A historic seven-year surge has lavished focus on multifamily’s big, scaled enterprises as they’ve resculpted the for-rent landscape. That’s as it should be; they’re the ones with access to capital, land positions, talent pools, and tech infrastructure. That’s where most of the drama’s been, as these multiregional public and private companies jockey for dominance across America’s fastest-growing local economies.
Still, as market momentum starts to shift, we’re curious about whether smaller operators—the ones full of the entrepreneurial fire that prompted them to start up against some stiff odds—have what it takes to scale up. Common among these firms, we note the critical importance of a range of skill sets that enable even less well-resourced players to spring opportunistically on cue.
Yet, apart from the business and technical proficiencies we came across as we looked under the hoods of three small to medium-sized firms—Pensam Capital, Avesta, and Trion Properties—we also struck upon something else in their DNA. Each—a classic entrepreneurial outfit composed of two parts bootstraps determination and agility and one part financial shrewdness—operates with nimbleness as an essential strategic ingredient, enabling each to outmaneuver larger, more powerful competitors.
What sets them apart from their peers, perhaps, is neither a business model, nor a vision, nor a strategy. Rather, it’s an embedded purpose that supplies energy, urgency, and the drive to win. Here’s how.
Trion Properties
Max Sharkansky and Mitch Paskover first met when they were 10 years old, growing up as close family friends in the Los Angeles environs. As they grew older, the two decided to attend college at Loyola Marymount University and the University of Southern California (USC), respectively. After graduating in 2001 and 2000, they both chose to pursue careers in multifamily real estate. Sharkansky went into the brokerage side of the business at Marcus & Millichap, and Paskover tackled loan origination and structuring joint-venture equity at HFF.
In 2005, the duo decided to start their own business together as principals, doing smaller deals in the greater San Fernando Valley area. The name they picked for the firm—Trion—stood for the thread of friendship and parity in their plan, as it literally blends the school nicknames of the USC Trojans and the Loyola Marymount Lions. By 2006, the venture had grown large enough that the two men left their jobs to start pursuing deals.
“For us, it was a great time,” Paskover says. “We saw the opportunities the principal side of the industry had to offer, so we made the decision to leave brokerage and work together in syndicating our own deals.”
So Sharkansky and Paskover sold off properties quickly. Given what happened in 2008 and 2009, that was great timing. “We got lucky,” says Paskover. “We didn’t take big hits.” When the market turned, they tapped their banking contacts and began buying notes on apartments. “It gave us an edge when the whole market turned and [we were] buying notes,” Paskover says. Trion bought approximately 20 notes in California by 2010.
Ultimately, Trion didn’t end up taking over any properties. “Most of those notes worked out,” Paskover says. “We were buying at a discount because borrowers had issues paying their loans, but almost all of our notes paid off. We tried to work with the owners and didn’t force foreclosure.”
Trion turned to conventional acquisitions in 2012 and since has bought 1,488 apartment units and 217,142 square feet of retail. Its niche is as a value-add multifamily investor focused on Los Angeles, the Bay Area, San Diego, and Portland, Ore. The firm recently closed on a 146-unit, $36.6 million deal in San Leandro in the East Bay area. Trion’s sweet spot is ’60s, ’70s, and ’80s vintage deals, priced north of $8 million.
The core values underlying that business model, whose aim is to one day compete on the level of a Carmel Partners or TruAmerica Multifamily, are about trust and transparency, says Paskover. “We want to run an operation where people not only come to work prepared, but come prepared to have fun. If we enjoy and trust one another, we’ll work more successfully.”
Pensam Capital
Michael Stein formed Pensam Capital in 2009, with 20 years in the industry under his belt that started in 1990, with CB Richard Ellis, and continued as a partner at Miami-based Aztec Group through the early 2000s. Pensam’s business is owning 14,736 units and operating them (with on-site property management by BH Management) in nine states. It also has an opportunistic development platform, including two projects totaling 600 units, and a pipeline of about 1,000 units.
What sets the firm apart from traditional apartment operators is its lending presence, serving as a bridge and mezzanine lender and preferred-equity investor. “Our lending business is really situational,” Stein says. “We’re not a bank and not a debt fund. We’re private capital that can move quickly and solve problems.”
