Episode 31 - The Multifamily Movement with David Snyder and Steve Vecchitto
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Did you know that 37% of all Americans live in apartments and other multi-family units? And they're over 96% occupied?
What used to be a form of transitional housing has become the centers of communities where marriages start and kids are raised. Multi-Family Real Estate investing is continuing to be a dynamic place for Faith Driven Investors, and we want to make sure you’re aware of this trend.
To do so, we’re talking today with David Snyder of Continental Realty Group and Steve Vecchitto of Advenir. Few people know more about the social and spiritual changes happening within the multi-family real estate space than them. Let’s listen in...
Episode Transcript
Some listeners have found it helpful to have a transcription of the podcast. Transcription is done by an AI software. While technology is an incredible tool to automate this process, there will be misspellings and typos that might accompany it. Please keep that in mind as you work through it. The FDI movement is a volunteer-led movement, and if you’d like to contribute by editing future transcripts, please email us.
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Henry Kaestner: Welcome back to the Faith Driven Investor podcast. Special time today focusing on multifamily real estate. We've got two great leaders in the space, David Snyder and Steve Vecchitto. And when we think about expanding faith driven investing beyond private equity and some of you have been listening show for a while might know that my own personal background is in venture capital, private equity. But with time, we came to realize it is cause we think the private equity of venture capital might be to be able to express our faith in what we do and how we invest. There surely are other ways to do it as well across different asset classes. And maybe the best example that I go to first when I talk to somebody is multifamily real estate. So many of us are accustomed to real estate investing. We understand it. We understand how cash flows. We've come to understand what cap rates are. And it's just such a great place to be able to minister to people who are in need because there's a part of the investment we're making. We're investing in homes and in communities. And of course, where there's communities, there's great relationships. And it's a great opportunity to love on people in a way that points to a God who loves them. And we've talked a little bit about multifamily real say in the past. We've had guests like P. Kelly on before, but today we're going to get much deeper into multifamily real estate. I'm going to talk about that when we talk about the two leaders who really understand the space, who've invested in it successfully. And David and Steve, thank you very much, both of you, for joining us.
Steve Vecchitto: Thanks for having us on.
Henry Kaestner: So love to start the show by giving each of you a chance to give a brief overview of your background. We're going to start with David. Want to start by giving us quick fly over about Continental Realty Group and the work that you are doing. And then, Steve, we'll get right into what the work that you're doing at Avanir Word Fundamental Realty Group.
David Snyder: We started this company in 1982. We've been doing it for a while. And all we've done for 37 years now is multifamily real estate. We don't do any other type of real estate. One of the things I like to tell people is that we get a chance to make money by meeting people's needs. And we specialize in their housing needs, where students and observers of people's demographics and their needs that they have for housing. During the last 10 years, we've done about one point eight billion transactions, 1000 units, certified properties during a time. Over the last two years, we've sold off a lot of our portfolio that we bought about 10 years ago, and we're down to around 4000 units now and expanding back up from there. So we're involved in about 10 markets across the country and somewhat similar to Steve's company, unexcusable, bigger than we are. We have similar amount of markets and it gives us a chance to walk alongside of people. We're just not landlords. We're walking more on side of people in their daily life and there's spiritual responsibilities that come with that.
Henry Kaestner: Thank you for that, David. Steve, take us through Advenir and just a flavor of what you're doing there. Then, I want to get back into talking about both of you and your faith journey and how you see it manifest itself through your different company.
Steve Vecchitto: David is a little more experienced than I am. We've only been in the business for 25 years instead of 37. Wow. We own currently about 14000 units in six states. That's about 42 properties with a market value of around two point three billion of that, 800 million of it's in equity and under management. We, like David, only do multi-family properties. We don't do any other product type. We do also have our own management company. We believe that it's essential for us to be able to operate and execute business plans to own our own management company and really be hands on. I think David's formula works really well because you're hands on and he's found third party management companies that can operate in his system. So, you know, I think he's unique to using third party management and it's worked for both of us. You know, we think there's a long future in multi-family properties and investments.
Henry Kaestner: Tell us about your faith journey. That's one of the things, of course, that brought you onto the program. And you've been thoughtful about how your personal faith impacts the work that you guys do down in South Florida and as other five states. Tell us about how you came to know God.
