May 27, 2025 • 22 mins
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ed Mathews (00:56):
Greetings and salutations, Real Estate
Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you again for joining usand making us a part of your day
.
With me today is Chris Lentofrom EM Capital, based up in my
old stomping grounds in Boston.
Chris, welcome to the show.
I'm excited to have thisconversation.
Chris Lento (01:10):
I'm happy to be here.
Ed Mathews (01:11):
Yeah, great.
My history is I spent abazillion years in the tech
world, and so I was bouncingbetween mostly Silicon Valley,
but also my wife and I actuallyhad our two daughters in Boston
and lived up there for about 10,12 years.
I'm green with envy because Ilove that place.
So, Chris, for those folks whohaven't come across EM Capital
(01:31):
yet, I want you to tell us aboutyourself and your company.
Chris Lento (01:34):
Yeah sure, I was in aerospace engineering for 17
years, so tech adjacent, I wouldsay.
Ed Mathews (01:41):
It's pretty technical.
Chris Lento (01:42):
I'm at a cutting edge tech defense industry stuff
.
In parallel I was doing smallmultifamily investing in the
Boston area the entire time sothree families, five families,
always was trying to figure outhow to get that to be my
full-time career but didn'treally see a path and didn't
think about it too seriouslyprobably the first 10 years of
my career.
And then, as I figured out whatthe entire career world was in
(02:04):
the defense industry, startedplotting a course to transition.
So that happened in 2017.
We're focused exclusively inthe Southeastern US.
So I got out of all my Bostonarea properties, rolled them
1031, exchanged them, sold theminto the properties in North
Carolina downtown, northernFlorida and we focus on now 100
(02:24):
plus multifamily $10 million to$50 million acquisition price in
the major markets of theSoutheast.
Ed Mathews (02:32):
Okay, how many markets are you in right now?
Chris Lento (02:35):
We're in four markets, so we're in Charlotte,
Raleigh, Columbia, SouthCarolina and Atlanta.
Ed Mathews (02:42):
And I'm curious about what drew you to those
markets, like what in particularkind of piqued your interest.
Chris Lento (02:48):
Yeah, we're really looking for population growth,
job diversity and volume.
If there is one city that youcould just focus on and get the
deal volume to be able to grow,that would be great, and Atlanta
is almost that Right.
It's a big market but there arelimitations and the downturns
and people aren't selling here.
So we want a number of marketsto have enough deal flow, but we
(03:10):
want a small enough number thatwe can really understand those
markets and developrelationships in the markets and
have property managers andvendors and really know the
neighborhoods.
So we're looking for populationgrowth and economic diversity.
And then size right, we don'twant anything below, say,
250,000 people.
Ed Mathews (03:28):
Target rich environment for new residents.
Exactly Okay.
And then in terms of I thinkwhen I looked at your website,
you had just over 800 unitsunder management, right?
Does that sound right?
Chris Lento (03:40):
Yep, that's right.
Ed Mathews (03:41):
So is it semi-equally dispersed among
those four markets, or is thereone market you're a little
heavier in?
Chris Lento (03:47):
Yeah, we're heavier in Atlanta.
Right now we have 300 unitsactually 420 units in Atlanta
and we're under contract foranother property in Atlanta.
Yeah, the Atlanta market has alot of assets, a huge population
growth and a lot going on there.
Ed Mathews (04:00):
Yeah, it's a huge growth opportunity.
I'm curious about the one thingthat, when I talk with
operators and investors whotarget the Southeast, the
insurance risk has been a prettysignificant challenge for a lot
of us, myself included and I'min the Northeast with my
portfolios here in Connecticut.
I'm curious how you arenavigating that.
Chris Lento (04:20):
Yeah, so anything coastal is very difficult due to
hurricane risks that havereally gone up Atlanta.
It's interesting you raise thatbecause it has its own kind of
issues.
One problem the Atlanta markethas is that it has a very high
cap on liability for theproperty owner.
So if someone gets injured onyour property, one resident hit
the other resident with theircar on your property, you have a
(04:43):
lot of liability.
So because of that theinsurance is higher than you
would expect and really get goodinsurance brokers that really
know that Manage the things thatyou can.
Meaning what are the insurancecompanies looking for in those
policies to bring your premiumsdown and then underwrite it
correctly?
If that's the cost of themarket, then you have to make
(05:04):
sure that you're aware of it andthe risks as far as increasing
and put that in yourunderwriting up front.
Ed Mathews (05:09):
Yeah, so I've been a limited partner in Atlanta, but
I've never operated down there.
Chris Lento (05:13):
I think it's Georgia.
So I think Florida had asomewhat similar law with not as
high of a exposure, and they'verecently changed it, and my
understanding is that Georgia istalking about it.
I don't know when that willhappen which will happen, but
there's a big demand right.
The people that are lobbyingare the owners and they don't
want to be liable fornon-related incidents on their
(05:35):
property.
If you're at fault, if you havea sinkhole or something, that
makes sense.
Ed Mathews (05:40):
If some dude drives over somebody a foot in the
parking lot.
Chris Lento (05:43):
You have $3 million exposure to that.
I really know your insurancemarket.
It's crazy how much it changesstate to state.
Ed Mathews (05:49):
Yeah, indeed, here in Connecticut we got walloped
with significant increases, butthey were all storm related and
the thing is that we've had onehurricane make landfall here in
the last 30 years, Exactly In 91or 92,.
We get the residuals right.
Chris Lento (06:05):
And actually, if you think about it, a lot of the
Southeastern population is notnear the coast.
And because all the Northeastpopulation is near the coast,
correct, Charlotte and Raleighare two and a half and three
hours away from the coast,Columbia is at least an hour,
Atlanta's probably two hours, sothey're all inland, right, I
guess Charleston, south Carolinais the only kind of major
population center Think of.
