December 11, 2024 • 35 mins
Click here to view the episode transcript
ABOUT CHRIS LENTO
Chris Lento is the Founder and Managing Member of EM Capital. He has a background in Mechanical Engineering from Carnegie Mellon and professional development training at Boston University and MIT. Chris has over twenty years of experience in multifamily ownership, management, and investing. In addition to his academic achievements, Chris serves as a Board Member for Bay Cove. His passion is a testament to his dedication to building a better quality of life, which carries over into his professional commitment to EM Capital and its investors.
THIS TOPIC IN A NUTSHELL:
Chris’s journey to real estate
From being an Aerospace Engineer to an Investor
First few investments before going full-time
Why choose multifamily compared to other asset classes?
What skills have you learned as an aerospace engineer that you applied to real estate?
How do you choose which market to target?
Financial metrics that you are looking for in a deal
Knowing your investor's appetite
Using your network to expand to new markets
About the 67-unit deal in Kentucky
Challenges and lessons learned from this deal
Property Management and Value-Add Plan
Connect with Chris
KEY QUOTE:
On Dealing with Property Managers:
“I learned that once you feel something's not right here, something's probably not right. You can tell by how the property is performing, and how things are being handled.”
SUMMARY OF BUSINESS:
EM Capital is a trusted real estate investment firm located in Boston, MA, led by founder Chris Lento. We cater to accredited investors seeking to diversify their portfolio through multifamily real estate investments. We focus on providing both cash flow and asset appreciation, ensuring our investors benefit from balanced a investment strategy.
ABOUT THE WESTSIDE INVESTORS NETWORK
The Westside Investors Network is your community for investing knowledge for growth. For real estate professionals by real estate professionals. This show is focused on the next step in your career... investing, for those starting with nothing to multifamily syndication.
The Westside Investors Network strives to bring knowledge and education to real estate professionals that is seeking to gain more freedom in their life. The host AJ and Chris Shepard, are committed to sharing the wealth of knowledge that they have gained throughout the years to allow others the opportunity to learn and grow in their investing. They own Uptown Properties, a successful Property Management, and Brokerage Company. If you are interested in Property Management in the Portland Metro or Bend Metro Areas, please visit www.uptownpm.com. If you are interested in investing in multifamily syndication, please visit www.uptownsyndication.com.
#RealEstateInvesting #RealEstate #AparmentInvesting #AssetManagement #MultifamilyInvestment #CommercialRealEstate #CashFlow #MultifamilySyndication #InvestmentReturns #NewMarket #TargetMarket #DistributedPortfolio #AssetClasses #EmergingMarkets #TertiaryMarket #ValueAddPlan #StreamlinedAssetManagement #CapEx #AerospaceEngineer #CapitalExpenditures #CapitalImprovements #EconomiesOfScale #InvestorsApettite #PropertyManagement #PropertyManagers #LatestPodcastE
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Episode Transcript
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Intro speaker (00:03):
Welcome to the Westside Investors Network. Win,
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(00:24):
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Trent Werner (00:40):
action. Welcome back to another episode of the
Deal Deep Dive segment on theWestside Investors Network
podcast. I'm your host, TrentWerner. In this segment, our
featured guests will share theirunique stories on a specific
deal they've invested in. Wewill dive deep into finding the
deal, financing the deal,writing an offer, and the due
diligence.
Do us a solid and smash thatsubscribe button, leave us a
(01:02):
rating, and share this episode.And now, let's dive deep.
Welcome back to the WestsideInvestors Network podcast. I'm
your host, Trent Werner. Ontoday's deal deep dive episode,
we're joined by Chris Lento ofEM Capital.
Chris is the founder andmanaging partner of EM Capital.
We're gonna hear about hisaerospace engineering background
(01:23):
and his work in differentdefense contracts and all the
cool stuff that comes withaerospace engineering. And we're
gonna hear about his personalportfolio, how he translated
that into his own company,syndication company, EM Capital.
And then we're gonna cover a 67unit deal in Kentucky that has
plenty of hair on it and 5property managers in 5 years.
(01:46):
And we're gonna hear how Chrishandled that and when he knew it
was time to make the change ofproperty managers.
Now let's welcome Chris Lento.All right. Chris Lento joining
the Westside Investors Networkpodcast today. Chris, thanks for
taking the time to chat with us.
Chris Lento (02:02):
Yeah, I'm happy to be here, Trent. Thanks.
Trent Werner (02:04):
Well, today, Chris and I are gonna chat about his
career and then a deal inKentucky, which we'll get into
in a little bit. Chris, you havea a journey that a lot of people
have where you have, you know,you had a previous life, a
previous career before realestate, albeit kind of tied into
real estate. What was yourcareer before, you know,
investing in a bunch ofdifferent real estate deals?
Chris Lento (02:26):
Yeah. So prior to starting my own business, EM
Capital, I was a aerospaceengineer for 17 years, working
on primarily defense contracts.So mainly, actually guidance and
navigation systems for submarinelaunched nuclear missiles was
really the primary thing Iworked on for years. Yeah. Very
different than real estate.
(02:47):
However, right out of college, Iquickly got interested kind of
in the real estate market.Boston. Boston real estate has
always been really hot, soeveryone's sort of aware of it.
And, you know, I very quicklystarted looking at like, oh, you
know, what is this who owns thisproperty I'm renting right now?
And how how did that work?
And how did he buy it? So within2 years after graduating, I I
(03:09):
bought a a 3 unit in the Bostonarea and sort of grew my
portfolio on the side withreally no intention of ever
going full time. It was justsort of a side, like, a side
activity.
Trent Werner (03:22):
Well and a lot of people find themselves doing
that. Right? You wanna exposeyourself, invest in real estate,
and then all of a sudden youkinda become hooked and end up
wanting to do it full time. ButRight. Not everyone is an
aerospace engineer, going intoreal estate.
A lot of people are civilengineers or or have other jobs.
I feel like aerospaceengineering is probably pretty
(03:42):
cool. Am I wrong?
Chris Lento (03:43):
I mean, yeah, there's ups and downs. It's like
any, you know, kind ofengineering job. There's
certainly I got to do a lot ofcool kind of defense oriented
stuff. I got to work with F15Fighter Pilots on testing out
some of our systems and I got togo into a submarine once. So
there's cool stuff like that.
But then there's a lot ofbureaucracy. The programs are
big. They're very slow. Theydon't change very fast. And we
(04:07):
had, you know, 10 years ago, wehad plans that went out to 20 80
because that's, like, the wholelife of certain submarines.
So they had to have yeah. Imean, it was just, like, 20 80?
Come on. I can't you know? Itwas just it it was just
ridiculous.
So so there's pluses andminuses. Like, the size of the
programs just make it so youit's hard to make an impact, I
(04:30):
guess.
Trent Werner (04:31):
And and at what point did you decide to go full
time in real estate and start EMCapital?
Chris Lento (04:38):
So I moved to DC in 2012 to be sort of a customer
liaison with the Navy. So Istill worked for my company, but
I was like a technical resourcewithin the government. And I got
to see the procurement side ofit, which was really interesting
to sort of see, you know, whatour customer, the Navy, is
looking for out of our contractsand what levers they have to
(05:00):
pull and who they answer to. Andit gave me a good perspective
of, like, the whole kind ofdefense industry. And after
coming back from that, I reallycouldn't see a position I wanted
to be at in, say, 5 or 10 years.
Nothing, you know, I just had mydaughter and everything involved
kind of West Coast travel and alot of, you know, as you climb
(05:21):
the ladder, it's just a lot ofin person meetings with the
major defense contractors and alot of them are very, not
political, but they're not veryproductive. And it just was not
a career trajectory that I wasexcited about anymore. And at
that point, I really said,alright, what's my plan to
transition? And I'd already beenramping up my portfolio at that
point. So I said, alright.
(05:42):
You know, in 2 years, I wanna bein a position where I can leave
this job and and go full time.
Trent Werner (05:48):
And how many units I think
Chris Lento (05:49):
I guess short answer is, like, I got to a
point in my career where Iwasn't excited anymore about the
next steps.
Trent Werner (05:55):
Which is a natural progression for a lot of people.
How many units did you have inyour portfolio when you decided
to, you know, make that leap?
Chris Lento (06:02):
I had 30 units. Okay. 24 of them in Florida at,
like, you know, kind of lowercost units, like a 100 k unit.
But the other 6 actually, theother 12 in the Boston area. So
those were more expensive units.
