Marshall Sykes served in the U.S. Navy as a Civil Engineer Corps officer, where he built and maintained military bases. He retired after 25 years as a captain, moving on to a career in the oil and gas business with ExxonMobil. In 2021, after eight years in that role, he decided to launch a full-time career in multifamily real estate.
Today, Marshall is the president and owner of Capitano Investing Group, which focuses on multifamily real estate syndications with 100 or more units. He is a GP of over 2,600 units across 13 properties. In this episode, he shares how he acquired so many units in his first 14 months as a syndicator, why he feels that rising interest rates can be used to his advantage, and his projections for how increasing expenses will impact the multifamily space.
Marshall Sykes | Real Estate Background
- President and owner of Capitano Investing Group, which focuses on multifamily real estate syndications with 100+ units.
- GP of 2,600+ units across 13 properties valued at $330M
- LP in nearly every property that he has raised on
- Based in: Houston, TX
- Say hi to him at:
- Best Ever Book: Halftime by Bob Buford
- Greatest lesson: Develop your strategy before you start implementing it.
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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Marshall Sykes. Marshall is joining us from Houston, Texas. He is the president and owner of Capitano Investing Group, which focuses on multifamily real estate syndications with 100+ units. He's the GP of over 2,600 units across 13 properties, valued at 330 million in assets under management. He's an LP in nearly every property that he has raised in. Marshall, can you give us a little bit more info about your background and what you're currently focused on?
Marshall Sykes: Yeah, Slocomb, thank you for having me. It's great to be here today. I grew up actually in a real estate investing family; my dad retired from the Army and had decided he wanted to do real estate. Him and my mom would build two houses at a time, and keep one as a rental, and then sell want to live off of. So I kind of learned that growing up a little bit. When I was in my high school years I helped them build houses. In fact, we built a multifamily fourplex as well.
So I kind of put that in the back burner, I went to engineering school, went in the Navy as a Civil Engineer Corps officer, and I started doing construction, built and maintained military bases, basically. And one of the big projects I had was a building 10,000 barracks units at Camp Pendleton in Southern California. And that kind of got my mind thinking about multifamily real estate as well. And I had already had 10 units of single family homes already in my portfolio as rentals, but I kind of wanted to get in multifamily, but at the time I really didn't understand how to do that, and syndications really weren't big at that time. So I kind of put that in the back burner and then I started learning about syndications.
Slocomb Reed: Marshall, when did you say that was?
Marshall Sykes: That was back in 2009.
Slocomb Reed: Cool. So you were doing the single-family rental game, but it sounds like you learned from your parents leading into the Great Recession. And then during, or a little after the Great Recession, based on your experience building and maintaining naval bases, you thought to get into multifamily?
Marshall Sykes: Right.
Slocomb Reed: When did you start syndicating?
Marshall Sykes: Well, I started as an LP investor three years ago. I did about five different investments as an LP, learned the language, how things worked in syndications, and then I felt comfortable enough to go as a GP. As a general partner, I started back in June of last year, so I've only been -- as a general partner, only 14 months.
Slocomb Reed: And in those last 14 months, you've acquired over 2,600 units. You've been busy.
Marshall Sykes: I've been busy. It's been a very fast upward progression, but I was ready for it. I had a construction management background, a project management background, so I understood the real estate game and I was really wanting to go full-time into it. And I had already stopped working as a W-2 employee, so I decided "Hey, I'm gonna go for it." I joined a coaching program that allows me to partner fast with others within my coaching program... So it's been a very good experience so far.
Slocomb Reed: Which coaching program are you in?
Marshall Sykes: I'm in Think Multifamily with Mark Kenney.
Slocomb Reed: Nice. I hear a lot of good things about Think. They're in Texas.
Marshall Sykes: They're in Dallas. That's right. Or North Dallas.
Slocomb Reed: Marshall, 2,600+ units, focusing on a market segment of properties of 100+ units is highly competitive. You started 14 months ago; you got into a great mastermind, Think Multifamily. It sounds like these have been joint venture deals. Is that correct?
Marshall Sykes: That's right. Usually, there are five to six general partners on the deal, at least.