(06:25):
So they're all inland, I guessCharleston.
South Carolina is the only kindof major population center.
Yeah, Myrtle Beach, maybesomething like that.
Ed Mathews (06:28):
So, as far as your buy box goes, what does that
look like, or what class are youlooking at and what are some of
the attributes that you'rekeyed in on when you find a
potential deal?
Chris Lento (06:36):
Yeah, we're looking for 1985 or newer, $10 million
to $50 million acquisition price, like I said, in 250,000 person
population area or greater withsignificant above average job
and population growth.
And then on those older units,if it was right, on the line 85,
if it has two bedrooms, I'mlooking for two bedroom, two
(06:57):
baths, okay, two bedrooms.
I'm looking for a two bedroom,two baths.
You could renovate a twobedroom, two bath and give it
one upgrade and give it a newfeel.
But a two bedroom, one bath, nomatter what you do, it's a two
bedroom, one bath and I thinkthat's also an indication of the
quality of the property when itwas built.
So if in 1985 or six someonewas building a two one, they
were going cheap.
Ed Mathews (07:16):
And so when you say cheaper, you mean the
mechanicals are the shortcuts orsomething.
Chris Lento (07:22):
I mean targeting a lower price point on the rents
and what else is inexpensivePlumbing wiring Inside the wall.
Clients have probably alreadybeen changed, but roofing
structural.
If you find a two bedroom, onebath property from the mid 80s,
it also has a non-interestingaesthetic.
It's basic Right, Doesn't haveany gables or any architectural
(07:43):
distinction.
Ed Mathews (07:44):
So architectural distinction are you looking for
unique properties that are curbappeal?
Or is it something else?
Chris Lento (07:51):
I wouldn't say we're looking for trophy
properties by any means.
We're looking for propertiesthat have a value-add component,
that the numbers make sense andwe can underwrite realistically
.
Yeah, you have to underwriterealistically, in my opinion,
with a realistic underwritinglist.
Hey, this is what we reallythink is going to happen, what
we really think the exit priceis the market's going to do, and
then add in a little factor ofsafety, sure, to make it a
(08:12):
little more conservative, andthat's where we like to sit.
It's a property that shits thatbox, 2022, under contract right
now in Atlanta, class A.
Yeah, I don't know the line Iwould say but it's new.
Ed Mathews (08:26):
So it's almost by definition, a class A, but it's
not like what does that looklike?
Is it a lot of class A?
Chris Lento (08:28):
The portfolio is A's and B's, and on the A side
we like to think of it as Aminuses.
We're not pushing the market inrents, we're not the brand new
thing with a rooftop pool oranything like that.
But the A's have they'rerelatively new or they're
refurbed older buildings thatare newly renovated, so we can
keep our prices $200 below thelocal class A's but have a very
(08:50):
similar experience.
Ed Mathews (08:52):
Smart, and when you're doing it that way, from a
strategy perspective, obviouslyyou're looking to push
occupancy.
So I'm curious what are thosenumbers typically look like in
the markets that you're in?
Chris Lento (09:02):
We'd love to be 95 plus in all the markets.
Atlanta right now is hoveringaround 92.
I can see market 91, 92.
Yeah, that's not bad.
We do a property in Baltimorethat had struggled when we
bought it and a lot of bad debtand a lot of tenants that didn't
meet the credit requirementsand the prior owner just filled
it.
So we struggled there and nowwe're at 98, which is crazy.
(09:25):
We're in the process ofincreasing the rents To some
degree.
You want to be, in my opinion,at the 95, 96 max level,
Otherwise you're not gettingenough charm and you're not
keeping up with the market.
Ed Mathews (09:35):
And then you stagnate, and that's a problem
too.
Chris Lento (09:37):
Exactly
Ed Mathews (09:38):
so I'm curious about the Baltimore property.
It probably applies to a lot ofyour properties when you're
inheriting residents who don'tfit your resident profile what's
your strategy there?
How do you handle that?
Chris Lento (09:51):
Well, you need a strong property management team.
So we do third-party management, meaning that we hire local
property management to run theproperty.
We try where we can to use thesame property management company
.
So we have a good relationshipwith a reasonably large
Southeastern company that does anumber of markets, but not all
of them.
And then we're very hands-onand we focus on bad debt.
Every week we have a meetingwith our property management
team and one of the tabs of ourspreadsheet is just a cut and
(10:14):
paste of their paid receivables30, 60, 90.
And we have notes next to eachone Like where are we with this
person?
Who's talking to who?
And that's a big focus of theproperty management team and
they're incentivized to drivethe bad luck down.
It's a process.
It's not going to be fixed intwo months.
It's going to take.
What are the local evictionlaws?
How much you want to work withpeople?
(10:34):
What are programs that are outthere for people that are behind
on rent?
And it's a constant kind ofweekly.
All right, what's next?
Ed Mathews (10:43):
yeah, honestly, I usually find that it's best case
12 months, sometimes 18 months,to stabilize building
Chris Lento (10:51):
oh, yeah, I agree, 12 months is you're doing great.
I think
Ed Mathews (10:53):
that's home run
Chris Lento (10:55):
because at the beginning, behind the tenant
basis, but for those first maybemonths, it's hard to get high
quality new tenants because theproperty has this certain feel
and it can be a culture too.
Hey, you don't need to pay forthree months here and then they
start sharing the informationand you're like, oh, how do I
change dynamics?
So yeah, 12 months, I agreewith you, is on the positive
side.
Ed Mathews (11:15):
Yeah, that's great.
So tell me, where are youtaking the business now?
So you're at 800, you've got acomplex under contract.
What's next?
Chris Lento (11:24):
We're looking to continue to grow.
2023 and 2024 were just slowyears, I think, for everybody,
and so we didn't grow.
