Calvera Insights

Amidst the pandemic-induced inflation, apartment rents soared in most markets across the country in 2021 and 2022. As did the prices of just about everything. Politicians today have now lumped all these increases into the “greedy company” category. We’re being told that prices rose because companies and landlords took advantage of the pandemic.

What multifamily buyers are bad at, is planning for the big expenditures. When the business plan is to buy, renovate, and sell within a 3-year period, many are not concerned with non-revenue-generating repairs. When there’s fierce competition to buy deals, you can’t budget for these items. You won’t win the deal. We lost plenty of opportunities from underwriting the necessary capital.

President Joe Biden has proposed national rent control on apartment units with corporate ownership. His plan would cap rent increases at 5% per year. If owners want to raise rents beyond 5%, they must forgo depreciation expense on their tax return. Yet this proposal doesn’t impact all apartment owners. Only those “corporate” landlords who own…

The recent investment cycle turned apartment investing into a momentum-driven meme stock. Untrained operators promised 20%+ returns with limited downside. They thought the market would go up indefinitely. It was an exciting place to be. And at the time, many thought what was there to lose?

At Calvera, our job is to outperform. If we wait for the “all clear,” it’s too late. The best deal we ever purchased was in Sunnyvale, CA in 2011. Other buyers were afraid. To them, it wasn’t cheap enough. Yet, the asset was well-maintained for its age. And its location was solid. Sunnyvale is home to Yahoo, LinkedIn, and many tech companies. This investment generated a 4.1x gross multiple on invested capital.

Our company name, Calvera Partners, has two meanings—both relating to our studies at the University of California, Berkeley’s Haas School of Business. First, the “Cal” in Calvera is the nickname for UC Berkeley. “Vera” is our abbreviation of the Latin word, veritas, for truth. To us, Calvera represents “True Cal.” Second, for astronomy buffs, Calvera…

That question is common in the multifamily industry, but not a good measure of success. An individual with a 200-unit portfolio in the high-cost Bay Area is likely worth more than a syndicator who did joint ventures to amass 10,000 units. Instead, I’d rather ask questions like: Where are you investing? What’s your strategy to generate higher returns? What type of leverage do you use to finance acquisitions? From this, I can learn something.

Choosing the right market to invest in is critical to the success of an apartment investment. We’ve experienced it firsthand. The pandemic knocked down high-flying areas like the San Francisco Bay Area and accelerated markets like Austin, TX. Yet that’s not the whole story. An otherwise great market can have poor performing submarkets. That’s happening…

We were once told that you can’t make money in apartments. That’s what a capital provider said in 2010 when we formed Calvera. He was wrong. Apartments still provide the best risk-adjusted return among all major property types. And the cash flow it generates provides some downside protection.

If you missed the runup in the S&P (or Bitcoin), how can you position yourself to take advantage of a recovery in the real estate market? Apartment values have already declined 20-30% since 2022. Since 1978, institutional real estate has returned, on average, 9.3% per year on rolling 10-year hold periods. It has also never had a negative return viewing the data this way. And the lowest 10-year return was 6.1%.