JF2394: On Investor Relations and Strategic Marketing Initiatives and Business Operations with Charlie Stevenson

March 23, 2021 | Joe Fairless | 00:21:45

JF2394: On Investor Relations and Strategic Marketing Initiatives and Business Operations with Charlie Stevenson

Charlie is an experienced business founder and passionate leader with a history of working in the marketing, travel, hospitality, and real estate investment industries. He is the founding partner of Akras Capital, a company that provides investment opportunities for those seeking passive income. He is currently scaling a real estate investment business focused on multifamily assets in inland growth markets across the US. Charlie is actively involved in the communities he resides, and serves as the local chapter leader for GoBundance, a Nationwide men’s and women’s group that supports “healthy, wealthy men and women leading balanced and epic lives.” In today’s episode, Charlie will be going into details about his journey in real-estate. He will share some challenges on investor relations and their strategies in business and marketing.

Charlie Stevenson Real Estate Background:

  • Founding Partner of Akras Capital
  • 3 years of multifamily investing
  • Portfolio consists of 4 properties totaling 450 units
  • Based in Boulder, CO
  • Say hi to him at: www.akrascapital.com

Click here for more info on groundbreaker.co

Best Ever Tweet:

“If you try to go alone, you can go fast. But if you go together, you can go far. Go together and create a team. Don’t try to do it alone.” – Charlie Stevenson


TRANSCRIPTION

Ash Patel: Hello, Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Charlie Stevenson. Charlie’s joining us from Boulder, Colorado. He’s got four years of multifamily investing, and his portfolio consists of 450 units. Charlie, welcome to the show.

Charlie Stevenson: Thanks, Ash. Good to be here. Thanks for having me.

Ash Patel: Yeah. Tell us more about your background and what you’re focused on now.

Charlie Stevenson: Yeah. I kind of fell into real estate investing after a decent career in kind of serial entrepreneurship. After graduating college, I actually started an adventure travel company with my brother and best friend, because we love to travel, and we moved out to Italy and lived there for four years, building an adventure travel company, taking American students on trips to ski in the Alps and sail on the Greek islands. That was a blast, but it was a risky endeavor. You never knew exactly if the business was going to work out or not. So after returning to the United States and starting another business, and that one failing, I got into the corporate world. After meeting my wife and several years in the corporate grind, we both looked at each other on our honeymoon and said, “Let us take a break. Let’s quit our jobs, let’s go do what we really love to do, which is travel and spend time with family.” So literally, she quit her job as a finance investment professional in Boston, I quit my job as a travel industry director, and we bought some backpacks, and kind of like you, we went and traveled all over the world. We spent 14 months cruising around Southeast Asia, we were in Russia for a bit…

While we were there, we rented our condo in Boston, Massachusetts, which we bought for ourselves. We rented it out to a pharmacist and his beautiful young family. I kind of had this epiphany –while we were riding the Trans-Mongolian Railway across Russia with our good friend who’s now our business partner– that “Holy cow, this thing is cash-flowing. We’re making a grand a month just maybe replacing a washer and dryer every three years or something like this.” So we said, “Boy, if we had five more of these things or 10 more, we could do this continually. We could just keep traveling and spend time with family and live the dream.” That was kind of when the idea hatched; our friend and now business partner said, “Hey, I know you guys just realized this. I realized this about 10 years ago.” She’d been buying multi-families in Boston already. So she’s like, “Let’s combine forces, the three of us, and figure this out.” So we decided to form Akras Capital (that’s what it is now and began buying a small portfolio of small multi-families in Washington state, where I’m originally from.

Through that experience –using our own money, we just self-funded everything– we learned how to do it, we reinforced the experience that my other partners had, we utilized my two partners’ experience as Chartered Financial Analysts. They already knew how to underwrite stuff. I was just kind of a travel guy, I was having fun building the business. They were the ones that knew how to use the spreadsheets at first. So we began buying some bigger stuff. We actually went to the Best Ever conference, Joe Fairless’ conference a few years back, met some new partners and they introduced us to the world of syndication. We began buying much larger assets, starting with a 300 unit down in Orlando, and then another one over in Dallas, and it’s just kind of gone on since then.

Ash Patel: What did your portfolio look like before you partnered up with your now partners?

Charlie Stevenson: Before we partnered, it was one condominium in Boston, Massachusetts. My wife and I owned it; that was it, a single door. Our other partner had several units that she had a long-term leasing strategy on, one multifamily, and had a couple of condos that had Airbnb strategies in place.

