Daniel Farber recently joined Andy Hagans on The Alternative Investment Podcast to discuss HLC Equity’s approach to real estate investing. Check out the podcast below.
Andy Hagans is co-founder and co-CEO at WealthChannel. Get all of the episode details via WealthChannel here.
Episode Highlights
- Background on HLC Equity, and the firm’s origin as a single family office.
- How the firm’s 70-year history helps them to maintain a patient, long-term investment philosophy.
- Why long-tenured employees can be a unique asset when determining things such as a company’s “core values.”
- Daniel’s thoughts on inflation, interest rates, and where the economy may go from here.
- Why Daniel is bullish on CRE opportunities in the year ahead, and how HLC Equity plans to take advantage of the opportunities that may arise
Princeton, Texas – March 10, 2023 – HLC Equity, a leading private equity firm specializing in real estate investment and management, has successfully refinanced Southgate Apartments, a 156-unit multifamily property in Princeton Texas into long-term debt. Originally a lease up investment, Southgate Apartments exceeded expectations by reaching occupancy much quicker than anticipated. This result, combined with foresight of capital market unease, enabled HLC Equity to pursue long-term debt in less than a year after taking ownership.
In the face of turbulent and unpredictable times in the market, HLC Equity’s proactive approach to secure long-term financing resulted in positive leverage, balance sheet health, cash flow, and the ability to make future distributions to our valued investors.
Daniel Farber, CEO of HLC Equity commented “Our firm has a wealth of experience navigating a variety markets, and we were able to proactively secure favorable financing for Southgate Apartments. Our internal team, along with Berkadia, was able to facilitate the deal. We are excited about the positive impact this will have for our valued partners and investors.”
“Fannie Mae rewarded HLC Equity for the strong lease-up of the property with long term, accretive financing that provides them with several years of interest only and a higher amortization than typically offered in the marketplace. Additionally, we were able to lock in the rate at a time when there was a drop off in the treasury which helped save on debt service costs and gives HLC Equity stability in a turbulent capital markets environment,” added Phil Brannigan, Director of Mortgage Banking at Berkadia.


About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information about HLC Equity, please visit www.hlcequity.com or email press@hlcequity.com
It’s tough out there. The CRE markets are facing perhaps the most challenging environment since the 2008 crisis, with tightened Fed policy and heightened geopolitical uncertainty providing a one-two punch to the CRE space.
While some onlookers are signaling that it’s time to head for the hills, we believe that the current moment presents significant opportunities for CRE investment firms, Family Offices, and most importantly- the investors we represent here at HLC Equity.
Let’s take a hard look at several CRE and MF challenges we may collectively face in the days, weeks, and months to come.
Private equity slowed significantly in the second half of 2022, in stark contrast to the period of unprecedented activity we saw from late 2020 through the middle of 2022.
This change was a result of widespread market disruption and uncertainty, largely driven by recent energy shocks, geopolitical chaos, the withdrawn debt market, and the twin dragons of rising interest rates and inflation.
Over the same period, PE volume dropped by 22%, compared to the same period 12 months earlier, and in most cases, has returned to the levels we saw before the COVID-19 pandemic. In light of record levels of dry powder- with US PE holding roughly $1.1 trillion, PWC expects the rise of more creative approaches to deploying capital, including all-equity deals, private debt placement, and minority investments.
They also see a broader recovery in activity, either as a result of the Fed reining in inflation or as a result of depressed asset values. Regardless of the long-term outlook, it’s clear that PE firms will be tested by the near-term investing climate.
HLC is currently weathering the storm, largely as a result of prudent decisions taken during the runup, but we are not immune to the winds of change dislocating the wider PE markets. With that said, this is not HLC Equity’s first downturn. Over our 70+ years in the markets, we’ve seen several severe declines, including the high-interest rate climate of the 1970s and early 1980s, the 2008 crash, and the steep decline we saw during the start of the pandemic. Our multigenerational long-term investment thesis, and ability to execute on a high level, has ensured we’re able to continue to deliver value for our clients- good times or bad.
Multifamily Trends We See in 2023
Now, on to the question that’s probably at the top of your mind: what does the next year have in store?
Multifamily Challenges in 2023
First, we’ll start with some of the obstacles we expect to see in the year to come.
As Q1 approaches, the big question on everyone’s mind right now is:
Where do you price equity?
We’re entering what is potentially the most challenging financing environment in recent memory- even taking into account the high rate atmosphere we saw in the 1980s.
Senior lenders lending on non-full stabilized assets want 7-8%.
The preferred equity and subordinate groups want somewhere in the range of 13-15%…so what does that mean for equity pricing?
In theory equity pricing, needs to be at 20% given current market conditions and interest rates, but that’s not what we’re seeing on the ground. We’re seeing a disconnect in the market- and we’re not seeing the tailwinds at our backs as we have for the past few years.
How do you price that? How do you plan against that? And how do you mitigate the negative effects – those are some of the questions we’re asking.
Up until now, negative leverage was offset by historical rent growth – at least 6-8% annually – on a renewal basis, rents are still sticking, but we’re also seeing significant challenges and softening rents- not just in the markets we serve, but nationally.
Dislocation in the Market
Despite challenges, with both broader markets and specific properties within our portfolio, real estate remains incredibly attractive compared to other asset classes- like equities, with some high-flying stocks down more than 70% from their peak- a number we’ve not seen anywhere in the RE space- even in the most impacted properties.