They were like in the 400 kunit.
Trent Werner (06:21):
Okay. But I mean, you weren't just holding on to
that 3 the triplex and, youknow, making the leap with not a
whole lot of experience. You hadplenty of experience buying real
estate before starting EMCapital and, you know, managing
it, operating and all that allthat jazz. Yes. Okay.
And what made you wanna get intothe multifamily space as opposed
(06:43):
to different asset classes,commercial, storage units,
whatever you wanna whatever theother asset classes are?
Chris Lento (06:51):
Yeah. No. Good question. I think a couple of
reasons. 1, just familiarfamiliarity.
Like everybody has rented likelyin their life. You know? You you
graduate college or you graduatehigh school, you can get a place
to live, you rent. So one, it'sa familiar asset class. It's
easy to understand.
It's kind of easy to see thedemand. You know, there's
(07:12):
population growth. You're gonnaneed more housing. And everyone
needs it. So I I think for 1,just as a start, familiarity.
And then, you know, as I've beenin it for a while, I've looked
at other asset classes and I'minterested in, you know, some
flex space industrial and someretail. But multifamily
specifically in the housingconstrained environment right
now is just a solid bet. Youknow, we're gonna we need more
(07:35):
housing. We're not buildingenough housing. No one's solving
that problem anytime soon.
So that's, you know, that'swhere I think the focus is for
us, at least for the next 5years.
Trent Werner (07:45):
Right. And how did your aerospace engineer
background, what skills or what,I guess, teachings that you
learned doing that havetransferred into EM Capital and
your real estate business?
Chris Lento (07:58):
I would say project management, subcontractor
management, just generalorganization skills. I mean, not
a lot of specific, you know,engineering knowledge base, but
and I've always been very kindof mechanically inclined as
well. On my early units, I did alot of the construction on them,
or I managed directly a lot ofthe construction. And some of
(08:19):
them were pretty heavyconstruction projects. So just
knowing, you know, the detailsof the properties and and I
think yeah.
And then general projectmanagement, you know, scheduled
scheduled budget. You know, Iwas a product program manager
for pretty large large programsfor a decade.
Trent Werner (08:35):
Right. And I know you've mentioned, so your
personal portfolio was inFlorida and Boston. Looking at
EM Capital's Holdings, they'rekinda sprinkled all over the the
eastern side of the UnitedStates. How do you guys pick
markets to invest in or target?
Chris Lento (08:52):
Yeah. So pretty early on, I got I was introduced
to the concept that, you know,not every market is the same.
Right? I mean, Boston's a decentmarket. It's a low cash flow
market, kind of high spec marketwith low cap rates and that was
the world for a while.
And then I was introduced to theidea that, okay, there's other
markets that maybe have lessappreciation potential but
(09:13):
higher cash flow. And thenthere's like these Goldilocks
markets that have decent cashflow and will have good
appreciation. And I really likethat idea. Just trying to find
those markets. So to test itout, I 1031 exchanged a property
I had in Boston to a city aboutan hour away, Salem,
Massachusetts, which had kind ofhigher cap rates, but a lot of
(09:37):
appreciation potential.
And when, you know, 3rd partyproperty management and tried to
treat it like it was out ofstate. So I was like, alright.
I'm gonna go to this propertyonce a quarter. When there's an
emergency, I'm not gonna dealwith it. I'm gonna call the PM
and, you know, go through thethe steps.
And that was a good learningexperience for me. And it kinda
tested my model out. So then Itook that property in 1031
(09:58):
exchange to Florida, toTallahassee and then it really
sort of no. I did only go downthere probably once or twice a
year. So after that, I was I wasconvinced, okay.
I can remotely manage theseproperties and I can target
markets. So to answer yourquestion, then I try to figure
out, well, what markets do Iwant to target and what are the
criteria? So what are generallya major market? So 200,000
(10:20):
people plus in population justbecause, that generally ensures
a pretty good economic base.It's not just like one factory
or one major employer.
And then beyond that, I wantedpretty consistent population
growth for the past 3 to 5 yearswith a solid indication that
(10:41):
it's gonna continue, whichgenerally means that jobs are
moving there. And the southeastis just at least for the East
Coast. The other thing I wannastay east of the Mississippi
because because I want to beable to get to and back from my
properties in a day if I haveto. And there's enough
population on the East Coastthat I didn't need to look at
Phoenix or Texas. Good markets,just harder to get to.
(11:02):
And there's plenty ofopportunities, on this coast.
Trent Werner (11:05):
So you've you've talked about the, I guess, the
the job data and everything thatyou talk that you target or look
for. Are there any financialmetrics that you're looking for
in terms of cap rate, cash oncash return, any of those?
Chris Lento (11:20):
Yeah. So, you know, once we have the major markets,
we start and then we try toconcentrate. Right? Like, I'm
not looking at every market thatmeets that criteria. I try to
pick 3 or 4 to to get to knowbetter because you can just
underwrite them faster.
You're like, oh, the northeastof that market's bad. A lot of
crime. Just not even worth it.Don't spend the hour digging
into it. So then, you know, oncea property meets the location
(11:42):
criteria, it's in a neighborhoodwith an area median income that
meets our threshold for thatcity that can support the rents
we want.
We look for 1985, build or ornewer, you know, based on recent
experience and just ease ofmanagement. And then once you
start underwriting, we generallytry to underwrite to what we
(12:03):
think our investors appetitesare. So for example, typically
we try to get to a price wherewe can give our investors a 7%
preferred return with a, say, 13to 20% annualized rate of return
depending on the market. So whenthe market's hot, you know,
maybe it's it's higher. And whenthe market's tight, maybe it's
in the lower end.
(12:23):
And we're constantly kind oftalking to our investors. Like,
hey, here's what the market'sdoing. You know, the returns are
a little bit lower right now dueto interest rates. Are you still
interested? And, you know, basedon that, we update our our
underwriting criteria.
So it's really yeah. The caprate matters. And but at the end
of the day, it's what do wethink our business plan can can
(12:44):
produce from an investor returnperspective?
Trent Werner (12:48):
Okay. And then do you have a certain number of
units that you are targeting?
Chris Lento (12:54):
Yes. But I generally try to look at it from
an acquisition price. Becausedifferent markets will have
different, you know, cost perunits.
Trent Werner (13:01):
Yep.
Chris Lento (13:01):
But we want to look for units that are for
properties that are 12,000,000to 35,000,000 in acquisition
price. So, you know, reallyexpensive market that might be
50 units. But another marketthat might be, you know, 200.
So, but in general, we wanna beover the number of units that's
can support a full time on-siteproperty manager, which is, I
(13:22):
would say, 80. It's kind of theminimum for that.
Trent Werner (13:25):
I'm glad I'm glad you brought that up. Last
conversation I had, we weretalking about the same exact
thing, and I asked him what hison-site number is, and he said
75 to a 100 is is kind of thethe ballpark. So Right. You
confirmed that with us.
Chris Lento (13:39):
I have a 60 unit that we have an on-site leasing
agent and a part time handyman.
Intro speaker (13:43):
Okay.
Chris Lento (13:43):
It just makes it more complicated.
Trent Werner (13:45):
Yeah. So my my follow-up question to the, you
know, you analyzing and and andfinding different markets to
invest in. Once you find a goodmarket, are you gonna continue
looking there, or are you alwaystrying to broaden your your net
and look at new marketsconstantly?
Chris Lento (14:01):
Try to look at new markets every 6 months. So try
to, like, you know, set aside aday to say, alright. Do the
markets we're in still work forus? Do we want to expand to
another market? There's hugeadvantages to just knowing a
market and having a reliableproperty manager in that market,
reliable subcontractors,landscapers you can go to and
you know that they're going toget reasonable prices.
(14:23):
And they know that you havemultiple properties in the area,
so they're going to kind of giveyou volume prices rather than
one off prices. So there are alot of benefits to having the
economies of scale. But at thesame time, if a market has
peaked or, you know, is isshowing signs that it's not it's
no longer what you what I waslooking for in the 1st place,
you wanna be able to to pivot.So about every 6 months, we sort
(14:45):
of sit down with a team and say,alright. Let's look at the
markets we have.
Any new markets come up. There'sa Milken report every year
called the best cities report. Ialways read that. Interesting to
kinda see what they think theemerging markets are. There's a
number of different, you know,reports coming out.
