In September, Chicago-based Redwood Capital Group announced Bob Flannery, a veteran multifamily executive, had joined the apartment investment and management company in the newly created positions of executive vice president and chief operating officer. Flannery most recently served as president of CA Residential, the multifamily development platform of CA Ventures, where he helped build a $3 billion portfolio of Class A assets in major growth markets across the U.S.
Flannery has been charged with doubling Redwood Capital's assets under management. MFE recently caught up with Flannery about his new position and the company's expansion plans.
As Redwood Capital's new COO, what are your goals and strategies for the company?
Flannery: I am spearheading Redwood Capital's effort to double in size, from $1.5 billion in assets under management to $3 billion, over the next five years. It's a bold and aggressive goal, but it's one that we are well-positioned to accomplish.
David Carlson and Mark Isaacson founded this company in 2007, and since then they've built an organization that's rich in experience and expertise. Over its 13 years, Redwood Capital has acquired, renovated, and repositioned more than 70 individual communities totaling about 23,000 apartment homes. The company is vertically integrated with property management, asset management, and construction management divisions. It has invested nearly $1 billion of equity on behalf of institutions, life companies, global fund sponsors, and family offices.
One of my chief responsibilities will be strengthening our existing relationships in the institutional and private equity investment communities as well as building new ones so that we can successfully pursue our growth goals. To achieve these goals, we will need to be creative and innovative in our approach to both capital and acquisition strategies.
What asset types will Redwood Capital be focusing on and in what markets?
Flannery: Today, our research and risk-adjusted return analysis has us focused on newer, core-plus properties located in the suburbs of Atlanta; Phoenix; Austin, Texas; Dallas; Denver; Minneapolis; Raleigh-Durham, North Carolina; and Washington, D.C./Northern Virginia. We have already successfully transacted on $600 million of core-plus acquisitions since initiating this strategy. In October, we completed our most recent core-plus acquisition: Brookside Heights, a new 210-unit, garden-style community in Forsyth County, just north of Atlanta. Brookside Heights is a great addition to our Atlanta portfolio, which has doubled in size since 2018.
Traditionally, Redwood focused on acquiring and managing 1980s-era, value-add assets throughout the South, Southwest, Midwest, and the West. We currently own and operate approximately 9,000 units in these regions.
We look forward to continuing Redwood’s track record of success in value-add investing, but in the current recessionary environment, we believe our core-plus thesis provides more runway for expanding our footprint and providing our investment partners the optimal risk-adjusted returns.
Why do those particular metros appeal to Redwood?
Flannery: Redwood is very disciplined in our research. The markets we have identified meet the metrics established through our proprietary research database. We take into account demographic data points on population growth, job growth, and household income, but we also factor in other unique data points that are weighted and evaluated quarterly. This research supports our investment thesis in the target markets and provides confidence to our investment partners that we can navigate the current economic difficulties. We're bullish on suburban apartments in general and think the suburban areas in these markets are especially strong.
What is your overall assessment of the health of the apartment industry as we enter the last months of an unprecedented year?
Flannery: It is a vast understatement to say that 2020 has been a challenging year. "Unprecedented" is a word that gets used a lot to describe this year, but it's absolutely accurate.
Despite the challenges of 2020 and what may be in store until the end of the pandemic, I believe the long-term outlook for the apartment industry is quite strong. Generally speaking, there is a healthy balance between supply and demand, and many renters—from members of Generation Z to baby boomer empty nesters—prefer apartment living to homeownership because of the convenience and lifestyle it affords. This is evidenced by the strong overall performance of Redwood’s portfolio in 2020 despite the economic and pandemic challenges.
How has the COVID-19 pandemic changed the way Redwood does business?
Flannery: Our on-site property management teams have certainly instituted all the standard social-distancing and safety protocols, and we have increased our use of self-guided, virtual, and video tours to accommodate prospects.
On the acquisition front, as you might guess based on our five-year goal, we have been and will continue to be aggressive during the pandemic. We are proud to have closed two acquisitions in the last 60 days and expect to continue the same pace of acquisition activity into 2021, and we will also actively pursue portfolio deals and potential M&A opportunities.
The multifamily investment industry is resilient, and capital understands that the macroeconomic environment for apartment investment remains strong.
