Yat-Pang Au Leads Veritas Investments to the Big Time

In the early days of Veritas Investments, there wasn’t much investing taking place. Slowly but surely, though, things picked up.

After launching the San Francisco–based company in 2007, founder and CEO Yat-Pang Au doubled the size of the firm in 2008 with the hire of a part-time bookkeeper named Edith Anicete, who worked from Au’s dining room table.

“This isn’t something I actually ever thought would happen,” Anicete says nine years after joining Veritas. “I just thought it would be a bunch of those friends and family [deals], but nothing on this scale. This just really blows my mind.”

The “this” to which she’s referring is the Veritas of today, which employs more than 200 people and is the largest multifamily operator in San Francisco, with more than 5,000 units in more than 200 buildings.

Au grew the company from a boutique outfit that controlled a handful of properties he owned personally to a player that garners attention from major institutional investors and brokers. Last year, Veritas closed on an $815 million refinance of a roughly 2,220-unit portfolio. About two years prior, it had financed the same portfolio for $685 million and paid down the debt to about $600 million before the refinancing.

“We’ve proven out our investment theories from a financial and an operating side,” says Roger Snell, the company’s chief investment officer, adding that lenders now know “who Veritas is, what our investment thesis is, and how we’ve been successful.”

The strategy implemented by Au has transformed Veritas from a small company based in his home to a powerhouse of Bay Area real estate headquartered in a modern office a few blocks away.

And it’s why Au is MFE’s 2017 Executive of the Year.

Starting Out
Au was born and raised in the Bay Area. His parents, born in Hong Kong, met when they each moved to the Bay Area to attend college before marrying and raising five children together. Au, 48, is the oldest.

He initially pursued a career in engineering before realizing his true strengths centered on people and fostering relationships. He switched gears and got an MBA from Harvard Business School in 2000.

While running his family’s residential and commercial alarms business, Au bought his first, six-unit property in 2003. The purchase wasn’t part of an investment strategy; he simply wanted his then-­girlfriend to move in with him. (Au married Helina in 2006 and the two have three ­children.)

By 2007, Au owned a couple more properties in San Francisco and wanted to build a business using his assets while soliciting investments from friends and family to acquire other small buildings in the city.

“I thought, in 2007, ‘the real estate market is hotter than ever,’ ” he recalls. “ ‘What could possibly go wrong?’ ”

Veritas Investments was born.

The assets Au already owned, coupled with the fact his company had almost no overhead, allowed Veritas to survive the worst of the recession. A consummate positive thinker, Au never considered folding up shop. “When you’ve got nothing, you don’t have too far to fall, so you might as well go for the gold and grow,” he says. “I thought there would be a brighter opportunity on the other side [of the recession].”

Soon enough, he would put his people and relationship-building skills to good use.

Au continued to pitch friends and family on investment opportunities, but the company’s major breakthrough came in 2011, when one of the market’s major landlords, Frank Lembi, needed to sell a large chunk of his company’s portfolio.

“A whole host of institutional investors saw distress in their portfolio and tried to do a deal with them,” Au says of Lembi’s company. “I kind of just hung around the hoop for a year or two and said, ‘Hey, let’s see if we can work something out.’ Then, over time, we were able to build trust and build a relationship that allowed us to transact, ultimately.”

In 2011, Veritas closed on a $500 million acquisition of five portfolios comprising more than 2,000 units. Prior to that, the company had controlled fewer than 100 units.

“If it weren’t for the great financial crisis, the relationship built with Frank Lembi, and the opportunity to acquire their portfolio of assets, which became our institutional portfolio [and] allowed me to invite my first institutional equity partner to join us, Veritas Investments would probably be a very different firm today,” Au says. “Probably a lot smaller, too.”

In a short period of time, Veritas’ unit count increased 20-fold and Au was running a much different company from the one he started.

