Closing a deal is like completing a real estate marathon – it demands a lot of teamwork, endurance, and grit to make it across the finish line. We’ve closed 20 deals since the inception of Wildhorn Capital and it has been an exciting journey to look back on. I can say with certainty that each deal has presented its own unique challenges and moments of celebration.
Our most recent project –– a 156-unit Build-To-Rent (BTRBuild-to-Rent: a real estate development model where a property developer constructs a residential building, community, or group of single family homes with the specific intention of renting out the units rather than selling them as individual properties. View Definition) development project in Lockhart –– marks our second deal of 2023 and our latest venture into development. As we savor this new milestone, we like to use this moment to reflect on the lessons we learned throughout the process; lessons I hope fellow investors and business owners will find helpful.
The Backstory
The seeds of this project started over a year ago where most great projects start–the golf course. While playing a round with a homebuilder friend of ours, the conversation turned towards everyone’s new favorite topic–Build-To-Rent. We had been looking for opportunities to buy more BTR assets; they had been building in-fill retail communities where mom and pop landlord investors were buying most of their product. We had a mutual interest and awareness of the space, and quickly realized we brought very complementary skill sets to the table. Over the course of many more conversations, we realized an existing site they owned was the ideal location for our first joint-venture BTR development project. Some 13 months later, we closed on the site and have started construction on the first 12 units.
Relationships Remain #1
We’ve always highlighted the importance of relationships in finding great deals. And this project was no different. To go one step further, we’ve learned it’s not just about the amount of coffee meetings or people in your network, it’s about fostering those relationships over time. Allowing those relationships to evolve can lead to something unexpected and great. Within the context of closing this deal, there were three key relationships we leaned on.
Our homebuilding partner. An obvious one, but without intentionally staying in touch and talking with friends and colleagues in the area, this deal likely never happens. What’s more, we’re expecting to build a portfolio of these communities together–so you really do never know where one conversation might lead.
Our investors. Specifically our largest investor and capital partner. Over the last 3+ years we have had a relationship with this specific family office. We’ve looked at other projects together. We’ve compared notes. Heck, we’ve even purchased an asset where they had been the equity of the seller. As this project started to take shape, we reflected on a previous conversation with this group about their interest in, and experience dealing with, BTR communities. Again over many conversations we mutually realized they were interested in the project, AND would be a great partner for us. Especially in an economic environment like this, we don’t think a brand new relationship or introduction would have been able to come together and execute a deal like this.
Our lender. Speaking of tough economic times, has anyone tried to get a loan lately? With the rise in interest rates and the scare throughout the industry following the collapse of SVB and others, the lending environment has gotten very difficult. Many lenders are sitting on the sidelines completely. In our case, very early on we engaged with our ultimate lender and discussed this project with them. Turns out they were interested–and open for business. That first conversation started in April. They hung in with us until this closed in November. That doesn’t happen with a new relationship either. We’ve had a personal relationship with the key players at this bank going back 10 years. In a season where term sheets are being pulled left and right, that long-term relationship mattered a ton.
2 Unlocking Housing Opportunities in Central Texas
The surge of Build-To-Rent as a unique asset class has captured institutional attention, and for good reason. We’ve known from our own experience that townhome communities generate high rental demand and favorable returns. Residents are looking for amenities like attached garages and private backyards, which traditional multifamily properties lack.
The climbing interest rates, population growth, and high home prices have also intensified the demand in Central Texas. In the past decade, Austin’s population grew by 35%, partly fueled by the hundreds of corporate relocations. This has resulted in the expansion of small towns along the I-35 corridor, creating new housing demand in bedroom communities. These trends, coupled with the now 52% average price difference between renting and owning a home, has prolonged rentership in Central Texas.
All this to say, we are bullish about the potential of BTR homes in Central Texas, and its ability to address the needs of more and more residents in Central Texas. The response to this deal from investors–even those who passed on this deal due to bad timing–has us convinced about the appeal of this space and our unique business model and partnership structure. We are actively looking for our next BTR site that capitalizes on the interest and demand from both renters and investors.
3 Investors are Thinking Longer Term
Our recent Lockhart BTR project is our second new construction development deal this year, which is a reflection of our conviction in the growth and future of Central Texas, and our intent to hold and operate real estate for the long-term. What is unique about both deals is they have a bit of a longer-term approach and an investment horizon of 5-7 years. There may be some optionality to exit early, but overall we love the idea of building a new asset and then owning and operating it–that is where the real power of investing in real estate comes from. We’re not trying to time the market or the interest rate cycle. We’re capitalizing on the long-term power of population growth, appreciationThe increase in the value of a property over time, usually due to factors such as market demand, economic growth, infrastructure improvements, and inflation. View Definition, inflation hedge and tax benefits of investing in real estate.
We have been so pleased to see that investors have shown the same interest. They like both the optionality and longer-term focus of these projects–capitalizing on the wealth creation upside of a development coupled with strong cash flows once the project is stabilized.
As we celebrate our 20th successful close, we are grateful for all the lessons learned and the people who have helped along the way. We are excited about the future and look forward to the next 20 Wildhorn projects.
Andrew Campbell is a native Austinite and Managing Partner at Wildhorn. He is a real estate entrepreneur who first broke into the business in 2008 as a passive investor. In 2010 he transitioned into active investing and management of a personal portfolio that grew to 76 units across Austin and San Antonio. He earned his stripes building and managing his personal portfolio before founding Wildhorn Capital and focusing on larger multifamily buildings. At Wildhorn, he is focused on Acquisitions and maintaining Investor Relations, utilizing his marketing and communications background to build long-term relationships.