If you can buy and hold for a long period of time- you’re still probably going to do very well.
Every cloud has a silver lining, and one takeaway we’ve gleaned from our current market woes is that HLC’s long-term thesis continues to deliver value for our partners. If you can buy and hold for a long period of time- you’re still probably going to do very well.
A short-term focus might pay dividends- and it might not- at the end of the day, your gains and growth are at the whims of the market- that’s closer to gambling than investing. Conversely, a long view, with the right thesis, allows us to better withstand market tides and create and defend value over time.
The HLC Equity thesis is simple- we believe that a focus on core markets with attractive demographics and a healthy demand/supply ratio is the best way to protect and grow investor value.
Real estate is still a solid investment on a risk-adjusted basis- because of many of its historical advantages, like favorable tax status and its position as a shield against inflation, etc.
A lot of this is reinforcing the faith we had in our historical underwriting model- being practical and moving deliberately. That measured approach is paying dividends right now as the majority of our portfolio is enjoys fixed rate debt and consistent income growth.
The negative leverage safety net is no longer in play.
Over the past few years, if something went wrong, you could employ the (at the time) awesome power of negative leverage and count on rents to continue to grow enough over time to cover you.
Leading experts in the multifamily space do expect some moderation of rent growth, although rents are still projected to grow at a higher rate than the historical average.
In addition, income growth will likely remain positive, with the Freddie Mac Multifamily 2023 Outlook forecasting a decline in property values, and positive gross income growth, with fundamentals rebounding, albeit slowly, in early Q3.
Redemption Woes
If you follow news in the P/E and CRE spaces, you’ve probably heard about some of the redemption issues at the Blackstone REIT, amongst others. In early December, the $69 billion dollar real estate fund for wealthy individuals gave notice that it would limit redemption requests– a move that many in the industry viewed as a potential “canary in the coal mine” for the broader real estate markets.
The news spooked investors, with the firm’s stock falling as much as 10% on the Thursday after the letter was published. Beyond the headlines, we’ve also heard of similar issues through the grapevine. There are a lot of challenges with fund structures, many of which were first made clear during this recent discovery phase.
These woes are not limited to the public markets. Private real estate firms are facing similar hurdles, with private partnerships having to start to call capital on projects- particularly if they are facing issues with floating rate debt. The inability to tie down debt costs and our current advanced inflationary environment are both major challenges faced by many private real estate companies right now.
However, there are strategies investors can take to not just survive- but thrive, during a market downturn. HLC Equity’s strategic plan for success in a down market includes:
-Mitigating the impact of rising interest rates through the strategic repositioning of assets
-Solidifying and protecting previous growth
-Embracing a holistic approach, with expense reduction, supplier and vendor management, and process improvement as equally important priorities for the HLC Equity team
Potential Opportunities in 2023
Let’s look at some of the trends currently buttressing the HLC Equity portfolio and the multifamily market as a whole.
Sustained Demand for Multifamily Housing
We believe demand for multifamily housing will continue to grow in 2023.
Despite softening conditions globally, we are seeing tremendous sustained demand for multifamily. Rising mortgage rates across the board have put a damper on the overall housing market- to the benefit of the multifamily sector.
Rising Mortgage Rates Reduce SFH Demand
Home sellers and home buyers are staying on the sidelines for two main reasons.
For buyers, it’s the fact that financing costs have gone through the roof compared to last year.
And many sellers are not yet ready to come to terms with the fact that their homes are probably worth a lot less than they were last year.
Hence, the decline in home sales and overall home-related transactions, like refinances. This is part of the reason we see demand for multifamily housing continuing to grow- people still need a place to live, and if they’re not buying, they’re renting.
Projected Multifamily Construction Starts
Multifamily starts are also likely to decline significantly- restricting future supply and defending existing multifamily investors. Lower lending volume is leading to higher financing costs, which is curbing new projects. You’ll see less multifamily delivery on the market as a whole.
While we may see some projects come online in 2023-2024, due to the advanced/almost-built state of these projects, that is likely to slow to a trickle in 2025- largely due to the multi-year nature of the development and construction of a new multifamily property. Greenstreet and several other firms see new supply in 2025-2026 coming in at 1% of inventory- which is not enough to absorb all the coming demand for multifamily units.
Roadmap to Growth 2023
We plan to meet 2023’s challenges head-on. Here’s where HLC and other owner/operators can find and defend value in the coming year.
Strategic Repositioning
Like everyone else, we’ll be impacted by rising interest rates. To mitigate any rate-related issues, we plan to follow several strategies, including:
-Reducing our total interest expense via refinancing
-A focus on revenue growth to create the conditions to refinance when the opportunity presents itself
-Implementing effective cost controls
Solidify Previous Growth
We’ve had a good run these last few years- and it’s vital that we solidify that growth. This may be more challenging simply due to worsening market conditions, but there are several paths to protecting said growth.
Enacting more robust occupancy management will reduce our dependence on offering concessions, giving us the ability to bring renewals that are currently at a discount-to-market up, ideally resulting in net rent growth despite declining asking rents.