Best cities reports, IRRinsights is a is a good annual
(15:05):
report that I like to read. So,yes, we're constantly
evaluating, but at the sametime, I wanna keep a a small
enough group that we canunderstand the markets. I've met
people that look like all overthe US, and I just don't know
how you can do that without ahuge team.
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uptown syndication.com today tolearn more. Exactly.
And the reason I ask that isbecause I mean, personal
experience and otherconversations I've had tells me
that getting to new markets canbe different in terms of
building relationships withproperty managers, contractors,
brokers. You know, if you'reonly looking at on market deals,
(16:35):
you know, you might not youmight not get the best deals. So
how do you and EM Capital goabout building those
relationships when you areexpanding to a new market?
Chris Lento (16:44):
Yeah. Good question. So first we try to
leverage the relationships wehave in other markets. So a lot
of times, you know, thesebrokers are regional. So you
might say, hey.
I'm starting to look in, I don'tknow, Spartanburg, South
Carolina. Do you guys have anofficer? Is there anyone in your
office that that does coversthat area? So that'd be 1. A lot
of times, property managers areregional or might have different
(17:08):
different, offices around theregion or might or might know
other property managers thatthey are friendly with and, you
know, know do a good job.
And then they can tell you who'sactive brokers in the area.
Mhmm. Insurance companies. Sobasically, use the network I
have of lawyers, insurancecompanies, brokers, property
managers to get recommendationsin the new markets. And then
(17:30):
start looking, you know, sign upfor a bunch of broker websites
and things like that to gettheir deals.
And then see who's transacting.So who who are the most active
players in the market? Yeah. Andthen just I like to target 5 and
just start reaching out to them,kinda introduce myself,
leveraging my prior trackrecord, and establishing
relationship and letting themknow, you know, we'll underwrite
(17:52):
deals quickly. We'll give youfeedback on why we don't like
the deals, which is, you know,the majority of them.
Right? Like, you get a 100deals, you you know, maybe 90 of
them look interesting. I mean,maybe 10 of them look
interesting. And and then startdeveloping that relationship and
and giving them, you know, aclear buy box. You know, you
know, this is what we're lookingfor.
This is not what we're lookingfor. So that's sort of the
(18:13):
process and then build fromthere.
Trent Werner (18:15):
I really I really like that strategy because you
do focus east of theMississippi. You are able to
leverage those regionalrelationships versus someone
that is looking at every singlemarket across the country. At
that. I mean, that's a greatidea and a great strategy that
you just shared.
Chris Lento (18:31):
Thanks.
Trent Werner (18:33):
So now let's let's move to EM Capital. So you said
you started in 2012, 2014?
Chris Lento (18:39):
2017.
Trent Werner (18:40):
17. Okay. Where is EM Capital now in terms of
assets under management, numberof assets held, units? Do you
have any fun facts you can shareabout it?
Chris Lento (18:49):
Sure. We have 600 units under management across 8
assets, and they're just over a100,000,000 in value. So that's
where we are now. We did60,000,000 in acquisitions in
2022, which was by far thebiggest year. 2023 was
completely dead.
I think we did maybe like5,000,000, did some smaller
(19:10):
deals. And then 24, we'reselling out an asset right now
and we're under contract for ourlargest deal to date. So
hopefully we'll close out thisyear, if not early next year.
Trent Werner (19:21):
Very nice. And speaking of some of the EM
Capital assets, today, we'regonna talk about a 67 unit deal
in Kentucky. What can you tellus about this 67 unit deal in
Kentucky?
Chris Lento (19:33):
Sure. So this is, the first deal I syndicated.
It's a 67 unit class c deal in atertiary market, south of
Louisville. So I would say thisis a big lesson learner. I came
in.
You know, I'd recently gone outmy own, was itching to get a
deal done, had built up aninvestor network that knew what
I was doing and was, you know,interested. And I was joined,
(19:57):
through a real estate investinggroup that I was involved with
with with 2 women who had a dealunder contract and were having
trouble raising. So quicklyevaluated it, seemed like a
great basis. You know, I was alittle iffy in the market. I
didn't it did not fit thatcriteria.
It's not a 200,000 person marketwith, you know, great indicators
(20:17):
of job growth and populationgrowth, but It wasn't a bad
market, but it was certainlytertiary. You know, we met. I
liked them. Thought we couldwork together, and we bought it.
So that was 5 years ago.
Almost 5 years ago this summer.And it's been a roller coaster.
So I guess the one problem hasbeen consistently 67 units in a
(20:39):
tertiary market is very hard tomanage. Well, so in a lot of
these tertiary markets, you havethe apartment buildings are are
locally owned and locallymanaged. There's not a lot of
quality third party propertymanagement just because the
population is not there or thethe number of buildings are not
there to support them.
So you have a lot of condomanagers and you have a lot of
(21:00):
people that can manage, like, 20unit buildings sort of with an
off-site model where there's noone kinda sitting in on the
property. And then at 67 units,it's right on the edge of being
able and it's a lower rent unit.Like, when we first bought it, 2
bedrooms were 625. So it'sinexpensive. Yeah.
(21:21):
You know, and we I think we gotit for 28 k a door. So we had a
very low basis. Yeah. But it'sjust not a lot of absolute
dollars to pay, you know, a fulltime handyman, a full time
leasing agent. So we wentthrough 5 property managers in 5
years.
And it's yeah. It was a journeyfrom kind of bigger property
(21:43):
managers that had minimummonthly payments that were just
killing us to we hired, just wtwo employees. We start you
know, we hired a full timeproperty manager and a full time
handyman that effectively workedfor me. And then I hired, kind
of a back office person from oneof my other properties to work
at night and sort of make surethose 2 were enter entering work
(22:06):
orders correctly and reconcilingthe books and doing all the
stuff that the back office of aproperty management company does
and I don't know how to do nordo I really want to know how to
do it. So basically, I cobbledtogether a little property
management company quickly torun it for a year and a half.
That was the best it performed.But then, you know, he got
(22:28):
another the handyman got anotherjob. She got divorced and moved.
And then we, you know, wecouldn't find anyone else. Went
to another local propertymanagement company.
They did a terrible job. So it'sit's been just a challenge. We
have a great property managementcompany now, but it really took
a long time to get there. Andnow we're finally selling. We're
(22:48):
closing, next Thursday,hopefully.
Knock on wood.
Trent Werner (22:52):
Congrats.
Chris Lento (22:53):
Yeah. And it's but it's been a journey. I mean,
I've I've certainly learned alot. I don't have a huge stake
in it from a GP perspective dueto my role coming in, but I've
put a lot of effort into it, AndI'm looking forward to closing
the book on it.
Trent Werner (23:07):
It turned the page on this one.
Chris Lento (23:08):
Right. And the returns are gonna be good for
the investors. So that's, youknow, that's huge. And that's
been my focus for this propertyentire time. Like, I got my
early investors into it.
I had to make sure it worked.
Trent Werner (23:18):
Well yeah. And and no wonder you spend so much time
on it because the first one isalways one that you kinda hold a
little bit more near and dear toyour heart, especially for the
investors.
Chris Lento (23:27):
Right. Exactly.
Trent Werner (23:29):
So, I mean, I think a lot of people have heard
that bad property managementcompanies can tank a deal pretty
quickly if you don't do anythingabout it. It sounds like you did
plenty to to handle those thoseobstacles that were presented to
you, churning and burningthrough different third party
management companies. You saidyou went through 5 management
(23:50):
companies in 5 years. At whatpoint do you, especially for
this property that we're talkingabout, make that call to say,
hey, you're done. We gotta gofind someone else.
What were the signs that jumpedout at you that made you make
those decisions?
Chris Lento (24:05):
I mean, usually, it starts showing up in the obvious
metrics like occupancy,collections, things like that.
You know, it's clear thatthey're not paying attention or
they're not, you know, fullyfocused on the property. We have
weekly meetings weekly Zoommeetings with all our property
managers. Them not beingprepared for those meetings, not
(24:26):
really being able to answerquestions. We always get
property manager access to theback end of the whatever system
we're using so that I can justdig.
So I'll spend, you know, half anhour a week per property just
sort of digging in, clickinginto an invoice. You know, what
is this $1200 plumbing invoice?Like, oh, it's it's cleaning,
like, the kitchen sink? That'sweird. Why is it $1200?
(24:49):
You know, just just sort of,like, digging in. And then on
the meeting, not to be kind of agotcha, but if if they're not,
they don't seem like they're onthe ball, I'll just ask them
thing things like that to seekinda what their answers are.
