By James Holleman, Vice President of Capital Formation
Unlike many real estate developers and fund managers, Grubb Properties is a long-term player. When we develop or acquire a property, we do so with the intention of holding it for at least ten years and we handle all aspects of development, leasing, and property management in-house.
Why do we take such a hands-on approach to our investments? First and foremost, it’s because we believe in the Link Apartments℠ concept. Given the severe lack of rental housing built for those in the middle of the income spectrum, we believe essential housing and Link Apartments℠ are well-positioned for long-term success. But the advantages to our investors extend far beyond that, particularly compared to the build-and-flip merchant builders that dominate this industry.
Among the biggest benefits to our investors:
Focus on long-term investor returns, not short-term manager profits
Our ten-year+ hold period ensures that our focus remains on total return and equity multiple and allows us to pick our exit point strategically. Managers with a 3-5-year hold period are more likely to focus on internal rate of return and maximizing their own profits.
Our long-term emphasis has produced net operating income (NOI) growth that exceeded the NAREIT Index by 44.1% since 2013, while our compound annual growth rate (CAGR) of 4.92% through Q2 2022 exceeded the NAREIT average CAGR of 3.42%
Financing for risk management
We focus on fixed-rate, long-duration debt with moderate leverage to manage the risk to our investors. Most merchant builders utilize floating-rate, short-duration debt with maximum leverage to increase short-term returns, at the expense of risk management.
Operational control of our communities
As a vertically integrated manager, our focus is on quality and customer service, both for our investors and our residents. Because we manage our own buildings, we control the quality of the management and incentivize them based on top-line revenue performance. Merchant builders are more likely to award management contracts to the lowest bidder, and spend little on training and support.
Quality construction, built to last
Our longer time horizon and our vertical integration ensure that we build our communities to stand the test of time. We also integrate cutting-edge environmental and sustainability features both because it’s the right thing to do and to limit ongoing operational expenses. Merchant builders often cut corners to save upfront capital and drive short-term profits.
Management that builds our brand and resident loyalty
Our focus on customer needs, service, and price points drives revenues and maximizes value for our investors, while increasing the value of the Link ApartmentsSM brand. And our long-term focus enables us to implement unique programs like our Long-Term Resident retention program, which caps rent increases for residents who’ve been with us for five years at CPI. By contrast, those with shorter time frames often cut costs to maximize short-term net operating income in preparation for an exit.
“Grubb Properties is laser-focused on addressing the nation’s housing shortage, building new communities in some of the most supply constrained regions,” said Todd Williams, Chief Investment Officer. “Our long-term time horizon helps us to meet this challenge, providing stable and affordable apartments for those in the middle of the income spectrum, while offering tangible benefits for our investors.”