Walker Webcast: Cortland CEO DeFrancis Says Success is “on the Operations Side”

For Steven DeFrancis, founder and CEO of Atlanta-based Cortland, “It’s really on the operations side.” This week’s Walker Webcast put the spotlight on DeFrancis and the Cortland model of not only focusing on the residents of the company’s 65,000 apartment units but also insourcing most of its operations. 

“We look at this as a consumer-facing business that happens to require capital,” rather than as a capital business that pays attention to the needs of its end users somewhere down the line, DeFrancis told Walker & Dunlop CEO Willy Walker. 

A customer-focused approach makes good business sense from the vantage point of a multifamily owner-operator, since the deciding factor behind many tenants’ decisions not to renew their leases is a poor experience with the service, DeFrancis said. This model has also helped create and maintain a Cortland brand identity. 

It was an identity that grew out of market research DeFrancis and his team undertook in the aftermath of the 2008 global financial crisis. Two key factors stood out in that research: the “sheer volume of undersupply” that the apartment sector would face as the economy recovered, and an evolution in renter expectations. Today, the common term is “renters by choice,” but as of the late 2000s it was still generally assumed that apartments were commodities and that people would rent only until they could afford to buy a home. 

“We saw the beginning of the transition of our clientele,” DeFrancis said. 

Establishing a brand identity was a priority early on when DeFrancis began expanding outward from Cortland’s initial focus on the Atlanta region. An emphasis on operations and service helped distinguish what DeFrancis called a “hodgepodge” of REO assets that constituted most of the company’s first acquisitions during the Great Recession. By 2011, though, the company had quadrupled its portfolio to about 5,000 units. 

The uneven nature of those initial properties that came into the burgeoning Cortland portfolio somewhat slowed the process of rolling out the branding structure, which DeFrancis and the Cortland team based on a high standard of customer service. But renter and investor recognition of a brand built around that model occurred “a lot earlier in the cycle than we thought it would,” he told Walker. 

Developed in tandem with the focus on service was a focus on internalizing the delivery of that service. In the years prior to Cortland’s formation in 2005, DeFrancis recalled, a “cottage industry” of third-party management vendors had grown up. Outsourcing these services kept operating expenses down, but also meant a lower level of tenant service, he said. 

“We felt it was important to control all of these touchpoints,” DeFrancis said. That internalization has extended to the construction and design aspects of development, as well: both operations are undertaken in-house and are also provided on a third-party basis. 

“Systemization is key to execution,” said DeFrancis. At various times during the cycle, the company might have 15 development or repositioning projects going on at once. “We could never have done that if we relied on a host of external vendors,” he added. 

On-demand replays of the August 18 webcast are available by clicking here and through Walker & Dunlop’s Driven by Insight podcast series.