MHN Interview: Kiser Group on Targeting the Mid-Market Multifamily Segment
By Jessica Fiur, News Editor
Chicago—Kiser Group, a Chicago-based commercial real estate brokerage company, focuses on the mid-market multifamily segment. MHN talks to Lee and Estella Kiser, both principals of Kiser Group, abut the benefits of targeting this market.
MHN: The Kiser group specializes in the mid-market segment. What are some of the benefits of working in this market?
Lee: This market is open to a wide spectrum of investors, from those with experience in the product type—mid-market multifamily—to those with experience in the industry, to new investors coming in. Mid-market really means non-institutional grade. It’s a different set of investment parameters than what you’d see in a Class-A institutional product. It opens it up to a lot of different investors.
Estella: Here in Chicago, the mid-market is really everything you see in all the neighborhoods. Although you might see some institutional-grade properties scattered on the lakefront, the vast majority of the product in all of the neighborhoods in Chicago would be considered mid-market assets. Anything from six units up to many 200 units is considered mid-market. It’s a pretty large product area, and it attracts all sorts of investors, primarily private investors. Institutional-grade properties are attracting institutions, REITs—really large companies. This is a segment of the market that Mom and Pops can get into and [larger] companies can get into. It’s pretty wide open. The product is varied, as well as the investors looking at it.
MHN: What about some of the challenges. Does appealing to Mom and Pop investors present its own challenges?
Lee: It really does. The more seasoned Mom and Pops are some of the most successful investors in real estate. But with those who are new to the industry, and especially in smaller properties in that six- to 20-unit range, it’s difficult for a broker because you’re basically going through someone’s learning curve with them. Until they actually get involved with their first due diligence during a purchase, you don’t know how much they really understand.
The other challenge is financing. Generally financing is readily available for the mid-market, but for those who are new and don’t have a great deal of experience already, they’ll run into challenges getting that financing.
Estella: A vast majority of people we deal with on an everyday basis are not new to the industry. We’ve done institutional-grade deals, so the Kiser Group has dealt with the big players and the smallest of players. What’s great about dealing with the mid-market is the vast majority of the people who either are investing—or own and operate—know the buildings. They understand how the buildings work and are really hands on, so they’re experts. When they go through due diligence, they don’t have to bring a team of people and go weeks and weeks to go through a property. They know what they’re looking for, they know how the boiler works and they know if the roof is going to need any repairs. So the due diligence period tends to be a lot shorter in the mid-market industry than you’d see in institutional deals, because most of the people in it have done the work from the bottom up, and they really understand it. They’re also using their own money, so they can make decisions more quickly. They don’t have to go through a committee to approve it, which you find, necessarily, with large institutions. With mid-markets, they’re the ones who are going to run the building, they’re going to be leasing the property and managing it. They make the decisions, and they’re experts. [However,] there are definitely the people who come into the business who are going through the learning curve and don’t have the bank relationships that a more-seasoned investor has.
Lee: We’re talking about ‘mid-market.’ It’s almost a misnomer. I think it’s as easily described as ‘private market,’ and Estella has really hit on one of the key things. It’s a double-edge sword, the difference between working with an investor who’s using other people’s money, such as a REIT, or working with the private sector, the private money, those whose own net-worth is on the line. And that’s what Estella is talking about, this more seasoned, private money. It’s a very entrepreneurial approach to real estate. The challenge comes, many times, simply in that. In the institutional world, it’s really just a matter of analysis and numbers. In the private market, or mid-market, certainly the analysis has to be there, the investment parameters have to be there, but there’s also an ego that you don’t find in institutions that adds a whole other element to these transactions. These people are not successful unless they have this trait. It’s learning to work with these people and push the transactions.
MHN: Do you find people are a little leery of the riskier transactions because it’s their own money, or do you find they have the ego to back it up?
Estella: Well they have confidence and they know they can pull it together. And if they disappoint, they’re just disappointing themselves. They don’t have to answer to a large company. But I would say it really depends on the investor. There are obviously people who are more willing to take risks than others. There are some who really only look for stabilized assets where they don’t have to take a whole lot of risk, and obviously give up a little bit of return there. There are others who go into some of the most difficult areas and buy properties relatively inexpensively that will need a lot of work and they’ll improve the property and sell it down the road. The appetite for risk varies from client to client, and it really runs the gamut in the mid-market. I wouldn’t say everyone in the mid-market is willing to take a risk, but if you look at the product type, the institutional market is usually a Class-A product. With mid-market, you have everything. You have Class-C product. You have very difficult neighborhoods and run-down properties, but you also have beautiful high rises. It runs the gamut. It completely depends on the investor. There’s definitely much more of an entrepreneurial bent to the people coming in to the mid-market because it’s a business. That’s generally the profile.
Lee: They make their living from it, versus looking for a certain return so that the stock report can reflect a certain thing.
Estella: We do also have syndicators that come, or funds that will buy a large number of properties, and they’re looking to satisfy investors, so you do have some of that. What’s really fascinating about the mid-market is there is so much variety. Every deal is different. Every neighborhood is different. Every single building has its challenges. And every client is completely different. We love that. We can be dealing with a brand-new person who is looking to break into the market or a huge syndicator. It’s never boring.
MHN: What differentiates Kiser from its competitors?
Lee: I would say the standards of professionalism. Our people have the most in-depth knowledge of product, of market, of trend of any firm that’s out there. We focus on only one thing, and we focus on doing it better than anyone else. You can’t achieve that without understanding every transaction, talking with the principals involved. This is another huge differentiation between a private broker and a more institutional broker—NOIs are fluid. No two owners in the private market operate or underwrite their building the same way, which becomes really difficult when you have one person who’s selling the building and another who’s buying it who look at the revenue and expense in completely different ways. It’s not the same in the institutional world, where the profit and loss statement is the profit and loss statement, and values and transactions are determined by that statement. You move into the private market and there is an art to the science of understanding the value of these properties and explaining the operations and getting it financed and appraised. That’s what our people specialize in.
Estella: We generally are not competing with the people dealing with the institutional properties. They’re not in the mid-market. In terms of other mid-market brokerage companies, or people who try to work in the mid-market sector, the biggest difference between us and them is Lee and I have a lot of skin in the game. Our name is on the door. We do a tremendous amount of training with our people. We hire the best of the best, our heart is in it and we work harder than anybody else. And frankly the product shows it. We have the largest mid-market portfolio in Chicago. We don’t work for the deal; we work for the client. That’s a big part of it. It all ties back to the fact that this is our business, and this is our life. And it shows.