Think a smaller firm can't compete with the huge institutional investors? According to Michael Zaransky, there's more to deal-making than the number on the bottom line.
Real estate investors looking for an edge often think bigger is better.
Larger, highly capitalized firms with more brokers and broader reach usually have the advantage, right?
Sure, especially when transactions require scale, leverage, and capital. But independent investors can generate their own leverage with a tool that often outruns size: service.
Independent investors and boutique firms can compete, and even thrive, in real estate by channeling their service skills. Being agile and responsive with sellers, building relationships with investment partners, caring for residents, and nurturing their teams are foundational to a winning investment strategy. Independent investors compete with large-scale firms on their own terms, not the competition’s.
According to the National Multifamily Housing Council, the 10 largest firms own more than 800,000 units combined nationwide. However, our firm competes with those firms through a service-oriented culture that appeals to sellers and residents. Here’s our advice for independent investors who want to do the same.
Make your size a positive
What small but notable advantage do independent investors have over institutional firms? They answer their own phone. Instead of avoiding or deflecting their size, independent investors should lean into it.
Independent investors are one call from financing partners, vendors, residents, and others who need them immediately. They respond to requests in 10 minutes instead of 10 days. They have flexible schedules and can be on-site tomorrow instead of on Zoom next week. Their chat is with a person instead of a bot.
People want apps for ordering pizza and shoes. When making complex real estate deals, they want to deal with people. Small firms should sell their size as a service advantage.
Price wins in real estate, so it’s no surprise sellers tend to gravitate toward well-capitalized firms. But trust matters as well. According to PwC, 49 percent of consumers buy from companies they trust, and 33 percent willingly pay a premium for it.
Larger real estate firms have the capital advantage but also ask customers to wade through layers of procedures and committees that can dilute trust. This doesn’t make them inherently untrustworthy but can make them difficult and frustrating to navigate.
Independent investors have to prove they’re trustworthy by negotiating fairly, adhering to terms, and signing agreements in a timely manner. Building trust takes time, but independent investors who do so actively win dealmaking points in the marketplace.
Requests from sellers, residents, contractors, and employees can be difficult to triage. In larger firms, they might get lost. However, independent investors who communicate quickly and honestly generate the goodwill essential to long-term relationships. Investors can outmaneuver institutional buyers and their financing committees by making the process direct and uncomplicated.
We take pride in closing deals with clear contracts, on time, and as the parties agreed. We communicate openly throughout the process. When complications arise, we often make adjustments on a same-day basis, before a large firm’s financing committee even reviews the changes. We answer questions as immediately as possible. Independent investors shouldn’t worry about being overcommunicators.
Every multifamily housing property prioritizes fulfilling maintenance requests quickly and properly. But what about the grace notes of a living experience? Recently, one of our property managers assessed an entry plaza as uninviting and requested $2,500 for new landscaping. An institutional owner might have let the request languish or forwarded it to next year’s budget. Our ownership group approved it in 10 minutes.
Responsiveness, trust, and communication are three tools with which every independent investor must equip themselves.
At first glance, bigger firms with more borrowing power would appear better positioned to close transactions. But they also can maneuver like big ships with a long turn radius. Independent investors aren’t beholden to asset managers or committee reviews to address negotiation concerns. They position themselves to make decisions and act on them. They turn more quickly.
Boutique firms have the flexibility to make quick decisions, especially in today’s fluctuating lending market. Lenders might change terms or add proposals that fundamentally alter a deal. While a management committee must sign off for the institutional investors, boutique firms can acknowledge changes and reach conclusions on the same day. That dexterity benefits independent deal-makers.
Haga del servicio una prioridad
El servicio residencial ciertamente es digital. Los inquilinos quieren pagar el alquiler, realizar solicitudes de mantenimiento e incluso controlar los electrodomésticos de sus apartamentos con aplicaciones. Además de digitalizar los servicios, los inversores independientes nunca deben perder de vista el toque personal. Todavía tiene un tremendo atractivo.
Los inversores que se anticipan a las necesidades de los vendedores ofrecen un mejor servicio. Los administradores de propiedades que atienden a sus residentes diligentemente convierten los complejos de apartamentos en hogares. Y las empresas que sirven a sus empleados cultivan empleados que quieren servir. Crear un ciclo de servicio tiene un valor incalculable para los inversores que se posicionan como actores del mercado.
Invierta en empresas pequeñas y locales
Las grandes empresas realizan investigaciones exhaustivas para perfilar las mejores oportunidades de inversión. Sin embargo, los inversores locales independientes suelen tener más conocimientos. ¿Por qué la ocupación es menor en un área de tres cuadras de la ciudad que en otra? ¿Cómo afecta la construcción de puentes a largo plazo los desplazamientos de los residentes desde un subdesarrollo en particular? ¿Por qué los lofts están tan de moda en un distrito en particular?
Los inversores independientes y las firmas boutique pueden adelantarse a las grandes firmas comprando pequeñas propiedades, brindando un excelente servicio y construyendo un historial. Muy pronto estarán compitiendo con las grandes empresas.
Nuestra firma se enorgullece de ser postores competitivos. Y entendemos cuando los vendedores eligen inversores que hacen ofertas más grandes. Serían tontos si nos vendieran por menos. Sin embargo, las transacciones no son únicamente transaccionales.
Por supuesto, haremos la mejor oferta posible. Y cuando los números son iguales, creemos que ser ágil, receptivo, confiable y orientado al servicio marca la diferencia. Las empresas más destacadas podrían superarnos en ofertas, pero no nos superarán en términos de trabajo.
By Michael H. Zaransky
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