September 8, 2022

JF2926: Using Your Competitive Edge in Uncertain Times ft. Brenda Mas


Brenda Mas got her start in multifamily in 2002 working in asset management for a developer/operator/builder. After transitioning to the development side of the business, she oversaw acquisitions, entitlements, subdivision, stabilization, and financing for properties in the LA market. She left the company in 2019 to work independently, venturing into syndications with her husband, a construction expert. 

Today, Brenda is the founding and managing partner of VestWell Ventures, a group of multifamily operators and developers focused on value-add strategy. In this episode, she shares why she and her husband are shifting their focus back to development, their strategy for selecting land deals, and the biggest lesson she learned during the market collapse in 2008.

 

1. Focusing on Development

When it comes to development, Brenda and her husband have a competitive edge. They have access to consultants, structural engineers, and architects, and they know construction inside and out. Plus, the high demand for housing right now combined with current economic uncertainty made the decision to go back to development a no-brainer. 

“Demand is there, and we have the know-how,” Brenda says. “Why not bring that to our investors and allow them to make money alongside us?”

 

2. Strategy for Selecting Land Deals

Brenda and her husband have partnered with an architecture firm to help them determine which deals will work best for them. The size of the land isn’t as important to Brenda as how developers are treated in the town and what regulations are in place. 

“Those are things that we really take into consideration,” she says. “Right now our focus is on the Houston market because they have fewer zoning restrictions there, and that expedites our development timeline.”

 

3. Learning from the 2008 Market Collapse

During the collapse, Brenda and her team had property in downtown Los Angeles under construction. Their construction lender folded, and they were on the brink of losing the buildings. Many developers handed over their keys, but she refused. This led to litigation and a settlement. While they didn’t lose any money in the process, they lost valuable time. 

“There are times that you have to walk away,” Brenda says, “and understand what’s going on in the economy. The indicators were there that this was going to happen with the construction lender, and we should have paid attention a little sooner.”

 

Brenda Mas | Real Estate Background

  • Founding and managing partner of VestWell Ventures, multifamily operators and developers focused on a value-add strategy.
  • Portfolio:
    • GP of 167 units
    • LP of 1,070 units
  • Based in: Los Angeles, CA
  • Say hi to her at:
  • Best Ever Book: Measure What Matters by John Doerr
  • Greatest lesson: You have to be engaged in your business, take a proactive approach, and exhibit a great amount of grit, especially when faced with economic uncertainty. I don’t look at multifamily investing as a pastime; it’s my business and I expect to see it succeed.

 

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TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Brenda Mas. Brenda is joining us from Los Angeles. She's the founding and managing partner of Vestwell Ventures, who are multifamily operators and developers who focus on value-add opportunities. Currently GPs - 167 units, and she's also an LP in over 1,000 units. Brenda, can you start us off with a little bit more about your background and what you're currently focused on?

Brenda Mas: Yes. First of all, thank you for having me.

Slocomb Reed: Of course.

Brenda Mas: I started in multifamily back in 2002, so I've been involved professionally in multifamily... And I started off just by chance in real estate. So I worked for a developer-operator-builder, and I dove into some asset management early on in my career with them, and managed over 800 units and multiple portfolios in the asset management side. And luckily, I got to transition over to the development side. So I oversaw everything from acquisitions, entitlements, subdivision, and then stabilization and financing in that space. And we handled everything when it came to luxury, class A multifamily mixed use projects and high-rise condos in the Los Angeles market.

And eventually I left that job in 2019, started off on my own, did some consulting for developers, and in 2021 I discovered syndications. I didn't know what syndications were if they don't occur here in Los Angeles. And so it really piqued my interest. I told my husband about it, and he's a construction expert, we actually met at work, and he's built over 12,000 units. And I told him, "You know, what, if normal people are doing this, why aren't we looking into it? We should be bringing our expertise into this field, and making investors some money." So that's exactly what we did, and we formed Vestwell Ventures, and by September, we had two properties in Dallas under contract, and we closed in December... And we've just been operating those, seen the market go awry, and decided to [unintelligible 00:03:33.13] and go into what we really enjoy, which is development and multifamily. So that's what we've been doing, is focusing now on our strategy, which is to just build a lot of really great partnerships in the Sunbelt area, and go into the development space there.