Steve Vecchitto: Sure. I've got a storied past. I grew up in Connecticut. Roman Catholic really was a lukewarm Christian. I came down to Miami in 1996, pretty much a sinner and a heathen. And I did start at Viniar. Point in time and had a good friend who was in a church. He was drumming for Jesus and he became a special friend of mine and a brother, and we talked about faith. Then when we started our company, I decided that I really wanted to create a culture that was meaningful to our employees, our residents and our vendors and created four pillars. And the four pillars were really true fairness, love and kindness. And at that time, I was not a believer. And I have come to know the Lord over last 12 years, really, from my wife's pushing and some other friends and I got through the Bible, you know, I started in Bible study 12 years ago and that changed my life. And since that point in time, everything has blossomed in my life from my business to my marriage, to my relationship with my kids, to my focus on what's important and what's not important. I've really left what is valuable to the world and are looking at it with a different lens. And what is it that Lord, what is it Jesus wants me to be doing in my life? And it's turned me from being a greedy person to being a steward of what God has given me and for investors money. So it's really changed my lenses in view of the world.
Henry Kaestner: Can I talk more about this space that you both are in? David, talk to us about the multi-family sector. I don't think that a lot of people that are listeners appreciate how big it is in our country at least. I didn't as an investor how big it's in our country. The world. And just also how much it's changing. So give us a flyover. Tell us about this industry that you guys both are experts in.
David Snyder: Well, the multifamily sector, I feel, is a very oftentimes misunderstood sector for the average investor or many investors think that the minute you talk about multifamily, you're talking about low income housing. There are people of all demographics in the United States who choose to live in multifamily. We have very, very high end rentals. We have workforce housing. We have low income housing, affordable housing. And also just to keep pace with the housing demand, the US has to add 300000 housing units per year in the multi-family sector. And when the downturn of 2008 hit, we went through almost four years in the US where there was virtually no new housing built at that time.
So we dug a hole where we were essentially a billion two in units below what was needed. Since that time, we've been building and trying to equalize out that that deficit. And we've only in recent years gotten back up to the three hundred thousand level. There still is a high degree of intensity for demand for multifamily housing. The occupancy rate on a nationwide basis is almost 96 percent. And that's no nationwide figure. It's not just Boston and Denver and Dallas. That's nationwide. So Podunk, Arkansas, you have wherever Des Moines, Iowa, everywhere is. Therefore, there are full and there's a tremendous backlog of demand. We still have 30 percent of millennials living with their parents. We have more boomers than ever living in multi-family housing. Our current boomer generation is the healthiest that we've had in decades. And the healthier the boomer, the more mobile they are. And one of these people don't want to go live in single family homes and take care of the lawn and paint the house. They're living in multifamily and being very mobile. So we have increased occupancy there. And then, of course, the millennials, which is right now the biggest generation, is a very mobile generation and they're creating demand for millennials. The thing that I think that many people don't realize is the impending tidal wave of people coming after the millennials, the gen Zs right now, or within two hundred and forty thousand the size of the millennials and their demographic won't be cut off for another two years by the time we end up with the next two years. The Jameses will actually be bigger than the millennials, and they're only the age of about twenty two right now. So they're just starting to enter into the multifamily stage. And we have this tidal wave of demand that is coming from a demographic basis.
Henry Kaestner: Steve, tell us more about that. Tell us about some of the personalities that are going into multi-family. So it's it's not just the person is just getting started. Not just transitional. I'm 50 so I'm dating myself a little bit. But when I grew up, the American dream was I own a home, and that was everybody knew this was everybody's goal wasn't even up for discussion. That's all changed now. Right. Who are you seeing in your properties?
Steve Vecchitto: Yeah. Look, I think that dream got crushed in the 08 09 recession. You know, you asked what is the size of this renter base? It's 60 million households. So we are leasing to providing housing for 60 million households and a household. There's two point three persons on average. So apartments are essential. Right. Everybody needs a home. And we see those that are getting out of college or from blue collar workers that are mechanics to plumbers to electricians all the way through tax base. And as David mentioned, the boomers are selling their houses and saying, I don't want the responsibility, I don't want the upkeep cost. And I'm moving, too. We see it here in Florida. They're moving to the coast. And large apartment communities and they're paying anywhere from Florida, literally twenty thousand dollars a month for rents and would rather have that than have the home. So I think you have whatever our nation looks like is what the rents are based looks like.
