#331 - David Moore - Co-Founder & CEO @ Knightvest Capital - Investing in 55,000 Apartment Units: Stories, Lessons Learned, and Insights On Current Apartment Market

Chris Powers: I thought a good place to start would be the first property that you ever bought. It's an infamous story. Some people have heard it. A lot of people haven't. You purchased 44 units for 12 grand, not per unit, right?

David Moore: Yeah, 12 grand. It's a crazy story. I've told it a few times.

People at night best have heard it at every annual event: how did we get started? So, I was about 30 years old and had just been laid off at a real estate private equity firm. It was in 2008, so it could be a better time, and people forget like I didn't have, and it wasn't like, Hey, I'm going to apply here.

I'm going to get another job. It was tough for a, you know, real estate, quote-unquote, professional that needed to have expertise. So it was tough. So I met a friend and another friend, and we were unemployed real estate guys. And we probably officed in a room this size, and we went in every day, and honestly, we had no idea what to do. Let's start buying properties at a tax foreclosure sale—1st Tuesday of the month. You get on the courthouse steps. You had cash in our boot so that we could buy a single-family home.

So, we were going to flip a single-family home. So, I was still married but married with two little kids. No money. It is an exciting way to, you know, to go through your professional life. So, we cashed in on 401k and had three of us. And so we probably had, I don't know, 40 or 50 grand that we scratched together literally in cash.

So we were buying single-family homes, very frustrated. We bought one and were terrible at renovating; I remember the first one we bought for 44,000, one home and renovated that one, and then we were at an auction. It was July of 08. So we bought a few houses. So Knight Vest was technically in business before because we own some single-family dwellings.

So, at an auction in July of 08, we targeted some single-family homes we would buy. Well, those, for whatever reason, went too high, or it's frustrating, or they didn't make it to the sale, and the constable comes up and says, I have a 28-unit property. And all I know is there is a structure on it, and people live there, so I need to pay more attention. There are probably 100 people in the room. I should have paid more attention. And because we had never seen this deal, We have never done anything in multifamily, which is horrifying. It is a story, not a what to do and how to get started. It's just a story that happens to be true. And so he's on the tax rolls. The way these tax foreclosures work is the opening bid is whatever. It's on for the tax rolls. So it's 488,000. He's like, we're going to start the bid there. No one bids. And then, with no emotion, nothing, he says, open bidding. 

I have no idea what that means, except a guy in the front row raises their hand and says 100 dollars. My original business partner was Casey Cromback, who is a great guy. I always talk to him; we are still great friends today, but he is more of a risk-taker than I am. So he's more, and we're both entrepreneurial, but he's entrepreneurial, you know, come to, you find out your lane once you get going and I'm more operating, you know, mindset, and I am sure it was him. And he raised his hand and said 200. And so, anyway, we got carried away.

He may have been to an auction, but it's, you know, 400, 500, 2000, 2500. So it's 28 units. And so we walked out of there, and I remember the person in front of me turned around and was like, do you guys know what you're bidding on? And I was, I don't know if it was me or as the guy's giving advice to stop bidding, it was like, 10,000, you know, so kind of a jerk.

Maybe anyway, so we walked out of that auction with a 28-unit property, a 16-unit property that we bid on later for two grand in a commercial lot, none of which we'd ever seen. We have yet to find out where they are. And so you go, peel off a hundred dollar bills and put a stack of hundred dollar bills there, and they give you deeds and a piece of paper.

I don't know what the paper said, so we left that auction. So we were three partners then, and our third partner was like, you guys are crazy. I'm out. I'm not; I mean, keep in mind our partnerships are loose, but he's like, I don't want anything to do with apartments, you know, nothing about flats, and I'm out.

And so I was like, well, it's just the case. And I went to lunch, and we're like, I think it's just you and me. And so, after lunch, we drove to what we had bought. And so it's just a horrible movie of every, you know, wrong turn. And then you're like, you convince yourself.

We can make this work. I may not turn left up there, and sure enough. It's like you turn left and then and then it's like, okay, I can, this is scary, but we can make this work as long as it's not, you know, every wrong turn. And then all of a sudden, you pull up, and you're thinking and feeling like, what have we done?

What have we done? So we show up, and we know we have nothing, so yellow tablet or like, let's start at apartment 101. And that's how we started. So we knocked on 101, opened the door, and we're like, I'm David, this is Casey, we're your new landlord. What's your name? How long you've been here? What do you pay? And it's just that's how I started.

And it went down there every day. We didn't have any money, which means we didn't have a vast burn as far as monthly obligations, and we had no job. So we went down there every day. We collected rent. We took, you know, I carried the leasing phone and sign.

I carried that for a while until I could find someone else to have that phone; we tried to fix things as best we could. I mean, it was unfortunate. So people would say, Hey, my refrigerator doesn't work. So I, okay, you know, which is now you can't do, and I didn't even know fair housing, but we're like, okay, the refrigerator is a need that you need today. We won't get you a new one because we need the money for it. But let us call you a working refrigerator. They're like, sweet, so we get a fridge. The next guy is like, man, my carpet is just terrible. And you look in, wow, that's like the original carpet on earth. And so we're like, okay, you pay a month's rent, and we'll trade your carpet in.

You know, trade your carpet out and get your new carpet. We started carrying a little bit. You can't care too much because then you'll get taken advantage of, you know, we wanted to treat people. We put them in a, you know, provide a better housing situation than they were currently in.

And that's how we started, along with many of the philosophy we did that day. We still do today, and it's a straightforward business. That's hard because you have to do the same thing every day. But treat people well, care about them, and enhance their living conditions. And that's what we did then; it's what we do today. 

Chris Powers: Were you all Knight Vest at the time? 

David Moore: We were Knight Vest. 

Chris Powers: What is Knight Vest? 

David Moore: Knight Vest is made up, so we were initially Kensington Capital. And someone had a similar name. And so we had the logo, which is a K.

So, we needed a name with a K to get the domain name. Knight Vest is where it came from. And it's like night. We are protecting your investment, Knight Vest. But it's because we could find @Apple.com was taken. So we went to Knight Vest. 

Chris Powers: All right. So you buy the 44 units, two properties, 12 grand.

You got a company name. You have some business cards and a tiny office. How long did it take? Was it immediate or not, but in that first deal, it was like, okay, we're going to do apartments. Did you keep trying to do other stuff, or were you laser-focused on flats? 

David Moore: So that's a good question. After buying those first two apartments, we immediately bought two more from someone else who had bought them. A firefighter bought two properties at that auction that were in the same area. So this was seized property from the city of Dallas by just a true slumlord.

And so he was a firefighter. And he was like, holy smokes, I had no idea what I was getting into. And we're like, hey, well, I think he paid five grand. And, you know, I need to remember the details, but we'll pay you ten grand, and we'll take those. So, we soon had four properties within walking distance.

And after that, it was 72 units, four properties. That's a full-time job if you need help. And so we did that, went down there every day. And we were off and running and then realized that you really like, you know, feel like there's a need to provide better housing.

And people appreciate that. And, they'll pay rent, and it's a viable business. So, from pretty close to day one, we realized this is what we want to do. We didn't know how to do it. We were still determining how we would make a living doing it. But we're trying to figure that out quickly.

Chris Powers: From that day forward, you were all property managers. Did you ever need to manage correctly? 

David Moore: No, we had no money. 

Chris Powers: Okay, so property management was the thing.