Slocomb Reed: Nice. So you got into multifamily development, working for developers 20 years ago, so you brought quite a bit of experience into it when you started in syndication. It sounds like up until 2019 or a little later everything you were doing was Los Angeles-based?

Brenda Mas: That's correct.

Slocomb Reed: Gotcha. I have met a couple of people who syndicate opportunities in Los Angeles, and the opportunities are few and far between, in part because the property values and the appreciation potential, but also because of all of the regulation involved. There are a lot of people who are making that move to invest in Texas. That makes a lot of sense.

When you started looking into syndicating last year, are you guys co-JP-ing with other operators? Or are these two deals last September that you guys identified, underwrote, got under contract, raised for and are now executing on the business plan yourselves?

Brenda Mas: So we actually did find other partners, but we are the lead sponsors. So I'm the operator basically, doing all the asset management on these properties. And my husband handles all of the capex about valye-add portion of it. So we really got to hone in and utilize our skills when it came to operating these properties.

Slocomb Reed: Gotcha. A couple of questions here - I want to talk about these properties and what you guys are doing, especially because we're recording in July, so you are within a year of closing... I'm assuming you're still in your value-add phase, going through the kinds of things that our listeners are going through, or will be going through in a few weeks when this airs, likely in late August... But to make sure I'm asking the right questions, Brenda, within your operations, what is it that you focus on with these two properties?

Brenda Mas: So with these two properties - it's so important to really know who your tenant is. So when we were doing the due diligence, we walked every single unit; I got to meet and speak to the tenants personally. So I understand what their ailments are. And believe it or not, I grew up in a very similar situation, so I understood that they truly are the type of tenants that need a place to lay their head. They are workforce type of individuals. So for us, it's really important that we are able to provide a place for them that's not just improving, obviously, the living conditions, because there were some deferred maintenance issues within the buildings... But providing the basic items that some of these families need, for example just upgrading the playground area, creating secured access for them. And so much more is being spent on just the things that were deferred over time.

Now you have climate change really pushing these weather patterns. For example, we had to address a lot of the A/C units that needed to be fixed before we have this summer that we're dealing with. Now, that would have been a disaster to have to have the city really come after you because you're not being able to provide a basic, safe unit for your tenants.

So for us, it's really understanding what our tenants needed, and addressing those items, because they're just really tenants that - they don't need luxury. So for us to spend money adding value to, say, the aesthetics of a building, it wasn't really needed, especially in this type of market, where you're having such a high growth organically. You don't need to spend that kind of costs.

Slocomb Reed: Brenda, tell us more about these two properties. I know some Dallas neighborhoods, but what kind of neighborhoods are they in? What kind of buildings are they? What did you buy it for, and from where to where are you trying to take the rents?

Brenda Mas: So we bought two properties, they average about $88,000 a unit. You cannot find that anymore in Dallas whatsoever. So that was a really great buy. The rents were really under market; they were averaging about $800 a unit, we're pushing those up to about $1,000 a unit... And that is organically happening.

Slocomb Reed: I'm an apartment owner-operator in Cincinnati, Ohio. This sounds very familiar to what I do. The workforce housing rents are averaging $800; you can get them to $1,000. And then you said you bought them for about 88k a door. September 2021 - we didn't realize at the time how great of a time that was to get your debt. Let me ,ask so that all of us who are looking at deals in mid-2022 can drool - what did your mortgage terms look like?

Brenda Mas: So because of the type of product that it was, and the lending options that were available at the time, it was a [unintelligible 00:08:38.17] over 3.8, I believe, percent. So that has completely changed. It wasn't really something to drool about at the moment. I don't think so. I think it's pretty similar, if not slightly better than we could probably get today. But we tried to make those numbers work early on.

