How Daniel Angel Seized the Opportunity and Moved to Multifamily Investing

Welcome to the Real Estate of Things podcast. I'm your host Nate Trunfio with Lima One Capital. This time we have a two- time guest, Mr. Daniel Angel from Apex Development Group. I am really excited for him to break down how he transitioned him and his company from a single-family investment-focused business to multifamily investing and all the learning lessons that he's going to share with you about how that went down and how he's being successful as a multifamily operator. Let's get into it with Mr. Daniel himself. Daniel, welcome to The Real Estate of Things. I'm so excited to learn all about Apex and everything you all got going on. How is the market treating you today?

Daniel Angel: Nate, great to be here. Thanks for having me and also really excited to share some of our experience and how things are looking. And great question. That was a good one to start off. I think market is as anyone else is experiencing a little bit choppy. A lot of changes here and there. In our case just keep grinding, keep underwriting, and looking for good opportunities.

Nate Trunfio: Hey, it's a tough market. It's a blanket statement. So let's dive in then. Tell us about then Apex today. What are you doing in relation to even that?

Daniel Angel: Absolutely. So I think since last time we had the chance to be here and hash through our progress, we're fully transitioned to multifamily. Currently working on our team building, which we have been doing for the past 18 or so months. Making sure we have the different teams in place to continue with our acquisition, I guess, progress moving forward. Basically putting together a process where we can build a solid pipeline for value add opportunities or value add investing in multifamily.

Nate Trunfio: Awesome. So for the listeners that weren't able to catch your original episode, which if you're listening, you have to go back and re- listen, give a little Reader's Digest version of the history of Apex getting to now fully transition to multifamily, and then I really want to get into that transition specifically so just give the broad strokes.

Yeah. Absolutely. And thanks for that. So basically it goes back to probably 2016, '17 when we started mainly focused on single family. Initially, straight flipping. That's where we got the chance to actually meet you guys, and fortunately built this great relationship on the lending side to leverage our growth. Managed to put together a couple of private equity funds. Did those raises and acquired some single-family properties. Put together two portfolios that we ended up stabilizing that went all the way to owning 75 single-family homes in metro Atlanta. And that's how our platform actually started. In 2020, we saw the opportunity after a few internal debates of what our next phases or steps would be and just found multifamily a natural transition and natural process to go through. 2020, had our first acquisition. 2021, our second. 2022, our third. Kept going that way up to today where actually we own three multifamily deals and along the way we managed to successfully sell or exit full cycle our single family portfolio. A couple of weeks back we sold or full cycled our first multifamily and here we are. That's what we call our full transition.

Nate Trunfio: That is a transition to say the least. And I'm sure the short amount of time that you take to describe it does not begin to really exemplify the amount of work and effort that it took. So let's break this down a little bit. Let's go a little deep here. So you referenced the internal debates, which I can only imagine is natural as a business metamorphosizes. So if I was a fly in the wall of a couple of those high level conversations, what do those look like? And you don't need to call out the names of what partner's saying what, but give the listener an idea of how those conversations go down.

Daniel Angel: Absolutely. And really important. Actually, my business partner and I have been really aligned along the way on strategy and where we're headed and what we're looking for. But I think those debates and those conversations came from specifically finding ourselves in a really interesting position where we had, as I mentioned, two portfolios stabilized, but I guess the time, the process and the effort to get there where we acquired a house at a time. No portfolios, no bundles, only one house at a time. Really in- depth screening and underwriting for each one of those. And the fact that we were looking to put together a platform where we could see scale, obviously diversification, but mainly something where we could see growth. We just thought going the single family route where every house is pretty much the same effort over and over again, we were just thinking and trying to look into something where we could find more efficiencies on the operational side because obviously having 75 houses even if it's in the same metro area, it takes up some time and some effort to manage. As well as scalability. And I think another important piece of that puzzle was how can we capitalize these deals in a more efficient way where obviously you better than anyone else and just for every listener to understand, multifamily has a lot more efficient debt structures than what we can find on the single family space. Those are mainly our main topics for those conversations.