Deliberately Reduce Expenses
We’re also laser-focused on reducing expenses wherever possible. Our expense reduction strategies include (but are not limited to):
-Capping exposure to energy costs through long term contracts
-Property tax appeals where necessary
-Vendor evaluation and consolidation to achieve better pricing through economies of scale
Where We Stand
The vast majority of the HLC Equity portfolio is fixed-rate debt- our properties are performing at a high level, and for the few where we do have challenges, we have people on the ground, managing them diligently, and we believe we’ll manage through the current challenging environment to produce solid results in the long term.
ChatGPT is the new AI text generation tool everyone in commercial real estate seems to be talking about. It appears to have virtually limitless knowledge and an uncanny ability to write humanlike sentences. However, practically speaking, how useful is ChatGPT and other AI chatbots for commercial real estate teams? Will they really save you time, or does the technology need to mature before it becomes a game-changer?
First, a preview. We gave ChatGPT the following prompt: “Write a 200-word social post about the best ways to boost the value of an apartment acquisition.” Here’s what we got:
Acquiring an apartment property can be a great investment, but it’s important to take steps to maximize its value. Here are a few ways to boost the value of your apartment acquisition:
- Renovations: Updating unit interiors and common areas can make the property more attractive to renters and increase rental income. Consider modernizing kitchens and bathrooms, installing new flooring, and updating appliances and fixtures.
- Amenities: Adding new amenities such as a fitness center, pool, or outdoor space can make the property more appealing to renters and increase its value.
- Energy-efficiency: Installing energy-efficient systems and fixtures can lower operating costs and make the property more attractive to environmentally-conscious renters.
- Strong management: Having a professional management team in place can help keep the property fully occupied, reduce turnover rates, and increase rental income.
- Marketing and advertising: Advertise the property effectively and target the right market. Highlighting the property’s unique features, amenities, location and community can increase the interest of potential renters.
- Increase rental income: review the rental rates and make sure they are in line with the current market. This can help you attract more renters and increase the property’s income.
Boosting the value of your apartment acquisition takes time and effort, but by implementing these strategies, you can increase the property’s income, reduce operating costs, and make it more attractive to renters. This can help you achieve a higher return on investment in the long run.
Now for the Cliff’s Notes version: Yes, ChatGPT is very powerful. Yes, it can probably handle big portions of your content needs, particularly if you want more basic, conversion-oriented text. On the other hand, ChatGPT is still far from perfect. It produces factual or grammatical errors fairly frequently, often emphasizes the key points of a subject to the detriment of the entire picture, and generally displays a relatively basic compositional ability. If you are building a reputation as a highly qualified professional in commercial real estate, ChatGPT should be used prudently, and probably fits best for the following tasks:
- All types of copy – writing web page descriptions and conversion-oriented text (think marketing collateral, brochures, or OMs)
- Brainstorming & advice – use the tool to generate questions to ask a prospective partner, interviewee, or develop content ideas for your own manually-written articles
- Custom outreach – composing messages for social media and outbound communication
“From tenant interactions to our communication systems with our investors, the HLC Equity team is working on areas in which we can benefit from implementing AI into our daily operations. While we believe that nothing replaces human touch and interaction, we are confident that by implementing AI to execute repeatable tasks, our team members will be able to spend more time focused on high-value touch points to better serve our customers in meaningful ways,” said Daniel Farber, CEO of HLC Equity.
How well does it work?
ChatGPT can be used for a million tasks, and like any real employee that can do a little of everything, there will be compromises to depth of expertise. When used specifically as a copy or content writer, our assessment is that the tool, as it is today, is about as sophisticated as a fairly competent, native-language, beginning writer with a great grasp of Google. You likely won’t be getting highly complex writing, but in general what is there will be solid. Unfortunately, it’ll still be surface-level. Don’t go in expecting ChatGPT to turn out expert-level content to power your blog.
Challenges to keep in mind
AI text generators don’t actually know what they are writing. The data ChatGPT was trained on came from 2021, and the platform is not connected to the internet. Collectively, this means that it is difficult to get ChatGPT to write content with consistently accurate, attributable, specific information like rent or vacancy rates.
You also need to be prepared to screen for glaring mistakes. During our testing of ChatGPT we caught both large grammatical errors and factual inaccuracies in things like market descriptions and NOI calculations. In one case, while describing the transformation of a real-world city’s downtown area, ChatGPT took two different names for the same streetcar, and presented the information as if they were two separate transit options.
Errors like this are frequent enough that you’ll need to carefully proof everything that comes out, even if you’re satisfied with the overall tone and complexity. Open AI, the company behind ChatGPT, will likely offer the ability to custom-train a text generation model for your specific use case, but it is still unclear how costly this will be, and indeed how much benefit it will offer.
What about concerns that we’re slipping into a future where all sorts of writing is actually AI-generated? Here’s a follow-up question: Does it really matter, for commercial real estate professionals? Sure, you’ll need to double check the claims of the OMs you read, but you’re probably already doing that anyway.
Putting it all together
ChatGPT and the new wave of AI tools are very much raising the bar for what this technology can do. It’s now possible to build amazing article skeletons, social content and even answer high-level research questions almost instantly. If you’re a commercial real estate investor, having an instant copywriter available 24/7 could be a paradigm shift when it comes to developing prospecting materials or property collateral. ChatGPT isn’t the only game in town, either. Competitors like Jasper are already out there. With time, competition will likely lead to refinement.
On the other hand, we’re still a very long way from being able to generate expert-level market commentary, property descriptions and online content with the push of a button. For the time being, at least, superlative writing quality will still take time, effort, and a human touch.
