Why Smart Multifamily Investors Are Targeting Workforce Housing Right Now | Jon Siegel

Jon Siegel (00:00)
Yeah. Yeah. Yeah. I mean, you got to, you got to understand the numbers and also, you know, the thing is what, are the assumptions? You know, we always have the everybody has their model and somebody says, you know, want to, you know, 16 % return and it’s like, look, I can make that model say anything you want it to say. but, but, but, know, what’s, what’s realistic now. And I’m, I’m big on, on this day, you know, in, in sort of, you know, as I say, staying, staying in the game.

Scott Bursey (01:58)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host Scott Bursey. And today we’re locking in with a heavy hitter who is dominating the institutional multifamily space. Jon Siegel from RailField is in the house and he is bringing the fuel you need to understand where the smart money is moving in large scale real estate. We’re talking deep dive strategies, market shifts and scaling success.

Get ready to turn up the volume and take some notes because this episode is pure gold. Jon, welcome to the show.

Jon Siegel (02:33)
Hey, thanks for having me. Glad to be here.

Scott Bursey (02:35)
We’re seriously fired up to have you here. 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?

Jon Siegel (02:48)
Right. So, I’m Jon Siegel. ⁓ Right now, am one of the founding partners. I’m the chief investment officer of Railfield, and we’re based in the Washington, D.C. area in Bethesda. And we focus exclusively on multifamily and primarily partner with institutional capital and acquire assets. Right now, we’re in 12 markets, primarily mid-Atlantic, Southeast, and Texas. Although we bought a property in Indianapolis recently, so I got to change that spiel a little bit.

I have been, I sometimes I say I have been in the commercial real estate business longer than I care to admit. It’s been a long time, at least 30 plus years. You know, I actually got into the business like a lot of people get into anything sort of by mistake, not by mistake, but by happenstance, I guess I’d say. I actually, when I got out of college, I originally had job at a radio station. So maybe I’ve come full circle down the park. I was making, you know, $5 an hour.

working weird hours and everybody was like, you need to a real job. And so I ended up just, my father’s like, oh, here’s some people I know, call these guys and one of them met a real estate company. And so he’s like, yeah, we’ll give you a job, but I don’t know why. I was a history major in college, so I had no business training. And it was a kind of a local owner operator here in the DC area. I had been managing properties as a regional manager for a little bit.

You know what? It was great at the time. was like, I’m not sure I love this, but it was great experience. Really got, got myself on the ground and really sort of, you know, they made me go sit at a property and lease apartments for a couple of weeks. And then I did the reports and it was, so it was great experience, but I decided that I wanted to, you know, maybe try something different within the same space. So I went back to business school and I got my MBA and that’s when I probably really started the journey that I’m on now, which is I, I got a job at a company that was at the time, the largest owner.

departments in the country, that was in the 90s. And ⁓ I was doing acquisitions there. so the company was actually owned by the endowment of Harvard University. So it had lots of access to capital. And so we were able to do a lot of pretty big deals at a time when people weren’t doing as many deals. And so I got a ton of experience. And I would say, I’m not sure why they let a guy in his 20s close all these deals and everything, because I certainly didn’t exactly know what I was doing, I don’t think.

But it was great experience. so I had a lot of experience on the principal side and ended up on the lending side. That company, the company I worked for actually got sold, which is a kind of weird story, but it got sold and I ended up getting a job at Fannie Mae, which was the largest lender on multifamily in the country at the time. And so I was a lender for a while before ultimately getting to this entrepreneurial stage of my life.

Scott Bursey (06:23)
That is one heck of a journey. And this is going to be a lot of fun, Jon. Let’s dive right into some high level strategy, starting with strengths. What is the single biggest operational strength? RailField brings to the table in today’s choppy debt market in your view.