David Snyder: It's making our job as landlords more complex because 30 years ago, all we had to do was worry about young people. There was a there's just transitionary housing. I'm sure Steve will agree in today's world. He's got boomers sitting on the same property that he has millennials and they've got some gen X's. And somehow you have to figure how to meet these people's needs, even though you've got all these different demographics in place and not just meet their needs, but learn how to minister to them where they're at, whether they're very wealthy or older or whether they're millennials or students at the same time.
Steve Vecchitto: Yeah, I agree. We have really two categories. It's a renter by necessity, where they have no other alternative. They can't go live with mom, they can't afford a house. And you have renter by choice. And I think both categories are growing just as fast. So the renter by choice says, I don't want to own the home. I'd rather live in rental property. It's my lifestyle that I'm renting for. The rent, by necessity, has no other choice in that demographic. Certainly are different. The renter, by necessity, probably never will buy a home. The renter by choice may never go back to a single family home.
Henry Kaestner: So which space you find yourself saying so rener by necessity, I think I get. Renter by choice. I think 75 percent of millennials now would rather rent than own a home. So the whole idea whether they're impacted by the financial crisis or not, just they have a preference to whether it's mobility, flexibility, just value things differently. Seventy five percent would rather rent than own before gone. Where do you find each of yourselves? Is it evenly mixed based on the properties you have, or do you focus on renters by necessity, more in Class B and C spaces or more class? How does that break after each of you?
Steve Vecchitto: Well, for Advenir, we're probably 75 percent rents are by necessity. So we call it workforce housing and families that are making between thirty five thousand and one hundred twenty five percent of our renter base. Probably makes more than one hundred thousand dollars a year is that rents or by choice.
Henry Kaestner: David, how about you? How's that mix work out for you?
David Snyder: Well, the challenge and the opportunity that multi-family gives us as landlords is we have the ability to walk alongside of people in their lives, to walk alongside of the wealthy. Rohner, the lifestyle runner, to walk alongside of the runner by necessity. The ones that are going through budget problems and, you know, work problems and and that we're in a very unique position as landlords. Landlords in the 80s used to be disguised, collected rent. If you didn't pay me, you're gone, you know, and that's it. There's landlords today. We have the opportunity to be candelas to encourage successful living in the residents of our community. And not just capitalists, but we're stewards. I mean, we've been given these relationships of hundreds and hundreds of people living within our community. We've been given those relationships. We're going to be held accountable for what those people receive from the relationships that they have with us. And so the landlord today is a very catalytic person that is after the the economic benefit of their tenants, the spiritual benefit, the social benefit of their tenants and. At the same time, we're driving financial value from those people that live in our communities also.
Henry Kaestner: How about you, Steve? Talked about the ministry opportunity that you see as you've got these people that are living in your communities. And how do you see it being different? What does it look like to live on somebody in one of your properties where it's workforce housing? And was it looked like in another one of your properties, the love on somebody that's maybe a millennial? And when I say millennial makes it sound like they're like some sort of kind of like alien or something like that, although sometimes I think we experience them that way. But we're talking about this next generation that's really starting to lead in the workplace that would rather just not own. But that's a different demographic. It's a different need. How do you love them both?
Steve Vecchitto: So, you know, I love the term millennial. I have two millennial daughters and they are pure millennial. It's all I love them to death. You know, I think it comes from a different two different standpoints. One is the culture that we've created in our company and the management team side. We have seven core values that we continue to train our employees in, in some of the key words that are included in those seven core values, our teamwork, customer service, innovation, integrity, humility, balance.
And if we're training our team members how to operate in their communities. It goes it goes downstream. So they're able to pass that on to the residents. They're able to pass that on to the demanders that we're working with, you know, from a spiritual side. And I know you'll probably talk about this later, but we use apartment, life and apartment. Life has just been a wonderful bolt on addition to what we do on the management level to connect with each one of our residents.
Henry Kaestner: Tell me about their model and how you how you all employ it.
Steve Vecchitto: So their model is pretty interesting. They do recruit team members, so there's a family or couple that will come to our community and live in our community, become a part of that community. And the cost is relatively inexpensive to us as owners. And I think the benefits are just huge. The benefit to us is higher retention, building of community social activities that they create reputation management in our business, the reputation of our community and online leasing is so important and they're able to raise that reputation.