And, you know, what I'm reallydoing is confirming what you
already know. Because I have afeeling, What I've learned is
(25:10):
that, you know, once you havethat feeling like something's
not right here, something'sprobably not right. Yeah.
And you just can kinda tell bythe way the property is going,
things that aren't beinghandled. We have my assistant
calls every property, once aquarter and acts like a,
Trent Werner (25:26):
like a
Chris Lento (25:27):
prospective resident. Yeah. Exactly. And
then gives us a report. And, youknow, we we have different
softwares we're adding to ourbigger properties where we can
listen to the phone calls thatthat they do with the residents.
Yeah. We have a whole list ofthem on the on the website. You
you just kinda click through.Oh, this is a 3 minute call.
What what do they say?
How are they how are theypresenting? And let's start
(25:47):
looking at things like that.But, yeah, I mean, kinda gut
feel based on a lot of lot ofdifferent metrics. And then, you
know, sooner the better. Like,the minute you start feeling
that, if it's a bigger company,go right to the regional
management or the regional VPand say, hey.
What's going on? I think we havea problem. And, you know, I've
had a lot of properties wherewe've changed our on-site. So,
(26:09):
you know, we kept the samecompany, just switched on-site
managers. And every time I'vegone to their upper management
and just said, hey.
You know, there's somethinggoing on. I'm not getting the
response I expect expected orthere seems to be some issues.
They're already aware of it.Yeah. There is.
We've been we've been trying towork in the background before we
told you, but we think thatthey're not a a good fit. And
(26:31):
we're gonna you know, we've beenlooking. Yeah. Which I don't
love. I'd rather be transparentupfront.
Ad speaker (26:37):
You know, if they had an if they had an indication
Chris Lento (26:39):
of that a month ago, I would have liked to known
that. But
Trent Werner (26:41):
Yeah. I I really I mean, I've never heard anyone
else say from on a ownershipstandpoint of getting the PM
access to whatever softwarethose companies are using. But I
mean, we have in housemanagement, so I basically have
that too. And it's so nice beingable to just go sift through,
dive into things without havingto wait for them to give it to
(27:04):
you.
Chris Lento (27:05):
So that's
Trent Werner (27:05):
a really good idea that I think a lot of people
should maybe borrow.
Chris Lento (27:09):
Yeah. And I've we've never had a no. Sometimes
we kinda like go back and forthwith what permissions they give
us. Yeah. You know, like oneAppFolio PM company, I can see
the invoices and I can see, say,like, the resident applications
and another one I can't.
Trent Werner (27:25):
Yeah.
Chris Lento (27:25):
And but, typically, we can work through it.
Trent Werner (27:28):
Yeah. No. That's that's a that's a really good
idea. So, Chris, going into thisdeal, I know you said you were
kinda connected to some other GPpartners on on this deal. What
was the, I guess, business planfor the 60, 70 units here in
Kentucky that we're talkingabout?
Was it value add? Was it, youknow, just a buy and hold? What
(27:50):
was the business plan going intothis?
Chris Lento (27:53):
So going in, it was really a deferred maintenance,
improved management, andstabilization plan. So the
property had been owned by anolder couple for 15 years. The
husband had died. The wife wasreally just barely kind of
holding on. So it had becomekind of a people weren't paying
rent and there's a lot of kindof weird stuff going on.
(28:16):
So go in, kind of clean it up.We had a CapEx budget to to do
about 5,000 per unit, which isnot much now. But in 20 2019
when we bought it, that thatwasn't a full rental, but that
was, like, you know, clean it upand do a decent turn was the
plan. But certainly not like newcabinets, countertops, anything
(28:39):
like that. We also had some, wehad a green loan on it.
So there's a number of greeninitiatives that we had to do
that needed to be sort ofcleaned up after we got a hold
of it. We somehow had greenmoney to create energy efficient
or buy energy efficient hotwater heaters, but the property
was all electric hot waterheaters, so they don't exist. So
(29:02):
just some things like that wherewe had to sort of move the funds
around and and iron it out. Butit effectively ended up being a
stabilization. So, you know,making the units nice, being
professional, increasing themarket rent, and just running it
more as a business and less sortof as a as a hobby, I guess.
Trent Werner (29:21):
Right. Okay. And then so 67 units, you said 5,000
a door. So kind of a light facelift from what it sounds like
per unit. What is your targetoccupancy, and were you planning
on spending $5,000 per unit andand updating every single unit,
or did you have a percentage ofthe units that you wanted to
(29:42):
touch before turning it to thenext buyer?
Chris Lento (29:45):
Yeah. So, I mean, the target occupancy was was 95
plus. It's a market that thatdoesn't have a lot of housing
and certainly not a lot ofrenovated housing. So we quickly
found out that if we justpainted things and cleaned them
up and, you know, put newcarpets in, people were banging
down the doors at at marketrates or even a little above. So
so that was good.
Now how qualified they were,even if they were qualified,
(30:09):
whether they were gonna continuepaying after month 7 when their
car broke down. That wasprobably worse than we expected,
but the demand was certainlyhigher than we expected. And
then, no, we didn't plan to doevery unit. It was a little bit
more, you know, as units becameavailable, we'd assess them.
Some of the classics were kindof acceptable, and we would just
re rent them as it is, paint thewalls, you know, light turn.
(30:32):
And then some of the units hadhad kind of some some
significant problems. And theproperty also had some
foundation issues. It hasprobably, like, 4 foot crawl
spaces under 3 of the buildings,and there was a lot of joist rot
that we were aware of. So we gota good deal because we knew
there was a pretty significantproblem that that we had to
address right away. And that waspart of our kind of initial
(30:54):
capex plan.
Trent Werner (30:55):
And you said you acquired it at 28 k a door?
Chris Lento (30:58):
Yeah. I think it was 28 k a door.
Trent Werner (31:00):
And you're closing next week at?
Chris Lento (31:03):
Closing next week at 61. Wow. Yeah.
Trent Werner (31:08):
Woah. Okay.
Chris Lento (31:10):
But there's a lot of capex put in there along the
way and a lot of down monthswith those those property trans
property manager transitions hadsome pretty big dips. Because if
you have a a subpar propertymanager and they get wind that
you're moving on, it gets worsecertainly before it gets better.
So then you find out all theproblems from the prior property
(31:33):
manager when the new one comesin. So, yeah, that sounds like a
great sounds like a home run,but it's really it's like a
solid double maybe.
Trent Werner (31:42):
Yeah. You can't complain about an extra base
hit.
Chris Lento (31:45):
Yeah. Right. Exactly.
Trent Werner (31:46):
Yeah. I so the the other question I have for you is
you you got a taste of the inhouse management. Right? You put
together your management teamfor a trial run. Do you have in
house management now on any ofyour other assets?
Chris Lento (32:02):
We don't. And that's, I think, one of the
downsides of having adistributed portfolio now where
you're located. Mhmm. And I'vecertainly, you know, modeled out
and thought hard about, do Iwant to switch to an on-site
model? You know, I'm definitelylike an asset managed focused
company.
Like, I like the projectmanagement. I would, you know,
(32:24):
not be opposed to owning aproperty management company or
self managing. But it's it'strying to figure out how to do
that on a distributed basis. Andwhether it makes sense. Right?
I mean, your back office is yourback office. But having those
boots on the ground in all theselocations, is it worth it? Do we
have the economies of scale inany of those markets to really
know the market? And that'swhere, you know, a good third
(32:44):
party manager can really help. Imean, they know the competition.
They know the market. They knowthe vendors. So, not right now,
but that's something we'redefinitely considering at some
point.
Trent Werner (32:55):
And I'd imagine it would probably make more sense,
like you said, when you have theeconomies of scale in specific
markets. You know, if you have a100 doors in 1 market or, you
know, 200 doors in a marketwhere you can make it make sense
across those different assets,that makes perfect sense. Well,
Chris, we talked about the deal.We talked about EM Capital. We
(33:15):
talked about you being anaerospace engineer.
Is there anything else youwanted to share about yourself,
your business, or this dealtoday?
Chris Lento (33:23):
Well, yeah. But I guess one thing that I've found
really exciting since COVID atleast is that the pace of
technology in the in the realestate market has has really
increased.
Trent Werner (33:33):
Mhmm.
Chris Lento (33:33):
And coming from sort of a technology background,
it's exciting to see all thesedifferent third party players
coming in and, you know,optimizing marketing. And, you
know, we'll see where AI kind offits in for real in in this
game. You know, it's kind ofnibble around the edges here. So
I think it's very exciting. AndI think multifamily kind of the
business model is changingpretty fast.