I think one deal in those twoyears, so it was just really
tune up the deals.
You have handle some refis inturbulent markets, keep swimming
, check the 10-year treasurymore often than you think you
should have to.
Like multiple times a day.
(11:44):
Exactly.
Which is crazy, it's a 10-yeartreasury number.
So, yeah, we're back inacquisition mode, like we're
seeing a lot more deals come onthe market where our investors
have a more positive feel.
There's just definitely achange.
There's still some wait and seegoing on, but I think to some
degree, the lenders, a lot ofthese bridge loans are finally
coming due for real.
The lender's like, all right,yeah, this time we meet it.
Interest rates are coming down.
(12:06):
I feel like the sentiment atthe end of 24 was oh, 25, the
interest rates are just going tocome down.
Ed Mathews (12:11):
I'm curious where you think rates are.
Chris Lento (12:13):
So I think they're going to stick around where they
are now for a while.
I don't see anything pushingthem.
The Fed can lower theshort-term rates if inflation
doesn't go up and that would be,I think, good for construction
loans and for adjustable rateloans, but that's not really
tied to the long-term loanswhich most of the loans I like
to get are based on, and reallythe short terms are too high
(12:34):
relative to the long terms.
Anyway, I think they're goingto stick around and that prices
are going to have to adjust andI think you're going to inflate
the rents out of this.
It'll be a little time foreveryone's income to go up and
then okay, now the deals startmaking sense a little bit more.
Ed Mathews (12:48):
Right on.
So you're probably raising alittle more capital, right?
Oh yeah, you put it under a 30,40 year.
You put it under a 30, 40 year.
Chris Lento (12:55):
We used bridge debt on some heavy CapEx properties
in 2022.
When, frankly, if you weren'tusing bridge debt, I don't know
how you made a deal pencil.
We got out of one of those lastDecember and it worked out.
We're working on one right now,rolling into some permanent
financing, but right now, no,we're not looking at bridge debt
at all.
The rates are so high, interestrate caps are so high, but
(13:18):
we're raising.
No, we're not looking atBridget at all.
The rates are so high, theinterest rate caps are so high,
but we're raising.
Yeah, we're at like loan tovalue maybe 65, 62% on some
deals.
Yeah so we're raising a lot ofequity and we're doing more
preferred equity right, whicheither institutional partners or
family offices.
That'll get us up to 85% LTV,and then we raise limited
partner equity.
for the rest,
Ed Mathews (13:37):
yeah, nice, that's a smart way to do it.
It's so easy to get overleveraged in a market like this.
The fact I agree with you onthe interest rates.
Everybody was like survived to25 and then everything will be
okay and we'll get back into theforce.
And it's just historically,where the interest rates are
these right like right now.
Today, historically is rightdown the middle of where it has
been 50 years back.
Chris Lento (13:58):
And it's not that bad.
It just feels so painfulcompared to three years ago yeah
,
Ed Mathews (14:02):
Three years ago, 4% interest rates made all of us
look like geniuses.
But I think it's time toactually play where the normal,
historically, the big boys play.
And I have a mentor who told melook, if you can't make a deal,
pencil at six and a half 7%,that might be a you problem, not
a building problem or a marketproblem.
And if it was easy, everybodywould do it.
But the fact is that there'sother levers you can pull to get
(14:24):
creative, to be able to make adeal pencil and do it
responsibly and conservatively.
Chris Lento (14:30):
Yeah, no, I agree, and it's right now.
It's been changing so muchright In the last five years.
It's constant, like thefinancing and the debt
structures.
It's a constant churn.
You have to stay on top of itwith your lender.
We have standing lunches, likeat least once a month, where I'm
there to buy him a turkeysandwich and, all right, spill
it.
Tell me what's going on in theworld.
Okay, hey, why don't we getinto the final five, our
(14:50):
lightning round?
Ed Mathews (14:51):
I love to learn how leaders like you think and how
they approach their day and alsotheir businesses.
First and foremost, purposeright.
I think that at a certain point, when you reach and I think
you're probably beyond it, I'mguessing but where your personal
mortgages are paid, the kids'colleges are either on track or
(15:12):
locked away and ready for them,the cars are paid, you've done
all the responsible stuff, stuff, and now you're doing some of
the fun stuff, and nevertheless,you get out of bed on Monday
morning like a shot and you'refired up to go to work.
Right, for me, that's purpose.
Coming out of the tech world, Imet so many
multi-multi-millionaires and afew billionaires, and for them
(15:33):
there was a certain point whereit just stopped being about
money.
It was something else, and sothat's what I'm curious about is
, from your perspective, whatgets you out of bed on Monday
morning?
Chris Lento (15:41):
I think at that level, thinking about it, it's
constantly learning.
I like to constantly learn newthings, dig into the details,
whereas real estate isconstantly changing, the economy
is changing, the markets arechanging.
It's just always exciting tomeet new people, learn new
things, and I learn by doing asare changing.
It's just always exciting tomeet new people, learn new
things, and I learned by doingas we get into a deal.
We're going to 1031, oursyndication is deal.
(16:02):
Okay, how do we do that?
What do we need to meet tofigure that out?
Okay, who are the right people?
How do we learn this?
What's the best practices?
How can we be better than thenext guy on this?
How can we make us smoother?
How can we improve therelationship?
And everyone wins.
So I think, for me, reallyconstant learning environment is
what I
Ed Mathews (16:17):
Okay cool and we don't get to where you are, I
don't get to where I am, and thefolks that are listening
probably didn't get where theyare without mentorship and
really good coaches and peoplewho you know early on and even
to this day, take an interest inour success.
And so I'm curious about thementors and coaches you've had
in your life and teachers forthat matter, and what's the best
(16:38):
advice you ever got and whogave it to you?