Slocomb Reed: Nice. So within your general partnerships, Marshall, what's the unique skill or strength that you are bringing to these partnerships?
Marshall Sykes: That's a great question, because originally, when I joined the mastermind, I thought I'd probably be the lead in these, because I know a lot about [unintelligible 00:05:26.21] you do a lot of renovations the first couple years... I thought that would be my niche. But actually, I started out doing capital raising, and I really enjoyed that part of it. I really enjoyed the networking piece of it, talking to people that I have within my own network over my 30-year career, and telling them about multifamily and about syndication investing. So I've really focused on that piece, as well as providing risk capital, and performing due diligence. And I do a little bit of the asset management as well.
Slocomb Reed: Gotcha. Okay. So it's interesting to hear that you say you're not using your construction management background as much... Is that where you ended up playing into asset management with regards to the execution of your team's business plan? Are you involved in the oversight of contractors, building out the renovation plans, any of that stuff?
Marshall Sykes: Well, I did that in the Navy, for sure. I did the asset management piece, construction management and contracting management, is what our three focus areas where. I advised a little bit with my general partners on that, but they mainly do the day-to-day, along with our third-party property manager.
Slocomb Reed: Gotcha. So Marshall, we are recording in late July 2022. The property values, at least cap rates seem like they might start doing interesting things here soon. For those listeners listening well into the future, we're experiencing some interest rate volatility with our debt. We're also in a time when people who have been involved in apartments indications for the last few years have seen some pretty high equity multiples returned to them. We have kind of a convergence of factors coming at us, Marshall, where you would think that there are a lot of people who want to pull back from apartment investing, and at the same time, there are a lot of people who have capital they want to get deployed. In the situation that we find ourselves in, what's your experience been just the last few months here in 2022?
Marshall Sykes: I think there's definitely some concern about rising interest rates and other factors in the multifamily space. I do see that there are less competitors going after properties right now; instead of 30 buyers bidding on a property, you might find five or so. So I think it's a little easier to work with brokers, and I think brokers will reach out to us a little bit more as well.
So that's one thing -- I do think that with rising interest rates it's gonna be harder for folks to buy single family homes, so they're gonna want to rent. So the rent occupancy levels, I see that they're well in the 90% range for most of the markets that we're looking at. So I feel like it's still a good time to buy. We use our conservative underwriting, of course, to make sure that we understand the markets and understand what we're getting into when we buy a property.
Slocomb Reed: Marshall, I get a lot of what you're saying about the housing market being affected, apartment investing remaining strong through economically turbulent times... I didn't ask earlier, which markets are you guys currently focused on? I'm not asking where you bought in 2021, I'm talking about right now. You guys are analyzing deals and writing offers against lesser competition. You're writing your LOIs in what markets right now?
Marshall Sykes: Jacksonville, Florida, in Atlanta, and then we wrote one that we were unsuccessful on in Columbia, South Carolina. So let's say the Southeast markets right now.
Slocomb Reed: What is it that you're seeing in the Southeast that compels you guys to invest there given what's going on in the economy right now?
Marshall Sykes: Yeah, the things I look for are a market that has a lot of population, and things are happening in that market. So something with a lot of population growth over the last five years, over the next five years, something with high job growth, as well as jobs that are above-average median income types of jobs.
Slocomb Reed: With the stuff that you guys are taking down right now, I know you said you are involved to some degree with the asset management, but also in sharing the business plan and the investing opportunity as a whole with your investors, Marshall. There are a lot of syndicators who have been able to increase rents "organically" because of the amount of rent growth that we've seen the last couple of years. There are also a lot of apartment owners, primarily in properties smaller than the ones that you guys target, I would believe, but there are a lot of apartment buildings owners and managers who have fallen behind that inflationary curve of rent rates... So there are a lot of people who are investing right now, planning to do the value-add plan of make the units nicer, increase the rent... There are some people who are planning to increase rent without touching the units, and then there are people who overhaul. With the deals that you're pursuing right now, what kind of business plan are you pursuing for your acquisitions?