(33:55):
And I think that's gonna be veryinteresting to see where it
goes. You know, the capitalmarkets are changing. A lot more
people are starting to invest inthese kind of alternative
assets. There's a lot ofdifferent vehicles to let people
invest, in a more liquid basis.So, you know, a lot of changes,
and I think it's generally forthe better.
So I'm excited to see wherethings go.
Trent Werner (34:16):
Absolutely. And, Chris, where could people
connect with you or hear morefrom you?
Chris Lento (34:20):
Yeah. The best way to connect with me is is via
LinkedIn. So Chris Lento or EMCapital. And then, my website is
emcapitalgroup.com. And we'll
Trent Werner (34:29):
make sure all those are linked in the show
notes. Chris, thank you so muchfor joining us today and sharing
about your background and your67 units with a little bit of
ebbs and flows included in inthat deal cycle. And congrats on
closing on it here in the nextweek.
Chris Lento (34:44):
Yeah. We'll see, hopefully, next Thursday.
Trent Werner (34:46):
Fingers crossed. Thanks, Chris.
Chris Lento (34:47):
Yep. Alright. Thanks a lot. I appreciate it.
Intro speaker (34:49):
Thank you for listening to this episode of the
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(35:09):
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investments, or take any other
Trent Werner (00:40):
action. Welcome back to another episode of the
Deal Deep Dive segment on theWestside Investors Network
podcast. I'm your host, TrentWerner. In this segment, our
featured guests will share theirunique stories on a specific
deal they've invested in. Wewill dive deep into finding the
deal, financing the deal,writing an offer, and the due
diligence.
Do us a solid and smash thatsubscribe button, leave us a
(01:02):
rating, and share this episode.And now, let's dive deep.
Welcome back to the WestsideInvestors Network podcast. I'm
your host, Trent Werner. Ontoday's deal deep dive episode,
we're joined by Chris Lento ofEM Capital.
Chris is the founder andmanaging partner of EM Capital.
We're gonna hear about hisaerospace engineering background
(01:23):
and his work in differentdefense contracts and all the
cool stuff that comes withaerospace engineering. And we're
gonna hear about his personalportfolio, how he translated
that into his own company,syndication company, EM Capital.
And then we're gonna cover a 67unit deal in Kentucky that has
plenty of hair on it and 5property managers in 5 years.
(01:46):
And we're gonna hear how Chrishandled that and when he knew it
was time to make the change ofproperty managers.
Now let's welcome Chris Lento.All right. Chris Lento joining
the Westside Investors Networkpodcast today. Chris, thanks for
taking the time to chat with us.
Chris Lento (02:02):
Yeah, I'm happy to be here, Trent. Thanks.
Trent Werner (02:04):
Well, today, Chris and I are gonna chat about his
career and then a deal inKentucky, which we'll get into
in a little bit. Chris, you havea a journey that a lot of people
have where you have, you know,you had a previous life, a
previous career before realestate, albeit kind of tied into
real estate. What was yourcareer before, you know,
investing in a bunch ofdifferent real estate deals?
Chris Lento (02:26):
Yeah. So prior to starting my own business, EM
Capital, I was a aerospaceengineer for 17 years, working
on primarily defense contracts.So mainly, actually guidance and
navigation systems for submarinelaunched nuclear missiles was
really the primary thing Iworked on for years. Yeah. Very
different than real estate.
(02:47):
However, right out of college, Iquickly got interested kind of
in the real estate market.Boston. Boston real estate has
always been really hot, soeveryone's sort of aware of it.
And, you know, I very quicklystarted looking at like, oh, you
know, what is this who owns thisproperty I'm renting right now?
And how how did that work?
And how did he buy it? So within2 years after graduating, I I
(03:09):
bought a a 3 unit in the Bostonarea and sort of grew my
portfolio on the side withreally no intention of ever
going full time. It was justsort of a side, like, a side
activity.
Trent Werner (03:22):
Well and a lot of people find themselves doing
that. Right? You wanna exposeyourself, invest in real estate,
and then all of a sudden youkinda become hooked and end up
wanting to do it full time. ButRight. Not everyone is an
aerospace engineer, going intoreal estate.
A lot of people are civilengineers or or have other jobs.
I feel like aerospaceengineering is probably pretty
(03:42):
cool. Am I wrong?
Chris Lento (03:43):
I mean, yeah, there's ups and downs. It's like
any, you know, kind ofengineering job. There's
certainly I got to do a lot ofcool kind of defense oriented
stuff. I got to work with F15Fighter Pilots on testing out
some of our systems and I got togo into a submarine once. So
there's cool stuff like that.
But then there's a lot ofbureaucracy. The programs are
big. They're very slow. Theydon't change very fast. And we
(04:07):
had, you know, 10 years ago, wehad plans that went out to 20 80
because that's, like, the wholelife of certain submarines.
So they had to have yeah. Imean, it was just, like, 20 80?
Come on. I can't you know? Itwas just it it was just
ridiculous.
So so there's pluses andminuses. Like, the size of the
programs just make it so youit's hard to make an impact, I
(04:30):
guess.
Trent Werner (04:31):
And and at what point did you decide to go full
time in real estate and start EMCapital?
Chris Lento (04:38):
So I moved to DC in 2012 to be sort of a customer
liaison with the Navy. So Istill worked for my company, but
I was like a technical resourcewithin the government. And I got
to see the procurement side ofit, which was really interesting
to sort of see, you know, whatour customer, the Navy, is
looking for out of our contractsand what levers they have to
(05:00):
pull and who they answer to. Andit gave me a good perspective
of, like, the whole kind ofdefense industry. And after
coming back from that, I reallycouldn't see a position I wanted
to be at in, say, 5 or 10 years.
Nothing, you know, I just had mydaughter and everything involved
kind of West Coast travel and alot of, you know, as you climb
(05:21):
the ladder, it's just a lot ofin person meetings with the
major defense contractors and alot of them are very, not
political, but they're not veryproductive. And it just was not
a career trajectory that I wasexcited about anymore. And at
that point, I really said,alright, what's my plan to
transition? And I'd already beenramping up my portfolio at that
point. So I said, alright.
(05:42):
You know, in 2 years, I wanna bein a position where I can leave
this job and and go full time.
Trent Werner (05:48):
And how many units I think
Chris Lento (05:49):
I guess short answer is, like, I got to a
point in my career where Iwasn't excited anymore about the
next steps.
Trent Werner (05:55):
Which is a natural progression for a lot of people.
How many units did you have inyour portfolio when you decided
to, you know, make that leap?
Chris Lento (06:02):
I had 30 units. Okay. 24 of them in Florida at,
like, you know, kind of lowercost units, like a 100 k unit.
But the other 6 actually, theother 12 in the Boston area. So
those were more expensive units.
They were like in the 400 kunit.
Trent Werner (06:21):
Okay. But I mean, you weren't just holding on to
that 3 the triplex and, youknow, making the leap with not a
whole lot of experience. You hadplenty of experience buying real
estate before starting EMCapital and, you know, managing
it, operating and all that allthat jazz. Yes. Okay.
And what made you wanna get intothe multifamily space as opposed
(06:43):
to different asset classes,commercial, storage units,
whatever you wanna whatever theother asset classes are?
Chris Lento (06:51):
Yeah. No. Good question. I think a couple of
reasons. 1, just familiarfamiliarity.
Like everybody has rented likelyin their life. You know? You you
graduate college or you graduatehigh school, you can get a place
to live, you rent. So one, it'sa familiar asset class. It's
easy to understand.
It's kind of easy to see thedemand. You know, there's
(07:12):
population growth. You're gonnaneed more housing. And everyone
needs it. So I I think for 1,just as a start, familiarity.
And then, you know, as I've beenin it for a while, I've looked
at other asset classes and I'minterested in, you know, some
flex space industrial and someretail. But multifamily
specifically in the housingconstrained environment right
now is just a solid bet. Youknow, we're gonna we need more
(07:35):
housing. We're not buildingenough housing. No one's solving
that problem anytime soon.
So that's, you know, that'swhere I think the focus is for
us, at least for the next 5years.
Trent Werner (07:45):
Right. And how did your aerospace engineer
background, what skills or what,I guess, teachings that you
learned doing that havetransferred into EM Capital and
your real estate business?