Chris Lento (16:39):
So I've had a number of mentors, but I've also
done this coaching program thatwas really valuable, called
strategic coach, and two thingscame out of it that really stuck
with me, and one is this top ofthe who, not how.
I'm like somebody who wants toknow everything and do
everything.
You're an engineer, so let mefigure it out and just the idea
that everyone has a uniqueability and that, if you hate
doing something, one thing Ijust can't stand doing is
(17:02):
anything related to lenderre-imbursements.
Just find the whole processannoying, tedious and no one
knows what they're doing, right?
Some people don't mind that.
They'll kind of like that.
So find that person and havethem do it.
I have them do it.
I'll focus on the stuff I wantto do and that whole idea.
You don't need to know it andtrain someone.
What you need to do is findsomeone who knows it or it lines
up with what they like to learn, and then partner with them,
(17:25):
work with them, hire them.
Ed Mathews (17:27):
Yeah, I'm a numbers guy, but I don't like doing
books.
We hired a Cracker Jackcontroller and accounting person
and they are awesome.
Chris Lento (17:35):
It's great seeing someone who loves it.
Right, you're like oh thisperson loves this
Ed Mathews (17:37):
An accountant so I know the personality types.
It comes in handy.
I'm also interested in lessonslearned.
I fundamentally believe that welearn more from our mistakes
than we do our successes, andI'm curious about a professional
decision you'd love to haveback, and what did you do to
navigate it and figure it outand even recover, if that was
something that you had to do?
Chris Lento (17:57):
Yeah, we had a deal where we had to go hard in
order to win the deal and we hadconfidence that we could raise
the capital, but it wasn't byany means in the bank, and
that's part of this game, right,I want us to pull all the
different pieces together, andthey're not all there yet.
You have to be confident thatthis will come in and convey
(18:18):
that confidence to the othergroup.
And so I would say we got alittle bit over our head with
the amount of capital raise.
Luckily, it was last fall wherecapital was scarce.
We had the election.
That's when the 10 years startedgoing up, to people's kind of
surprise.
We weren't the only ones thatwere having this problem.
We were able to work with aseller to negotiate some
extensions, and then we wereable to pull in some press
equity to fill the gap.
(18:39):
But I would say the lesson washave an A, b and C plan and
actually think through it withyou and your partners ahead of
time.
Okay, if not this, then what'snext?
Because that scramble feelingwhen you have money on the line.
Ed Mathews (18:51):
I'm also interested in how leaders like you take in
information and how you grow.
One of the things you saidearlier is that you're always
looking to learn.
So are you a physical bookperson?
Are you an audible or somethingelse, and who are you paying
attention to these days?
Chris Lento (19:06):
I listen to a fair amount of podcasts, often
depending on which podcast on1.5x, because fair amount of
flow.
I do read a fair amount of realestate and business books, but
the same thing.
I feel like maybe one out of 10, you will want to read it.
It could be a 10 page pamphlet,Right?
So I just fly through them Likewhere's the yeah, where's the
thing?
(19:26):
Yeah.
This person has one thing or twothings that they're probably
have a great idea, and there'swhy I should believe them.
Ed Mathews (19:32):
I always skip the first three chapters.
It's a story and something else,but where's the nugget?
Chris Lento (19:37):
I do read a fair amount of books, I listen to
podcasts, I read the Wall StreetJournal real estate section
every day, if not every otherday, and then just talk to
people.
A lot of it's talking to people.
It's like we said earlierlenders see a lot of different
variety of people.
Your lawyers often have goodideas see different structures.
Ed Mathews (19:55):
It's amazing what they see because they have such
a broad view into the market,because their client base is
diverse, so they're seeing awhole bunch of stuff that never
hits your radar unless you askYep, all right.
Last one, how do you definesuccess in your world?
Chris Lento (20:10):
I think adding value and not just like from a
real estate perspective, helpingpeople learn, improving these
apartments that I'm buying, it'snice.
When you buy a heavy value adand it just looks terrible and
you're like, oh, I can, this isnot that hard Like landscaping,
paint roofs, like we can makethis place look pretty nice.
Just adding value across theboard is my answer to that.
Ed Mathews (20:30):
Chris, congratulations on all your
success.
I'm really excited for you andI can't wait to see you continue
to grow and maybe you'll let mebecome one of your investors
someday.
But how do you spend your time?
Chris Lento (20:41):
I have an eight-year-old daughter.
She's pretty active, so thewinter we do a lot of skiing, we
do a lot of bike riding.
We just got a dog that's aholding thing.
A lot of family stuff.
We go to the beach in thesummers, yeah.
Ed Mathews (20:53):
He's married to an amazing woman and they decided
not to have kids.
When he's exciting, he's got aboat and he restores cars, all
the cool stuff.
He's literally that cool unclethat everybody wants.
But he asked me once what doyou do for hobbies?
And I'm like you see thatlittle girl over there and the
taller one over there.
Those are my hobbies RightSwimming.
I do dance, I do softball, I dosoccer, I do beach and whatever
(21:16):
else they want to do.
Chris Lento (21:17):
And we do a fair amount of traveling too.
Yeah,
Ed Mathews (21:20):
best thing ever.
Chris Lento (21:20):
We like that.
Ed Mathews (21:25):
I just have a child, that is, and especially
daughters.
I'm partial.
I'm a girl dad, so I'm like you, hey Chris.
So if folks want to learn moreabout EM Capital or want to get
to know you, what's the best wayto get in touch?
Chris Lento (21:32):
You can check me out on my website at
emcapitalgroup.
com, and then I'm very active onLinkedIn.
I'll reach out to you onLinkedIn and we can set up a
call.
Ed Mathews (21:40):
Awesome.
Chris Lento, thank you so muchfor your time today.
It's really good to see you andcontinue.
Good fortune.
Chris Lento (21:45):
Great questions, good conversation.