We still look primarily at a value-add business plan. So we're we're gonna go in and renovate 70% to 80% of the apartments within a complex; we want to increase the rents up to market value, and usually, we want something that's 200+ at this point, below market value. So we're gonna buy a unit as renting for $1,000, we want where the market allows for $1,200 a month; we can do a value-add there and recover money from that and add value to the property. But also, some of the units are not going to be renovated, you're right. But the rents are still below market level and we can raise those rents as well. We won't do a heavy value-add on all the complex; just part of it.
Break: [00:11:26.22] to [00:13:23.09]
Slocomb Reed: Marshall, given your construction management background, let me ask - are you still working for the Navy? Or you're not working for them anymore.
Marshall Sykes: No, I did 25 years in the Navy, I retired as a captain, and then worked in the oil and gas business with Exxon Mobil, and worked with them [unintelligible 00:13:42.09] projects all over the world for about eight years, and then I started into multifamily full-time last year.
Slocomb Reed: Gotcha. On the apartments that you have to renovate in order to realize market rents, do you guys have a particular ratio or a particular amount that you expect to spend per apartment? When I say ratio, what I really mean is a multiple of the monthly or annual rent increase that you're willing to spend on the renovation. Do you guys have a target number like that?
Marshall Sykes: Well, we don't have an exact ratio like that, but normally, we would spend $7,000 to $10,000 a unit to upgrade it to a B class or B plus class type of amenities level, I guess I should say. And I would say if you're renting for $1,000 a month or $1,500, you're doing 10 times that, I guess.
Slocomb Reed: Gotcha. So just quick math based on what you said... A $10,000 renovation for a $200 a month rent bump - that's $2,400 over the year, that's a 24% return on your renovation dollar. That's pretty solid. And that makes a lot of sense. In my experience, Marshall - I'm an apartment owner-operator in Cincinnati; a portfolio smaller than yours. I manage 100 doors at the moment, and I have my own crew... I'll tell you, I'm struggling to calculate exactly what apartment turns are going to cost even having my own crew right now, because of the way that costs have fluctuated; labor costs, but also material costs. I definitely have benefited from bringing that in-house though, as tight as the labor market has been. To your point though, when I'm moving out an inherited tenant who's been there for a few years, in like a C area who's not likely to qualify based on my qualification standards, I can't see myself getting out of renovating that apartment, even a one-bedroom for under $5,000 right now. So it makes sense to focus on rent bumps of at least 200 bucks, because that 200 bucks on a $10,000 return is a 24% return on your money.
Marshall Sykes: Right. In some of the markets we're looking at, in Jacksonville, for example, we're $400 below market levels, so it even makes a better return on your investment to do that. I do think that all the construction costs have gone up lately, so it's gonna be a little more expensive than what we had in mind maybe two years ago, for renovating a unit.
Slocomb Reed: To the credit of our asset class though, Marshall, apartment renovations are fairly simple, especially when you're at 100-unit-plus buildings, you're doing the same thing over and over. So you can hone in on those expenses and you can hone in on where you ought to save, you can hone in on where you ought to spend... But also, when you look at the inflationary trajectory of our economy right now, the rent growth is justifying the increase in renovation expense, at least here in Cincinnati. It sounds like you're experiencing that too, especially in Jacksonville. $400 a month is like half the rent here for a one-bedroom. So you can't say no when it's $400 below rent. But we get excited, at least $100 for a one-bedroom. That's when we start feeling like we've got value-add here.
Marshall Sykes: Yeah, I think we used to analyze at $100. I think you're correct about that, Slocomb. But I think now it seems like that's been elevated with the inflation rate, as well as - if you find an apartment hasn't been renovated in a long time, that's even more so that you can bring those rents up.
Slocomb Reed: Marshall, thus far in your investing, what's the biggest struggle that you've faced, in your commercial investing as an active investor?
Marshall Sykes: I think for me, I did a lot of business management and financial stuff, in the government, as well as with Exxon Mobil... But it was always kind of a budget-based finance look at things. And now I'm looking at it as a financier type, so I need to understand some of those financing terms more. But the good news is I partner with other people who do understand those things. But for me, I'd like to work on that piece a little bit more.