Slocomb Reed: Gotcha. There were a lot of people I know who thought that I was crazy when a partner and I - we were doing a cash out refinance on an apartment building and we decided to put it on a 15-year fixed rate mortgage at 4%... In part because that means that 15 years from the start of that mortgage, he and I will both have daughters graduating from high school, a great time to have a free and clear apartment building, but also, we wanted to lock in an interest rate at 4% for 15 years in March of 2021. Now it looks like our eight ball is magical. But there were a lot of people questioning that decision at the time. What kind of term do you have on your debt?

Brenda Mas: Just like everybody else, we went in with bridge debt. We did a three-one-one. And of course, in hindsight, we should have followed what you did, and really gone for long-term debt. I think a lot of syndicators were pushed in that direction because the LTV, the way the numbers worked, it just made sense to go with bridge lending. A lot of them are still doing that now. But definitely, the rate caps at the time when we bought, they were still affordable. And what you're getting those rate caps at now are just not making any of the deals work. And I'm still seeing people really aggressively going after deals, until very recently, I would say... And that was always a red flag for us, which is why we decided to transition over more into the development side and go back to our roots, was because of that, because we saw that there were a lot of red flags in the market; and having us gone through the market previously in 2008-2009 and having experienced that, you kind of have some PTSD.

So everybody is going crazy, overbidding... We took a step back, and we said "The indicators are there." What we might have learned in 2008, was "Pay attention. Start looking at what is the market doing." And those indicators were there, like I mentioned, but a lot of people still refused to acknowledge them, because they're in that get-a-deal mode. And for us, it was "Let's take a step back while everybody is going after these deals that really only institutions would go after." And even the institutions are now pulling back. That's what was a red flag, that the institutions are not going after those deals, but syndicators are getting awarded those deals. That's the time to really assess what you're doing.

Slocomb Reed: That being said - and Brenda, I get what you're saying about getting bridge debt in late 2021... However, you also found an asset where your rents were 20% to 25% below market. So getting your rents up to market - just that is going to help you ride a lot of turbulent waters. You said the rents are naturally going from $800 to $1,000. Are you also finding opportunities to increase from $1,000 if you improve the unit's significantly?

Brenda Mas: I'll be honest with you - no, there isn't. I think right now with organically how rents are going you aren't able to increase this amount without doing really much to the units. Frankly, spending money to improve some of these units, in my opinion, is not something you need to do, when organic rent is happening naturally. So I don't believe in doing that. I'm not a slumlord, I will definitely fix a unit if it needs it. But I don't need to go and spend my capex money to upgrade a unit and add some nice countertops if it's not going to rent substantially more than I'm able to just naturally increase those rents.

Slocomb Reed: Man, I was just having this conversation... I hope I was just having it for a podcast episode. I don't remember. So many of my friends are apartment investors, too. But in neighborhoods like the one you're describing in Dallas, and in neighborhoods where some of my portfolio is in Cincinnati, these are very budget-conscious renters, and there's a real thresholds to what they're willing to pay, and it might be tied to their income, it might be tied to their perception of what rent ought to be in an inflationary environment... But to your point, in neighborhoods where I am, there's just a threshold that people are not willing to go above when it comes to what they're willing to pay in rent, unless you're heavily amenitizing and you're basically changing asset classes of your property at that point. And yeah, there are $50 increments that make all the difference in these rents.

So to your point, with a couple of my properties, one of them has been going really well for a couple of years now. The other one I've been managing for nine months, and it's really a 12-month value-add business plan that I tried to force a little too quickly, but it's still gonna end up being 12 months... I am making these apartments nice places to live, making sure that my tenants' needs are addressed, and making sure that they have a quality, affordable place to live. And at the end of the day, my profitability will come from my speed and my operations more than anything; how quickly am I getting to the prospective tenants, how quickly am I addressing issues, how quickly am I corresponding with my tenants about their concerns when they bring them up. There are a lot of operational efficiencies there that are starting to do good things for me in these workforce housing, rent-rate-capped neighborhoods. So I totally get what you're saying; you're getting no judgment from me. I'm right there with you, Brenda, for sure.

