Brendan Gibney, senior associate for Intrepid Capital Investments, said he focuses on an ROI of between 20% and 25%, while Quincy Allen, co-founder and managing partner for Arc Capital Partners, said, “Sometimes, you just need to paint and upgrade the washers and dryers so that new renters see that someone cares about the property; then, you can ask if you need to do the units.” He recommends paying more attention to the common areas than the individual units.

Lackner asked, “What drives up rents for Bs and Cs, and how are you measuring that increase across the different classes?” Gonzoles said it's important to pay attention to the people operating the property and make sure they convey to renters that they care. Lichtenger agreed that the property manager is most important: “People do matter.” Allen said it's important to focus on the initial rebranding of a property before turning the units.

Lackner asked, “What are the challenges in acquiring properties and getting better managers?” Gonzales said the manager driving rents down is part of the problem, and people make a big different in property management. Venegas added, “We typically use third-party property managers, but push to get a bigger return,” and Lichtenger said in the first 24 months of owning, “we will be churning folks if the property was owned by one owner for a long time.”

Lackner asked what the benefits of a third-party management company are, and Lichtenger said it's hard to know at first if the manager is good or not. Gonzales said, “No one will watch your money like you will. But, to make ends meet, you can use a third-party manager. Ask how many properties that manager oversees because many management companies are driven by profitability.” Gibney said if his firm doesn't know the market, it will hire a third-party manager, and Allen said his firm invests outside of California, so it needs to decide where it wants to invest its time. “There's a tipping point for bringing management inhouse, but we're not there yet.”

Lackner asked how the panelists view technology for overseeing managers, and Venegas said his firm uses Axiometrics, which provides one system used by many managers to streamline costs. He said the important thing is, “How do we drive rents?”

In discussing the panelists' acquisition strategy, he asked what size deals they are viewing. Venegas said, “we typically look at $10-million to $30-million 1980s and older properties that are outside of institutional investors' radar. We focus on a buyer niche of $30 million to $50 million. Most of the properties will be scraped, and they're looking at keeping their basis low.”

Gonzales said most of his firm's properties were built in the mid-'80s. “We have one property in Dallas that's from the mid-'60s and is a headache to manage because it has a chiller and a boiler, but it has great cash flows. Every deal is a little different.”

Gibney said, “We buy deals that need various forms of renovation: some need washer/dryers and stainless, and others just need washer/dryers. These are '60s to '80s vintage, but it varies.” Allen said his firm looks at class-B and B-minus properties selling for lower than $30 million.

Lackner asked how they decide which class deserves which amenity and how to finance it. Allen said allowing pets doesn't depend on the income level of the resident, so that's a universal amenity for his company. “It depends on the market, but some things are universal.” Allen said his firm sometimes adds amenities because it will help on the exit cap rate as well as reducing turnover.

Lackner asked if the panelists implement any damage-prevention technology, and Lichtenger said plumbing and kitchen fires are the top reasons for damage. “We require tenants to have renters' insurance and maintain it.”

Among the new sources of revenue mentioned for value-added properties are utility billing, pet deposits and laundry.

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HUNTINGTON BEACH, CA—Updating curb appeal first before renovating units is a smart way to add value to older multifamily properties without spending unnecessarily, said panelists at the IMN Multifamily Forum here last week. During the panel session “Opportunistic/Value-Added Plays—Redevelopment & Bringing Older/Vintage Properties Up to Date,” speakers discussed the best use of funds for these properties and the smartest moves for investors to make, as well as the pitfalls to avoid.

Moderator Merrick Lackner co-founder of Rently Keyless, asked the panelists how they manage capex ROI. Marc Venegas, president of Coldwater Partners, said the properties his firm buys have been under the same ownership for a long time and need paint and other upgrades after purchase. “We focus on curb appeal—those are the dollars spent up front—then unit appeal.” He said that 20% ROI is typical on value-added properties with a $100 premium.

David Lichtenger, managing partner of Intrepid Capital Investments, said, with C+ and B- product, updating the curb appeal makes sense; then they'll upgrade half of the units and see if there's a rent differential.

Glenn Gonzales, principal and co-founder of Interstate Equities Corp., said his firm does the same. “The ones we go for tend to be some that others won't look at—they need new siding and roofing, and the capex is high. We try to take it nicer on the interior so that tenants are surprised when they walk in that the rents are comparable” to nearby properties that aren't as nice.

Brendan Gibney, senior associate for Intrepid Capital Investments, said he focuses on an ROI of between 20% and 25%, while Quincy Allen, co-founder and managing partner for Arc Capital Partners, said, “Sometimes, you just need to paint and upgrade the washers and dryers so that new renters see that someone cares about the property; then, you can ask if you need to do the units.” He recommends paying more attention to the common areas than the individual units.

Lackner asked, “What drives up rents for Bs and Cs, and how are you measuring that increase across the different classes?” Gonzoles said it's important to pay attention to the people operating the property and make sure they convey to renters that they care. Lichtenger agreed that the property manager is most important: “People do matter.” Allen said it's important to focus on the initial rebranding of a property before turning the units.

Lackner asked, “What are the challenges in acquiring properties and getting better managers?” Gonzales said the manager driving rents down is part of the problem, and people make a big different in property management. Venegas added, “We typically use third-party property managers, but push to get a bigger return,” and Lichtenger said in the first 24 months of owning, “we will be churning folks if the property was owned by one owner for a long time.”

Lackner asked what the benefits of a third-party management company are, and Lichtenger said it's hard to know at first if the manager is good or not. Gonzales said, “No one will watch your money like you will. But, to make ends meet, you can use a third-party manager. Ask how many properties that manager oversees because many management companies are driven by profitability.” Gibney said if his firm doesn't know the market, it will hire a third-party manager, and Allen said his firm invests outside of California, so it needs to decide where it wants to invest its time. “There's a tipping point for bringing management inhouse, but we're not there yet.”

Lackner asked how the panelists view technology for overseeing managers, and Venegas said his firm uses Axiometrics, which provides one system used by many managers to streamline costs. He said the important thing is, “How do we drive rents?”

In discussing the panelists' acquisition strategy, he asked what size deals they are viewing. Venegas said, “we typically look at $10-million to $30-million 1980s and older properties that are outside of institutional investors' radar. We focus on a buyer niche of $30 million to $50 million. Most of the properties will be scraped, and they're looking at keeping their basis low.”

Gonzales said most of his firm's properties were built in the mid-'80s. “We have one property in Dallas that's from the mid-'60s and is a headache to manage because it has a chiller and a boiler, but it has great cash flows. Every deal is a little different.”

Gibney said, “We buy deals that need various forms of renovation: some need washer/dryers and stainless, and others just need washer/dryers. These are '60s to '80s vintage, but it varies.” Allen said his firm looks at class-B and B-minus properties selling for lower than $30 million.

Lackner asked how they decide which class deserves which amenity and how to finance it. Allen said allowing pets doesn't depend on the income level of the resident, so that's a universal amenity for his company. “It depends on the market, but some things are universal.” Allen said his firm sometimes adds amenities because it will help on the exit cap rate as well as reducing turnover.

Lackner asked if the panelists implement any damage-prevention technology, and Lichtenger said plumbing and kitchen fires are the top reasons for damage. “We require tenants to have renters' insurance and maintain it.”

Among the new sources of revenue mentioned for value-added properties are utility billing, pet deposits and laundry.