For instance, Pensam has provided infusions of capital to developers who lost financing after breaking ground. The nimbleness it takes to spring instantly when circumstances are right doesn’t come by accident. That instinctive spark lies in the fact that Stein’s mainstay team of “doers” is millennials, an intended mirror of Pensam’s residential profile.
“We play in senior debt, to junior debt, all the way through equity,” Stein says. “We’re able to play in different points of the cycle.”
Pensam operates its ownership, management, and lending activity on the same platform. Its lending geography mirrors its ownership footprint. About half of the firm’s portfolio is in Florida and Texas. The other 50% is in suburban Chicago, Denver, the Carolinas, and a few other markets.
“From an infrastructure standpoint, it’s synergistic,” Stein says. “Everybody is cross trained. The underwriting, analysis, and transaction process isn’t much different to close than an equity deal, a preferred deal, or a construction loan.” Apart from the cross-disciplinary expertise, the sheer verve and innovation at Pensam come from how empowered and “professionalized” Stein’s young team is.
“We’ve taken folks right out of school into their first job and given them a lot of responsibility and taught them to be collaborative and innovative,” says Stein. “That kind of dynamism has two benefits. One, we know firsthand what makes our residential communities tick; two, there’s a lot of reverse mentoring that happens. I learn something every day from my younger team members.”
Pensam may have multiple business lines, but ownership and management remain at its core. Stein wants to grow his portfolio in a disciplined manner and hold what he owns with long-term, fixed-rate debt. He’s sold only two or three assets over the past eight years.
Stein’s instincts still lead to “generational” deals such as The Breakers Resort, a 1,523-unit Denver property Pensam bought in November for $350 million. “It checked every box as an investor. It was in an irreplaceable infill location, had [affordable] rents for that market, had low density, and was built in the ’90s but wasn’t functionally obsolete.”
Avesta
As the multifamily industry evolves, apartment executives tend to come from business backgrounds.
Not Rob Reynolds. In 2004, Reynolds started teaching science at Harry S Truman High School in the Bronx. A year later, he obtained a master’s degree in education. Then, Reynolds and his brother Peter—who focused on real estate—started buying homes. Profit was a motivator, but Reynolds had a larger goal.
“Every book we read about property management urged treating people as income,” Reynolds says. “That’s not the way I saw people. I got to know them as we were improving places and collecting rent. We wanted to acknowledge the dignity of them and their families, and see how we could better serve them.”
In 2010, Peter saw the opportunity to create a new real estate company focused on high-growth markets in Florida. Peter, a graduate of Harvard Law, along with Rob and co-founder Nathaniel Fischer, a Harvard classmate, recruited an executive team. This was the founding of Avesta.
They chose Tampa, Fla., as their base. In 2011, Rob left teaching and moved to Tampa to go all-in. Dan French, current CEO, who’d done deals with the Reynoldses since 2005, relocated to Tampa in late 2011.
“We saw an opportunity while the markets were depressed to start building a multifamily portfolio,”
Rob says.
Since its founding, Avesta has acquired approximately 13,000 apartments throughout Florida and in the Texas cities of Austin and San Antonio. About 30% of its portfolio, which is largely ’70s to ’90s Class B and C construction, is in Texas, and about 70% is in Florida.
“We sought out states with the best long-term fundamentals,” Rob says. “In those states, we focused on markets where there’s job growth and long-term trends of population growth.”
Avesta seeks value-add opportunities in these markets. Many of them come from mom-and-pop owners, but lately, Rob Reynolds says, the company is seeing more opportunities to buy from REITs that are selling their older assets.
Avesta is a vertically integrated company with in-house acquisition, construction, and property management platforms. It also raises equity in-house. Even though the company has grown significantly since 2010, Reynolds says it has held to its original values.
“If we can have a positive impact on families, then we can influence society,” he says. “I’m a very purpose-driven person. The mission of the company is all about glorifying humanity and building community, and doing that passionately. When we target people to hire, they have to have that zeal for purpose as well.”
