Niche Navigator: Mitch Morgan
- Dec 05, 2017
No one quite so literally pulled himself up by his bootstraps as Mitch Morgan, whose first full-time job was as a shoe salesman to pay for his schooling at Temple University in Philadelphia. Coming from a family that had gone through bankruptcy twice, Morgan largely supported himself through college. He graduated with an accounting degree in 1976, securing a job with former accounting firm Laventhol & Horwath while attending Temple’s Beasley School of Law at night. Graduating in 1980 from a four-year law program instead of the typical three-year stint, Morgan went on to pass the bar but never practiced, realizing that neither accounting nor law was his true passion.
“I learned what I wanted to do in life by knowing what I didn’t want to do,” Morgan said.
Drawing on the tenacity that several confidantes cited as a quality contributing to his success, Morgan connected with Joel Gershman, a client of the accounting firm that was a noted philanthropist and owner of multifamily development firm Construction Consultants Inc. He asked Morgan to come work for him in 1981.
Morgan sought out acquisition opportunities while Gershman provided the capital, instilling in Morgan an appetite for doing deals and identifying investments. After learning as much as he could and gaining some equity from the deals in which he participated, Morgan joined with a partner in 1985 to launch what would become Morgan Properties. He hasn’t looked back since, amassing a portfolio of 44,000 units in 10 states, focusing on a niche that he’s found to be most successful: Class B, value-add multifamily assets.
“The key is to stick to what we do best,” Morgan said. “We always say: If you want to do something that’s different and interesting, get a hobby.”
The initial company, formed with Construction Consultants colleague Richard Haydinger and called First Montgomery Properties (FMP), joined complementary qualities.
“I was the financial structuring person, and he had the operational skills,” Morgan recalled.
The duo had a stroke of luck: They started the firm on Dec. 27, 1985, and were able to take advantage of a law allowing them to use tax-exempt financing to purchase three apartment communities totaling 1,400 units northwest of Philadelphia, as long as they completed full renovations of the properties. The law expired four days later, on Dec. 31.
“I was able to close the transaction right before the law changed … which really put me in the value-add multifamily business with very little equity,” Morgan recalled, adding that he retains 100 percent ownership of the assets today. “We had to renovate all three apartment complexes, which we did, and we got really good at doing the renovations, so we continued to buy multifamily assets that needed work.”
With the help of brokers and “a lot of convincing,” the two bought assets from then on by partnering with high-net-worth individuals, including famed duo Bruce and Bob Toll and the late Rite-Aid Corp. founder, Alex Grass, Morgan said. FMP put in 10 to 15 percent of the initial equity but was able to upgrade to 50 percent ownership of the property if the deal was successful.
Haydinger decided to set out on his own in 1994, founding First Montgomery Group. The similar company names understandably caused confusion, leading Morgan to change his firm’s name to Morgan Properties by 1996.
A new name ushered in new partners, including opportunity funds and insurance companies that came into being in the late ‘90s. One of Morgan’s early backers was private equity fund manager BPG Properties (now Equus Capital Partners), which as a new company itself was looking for a firm with apartment expertise.
“(Morgan) was looking at portfolios; we had plenty of money and were looking to make investments. So it all kind of fell together, and we both grew in the business together,” recalled Dan DiLella, president & CEO of Equus.
The two firms transacted about $800 million in investments together from the ‘90s to the early 2000s. The firm also closed about $500 million in business with Capmark, which was owned by General Motors and went bankrupt in 2009, as well as with AIG Global Real Estate Investment Corp.
While Morgan noted that nearly all of his deals were successful during these years, with the firm amassing a portfolio of 16,000 units by 2007, there is one deal that still eats at him: partnering with AIG to buy the 17,000-unit Westminster Management portfolio from Kushner Cos. in 2007 for a whopping $1.9 billion.
“The purchase price was a definite stretch,” Morgan recalled, noting that many firms overpaid for large multifamily transactions at the height of the property-market bubble. As part of the deal, the partnership agreed to invest an additional $100 million of equity for renovations to the mostly New Jersey-located properties. But when AIG encountered financial issues during the recession, it couldn’t fund its portion; Morgan bought out its partner at a substantial discount.
Thus, Morgan became sole owner of 10,800 units and third-party manager of the remaining 6,000 units owned by AIG.