Henry Kaestner: So presumably also makes your online ratings go up in some of those other things, too, and I know that there are different models. I know that David has had a different approach. He's got mission that I don't want to talk about that here and saying. But, Steve, before I let you go, comment on what you've seen in your properties over the course the last two or three months, just to timestamped this a bit, we're talking about this in May of 2020. COVID 19, has shut things down and a lot of the country is going through really a loneliness problem. And pre-covid 19, we're headed off the charts as a country in terms of depression, loneliness, etc., and that's only got worse. Now, of course, what are you feeling from your communities and what role do you see? Apartment life. And then I want to ask David about the same, because the way that he dresses the same situation with loneliness.
Steve Vecchitto: So I think loneliness goes to fear and a large extent and the fear is how am I going to exist with no money or how am I going to exist? I just lost my job. I'm collecting unemployment. And in some states, it's been hard to get those benefits because the unemployment system registration has not been functioning well. So we've actually been reaching out to every one of our residents, helping them through the process of payment, their rent and finding out. Are there issues? Are they having problems with health? Are they having problems with transportation? Do they have an elderly in the unit that needs special care? Our teams have gone out and raised money to bring food in so that the residents can come in into the leasing center and grab whatever they need for the night. And it's interesting because we're now seeing residents bring in food to the leasing center as part of the community as you drive through the properties which enjoy it. What's interesting is the parking lots are packed. Everybody is at home, right? We're all in lockdown. And apartment life has helped with virtual social events. They've done video nights where they're streaming from Netflix or some other source. And as a community, everybody's watching the same movie the same night in our apartment, life teams have really helped. So we don't have them on every property. And you could tell the difference of the ones we do have apartment life teams on versus the ones we do. And I'll say the reason we don't have apartment life teams and some of our properties is we're still searching for that right team that's been provided through the church system.
Henry Kaestner: David talk to us about other models, other ways for people to love on the way that you love on people in your facilities.
David Snyder: You know, we also make use of apartment life in our communities and, you know, apartment life and groups like that, they give owners the ability to pay attention to the function of what they do, which is the business side of everything. And then they have people that they provide to us that help with our purpose of why we do it and taking care of people and taking care of their social and spiritual needs and that type of thing. And an apartment life is one of the groups that helps us do that. We've added on more employees during this time rather than fewer. We've hired more part metalized staff to do nothing but just be on the phone and talking to our people on a daily basis and doing needs assessments and then that type of thing. So they've been an instrumental part, but we also make use of other groups and we expand also apartment life's mission on some of our properties in that we use some of our apartment life teams as a liaison or a coordinator to bring in the local church in the area to try to adopt some of our communities and to provide different services and activities to the residents of our communities through the local church. And it's been a very rewarding option for us because it gives a lot of people in the local churches the ability to have an outlet for ministry and multi-family housing. I mean, we've got some properties that there's mechanics from the church that go out twice a month and they're maintaining the cars of all the single moms on our properties and stuff like that. And it actually is raising the spiritual self-esteem of some of these people in the church because it gives them an outlet.
We provide Mother's Day out programs and other things through the church and then some of our apartment life people coordinate that. They're also coordinators for social services where we have some local social services available. They're not necessarily faith based and they act as coordinators for that. In addition, we also have other groups that we believe in very much. And one is Crown Financial, who is involved in teaching stewardship on some of our communities and that type of thing in dealing with people and providing studies on how to budget their time, budget, their finances, et cetera. Friends First dot org is a mentoring program that is designed to help teens and young people on the properties. And then finally, Mission Ninety Eight is a group that really is somewhat similar to apartment life that they specialize in just bringing in the local church and to a point where they can serve people in the multifamily community. And, you know, a lot of people run by apartment communities without giving them a second look. And 37 percent of Americans live in apartment communities saying multifamily housing. And it's a big part of our population that the church has a responsibility to reach out to and to include in their community also.