The ongoing challenges facing homeownership are placing strain on the real estate market, but demand for housing remains strong due to supply shortages. To address this issue, innovative rental solutions such as furnished rentals are gaining popularity as remote work becomes more prevalent and work/life standards have changed due to COVID-19. These flexible options offer a potential solution to the housing supply gap. Growth is expected to continue, so much so that in 2022 it is forecasted to account for $139 billion – and expected to grow to $627 billion by 2032. Within the overall market are two broad segments driving growth and largely based on who pays for the stay – company paid and individual pay.
Jon Wohlfert, Managing Director for the HLC Equity-owned Layers brand, and a 35-year veteran of the flexible furnished rental industry comments, “Several years ago, most of the demand came from the “company paid” segment as companies were permanently relocating employees to other offices, sending interns and new hires to headquarters for training, or temporarily assigning employees to other locations to assist with projects. At that time, options were limited to extended stay hotels and corporate apartments. Now, with the growth of the global nomad and work-from-home, the individual-pay segment is gaining ground on the company-paid segment. Because of democratization through technology and the emergence of AirBNB-fueled flexibility, options are quite vast. Layers and its new technology offering, are here to help owner/operators capture more of this expanding marketplace.”
Layers, an innovative flexible furnished brand, has created a proprietary technology platform – Layers Prime – to deliver the individual pay customers directly to corporate housing and multifamily partners.
Layers has begun rolling this out to a few key partners, including Manilow Suites in Chicago and United Corporate Housing in Washington, DC. Layers Prime seamlessly and affordably delivers access to the previously hard-to-reach individual pay market. This solution allows owners to eliminate frivolous spending on resources to secure prospects and tap into a pipeline of qualified residents across 85 travel sites. The internal Layers team handles all set up, 24/7 customer support, and deliver reservations right to your front door.
For more information on Layers and Layers Prime visit layerslife.com/partners or email jon@layerslife.com
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CEO, Daniel Farber sits down with Yonah Weiss on Weiss Advice to discuss the Layers Rental Model
HLC Equity CEO, Daniel Farber was recently a guest on the IREI Podcast.
“Daniel Farber, CEO of the real estate investment firm HLC Equity, is also the producer of the PropTech360 conference, whose latest iteration will take place in June 2023 in Tel Aviv, Israel. He joins the program to discuss the conference and the continuing evolution of the booming proptech space.”
Listen to the episode below!
Also available via:
Since at least the early 2000s, all eyes have been on Millennials. What do Millennials like? Where will they want to live? How can apartment owner attract them to their rentals?
Fast forward to today and there is an entirely new generation entering the rental market. Gen Z is knocking at the door. Literally and figuratively. In this article, we look at what motivates Gen Z and how apartment owners can prepare their properties in response.
Gen Z by the Numbers
Those who were born between 1997 and 2012 are generally considered to be part of “Gen Z”. That makes this cohort between 10 to 25 years old today. Those at the older end of the spectrum are moving away from home, graduating college, and beginning to rent their first apartments.
A study by the Brookings Institute finds that Gen Z is one of the most diverse generations, and likewise they value and seek out diversity in their purchase decisions. Unsurprisingly, Gen Z is the most likely group to identify as multiracial or to be born to immigrant parents.
Gen Z’s diversity will likely impact where and how they want to live. For instance, many will want to live in traditionally ethnic neighborhoods, especially if those neighborhoods are amenity-rich and more affordable than urban centers.
Getting to Know Gen Z
Some apartment owners will have children approaching Gen Z age. Others will have nothing in common with Gen Z and may struggle to relate. Those who are trying to plan for Gen Z renters should spend some time understanding what drives Gen Z in terms of lifestyle priorities. Here are some factors to consider:
- Gen Z values career mobility. Gen Z is entering the job market at an interesting time. There have been widespread labor shortages which has made it a job-seekers market. Many Gen Zers have graduated from college and quickly bounced from job to job in search of higher pay and upward mobility.
At the same time, they’re entering the labor force at a time when hybrid and even remote work is more widely acceptable. This has opened new job opportunities for them, often at high paying rates, and has increased the purchasing power for Gen Zers who can increasingly opt to live in more affordable areas since they are not faced with the same pressures to report to the office every day.
- Gen Zers are entrepreneurial. Gen Z is more likely to shun traditional work than the generations before them. Instead, Gen Zers are pursuing their passions and taking entrepreneurial risks. Technology has made it easier to start businesses. Startup costs are lower and therefore, the costs of failure are lower as well.
Along those same lines, many Gen Z renters are embracing freelance work. The proliferation of freelance work has created new avenues for people to create their own destinies. Some have pursued more standard freelance work (e.g., writing, editing, graphic design, and software engineering) whereas others are utilizing social media to become brand influencers.
- Gen Z is less tethered to geography.
The nation’s youngest adults appear more willing to relocate than any generation before them. Some are relocating to lower costs of living (easier than ever now that more companies are offering remote positions). Others are relocating for better career opportunities.To some extent, this is no surprise. People are marrying and having children later in life. Homeownership is becoming increasingly unaffordable. Those are the key factors that generally cause people to remain in one location. Gen Z has very little tying them down at this stage in life, which makes relocating significantly easier, and apartment living all the more attractive
- Gen Zers are trading big-city life for amenity-rich suburbs.