David Moore: Yeah, and the scary thing is that we had no idea what we were supposed to do. But we knew everyone liked to clean so that we would clean twice daily.

So you clean in the morning, clean in the afternoon. It's a little; everyone wants a refrigerator that works. It's different from what we do in rocket science; it's hard work, and you got to do it again the next day. And you got to look the other way when they, you know, you clean it up at five o'clock, and you come back at nine in the morning and property's trashed again.

You're like, let's clean it again. Clean it again. 

Chris Powers: It's so funny you say that. When I owned properties at TCU, I needed more money and help understanding property management, like rules and regulations. Most students would move out and leave the couches as they would leave their lives. And they carry out late. I have like parents moving in two weeks later, I go into the house, I collect everything in a U Haul, and then I pull up to the dump and realize it's like a five or 600 feed to dump it all, and I'm like, well, I don't have to stop pull around. I find this dumpster hidden and, like, stack couches and all this stuff by this dumpster.

Well, then, I sent a letter to the tenants. It was like, I got to, Like, I was going to charge for moving all their stuff from them. And I'll never forget, like, one of the parents, I guess, was, like, driving by this grocery store where I had put all this stuff and, like, took a picture of All these couches staggers I was like, I knew nothing about property management, and that's when I learned quickly, like, you have to play by the rules a little bit.

David Moore: Yeah, you do. I've got a, tell a funny story. You know, we're trying to do it differently. So, our first real deal with outside money was in 2009. And so, it's a crazy story. I may tell it. So, we realized that we needed to raise money to do bigger deals. I have a finance background, is in real estate.

I understand the numbers; we need more significant numbers to make a living. It's as simple as that. So, we put a 300-unit property under contract, so we're ready. I mean, we got 77 done let's go. So, let's do 300. And the broker wouldn't; he's a good friend of mine, Taylor Snody, who's probably one of the top brokers in DFW, if not America, but he was young, younger than I was, then, or more immature.

And he really wouldn't even give us the time of day. He's like, Hey, we've got this, we've got 77 units. I mean, we're ready. And he sure he was like, this is a 2. 8 million deal for 300 units, and we're like, Awesome. He's like, I don't know. They're going to award it to you. And I remember repeating this, a story.

It's not what we do today. So I'm sure investors are like, this guy is reckless. But we said we would sign. We'll put 50 grand firm, which is all our money on day one, and we will sign the contract as is sent; they sent the contract, did not read it, did not read it, did not have an attorney, did not read the agreement, signed it, send it back, send our money to the title company.

I remember calling Casey and asking, do you know anyone with money? It is not really. And so we finally got that 1 does a pretty crazy story: my college roommate made some money in oil and gas. And in my pitch to him, it is like, you know, I'm not a dummy, I'll work hard, and you know, it won't cheat you.

And I was like, We may make money, but you know, those screens, right? He's like, I'm sure he was like, that's a terrible pitch. I got that he made some money, and we ended up cobbling it together, but we needed an extension because we couldn't get it done. The bank banking was crazy. We had no credit.

We had to get someone to sign on the loan, you know, stuff that that's how you get started. And so we couldn't hit the closing date. And the seller was like. If you need it, I will give you more time if you put up 20 grand. I was like, okay, so we're going home. We had our island kitchen countertop, and my wife and I were pulling out credit cards and calling.

To see what cash advance we could get that crazy, my wife's very conservative. Like, I'm sure she was like, what have I done? And so anyway, we, I finally, she called American Express, and you get two grand there, but you have to go in person. Casey was probably doing the same. We're trying to get it.

So finally, I was like, put it, put your stuff up. It is nuts. I called the seller. I'm like, listen, you have my money. I have no more money, but we can get it done. I need two weeks. And, he's like, okay, let's do it, so we, that's how that's the 1st real deal with outside money, 300 units.

Then Casey and I went there daily, and the office was on-site. We kicked the manager out front and would go to the manager's office; whoever got their 1st got a good seat on the desk, and whoever got their last set in a fold-up chair, laptops, and grind.

Chris Powers: It was just the two of you, and you ran that one too. 

David Moore: Yeah. So we did that one. 

Chris Powers: Okay. So you go from 77 to 300. I probably heard about you all, and this was, so 2009 is when you bought the 300. I started hearing about you from our friend Ty Smith and some guys around town.

They're like, there's these two guys out of Dallas, they're just buying all these apartments. I remember you all were paying 40 grand a door for some stuff here. And everybody's like, man, that's too much. You're crazy. That traded to 200 great a door not too long ago, so the bridge from when did the company start building?

David Moore: So, you know, bought a deal in, in 09, and we office on site. Then we bought a, you know, four or five deals in 2010. And then we would spend the morning in one property, and we'd spend the afternoon. I'm sure the managers were like, these ding dongs just left my property here, then here they come, and then we would split up because we had too many.

So it's like Casey, you go here and here in the morning and afternoon. I'm going to hit these two today. And then all of a sudden, you know, but probably 2012

before, we were like, wow, we have like something, you know, and so I remember we sold our first deal in 2012. And so, we hired our chief investment officer, who's still with us today. The brilliant guy is fantastic. And we told him, we hired him in 2012, and we told him, we're like, you know, we've never made money in a real estate deal.

And he was like, again, like, who are these people? So we sold our first deal in 2012, and I paid off 100 000 credit card debt. I paid off my MBA loan, had another personal loan, and owed taxes. The problem with acquisition fees is you pay ordinary income, and then every investor is like, well, you have to put the acquisition fee in the deal as your Combest. It creates a tax problem, which I only understood once it came. I don't have the money. In 2012, I was dead broke. It's a celebration day.

Chris Powers: But you're even again.

David Moore: I'm even, I'm even. And so by then, we'd had 10 or 12 deals and had some income going in. I can pay, you know, pay myself enough to survive. And that's when it's like, we've got a company, what do you want to do with it? And so we were like, we should stop officing on site; it's a great way to start, but you know, Investors are like, do you have any money?

No, we have time and reputation. It's all on the line. And so our deal was we're willing to do work that other people are not, we learned the business the right way because we had time and no money, and so after we'd been on site for three plus years, we're like, let's get an office. Let's start hiring some professional people, you know, let's now have a better plan.

Chris Powers: A story that most people don't know: when we were getting into industrial, we hired two teams, and we would get into class B value add multifamily value add and class B industrial value add. So we had 2, 2 person teams; this was like 2015, so the market had already started moving in hindsight. 

We still could have been the highest bidder on everything we looked at and done well. But at the time, we were like, the only way we win deals is outbidding Night Vest and S2 and whoever else was in the game. And there were like 30 bidders by that point. So the market, when did you start noticing that, okay, people are catching onto this, the market beginning to fill up with players?

David Moore: It's probably; we had a pretty open run for four years. And I mean, there's, Do you want this one? Yeah, I'll tell you, you like this one. 

Chris Powers: And did you all feel like you were like Willy Wonka at the chocolate factory? Like, why is nobody else doing this? Or were there ever days where you're like, why is nobody else freaking work?

David Moore: It is hard work, you know, it's hard work, especially at that level. We would go; we're on site. So the resident comes in and yells, you know, it's like, hi. 

Chris Powers: That's the thing people forget. It's not passive. These are not people's lives.

David Moore: You have to get the rent. The rent does not come to you.