Henry Kaestner: Talk to me a little bit about the difference between these two different models. One is an organization like an apartment life where somebody will go and live in a community. And then on the other hand, you might have a local church that might adopt an apartment complex. When I used to go to the Church of the Good Shepherd in Durham, North Carolina, for instance, we had a apartment complex that we as a community adopted and that seemed to be able to last through any type of a turnover of key personnel as it was the church that adopted them and offered up English as a second language type of classes and things like that. David, you've had experience with both. Talk about the pros and cons about each of those models.
David Snyder: I think the pros about apartment life is they're often more proactive. They're more national. So we can have them many other states, you know, as opposed to when we deal with the church adoption concept for lack of a better term. We're having to reinvent the wheel in each location, you know. And so a partner in life has a model that can be mobilized and news nationwide. The downside or some of the negatives of apartment life that they know, too, and I've discussed with them, is that local time as a ministry teams that they put on the properties are there for a two year period. And so you get all these relationships made and everything, and then all the sudden the team is gone. And it may be four or five months or six months to a new team, maybe put in their place or whatever.
But that turnover affects the model bit. That's one reason why we've married our apartment life teams with the activity by the local church, because we understand that sometimes teams, you know, graduate move on to other things. But the local church provides a consistency of the effort on the properties themselves. And so even though you may have a partner or wife team that comes in and out of churches there. The church hasn't gone away. Some of the personnel may change, but the church is there and it provides a consistent ministry provision for the people on those properties.
Henry Kaestner: OK, so this is going to be a little bit of leading question. Obviously, you believe that this is something that works or you won't be spending money on it, but maybe I shouldn't be so presumptuous, somebody listening to this. They're not the family real estate property, the money that you put into these programs. How much of it do you think that you get back? How much of it do you think accrues to the benefit of the limited partners and the investors you have? And or how much of it is something that goes above and beyond that that you actually think may not add to the investment returns but is instead something that you would otherwise allocate towards ministry spend and how you do discipleship or evangelism?
Steve Vecchitto: I think I'd answer in two ways. So there is the financial benefit to the property, which ignores to the benefit the investor, and that is higher retention. So I've got more people staying longer. Part of the reason is the social activity that's been created and the neighborhood that's been generated. And so I've now I've got friends there that I don't want to leave. Right. So I get a higher retention rate that saves money for my investors. And I think the other part is the reputation. We're building up our online reputation for the community. So as that builds, that creates a strong community itself. That's a financial benefit that we realize.
Henry Kaestner: So if you spend 50000 thousand dollars on an issue like that for a property, do you think you get all 50 of that back or do you say, well, that 50? I think probably 35 or 40 that back, but because I'm motivated by my Christian faith and here's an opportunity for me to love on people. I mean, I get all 50 back, but I'm happy having 10, 15 or 20 of that be kind of like my ministry spend. Do you ever think that way?
Steve Vecchitto: No. So I don't think it's cost us 50. What it cost is an apartment and our monthly fee. I always have a vacant unit. So to me, that's a zero cost. I think my return is four to five bucks and that's pretty high on any investment you can make.
Henry Kaestner: So you may give up the free apartment, but you still have to pay them. You still pay apartment, life, apartment. Life may be a ministry, but they charge a fee. And that's what you're talking about, getting the four to five extra turn on.
Steve Vecchitto: That's correct.
Henry Kaestner: Yeah. David, how would you answer that?
David Snyder: Well, you know, I think that we have a spiritual benefit, obviously, from our extra effort with our residents. And we have a good financial benefit. And the financial benefits far outweigh the costs of the programs that we put in place. The typical turnover, and I'm sure some words in Steve's mouth, but I'm sure he's experiencing the same thing here. The average turnover in our industry is 75 percent a year. So if you have a 400 year. Apartment community, you're turning over 300 of those a year, year in and year out. And over the last 10 years, that's been the American average. With our history, once we've been in charge of an apartment community for a year and have our apartment life programs involved in some of our other management programs and ball are turnover down. The same property turned out to be somewhere between 47 and 49 percent. So we're literally saving 25 percent turnover san in real dollars out of 400 unit community. If you've shaved 25 percent off of your turnover, that's one hundred less units per year. That's that's turning over. And each of those units cost you an average of about 2000 or so to turn. There's a term cost, says 200000. The bottom line and you keep that in your expenses. I would challenge Shane. I have tried. Many of my investors are not Christians. Many are of other faiths or no faith. And they oftentimes talk about the voodoo that we do on the property. And I think we'll keep doing it because it makes us money. So I'm very high on this type of ministry and on those type of effort by apartment life and others in this space. But at the same time, I'm very transparent, very open that it actually makes us money to be good neighbors. To be good landlords is to love people. It is financially rewarding for us.