For many years, real estate developers focused their investments in dense urban areas. Class A apartment buildings sprung up to lure Millennials and the Gen Xers before them. Today, however, it seems as though Gen Z is more interested in living in amenity-rich suburbs.
As evidence, a recent study found that nearly two-thirds of Gen Z reports wanting to live in either traditional suburban locations or “urban light” locations (e.g., outer-ring urban areas) instead of “urban dense” locales.
- This generation is more financially conservative.
A substantial portion of this generation grew up during the 2008-2010 Great Recession—at a time when their parents lost jobs, took on massive credit card debt, and sometimes lost their homes to foreclosure. Early data suggests that Gen Z will be more financially conservative as a result. They are more hesitant to take on debt, are seriously considering the cost of college, and are opting for more affordable living situations to the extent possible.
What Multifamily Owners Can do to Lure Gen Z Renters
Based on what we know so far about Gen Z, multifamily owners can start to be proactive about preparing their properties to lure Gen Z renters both now and well into the future.
- Invest in technology.
Gen Z are digital natives. They have grown up with smartphones, iPad and other technology at their fingertips. They will expect to use software for a variety of purposes, ranging from virtual apartment tours to filling out rental applications. Multifamily owners should get comfortable using paid ads to target their ideal renter demographic, and then should invest in the mobile technology needed for online rent payments, R&M requests, text communications and more.
- Value high-quality shared spaces.
Given Gen Z’s financial constraints, many will look to rent smaller apartments (on a higher cost per SF basis) in buildings that have robust amenity spaces. Top priority should be on carving out thoughtfully designed co-work or meeting spaces that people can utilize while working from home. Investments in other shared spaces, like a common kitchen and outdoor terraces, will also be important as Gen Z will look at these as extensions of their home. It’s worth noting that Gen Z is especially comfortable sharing amenities as they have grown up during the proliferation of “shared” everything—from Uber/Toro to Airbnb—where personal ownership is less important.
- Smart home technology is a must.
Gen Z’s life has been made easier by smart home technology. They routinely use voice-enabled technology like Alexa to control their Nest thermostats, lights, and more. Integrating smart home technology is a rather low-cost investment that will pay dividends to multifamily owners looking to attract Gen Z renters to their apartments. Other investments may include smart plugs, charging stations, and integrated Bluetooth speakers.
- Value Sustainability.
Gen Z is perhaps the most environmentally conscious generation yet. Climate change is one of the leading issues among Gen Z, and in turn, they show their loyalty to brands that are responsive.
There are many ways multifamily owners can be proactive in this regard. For example, new multifamily developments (or heavy value-add investment) may consider pursuing LEED certification, or they may even seek the gold standard of environmentally sustainable apartment buildings – Passive House designation.
At a smaller scale, owners can utilize energy efficient appliances, HVAC systems and lighting. Some may consider adding solar panels, geothermal, and/or water reuse systems.
Multifamily owners should also have their eyes towards adding EV charging stations to their property. Electric vehicles are becoming more popular and it will be critical to have Level-2 chargers on-site to attract those who own them.
- Elevate your brand.
Gen Z’s obsession with social media makes branding more important than ever. Gen Z wants to lease apartments that have iconic features that they can show off online. HLC Equity’s Layers communities are being created for this new generation of renters seeking flexible living options with all the perks of modern apartment living and hospitality.
To the extent your property allows, consider what sort of “lifestyle” your property offers and then invest in amenities, artwork and other features that help it sell.
After attraction, focus on retention.
Although Gen Z is a highly mobile cohort, most will not want to move from one apartment to another every year. Owners who have lured Gen Z will need to simultaneously focus on keep them. The best way to do that is to engage with Gen Z. They want their voices to be heard. Ask them for their feedback about what improvements, amenities, events, etc. would be beneficial and then take their feedback seriously. Those who feel like they’ve been heard will be more likely to renew. Current Gen Zers seem increasingly aware that homeownership may be out of their reach (at least, for some time). Nationally, the median home price is more than $440,000 and, in some markets, it’s more than double that. Interest rates continue to climb, making homeownership that much more unaffordable. This has effectively created a permanent renter class. Multifamily owners who want to capture this demographic can start taking proactive steps today to capture these renters well into the future.
To learn more about HLC Equity’s LAYERS properties and offerings, visit layerslife.com
Interested in how HLC Equity and their investors are working to provide housing for Gen Z and others?
Visit HLCEquity.com/direct
HLC Equity, a multi-generational real estate investment firm, announced that the company has recently been recognized as a leader in the multifamily space and awarded a top 2022 Multifamily Influencer by Globe St. Real Estate Forum.
“It’s an honor to be included in Globe St.’s Multifamily Influencer list along with so many other amazing peers in the industry,” said Daniel Farber, CEO at HLC Equity. “The fact that we were recognized in the Organization category illustrates the dedicated team and corporate culture we have built here at HLC. While interesting times are on the horizon, the HLC Equity team looks forward to continuing to expand our portfolio and to carry out our mission of creating thriving communities.”
The Globe St. Multifamily Influencer program features some of the top professionals in the multifamily industry. As part of the recognition, HLC Equity was featured in the October issue and honored at the awards ceremony held this past week in Los Angeles during Globe St.’s Multifamily Fall Conference.