Thanks
Greetings and salutations, Real Estate
Undergrounders.
It is Ed Mathews with the RealEstate Underground.
Thank you again for joining usand making us a part of your day
.
With me today is Chris Lentofrom EM Capital, based up in my
old stomping grounds in Boston.
Chris, welcome to the show.
I'm excited to have thisconversation.
Chris Lento (01:10):
I'm happy to be here.
Ed Mathews (01:11):
Yeah, great.
My history is I spent abazillion years in the tech
world, and so I was bouncingbetween mostly Silicon Valley,
but also my wife and I actuallyhad our two daughters in Boston
and lived up there for about 10,12 years.
I'm green with envy because Ilove that place.
So, Chris, for those folks whohaven't come across EM Capital
(01:31):
yet, I want you to tell us aboutyourself and your company.
Chris Lento (01:34):
Yeah sure, I was in aerospace engineering for 17
years, so tech adjacent, I wouldsay.
Ed Mathews (01:41):
It's pretty technical.
Chris Lento (01:42):
I'm at a cutting edge tech defense industry stuff
.
In parallel I was doing smallmultifamily investing in the
Boston area the entire time sothree families, five families,
always was trying to figure outhow to get that to be my
full-time career but didn'treally see a path and didn't
think about it too seriouslyprobably the first 10 years of
my career.
And then, as I figured out whatthe entire career world was in
(02:04):
the defense industry, startedplotting a course to transition.
So that happened in 2017.
We're focused exclusively inthe Southeastern US.
So I got out of all my Bostonarea properties, rolled them
1031, exchanged them, sold theminto the properties in North
Carolina downtown, northernFlorida and we focus on now 100
(02:24):
plus multifamily $10 million to$50 million acquisition price in
the major markets of theSoutheast.
Ed Mathews (02:32):
Okay, how many markets are you in right now?
Chris Lento (02:35):
We're in four markets, so we're in Charlotte,
Raleigh, Columbia, SouthCarolina and Atlanta.
Ed Mathews (02:42):
And I'm curious about what drew you to those
markets, like what in particularkind of piqued your interest.
Chris Lento (02:48):
Yeah, we're really looking for population growth,
job diversity and volume.
If there is one city that youcould just focus on and get the
deal volume to be able to grow,that would be great, and Atlanta
is almost that Right.
It's a big market but there arelimitations and the downturns
and people aren't selling here.
So we want a number of marketsto have enough deal flow, but we
(03:10):
want a small enough number thatwe can really understand those
markets and developrelationships in the markets and
have property managers andvendors and really know the
neighborhoods.
So we're looking for populationgrowth and economic diversity.
And then size right, we don'twant anything below, say,
250,000 people.
Ed Mathews (03:28):
Target rich environment for new residents.
Exactly Okay.
And then in terms of I thinkwhen I looked at your website,
you had just over 800 unitsunder management, right?
Does that sound right?
Chris Lento (03:40):
Yep, that's right.
Ed Mathews (03:41):
So is it semi-equally dispersed among
those four markets, or is thereone market you're a little
heavier in?
Chris Lento (03:47):
Yeah, we're heavier in Atlanta.
Right now we have 300 unitsactually 420 units in Atlanta
and we're under contract foranother property in Atlanta.
Yeah, the Atlanta market has alot of assets, a huge population
growth and a lot going on there.
Ed Mathews (04:00):
Yeah, it's a huge growth opportunity.
I'm curious about the one thingthat, when I talk with
operators and investors whotarget the Southeast, the
insurance risk has been a prettysignificant challenge for a lot
of us, myself included and I'min the Northeast with my
portfolios here in Connecticut.
I'm curious how you arenavigating that.
Chris Lento (04:20):
Yeah, so anything coastal is very difficult due to
hurricane risks that havereally gone up Atlanta.
It's interesting you raise thatbecause it has its own kind of
issues.
One problem the Atlanta markethas is that it has a very high
cap on liability for theproperty owner.
So if someone gets injured onyour property, one resident hit
the other resident with theircar on your property, you have a
(04:43):
lot of liability.
So because of that theinsurance is higher than you
would expect and really get goodinsurance brokers that really
know that Manage the things thatyou can.
Meaning what are the insurancecompanies looking for in those
policies to bring your premiumsdown and then underwrite it
correctly?
If that's the cost of themarket, then you have to make
(05:04):
sure that you're aware of it andthe risks as far as increasing
and put that in yourunderwriting up front.
Ed Mathews (05:09):
Yeah, so I've been a limited partner in Atlanta, but
I've never operated down there.
Chris Lento (05:13):
I think it's Georgia.
So I think Florida had asomewhat similar law with not as
high of a exposure, and they'verecently changed it, and my
understanding is that Georgia istalking about it.
I don't know when that willhappen which will happen, but
there's a big demand right.
The people that are lobbyingare the owners and they don't
want to be liable fornon-related incidents on their
(05:35):
property.
If you're at fault, if you havea sinkhole or something, that
makes sense.
Ed Mathews (05:40):
If some dude drives over somebody a foot in the
parking lot.
Chris Lento (05:43):
You have $3 million exposure to that.
I really know your insurancemarket.
It's crazy how much it changesstate to state.
Ed Mathews (05:49):
Yeah, indeed, here in Connecticut we got walloped
with significant increases, butthey were all storm related and
the thing is that we've had onehurricane make landfall here in
the last 30 years, Exactly In 91or 92,.
We get the residuals right.
Chris Lento (06:05):
And actually, if you think about it, a lot of the
Southeastern population is notnear the coast.
And because all the Northeastpopulation is near the coast,
correct, Charlotte and Raleighare two and a half and three
hours away from the coast,Columbia is at least an hour,
Atlanta's probably two hours, sothey're all inland, right, I
guess Charleston, south Carolinais the only kind of major
population center Think of.