Jon Siegel (06:39)
Yeah. Yeah. So, you know, we pitch ourselves as, you know, small institutional firms. So, you know, we’re small. We bought about 8,000 units and done about 30 deals. We’ve been around for 12 years. So, and so, you know, we’re not, we’re not a huge firm, but we have, I have two other partners and we’ve all been in the business a really long time. So, and we have a lot of institutional experience. So we do really well working with institutional capital and, know, sort of

speak the same language, even though we’re a smaller company. ⁓ And we’ve seen a lot. we’ve been on both sides of the table. So I’ve been both a principal and a lender. And so the ability to sort of do the entrepreneurial thing, but working sort of alongside institutional capital, I think has helped us a lot. And it’s helped us raise money some because some of the institutional capital has been like, we’d like to look at something a little bit smaller than giving money to Blackstone or whoever it is. And so…

So, yeah, I think that that’s kind of been our secret sauce, if you will, is taking our experience and then doing the entrepreneurial thing. because we never, most companies that start like we did, start as, start doing maybe friends and family or, know, passing the hat around at the country club or something like that. And then moving into syndication and then hope to get institutional capital. And I like to say we sort of started on third base, our first investor, we actually got money from a pension fund.

and so, know, we sort of started on third base in that account and, the grass is always greener. You know, there’s probably some of that other stuff is probably better in some respects, but, but, you know, that, that’s kind of, you know, where we started. And so we’ve sort of expanded upon that. And that’s, think. Gives us a leg up, especially when we look at deals a lot, you know, we’ll, go and we’ll people will say, you know, okay, you know, we’re having a buyer interview or something. And we’ll be like, well, you know, here’s our experience and here’s our institutional capital that we have, you know, a joint venture with already.

And so we have, you know, certainty of clothes and all that. So, pretty good. Yeah.

Scott Bursey (08:35)
That’s really an excellent breakdown. And

Jon, being a smaller firm, if you could maybe touch on relationships in respect to being a smaller firm.

Jon Siegel (08:45)
Yeah.

Yeah, you know, mean, look, real estate is a relationship business, you know, 100%. ⁓ And, ⁓ you know, it’s interesting. So when we started our company, you know, this is now, you know, 12 years ago or whatever, we, when we started, I think we came from Fannie Mae, which is an enormous corporation. And, you know, if I have Fannie Mae say on my business card,

and I call somebody or yeah, I call someone says, Jon from Fannie Mae and I’m like, people call me back because they want the money, right? You know, I have cheap money. And so people, right? So people call me back and you know, everybody wants to talk to you. But then when it turns out that you’re just Jon, you know, who calls you back? You know, you’d be surprised. You’d be surprised at who you thought would call you back who doesn’t and who you never would have thought would call you back who does.

And it’s been an interesting journey over that decade plus to see how, you know, we started with like just hoping that, you know, somebody would take it seriously and call us back and all of that too. Now, you know, we’re an established company and you know, we have credibility and it’s, sometimes we, we, we sort of say, Hey, pretty crazy all of a sudden, you know, look who wants to do business with us now, you know, kind of thing. So, so relationships that are key, like, you know, say I made a lot of relationships working in the corporate world.

And as I said, some carried over, some didn’t, and some that didn’t ended up still carrying over because after they saw that we’d been around for a while, they’re like, oh, okay, I remember you and sure, we’ll do something with you. it’s everything and I think it’s really important to us. We operate here with the ethos of relationships are really important and our reputation should always be unimpeachable. when we work on a deal, we say, we never.

trying to change the deal on anybody. We always try to do what we say we’re going to do. ⁓ And we try to ourselves, you work with us, it’s generally easy, we’re easy to work with. And that helps you in the long run. That’s a way to generate more business.

Scott Bursey (10:48)
absolutely and those relationships are everything. They really are. And let me ask you this, if you could walk us through, where do you see the greatest risk right now for multifamily operators who lack institutional depth perhaps?

Jon Siegel (10:52)
Yeah.