“I was able to turn what I would call a bad transaction into a very profitable transaction,” he said.
Morgan’s ability to figure out complex transactions and understand the numbers—thanks in large part to his accounting background—is another quality that impressed DiLella, who noted that while most businessmen have fancy calculators, Morgan walks around with a little $5 calculator in his shirt pocket.
“He can pull it out and whip through the numbers faster than you can blink an eye,” he remarked.
Using the liquidity the firm accumulated before the recession, Morgan decided to make a big bet from 2009 to 2011 by buying out all of his partners—including BPG, AIG and Capmark—thereby becoming the exclusive owner of 15,000 apartments across 76 properties.
“I quite literally wrote over $180 million of personal checks to buy all of my partners out,” he recalled. “It was an intelligent bet, but it was a frightening bet. A lot of debt was coming due in 2013 and 2014, and in 2009 and 2010 you didn’t know if you could do any financing at all, but thankfully the financial markets got a lot better.”
Despite the success of these transactions, however, Morgan needed to again build up the firm’s capital.
“People were typically net sellers, not net buyers, so I felt there might be an opportunity to improve liquidity if I took the company public,” he said. Morgan hired an investment banking team and filed an S-11 disclosure document announcing the company’s plans to go public—then canceled those plans.
“It was the best thing we chose not to do because the capital markets came back in a big way,” Morgan noted, adding that he believes valuations in the private market are better than those in the public markets.
After coming out on the other side of the recession and growing his firm to 22,000 units owned without partners, Morgan was ready to settle down and enjoy operating the portfolio he had. But upon joining the business in 2011, his oldest son, Jon, wanted to expand the company.
Morgan then formed Morgan JV Holdings, allowing his son to run the business as president, as long as he stuck to the firm’s focus on Class B, value-add multifamily. Morgan agreed to put in 15 to 20 percent of the equity on transactions and tasked his son to find partners to invest the rest.
“I thought maybe he’d buy a couple hundred units, and I could play golf and sit back … and to Jon’s credit, from 2011 to this (October), we’ve acquired $2.4 billion of additional assets.”
The company now owns some 44,000 units—about half 100-percent owned through Morgan Properties and half JV-owned through Morgan JV Holdings—with 80 percent of the assets located in Pennsylvania, New Jersey and Maryland. Morgan also has a good number of properties in Virginia and some smaller ones in Ohio, upstate New York, Omaha, the Carolinas, Delaware and Indiana.
Real estate seems to run in the family’s DNA, as Morgan’s other two children have also recently joined the business. His daughter Brittany is senior vice president of strategic operations, and his son Jason joined the company about a year ago as senior vice president.
While Morgan said he has no plans to retire soon, “the vision of the company is for the next generation to take it to the next level,” potentially doubling the size of its portfolio.
And as his children assume more responsibility, Morgan has time to focus on other endeavors, including his 15-year role as a board member of Temple University.
Describing him as very active and “one of the key board members,” Temple President Richard Englert noted that “he brings his good, solid business sense to the university and helps us make good, solid business decisions, especially when we’re renovating or building new facilities.”
Morgan is also a multimillion-dollar donor to the university, and “he’s also saved us millions of dollars,” Englert said. “It’s amazing how much time he puts into Temple.”
Fittingly, one of the newest residence halls on campus is named after him and his wife, Hilarie.
“I bet I spend as much time at Temple as I do at Morgan,” he quipped. Englert observed that Morgan enjoys interacting with students and getting a feel for the campus.
Coming from little money, Morgan stressed the importance of supporting his community, as well as his employees. As a result, he gives about 50 key employees ownership interests in every transaction the firm completes.
“They have a vested interest in our success because they make money when we make money, and that’s how I got started,” he said, adding that this allows him to delegate, as well.
“He doesn’t get caught in the details, he gets the big picture,” noted Butch Stempel, former vice chairman at Royal Bank America, where Mitch was a board member from 2003 to 2008. “He will drill down and ask a lot of questions, but he relies upon other people to get those answers for him. Everyone has great respect for his knowledge of real estate, finance, and he really understands the apartment business. He knows his niche, and he sticks to it.”
Originally appearing in the December 2017 issue of MHN.