About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
Economic turmoil is nothing new. The Great Recession is not so far in the rearview mirror. COVID sent the stock market crashing down and then roaring to new highs. Sky-high inflation and rising interest rates are just the latest conditions to spook investors.
Precisely where the markets go from here is anyone’s guess. However, there is good reason to believe that a recession is on the horizon. If not today, then most likely within the next six to twelve months. We’re already starting to see a market correction.
There’s no better time than now to start preparing your portfolio for an impending downturn.
Defining a “Recession”
A recession is best thought of as a widespread decline in overall business activity. Recession can be measured several ways. The most common measure is when there is a reduction in GFP quarter over quarter.
Recessions can impact sectors in different ways. For example, real estate is an illiquid asset class and therefore, it generally takes longer to feel the impacts of a recession in real estate than in other sectors. It may take months for the impact of declining yields to be realized, and those impacts may linger for longer than other asset classes that can more readily bounce back.
Tips for Creating a “Recession-Resilient” Portfolio
Savvy real estate investors will take certain precautions well ahead of a recession. For many, protecting their downside is an inherent focus regardless of where we are in any market cycle. It is just core to their investment philosophy. Those who prioritize capital preservation from the outset are generally well positioned when faced with economic upheaval.
That said, there are some things investors can do when faced with a looming recession—even if they have not taken those steps yet. Consider the following.
Lower utility costs.
Utility costs, especially the price of electricity, are soaring. There are two ways that owners can get ahead of rising utility costs.
The first is to enter into long-term agreements with your local energy providers. At HLC, we have been doing this for years. We always negotiate our rates and then lock in the lowest price possible. This has been especially valuable lately, as the cost per kilowatt hour has doubled since last year. We’ve locked in a substantially lower rate that provides us with some insulation as energy costs have risen.
The second strategy we look at is implementing a RUBS (ratio utility billing system) program. This is a great way of passing costs through to tenants.
See, many properties were originally built with only one set of utility meters. The single set of meters measures electricity, gas, and water usage for the entire building. At a single-metered property, the owner typically pays for all utility costs and then charges a rent premium to cover those costs.
With a RUBS program, the owner allocates utility costs to tenants without submetering each unit. Instead, each tenant pays a certain ratio of each month’s utility billing using a pre-determined formula. That formula is usually based on several factors including the size of the unit, number of bedrooms/bathrooms, whether the unit has a dishwasher or in-unit laundry, number of tenants living in the unit, etc.
This way, owners limit their exposure to fluctuating utility prices. We implement RUBS programs at our apartment buildings whenever possible.
Recondition existing vendor contracts.
Many owners acquire properties with third-party vendor contracts already in place. This could include, for example, the contracts for property management, trash service, snow removal, pool service and more.
When we acquire a property, prior to purchase during the due-diligence phase we look over each vendor contract with a fine-toothed comb. We then analyze whether these vendors are a good fit for our business model and if so, whether the terms of the agreement are aligned with market standards.
Whether you have recently acquired a property or have owned a building for years, now is a great time to evaluate all vendor contracts. Just as you want to lock in rates on long-term contracts with utility companies, consider doing the same here. This is something we routinely do and it helps to fix costs. Heading into a recession, the more fixed costs you have, the more predictability you’ll also have in turn.
Expand your vendor and supplier networks.
In addition to the above, it is important to build out your vendor and supplier networks. This is always true, regardless of where we are in the market cycle, but it is especially true when faced with rising inflation and a potential recession. As costs increase, you want to be sure you aren’t getting gauged. One way to mitigate this is by having a robust network of vendors and suppliers. This allows you to quickly obtain multiple quotes to ensure you’re getting fair pricing. When need be, you can substitute vendors if you have a network to choose from.
Having a network of suppliers has become more important in the wake of widespread supply chain issues. You cannot wait for weeks to replace a refrigerator, but also don’t want to pay triple the price because you’re desperate. When you have a network of suppliers, you can see who has the inventory when you need it—something that can work to keep costs down.
Leverage in-house staff to the extent possible.
We’ve talked a lot about vendors and service providers, but when faced with a recession, another strategy is to bring certain services in-house. For example, we try to do as much unit turnover (e.g., cleaning, painting) in-house as possible. This minimizes the need for third party vendors whose pricing may be on the rise.
Another benefit to using in-house staff is that we can respond faster. For example, during a downturn, turning over units quickly becomes important. When we can use our in-house team, we avoid relying on vendors who may be over-scheduled and may not be able to get to our property for several days. Otherwise, we’re losing money for every day that unit sits vacant.
Routinely appeal property taxes.
They say that the only two things in life that are guaranteed are taxes and death. Indeed, real estate taxes are often one of an owner’s largest fixed costs. Most people assume it’s a cost they have no control over.
Yet we routinely appeal our property tax bills. In places like Texas, the assessed tax rate has continued to rise as property values have risen. However, during a downturn, property values generally decline. Unless we appeal our property taxes, our bills will generally stay the same (even if they don’t continue to rise). When we see a market cooling, we routinely challenge tax assessments to account for lower values. We then capture that delta. Not every appeal is successful, but filing an appeal is a low-cost way of trying to reduce your tax burden.
Utilize long-term, fixed rate debt.
Debt is generally one of the largest costs associated with owning a commercial property. Even a marginal increase in interest rates can translate into tens of thousands of dollars a month in additional interest.