Yeah, I mean, it’s, you know, I don’t think it’s a, it’s a secret to anybody that’s even marginally involved in this. It’s been a tough couple of years. You know, when we had stay alive till 25 and then we had, don’t know, 26, I heard the recent one was it’s still going to be a, we’re still going to be in a fix in 26 or something like that. It’s been, it’s just been a complicated market for the last couple of years. I mean, on the operational side, obviously, depending on what market you’re in and some markets.

better than others, obviously, but there’s been a lot of new construction. We’ve had a lot of issues with insurance and taxes are high and payroll is high. So the operating landscape is a lot harder than it used to be. And at the same time, so is the investment side. It’s hard to make deals happen now, hard to capitalize deals. And so I think the biggest threat, people who started companies, we talk about all the time,

you people who started a company like ours, you know, it looks really, people are like, oh, that’s so cool. You know, you own your own company that’s commercial real estate. And, you know, and it’s like, it’s not easy. And, you know, and a lot of people do it and, and, you know, stop because, you know, it’s hard to make money. And, you know, and when things get difficult, you know, in 2020, 2020 or 2021, when, you know, the cost of capital was really low and, you know,

All you had to do was change out the refrigerator and you could raise the rents. It was pretty easy and anybody could do it. But then, you know, there’s a saying by, I think it was Charlie Munger, you know, who worked with Warren Buffett, or maybe it Warren Buffett, but you don’t know who’s not wearing a bathing suit until the tide goes out. And, you know, and that’s the market we’re in now. So that’s what makes it, that’s the threat, if you will. It’s just, you know, you just got to

working my through this.

Scott Bursey (13:36)
Absolutely, and I concur. Moving on to something that you might feel like your firm’s ready to capitalize on. What emerging geographical sub market or asset class within multifamily is real field most excited about right now?

Jon Siegel (13:54)
Yeah, I think, you know, when you talk to the, we talked to the herd, if you lay most people that the, you know, where, where we are in the market, I think a lot of people are saying, you know, and it kind of makes sense when you’d say, okay, in the market, you know, the market is kind of tough. So we should probably focus more on lower risk assets. So people are like, we want to want to look at new, new properties or newer properties. We don’t want to take a lot of real estate risk.

And that makes sense. And I get that. But I think there’s a lot of opportunity actually in what I’d call the workforce housing space, which was very crowded during the value add boom of a couple of years ago, but it’s now pretty open field because again, a lot of the bigger players aren’t playing in that. I think there’s a lot of opportunity because look, if you look at the demographics of America, there’s a huge shortage of affordable housing. People need a place to live.

⁓ All of the new construction is on the high end, obviously. Nobody’s building brand new C-class properties. ⁓ And so there’s a lot of opportunity, I think, to invest. And we want high quality assets. We say we’re sort of institutional, we ⁓ don’t really buy C-class properties. But a property built in the 70s or 80s in the right location is not going to get very many bids, but I think it’s more stable in many respects in some of the newer stuff.

Scott Bursey (14:55)
you

Jon Siegel (15:20)
The last couple of deals we bought have been 70s or 80s deals in really strong sub markets. And I think that it’s just an overlooked place. the cap rate, the difference in cap rates is anywhere from 50 to 100 basis points. And if you know what you’re doing, you can make some money there.

Scott Bursey (15:39)
It sounds to me that you have to look for those opportunities that might be hiding a tad bit.

Jon Siegel (15:43)
Yeah,

yeah, yeah, yeah, yeah. gotta zig where everybody else zags, but yeah, I mean, you know, we, as we always say, we’re pretty good at banging our head against the wall here. We look at a lot of deals and most of them don’t work. you know, but that’s what you gotta do. ⁓ And, you know, if you just keep going, you’ll eventually find something.

Scott Bursey (16:03)
You

got to roll up the sleeves and go to work. And beyond interest rates, what external economic threat are you currently watching closely when underwriting new deals, Jon?

