- Mar 15, 2017
When Nick and Peter Gould offered to purchase Steve Heimler’s company, housing markets were careening toward a global meltdown. It was April 2007, and Heimler’s Woodland Hills, Calif.-based property management firm, Stratus Real Estate, had grown by 700 percent in seven years, from 3,000 apartment units under management and 70 employees in 1999 to 24,000 units and a staff of 980.
Although the asking price undervalued Stratus, Heimler decided to cut his losses. One month after their initial conversation, the Goulds, owners of London property management firm CAS Capital Ltd., sent Heimler a letter of intent. Six weeks later, the deal was done.
“Had I not sold,” he explained, “I would not have been able to save the real estate that I owned myself. I was a great borrower with perfect credit, so I paid down my loans to get the real estate to work through the recession. It was dumb luck.”
Though Heimler had sidestepped a disaster with the sale of Stratus, he had done so at the expense of his freedom, having also signed a three-year non-compete agreement that prohibited him from providing fee-management services anywhere in the U.S. until 2011.
In 2008, with the non-compete in full force, Heimler founded Cirrus Asset Management, staffing key managerial functions with some of his top associates from Stratus and tending to the real estate assets that had not been transferred in the sale, namely properties that he already owned in Hawaii. Beginning with a handful of contacts, Heimler developed his client base solely by referrals.
Before soaring to prominence, Steve Heimler charted a circuitous course. Having obtained degrees in philosophy and psychology from the University of California at Santa Barbara, and seeking a higher purpose, he embarked on a soul-searching trek through Europe. He backpacked and slept on the streets for nearly two years, then, his finances dwindling, he capitulated and called his parents in California. They set him up with a job at a small, locally focused real estate investment firm in 1987.
“I hated the shop,” Heimler recalled. “They were trying to skirt a lot of the employment laws and be cheap.” He taught himself the fundamentals of compliance and personnel management—specifically, how to build consensus among field employees.
In order to attract legitimate clients, he decided, he would need to look the part. “I sold the truck and bought a decent car,” he related. “I started dressing better and started behaving more like a banker than a construction guy.”
In 1989, Heimler left the mom-and-pop operation and began buying, flipping and managing apartments in core submarkets throughout Southern California. Launching Stratus Management with just two properties, he grew the portfolio from 48 to 1,000 rental units in four years.
In 1993, a Seattle-based investment firm caught wind of Stratus and proposed that Heimler manage its assets in California and Nevada. Eager to keep up momentum, he entered into a joint venture with the investors, forming HSC Real Estate in 1994.
“A lot of education came out of the merger of Stratus Management and what was then Halpin, Smith and Christian,” Heimler noted. Through the partnership, he familiarized himself with the Seattle multifamily market, simultaneously learning institutional-grade accounting procedures, financial reporting, risk management, quality control and training.
Ready for liftoff
The alliance behind HSC Real Estate began to crumble toward the end of 1999. Though Heimler’s division was generating healthy fees, he was receiving only a minority share of the venture’s net income as per the partnership agreement. Heimler felt that his three partners were taking advantage of him. When one of the Seattle partners, who had been working out of California, decided to move back to Washington, Heimler plotted an exit.
Severing the relationship, however, presented obstacles. First, Heimler’s soon-to-be-ex-partners, who had previously worked for Pinnacle Realty Management’s Seattle group, tipped off their former colleagues to make a play for Heimler’s single-largest account, a portfolio of 1,000 units, which they took successfully.
“That’s when things got a little spicy,” Heimler recalled. In response, he staked his own claim to a large Nevada portfolio that his partners had been running from their office in Seattle. “The client, out of Texas, was my relationship,” Heimler pointed out. “I just called him and I said, ‘Come with me instead of staying with them,’ and that’s what went down.”
Winning clients through referrals is the only business development strategy Heimler has ever pursued. In 1997, via a colleague, he had met Archon Group Senior Asset Manager Matt Novobilski, who had relocated from Dallas to Los Angeles to head the multifamily asset management group.