This is why the vast majority of our portfolio utilizes long-term, fixed-rate debt whenever possible. Some projects do require shorter-term variable debt in order to stabilize. Whenever this is done, it is recommended to purchase an interest rate cap until you are able to refinance into a fixed-rate long-term loan. This not only saves us money as interest rates rise, but it also provides more predictability compared to floating-rate debt. We monitor the debt markets closely to take advantage of lower rates whenever possible.
Prioritize tenant screening.
In deeper recessions, an owner’s tenant qualification process matters more. Finding great, credit-worthy tenants with sufficient income helps to prevent widespread delinquency. Develop a leasing criteria that will filter out applicants who are at a higher risk of not making future rent payments. Consider partnering with a 3rd party service who will work with you to create a screening process that helps ensure your applicants meet your minimum qualifications. Always remember to follow Fair Housing Guidelines in your qualification process.
Carefully consider capital expenditures.
Many people acquire assets that they intend to renovate and improve. Some plan to make these improvements immediately. Others will make improvements more gradually. Some will make “heavy” value-add improvements; others will use a lighter touch.
In any event, now is a great time to consider your capital expenditures. First, be sure you have a carefully crafted budget in place for any CapEx investments. Then, categorize improvements as necessary vs. optional. Focus on the necessary improvements now. Optional improvements might be scaled back until the economic uncertainty has passed. Holding off on some investments may be warranted, even if contrary to the original business plan, if it helps preserve cash reserves.
Any building improvements should also be made in the context of what’s happening in the market both locally and more broadly. For example, if a recession causes widespread job losses, people will be more price conscious. They’d rather rent a clean, safe, and affordable apartment rather than one with all new bells and whistles. Owners need to ensure they’re able to get sufficient return to warrant their optional value-add investments.
Look to preserve liquidity.
Given the illiquid nature of commercial real estate, owners and investors generally want to preserve as much liquidity is possible. This is always true, but it is especially true when faced with a recession. This is because the debt and equity markets tend to dry up during recessions, making it harder to purchase, finance, and sell commercial property.
One way to preserve liquidity is by selling underperforming assets. To the extent you have underperforming properties in your portfolio, consider selling them now to free up cash that can be redeployed into opportunistic deals when a recession takes hold.
Another way to preserve liquidity is by minimizing the debt you have on your existing assets. Properties with lower leverage tend to be at less risk of default in the wake of a severe recession.
Here at HLC Equity, a lot of the steps we’ve outlined above are things we do here as general practice—not just for recession or inflation protection. Nevertheless, they are important steps to take as we face a recession that is likely just over the horizon.
Of course, every recession has its own peculiarities that make it difficult to plan for. The COVID-induced downturn in 2020 was much different than the one we’re facing today. Back then, the market quickly ground to a halt. Banks stopped lending. The Federal Reserve cut interest rates to practically zero (to 0.02% in April of 2020!). Today, inflation is skyrocketing and interest rates are higher than they have been in more than 20 years. These conditions will make the impending recession arguably more challenging and limiting in terms of what owners can do—which is why it is more important than ever to try to get ahead of it now.
Are you interested in learning more about our investment philosophy? Contact us today to learn the many ways we work hard to protect investors’ downside.
HLC Equity, a multigenerational real estate investment management company, has announced the sale of Toscana Apartments, a highly amenitized 192-unit multifamily community located in Carrolton, Texas, a flourishing sub-market of Dallas. HLC acquired Toscana in 2017 for $13.25M and was able to deliver returns significantly above original projections to its investor partners and principals.
“When we originally purchased Toscana, we recognized the solid value proposition that the property offered given its strong location, and our ability to execute a value-add business plan. We are happy to have been able to deliver above market returns to our investors and to HLC Equity principals” said Daniel Farber, CEO of HLC Equity.
Upon acquiring the property, HLC Equity leaned into their 70+ year legacy of successful real estate investing and leveraged their direct-to-investor platform – HLC Direct – to generate a significant amount of investable capital. HLC Direct allows accredited investors to invest alongside HLC Equity principals in institutional level real estate investments which have historically delivered above average returns for the investment group. Investors who took part in Toscana experienced firsthand, the sizable financial upside of investing via HLC Direct.
“This is my second full circle deal with HLC Equity and both times they have far exceeded the initial return projections. Our experience investing with HLC Equity has been terrific. They provide consistent reporting and distributions, and we are very satisfied with the results. HLC Equity is unique in that their long track record and significant co-investment gives us confidence that we are investing alongside a highly professional group,” noted Joel J., an Executive in the Legal Services sector and investor with HLC Equity.
Toscana saw not only immense financial success but was also an operational powerhouse under the leadership of Dave Molitor, HLC Equity’s Head of Operations. Toscana’s average monthly occupancy rate was over 94%, including 99% at the time of sale. Rent growth rose 25% from acquisition to sale, while the price-per-door increased significantly during that same period. The results were both considerable growth in long-term equity, as well as critical monthly cashflow.
But this success didn’t come solely from the market – Molitor and team executed an intense and highly effective capital improvement program. The value-add included renovating over 25% of the units (generating $100+ rent premiums); installing low-flow water devices, reducing consumption by over 20% annually; resurfacing the pool and replacing all furniture; extensive landscaping and paving improvements; increased security by installing property-wide cameras and innovative access control via mobile app; and many other resident comforts and amenities.