Jon Siegel (16:05)
Yeah, yeah, yeah.

you know, mean, obviously interest rates are huge, but, you know, we’re, looking primarily at, you know, things like, you know, in migration, ⁓ we actually set up, you know, interesting, yeah, that sort of interesting, but yes, when we, were, you know, figuring out where do want to invest as we’re doing our business plan. And, as, as we’ve been doing over the years, and we said, you know, what’s a good market, what’s a good market to invest in and.

you know, we said somebody was saying like, well, what’s a good market? I’ll say Dallas is a good market. And you say, why is Dallas a good market? And they’ll say, I don’t know, because everybody else says Dallas is a good market. You know, when you read all the emails you get, you know, it’s a Dallas is a great market. And so we set out actually to do the math on that and say, okay, what really makes a good market? And so we came up, I think it was with nine, nine attributes that we would say, okay, this would, you know, these would make a good multifamily market. And it’s, it’s everything from,

job growth, because jobs drive apartments, how much new construction is there, but also how many people live there between the ages of 21 and 34, which are prime renting years. How much transaction activity is there? Because if you want to do a transaction, then nobody will ever buy it properly there. That’s probably not a very good market. And we did this. To a lot of people, we say it’s our algorithm. Yeah, it’s a fancy spreadsheet. we did it, and we…

put a bunch of markets in there and I think some of the ones that we thought would be great turned out not to be very good and some of the ones that we thought were not very good turned out to be pretty good. And that’s been a bit of a guide for us. We’ve updated it a number of times over the years and you we bought properties in San Antonio when nobody wanted to buy a property in San Antonio and it was growing really fast. Richmond, Virginia has been a good market for us and doing that Greenville, South Carolina actually the last addition we did came in as number one and we have an asset there.

So, I think if you take sort of a data-driven approach and you just say, what element makes a market good, it’s sort of a, put it all in the pot and stir it up and you come up with something that might work.

Scott Bursey (19:01)
It’s all about the math.

Jon Siegel (19:03)
Yeah, yeah, yeah. Of course, there’s always judgment involved. The interesting thing on that is you can go to the greatest market in the world and buy in the wrong sub market. know, vice versa, you go to the worst market. I’m sure somebody’s making money and I don’t want to demean any place, but you can make money anywhere if you find the right place. But yeah, broadly speaking.

Scott Bursey (19:24)
Let’s tie this back to Deal Flow. What is the biggest weakness you notice in the acquisition pipeline of groups trying to compete with institutions like yours?

Jon Siegel (19:27)
Yeah.

Yeah, mean the deal deal flow right now is pretty pretty weak. mean we have not, you know, I think for April, you know, it’s usually slow say around the beginning of the year, but usually picks up pretty significantly, you know, as the year starts up and it’s been it’s been really weak. And I think, ⁓ you know, most of the deals that we’ve seen have been deals where somebody just has to sell ⁓ and they generally have to sell and that and the message is not, you know, the message is, you hey, they bought it for 30 million.

Their loan is 25 million. Yeah. They’d love for you to pay them 32 million and the property is worth 23 million. That was a lot of numbers, but yeah, a lot of these deals tend to be underwater. ⁓ And so, you know, I think the best way to on deal flow is like you can call everybody in the world. know, brokers obviously are going to be a good source, but you know, I think right now the best way to win deals is really to

find deals that are sort of interesting and dig deep into them. A couple of years ago, and when a lot of people got in this business, it was pretty easy.

Jon Siegel (20:38)
deal and then stay with it because it’s probably not going to trade immediately and then develop a good relationship with it if it’s the broker or the seller or whoever it is and work your way through it. I call that sort of my hang around the hoop strategy where it’s like put the shot up, you might not make it but if you hang around the hoop enough you’re going to get a rebound.

Scott Bursey (21:00)
You bet you are. Absolutely. If you box out properly, you’re going to snag that the ball. Absolutely. And it sounds to me like, you know, the underwriting must be razor sharp.

Jon Siegel (21:03)
Yeah.

Yeah. Yeah. Yeah. I mean, you got to, you got to understand the numbers and also, you know, the thing is what, are the assumptions? You know, we always have the everybody has their model and somebody says, you know, want to, you know, 16 % return and it’s like, look, I can make that model say anything you want it to say. but, but, but, know, what’s, what’s realistic now. And I’m, I’m big on, on this day, you know, in, in sort of, you know, as I say, staying, staying in the game.

and.