“My associate had identified Steve as very capable,” explained Novobilski, now director of asset management for Raintree Partners. “So he set me up with him to manage a few of our properties, mostly smaller to midsize, rent-controlled deals in core submarkets in L.A. and the San Fernando Valley.” Over time, Heimler’s managerial philosophy—emphasizing good customer service over technical skill alone—became clear to Novobilski, who would see Heimler exemplify this maxim in his repositioning of The Plaza at Sherman Oaks.
“When I bought (the property) in 2013, it was red-tagged and needed renovating,” Novobilski remembered. “I engaged Steve because the property fit his expertise.” Heimler applied a strongly people-oriented approach to rallying his construction team around executing his value-add plan, which transformed the dilapidated asset into a Class A resort-style community, complete with a screening room; basketball, volleyball and tennis courts; a dog run; a pool; and an executive meeting lounge. A testament to Cirrus’ focus on the resident’s experience, the community also includes a courtesy patrol, a concierge and 24-hour emergency maintenance service.
Currently, Cirrus oversees 10 of Raintree’s 26 multifamily assets throughout Southern California. The partnership has been successful due to what Novobilski summarizes as Heimler’s “simple approach to property management. He’s a great motivator, and he knows how to hire good people.”
Corralling a crew
Indeed, Heimler’s success derives not only from the cash flows he realizes across Cirrus’ 8,000-unit portfolio but also from a knack for finding and cultivating talent. Matt Anderson, senior director of operations at Newport Beach, Calif.-based Irvine Co., joined Stratus shortly after graduating from California State University, Northridge, with a communications degree in 2003. “We started out on the third floor of the office, then we took over part of the second floor, then most of the building,” he recalled. “Human resources moved downstairs because operations got too big.”
Heimler recalls this period of expansion as a time when managers were leaving firms around the country to work for Stratus, drawn to the company’s sought-after, high-energy work environment. To get his foot in the door, Anderson confessed, “I told Steve I was a ‘seven’ in Microsoft Excel,” a fib Heimler caught before sending Anderson home with an assignment to create a property pro-forma statement.
“He saw something in me I didn’t even know I had,” said Anderson, who cobbled together a spreadsheet overnight and won the role of executive assistant. Within six months, Anderson was running a small portfolio, and one year after joining Stratus, he was managing 13 properties.
“He has a willingness to let people learn and grow,” Anderson commented. “I owe my career to him.”
Carie Powell, president of San Francisco-based boutique investment firm Aeris Properties, also credits Heimler with emboldening her to take control of her career. The two met in 2005 through a mutual friend and immediately bonded over their “shared idealism and high emotional intelligence,” Powell recounted. She joined the firm as director of Northern California, remaining for a year after the sale to Riverstone.
When Powell left to start her own venture, Heimler imbued her with what she described as “the courage to walk life’s path,” and she sought to create something she could shape with her own ideals of honest and transparent property management. In 2009, she launched Aeris, along with a consulting firm, accomplishments she said she could not have achieved without Heimler’s guidance.
“He’s a natural educator, and he never cuts corners.” Powell expressed. “Always down-to-earth, always personable, he’s been my safety net, all the way down the road.”
Aloha State ascension
By 2009, Steve Colón, who heads the Hawaii division of El Paso, Texas-based development firm Hunt Cos., had been struggling for more than four years to fill vacancies at former military housing sites Iroquois Point and Pu’uloa on Oahu. Knowing of Heimler’s repositioning triumphs, Colón tapped him to rehabilitate the Pearl Harbor-adjacent communities, which, totaling 1,463 units, comprised Hawaii’s then-largest rental property.
By this time, Colón had cycled through three management companies, in efforts to implement a marketing plan that had promised 90 percent occupancy within two years. Frustrated, he went back to Heimler, who was still restrained by the non-compete agreement.
