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Nov. 29, 2012

Business Plan

By Jessica Fiur, News Editor

Steadfast Income REIT is sponsored by Steadfast REIT Investments LLC, an affiliate of Steadfast Companies. Founded in 1994, Steadfast Companies has evolved into a vertically integrated, multifaceted real estate owner, operator and manager with senior real estate professionals who average over 30 years of investment experience. Steadfast Companies has acquired, developed and managed in excess of $2.6 billion of real estate, including over 20,000 apartment units and more than 5.2 million square feet of industrial, office and retail space. Today Steadfast Companies owns and/or operates a diverse portfolio valued at approximately $1.5 billion and comprising over 100 properties across the United States and Mexico. Ella Shaw Neyland was recently promoted to president of Steadfast Income REIT Inc. MHN News Editor Jessica Fiur talked to Neyland about her new position and her views on the apartment market.

What are your plans as president? How will you distinguish yourself from your predecessors?

The interesting thing about Steadfast is they really only acquired their first property in August 2010, so I think of it as a two-year-old company. In many respects, I am the first president of Steadfast. So that’s good news and bad news that I don’t have a predecessor. I’d been on the board of Steadfast Income REIT for about a year prior to becoming president, and I served as an independent director and auditor. I really got to know the company during that period and got to know the executive team. I think the unique qualification I bring to Steadfast is 33 years of employment history in the real estate and finance world. This is Steadfast Companies’ first public company, and my background includes public company experience and a lot of apartment experience. I always view myself as having two hats—I have the public company hat, which to me is important because it’s the way you communicate to your investors, it’s the way you raise capital and it’s a structural regulatory environment that you operate in. My second hat is my real estate hat, which is really what drives the value of the company. I’ve been in apartments either as a lender or working for companies that own apartments, so I understand most of the dynamics that have affected the multifamily cycle over the last 33 years. I’ve seen tremendous volatility in interest rates, and I’ve seen the whole regulatory environment change. There’s been a lot of change, but one of the things that has stayed constant is that apartments are a core part of the real estate world—they’re less volatile, and most of America has always lived in apartments.

What are some of the trends you see impacting apartment REITs?

As far as what’s happening in the REIT world, the traded REITs have had a tremendous run recently. They’ve managed to raise a lot of capital, either through secondary offerings or preferred debt. Like most things I’ve seen over the last 33 years, real estate comes in cycles. We have seen a very strong market for a while, and I think it’s going to pull back a little bit.

In the non-traded REIT world that I’m in now, it’s a much smaller market. I think Steadfast has managed in a very short period of time to distinguish itself in the non-traded space because we have been executing our business plan in a pretty big way. This year alone we’ve acquired over a quarter of a billion dollars worth of properties, and we have a very robust acquisition pipeline. What we’re seeing is that because we’re buying in primary markets in secondary locations, and we’re buying them using very attractive spreads between going-in cap rates and the cost of debt, we have a lot of opportunities to look at properties. The trend for us is really strong because, looking at supply and demand, there’s a lot of supply of products out there. We probably look at about 200 opportunities a month—and those are all across the board, they’re luxury, affordable, etc.—and we’re acquiring about three or four apartment communities a month, so we’re acquiring about 1.5 to 2 percent of what we look at. I like a business where there is a big supply of product, because if a market has a lot of supply I can buy it at the right price and finance it at the right spread. There are more middle-market apartments for sale than high-end, luxury apartments.

I also want a big consumer demand. Look at the iPhones—more people want your product than you have in supply. On the demand side, the Steadfast business plan means that our apartment rents, which are in the low $900’s a month, are below the average apartment rent in America. That also means my residents can make between $30,000 a year and $75,000 a year—which is most of America—and they can afford a Steadfast apartment. My demand pool of people is a lot larger than luxury apartments where people pay $2,500 a month. That’s just a result of our sluggish economy. But there is job growth in transportation, manufacturing, healthcare and the services industry, and that resident group finds the Steadfast apartment close to where they work. From a location standpoint, we deliver value to them. I see our segment as having a lot of potential for growth in the next few years.

How is Steadfast tapping into the Echo Boomer demographic?

Echo boomers are seeing their parents lose their homes and their equity. They’re saying, “Maybe owning a home isn’t what it’s supposed to be.” There was a recent study by economists that saw a correlation between cities that have high home ownership and high unemployment, and that goes to what I believe—that home ownership is dragging down job growth. We’ve got to get job growth to stimulate the economy. I think that as people choose apartment living, it will give them the ability to move for jobs.

Echo boomers are looking for quality of life, and they’re trying to manage their money. They know they have their rent payment, but that’s all they have to worry about. If the toilet breaks, if the roof needs fixing, if the landscaping needs work, they call us, and that responsibility is on us. If they get a raise or a bonus, they can go out and buy a car or take a vacation. Again, this is the type of thing that will help our economy.

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