)
What advice would you give to investors that are earlier on in their journey?

Arleen Garza (19:06)
I would tell them to get to know people in the industry, get to know who is out there doing transactions. Ask about their track

But I think as a new investor, educate yourself.

Things like this podcast are important from that perspective. Don’t invest in something you don’t have a solid understanding of. There are a lot of resources. I know at reepequity.com, you can find a bunch of resources, a bunch of white papers, a lot of learnings ⁓ in terms of what you should know before you invest. So education is important and then…

Truly vetting the sponsor, as they say so many times, you’re betting on the jockey, not the horse. So understand who the jockey is, what they’ve done, how they run their business, and what their track record is.

Michelle Kesil (20:05)
Are there any goals or opportunities that you’re looking forward to for the rest of the year?

Arleen Garza (20:13)
Yes, we’d like to buy. We’d like to buy, you know, four to six assets this year. We’re sitting in, you know, beginning of May. The market has been somewhat slow ⁓ as people tried to, you know, work through loan maturities, owners working through loan maturities, et cetera. But we really are well positioned to be able to buy, you know, properties in this market. I think

We’re close, if not at the bottom of the

They say once lenders start to take properties back, that’s a big signal that you’re at the close to the bottom of the market. So you want to buy low and sell high. So I think we’re positioned right now to be able to buy these assets at a really good cost basis and run them. And in a few years, two to three years, we’ll be able to exit them at a really nice profit.

Michelle Kesil (21:10)
Yeah, that’s an exciting place to be in.

Arleen Garza (21:14)
It is. Definitely.

Michelle Kesil (21:17)
Awesome. Well, before we begin wrapping up here, if someone wants to reach out, connect, and learn more about what you’re up to, where can people find you and connect with you?

Arleen Garza (21:30)
Definitely, they can send an email to [email protected] and that’s R E E P equity.com. So they can go there. There’s like I said, resources and there’s a link to be able to set up a call with us so that we can understand your investing goals along with sharing what we’re working on at the time. Then once you become part of our investor network, you’re the first one to hear about our new opportunities.

So again, ⁓ invest at REEPEQUITY.com or just go to the REEPEQUITY.com website and go to the invest section and you’ll be able to reach out to us and connect with us.

Michelle Kesil (22:12)
Perfect, well appreciate your time and your story. Thank you so much for being here.

Arleen Garza (22:18)
Thank you for hosting me, Michelle. really appreciate it and continued good luck with your podcast.

Michelle Kesil (22:24)
Yes, thank you. And for those tuning into the show, if you got value, make sure you have subscribed. We have more conversations with operators like Arleen who are building real businesses and we will see you all on our next episode.