You knock on that door and say, I'll be back tomorrow. You know, I'll be back. I mean, I've gone to eviction court many times. I know how to do that, which is crazy. Most people in my position have never done this stuff, which is not necessarily there's not a right way or wrong way to start a business our way; it's just our way. That's how we did it all. We know. But I know how to go to eviction court. I see the system that way. I know how you get rent. I know offering a resident money to leave, you know, that's weird, but if you have a resident who is dealing drugs.

You got to get them out, you know, and anyway, we used to confront drug dealers. That was my job, which is weird. Cause, like, I'm certainly not a fighter, but, I mean, I've gone in, you know, fight or flight is accurate, and you knock on a door, and there are drug dealers in there. And I've been like, you, you, you and you get your crap and get out. And they look at me like, This guy may be crazy, you know, I mean, it's like they know, you know, but anyway. 

Chris Powers: Owning a commercial building, where people, it's like their business, it's where they make their income. It's where they keep it friendly, especially for a small business.

I mean, they're serving customers and then where people, my mentor used to say, owning places where people have to, excuse my French shit at midnight. When that toilet breaks in an office building, it's a lot different than when it breaks in multifamily. It's like an emotional thing.

David Moore: If you get locked out of your apartment, if you get ACs out, I'll send it to you after this, but we've got some of the funniest voicemails about ladies' AC out in Texas. It's serious. It's real. They're irritated. People also love to complain and take it out on other people.

Chris Powers: It can be demoralizing because nobody calls their property manager to be like, you all are fantastic. Thank you for doing the right thing. It is pure; we're only contacting you once we've hit level 10 emotionally and are ready to go to town.

David Moore: I love it. I can't. I'm sure it's 100. Right. Of people saying they're going to call their lawyer.

I'm like, you don't have a lawyer. Give me a break. But you know, the lawyer card comes out often. But we'll take care of your issue as best we can. Yeah. Right. And so that's what we do. 

Chris Powers: You said early on, uh, you were terrible at renovating, but there's a quote that you had in something I read that tells you all became the best at renovating.

Did you walk me through how you went from being terrible to being like the best? 

David Moore: Yeah. And, really, from the very beginning, we wanted to take whatever property grade it was. So if it was a, we started in class D, if there's such a class, I don't even know. And we wanted to make it D plus C minus.

And really, it's just that's how you treat people well. And then, when we bought our first real deals, they were class C. We wanted to make them C plus, right? And we realized it's human nature to want one step above what you can afford. And that could be human nature.

Think about if you tell your wife you are going to buy a 200 000 house; the perfect house is 230 000 if it's 2 000 000, the ideal home is 3 000, 000, it's 20 000, 000, the ideal, so I think that is just if the battle your human nature there. Still, that's just reality, and we realized that we could attract better quotes and higher income residents if we made the apartments more excellent and then we just took it.

We kept going, and so we pushed the envelope like we were the 1st group that put. Granite countertops are in class C apartments, and people said we're crazy, and mathematically, I would disagree. I'm like, you put in the granite once, and you get to resurface it 100, 150 dollars 5 times every time, and that resurface cost hits you in a lie where you can capitalize your granite, right?

So I'm mathematical, you might be wrong, and you can attract a better resident, and then we did. And then we just kept pushing the envelope. How nice can we make it? And so, and now we mimic new construction. We've got a design team and house design team, and they go and look at what is new construction doing, and we copy it, and that's it's not like we're some expert in, in all of this or design, but just copying what the latest trends are.

And so we know. You know, a ten or 15-year property has the same experience as new construction but at a discounted rent. 

Chris Powers: When you think of CapEx versus Class C and then Class A, is it different in Class C, where most of the dollars you spend on the interior and exterior don't matter as much and vice versa?

Or does it change as you move the class through the class? 

David Moore: Yeah, I think so. And we did a few things. That hindsight was critical in scaling the company. And so one of those is we wanted to get out of the class C space fast. And so there's, when did you like, that was probably. In 2012, we were like list by nineties deals.

And so it was pretty early—so three, four years. And we've bought eighties deals since. But we're trying more and more. If you look at our last five years, we've bought just a few. Yeah. And, for us and why for us. The cap rates kept coming together between a C deal, a B deal, and a deal, and it needed to make more sense.

We specialize in renovation, so we only buy a few brand-new deals. We believe some, but not too many. So our sweet spot is the 2000 to 2015 and ongoing operating costs. It is hard to overcome if you find yourself in a market like this, where you can't sell, so the class C space in the 70s and 80s SpaceSpaceSpaceSpace is excellent. If you go in, you fix it fast.

If you flip out of it, you can make much money. And we've made money doing that, too. Yep. You get just hosed if you can't sell it, and you have to hold it for a few years because everyone underwrites. I don't want to get too, too, in the weeds, but get in the weeds. Everyone underwrites. No matter what class, there is a replacement reserve of $250 per unit Per year. Yeah. If you underwrote. And we're guilty of this, too. Some investors are like; now I'm caught when I send the following model for an 80s deal at 250 a unit on replacement reserves. But the actual cost is a thousand to 1500. Suppose you put that in your numbers. Above the line for NOI, you, your cap rates are so low, it has to be perfect.

So what happens is you have a four or 5 million capital budget. You fix everything out of your capital budget. You keep your 250 replacement reserve because the difference between 1000 and 250 was in your CapEx budget. Then, when you've spent all your money, you have to sell because that replacement reserve will not go away.

It will not go away. And so, and we didn't know those numbers. We just had that feeling that man, we just replaced this flooring and this appliance, and we've got to replace it again. 

Chris Powers: But why is that different in a B than an A? Because the quality of what you have to renovate with is lesser than what you have to remodel with.

David Moore: There's a couple of things.

The starting bones are better. There was a lot, really a lot of junk that was built in the eighties. Yeah. In, especially in Texas. Yeah. And there's just a different quality between something made in 2000 and 80. So you start there, um, and then it's renter profile.

Yeah. It's you, someone who lives in a B plus A and better deal; their incomes are such that they're likely. You know, more professional jobs are only there some days. You see, it's just the way it is. I mean, we'll, and we still own some 80s deals. The difference is that our basis is such that it works; we can do that the thousand are really up to 2000 a year replacement reserves because our basis makes sense.

Chris Powers: Just to be clear, what does replacement reserved to you mean?

David Moore: It's just money. You'll have to spend time fixing the apartment, and it's lovely once they leave, even when they're there. 

Chris Powers: Above and beyond, what could be built back out of the deposit if they destroyed the car?

David Moore: There is no, I mean, collecting there's a deposit.

Yeah, but over the deposit. And then, if people do damage, they will collect that your collection percentages are so low. It's got to be single digits. You don't, you don't even, I mean, we send it to a third party, and we get a check every once in a while. 

Chris Powers: Yeah, Even if they have like two dogs in there that are pissing all over the carpet.

David Moore: It's just part of the game. Yeah. We charge a pet deposit. Yeah. Somehow, all these dogs have one dog, and you go in there. Now they've seven or whatever. 

Chris Powers: Okay. Back to 2012 real quick. So, 2012, it's you, Casey. You've hired your now today chief investment officer. You started to realize, okay, we're going to level up.

We have the hang of this. Kind of just. Could you walk me through the years from 2012 to 2016? That's where there's an inflexion point. And the company starts moving.

David Moore: Yeah. So we hired some key people. So our CFO has been with us. Our chief investment officer has been with this for about ten years.

So now it's going back about that time, and the lady who runs our construction has been with this for ten-plus years. I remember our CFO had taken the company public and interviewed and was like, man, interviewed a whole bunch of people because we knew we needed to raise institutional capital; you have to have your back office tight.

