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Posted Mar 13, 2023

An Interview with Robb Bollhoffer, Managing Principal at 29th Street Capital

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In this interview, Managing Director Brandon Sedloff sat down with Robb Bollhoffer, Managing Principal at 29th Street Capital, to discuss how he built his team, what 29th Street capital is doing to maintain NOI on their 18,000 units, and what advice Robb would give to the Fed as we head further into 2023.

Here is a portion of that interview edited for clarity. Watch an on-demand recording of the entire back-and-forth here.

Brandon Sedloff: Your acquisitions professionals are required, if I understood correctly, to invest in the deals that they source. And you mentioned that that was not an industry norm. Talk to me about how you came to this framework and what works about it.

Robert Bollhoffer: I wanted to hire a team made of owners and sponsors that thought about each deal as an owner. In all my years of being in acquisitions, I never put a dollar in a deal. Let's face it, I think every acquisition guy would admit that we threw a lot of stuff at the wall to see what would stick. I only had an upside, but that's how that world worked for a long time. My acquisition team is senior, say 20 years in their local market. They want to be owners, and they want to invest in their deals, so we changed the structure. Each acquisition manager does about a deal a year.

I want our investors to have full transparency. We're always available to answer any questions about that specific asset. Anything they want to know, we can provide those details for them.

Brandon Sedloff: We're operating in an uncertain time. What are you seeing at the asset level inside of your properties relative to tenant retention, rent increases, delinquencies, etc.? What things keep you up at night?

Robert Bollhoffer: I'll start with retention, which is extremely high, but rent growth is definitely decelerating. Household formation is down, and leasing is just low, but overall, multifamily is still doing very well.

Now, we're trying to get our arms around costs. We're going into NOI preservation mode. We will do our best to fix, rather than replace, while still providing great service, and try to control the costs to protect NOI. We’re also asking how we can use technology to save on costs.

The number one concern is always rent growth. We have some properties in areas that are very tenant friendly, meaning we've been restricted by rent control for a long time. Number two is occupancy. That’s a slightly different story than 12-24 months ago. Now, I'd rather have heads in beds than a unit sitting empty for renovations. We've noticed that people are more price-sensitive right now, and classic units are leasing much more quickly than renovated units. So let's do some quick turns, not push rents, and keep it full.

We're still selectively looking at acquisitions, but it's slowed tremendously. We are focused on what we have, being honest and transparent with investors, building a strong team, and coming out of this.

Brandon Sedloff: What advice would you give the Fed to ensure we don't have a cataclysmic correction as we did during the global financial crisis?

Robert Bollhoffer: I suggest waiting and seeing the impact that you've made. Just to keep raising rates at this speed is going to have some consequential impact. There's no way around it. We're all making do, but sooner or later, it has to give. There comes the point where our interest rates are going up, and our expenses are going up, so there's only one thing we can do—increase rents. It will be interesting to see over the next 12 months where the NOI margins go. Controlling expenses will be difficult.

Brandon Sedloff: What advice would you have for somebody who's looking to get into multifamily, based on the lessons that you've learned over the course of your career and building 29th Street Capital?

Robert Bollhoffer: I would say focus on getting a good business partner. I've had the honor of having a fantastic business partner. In a strange way, I don't think we'd be best friends, and I surely don't think we could live in the same town. We definitely argue and we bicker, but we don't get mad at each other. We challenge each other.

I like being in the field. I like getting my hands dirty. I like knowing everything about the asset. He's very good at investor relations, being very honest and transparent. Two different skill sets completely. It's great to bounce ideas off someone, particularly if you're different. We've done that a lot.

You also need to make sure you have the right people in place. I can't tell you how many people will say “I want to grow in Austin, or Chicago, or California,” but without local boots on the ground, you can’t be impactful because there's some responsibility to the community that you can't put a dollar sign on. They know all the local brokers, they know what's going on. I can't stress enough the importance of being local and aligned, and having acquisition guys invest in their deals is a game changer. They think twice about that extra spend and they'll be there longer. Turnover alone can hurt a company. Our retention is extremely high because we all participate in each other's wins. And it's created a culture that has produced a lot of winners.