Chris Lento (07:58):
I would say project management, subcontractor
management, just generalorganization skills. I mean, not
a lot of specific, you know,engineering knowledge base, but
and I've always been very kindof mechanically inclined as
well. On my early units, I did alot of the construction on them,
or I managed directly a lot ofthe construction. And some of
(08:19):
them were pretty heavyconstruction projects. So just
knowing, you know, the detailsof the properties and and I
think yeah.
And then general projectmanagement, you know, scheduled
scheduled budget. You know, Iwas a product program manager
for pretty large large programsfor a decade.
Trent Werner (08:35):
Right. And I know you've mentioned, so your
personal portfolio was inFlorida and Boston. Looking at
EM Capital's Holdings, they'rekinda sprinkled all over the the
eastern side of the UnitedStates. How do you guys pick
markets to invest in or target?
Chris Lento (08:52):
Yeah. So pretty early on, I got I was introduced
to the concept that, you know,not every market is the same.
Right? I mean, Boston's a decentmarket. It's a low cash flow
market, kind of high spec marketwith low cap rates and that was
the world for a while.
And then I was introduced to theidea that, okay, there's other
markets that maybe have lessappreciation potential but
(09:13):
higher cash flow. And thenthere's like these Goldilocks
markets that have decent cashflow and will have good
appreciation. And I really likethat idea. Just trying to find
those markets. So to test itout, I 1031 exchanged a property
I had in Boston to a city aboutan hour away, Salem,
Massachusetts, which had kind ofhigher cap rates, but a lot of
(09:37):
appreciation potential.
And when, you know, 3rd partyproperty management and tried to
treat it like it was out ofstate. So I was like, alright.
I'm gonna go to this propertyonce a quarter. When there's an
emergency, I'm not gonna dealwith it. I'm gonna call the PM
and, you know, go through thethe steps.
And that was a good learningexperience for me. And it kinda
tested my model out. So then Itook that property in 1031
(09:58):
exchange to Florida, toTallahassee and then it really
sort of no. I did only go downthere probably once or twice a
year. So after that, I was I wasconvinced, okay.
I can remotely manage theseproperties and I can target
markets. So to answer yourquestion, then I try to figure
out, well, what markets do Iwant to target and what are the
criteria? So what are generallya major market? So 200,000
(10:20):
people plus in population justbecause, that generally ensures
a pretty good economic base.It's not just like one factory
or one major employer.
And then beyond that, I wantedpretty consistent population
growth for the past 3 to 5 yearswith a solid indication that
(10:41):
it's gonna continue, whichgenerally means that jobs are
moving there. And the southeastis just at least for the East
Coast. The other thing I wannastay east of the Mississippi
because because I want to beable to get to and back from my
properties in a day if I haveto. And there's enough
population on the East Coastthat I didn't need to look at
Phoenix or Texas. Good markets,just harder to get to.
(11:02):
And there's plenty ofopportunities, on this coast.
Trent Werner (11:05):
So you've you've talked about the, I guess, the
the job data and everything thatyou talk that you target or look
for. Are there any financialmetrics that you're looking for
in terms of cap rate, cash oncash return, any of those?
Chris Lento (11:20):
Yeah. So, you know, once we have the major markets,
we start and then we try toconcentrate. Right? Like, I'm
not looking at every market thatmeets that criteria. I try to
pick 3 or 4 to to get to knowbetter because you can just
underwrite them faster.
You're like, oh, the northeastof that market's bad. A lot of
crime. Just not even worth it.Don't spend the hour digging
into it. So then, you know, oncea property meets the location
(11:42):
criteria, it's in a neighborhoodwith an area median income that
meets our threshold for thatcity that can support the rents
we want.
We look for 1985, build or ornewer, you know, based on recent
experience and just ease ofmanagement. And then once you
start underwriting, we generallytry to underwrite to what we
(12:03):
think our investors appetitesare. So for example, typically
we try to get to a price wherewe can give our investors a 7%
preferred return with a, say, 13to 20% annualized rate of return
depending on the market. So whenthe market's hot, you know,
maybe it's it's higher. And whenthe market's tight, maybe it's
in the lower end.
(12:23):
And we're constantly kind oftalking to our investors. Like,
hey, here's what the market'sdoing. You know, the returns are
a little bit lower right now dueto interest rates. Are you still
interested? And, you know, basedon that, we update our our
underwriting criteria.
So it's really yeah. The caprate matters. And but at the end
of the day, it's what do wethink our business plan can can
(12:44):
produce from an investor returnperspective?
Trent Werner (12:48):
Okay. And then do you have a certain number of
units that you are targeting?
Chris Lento (12:54):
Yes. But I generally try to look at it from
an acquisition price. Becausedifferent markets will have
different, you know, cost perunits.
Trent Werner (13:01):
Yep.
Chris Lento (13:01):
But we want to look for units that are for
properties that are 12,000,000to 35,000,000 in acquisition
price. So, you know, reallyexpensive market that might be
50 units. But another marketthat might be, you know, 200.
So, but in general, we wanna beover the number of units that's
can support a full time on-siteproperty manager, which is, I
(13:22):
would say, 80. It's kind of theminimum for that.
Trent Werner (13:25):
I'm glad I'm glad you brought that up. Last
conversation I had, we weretalking about the same exact
thing, and I asked him what hison-site number is, and he said
75 to a 100 is is kind of thethe ballpark. So Right. You
confirmed that with us.
Chris Lento (13:39):
I have a 60 unit that we have an on-site leasing
agent and a part time handyman.
Intro speaker (13:43):
Okay.
Chris Lento (13:43):
It just makes it more complicated.
Trent Werner (13:45):
Yeah. So my my follow-up question to the, you
know, you analyzing and and andfinding different markets to
invest in. Once you find a goodmarket, are you gonna continue
looking there, or are you alwaystrying to broaden your your net
and look at new marketsconstantly?
Chris Lento (14:01):
Try to look at new markets every 6 months. So try
to, like, you know, set aside aday to say, alright. Do the
markets we're in still work forus? Do we want to expand to
another market? There's hugeadvantages to just knowing a
market and having a reliableproperty manager in that market,
reliable subcontractors,landscapers you can go to and
you know that they're going toget reasonable prices.
(14:23):
And they know that you havemultiple properties in the area,
so they're going to kind of giveyou volume prices rather than
one off prices. So there are alot of benefits to having the
economies of scale. But at thesame time, if a market has
peaked or, you know, is isshowing signs that it's not it's
no longer what you what I waslooking for in the 1st place,
you wanna be able to to pivot.So about every 6 months, we sort
(14:45):
of sit down with a team and say,alright. Let's look at the
markets we have.
Any new markets come up. There'sa Milken report every year
called the best cities report. Ialways read that. Interesting to
kinda see what they think theemerging markets are. There's a
number of different, you know,reports coming out.
Best cities reports, IRRinsights is a is a good annual
(15:05):
report that I like to read. So,yes, we're constantly
evaluating, but at the sametime, I wanna keep a a small
enough group that we canunderstand the markets. I've met
people that look like all overthe US, and I just don't know
how you can do that without ahuge team.
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Trent Werner (15:54):
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uptown syndication.com today tolearn more. Exactly.
And the reason I ask that isbecause I mean, personal
experience and otherconversations I've had tells me
that getting to new markets canbe different in terms of
building relationships withproperty managers, contractors,
brokers. You know, if you'reonly looking at on market deals,
(16:35):
you know, you might not youmight not get the best deals. So
how do you and EM Capital goabout building those
relationships when you areexpanding to a new market?
Chris Lento (16:44):
Yeah. Good question. So first we try to
leverage the relationships wehave in other markets. So a lot
of times, you know, thesebrokers are regional. So you
might say, hey.
I'm starting to look in, I don'tknow, Spartanburg, South
Carolina. Do you guys have anofficer? Is there anyone in your
office that that does coversthat area? So that'd be 1. A lot
of times, property managers areregional or might have different
(17:08):
different, offices around theregion or might or might know
other property managers thatthey are friendly with and, you
know, know do a good job.
And then they can tell you who'sactive brokers in the area.
Mhmm. Insurance companies. Sobasically, use the network I
have of lawyers, insurancecompanies, brokers, property
managers to get recommendationsin the new markets. And then
(17:30):
start looking, you know, sign upfor a bunch of broker websites
and things like that to gettheir deals.