Ash Patel: When you formed this partnership, did you all combine assets? Or did she keep her existing assets and did you keep yours? Or did you put it all under one umbrella?

Charlie Stevenson: No, we kept them totally separate. In fact, we sold our condo in Boston, because it generated a lot of appreciation, there was a lot of equity. So we actually sold that to generate some deployable capital. We used that as part of the money just to fuel the growth of the business and acquire our first multi-families in Washington.

Ash Patel: Okay. And then once you formed this company, where did your capital come from, to take on more deals?

Charlie Stevenson: So like I said, we use some of our own savings. We had savings in our own bank account, there was cash, we had IRAs built up from years and years in the corporate world that had decent size, and we used that money, converted it into self-directed IRAs. In doing that, essentially, had more deployable capital; so we used our own money at first, and then as we grew our portfolio and as we leveled up our experience and began taking on larger assets in the syndication space, we used external capital from private investors, private equity.

Ash Patel: Okay. So Charlie, we’ve been on a pretty good run. How many years have you been doing this?

Charlie Stevenson: Akras Capital was founded in 2017. So four years.

Ash Patel: Okay, so you’ve benefited from a great real estate environment. Give me an example of a deal where you lost money and learned a lesson.

Charlie Stevenson: That’s a good question. I was thinking about it… We’ve been really careful and intentional about making our investments. So far, of the investments we’ve made, the deals that we have acquired, and some of the disposition, we haven’t lost any money. So we certainly had components of the business plan that didn’t have the same performance that we had expected or projected; perhaps there was some kind of a natural disaster we had to handle that affected performance of that particular component of the business plan… But overall, when we’ve dispositioned assets or with existing assets that we’re operating, the returns have been at or above projection. So we’ve been really thankful for that.

Ash Patel: What was a natural disaster?

Charlie Stevenson: In Dallas Fort Worth, about a little less than a year ago, actually, in the fall of 2020, there was a tornado that went through the center of the city; actually several of them. One of them landed about a mile and a half from one of our assets. There were just intense winds that kind of tested the structural integrity of our roofs. We had to go through basically pausing the business plan while we mitigated that risk and handled the insurance claims and all that kind of thing. That was one particular example of components of a business plan, like the interior and exterior renovations being put totally on pause while we handled that situation.

Ash Patel: Okay, what are some of the challenges you had dealing with investors or acquiring investors?

Charlie Stevenson: Dealing with investors – I think in this environment, we’ve had such a great run. The economy has done so so well over the course of the last decade; it was the longest growth period in modern economic times. There’s a lot of capital out there. And because there’s a lot of capital, there’s also a lot of other operators, like ourselves, bringing deals to the market. Different operators have different ways of underwriting and different levels of conservatism in the way that they underwrite assets and underwrite the performance of business plans for assets. So you see a wide range of a spread of returns. Especially with the more retail investors, the folks investing maybe 50, 100, or $150,000, I think that some of our peers are putting deals out there that have very, very, let’s say, high expectations for return that may or may not be achievable. But what that’s doing is it’s setting the bar for return expectations with the retail investors very high.

When we underwrite our stuff, it’s not often that it has at this current stage in the market, it has really exciting returns that cannot compete with people that have lower than true value add business plans with their underwriting if that makes sense. So expectation setting has been kind of one of the challenges, I think.

Ash Patel: What are your typical returns on your deals?

Charlie Stevenson: Pre-COVID we were aiming for 17% to 22% as an IRR, kind of our floor for investing any deals, and 9% cash on cash return, and hopefully it’s higher than that. That still is the floor for any investments we do, but we’ve been setting expectations with investors that returns are now for a true value-add business plan are ranging probably between 13% to 17%. But of course, past performance is no guarantee of future results. I have to say all that for compliance stuff, otherwise my partners will not be happy with me. But yeah, I’d say 13% to 17% for the typical run-of-the-mill, large multifamily asset running a value-add business plan. Hopefully, that goes up, but we’re seeing cap rate compression, so it might not.

Ash Patel: How do you mitigate that?

Charlie Stevenson: How do you mitigate the changing of returns?

Ash Patel: Lower returns.

Charlie Stevenson: One way that we’ve done that is we focus on investors that have lower return needs, and institutions that have lower return needs, and that group is excited about a 13% to 17% IRR; maybe an investor that’s been in the market for two or three cycles. A 30-year veteran of investing is excited about anything that’s a multiple of what the treasury is returning. We’ve got an investor who’s a portfolio and fund manager for three decades and he looks at anything relative to the Treasury. So an 11% return is 10x over the Treasury so he’s very excited about that, because he sees higher returns than that as maybe a little riskier.

