Dallas Business Journal: Inside CONTI’s Strategy
Claire Ballor, Staff Writer
Dallas Business Journal
Dallas-based CONTI is continuing to expand its multifamily portfolio throughout the Metroplex.
The real estate investment company, which owns and operates 28 apartment communities in Dallas-Fort Worth and one in Houston, recently acquired six properties in the Bachman Lake area and another in Plano.
Company leaders say they have their sights set on expanding further outside of North Texas and aim to become one of the leading multifamily owners and operators in the state.
Stewart Hsu, co-founder and president of CONTI, talked with the Dallas Business Journal about his thoughts on smart multifamily investment strategies, the company’s growing portfolio and real estate trends he is watching closely.
Tell me a bit about CONTI’s approach to multifamily investments.
There’s an enduring aspect to apartments and housing that’s attractive to us. And we only buy deals that we feel like we have the potential to create value with. If you imagine every apartment community having an average rent and then you plot all of those average rents on a distribution curve, we’re essentially focused on the bottom 60 percent rents.
We avoid the top 40 percent of the highest rents in the market. Why we do that? It’s more about going back to some basic principles of investing. We like to be in the part of the demand curve that is more resilient, which we think is going to be more likely to be recession-proof than the top 40 percent where there’s so much new supply coming online and they’re all competing with each other. That’s not, in our opinion, the best investment thesis, if you will.
What was the strategy behind acquiring the Bachman Lake portfolio?
We think it’s a straightforward, workforce housing, very well-located pocket of what we call Class C or Class B- apartments in that neighborhood. The opportunity came to us off-market through another relationship from a transaction we had closed earlier in the year. We think that those C and B- properties are surrounded by A and even A+ residential housing.
We think that area has a lot going for it in the long-term. There’s a lot of new development going in around Dallas Love Field, and south of it you have the Medical District. We felt like we could really make our market in that location. We’re probably right at owning just over 40 percent of the larger multifamily properties in the Bachman Lake area now.
One of the things that we pride ourselves on is really having good screening criteria. That’s probably one of the areas that’s really left to the owner.
What role do you think multifamily owners and developers have in the communities they’re in?
To be good stewards. There are multiple groups and constituents we’re trying to make sure are all included so that it’s a win-win for all.
At a very basic level, for our teams and our employees we want to make sure that folks here have the opportunity to help contribute and participate in something that can make a difference. For our investors, of course, we have to make a certain return and ensure we’re good stewards of their capital and invest that money wisely.
And for the communities of our properties, we’re thinking about not only the residents but how are we impacting that area in that neighborhood and can we do it in a way where it’s a win-win across all of these groups. It’s about trying to have that larger, bigger global perspective and realize that we’re only here on the earth a short time, so let’s try to make it better than we found it.
You talk a lot about benefiting the residents who live in CONTI’s buildings. How do you go about that?
I think it really starts with hiring the right people. It might sound a little cliche, but the people that are on site, our management division, are a direct reflection of our company’s core values.
By hiring right, you’re much more likely to treat all of the residents right, and from there, that team then has a lot of leeway and latitude for how to use budgets for things the manager believes are best for the clientele that lives in that property.
What are your thoughts on Dallas’s affordable housing crisis, and how do you think multifamily fits into it?
The affordability problem is getting worse and worse, and multifamily is one part of that. About half of all residents here in Dallas rent, and nationally I think it’s closer to about one third. We’re mindful of that.
We’re trying to have our properties provide the best value, but we do see that there are these larger market forces. There’s a balance between wage growth and cost. The cost of running apartments is also increasing between taxes, all the utilities, payroll. That affordability question is a loaded one and there’s a ton to unpack and dive into.
What trends in the Dallas-Fort Worth real estate market do you have your eye on?
One of the key things is we’re expecting, or looking forward to, is when there is an inflection point of Class A properties, or that top 40 percent that we don’t play in, can restabilize and go back the other way. It feels like it’s been three years in a row of 20,000 units coming online per year, which has softened that part of the market. It will be nice to see when new supply starts to taper down. Are we at that inflection point now? It could be that we’re starting to see some signs of that, but hopefully we’ll see that over the next two or three quarters.
The other thing on the radar is people have talked about a soft landing recession or slow down this year or next year. We had an economist speak at an event last week and he was saying there might be one quarter of the slow down predicted in 2020, so we’re paying attention to that and seeing how that might impact the local Dallas economy and how it might impact multifamily.
Last but not least, I think New York recently passed some sort of rent control procedures. We don’t really believe rent control is the answer to affordability, and that it actually makes it worse when you do that to a certain segment of the housing population. It’s interesting to see how some of those housing trends might unfold over the coming quarters and years ahead.