“In 2009 is when Steve (Colón) finally said, ‘Alright, I’m going to give you the nod,’” Heimler recalled. “So that’s when I negotiated this carveout for the state of Hawaii, and in exchange, the CAS guys got another year of the non-compete for the rest of the country.”
Heimler felt the extension was merited: “(Colón’s) was the biggest, best account I ever had.”
At the property, he attained 95 percent occupancy within three years. Faced with derelict apartments that the U.S. Navy had abandoned in the early 1990s, he renamed the community The Waterfront at Pu’uloa and gave it a complete facelift. “He approached it from an owner’s perspective,” Colón said. “He figured out which development tasks would maximize value.”
One of these measures was the pricing strategy, following a unit-by-unit analysis, which devoted more resources to rehabilitating oceanfront apartments. “People were paying for upgrades that Steve had pushed,” Colón remarked. “At Hunt, we hadn’t even thought of that.”
In 2012, following the $77 million renovation, Colón sold The Waterfront at Pu’uloa to San Francisco’s Carmel Partners for $311 million.
Continuing to work with Colón, Heimler demonstrated a knack for identifying underperforming, often decrepit properties and making the renovations necessary to stabilize them.
One such property was Lahainatown. Situated near Front Street, a tourist thoroughfare in Oahu’s Waikiki area, the 50-year-old shell of a building was surrounded by parking lots and a revolving cast of seedy characters. “You didn’t want to go there,” Heimler acknowledged. “We put in new floors, new appliances, new everything.”
By purchasing the building at a low cost, Heimler could afford to refinance his loan and return 140 percent equity to his investors. At the same time, he doubled rents, raising them to $1,400, all in under four years.
In early 2011, Heimler won four management contracts with Hawaii’s largest landowner, Kamehameha Schools. Endowed by the last direct descendant of King Kamehameha I, the private educational trust owns more than 363,000 acres, supporting 47,000 learners statewide.
The contracts authorized Cirrus to carry out a repositioning and lease-up campaign for a portfolio of 100 residential units built in the 1960s and located near the University of Hawaii in Honolulu. Major replacements of electrical and plumbing systems, as well as interior upgrades, factored into the $8 million renovation cost. In November 2012, Heimler wrapped construction on the first project in Kamehameha’s 15-year master plan, Six Eighty, a 54-unit loft-style apartment building geared toward medium-income renters.
Three years later, Heimler led a group of local and mainland investors to secure the $23.5 million sale of Hotel Renew, a 72-key, nine-story boutique hotel on Waikiki Beach that the syndicate repositioned by commissioning a $7 million renovation in 2008, after purchasing the asset for $12 million in 2005.
The road ahead
Today, Steve Heimler oversees a $2.5 billion portfolio of 8,000 multifamily units, located in 26 cities throughout Florida, Tennessee, Texas, Colorado, Wyoming, Utah, Washington, California and Hawaii. “2016 was a good year for Cirrus,” observed Heimler, who estimates having closed $60 million in acquisitions and another $180 million in third-party management contracts last year.
While the property management industry continues to consolidate—following notable mergers and acquisitions, such as Riverstone’s 2014 acquisition by its largest competitor, Greystar—Heimler maintains that “real estate is a local business that gets executed globally. I think (clients) will start to realize that local expertise is more important than a national relationship.”
Additionally, he swears by frequent communication with his clients. One of his colleagues, Akihiko Kanamori, vice president of Tokyo-based Sun Asset Management Corp., praised his candid nature, which is what led him to entrust Cirrus with his entire portfolio of Southern California multifamily assets and refer other Japanese investors to him.
In Kanamori’s view, Heimler excels at taking small strides to make a large impact on financial performance. “He visits the property, talks to his staff members and makes sure he knows everything that’s going on,” he elaborated. “Our success is because of Steve.”
Originally appearing in the March 2017 issue of MHN.