Henry Kaestner: Okay, that's helpful. So we've made the case for multi-family and because of demographic shifts, this is going to be a sector that's going to continue for a very, very long time. And as an investor, as a space you should be looking at also made the case that investing in ministry moves the needle in terms of loneliness and depression and community and sharing the gospel and discipleship without it necessarily costing. Why do you think the concept of faith driven investing in real estate? Why do you think there's not more of a thing? It seems to be something that people are talking about very, very recently. And yet you've been implemented for a long time. Why do you think that faith driven investors, people who have a Christian faith who would like to see people in the workplace minister to. Why do you think that this idea hasn't really caught on so much so that people are saying, I want to find a real estate manager that employs these things? If I'm going to deploy capital, whether I'm an institution, whether I'm a retail investor, I want it to go to those people. Why do you think that's not a thing?
Steve Vecchitto: I think it's not promoted. We do it because we want to. We do it because we believe in it. We think it's right. It's our faith, my investors, for the most part, trusting in what we do. As David said, the voodoo that he does on his properties, they get great returns and that's why they're in this. And they let us operate autonomously without really knowing what's in the engine other than they know the performance. I can open a hood of a car and not really understand the engine, but I like the car. I like the way he drives. And I think that's been the philosophy. We've sort of done this silently and maybe it's our fault. But look, at the end of the day, our faith is driving, how we operate, what our morals are. We're trying to expand the Lord's kingdom. Then we're doing that through the ministry that we're able to provide while providing housing while we're providing returns. It just becomes a win win win.
Henry Kaestner: We'd like to close out every one of the podcast episodes we do by asking our guests what they're hearing from God and his word and see if you tell him that have gone through the Bible again recently. And David, want to hear from you about what you're hearing, too. And so we'll start there. Dave, what are you hearing from God in his word? Maybe it's something that you heard this morning, maybe yesterday, May last week for some way that you feel that God is speaking to you.
David Snyder: I mentioned this to some of the guys on the podcast, the Steve and Justin before. For some reason, God has just brought the word sanctuary to my mind. And I probably haven't thought about that word for forever. I don't know why, but in the last few weeks, I've been studying how God gave sanctuary to Moses, who gave sanctuary, you know, to Jonah, to the King David J. Gave, say, a time of sanctuary and protected him. And I just feel I'm very at peace with one of the things I have been called to do in life is provide sanctuary for our residents and where it's a peaceful place for them to grow, for them to grow socially, hopefully. Build or grow spiritually, and you try to take steps along the line. But this is very simplistic, open droid sanctuary myself during this time of. Because I'm up here in my mountain cabin. And I'm in sanctuary. And I think that's maybe where this came from and that I'm just so excited. And so that piece about being able to provide sanctuary or residence.
Henry Kaestner: That's a great word. Steve?
Steve Vecchitto: And if I may actually have two that are meaningful my life today. And the first is Galatians 522, which is the fruit of the spirit is love, joy, peace, forbearance, kindness, goodness, faithfulness, gentleness and self-control. I just love that if I live my life through those words and have a wonderful life. And, you know, in the season we're in with this Kofod, I have really been dwelling on Matthew six thirty, which says, Do not be anxious about tomorrow for tomorrow, we'll be anxious for itself. Sufficient for the day is its own troubles. And I think the Lord gives us plenty and mercy today and provides for all we need today in with the Kofod and wondering what the economy is going to look like in our business is going to run. I could quickly run to tomorrow and be anxious about that, you know, so I go to this passage that just gives me peace that I worry about tomorrow. Tomorrow, though, and worries tomorrow. And he'll give me mercy tomorrow.
Henry Kaestner: May that be the case for you and for me and our listeners. Great. And thank you both for your time. Thank you for your faithfulness in the market and sharing your stories with us and disinterested to see how this expands over the course next 10 years. I've really compelled by the ministry opportunity, and it's just amazing to see that this ministry opportunity ministry investment on this is actually something that accrues to the benefit of investors. So much so that investors that don't share fears like I want more of that. So super compelling. Thank you both.