You do.

Chris Powers: Okay, so there was an inflexion point of we're going to move high net worth. Okay, you are already on the road. 

David Moore: Yeah, mentally knowing that we need to up our game in these areas, we are construction and chief investment officer in our CFO, but CFO's particulars are an interesting story.

So she had just taken a company public, or it was on the team that took them public. And, uh, that's a lot of work. I was looking to do something different. So we met with her, and I remember her telling us, she's like, I can't work for you guys. I'm a professional, and so she's like, it sounds great what you're doing, and you know, but I don't know this is right for my stage of career, and so like, okay, so we met a bunch of other people, and I remember Casey, and I talked, and we're like, we met the right person.

I called her and asked how much money you needed to make to start on Monday. Yeah, so she told us, and I've looked at Casey. I was like, that's more than we make, but we made it work, and she's fantastic and been with this ever since. So this is when we were building out some of our critical senior leaders who are better than us.

And so that's important. And we made that investment and just said we, the person that runs our construction, were building huge malls. I told her that our resume was way better than our resume, but we knew it like we needed that, so that was the same point of us saying, let's move into more of the institutional capital and move a little bit out of the c world and get some professional help. And so all that work together is the following inflexion point of where the company grew.

Chris Powers: And were you all doing deal by deal? 

David Moore: We did deal by deal until two years ago. Okay. And we still do deal by deal. But we did deal by deal, um. Like syndications or? Find a deal, find the money, see the deal, find the money, find the deal, find the money. You know, and we would have, we try and go deeper with fewer partners, um, like our partner on our first deal, they're still partners today.

That's awesome. Our first institutional partners are still partners today. So we try, and we want to have deep relationships. I care, I always tell people; I care way more about the partnership than the document. Yeah. For sure, which I do, and I care way more about the partnership than I do and the partners' character than I do the necessary deal terms and splits.

And I indeed negotiate as hard as possible for myself and the team. Yeah. But ultimately, there's nothing worse. I don't care. It is ultimately 3%, 15%, or 17%. Ultimately, if the deal works, we'll all be happy. 

Chris Powers: Um, okay. So you start moving up the chain. Um, and then you said there were like five. After about five years, people incumbent started coming in. What year did the traffic of Class B multifamily buyers start? And it was just like enough people watching from the sidelines going, this is a great business.

Or was there something that happened? Because it seemed like busy quick. 

David Moore: It got busy quickly. What was interesting was we were moving up at that time. So, where everyone starts is on the lower part of the C space. So the C space got crowded, and we're trying now to go B plus a minus space. So, our competition was more institutional capital.

So we're now competing. I'm sure they're like, who are these? Who are these guys beating us out on deals? And I had never heard of them, but that's where it got wild. It got wild everywhere, honestly. It was wild around, but most of the people that you would think it was in the C and B space.

So we were trying to stay one step ahead of them.

Chris Powers: When did the period start where it sounds like, in the early years, and that's how it was for us in industrial; a lot of the stuff you could buy you could pick up off the market. When did it get to where? All right, it's harder to get off the market; almost everything is now going through a process.

So, was that once every broker had cold-called every owner in the country? 

David Moore: Yeah, maybe. I don't know because we did; we've certainly done a lot of off-market. Yeah. We've done 20 per cent of our deals off the market. We do fewer today off-market. We'd only buy someone off the market because they're trying to get a price in an excessive market.

So yeah, I don't know. Okay. Can you hit this? So, we still, a lot of our off-market are, is if they went through a process, they picked a buyer, that buyer fumbled. The seller is like, who will close? Yup. And so we've got an excellent track record of closing and, uh, thinking completed 180 deals, and we've put, I studied for this because I knew my wife was like, do you even know your stats?

Like, I just read them we've done 180 deals who sold, uh, sold 80 have 100 property. So 35,000 units currently, we have dropped. There are two deals. Cause I do DD issues there during COVID. Yeah, and so that's it. So we don't retrain, and we close deals. 

And we're only skipping around; we're in a few different markets. So we know the brokers and all the markets well; they're friends. And so if someone, if a seller, said I need to close by March 31st, as we noted early January, I cannot fumble that date.

Who gets it done? We are, to this day, on that shortlist.

Chris Powers: And do you prefer Fannie Freddie? Yeah. What is this? Explain real quick what the difference between not being a preferred with them and being a preferred with them means to the buyer. 

David Moore: Like, is it months?

Yeah, you get more modifications, attention, spreads, and execution. 

Chris Powers: And how do you get it? 

David Moore: You just volume. I don't know; they send me a little cube each year. They do? Yeah, so I got a whole stack of cubes. It's like a trophy? Yeah, a little trophy. One time, they didn't do it; it's something I asked.

So I sent a broker like 7 of these cubes then and took a picture of the seven cubes. These don't do much, so I don't know that it's cool, but I wonder if I'm not getting outlandish deals that others are not.

Chris Powers: Yeah. All right. I want to talk, like walk through a typical deal real quick, and then we're going to talk about the market today, but you guys buy a deal, and I know it's evolved, and it probably evolves with the vintage. But what is the team ready to do the day after you close?

Is it usually like we're going to start renovating units? We're going to do the exterior. How does this work for you all? 

David Moore: And now I'm getting given my playbook. That's okay. Yeah. There you go with 40,000 people. No, I'm happy to share. Our typical deal today in our last 20 deals, our average vintage was 2007, and so our last 20 deals.

It's a couple of years of acquisitions. We had a slower year last year, but still, we bought six deals or slowed this year since we started. Our average vintage is 20 in 2007.

We have a closing and takeover checklist that we've followed. So, we have an asset manager over every deal, a regional manager over every deal, the on-site team and a construction manager over every contract, so that's the leadership team. And we have a checklist of what we're going to do.

Um, day one, and the number one thing we do is we don't necessarily start with the units, we don't start sprucing things up, and we take care of existing residents. So we are professional. Yes. If a resident said, "Hey," the manager promised me a refrigerator before. Absolutely. We'll honour that. If they said, Hey, my carpet's terrible.

Let's change it out right now. We want to ensure we are scrubbing bubble gum off the sidewalks so we are taking care of the weeds. We are doing the little things that don't matter, except if that's your home, right? That's your home. And so we make it so clean. It sparkles.

And that's what we do. We take care of all resident's needs. We'll bring in extra maintenance guys. And we'll send a letter and say, Hey, if you have a work order, let us know what it is. And so we SWAT team that. So we spend days. So that sets the tone of, Oh, these guys care. They care a little.

They care a little. And then after that, we start renovating vacant units, but we don't, we don't start. We want to make sure we have a. Everyone's happy with us. So, we begin with vacant units. Then we start with, um, widespread areas that everyone touches. So the pool and the gym are available so that they can use those.

Cause everyone understands when we come in or someone like us, the reality is rents are going up. And that's part of it. But we're saying, hey, we want to be a good value, whatever price point. We want to be a good value, and your rents go up once you're. Hopefully, you have 11 more months here, But some people have two, and you know, that's where we work with them. It's like we still need to do something to justify higher rents.

That's the art over science. And then we try to be fully finished with the common areas, um the leasing office exterior paint rename pool gym kind of we work style um SpaceSpaceSpaceSpace that we do in the office, like the grandmother's living room, we take out, no one's going to sit in leasing off.

