Kadish spoke to MHN about his perspective on the marketplace, the company’s growth and embracing innovation.
Rockville, Md.—Andrew Kadish, president of Rockville, Md.-based CAPREIT, has direct responsibility in the acquisition and disposition of multifamily apartment communities owned by the company. Over the past 20-plus years, the firm has transacted more than 200 multifamily communities, comprising more than 40,000 apartment residences.
Kadish grew up in the business and recently spoke to MHN to share his perspective on the marketplace, the company’s growth and embracing innovation.
MHN: How would you characterize the state of the multifamily market as we enter 2016?
Kadish: One of the strengths of the multifamily market is that investors now recognize the strength of the multifamily market and ability to attain superior returns. This has become even more pronounced with the heavy influx of capital from institutional and foreign sources. Where the market is failing, however, is in housing our lower wage earners. Nearly 100 percent of the construction starts today are for Class A luxury—where can our firemen, policemen, nurses, etc., live today? Further, it does not make economic sense to deliver units to middle class renters as land, construction materials, labor, etc., keep getting more expensive and squeeze already thin margins. We as an industry must work hand in hand with Congress to ensure that everyone can secure affordable housing.
MHN: What is your company’s philosophy when it comes to the multifamily sector?
Kadish: In terms of acquisition target markets, CAPREIT finds its success when it is the big fish in the small pond. Specifically, CAPREIT avoids the brutal pricing wars of the major markets—New York City or San Francisco, for example—and hones its focus upon secondary and tertiary markets for attractive yield plays. It is in MSAs like Minneapolis, Raleigh, St. Louis and Tampa where CAPREIT has leveraged its entrepreneurial management style along with its innovative financial engineering capabilities to achieve superior yields that regularly outperform its competitors.
Further, CAPREIT has been able to attain remarkable success across the market rate and affordable housing spectrums. While CAPREIT is known throughout the industry as a formidable value-add player, the firm’s entry into the affordable housing arena, specifically in owning and managing LIHTC communities, has proven to be a financial success beyond our original expectations.
MHN: What is driving the multifamily market these days?
Kadish: Two major factors are driving the market. First, millennial culture has definitely had a tremendous impact on the current historic rise of the multifamily market. This particular generational mentality of delaying marriage and having kids, both impetuses to buying a house in the suburbs, has allowed the multifamily market to grow in leaps and bounds as millennials do not want to be tied down.
Senior citizens are also moving to multifamily in droves. Without kids at home, the 55+ crowd no longer wants the responsibilities that a big house in the suburbs demands. Seniors are looking to downsize and move closer to town centers so they too can experience the convenience of “city life.”
MHN: How do you embrace innovation in growing the company?
Kadish: In 2015, CAPREIT went through a leadership transition when my father, Dick Kadish, handed over the reins of the company to myself and my sister, Jennifer Kadish Cassell. This transition helped to jump start innovation in our company as Jen and I brought in new points of focus on our company processes and procedures.
We frequently meet with vendors to ensure that our systems are top notch and state of the art. We want to ensure not only that our team in the field has the tools to succeed, but that our back office team does as well. They are just as important as our leasing professionals in terms of helping the company run efficiently and effectively.
MHN: What’s your industry outlook for 2016? In terms of the real estate cycle, what “inning” is the industry in?
Kadish: I am still optimistic for 2016 but am concerned about 2017 and beyond. I’d say that we’re in the 7th or 8th inning of this cycle. With the impending rate hike, you will see some buyers who could only buy based upon great leverage voluntarily remove themselves from bidding. My view is that we are in the midst of an unprecedented, meteoric rise in the demand for multifamily. Sale prices have soared into the atmosphere on some projects. There will inevitably be a downturn—just when that will be is the unanswered question.
MHN: How would you describe your team development strategies and how you measure results?
Kadish: The change in our team development strategies has been one of the biggest points of innovation within the last year. We’ve been going back to basics and reinforcing a new level of accountability within our company. Appropriate action and regular follow-through are keys to raising the performance of each of our associates and the company at large. Of course, we look at our financials but I find that the biggest barometers of our success are threefold: happy residents, happy employees and happy investors.
MHN: What has been the biggest change you have seen in the industry in the past 12 months and how have you responded to this change?
Kadish: Pricing has become so extreme in the major markets that we now find institutional players seriously looking at secondary markets in order to drive yields. CAPREIT is responding to this change by changing our targeted markets as well. It makes no sense for our company to focus on markets where sales prices are bid out of reality, driving cap rates so low that it would be extremely burdensome to achieve significant financial rewards. We keep an eye on those markets—if we find a good deal, we’ll remain in the mix—but we know that in this industry, you must be nimble and not tie yourselves exclusively to one market. We’ve moved our focus now to those third tier markets where CAPREIT can act advantageously as that “big fish in a small pond.”