Perhaps most notably, however, is that Toscana became the first property to implement Layers, HLC’s hybrid operating model offering both serviced and conventional apartments to the growing mid- to long-term rental market. HLC investors have come to value Layers properties due to the upside as well as its hedge against single offering apartments. At Toscana, the implementation of Layers yielded comparable occupancy (90%+), however generated a 20% net lift in rental revenue. Since Toscana, HLC’s other partner properties are also seeing Layers serviced apartments command significant premiums compared to traditional counterparts.
“Not only are we pleased to have exceeded our investment goals, but Toscana has also helped solidify the business case for our hybrid Layers model, showing that there is significant demand in the market for mid to long term serviced apartments in traditional multifamily assets,” remarked Farber.
HLC Equity’s portfolio remains strong in the Dallas Market, including a newly developed Class-A multifamily community called Southgate Apartments that HLC Equity acquired in Q2 of 2022.
“Dallas has consistently delivered strong returns and opportunity to HLC Equity and our investment partners and will continue to be a focal point as we look to acquire new properties and further expand our footprint,” added Farber.
HLC Equity sold the property to Beverly Hills-based Archway Equities, which was brokered by longtime broker partner Rob Key, JLL’s Managing Director of Dallas.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
For further press inquiries or interviews please contact press@hlcequity.com
See where this release was featured:
Interested in hearing more about HLC Equity and our investment opportunities?
HLC Equity, a multigenerational real estate investment management company, has announced the sale of Toscana Apartments, a highly amenitized 192-unit multifamily community located in Carrolton, Texas, a flourishing sub-market of Dallas. HLC acquired Toscana, in 2017 for $13.25M and was able to exceed their original projections by delivering a 26%* net IRR to its investor partners and principals.
“When we originally purchased Toscana, we recognized the solid value proposition that the property offered given its strong location, and our ability to execute a value-add business plan. We are happy to have been able to deliver above market returns to our investors and to HLC Equity principals” said Daniel Farber, CEO of HLC Equity.
Upon acquiring the property, HLC Equity leaned into their 70+ year legacy of successful real estate investing and leveraged their direct-to-investor platform – HLC Direct – to generate a significant amount of investable capital. HLC Direct allows accredited investors to invest alongside HLC Equity principals in institutional level real estate investments which have historically delivered above average returns for the investment group. Investors who took part in Toscana experienced firsthand, the sizable financial upside of investing via HLC Direct.
“This is my second full circle deal with HLC Equity and both times they have far exceeded the initial return projections. Our experience investing with HLC Equity has been terrific. They provide consistent reporting and distributions, and we are very satisfied with the results. HLC Equity is unique in that their long track record and significant co-investment gives us confidence that we are investing alongside a highly professional group,” noted Joel J., an Executive in the Legal Services sector and investor with HLC Equity.
Toscana saw not only immense financial success but was also an operational powerhouse under the leadership of Dave Molitor, HLC Equity’s Head of Operations. Toscana’s average monthly occupancy rate was over 94%, including 99% at the time of sale. Rent growth rose 25% from acquisition to sale, while the price-per-door jumped over 84% during that same period. The results were both considerable growth in long-term equity, as well as critical monthly cashflow.
But this success didn’t come solely from the market – Molitor and team executed an intense and highly effective capital improvement program. The value-add included renovating over 25% of the units (generating $100+ rent premiums); installing low-flow water devices, reducing consumption by over 20% annually; resurfacing the pool and replacing all furniture; extensive landscaping and paving improvements; increased security by installing property-wide cameras and innovative access control via mobile app; and many other resident comforts and amenities.
Perhaps most notably, however, is that Toscana became the first property to implement Layers, HLC’s hybrid operating model offering both serviced and conventional apartments to the growing mid- to long-term rental market. HLC investors have come to value Layers properties due to the upside as well as its hedge against single offering apartments. At Toscana, the implementation of Layers yielded comparable occupancy (90%+), however generated a 20% net lift in rental revenue. Since Toscana, HLC’s other partner properties are also seeing Layers serviced apartments command significant premiums compared to traditional counterparts.
“Not only are we pleased to have exceeded our investment goals, but Toscana has also helped solidify the business case for our hybrid Layers model, showing that there is significant demand in the market for mid to long term serviced apartments in traditional multifamily assets,” remarked Farber.
HLC Equity’s portfolio remains strong in the Dallas Market, including a newly developed Class-A multifamily community called Southgate Apartments that HLC Equity acquired in Q2 of 2022.
“Dallas has consistently delivered strong returns and opportunity to HLC Equity and our investment partners and will continue to be a focal point as we look to acquire new properties and further expand our footprint,” added Farber.
HLC Equity sold the property to Beverly Hills-based Archway Equities, which was brokered by longtime broker partner Rob Key, JLL’s Managing Director of Dallas.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information, please visit www.hlcequity.com
For further press inquiries or interviews please contact press@hlcequity.com
*Returns are unaudited
See where this release was featured:
About HLC EQUITY
At the cornerstone of HLC Equity lies a culture that thirsts for impeccable work ethic, innovative entrepreneurship, fundamental analysis, and dedication to the community.
Today HLC Equity is a forward thinking real estate group with over 70+ years of experience in the real estate investment business. HLC Equity has acquired, managed, developed, and repositioned real estate in over 25 states throughout the USA, having owned and managed over 7,000,000 gross square feet of commercial, residential, and development land.
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