Writer: Max Crampton-Thomas
2 min read April 2021 — YMP Real Estate Management, LLC is a privately-held, fully integrated, real estate firm engaged in the acquisition and management of multifamily, office and assisted living properties. In an interview with Invest:, President and CFO Ralph Godwin shares his experiences managing the YMP REM portfolio of properties over the last year and gives a peek into the company’s investment strategies.
What was the biggest surprise during the pandemic?
Multifamily was the enigma we did not expect. Adults stayed home to take care of children, were furloughed, or were working remotely. When the pandemic started, we were at an average occupancy of about 95% and suddenly our 95% occupancy was 100% occupied 24 hours a day, which meant our utility bills went up dramatically, especially water and electricity. Our maintenance people worked hard to keep up with work orders and maintenance given the high level of use that was going on in the buildings. The changes in our maintenance products and protocols increased costs by about 6%. We upgraded a lot of our cleaning supplies, housekeeping practices and added cleaning touch points throughout the day – tasks that we had never done before. It also took additional time to do what we needed to do in terms of disinfecting and upgrading the virus-proofing of our buildings.
How was tenant turnover affected by the pandemic?
We went into COVID very strong on our occupancy. Occupancies in Greater Miami have been increasing very strongly over the past couple of years. COVID shut down turnover. People simply did not want to move, didn’t want to be out looking and were stretched on their finances. Consequently, what we lost in terms of increases in staffing, overtime, supplies and utilities, we made up for in lower turnover and lower maintenance costs associated with turning around apartments for new tenants and downtime associated with re-tenanting an apartment. That phenomenon has carried from April to today. We’ve always had relatively low turnover. Our turnover during COVID was cut in half and that has been a huge factor in offsetting increased costs across the balance of our business.
What changes have you made to your investing activities?
Over the last five years, we’ve pretty much been priced out of multifamily acquisitions. Generally, the quantity of equity dollars chasing multifamily on a national basis, and specifically on a value-add basis, has been incredibly competitive and prices have been driven up to the point where owner-managers such as our company can’t figure out how to make money given the pricing that we’re seeing in the markets, and we are not willing to bet on rent increases that are two or three years away.
We make investment decisions a little differently than some of our colleagues. I can spend money today to create value in an asset where I might not see cash flow for 18 to 24 months, yet I have an immediate value that I can refinance. That’s literally what we’ve done with interest rates where they’ve been over the last two years; we’ve refinanced every asset we own. As interest rates start to increase, which it appears they will, and accelerate in that increase, I think CAP rates and overall pricing for multifamily will become more favorable and reasonable.
Where are other investment firms going wrong?
For example, other firms talk about their “value-add” strategy of putting $1,500 a unit into a property and increasing rents by $200 a month. You can’t buy a lot with $1,500. We are a tier 1 appliance buyer, and a five-set appliance package costs us $1,284. We have some of the best vendors available in multifamily for kitchen cabinetry and getting kitchen cabinets installed costs $2,400. Light packages are $1,200. Flooring is $1,100. Even just painting the unit is $900 to $950 for a two-bedroom apartment. Obviously, they miss their budget on their construction work and their projected return of 17% comes in at 10%. This is still a good yield, but if we told our investors their return would be 17%, they would not be so happy with less.
Over the last five years, we’ve acquired seven office properties, totaling about 1.1 million square feet, because we found that pricing on office properties was much more favorable than on the residential side. Our assisted living division is brand new as of a year and a half ago based upon our view of the changing demographics in the south Florida population. We’ve been opportunistic but we’ve stayed the course to our long-term, cash flow, value creation business model. As we talk to equity investors, they’re turning our way and I think pricing will turn our way such that we’ll start to look for outside investors later this year and next and really start to look at expanding our residential portfolio as we think pricing becomes more reasonable.
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