Brenda Mas: You can't change the location of a building, and really trying to transition and change your tenant base - it's a huge undertaking. So to spend that money, you're probably not going to recoup what you're spending in those rent bumps that you're going to get to completely doing a unit upgrade.

Break: [00:14:39.23] to [00:16:26.20]

Slocomb Reed: So after finding a couple of apartment deals that it sounds like are going to work out really well, even on bridge debt, you decided to go back to what at least to me seems like a more complicated, longer process deal of developing multifamily. So tell me a little bit more about that. Why -- is it that you have more of a competitive advantage there and that you and your husband have so much experience in the industry? Is that while you're going to development? Or is there something else here that I'm missing?

Brenda Mas: No, there's definitely the competitive side; we do have access to every consultant. Actually, a lot of our investors are structural engineers, architects; so we formed these connections, we know construction inside and out, we've gone through the development process... Like I mentioned, he's built over 12,000 units, I've done the development side over 5,000 units. So we bring that to the table. But also, it's very market-driven. You have a huge need for housing right now. And with the uncertainty that's happening in the market, it makes sense for us to take this time and really just find land deals, go through the entitlement process, let things kind of settle down a bit, and then be ready with our permits to start break ground. There's just not going to be enough units to be built that can meet the demand. And demand is there, and we have to know-how, so why not bring that to our investors and allow them to make money alongside us?

Slocomb Reed: Brenda, that makes so much sense. I hadn't, until now, heard it put that way. With all of the interest rate inflation volatility that we're experiencing right now, land deals - how long it takes to go through an entitlement process. Frankly, it gives you time to figure out exactly where this economy is headed. Is the market cycle turning while you're doing that? And in the meantime, the demand for housing is only going up. So whether or not the economy is better for what you're looking at a year from now or two years from now is not going to have an impact on the demand for the thing that you want to build, so that makes so much sense.

Brenda Mas: It's not. and in the meantime, we get to add value to land, while all this is getting figured out. So that's exactly what we want to do, is just take this time and take advantage of our expertise and do exactly what we know how to do.

Slocomb Reed: Are you under contract on any land deals right now? Have you acquired any?

Brenda Mas: We've [unintelligible 00:18:56.05] some of them. And to be honest with you, I'm seeing a lot of new land deals coming through, and prices dropping. So now we're getting to pick and choose, and we're being a lot more selective now.

Slocomb Reed: That's awesome. From the time that you get a fully signed, accepted contract - from that time, how long do you anticipate that it will take to have a fully constructed, fully rented multifamily community? And are there stock gaps along the way, or are there times during the development process where you've added enough value that it may make sense to go ahead and sell and deliver a high, but sort of premature return to your investors?

Brenda Mas: There's different strategies you can take. You definitely want to mitigate your risk as you're moving along. So one of the things that we want to do -- well, first I'll answer your timeline question. It all depends on what region you're investing in.

Slocomb Reed: Of course, of course.

Brenda Mas: If you do Los Angeles, for example, from the time you purchase a property to the time you finish construction, it can be anywhere between 36 to 48 months; it can be a much longer process. And hopefully, you don't have any appeals. But then if you go to somewhere else where zoning is less regulated, they are very business-friendly, there's not a lot of barriers to entry - then it shortens that time period; it can be 24 months to 36 months. It all depends on the scale of what you're building.

Now, when it comes to when you want to be able to give your investors a return, we look at it like -- we break it up into different investment opportunities. So we can either decide that we're going to raise all the way through RTI, which is getting the permit; that allows us to then flip it and sell it. We can sell it to another developer who wants to build it, so that's an exit strategy... Or we can see it all the way through, and either allow more investors to come in at the RTI stage, or raise it all from the very beginning, and be able to then sell it stabilized, and then sell it at the backend once we have all the occupancy, and be able to just offload it and dispose it to the next operator.

Slocomb Reed: How you said you're getting to be more picky now about land deals... What markets are you looking in for land deals right now, and how do you decide which land deals are the right ones for you guys? What are the attributes of that land that make you want it?