Ash Patel: How do you find those investors that are looking for a little bit lower returns?

Charlie Stevenson: It might not be that they’re looking for lower returns, it’s like they’re looking for a blend of different characteristics in a return profile. So a return, the actual ROI is one component of an investor who’s maybe a little bit of a higher net worth investor. But also liquidity needs are one particular need. Also, things like tax liability mitigation is another need. So if we’re approaching a high net worth investor who is okay with a 13% or a 10% return, they have other particular interests and needs that are more important to them than that actual return. They don’t care so much about cash flow, maybe they’re more of a five-year or 10-year hold appreciation, total-return-focused investor.

How do we find them? Well, a lot of it had to do with starting with our own personal networks. My two partners were in the financial industry for years and years in Wall Street, in Boston, and New York. So certainly, there’s a lot of folks in our colleagues within our past experience that we can tap on who has an interest. Also, attending conferences, like the Best Ever conference was a great way for us to meet higher net worth investors, or just investors in general. We love all investors, whether they’re retail or high net worth, we want to work with all of them and support all of them. I’m not saying we only go after one. Other ways – we network, essentially. There’s also a lot of referral that happens. One person refers us to a network of their friends, who all have large capital deployment needs.

Ash Patel: Charlie, can you tell me about your last acquisition?

Charlie Stevenson: Sure. Yeah, so our last deal was an interesting one. Like I said, we had a portfolio in Washington state, a smaller multifamily asset. This one was a 12 unit, a little bit of an older asset that was outside of Spokane, Washington, right next to Eastern Washington University, which is a large public university; directly across the street from it. It was unique in that regard because it was a great location and had no difficulty leasing it up. We actually found the deal with a wholesaler, which is kind of a unique deal provider. It’s different than a commercial broker. They find the deal, they get it under contract with a direct relationship with the seller, they trade a contract assignment fee that’s built into the agreement, and then when you work with them they essentially charge you that assignment fee, you then get assigned the contract, and then own it.

So that deal was great. Cap rates are pretty decent in Washington State, or at least in that region of Washington State. So we got it for $500,000 for a 12-unit, which is a great per unit price. It was cash flowing in a really nice way. A wholesaler said that cashflows like a hog, and I’ll never forget that phrase, because that was funny. We ran a typical value-add, like most of the BRRRR strategy on it; fixed up some of the interiors, some of the exteriors, forced some appreciation by moving the NOI up and getting the rent and the tenant base stabilized, and then we just dispositioned it. It’s set to close in like a week or something like that for 818,000. So, ultimately, we made about $300,000 on it, of which we’re 1031 exchanging that into another asset in a new market that we’re focusing on.

Ash Patel: What were the rehab numbers on that?

Charlie Stevenson: That’s a great question for my asset manager, who is my partner, Christina. I focus on business systems, capital raising, and investor relations. But I can kind of like… Let me think about this for a second. It was around 50,000, I think; $75,000 in total to do the repair cost, maybe a little bit less.

Ash Patel: How did you manage those rehabs? Was it a property management company?

Charlie Stevenson: Yes, we have a strong property management company in place there in Washington State. A team that we work with with a few of our assets. We also had a DC team that we worked with to get in there and help out.

Ash Patel: Washington State has some pretty unique tenant laws. Have you had any experience, positive or negative, with that?

Charlie Stevenson: From a positive perspective, I think it’s incumbent upon us as a multifamily operator to make sure tenants are really well protected. So I really do appreciate Washington’s progressive stance on taking care of tenants. That said, I think that the landlord-tenant balance has to be really managed, it should be fairly equalized, so that a good landlord can take care of their tenants and also take care of their assets and run a business plan. In Washington state, with COVID happening, a lot of some of the more progressive policies, like rent control and eviction moratorium, were accelerated. COVID — the federal level came in and accelerated some of that imbalance between landlord and tenant rights. That’s part of the reason we’re actually dispositioning our portfolio in Washington State and moving to states that have more landlord-friendly environments, business environments.

Ash Patel: So there’s a bit of a negative impact there?

Charlie Stevenson: There was. I’d say that while that market, I think, still has a lot of room to go and there’s still a lot of opportunity for investors, it was getting in the way of our hyper-growth, strategic positioning. We wanted to be able to move a little more quickly and that wasn’t allowing us to enact our business plans at the rate that we wanted to. So it had some impact on our strategy.

Ash Patel: And is there a specific example you can offer on how those laws impacted your business model?

