Founder, chief executive, and president of Los Angeles-based TruAmerica Multifamily, Bob Hart is the very definition of a commercial real estate industry leader. It’s fitting, therefore, that he should be among the panelists on the “Industry Leaders: A View from the Top” discussion at Connect Los Angeles, scheduled for May 1. Ahead of his participation in the panel, Hart provided insights to Connect CRE on the current and future state of the multifamily market.

Q: Where does TruAmerica see acquisition opportunities by market or asset type in 2024, and are they similar to what you saw in 2023?

A: Last year was a very thinly traded year for most investors in the multifamily space throughout the country. We saw some deal flow in California and in the Southeast, but again activity was light. What we’re seeing in 2024 is a resurgence of deals that are being rationally priced against today’s interest rate, and that seems to be leading to increased activity so far. The market is moving back toward equilibrium. But we’re certainly not going to be at the volumes we were prior to 2023.

Q: Without revealing any “secret sauce” ingredients, what are some of the factors your investment committee prioritizes when considering an acquisition?

A: The biggest acquisition criteria for us is whether or not the deal has a true value-add component and what it will take to realize that. Next, we want to know if it is located in a market that’s one of our target markets and we want to ascertain if the property is of a vintage that fits our profile for doing Class B workforce housing. Lastly, we want to determine if it has negative leverage or positive leverage now that rates have moved up. We strive for either neutral or positive leverage wherever we can because that’s very important to us.

Q: Conversely, what are the deal breakers for TruAmerica?

A: The biggest deal breakers are functional obsolescence, where it doesn’t make sense to do a rehab because the building either has limited floor plans or a building configuration that doesn’t work because of age. So that’s a deal breaker. We try to acquire properties located in good school districts and are job centric, which are important to people. Location is very important to busy families in the workforce. We work to avoid buying assets in tertiary locations that are far away from jobs.

Q: How do you look at it from the perspective of your portfolio and other properties? Are you looking to acquire in the markets where you can build some critical mass, or will you consider one-offs in markets where you currently are not?

A: Everything begins with one deal. For example, in Ohio two and a half years ago, we started with one deal, but we had a mandate to acquire more assets. That was the same approach in Texas and Florida. It is a similar objective everywhere we go. But we don’t do one offs. We may by one deal, but it tends to lead to others. TruAmerica’s philosophy is to have a clustered business in a region, which then provides scale for asset management, construction management and overall oversight of the business plan. That strategy also allows us to learn from our own data. Every year we research about 100 markets in the United States so that we can reinforce our acquisition decision through qualified research.

Q: We keep hearing that a key factor in favor of the rental market is the affordability of for-sale housing, and that one factor in this lack of affordability is high mortgage rates. At some point in 2024, the Federal Reserve is expected to begin reversing its increases in the federal funds rate. Will this potentially make as much of an impact on single-family mortgages as it will on the cost of capital for commercial and multifamily acquisitions?

A: Let me start by dissecting what is transpiring in the market today. The home purchase market has been very strong. Even though rates have gone up because the building industry has been very careful in how they’ve introduced supply. The big builders have been subsidizing, to some degree, the financing, however, if rates come down materially, it’s obviously going to stimulate much more single-family construction. That will have some impact, but it will also create more jobs. A healthy single-family sector is good for multifamily.

With regard to multifamily, if interest rates come down a little bit, that’s likely going to stimulate more transaction activity and will also help spur some development. Right now, the development pipeline going beyond 2024 has slowed down significantly. I expect that will have a positive impact on both businesses.

Q: What motivates you and keeps you awake at night now?

A: Securing new opportunities to expand the business in regions we like, such as acquisitions in Salt Lake, Asheville, NC, and Henderson, NV. Finding quality deals in markets that we underwrite, and we believe in gets us excited. What keeps you up at night is hoping that interest rates are not going to go up any further, or there’s not going to be any new rent control legislation because that makes our jobs even harder.

Q: You have a podcast called Building Better Communities with Bob Hart where you’ve been interviewing a host of people in the CRE sector and outside of it. What are the things you’re learning and hearing that are either surprising or interesting to you?

A: What I have learned through the podcast is accomplished people always have a highly positive attitude, particularly, whether it’s a bad cycle or a good cycle. They know how to navigate and that’s how they maintain a positive bearing. So, when you break down people’s accomplishments and look at their leadership qualities, you’ll find that a very common thread is a positive attitude, not resisting change and being able to pivot as market cycles change.

On May 1, catch the Industry Leaders C-Suite panel at Connect Los Angeles 2024 when Bob Hart, President & CEO of TruAmerica; Kyle Matthews, Founder, Chairman & CEO of Matthews REIS; Bill Frame, CEO and Chairman of the Board of Kidder Mathews; Anthony Graziano, Chairman and CEO of IRR; and moderator Lew Horne of CBRE take the stage. Register now to hear live from these industry leaders.