It was not exactly how Randall Friend, Kyle Martin, and Kenneth Melton imagined they would be closing their first big real estate portfolio. The trio, who are partners in Eagle Real Estate Group in Anaheim, Calif., had just established their business plan and, almost immediately, made a successful offer for a $40 million portfolio made up of five apartment communities in Ontario, Calif. "It was kind of a spur of the moment thing," says Friend, a real estate lawyer who wanted to try his hand in multifamily housing.
While the new partners were excited to get the portfolio, they were not totally organized – which became apparent as they were preparing to meet the vice president of Pacific Gulf Properties, the seller. Just as they were about to take their first big step into the multifamily business, they realized they were missing one important thing – business cards. So, just minutes before signing the final papers on the deal, they were at Kinko's picking up their newly printed cards.
Fortunately, this last minute hiccup did not cause any problems, and the new company was off and running. After the deal, Friend closed his law practice to focus exclusively on real estate. In the two years since its initial closing, Eagle has acquired more than 2,000 units, totaling $175 million.
Friend and his partners at Eagle are not alone in their experiences. Their story is illustrative of all the minor details new multifamily firms must address before becoming viable players. Over the past few years, a number of multifamily executives have moved on to start their own companies. But this task is not as easy as it sounds. Before they can venture out on their own with any hope of success, executives must know when to start their business, where to find and tap financing and equity, and if their new partners are trustworthy.
When to Go Executives starting their own companies have similar stories. They've all been successful and had good jobs, yet there was always something pushing them to go off on their own – whether it was the feeling they had advanced as far as they could in their current job, the desire to run their own company, or the realization they were so well connected to equity sources that they could take their employer out of the loop and begin doing deals on their own.
Matt Perrin, principal of Trillium Residential in Phoenix, reached a ceiling at his old company, Mark-Taylor Residential, also in Phoenix. He knew it was time to move on. In his 10 years at Mark-Taylor, Perrin had grown professionally and developed some great relationships. In 1996, when he became president, the company had approximately 2,400 units and 250 fee-managed units. When he left six years later, in 2002, it had 6,200 units and 2,500 fee-managed units.
But Perrin knew he always wanted his own company. Though he recognized the inherent risk, he still craved the ability to control his own financial future, which he could only get with ownership. "I did not have control over the direction at Mark-Taylor," he says. "Also, I wanted to make sure I was going to be involved in the development side, not just operations."
Perrin began talking to competitor David Dewar, who was a partner at Magellan Residential, another Phoenix-based developer. While their conversations started as general discussions about the market, they soon found themselves talking about their careers and aspirations. They realized they not only had similar goals, but, most important, they had complementary skills. Dewar was skilled in development and financing, while Perrin knew the property management side and how it related to underwriting deals.
In January 2003, Dewar and Perrin thought the market was ripe for a new multifamily business. There was a lull in the development cycle, which Perrin says provided them with the perfect opportunity to position the company when the market turns. "I realized that there were really no other options for my personal advancement, fulfillment, and enjoyment [at Mark-Taylor]," he adds. "When you couple that with the appropriate market conditions, I knew that the time to leave was as good as it ever was going to be."