(06:25):
So they're all inland, I guessCharleston.
South Carolina is the only kindof major population center.
Yeah, Myrtle Beach, maybesomething like that.
Ed Mathews (06:28):
So, as far as your buy box goes, what does that
look like, or what class are youlooking at and what are some of
the attributes that you'rekeyed in on when you find a
potential deal?
Chris Lento (06:36):
Yeah, we're looking for 1985 or newer, $10 million
to $50 million acquisition price, like I said, in 250,000 person
population area or greater withsignificant above average job
and population growth.
And then on those older units,if it was right, on the line 85,
if it has two bedrooms, I'mlooking for two bedroom, two
(06:57):
baths, okay, two bedrooms.
I'm looking for a two bedroom,two baths.
You could renovate a twobedroom, two bath and give it
one upgrade and give it a newfeel.
But a two bedroom, one bath, nomatter what you do, it's a two
bedroom, one bath and I thinkthat's also an indication of the
quality of the property when itwas built.
So if in 1985 or six someonewas building a two one, they
were going cheap.
Ed Mathews (07:16):
And so when you say cheaper, you mean the
mechanicals are the shortcuts orsomething.
Chris Lento (07:22):
I mean targeting a lower price point on the rents
and what else is inexpensivePlumbing wiring Inside the wall.
Clients have probably alreadybeen changed, but roofing
structural.
If you find a two bedroom, onebath property from the mid 80s,
it also has a non-interestingaesthetic.
It's basic Right, Doesn't haveany gables or any architectural
(07:43):
distinction.
Ed Mathews (07:44):
So architectural distinction are you looking for
unique properties that are curbappeal?
Or is it something else?
Chris Lento (07:51):
I wouldn't say we're looking for trophy
properties by any means.
We're looking for propertiesthat have a value-add component,
that the numbers make sense andwe can underwrite realistically
.
Yeah, you have to underwriterealistically, in my opinion,
with a realistic underwritinglist.
Hey, this is what we reallythink is going to happen, what
we really think the exit priceis the market's going to do, and
then add in a little factor ofsafety, sure, to make it a
(08:12):
little more conservative, andthat's where we like to sit.
It's a property that shits thatbox, 2022, under contract right
now in Atlanta, class A.
Yeah, I don't know the line Iwould say but it's new.
Ed Mathews (08:26):
So it's almost by definition, a class A, but it's
not like what does that looklike?
Is it a lot of class A?
Chris Lento (08:28):
The portfolio is A's and B's, and on the A side
we like to think of it as Aminuses.
We're not pushing the market inrents, we're not the brand new
thing with a rooftop pool oranything like that.
But the A's have they'rerelatively new or they're
refurbed older buildings thatare newly renovated, so we can
keep our prices $200 below thelocal class A's but have a very
(08:50):
similar experience.
Ed Mathews (08:52):
Smart, and when you're doing it that way, from a
strategy perspective, obviouslyyou're looking to push
occupancy.
So I'm curious what are thosenumbers typically look like in
the markets that you're in?
Chris Lento (09:02):
We'd love to be 95 plus in all the markets.
Atlanta right now is hoveringaround 92.
I can see market 91, 92.
Yeah, that's not bad.
We do a property in Baltimorethat had struggled when we
bought it and a lot of bad debtand a lot of tenants that didn't
meet the credit requirementsand the prior owner just filled
it.
So we struggled there and nowwe're at 98, which is crazy.
(09:25):
We're in the process ofincreasing the rents To some
degree.
You want to be, in my opinion,at the 95, 96 max level,
Otherwise you're not gettingenough charm and you're not
keeping up with the market.
Ed Mathews (09:35):
And then you stagnate, and that's a problem
too.
Chris Lento (09:37):
Exactly
Ed Mathews (09:38):
so I'm curious about the Baltimore property.
It probably applies to a lot ofyour properties when you're
inheriting residents who don'tfit your resident profile what's
your strategy there?
How do you handle that?
Chris Lento (09:51):
Well, you need a strong property management team.
So we do third-party management, meaning that we hire local
property management to run theproperty.
We try where we can to use thesame property management company
.
So we have a good relationshipwith a reasonably large
Southeastern company that does anumber of markets, but not all
of them.
And then we're very hands-onand we focus on bad debt.
Every week we have a meetingwith our property management
team and one of the tabs of ourspreadsheet is just a cut and
(10:14):
paste of their paid receivables30, 60, 90.
And we have notes next to eachone Like where are we with this
person?
Who's talking to who?
And that's a big focus of theproperty management team and
they're incentivized to drivethe bad luck down.
It's a process.
It's not going to be fixed intwo months.
It's going to take.
What are the local evictionlaws?
How much you want to work withpeople?
(10:34):
What are programs that are outthere for people that are behind
on rent?
And it's a constant kind ofweekly.
All right, what's next?
Ed Mathews (10:43):
yeah, honestly, I usually find that it's best case
12 months, sometimes 18 months,to stabilize building
Chris Lento (10:51):
oh, yeah, I agree, 12 months is you're doing great.
I think
Ed Mathews (10:53):
that's home run
Chris Lento (10:55):
because at the beginning, behind the tenant
basis, but for those first maybemonths, it's hard to get high
quality new tenants because theproperty has this certain feel
and it can be a culture too.
Hey, you don't need to pay forthree months here and then they
start sharing the informationand you're like, oh, how do I
change dynamics?
So yeah, 12 months, I agreewith you, is on the positive
side.
Ed Mathews (11:15):
Yeah, that's great.
So tell me, where are youtaking the business now?
So you're at 800, you've got acomplex under contract.
What's next?
Chris Lento (11:24):
We're looking to continue to grow.
2023 and 2024 were just slowyears, I think, for everybody,
and so we didn't grow.