And then see who's transacting.So who who are the most active
players in the market? Yeah. Andthen just I like to target 5 and
just start reaching out to them,kinda introduce myself,
leveraging my prior trackrecord, and establishing
relationship and letting themknow, you know, we'll underwrite
(17:52):
deals quickly. We'll give youfeedback on why we don't like
the deals, which is, you know,the majority of them.
Right? Like, you get a 100deals, you you know, maybe 90 of
them look interesting. I mean,maybe 10 of them look
interesting. And and then startdeveloping that relationship and
and giving them, you know, aclear buy box. You know, you
know, this is what we're lookingfor.
This is not what we're lookingfor. So that's sort of the
(18:13):
process and then build fromthere.
Trent Werner (18:15):
I really I really like that strategy because you
do focus east of theMississippi. You are able to
leverage those regionalrelationships versus someone
that is looking at every singlemarket across the country. At
that. I mean, that's a greatidea and a great strategy that
you just shared.
Chris Lento (18:31):
Thanks.
Trent Werner (18:33):
So now let's let's move to EM Capital. So you said
you started in 2012, 2014?
Chris Lento (18:39):
2017.
Trent Werner (18:40):
17. Okay. Where is EM Capital now in terms of
assets under management, numberof assets held, units? Do you
have any fun facts you can shareabout it?
Chris Lento (18:49):
Sure. We have 600 units under management across 8
assets, and they're just over a100,000,000 in value. So that's
where we are now. We did60,000,000 in acquisitions in
2022, which was by far thebiggest year. 2023 was
completely dead.
I think we did maybe like5,000,000, did some smaller
(19:10):
deals. And then 24, we'reselling out an asset right now
and we're under contract for ourlargest deal to date. So
hopefully we'll close out thisyear, if not early next year.
Trent Werner (19:21):
Very nice. And speaking of some of the EM
Capital assets, today, we'regonna talk about a 67 unit deal
in Kentucky. What can you tellus about this 67 unit deal in
Kentucky?
Chris Lento (19:33):
Sure. So this is, the first deal I syndicated.
It's a 67 unit class c deal in atertiary market, south of
Louisville. So I would say thisis a big lesson learner. I came
in.
You know, I'd recently gone outmy own, was itching to get a
deal done, had built up aninvestor network that knew what
I was doing and was, you know,interested. And I was joined,
(19:57):
through a real estate investinggroup that I was involved with
with with 2 women who had a dealunder contract and were having
trouble raising. So quicklyevaluated it, seemed like a
great basis. You know, I was alittle iffy in the market. I
didn't it did not fit thatcriteria.
It's not a 200,000 person marketwith, you know, great indicators
(20:17):
of job growth and populationgrowth, but It wasn't a bad
market, but it was certainlytertiary. You know, we met. I
liked them. Thought we couldwork together, and we bought it.
So that was 5 years ago.
Almost 5 years ago this summer.And it's been a roller coaster.
So I guess the one problem hasbeen consistently 67 units in a
(20:39):
tertiary market is very hard tomanage. Well, so in a lot of
these tertiary markets, you havethe apartment buildings are are
locally owned and locallymanaged. There's not a lot of
quality third party propertymanagement just because the
population is not there or thethe number of buildings are not
there to support them.
So you have a lot of condomanagers and you have a lot of
(21:00):
people that can manage, like, 20unit buildings sort of with an
off-site model where there's noone kinda sitting in on the
property. And then at 67 units,it's right on the edge of being
able and it's a lower rent unit.Like, when we first bought it, 2
bedrooms were 625. So it'sinexpensive. Yeah.
(21:21):
You know, and we I think we gotit for 28 k a door. So we had a
very low basis. Yeah. But it'sjust not a lot of absolute
dollars to pay, you know, a fulltime handyman, a full time
leasing agent. So we wentthrough 5 property managers in 5
years.
And it's yeah. It was a journeyfrom kind of bigger property
(21:43):
managers that had minimummonthly payments that were just
killing us to we hired, just wtwo employees. We start you
know, we hired a full timeproperty manager and a full time
handyman that effectively workedfor me. And then I hired, kind
of a back office person from oneof my other properties to work
at night and sort of make surethose 2 were enter entering work
(22:06):
orders correctly and reconcilingthe books and doing all the
stuff that the back office of aproperty management company does
and I don't know how to do nordo I really want to know how to
do it. So basically, I cobbledtogether a little property
management company quickly torun it for a year and a half.
That was the best it performed.But then, you know, he got
(22:28):
another the handyman got anotherjob. She got divorced and moved.
And then we, you know, wecouldn't find anyone else. Went
to another local propertymanagement company.
They did a terrible job. So it'sit's been just a challenge. We
have a great property managementcompany now, but it really took
a long time to get there. Andnow we're finally selling. We're
(22:48):
closing, next Thursday,hopefully.
Knock on wood.
Trent Werner (22:52):
Congrats.
Chris Lento (22:53):
Yeah. And it's but it's been a journey. I mean,
I've I've certainly learned alot. I don't have a huge stake
in it from a GP perspective dueto my role coming in, but I've
put a lot of effort into it, AndI'm looking forward to closing
the book on it.
Trent Werner (23:07):
It turned the page on this one.
Chris Lento (23:08):
Right. And the returns are gonna be good for
the investors. So that's, youknow, that's huge. And that's
been my focus for this propertyentire time. Like, I got my
early investors into it.
I had to make sure it worked.
Trent Werner (23:18):
Well yeah. And and no wonder you spend so much time
on it because the first one isalways one that you kinda hold a
little bit more near and dear toyour heart, especially for the
investors.
Chris Lento (23:27):
Right. Exactly.
Trent Werner (23:29):
So, I mean, I think a lot of people have heard
that bad property managementcompanies can tank a deal pretty
quickly if you don't do anythingabout it. It sounds like you did
plenty to to handle those thoseobstacles that were presented to
you, churning and burningthrough different third party
management companies. You saidyou went through 5 management
(23:50):
companies in 5 years. At whatpoint do you, especially for
this property that we're talkingabout, make that call to say,
hey, you're done. We gotta gofind someone else.
What were the signs that jumpedout at you that made you make
those decisions?
Chris Lento (24:05):
I mean, usually, it starts showing up in the obvious
metrics like occupancy,collections, things like that.
You know, it's clear thatthey're not paying attention or
they're not, you know, fullyfocused on the property. We have
weekly meetings weekly Zoommeetings with all our property
managers. Them not beingprepared for those meetings, not
(24:26):
really being able to answerquestions. We always get
property manager access to theback end of the whatever system
we're using so that I can justdig.
So I'll spend, you know, half anhour a week per property just
sort of digging in, clickinginto an invoice. You know, what
is this $1200 plumbing invoice?Like, oh, it's it's cleaning,
like, the kitchen sink? That'sweird. Why is it $1200?
(24:49):
You know, just just sort of,like, digging in. And then on
the meeting, not to be kind of agotcha, but if if they're not,
they don't seem like they're onthe ball, I'll just ask them
thing things like that to seekinda what their answers are.
And, you know, what I'm reallydoing is confirming what you
already know. Because I have afeeling, What I've learned is
(25:10):
that, you know, once you havethat feeling like something's
not right here, something'sprobably not right. Yeah.
And you just can kinda tell bythe way the property is going,
things that aren't beinghandled. We have my assistant
calls every property, once aquarter and acts like a,
Trent Werner (25:26):
like a
Chris Lento (25:27):
prospective resident. Yeah. Exactly. And
then gives us a report. And, youknow, we we have different
softwares we're adding to ourbigger properties where we can
listen to the phone calls thatthat they do with the residents.
Yeah. We have a whole list ofthem on the on the website. You
you just kinda click through.Oh, this is a 3 minute call.
What what do they say?
How are they how are theypresenting? And let's start
(25:47):
looking at things like that.But, yeah, I mean, kinda gut
feel based on a lot of lot ofdifferent metrics. And then, you
know, sooner the better. Like,the minute you start feeling
that, if it's a bigger company,go right to the regional
management or the regional VPand say, hey.
What's going on? I think we havea problem. And, you know, I've
had a lot of properties wherewe've changed our on-site. So,
(26:09):
you know, we kept the samecompany, just switched on-site
managers. And every time I'vegone to their upper management
and just said, hey.
You know, there's somethinggoing on. I'm not getting the
response I expect expected orthere seems to be some issues.
They're already aware of it.Yeah. There is.
We've been we've been trying towork in the background before we
told you, but we think thatthey're not a a good fit. And
(26:31):
we're gonna you know, we've beenlooking. Yeah. Which I don't
love. I'd rather be transparentupfront.