I don't know how many people have been in apartments, but the architecture could have been more dynamic. Yeah. What are these guys thinking anyway? So we try and make it. Mimic, new construction is what they're doing, um, and we try to finish our renovation, which used to be month 12, is probably month 18, and then the interiors are ongoing forever.

So, if you live there and are happy with your apartment, we won't force you out. You'll pay a higher renewal increase, but if we 50, 75, whatever it is, you think, wow, I now have a way better gym. I can cancel my gym membership, for which I'm paying 40 a month.

And I can be financially neutral because of my environment. And so that's what we want to do. 

Chris Powers: What is happening to the renter? You had this excellent page. I didn't print it out, but it was basically like some good stats on how the renter today in America is buying homes, as crucial to people as it used to be. What are some high-level highlights of that?

David Moore: So, and I have a whole bunch of data, and who knows what is right and what is not, but obviously, with mortgage rates today and home costs today, people cannot live in a home, right? The amount of money you need to have a starter home is much more than the average income in America. Yeah, and so we're going to become more and more, you know, a renter nation. That's not good for society. It's just a reality. I saw a stat, and I am trying to remember exactly, but 80% of homeowners have a fixed-rate mortgage.

That's 300 basis points, less than the current mortgage you could get. So if you're sitting at and you own a home and you have a 4 per cent mortgage, are you going to sell that and then buy a home with a 7%? Only if you move up multiple or down various steps.

If you have a divorce or death or lost job, that always happens. But what's, with that, if there's not a whole bunch of. Product on the market. I wonder if home values are going to come down. And if they don't come down and you're borrowing at six and a half, 7 per cent mortgage, and all of a sudden you're like, plus maintenance, plus taxes, plus insurance.

Today, the difference between, like, our upgraded rent, and it's called a 400 000 house, is 1 500, give or take. And if you think about 400,000 houses for someone living in Uptown Dallas, that changes their lifestyle. I mean, that's not. And so go to any, go to any like excellent restaurant now.

And you look around, and you're like, it's always packed. Always. And then the people transitioning and saying, you know what, I'm just going to enjoy my life, and I'm not going to worry about necessarily saving every penny so I can buy a house. I'm going to have a different lifestyle.

I'm 46; I got out of school. Yeah, I went to college in '99 and lived in a new apartment, and it was very generic, like 350 bucks. It was more than that, but it wouldn't. It was well under 1000. And, uh, I only people in apartments at that time were really. I mean, people who were saving for a house or couldn't afford one.

Yeah. That is not the case today. That is not the case; there are a lot of people renting by decision. Oh, absolutely. By choice. We can prove it with our incomes and track the number one stat we follow, which is how much the average was. Was our average income ex an existing apartment?

And then, if we fix it up and make it like new, what renter are we attracting income-wise? Yep. And we've been able to draw, I mean. 30, 40 per cent increases six-figure. Most of our fully upgraded apartments are making six figures.

Chris Powers: What is the number one decision if somebody's income level goes up and they move in there? Is it a location to work?

What is the number one reason they usually choose one department complex over the other? 

David Moore: That's a good question. Is it management? Is it? It's the location. Management has some to do with it. But I wonder if that has a ton. We have decided not to brand our properties because we have said, right or wrong, I don't know, but we have said, we don't know that there's a ton of brand loyalty. And so now Camden has a Camden property. They do a great job. Cortland does that. The brand, and they do a great job. We may have missed something, but we decided not to do that.

Chris Powers: Do you think there's room in the market for, like, four seasons of apartments where there is a brand, or it needs to be easier to pull off, and there are too many apartments? 

David Moore: I don't know. You don't think about it? I don't think about that. I don't think about that. 

Chris Powers: Well, to my knowledge, I'll tell you one thing you also have yet to think about. You guys never developed anything. No. Was that a conscious decision? Yeah, yeah. Aware, like you all, you have done a fantastic job of staying focused. You just stayed on the train. 

David Moore: Yeah. So the private equity firm that I worked for, real estate, private equity firm when I got laid off, um, great people, great companies still around today, but in 2008 it was, it was 2008, 2009. It's a tough time.

They were more of a generalist approach and were good at many things. Great at nothing. Um, and so have that scar now. I didn't lose investor money, didn't lose my money, but lost my job, um, which at the time was had that scar. So I am passionate about how we are the best in our little world, and we're going to keep our little world small, so even as we grow cities, they will be very organized. It's prolonged. Our renovation is the same. If we change it, we're going to change it globally, and we're going to be the best at it—our little box.

And so people ask me all the time, am I going to develop, do I want to create? Is that night vest the following name for night vest? Do we want to get an industrial harm? Do we want to get it? Yeah, everybody wants to. 

Chris Powers: Yeah. Now, I wish I should, or maybe a couple of years ago, I would've traded; we would've traded spots along the way.

David Moore: But ultimately, we've just said we will be the best multifamily operator in the business that buys and renovates apartments from two two-year vintages of 2000 to 2015. And that's what we do. And so if it does not fit in that box, we don't do it. 

Chris Powers: We're not doing build-to-rent. We don't do development.

David Moore: Yeah. So if you sent me the world's most significant deal in Denver and Atlanta, Salt Lake City, or Chicago market, we're not, and the answer is No, I don't know a broker there. We only want to see if we decide that those are the markets we want to go to. 

Chris Powers: Have you decided what markets you want to visit?

David Moore: Texas makes it easy. That's another. As far as our timing was concerned, it was terrific. Where I was born and where we're born are fantastic. I mean, in Texas and so started in Dallas, and I mean, we wouldn't even look in Fort Worth. So Fort Worth was our first new market, which. It's silly.

It's 30 minutes away. Um, but I remember saying the same thing. 

Chris Powers: I was like, we're going into Dallas now. 

David Moore: Yeah, I know. It's like a driver, which I drove here. I live in Dallas, and obviously, we're in Fort Worth. I made three phone calls and was here. Um, so Fort Worth was first. We opened a satellite office in Houston, our first office and Big John Clancy opened our Houston office. It is still with us today. He runs our Houston office. And so we're big on having an acquisitions lead in each market from that market and knows all the brokers who know where everything is.

That's a competitive advantage. We have the same thing in Phoenix and Phil Lake, which opens our Phoenix office. He's still with us today. He opened it. He's doing a great job. Then, Jason Dallas opened North Carolina about four years ago. And so we'll open a new office at some point, but it's off the thought process today.

Chris Powers: Do they usually come from Dallas and move to the city, or do you find somebody in those cities? 

David Moore: They usually are, like, they are all Already in those cities.

Chris Powers: Got it. 

Um, quick, back to renovations and construction in general. Yeah. Construction costs are up. Labour's up.

You all have scale. How have you thought about it? Everybody's dealing with it, but what do you think about that? Is there a magic bullet?

David Moore: I mean, I don't know either. Because we've got some pretty good contracts in national contracts, most of our Competitors do the same with this kind of vendor.

And so we try and keep cost best. Hey, we're going to make it up in volume. Um, keep costs in line in China. We do not. Why? I'm sure you've been asked that a million times, um, so we've got to buy or rent a warehouse. Then we've got to have someone oversee the inventory.

Then there's some leakage, then it, it's, I don't know. We're the vendors; we can negotiate pricing, and they can keep it. And their warehouse, we've got a little kit, and it comes in everything we buy. Oh, really? Um, yeah. So we know what we'll buy, drop it in there.

So they're making, they're certainly making a spread. I want them to. Could we make that spread and start a new division? Probably.