Charlie Stevenson: Certainly, we need to have tenants that are taking good care of the asset. It’s sort of an unwritten and written rule on the lease that people that we bring in to provide them with housing should take good care of the asset. We had no situations where there were tenants that were from the previous ownership that had been not staying up on their rents, they hadn’t been taking care of the asset, and not taking care of some of the maintenance that needed to be handled. So we found situations coming into the ownership of this asset where some of these units needed to be totally removed or remodeled. And because of the current federal moratorium on eviction, we couldn’t do that at first. The tenant eventually left on their own accord, kind of skipped in the middle of the night, which was actually thankful. But if we wanted to get them out so we could take care of a pretty terrible bathroom mold issue, we couldn’t have done that at that moment in time because of the eviction moratorium.

Ash Patel: Got it. Charlie, what’s your Best Ever real estate investing advice?

Charlie Stevenson: My Best Ever advice is kind of philosophical. There’s this men’s group that I’ve heard of called GoBundance. Something that I really learned working with them was if you try to go alone you might go faster, but if you go together, you’ll go far. So it’s an ancient or African proverb that says, go alone and go fast, go together and go far. That’s been truly one of the hallmarks of our success in the business, is by pairing up with two other folks, my partners, who have a lot, frankly, more experienced than I am, [unintelligible [00:18:18].07] in the room, and can work with me. I can do what I’m good at and they can do what they’re good at. We can combine forces and really go a long way. I do see a lot of investors who go the lone wolf route, and maybe they get a project going a little more quickly, but ultimately, I see that we can have a lot more distance in the end. So yeah, go together, create a team, don’t try to do it alone.

Ash Patel: That’s a great philosophy and a great outlook. Charlie, are you ready for the lightning round?

Charlie Stevenson: Let’s do it.

Ash Patel: Alright, first, a quick word from our partners.

Break: [00:18:50][00:19:12]

Ash Patel: Charlie, what’s the Best Ever book you’ve recently read?

Charlie Stevenson: I use this book regularly and it sits right in our library. It’s actually the Best Ever Syndication Book. It’s kind of a handbook for us. We’re getting ready to put some offerings out there to our investor networks for some assets we’re looking to acquire, and the first thing I do is I open up that book and I look at the 25 or 30 questions that an investor will ask during the webinar process. That just gets me ready to go. So it’s a book that I read for the first time years ago, but it’s a constant reference, which is Theo’s and Joe’s Best Ever Syndication Book.

Ash Patel: Awesome. I’ve got that book sitting on my shelf. It’s on my list of things to do. So, thanks for that advice, I’ll get around to it.

Charlie Stevenson: Do it. There is good advice in there. Yeah.

Ash Patel: Charlie, what’s the Best Ever way you like to give back?

Charlie Stevenson: Giving back is something that is really important to me. Something that my dad really instilled in my brother and I. The way that I find that I can contribute the most value is at my university back in Boston, there is a venture accelerator that works with students who are undergrads and also alumni who are getting businesses off the ground. Back in 2010, when I was starting my adventure travel business, I was one of their first ventures, I was really lucky. It’s called Northeastern University’s IDEA Venture Accelerator. They gave me a ton of resources, a ton of advice, assigned me a mentor, and helped me to work through the process of starting and launching a business. That experience was so impactful to me that I now am part of that same organization, not as a venture, but as a mentor. Now I go in and I help out young organizations and growth ventures that are doing this very same thing. I coach a digital yoga platform, a travel business, and a couple of other things. I meet with them on a monthly or bi-weekly basis, I help them organize their business plans, their revenue models, all kinds of stuff. It’s fun, it keeps me young and keeps me thinking in an innovative way.

Ash Patel: Very cool, Charlie how can the Best Ever listeners reach out to you?

Charlie Stevenson: I think probably the best way is just go to our website at akrascapital.com. There’s a whole different bunch of ways that you can reach out to us. There is an Ebook you can download, which will collect some information. You can reach out directly to me and book a meeting with myself or one of my other partners to talk about what Akras is doing. We’re always looking for limited partners to come in, and also small institutions who want to invest with us. So certainly reach out, and happy to be a resource and build a relationship.

Ash Patel: Charlie, thank you for being on the show today. Thanks for all the great advice. You started out with the travel bug, accidentally got into real estate, and now with Akras Capital you’re doing syndications and building a giant portfolio. So thanks for sharing your story today.

Charlie Stevenson: Thanks, Ash. I appreciate it.

Ash Patel: Have a Best Ever day. Thank you again.

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