Company Performance

In 2020, we achieved annualized portfolio returns (IRR) of 70%, bringing the total fund IRR to 39%¹, demonstrating our ability to successfully deploy more capital as cap rates compress in an increasingly competitive buying environment for multifamily properties in the US.

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Investment Strategy

From the beginning, our investment strategy has been to apply a metrics-driven approach to purchase assets that are mispriced due to illiquidity in the real estate market. Three independent value drivers underpin our investment decisions:

1. Macro Trends:
   1. Supply: In the United States, the cost of building new apartment complexes continues to rise and is well above the acquisition cost for in-place assets. In the context of rising construction costs, limited inventory, and the current interest rate environment, income-producing assets such as apartments and warehouses are re-rating higher.
   2. Demand: Long-term population growth, coupled with a decade-long shortage in residential construction following the 2009 crash, has created pent-up demand for multifamily units. As COVID opens up working from home to a large number of high-income workers, there is substantially more demand for housing units in “the affordable west.” Cities such as Spokane, Tri-Cities, Colorado Springs, Missoula, and Tucson offer access to nature and direct flights to tech hubs at a substantially lower cost than a San Francisco, Seattle, or Denver
2. Neighborhood Alpha: Rising home values and supply from previous growth spurts allows for value add opportunities in neighborhoods where there is little remaining land for new multifamily developments.
3. Deal Level Value Add: We target properties deficient in "software" (property management), "hardware" (deferred maintenance or capex), or both. Since few investors have in-house property management, maintenance and construction crews, we are able to identify deals where there are fewer competitive offers, giving us access to opportunities for greater alpha generation.

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2020 Highlights

Notable 2020 investments include the Patsy Clark Mansion, an iconic historic building where we plan to add an additional 3 residential units and 1 commercial space in 2021, as well as the Woodcutter’s hall, one of two available multifamily buildings in the Peaceful Valley Neighborhood in Spokane. Previous deals that have seen strong performance this year include Spokane Valley Sprague Apartments, which has seen a return of over 4x¹ since our acquisition in 2018.

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COVID has created opportunities both at the macro and micro level. From a macro perspective, the decrease in interest rates has compressed capitalization rates, leading to an increase in overall value and the ability to recycle additional capital in properties through refinancing at lower interest rates. Our focus on the Spokane market has also benefitted from COVID as it has become one of the top appreciating markets in the country and benefitted from a substantial inflow of residents during the pandemic. COVID has also made some portions of property management more difficult due to the moratorium on rent adjustments and evictions, benefiting teams with in-house, specialized focus on optimizing this process, and we expect this to continue into the rest of 2021.

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We have also reduced holdings in rougher neighborhoods. After two years across 3 different neighborhoods we have determined that the additional overhead required to operate in worse neighborhoods does not justify the additional 1% in cap rates that is the norm. We have since sold all of our holdings in C and D class neighborhoods.

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Goals for 2021

Looking forward to 2021, we intend to expand our strategy aggressively to new markets, growing from the current 110 units at the end of 2020 to more than 180 by the end of 2021.

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Our highest conviction bet remains investing across residential and commercial strategies in the affordable west. This will allow us to take advantage of the great migration that is starting post-COVID once the economy realigns with more high paying jobs existing outside high-priced urban centers.

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We have already begun to execute on new strategies that include: value add industrial properties, with the first project comprising of a 100,000 sq ft warehouse under contract, and short-term stay, with a goal of opening up existing units for short term stay across 3 properties in 2021.

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We will also be expanding our maintenance and construction team from 5 to 12 people this year and building local teams outside of our core market in Spokane in 2021. This will allow us to replicate the network effects that come form operating construction and property management teams in other areas across the country. Our goal is to move quickly to solidify our market positioning in between large institutional real estate investors and mom-and-pop buyers and pursue substantial opportunities in the large, high growth tertiary markets we are targeting.

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^{(1) Gross returns excluding management fees}

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