So the model, when you’re making your assumptions, be realistic about it and stick to your guns because nothing feels worse than if you screw it up. so stick to your guns and use what I would say realistic. There’s always acquisitions underwriting, but use realistic numbers. You’re not going to get $200 a unit premium by spending $5,000 a unit. That’s not going to happen.

Scott Bursey (22:11)
Now it’s.

Jon Siegel (22:11)
And people

are, by the way, people are going to flush that out. know, people are going to flush that out. I know we’ve had a number of calls, know, buyer calls on deals that we bought where they start saying, let’s go through your assumptions. And they’ll say to us like, look, when you guys could give us your assumptions, they sound reasonable. It sounds like something you could actually close versus somebody who’s just telling themselves what they want to hear.

Scott Bursey (22:28)
And I know that our listeners have been waiting for this. What’s your deep dive strategy, Jon, for implementing that truly separates, RailField from the competition.

Jon Siegel (22:41)
you know, I don’t know that there’s, I would love to tell you that we have some secret to, you know, we just, you know, you just come in on Tuesday and, know, type this into the keyboard, then everything will be great. you know, I think I would, I would tell you that our, our, our secret to success such that we’ve had success is probably, just grinding it out. If I’m being honest with you is, you know, coming in every day, you know, and we come into the office every day now and people want to work remote.

That’s a different debate. But we come to work every day. We say to the guys that work here, hey, we want you to come in. We want somebody that’s going to come in to kick ass every day. And they come in. And we work hard. And we keep grinding away. And not everything works, but enough does to make it happen. And so for us, it’s really, and you start to see it as you get old. You start to see like,

hey, all that stuff I’ve learned over the years actually means something. I actually understand this and I can actually see the deal and say, okay, this is how it’s gonna work. And then you just gotta, you gotta try to make it happen. And so that’s really the secret. I would love to tell you that, know, real field has some algorithm that if we just, you know, put in four, seven and nine, you know, we’ll be billionaires, but yeah, that’s not the way it’s worked for us. if I could find it, I would do it. I would love to have it.

Scott Bursey (23:57)
Thank

There is no magic wand. You must come to work, be proactive and come to work with high energy and put those boots on and hit the ground. Absolutely. Absolutely.

Jon Siegel (24:06)
Yeah, yeah, yeah, yep, yep.

Yup. Yeah. Yeah. Yeah. Yeah. No, I’m

a little wary. I’d have to say I’m a little wary of somebody that when somebody says like, this is a new way of doing it, and it’s going to change everything. I mean, not that we’re not open to new ideas, but but you know, I’m sort of like, you know, there’s a way to do this, you got to do it. And yeah, it’s an interesting debate, you know, people have with AI now everything’s you know, I’m going to do this with AI. And people like, yeah, how do you use AI? And, you know, we’re all trying to figure that out.

don’t know that anybody’s cracked the code on that 100 % yet. Maybe that’ll be the magic bullet.

Scott Bursey (24:44)
Right, and that’s a…

Hey, you never know. You really don’t know. And Jon, I must say this conversation has delivered serious fuel for our pros. Thank you so much for being on the show. And incidentally, for our listeners who want to follow your journey or collaborate with you, what’s the best way for them to reach you?

Jon Siegel (24:51)
Yeah.

Great. ⁓

Well, if you want to reach me, you can just shoot me an email. It’s J Siegel. So I’m S I E G E L at rail RailField. So it’s think of railroad and field RailField. So it’s railfieldrealty.com or you can just look at our website and, and, and, and, but it’s [email protected] or I’m on LinkedIn. People, a of people connect with me on LinkedIn. Jon Siegel S I E it’s J O N by the way, I’m one of those weird Jon spellers.

But yeah, I really appreciate you having me on. It’s a great podcast. hopefully somebody learned something or at least was entertained.

Scott Bursey (25:37)
It has been our pleasure, Jon. Thank you again.

Jon Siegel (25:40)
Great. All right. Well, thank you.

Scott Bursey (25:42)
And for our listeners who want to hear more about other people’s journeys, stay tuned because we have other exceptional people coming up just like Jon. And until next time, keep your standards high and your vision clear, everybody. We’ll see you on the next episode.