Two years ago, Carlos Vaz arrived in Dallas with no local contacts and less than $100,000 to start his multifamily investment business. But when Vaz purchased the 266-unit Lenox Court Apartments in Houston earlier this fall, it was the 10th distressed acquisition deal he closed in the past two years.
Vaz’s company, the Conti Organization, has purchased nearly 2,000 units in the Dallas and Houston markets in that timeframe—either REO assets or distressed note acquisitions—and now holds assets of about $40 million in value. Nine of the 10 deals were bought off market from lenders for a fraction of their value.
Conti is now in the process of selling three communities, with expected returns north of 40 percent. While those are great returns, what’s even more incredible is how Vaz, at the age of 31, made it all happen.
One of nine children, Vaz was born in Brazil to parents who could neither read nor write. His father was a butcher; his mother was a homemaker. But they instilled in him a healthy work ethic. “When we were barely walking, we were working,” Vaz says. “The lesson was: You’re going to have to work hard, so get used to it.”
Vaz worked his way through college in Brazil, studying law. At 19, he moved to the United States with $2,000 to his name, no friends or family in town, and no paying job. He took an internship with Boston-based real estate law firm Donahue & Grolman.
By day, he interned, and at night, he continued his studies at Harvard Extension School. “I worked from 2 a.m. to 6 a.m. at a newspaper warehouse, then at the law office from 8 a.m. until 2 p.m.,” Vaz says. “I’d take a nap in the afternoon, go to school at night, and then work at restaurants Friday, Saturday, and Sunday.”
Vaz also began to work in construction during this time, first as a laborer, then a carpenter, then as a project manager. Vaz’s burgeoning real estate knowledge continued to grow when he started working as a loan officer at Back Bay Mortgage. During that time, a friend of Carlos’ bought a single-family house out of foreclosure, and Vaz helped him pull together the loan. He received about $1,600 as a commission, while his friend ended up pocketing about $80,000.
“So I said to myself, what’s wrong with this picture? My buddy walked away with the orange tree, and I just got an orange,” he says.
Armed with his construction and legal background, as well as solid real estate finance knowledge, Vaz began thinking of how to combine these talents. So from 2005 to 2007, Vaz set about to buy, rehab, and sell 34 single-family projects in Boston. He was working 80 hours a week as a one-man shop: finding the deals, financing the deals, doing the construction, and selling them.
During this time, the knowledge-driven Vaz was mentored by one of the industry’s heaviest hitters: George Ross, senior advisor to Donald Trump. Vaz, who rarely watches TV, decided to turn on The Apprentice a few years ago and noticed Ross on the show. Intrigued, Vaz bought Ross’ book and saw in Ross' bio that he taught a course at New York University.
Vaz signed up for the course and every Wednesday, he’d board a bus in Boston at 2 p.m. to get to his night class in New York City. When the class ended, at 9 p.m., Vaz would walk and talk with Ross, trying to learn everything he could from the master negotiator, before racing back to the bus at 10 p.m. He’d get back to Boston at 2 a.m., and then go to work five hours later.
“On the last day of class, George said, ‘Carlos, it seems to me that you’re going to go somewhere. If you need my help, give me a call,’” Vaz says. “He put his cell number on his business card, and that meant a lot to me.”
Moving Out and Up
Though he was successful in his single-family venture, several warning signs were appearing on the Boston market in early 2007, forcing Vaz to consider moving his one-man operation. The market had become overheated with increasing competition, and loans were becoming harder to get. Vaz began selling off all of his single-family assets and turned his attention to the multifamily industry. Vaz began studying the industry, and attained his CCIM certification. But he also realized that for his fledgling company to grow, it would need to relocate to a more business-friendly climate with a lower cost of living.
Vaz began doing market research, trying to find the most high-growth, business-friendly destination to launch his multifamily business. In the end, Dallas won due to its projected population growth, diverse economy, and favorable cost-of-living.
So Vaz moved to Texas with less than $100,000 and no local contacts. He set about learning everything he could about the local market. “If you don’t have a lot of money, you need to bring something to the table, so my major asset was I tried to learn as much as I could,” Vaz says.
Vaz studied the local market—the most desirable neighborhoods and most important local players in the industry—and began working on his first deal. “I realized the best way to raise equity is not to just buy a project, but to buy the best project I possibly could,” Vaz says.
Vaz bought that first project, the 206-unit Huntington Apartments, for just $3.1 million, a steep discount from the $4.29 million asking price. The bank that had foreclosed on it was desperate to clean up its balance sheet. Vaz put the property under contract Dec. 31, 2007—the end of the bank’s fourth quarter—but still had miles to go before closing the deal. “That deal fell apart four times, and I think I had seven heart attacks,” Vaz jokes.
Vaz wanted to use the FHA’s Sec. 223(f) program for the acquisition. The bank wanted the sale to close within three months, and a broker assured Vaz that the FHA loan could be closed in that timeframe.
But in mid-February, Vaz received a letter saying the loan did not go through. “That was a huge problem for me—the program would’ve given me 85 percent LTV, non-recourse, with a rate of less than 6 percent,” Vaz says. The only loan he could find for a bank-owned property that was just 64 percent occupied offered just 60 percent LTV, was recourse, and had a 13 percent interest rate.
Once the FHA loan fell apart, Vaz had three weeks to close the deal or he would lose the $50,000 in hard money he had put up. So he started talking to as many brokers as he could. One broker introduced him to a group of private investors out of Utah, who immediately committed to the deal when they heard the discount that Vaz was able to negotiate. “My ownership was almost nothing; they had to buy almost the whole deal,” he says. “But the most important thing to me was how I can help the deal and that group be successful.”
And Vaz ran with the opportunity. Since the bank had made some capital improvements to the property, it was ready to rent but wasn’t being marketed. Vaz made 10,000 fliers and personally handed them out in church parking lots on Sundays while the property was under contract. “I can name the seven local pastors at all the local churches because every Sunday, I was in church parking lots giving away fliers,” he says. When the deal finally closed March 28, it had an occupancy rate over 90 percent. And the Utah investor group would go on to partner with Vaz on five more deals.
The last deal that Vaz closed, for the 266-unit Lenox Court Apartments, was another distressed note acquisition, selling for $3.4 million, though the note itself was $6.2 million, and the original borrowers had $8.5 million in total financing on the property.
Vaz says that success has bred success. Since that first deal, Conti had closed nine more deals, one every 45 to 60 days, and local lenders struggling with distressed assets or notes are now calling him based on that track record.
Vaz says there’s no particular secret to working the lender network, just go out and meet as many people as you can and inquire. “Many people want to do it the new way—send emails to as many people as you can and sit back and expect them to come to you,” Vaz says. “But the old way—meeting in person, shaking hands, trying to negotiate as many REO meetings as I can—is the best way. It’s just hard work, homework, and relationships.”
The same week he closed on his last deal in Dallas, he was offered double what he paid. For Lenox Court, he was offered $1.5 million over what he paid—the same day the deal closed. And the future? Well, with Conti working to traise its next acquisition fund, it will certainly include another batch of remarkable deals.