Chris Powers: 35,000 units; how many units are you renovating yearly? 10% of those? 20%? 

David Moore: No, not 20%. Um, and it's hard to say because, in the first two years, it's a lot more.

Yeah. And it drops off, then it, and then it drops off. Is every property one a month? Yeah, at a minimum. So right there, that's on the prize. We've owned even if we've owned him. We have some awards. We've held for ten years. We're still renovating. You know, we take the worst unit that has many dogs, kids, or needs. We take the worst unit, and we renovate it to the best. And that's all we do. And we keep stacking them on top to make the property better. But I bet we're renovating. I mean, thousands of units each year. That's a lot. 

Chris Powers: I mean, that's full-time.

David Moore: It's a lot. It's another thing we do differently.

So we have an exterior and interior-only construction manager, and we have about 20 of them in specific markets. They're in all their markets. They're on the corporate payroll. All they do is quality control and ensure we have a consistent product.

Make sure we're keeping costs in line as best we can. And they're overseeing the renovation, the interior renovation. And that's all I do. We used to have a manager, a regional overseer, and an asset manager. And we finally were like, you only get the same consistent quality if you have someone owning that job.

And these are professionals. I think. Six-figure, so I don't have 8,000 resumes coming. But, um, it's a hard job. And so that's how we keep our renovations on the interior side, really, really high quality.

Chris Powers: And is there anything from market to market, or do the same renovations work no matter what market you're in?

Or is there a different style in Phoenix? 

David Moore: And there is not, there may be, but we have not that we have not gone to that level. 

Chris Powers: Are there any amenities that don't matter that people build out, or are they? 

David Moore: Yeah. So Scott Everett's a good friend of mine. We talk all the time, text and complain, but we are good friends anyway.

And he sent me one this week of it. And hopefully, he's not offended, but he is, I'm sorry but of an outdoor fitness area. And so, we've put in some outdoor fitness areas, and they have just the saddest piece of equipment. And I mean, no one ever uses that. So, we tried. People don't care about that or use that.

Um, the dog park and the gyms are big. Dog parks are big. After that the pool was big, I don't know. There are a lot more pets today.

Chris Powers: Yeah. Everyone has a dog. It's wild. Not as many kids, more dogs. All right. What's going on in the market? Like, walk us through your. From 2022 to today, I like your perspective on things.

David Moore: So the market got hot, real hot, real hot. Um, It's one of those things I went through with our chief investment officer yesterday, Nathan, and we were talking about a deal we underwrote and bought in 2020, early 2022. And we were making fun of ourselves for some of the assumptions.

So we had just a crazy rental growth in years one and two, and we didn't hit it. It was impossible to beat, and I should have known. But you will only get the deal if you put that in. And so everyone got a little carried away. So deals bought, mid-21 to mid-22, need help in the math.

Chris Powers: Because of interest rates or rent growth decline as well. 

David Moore: So let's, uh, so just put, and I did some, some math that scared it even scared me when I did it and do this all day. If you bought a three-and-a-half cap, let's say, and that's where that was the market, cap rates got sub-three in Dallas, luckily.

We got beat out a lot, but we won some too. We won't win any in Dallas at that, but we won some low cap rates. But if you bought a three-and-a-half cap, let's say, the best-case scenario is that you've gotten your yield on cost or your new cap rate to a four-and-a-half. And so you get that through renovations, and you get increased rents.

You're getting expense pressure. You may go uninsured or have some magical insurance that I have yet to find, but let's pretend you get to a four and a half. Um, you're on cost, your borrowing rate. So for five and a half, a little less, but five and a half plus 3 per cent spread.

So you're borrowing at eight and a half. Okay, now people are asking, why the cap? Okay, great. Your cap is running out every day. Um, and if you bought something in mid-21, you purchased a three-year cap, and many people bought a two-year cap. Let's pretend you are concerned. You purchased a three-year cap.

That cap is coming due. The math is on an 85 million deal, our average-size deal. And you did two-thirds debt and one-third equity, which is about average. You burn 1 million annually in the current rate environment. And you either burn it if you're uncapped, or you burn it by buying a cap because it is just prepaid interest, and that's just the math.

So if you want to know how people are struggling, if they have floating rate debt, how many deals they bought between mid-21 and mid-22, you multiply the number of deals by 1,000, 000 and that is the daunting math. And so. If you bought ten deals, 10 million must come from somewhere. Either it comes from you, or it comes from your investors, or you are tossing keys.

Chris Powers: Okay. We're going to get into that quickly, though. The one thing I was going to say, so 2020, is it because most people who bought in 2020 could get their renovations and get permanent financing quickly enough, or Why?

David Moore: 2020 has some struggles, but it is too late. The cap rates have dropped as low.

Yeah, they haven't dropped as low. So, the bad ones are the, or just mathematically bad, the mid-21 to mid-22. 

Chris Powers: Okay. Everybody's facing this title.

David Moore: If you have floating rate debt,

Chris Powers: Did you all somebody wrote on Twitter, they said, ask them, uh, why they use life code debt and permanent financing on value deals?

David Moore: Well, some of our deals. You know, you don't necessarily qualify as value add. If it's built in 2005 or 2010, that's four plus we are adding value. Yeah. But it's not like it's a distressed deal. We often get this question because we have a 50-50 mix of fixed and floating.

Most of our high-net-worth investors want to be fixed. Most of our institutional investors wish to float. 

Chris Powers: And, okay, go on that a little bit. So, because of some of this, it's easy to point the finger at. You all or anybody that bought, but the other part is the institutions are also saying we must deploy capital into this asset class.

They're pushing you as hard as you're finding deals. That's how institutions work. They need allocations.

David Moore: That's how it works. And, it's no different from the development. Everyone's developing so much. I mean, you get calling your institutions, like, I mean, we had many deals where our institutional LPs said, Hey.

We have this X, Y, and Z deal. We just toured. We'd love to do it. Can you guys can we do it together? Yeah, sure. 

Chris Powers: That's different than high net worth money. 

David Moore: A lot different. You got to get that. You got to go. And now you have to; the institutions love them, but they're all waiting for this magical day to start. Yeah. Um, and we can get to that here. We can go back to the math, but they're waiting for this magical day to deploy capital. And that's why, on the institutional grade assets. The sky is not going to fall entirely. I don't think so because, eventually, they'll convince themselves of the magical days here. There's clarity from the fed. 

Chris Powers: What do they think of the magical day?

David Moore: When is there clarity from the fed? 

Chris Powers: Do they still need to feel like we have that? 

David Moore: I don't. I haven't seen it, and obviously, my world is pretty small, right? But I talked to enough institutional capital that if you extrapolate it, I don't think anyone wants to look stupid.

Chris Powers: starts young; you're told not to look stupid as a young child. Okay, real quick, then on the deals that institutions are holding that were 21 22 vintages, are they going to make the capital calls to keep these, or how are they deciding what they will stay in and what they will get out of it?

David Moore: That is the magic question.

Okay, that's the magic question. 

Chris Powers: And it's 2024 going to be the day of reckoning where we find that. 

David Moore: 2024 is going to be really. Bad. Let's talk about it. So here we go. It is someone who's buying a deal next week. We purchased a deal last month. Um, we have always said to buy and sell in both up and down markets.

The problem with that statement. I learned that means you hit. You hit the peak, and you hit the bottom. Is today the bottom? I don't know if the next deal is ten deals from now, but we will beat it. Um, but unfortunately, the opposite is also true. We hit the top. And so that's just, that's just reality.

