Arvind Chary on Atlas Real Estate Partners’ value-add strategy.
Atlas Real Estate Partners is based in New York and run by Managing Principals Arvind Chary and Alex Foster. Atlas has been very active in the student housing and multifamily space since 2010, having made 20 acquisitions in the past 30 months. The company has offices in New York, Florida and Texas and continues to seek value-add opportunities in the multifamily, student housing, office and retail asset classes.
Most recently, Atlas partnered with Marc Realty Residential and Angelo Gordon to acquire 2 East 8th Street in downtown Chicago. The 330-unit, 882-bed student housing property is 97 percent occupied and it caters to students of nearby Columbia College, Roosevelt University and more than 20 other schools. The asset also contains 20,000 square feet of ground-floor commercial space as well as 206 enclosed parking spaces.
The property was sold by Chris Epp and Chris Bancroft of ARA Student Housing’s group and financed by a floating-rate FannieMae loan originated by Mitch Sinberg of Beech Street Capital. The seller was Equus Capital Partners, formerly BPG Properties.
MHN Editorial Director Diana Mosher recently interviewed Arvind Chary, managing principal of Atlas, about this Chicago acquisition and Atlas’ overall investment strategy.
Tell us about your most recent student housing acquisition in Chicago. Why was that property attractive?
We’ve been active in the student housing space the last three years. In fact, my background was in student housing before I founded Atlas. We typically target student housing that has a value-add element. Traditionally, we have focused on the Northeast, Florida, Texas and Chicago. This asset in particular fit extremely well with our investment thesis. We like to target assets that are not being operated optimally that have an additional upside. In particular, with this asset, we found that there was the potential to implement a summer housing program that would allow us to add occupancy during those months. Some of the leases in the building are nine-month leases, and the previous owner had never put a summer housing program in place.
Similar to New York City, there’s a strong demand in Chicago for short-term summer housing for students coming in for internships or summer school. Since there’s very limited supply and very limited options for students to find good housing in Chicago during the summer, we were quickly able to determine that there was a need for it. It’s an attractive asset with a pool and a sun deck. We’re already getting strong interest. Our partners in Chicago include the two founders of Apartment Finders who lease more apartments than anyone in Chicago. They created the summer housing program for other buildings in Chicago, and they’re partners in the deal. No one knows the Chicago student housing market better than Chicago Apartment Finders. We knew this would be a very good buy for us with the leasing potential year-round with students as well as in the summer.
Is this summer program something you’d want to roll out at student housing properties in other markets?
Traditionally, across our portfolio, we only sign 12-month leases. On this property in particular, there are a number of nine-month leases. This property is a little bit atypical because there are shorter-term leases, but we’re going to be very flexible. We’re going to offer both nine-month and 12-month leases to students in the Chicago market. Across the rest of our portfolio, we’ll only do 12-month leases. If you look at most student housing markets, there are only 12-month leases, and usually the student is responsible for sub-leasing their apartment if they choose not to live there in the summer. So this is not typical of our portfolio. The rest of our portfolio in student housing, which comprises 30 to 40 percent of our portfolio, is all 12-month leases. The seller had structured a lot of the leases with nine-month leases on this deal, so we’re inheriting that, and we’re going to continue to offer both nine-month and 12-month leases.
This is a value-add deal, and you’ll be taking some steps to upgrade this student housing property. What sorts of physical or marketing upgrades will you be undertaking?
We’re going to be upgrading the amenities throughout the building such as the pool, sundeck and gym. Students nowadays are very savvy renters, and they require everything from upgraded lobbies to unit upgrades. We’ll be putting in new flooring and appliance packages. We’re also going to be rebranding the property.
How long do you generally hold?
We do have a flexible-hold tradition, but generally in our portfolio, we’ve held long term—usually five to 10 years—unless an attractive opportunity presents itself.
Tell us about your overall investment strategy for multifamily.
This is our 20th acquisition in the last 30 months. We’ve bought over 3,000 apartments. We’re also targeting office and retail assets in primary markets, but our core focus is on multifamily. We focus on value-add in strong growth markets. The majority of our portfolio is in Texas and Florida, where there’s population growth, strong supply and demand; those multifamily markets have performed extremely well. We also have a focus in the Northeast and will be rolling out a West Coast platform over the next few months. This was our first acquisition in Chicago. We have offices in Texas and Florida where I have partners, so we have local on-the-ground ownership in all of our deals. Our headquarters is in New York, but our teams are built out locally, so that gives us a competitive advantage to operate these deals and look for other opportunities in these markets.
What asset class do you prefer to target for acquisition?
Typically, we target B assets that were built in the last 25 years where we can go in and implement value-add programs upgrading the amenities and the units. We find that in many of these assets, the interiors have not been upgraded. If you invest in doing kitchens and baths and flooring in the units, renters are willing to pay more. This strategy has been very successful for us over the last couple of years. It’s something we’ll continue to do. We typically shy away from brand-new assets at the top of the market. We find we can create more value on these B assets that are around 20-25 years old.
Are there any particular marketing strategies you find most useful in attracting residents to your properties?
We have been very successful across our portfolio rebranding, and one of our key elements is appealing to renters’ desire for greener living. We have implemented recycling programs throughout our portfolio and have switched to low flow faucets and toilets as well as more energy efficient lighting. We’ve also created the “Town Village” at our properties. This concept revolves around creating more of a sense of community for our residents. We usually designate one unit in the apartment community for residents to socialize and implement activities. We assist in getting the ball rolling and we help foster friendships. Then residents keep these relationships going organically as they plan events and become involved in volunteer causes. Residents reach out to other residents.
This program has been very well received. We have better resident retention because of it, and it has reduced our turnover costs. More residents stay at the communities longer because they have friends who also live there. That’s certainly something we like to roll out across our portfolio.
What effect is the single-family market having on multifamily? How would you characterize the health of the apartment market going forward?
We’re seeing some movement in the single-family space. I know there have been some plays that have turned single-family homes into rentals, which certainly affects the market dynamic—but this hasn’t impacted us. On the student side, in the markets we’re targeting, we’re typically very close to campus. We really don’t compete there. Traditionally, everything within a half-mile of campus is already rented out, so the single-family housing market in our student housing acquisitions has little to no impact. On the conventional deals, we’re still seeing there’s a huge supply of young professionals who have had to move in with their families during the recession—but now they’re starting to move out on their own. Fewer people are buying homes, and in the markets like Texas and Florida, you have that component combined with population growth, so our occupancies have continued to trend upwards along with our rent growth. So we don’t see that the single-family market has a massive impact.
Is there anything you’d like to add?
We’re obviously bullish on the student housing market as well as on multifamily for the foreseeable future. I think we’ll continue to target value-add opportunities where we can go in and create value and, at the same time, upgrade and create better living standards for our residents.