Slocomb Reed: What my unsophisticated brain just heard you say, Marshall, is that you came from a world where you looked to max out your budget, and that was considered success. And now you're in a world where keeping your spending low is what is appreciated and leads to success. Is that what you're saying?
Marshall Sykes: Yes, that's pretty much it... Because before you did have a budget, and you stayed within your construction budget to bring the project across the finish line, but now it's really unknown; you're dealing with rent increases... And how much construction can you do to bump up that rent? But you don't want to maximize too much construction and not get the rent. So you kind of have to play with it, but you also can do a test case, a pilot, if you will, do a couple of units and see if they rent for that price or not.
Slocomb Reed: Marshall, I'm going to look into our mutual magic eight-ball for the benefit of our listeners... Tell me whether or not you agree with this projection - that in the economic volatility that we're experiencing right now, and again, we're recording at the end of July 2022... With as much as we are seeing increases in our costs, especially in our renovation costs, especially with a business plan like a value-add business plan, we're going to continue to see rent growth that justifies the cost of executing on these business plans. Inflation is a scary buzzword for a lot of people, but in our case, it effectively means that as our expenses will go up, our revenue should go up as well. Do you agree with that?
Marshall Sykes: Yeah, I agree with that, for sure. I think what's gonna happen is once you do those rental increases, the residents of those apartments will start looking "Hey, is this a good thing or not for me to stay here? Do I want to move or not move?" And then they start looking at comparables down the street. Can they get the same unit that they have now for that price, or they're going to pay another $300 down the street? So then they start playing the comparables game.
Slocomb Reed: Marshall, are you ready for the best ever lightning round?
Marshall Sykes: I sure am.
Slocomb Reed: Awesome. What is the best ever book that you've recently read?
Marshall Sykes: The best ever book I've recently read is Half Time by Bob Buford. I read it 10 years ago, but also when I was getting out of the Navy, but I also read it again recently... And it really is about focusing your life on the second half of your life, really. And instead of thinking about success only, how about significance? Start changing your mindset to significance - how are you going to live a life of significance?
Slocomb Reed: That's awesome. What's your best ever way to get back?
Marshall Sykes: For me, I do a lot of things with my church, and I also like to mentor people that are just coming into the multifamily space, so they'll reach out to me and I'll talk to him about capital raising, or joining coaching programs... But the one charity I'd like to highlight is called True Impact; my friend from the Navy started it, his a name is Andy Stewart, and it helps build orphanages in Uganda.
Slocomb Reed: Nice. Thus far in your commercial real estate investing career, Marshall, what is the biggest mistake you've made, and the best ever lesson that you've learned resulting from it?
Marshall Sykes: Interesting... I lived in Dubai when I was with Exxon Mobil, and my buddy and I, both of us invested in real estate. And I had slowed down on my single family home rentals investing, but he was still going forward. I was starting to try to pay some of mine off, so that when I retired, I would have just cash income and not have any mortgage. And he was like, "Nah, you're crazy to do that." I didn't understand what multifamily syndications were at the time; this was like five years ago.
Slocomb Reed: Sure, sure.
Marshall Sykes: And looking back at that now, I'm thinking "He was right. He probably made a big increase in his net worth based off of continuing to buy a lot of rentals. Whereas I have a bunch of equity." And so I'm trying to move that equity now, take that equity out of my houses and put it into multifamily.
Slocomb Reed: Nice. What is your best ever advice?
Marshall Sykes: I think the best ever advice is you've gotta believe in yourself and understand that if God gives you a vision, He's behind you, and He's going to get you through to help you achieve that vision.
Slocomb Reed: Where can people get in touch with you?
Marshall Sykes: They can go to Capitano Investing Group, and look me up there. I have a website for that. But also, you can reach out to me on LinkedIn; I'm very active on LinkedIn.
Slocomb Reed: Awesome. Marshall, thank you. Best Ever listeners, thank you as well. If you've gained value from this episode, please do subscribe to our show. Please leave us a five star review, and share this with an investor friend of yours that you know would gain value from listening to Marshall's and our conversation today. Thank you, and have a best ever day.
Marshall Sykes: Thank you, Slocomb.
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