So this again: 85 million deal, two-thirds debt, one-third equity. You're at a four-and-a-half yield on cost, borrowing at eight and a half. That's just the math. So if your deal is half that size, it's pretty linear; it's a 40 million deal or 42 and a half, it's 500 000. Um, it's all about whether the LPs believe. Are they throwing good money after bad?

And the numbers that I said is if operations are excellent. So we've got a hundred properties; our average occupancy is 93. 6 today. We have only two properties that are under 90%, none that are in there, like 89 and a half. So we're seeing positive rent growth. So, our operations are like the operations team is hard to fault.

So, and that's the math we're facing. It's a capital markets issue. Well, it is, but if you're a lousy operator and there are a lot of terrible operators. It makes me angry. To see, it's like taking advantage of people. And I don't know if they know they're wrong, but it's like, man, you're terrible at operations and renovations. That's where people live.

However, the mass was even worse, like these groups that got carried away; they were doing higher leverage. And they were doing preferred equity. And so if you do, I did, and I did the math, which is scary. If you do 80 per cent leverage and your 8.5 per cent debt turns to 10, your cost of overall debt, PREF, and then, senior, you burn 3 million Every deal every year.

Chris Powers: And our banks like, sorry, good luck or any.

David Moore: I don't because that's how we were able to buy things at 10, 15, 20, 25, 30 000 a unit is because the banks took it over, and the banks realize they need to improve at operating. So, if I'm a bank, I don't want it now that this is the back-to-your-capital call issue. So, I mean, 2024 is just going to see, 

Chris Powers: So why is it going to be wrong? 

David Moore: Like because if you bought a deal in 21, your three-year cap is coming up, and you need that million dollars to either buy a new cap or go uncapped and funded out of pocket every month. And so then what you have to do is you have to say LPs, here's the plan.

You know, and we're doing it right now. We're doing it right now and doing fewer. But it's like, here are the current operations. Here's how we got here. Here's our plan to get out. But right now, we have a need. And so this is where the relationship business matters. Did you do the little things precisely every day?

Are you treating investors and employees right? Did you do that? Do you have the relationships? And so if you had raised money, and I call it seminar money, which is insulting to people, but whatever, and you don't really know the people, and you have a steak dinner, and you raise, go back to them and try and raise money.

They shouldn't fund it. I agree. And, so then you're faced with. How many deals have you personally sold as a GP, and how much are you willing personally to prop the agreement up? And it's an ability issue, and there's that ability and desire, and what's the right mix? I don't know. And if you can't.

Then the lenders have to work with you, or it's over, and that's, it's as simple as that. And so I need to find out how many deals were bought in that window. You can, and you can extend the window too. If you're a terrible operator, it's late 2020 to mid-2022. 

Chris Powers: And our people. Are you starting to see people finally like mental fatigue is all right? It's time to start moving this like the optimism is over.

Is it? Are they being forced to bring them to market? Is it more of we held on? 

David Moore: I mean, we've gotten calls. I won't name names, but we've reached 20 calls. On seeing if we could replace a GP and look at it, we're doing it on a couple right now, on three, and it has to be in our box.

It's like two thousand are newer in 2015. So it's outside our box. It's a no, but we looked at a package of, I don't know, eight or ten deals, and I was like, there's we don't walk on water, I mean, don't. You are the best night. Yeah. I mean, I can't save this; this deal is toast. And you know, I don't know.

Chris Powers: So what's going to happen? You're just going to wait. And in that, here's the valuation. We would do it. And they're like, well, we're going to search for somebody that might take it at a higher valuation. 

David Moore: Yeah, maybe. But the problem is when you hear the headlines of, Hey, values are down 25%, that's a whole equity wipe-out.

So, put that in perspective. That's not just. Oh my, my hundred grand went to 75. It's your hundred grand went to zero.

Chris Powers: Well, the death spiral starts because you start having terrible management at the site. Tenants start leaving. You fill them with tenants that shouldn't be there, and then it worsens.

David Moore: That's exactly right. And so. That's it. That's a great point. That's exactly right. What happens is if you don't, if it, if an operator doesn't have the money and the LP group is not going to fund it, what they'll do temporarily is fill it up with whoever has a heartbeat. And that's a death spiral.

You're done when you put a criminal element in a deal. It's done. It's going to 50%. Occupancy, if you still need to read it out. 

Chris Powers: Talk about that real quick. You go put; you let a criminal or somebody with a bad reputation enter what's already a solid community. The community disintegrates quickly.

David Moore: Best. In the sea, in the sea space, I mean, if you have a property in uptown and put a couple of people selling weed, you're fine. But if you're in challenging areas. The criminal element hangs out with the criminal element, and they know they don't screen X, Y, and Z property.

And, it is just a spiral. You get more in, and then the people you want in reality is there are more good people than bad everywhere, but man, when you put those when you put the people in, I'm putting wrong in quotations as a criminal element, um, good people scatter. 

Chris Powers: Okay. So, 2024 is going to be wrong. You're closing on a deal in two weeks.

Your strategy is to buy an up-and-down market, but do you have a differentiated approach for this year? It's like, send us all your deals. We're going to underwrite them. We had lunch, like, I didn't know, a few months ago, and you, To some degree, said we're just going to buy stuff that traded whenever for 20 to 30 per cent cheaper than it. 

David Moore: Did it so we're buying?

That's their game plan. We're buying an excellent deal in McKinney right now. We're closing in a couple of weeks. Okay, and we're buying our base at a hundred thousand a door, less than the neighbouring property that traded in that wrong time. We're talking about. And we have 200 square foot units, which are more prominent, and we're five years newer.

And I want to make sure everything is clear. Sure. We ran all the numbers, did all the diligence, and walked all the units, but I like that trade. It's a site where you can only replicate a small unit. 1200, it's 1200 average unit size, which we love in suburban locations.

So it's a suburban location. I love that mortgage rates are high. So we're buying that kind of a fives cap, and should it be a six? I don't know. Will it be a six? It's pretty good relative value. And so we have a plan. We can go in and make it. A subset of the units is like new, and do our night desk plan, and it'll be great.

Chris Powers: Are you starting to see people leave the multifamily industry? 

David Moore: They're going to. 

Chris Powers: That's yeah. Ultimately, it's good, you hate to see it, but it's long-term health.

David Moore: I mean, I listened to the podcast that at least aired yesterday with her, which is excellent. But he was like, it's nothing like it was.

And it's not if you're under-leveraged with fixed-rate debt. It's not, it's okay. So, our stress is only on deals with floating-rate debt. So, the 50 per cent that we have fixed rate debt on no stress. 

Chris Powers: Well, that changed how you think about capitalized deals in the future. It's like, we'll still do floating in the future.

David Moore: We'll stick to what we're doing. And now, you know, we closed a floating rate deal last month in Charlotte and bought a five-year interest rate cap. So that's a hybrid people. You see, they were like, that's the worst buy ever. It may not be the worst buy ever.

I don't know because that cap rate can drop in value. Maybe it was. But how much do you value not worrying more and more? 

Chris Powers: On the industrial side, we've been given guidance that, like, there's a flood of deals starting to come to market in the first six months, not necessarily distress people. There was minimal transaction across the board, no matter what.

Is that what you hear? For example, January one hit the next six months; will it be real-time, or is that done in multiple? Did that start happening in 2023? 