Ad speaker (26:37):
You know, if they had an if they had an indication
Chris Lento (26:39):
of that a month ago, I would have liked to known
that. But
Trent Werner (26:41):
Yeah. I I really I mean, I've never heard anyone
else say from on a ownershipstandpoint of getting the PM
access to whatever softwarethose companies are using. But I
mean, we have in housemanagement, so I basically have
that too. And it's so nice beingable to just go sift through,
dive into things without havingto wait for them to give it to
(27:04):
you.
Chris Lento (27:05):
So that's
Trent Werner (27:05):
a really good idea that I think a lot of people
should maybe borrow.
Chris Lento (27:09):
Yeah. And I've we've never had a no. Sometimes
we kinda like go back and forthwith what permissions they give
us. Yeah. You know, like oneAppFolio PM company, I can see
the invoices and I can see, say,like, the resident applications
and another one I can't.
Trent Werner (27:25):
Yeah.
Chris Lento (27:25):
And but, typically, we can work through it.
Trent Werner (27:28):
Yeah. No. That's that's a that's a really good
idea. So, Chris, going into thisdeal, I know you said you were
kinda connected to some other GPpartners on on this deal. What
was the, I guess, business planfor the 60, 70 units here in
Kentucky that we're talkingabout?
Was it value add? Was it, youknow, just a buy and hold? What
(27:50):
was the business plan going intothis?
Chris Lento (27:53):
So going in, it was really a deferred maintenance,
improved management, andstabilization plan. So the
property had been owned by anolder couple for 15 years. The
husband had died. The wife wasreally just barely kind of
holding on. So it had becomekind of a people weren't paying
rent and there's a lot of kindof weird stuff going on.
(28:16):
So go in, kind of clean it up.We had a CapEx budget to to do
about 5,000 per unit, which isnot much now. But in 20 2019
when we bought it, that thatwasn't a full rental, but that
was, like, you know, clean it upand do a decent turn was the
plan. But certainly not like newcabinets, countertops, anything
(28:39):
like that. We also had some, wehad a green loan on it.
So there's a number of greeninitiatives that we had to do
that needed to be sort ofcleaned up after we got a hold
of it. We somehow had greenmoney to create energy efficient
or buy energy efficient hotwater heaters, but the property
was all electric hot waterheaters, so they don't exist. So
(29:02):
just some things like that wherewe had to sort of move the funds
around and and iron it out. Butit effectively ended up being a
stabilization. So, you know,making the units nice, being
professional, increasing themarket rent, and just running it
more as a business and less sortof as a as a hobby, I guess.
Trent Werner (29:21):
Right. Okay. And then so 67 units, you said 5,000
a door. So kind of a light facelift from what it sounds like
per unit. What is your targetoccupancy, and were you planning
on spending $5,000 per unit andand updating every single unit,
or did you have a percentage ofthe units that you wanted to
(29:42):
touch before turning it to thenext buyer?
Chris Lento (29:45):
Yeah. So, I mean, the target occupancy was was 95
plus. It's a market that thatdoesn't have a lot of housing
and certainly not a lot ofrenovated housing. So we quickly
found out that if we justpainted things and cleaned them
up and, you know, put newcarpets in, people were banging
down the doors at at marketrates or even a little above. So
so that was good.
Now how qualified they were,even if they were qualified,
(30:09):
whether they were gonna continuepaying after month 7 when their
car broke down. That wasprobably worse than we expected,
but the demand was certainlyhigher than we expected. And
then, no, we didn't plan to doevery unit. It was a little bit
more, you know, as units becameavailable, we'd assess them.
Some of the classics were kindof acceptable, and we would just
re rent them as it is, paint thewalls, you know, light turn.
(30:32):
And then some of the units hadhad kind of some some
significant problems. And theproperty also had some
foundation issues. It hasprobably, like, 4 foot crawl
spaces under 3 of the buildings,and there was a lot of joist rot
that we were aware of. So we gota good deal because we knew
there was a pretty significantproblem that that we had to
address right away. And that waspart of our kind of initial
(30:54):
capex plan.
Trent Werner (30:55):
And you said you acquired it at 28 k a door?
Chris Lento (30:58):
Yeah. I think it was 28 k a door.
Trent Werner (31:00):
And you're closing next week at?
Chris Lento (31:03):
Closing next week at 61. Wow. Yeah.
Trent Werner (31:08):
Woah. Okay.
Chris Lento (31:10):
But there's a lot of capex put in there along the
way and a lot of down monthswith those those property trans
property manager transitions hadsome pretty big dips. Because if
you have a a subpar propertymanager and they get wind that
you're moving on, it gets worsecertainly before it gets better.
So then you find out all theproblems from the prior property
(31:33):
manager when the new one comesin. So, yeah, that sounds like a
great sounds like a home run,but it's really it's like a
solid double maybe.
Trent Werner (31:42):
Yeah. You can't complain about an extra base
hit.
Chris Lento (31:45):
Yeah. Right. Exactly.
Trent Werner (31:46):
Yeah. I so the the other question I have for you is
you you got a taste of the inhouse management. Right? You put
together your management teamfor a trial run. Do you have in
house management now on any ofyour other assets?
Chris Lento (32:02):
We don't. And that's, I think, one of the
downsides of having adistributed portfolio now where
you're located. Mhmm. And I'vecertainly, you know, modeled out
and thought hard about, do Iwant to switch to an on-site
model? You know, I'm definitelylike an asset managed focused
company.
Like, I like the projectmanagement. I would, you know,
(32:24):
not be opposed to owning aproperty management company or
self managing. But it's it'strying to figure out how to do
that on a distributed basis. Andwhether it makes sense. Right?
I mean, your back office is yourback office. But having those
boots on the ground in all theselocations, is it worth it? Do we
have the economies of scale inany of those markets to really
know the market? And that'swhere, you know, a good third
(32:44):
party manager can really help. Imean, they know the competition.
They know the market. They knowthe vendors. So, not right now,
but that's something we'redefinitely considering at some
point.
Trent Werner (32:55):
And I'd imagine it would probably make more sense,
like you said, when you have theeconomies of scale in specific
markets. You know, if you have a100 doors in 1 market or, you
know, 200 doors in a marketwhere you can make it make sense
across those different assets,that makes perfect sense. Well,
Chris, we talked about the deal.We talked about EM Capital. We
(33:15):
talked about you being anaerospace engineer.
Is there anything else youwanted to share about yourself,
your business, or this dealtoday?
Chris Lento (33:23):
Well, yeah. But I guess one thing that I've found
really exciting since COVID atleast is that the pace of
technology in the in the realestate market has has really
increased.
Trent Werner (33:33):
Mhmm.
Chris Lento (33:33):
And coming from sort of a technology background,
it's exciting to see all thesedifferent third party players
coming in and, you know,optimizing marketing. And, you
know, we'll see where AI kind offits in for real in in this
game. You know, it's kind ofnibble around the edges here. So
I think it's very exciting. AndI think multifamily kind of the
business model is changingpretty fast.
(33:55):
And I think that's gonna be veryinteresting to see where it
goes. You know, the capitalmarkets are changing. A lot more
people are starting to invest inthese kind of alternative
assets. There's a lot ofdifferent vehicles to let people
invest, in a more liquid basis.So, you know, a lot of changes,
and I think it's generally forthe better.
So I'm excited to see wherethings go.
Trent Werner (34:16):
Absolutely. And, Chris, where could people
connect with you or hear morefrom you?
Chris Lento (34:20):
Yeah. The best way to connect with me is is via
LinkedIn. So Chris Lento or EMCapital. And then, my website is
emcapitalgroup.com. And we'll
Trent Werner (34:29):
make sure all those are linked in the show
notes. Chris, thank you so muchfor joining us today and sharing
about your background and your67 units with a little bit of
ebbs and flows included in inthat deal cycle. And congrats on
closing on it here in the nextweek.
Chris Lento (34:44):
Yeah. We'll see, hopefully, next Thursday.
Trent Werner (34:46):
Fingers crossed. Thanks, Chris.
Chris Lento (34:47):
Yep. Alright. Thanks a lot. I appreciate it.
Intro speaker (34:49):
Thank you for listening to this episode of the
Real Estate ProfessionalsInvesting podcast on Wynn, your
community of investing knowledgefor growth. We hope that this
episode has increased yourknowledge and added value to
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(35:09):
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Thank you again, and enjoy yourday.
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