Brenda Mas: So we've actually partnered with a really great architecture firm, and they have done studies on what a typical city block will look like. And with that study, we're able to determine "This is how much land you need for parking set aside", so you can save costs instead of having to get subterranean parking; you can then just build a city block of parking. Most of the time, what will cost the most is your podium when you're building a new building. What's most important for us is not just the size of land, is how are they treating developers coming into their town? What are the regulations that are in place? Do we have some that are friendly? For example, do the cities just have a very simple, over the counter process? Or do you have to go through a very serious process, like they do in Los Angeles, where zoning changes from, honestly, block to block?

So those are things that we really take in consideration. Right now our focus is in the Houston market, because they have less of a zoning restrictions there, and that expedites our development timeline.

Slocomb Reed: Gotcha. So give me a quick summary here, if you can, Brenda... Within your development timeline, how many phases are there at the end of which it makes sense to reevaluate and decide whether or not you could or should sell early?

Brenda Mas: There's so many with multifamily investing, within syndications; you kind of really have to have a feel of what is happening in the market. A lot of it is driven by your loan; construction loans are variable loans, and you have to really understand not just what is happening in the finance side of it, but you have to understand also what is happening in the construction industry. Like, right now we have such volatility in commodity prices, we have a shortage in labor... So if we cannot feel confident with knowing that we're going to be able to procure the construction material that we're going to need, if we're not going to feel confident that we have a general contractor that's going to be able to fulfill their promise - those are all things that we have to take in consideration. So we're assessing what we do along the way, on a day-to-day basis.

Slocomb Reed: Gotcha. Brenda, are you ready for the best ever lightning round?

Brenda Mas: I am.

Slocomb Reed: Great. What is the best ever book you recently read?

Brenda Mas: I really enjoyed "Measure what matters." That's a great book by John Doerr.

Slocomb Reed: What is your best way to give back?

Brenda Mas: When my daughter was one month old, we spent a month in the hospital, and that was really life-changing for me. And you realize how much your world turns around as a parent. So since then, I've really tried to advocate for helping some of these families who are suffering through that same type of experience. Not only do I donate blood regularly, I find it that it's super important to show up to events and support those families... So donating to things such as Ronald McDonald's House, who were instrumental in helping me through what I went through, but even helping children's hospitals throughout the country; that's so important for me.

Slocomb Reed: That's awesome. Brenda, thus far in your commercial real estate investing career, what is the biggest mistake you've made, and the best ever lesson that resulted from it?

Brenda Mas: I've made so many mistakes.

Slocomb Reed: I feel you.

Brenda Mas: You make mistakes all the time, but you learn from them. I think the biggest one though was in the 2008-2009 collapse; we were under construction in Twin Towers in downtown Los Angeles. And at that time, our construction lender folded, and overnight, thousands of people lost their jobs. And we were at the brink of having to use the buildings ourselves. At the time, this same construction lender had a ton of construction loans throughout the country, especially in Florida and Los Angeles; developers handed over the keys. We refused to do that. So it became a litigation, eventually a settlement, and although we didn't lose money, we lost a lot of our time, a lot of the effort that was put into that.

So what I would say the biggest mistake from that was there are times that you have to walk away, and also accept that, and not get into these longer litigation battles, and understand what's going on in the economy. The indicators were there that this was going to happen with the construction lender, and we should have paid attention a little sooner.

Slocomb Reed: Brenda, with that being said, what is your best ever advice?

Brenda Mas: My best ever advice is be ready to work hard, because investing is not for just those who want to come in and do it part-time, to be honest with you. I treat my business like a true business. So I put in my 10 plus hours a day, because that's what in my opinion is required to be successful in this industry. So my advice is put in the time, because you will be rewarded for it.

Slocomb Reed: Awesome. And where can people get in touch with you?

Brenda Mas: I'm on Facebook, LinkedIn by my name. I'm on Instagram @Brendadoesrealestate, and of course, our website vestwellventures.com.

Slocomb Reed: Those links are available in the show notes. Brenda, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five star review, and share this episode with a friend and real estate investing who you know we can add value to through this conversation. Thank you, and have a best ever day.

Brenda Mas: Thank you.

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