I think one deal in those twoyears, so it was just really
tune up the deals.
You have handle some refis inturbulent markets, keep swimming
, check the 10-year treasurymore often than you think you
should have to.
Like multiple times a day.
(11:44):
Exactly.
Which is crazy, it's a 10-yeartreasury number.
So, yeah, we're back inacquisition mode, like we're
seeing a lot more deals come onthe market where our investors
have a more positive feel.
There's just definitely achange.
There's still some wait and seegoing on, but I think to some
degree, the lenders, a lot ofthese bridge loans are finally
coming due for real.
The lender's like, all right,yeah, this time we meet it.
Interest rates are coming down.
(12:06):
I feel like the sentiment atthe end of 24 was oh, 25, the
interest rates are just going tocome down.
Ed Mathews (12:11):
I'm curious where you think rates are.
Chris Lento (12:13):
So I think they're going to stick around where they
are now for a while.
I don't see anything pushingthem.
The Fed can lower theshort-term rates if inflation
doesn't go up and that would be,I think, good for construction
loans and for adjustable rateloans, but that's not really
tied to the long-term loanswhich most of the loans I like
to get are based on, and reallythe short terms are too high
(12:34):
relative to the long terms.
Anyway, I think they're goingto stick around and that prices
are going to have to adjust andI think you're going to inflate
the rents out of this.
It'll be a little time foreveryone's income to go up and
then okay, now the deals startmaking sense a little bit more.
Ed Mathews (12:48):
Right on.
So you're probably raising alittle more capital, right?
Oh yeah, you put it under a 30,40 year.
You put it under a 30, 40 year.
Chris Lento (12:55):
We used bridge debt on some heavy CapEx properties
in 2022.
When, frankly, if you weren'tusing bridge debt, I don't know
how you made a deal pencil.
We got out of one of those lastDecember and it worked out.
We're working on one right now,rolling into some permanent
financing, but right now, no,we're not looking at bridge debt
at all.
The rates are so high, interestrate caps are so high, but
(13:18):
we're raising.
No, we're not looking atBridget at all.
The rates are so high, theinterest rate caps are so high,
but we're raising.
Yeah, we're at like loan tovalue maybe 65, 62% on some
deals.
Yeah so we're raising a lot ofequity and we're doing more
preferred equity right, whicheither institutional partners or
family offices.
That'll get us up to 85% LTV,and then we raise limited
partner equity.
for the rest,
Ed Mathews (13:37):
yeah, nice, that's a smart way to do it.
It's so easy to get overleveraged in a market like this.
The fact I agree with you onthe interest rates.
Everybody was like survived to25 and then everything will be
okay and we'll get back into theforce.
And it's just historically,where the interest rates are
these right like right now.
Today, historically is rightdown the middle of where it has
been 50 years back.
Chris Lento (13:58):
And it's not that bad.
It just feels so painfulcompared to three years ago yeah
,
Ed Mathews (14:02):
Three years ago, 4% interest rates made all of us
look like geniuses.
But I think it's time toactually play where the normal,
historically, the big boys play.
And I have a mentor who told melook, if you can't make a deal,
pencil at six and a half 7%,that might be a you problem, not
a building problem or a marketproblem.
And if it was easy, everybodywould do it.
But the fact is that there'sother levers you can pull to get
(14:24):
creative, to be able to make adeal pencil and do it
responsibly and conservatively.
Chris Lento (14:30):
Yeah, no, I agree, and it's right now.
It's been changing so muchright In the last five years.
It's constant, like thefinancing and the debt
structures.
It's a constant churn.
You have to stay on top of itwith your lender.
We have standing lunches, likeat least once a month, where I'm
there to buy him a turkeysandwich and, all right, spill
it.
Tell me what's going on in theworld.
Okay, hey, why don't we getinto the final five, our
(14:50):
lightning round?
Ed Mathews (14:51):
I love to learn how leaders like you think and how
they approach their day and alsotheir businesses.
First and foremost, purposeright.
I think that at a certain point, when you reach and I think
you're probably beyond it, I'mguessing but where your personal
mortgages are paid, the kids'colleges are either on track or
(15:12):
locked away and ready for them,the cars are paid, you've done
all the responsible stuff, stuff, and now you're doing some of
the fun stuff, and nevertheless,you get out of bed on Monday
morning like a shot and you'refired up to go to work.
Right, for me, that's purpose.
Coming out of the tech world, Imet so many
multi-multi-millionaires and afew billionaires, and for them
(15:33):
there was a certain point whereit just stopped being about
money.
It was something else, and sothat's what I'm curious about is
, from your perspective, whatgets you out of bed on Monday
morning?
Chris Lento (15:41):
I think at that level, thinking about it, it's
constantly learning.
I like to constantly learn newthings, dig into the details,
whereas real estate isconstantly changing, the economy
is changing, the markets arechanging.
It's just always exciting tomeet new people, learn new
things, and I learn by doing asare changing.
It's just always exciting tomeet new people, learn new
things, and I learned by doingas we get into a deal.
We're going to 1031, oursyndication is deal.
(16:02):
Okay, how do we do that?
What do we need to meet tofigure that out?
Okay, who are the right people?
How do we learn this?
What's the best practices?
How can we be better than thenext guy on this?
How can we make us smoother?
How can we improve therelationship?
And everyone wins.
So I think, for me, reallyconstant learning environment is
what I
Ed Mathews (16:17):
Okay cool and we don't get to where you are, I
don't get to where I am, and thefolks that are listening
probably didn't get where theyare without mentorship and
really good coaches and peoplewho you know early on and even
to this day, take an interest inour success.
And so I'm curious about thementors and coaches you've had
in your life and teachers forthat matter, and what's the best
(16:38):
advice you ever got and whogave it to you?