David Moore: No, it was slow. It was prolonged; we bought six deals, our slowest year. Since 2011, so in over a decade, and one of those was like a trickle over from 2020, so it's one trickle over 2022, and one closed, the end of 2023.

So, if you think about him, it is, well, we'll go, you know, in 5 years, we'll look back and say that was a slower year. It was slow on the acquisition side, and the only groups we bought from were trying to think we bought from. Name-brand groups are large institutional sellers with less emotional time to sell.

Chris Powers: All right. What is equity saying? Like, you talk to equity all the time, or, I know the institutional equity is waiting for the magic day, but are they starting to allocate to new funds? Is high net worse, or is everybody still shaky now?

David Moore: Yeah, I don't know. I could answer that question better in a few weeks. So, we raised our first fund two years ago and went. We just went to high-net-worth friends and family. We were curious to know how much we'd raise. We'd never done a fund. We'd always done deal by deal, so even if we go before that fund, even if we raise money from a large institution, they put 80 of it, we would raise the 20.

Yep, And so I'd put money in as well. But we would raise the 20, and we were like man, I've just raised money all day, and so what if we put all these people? And then people were complaining; they weren't seeing deals, which is crazy. In 2021, they're like, Hey, you didn't show me this deal.

You know, I want, you told me you'd show them all to me. Like, well, it's hard, I meant to, but you asked seven questions. This guy has five, you know, somewhat joking. And so we're like, let's put all these people together, all kinds of friends and family; we didn't know how much money we raised.

We raised 200 million. And so we used that as an LP fund, but used it to, we, we can take lead positions. We could go, you know, then it could be a minority position. We could partner with a large institution, and it worked out great. We're almost finished with that fund and are kicking off fundraising. We've been in the market, but we will officially kick it off to existing fund one investor today.

I was working on that yesterday. It'll be interesting to see what people's perspective is. My gut says that many people will; most understand that funds in this environment have a 100 per cent probability of outperforming fund one. It just will, but I think people are scared of the unknown, and so part of me believes that the 200 million investors say that turns into 100 million, maybe 150 and then we're out raising kind of our 1st larger scale, you know, called institutional type fund, so we'll see. 

Chris Powers: Is it illegal to say on a podcast? I'm in if you'll have me.

David Moore: I assure you, you're on the list. 

Chris Powers: I like that. Like you said, it's good timing.

David Moore: The timing is fantastic. And we're going to have a first close mid-year. And then we'll get assuming, you know, commitments in the next three months, then we can get a line of credit.

And so we can start buying deals, and it should be perfect timing. 

Chris Powers: And that's ready to move the capital, like on the debt side.

David Moore: If you do fixed-rate debt today, you can get low to mid-fives on a five-year fixed-rate deal. The problem is different from the, you know, five, seven and 10-year treasury.

The problem is SOFR. Which is the, you know, with the Fed adjust, and they'll probably start coming down, won't come down as fast as everyone wants, me included, but. 

Chris Powers: All right. A couple more questions: technology. There has yet to be excellent operating technology, property management software, or investment, but is there anything on the horizon?

It could be with AI or something where you see a chunk of the OpEx, a meaningful chunk, taken out because of technology. 

David Moore: we talk about this so much—all the time. I mean, it is a dinosaur industry.

Chris Powers: But you also see a lot of these prop-tech companies. Most of them were started by people who weren't real estate. So they think they're solving this problem that either A didn't exist, or B just isn't going to work.

David Moore: Don't make me buy your product; hire three people to oversee it, and save the equivalent cost of three people I just hired. And so, yeah, technology will undoubtedly change how we do things, but you're still dealing with people's homes.

And so, are we going to do, you know, online and self-guided tours? So that's something that, you know, can you do an app that lets you in an apartment and you do a self-guided tour. 

Chris Powers: Is that a good thing? 

David Moore: I don't know. 

Chris Powers: Does it work better? 

David Moore: We do it. You know, COVID made it stuff like that more acceptable.

We do it some; does it save us money? You know, we have centralized some functions. So, like the assistant manager function, we've got that now in corporate, and they can cover three or four properties. But like, hey, I mean, I'm sure there's someone brilliant that's got some solution, but I don't know how you overcome my toilet doesn't flush and I'd like it to in a human has to fix that the trash is, you know, stinky apartments don't lease.

So, how does the AI know it stinks in there? All they're going to know is it didn't lease and lower the price. I want to sound free in 1985, but you got to work at the end of the day. You got to get to work. You have to do hard work every day, the same every day. 

Chris Powers: All right. You've been in 55,000 units for 15 years. Do you have any ideas for the industry or anything you think about often that's only happening across some parts of the industry? It is my thought, or I wish we did this, or this would make it better.

David Moore: Your way exceeded my brain, I mean, industry-wide. 

Chris Powers: It's a good answer because there aren't a lot of magic bullets, which is my point.

David Moore: Yeah, and I think people I don't know. It's just I don't know. Honest answers have yet to be thought about. You know, what can be done? Everyone knows we have a housing shortage.

So, some math is Dallas, Fort Worth, and DFW in Houston. Let's say they've added 100,000 people; it's probably more, but say 100,000 annually. Poor man's math says for every, you know, 100,000 people, both in major cities, homeownership rates are probably 50%. There are two people on average in an apartment, so 100, 00,0, and 50 000 renters are divided by 225 000 units.

So, the math is on our side. You know, long term now, we also have excellent developers here that have built over 25,000 units, and these are all issues. Please do not send me an email. We added 132,000 people. I don't care. The point is that we're adding people; we're building more than we're adding today.

Chris Powers: Talk about the supply glut that could happen through the next three years. 

David Moore: Yeah, so we built more, just like acquisitions got crazy, development got crazy. And so in 2021 and 2022, you could put a development deal in place if you could fog a mirror. That's not entirely true, but you could raise money if you fog a mirror.

So, insulting us all together, there is a lot of supply. And so that's why rents are down. It's just simple math: we built a lot of apartments. Even though we're adding people everyone knows, we created more than we said people who are stopped. That will stop because, in 2023 and 2024, it will be hard to make the math work and every developer I talked to, if they usually did ten deals, they're doing three; they usually do five deals. They're doing two, and they typically do two deals. They're doing zero, so that will work itself out. The population migration trends will not change in, you know, Texas, and we're in majors in Texas, we're in Phoenix, and we're North Carolina and Florida; those will continue to see population trends. The homeownership rate is the big wild card that will change. America is 66 per cent in the current mortgage world. The present inflation world. Is it likely to be 65 or 67%? I think 65. So, when it is 340 000 000 people in America, every percentage is 34.

Or 3. 4 divide that by two because two people are in each apartment. So that's 1. 7 million rental units needed if that homeownership rate drops down. So, it goes back to the original question of what can be done. We must figure out how to build affordable housing, and no 1 has a solution.

How do you do that without doing a public-private partnership? And then we saw what happened with the PFCs, and I got into it. We've never done one, but it just got abused, so I don't know. It's great for, you know, for like Knight Vest, we're heads down, we do one thing, we do it well, and we're going to keep doing that one thing. The more significant demographic trends are in our favour, even if today looks like holy smokes. I got a million dollars of burn on this deal, which may be accurate, but if you look up, it's bright. 

Chris Powers: We're going in on that note, David thanks.

David Moore: All right. Thanks for having me. 

Chris Powers: I appreciate it. 

David Moore: All right. That was great.