To find the capital needed to acquire the portfolios in 2011, Au used his connections from Harvard. Previously, he had been acquiring only buildings in the $4 million to $5 million range. “By reaching out to my network and having both the confidence and humility to ask, I was able to get some really good advice, which then led to introductions to my first institutional partners,” he says.

The Institutions
The smaller assets in San Francisco never garnered much attention from institutional investors, Au says. “It’s a combination of the assets are of small dollar value relative to what institutions are used to playing in; they tend to be older stock; and there are oftentimes regulatory issues as well as operational issues,” he adds. “You can’t ­deliver services from an on-site team to a 20-unit building.”

To get around that fact, Veritas has built a platform to centrally deliver services to buildings with 20 to 30 units.

“We believe our greatest strength is that we continue to institutionalize this small unit-count aggregation strategy that predominately [involves] mom-and-pops,” Au says. “By doing so, we’re able to offer our investors a big opportunity to come in at a lower cost basis with higher operating leverage because we’re now at a platform at scale and can play in all parts of the capital stack, from equity to debt.”

Also, unlike developers who build from the ground up, Veritas acquires buildings that are decades old and lack the amenities today’s renters are after. “We enhance amenities and shared-economy services that are able to provide that level of amenity package that our millennial demographic so desires,” Au says, noting that many of the company’s properties offer Zipcars on-site, electric scooters, and Google Fiber. Veritas has individual websites for each of its properties, which generate the majority of its leads, and has its own leasing management company, RentSFNow, and property management company, Greentree.

Typically, ownership is fragmented when it comes to small assets, which makes the market as a whole inefficient. “So what we’ve done is capitalize on a fragmented asset class that’s nearly impossible for institutional investors to be involved with, because the dollars are so small on an ­individual-asset basis,” says Snell, who joined the company six years ago and has been in the industry for more than 30 years.

It was Snell’s relationship with Eastdil Secured CEO Roy March that led to a partnership between Veritas and the New York City–based real estate investment banking firm. The two have known each other since their elementary-school days in the Sacramento, Calif., area. Over the past 18 months, Eastdil and Veritas have partnered on $1.5 billion in total market transactions, including debt financing.

“They’ve been on the leading edge of finding what I’d call diamonds in the rough in the multifamily space, and being able to move with alacrity and creativity to buy assets that may have been underprivileged in the past, and reimagining them into contemporary living spaces in one of the best markets for that kind of thing in the country,” says March.

Veritas also has a working relationship with Ivanhoé Cambridge, a Montreal-based firm and one of the largest real estate investors in the world. Au first met some of Ivanhoé’s executives at a conference in 2012 and cultivated a relationship for another two years before the companies partnered on a deal, in 2014. Ivanhoé Cambridge is now one of Veritas’ largest investors.

Daniel Fournier, Ivanhoé’s chairman and CEO, says his firm’s partnership with Veritas exemplifies Ivanhoé’s global city strategy and “developing critical mass with a specific kind of asset with the best expert partner.”

“Pang is a great example of the modern real estate entrepreneur,” adds Sylvain ­Fortier, president, residential, hotels, and real estate investment funds, at Ivanhoé. “He’s ahead of Silicon Valley trends like the sharing economy, capturing synergies with a more traditional business, and introducing innovative ways to look at real estate.”

With thinking differently in mind, Veritas partnered with Airbnb two years ago in order for the two companies to exchange information and ideas. “We use each other as sounding boards,” Au says. Jaja Jackson, Airbnb’s director of global multifamily housing partnerships, says Veritas’ ability to match small assets with “premium sources of capital” is unique.

Veritas is looking to expand to the broader San Francisco Bay Area, Au says, with an initial focus in Oakland. The company mission, he adds, is to “transform real estate into desirable communities for people to live and work while creating exceptional values for our residents, employees, and investors, and in that order. If you make your customers happy, your staff happy, investors will ultimately be happy.”

As of late, Au and Veritas have made a lot of people happy.

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