Chris Lento (16:39):
So I've had a number of mentors, but I've also
done this coaching program thatwas really valuable, called
strategic coach, and two thingscame out of it that really stuck
with me, and one is this top ofthe who, not how.
I'm like somebody who wants toknow everything and do
everything.
You're an engineer, so let mefigure it out and just the idea
that everyone has a uniqueability and that, if you hate
doing something, one thing Ijust can't stand doing is
(17:02):
anything related to lenderre-imbursements.
Just find the whole processannoying, tedious and no one
knows what they're doing, right?
Some people don't mind that.
They'll kind of like that.
So find that person and havethem do it.
I have them do it.
I'll focus on the stuff I wantto do and that whole idea.
You don't need to know it andtrain someone.
What you need to do is findsomeone who knows it or it lines
up with what they like to learn, and then partner with them,
(17:25):
work with them, hire them.
Ed Mathews (17:27):
Yeah, I'm a numbers guy, but I don't like doing
books.
We hired a Cracker Jackcontroller and accounting person
and they are awesome.
Chris Lento (17:35):
It's great seeing someone who loves it.
Right, you're like oh thisperson loves this
Ed Mathews (17:37):
An accountant so I know the personality types.
It comes in handy.
I'm also interested in lessonslearned.
I fundamentally believe that welearn more from our mistakes
than we do our successes, andI'm curious about a professional
decision you'd love to haveback, and what did you do to
navigate it and figure it outand even recover, if that was
something that you had to do?
Chris Lento (17:57):
Yeah, we had a deal where we had to go hard in
order to win the deal and we hadconfidence that we could raise
the capital, but it wasn't byany means in the bank, and
that's part of this game, right,I want us to pull all the
different pieces together, andthey're not all there yet.
You have to be confident thatthis will come in and convey
(18:18):
that confidence to the othergroup.
And so I would say we got alittle bit over our head with
the amount of capital raise.
Luckily, it was last fall wherecapital was scarce.
We had the election.
That's when the 10 years startedgoing up, to people's kind of
surprise.
We weren't the only ones thatwere having this problem.
We were able to work with aseller to negotiate some
extensions, and then we wereable to pull in some press
equity to fill the gap.
(18:39):
But I would say the lesson washave an A, b and C plan and
actually think through it withyou and your partners ahead of
time.
Okay, if not this, then what'snext?
Because that scramble feelingwhen you have money on the line.
Ed Mathews (18:51):
I'm also interested in how leaders like you take in
information and how you grow.
One of the things you saidearlier is that you're always
looking to learn.
So are you a physical bookperson?
Are you an audible or somethingelse, and who are you paying
attention to these days?
Chris Lento (19:06):
I listen to a fair amount of podcasts, often
depending on which podcast on1.5x, because fair amount of
flow.
I do read a fair amount of realestate and business books, but
the same thing.
I feel like maybe one out of 10, you will want to read it.
It could be a 10 page pamphlet,Right?
So I just fly through them Likewhere's the yeah, where's the
thing?
(19:26):
Yeah.
This person has one thing or twothings that they're probably
have a great idea, and there'swhy I should believe them.
Ed Mathews (19:32):
I always skip the first three chapters.
It's a story and something else,but where's the nugget?
Chris Lento (19:37):
I do read a fair amount of books, I listen to
podcasts, I read the Wall StreetJournal real estate section
every day, if not every otherday, and then just talk to
people.
A lot of it's talking to people.
It's like we said earlierlenders see a lot of different
variety of people.
Your lawyers often have goodideas see different structures.
Ed Mathews (19:55):
It's amazing what they see because they have such
a broad view into the market,because their client base is
diverse, so they're seeing awhole bunch of stuff that never
hits your radar unless you askYep, all right.
Last one, how do you definesuccess in your world?
Chris Lento (20:10):
I think adding value and not just like from a
real estate perspective, helpingpeople learn, improving these
apartments that I'm buying, it'snice.
When you buy a heavy value adand it just looks terrible and
you're like, oh, I can, this isnot that hard Like landscaping,
paint roofs, like we can makethis place look pretty nice.
Just adding value across theboard is my answer to that.
Ed Mathews (20:30):
Chris, congratulations on all your
success.
I'm really excited for you andI can't wait to see you continue
to grow and maybe you'll let mebecome one of your investors
someday.
But how do you spend your time?
Chris Lento (20:41):
I have an eight-year-old daughter.
She's pretty active, so thewinter we do a lot of skiing, we
do a lot of bike riding.
We just got a dog that's aholding thing.
A lot of family stuff.
We go to the beach in thesummers, yeah.
Ed Mathews (20:53):
He's married to an amazing woman and they decided
not to have kids.
When he's exciting, he's got aboat and he restores cars, all
the cool stuff.
He's literally that cool unclethat everybody wants.
But he asked me once what doyou do for hobbies?
And I'm like you see thatlittle girl over there and the
taller one over there.
Those are my hobbies RightSwimming.
I do dance, I do softball, I dosoccer, I do beach and whatever
(21:16):
else they want to do.
Chris Lento (21:17):
And we do a fair amount of traveling too.
Yeah,
Ed Mathews (21:20):
best thing ever.
Chris Lento (21:20):
We like that.
Ed Mathews (21:25):
I just have a child, that is, and especially
daughters.
I'm partial.
I'm a girl dad, so I'm like you, hey Chris.
So if folks want to learn moreabout EM Capital or want to get
to know you, what's the best wayto get in touch?
Chris Lento (21:32):
You can check me out on my website at
emcapitalgroup.
com, and then I'm very active onLinkedIn.
I'll reach out to you onLinkedIn and we can set up a
call.
Ed Mathews (21:40):
Awesome.
Chris Lento, thank you so muchfor your time today.
It's really good to see you andcontinue.
Good fortune.
Chris Lento (21:45):
Great questions, good conversation.
Thanks
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