Like many former REIT executives, Jeff Adler went into the consulting business after he left his chief property operations post at Denver-based AIMCO in October 2008. That same month, he launched The Sanctuary Group, an Englewood, Colo.-based management consulting and investment banking firm, with the goal of acquiring and executing value-add redevelopments on garden apartments in several Western U.S. markets. But early into the job, he felt something was missing.
“While I was excited that I was leveraging my experience, it seemed as if I wasn’t bringing anything interesting to the table,” Adler says. “I couldn’t get to where I thought I was doing something different; something where I’d make a big change.”
Then, last June, Adler came across a concept that he describes as a “genuine real idea that genuinely solves a real problem.” He stumbled upon a posting on SelectLeaders, an online real estate job network, for Multifamily Indexed Equity (MFIQ), a now Denver-based firm that invests in multifamily property partnerships by employing a distinct, patented investment structure. MFIQ’s preferred equity purchase/partnering structure replaces property debt and leaves the current management in place with incentives to create additional wealth. MFIQ receives cash flows that are indexed to the property’s local rent inflation, with owners receiving proceeds to pay off debt and unlock equity. MFIQ delivers inflation-protected returns to its investors and protects owners from destruction of equity resulting from default by providing permanent capital with guaranteed exit provisions. While the upside is limited compared to traditional debt financing, owners retain all the upside from above-average operations. Additionally, the system rides out fluctuations in value and NOI, while eliminating risk from refinancing. The concept was developed by Alan Weiss, who helped design the Case-Shiller single-family home price index.
Adler was so impressed with the idea that in the fall of 2009, he traded in his consulting gig to head up the multifamily sector of Weiss’ program (which also covers the office and single-family space). “I thought it was a great idea,” says Adler, who serves as the firm’s CEO. “While it is a financing mechanism, fundamentally it’s about how well you operate the properties. I thought this was what the industry needed—a new way of thinking about financing properties.”