No. It makes sense. And there's a lot of economies of scale and I think a lot of listeners, as you look, everybody wants to go big or go home. It's just a matter of at what point are you ready to do so. Because the bigger the opportunity, yes, maybe the bigger success, but possibly bigger the fall. So I'm interested, at the point that you and your partner were, it sounded like aligned the whole way in some healthy conversations to get to probably an ultimate tough decision because we know you've been very successful in the single-family realm and also translating into multifamily. Was it a hard cut shift or if not, what was the transition like?

Yeah. No. That's a great point. And absolutely, that was one of the talking points was well clearly you can see and you can feel those pros, but at the same time it was, well how fast, how big, and how can we actually successfully execute on that? And our approach was just like, we need to keep doing what we're doing in the short term and that was at the time. So just to your question, there was no clear cut and no just flipping a switch. It was more like a process definitely. And our approach at the time was like, let's just jot down literally on a board what is it that we need to acquire a multifamily deal. Because there was a lot of things that we had already I guess under our belts or in our pocket, but there was quite a bunch of things that we hadn't. Starting with brokers, finding deals, sourcing deals. It's not the same route, it's not the same crowd, it's not the same people. So starting off with that. Lenders. And especially with this kind of market, unfortunately, bridge debt or at that time, Lima One, which has been our true partner along the way in the single-family space, it wasn't going to be a good fit for multifamily. Then equity. Different tech sizes, different asset class, no track record and so on. It was 20 or 25 items and our approach was just jot them down and let's start each one of those. That was our approach. Mid- 2019 we made that decision. Mid-2020, it took us about 10 to 12 months to strike the first one. August 2020, right after the pandemic, we were scratching our heads, should we actually do this? But we had done so much, we ended up doing it and that was actually our first full cycle, which we sold a few weeks ago.

Nate Trunfio: That's awesome, man. And congrats. If we go back in time, the multifamily market's been tough. It's very frothy, there's a lot of demands, not enough supply, a la the rest of the real estate investing market, but there was some good pockets and windows there where no one knew what the world was going to do so you had some opportunities, although still too limited. What was the hardest part of the transition if you were to pick a more isolated component?

Daniel Angel: There were a bunch, but pre- closing I think the most challenging part was figuring out a proper or I guess efficient capital stack. We hadn't done any multifamily deals. We didn't want to be too aggressive on assumptions for debt, and we ended up going agency with a Fannie Mae facility, which ended up being great. At the time, it was just lower leverage than what we were used to. It required a larger equity size check. So it was that whole debate of how to put this together. That was challenging, but at the end of the day it happened. So yeah. After the acquisition, the real deal happened.

Nate Trunfio: Look, it's always interesting what comes first, the deal or the money? And it's both if anybody could ideally answer it. And I can understand that ties to that being a big challenge. So let me ask the same question, but you specified it to pre- close. So now that you've gone full cycle on your first multifamily asset, what was the hardest part and or biggest transitioning in the reposition asset management and all of managing even if you want to look at just that first deal specifically?

Daniel Angel: Yeah. No. Absolutely. And I can speak to this specific deal and then we can broaden it up a little bit. And it's something we keep trying to share with our team. At the time it was just us two, now we're a larger team. We can talk about that a little bit later. But it's always easier to go back to see what happened. A lot of things you don't realize while you're on it, but basically you will probably never hit proforma exactly and then it can be a cause for craziness. But in our experience it's just a matter of stay true to your fundamentals, stay true to your concept, stay true to yourself and just grind. Specifically. We thought this could be... Just general concept, we're always trying to find value add opportunities so in this case we were planning on renovating... It was a smaller deal, so 25 units, so planning on renovating 25 units and just do them as we had lease termination. So lease termination, tenant goes out, renovate, lease up. Simple. The reality was that for some reason, and I don't know how or who, there was a rumor at the property that we were going to demo the whole thing. So we had a literally stampede of tenants who just fleed the property. So what we underwrote at maximum 80, 78% trough or occupancy ended up being 40%. Cashflow nowhere and clearly it just forced us to go super fast on renovation and pretty much have a whole lease up process. At the time it was challenging and frustrating, but it was the best thing that could have happened. We just went through it so fast, ended up leasing up, over performing on rent. And obviously the market helped a little bit, but it was just making sure we could pivot on our original plan, make sure we could execute the program, in this case, the renovation program and just go for it.

Nate Trunfio: Yeah. I love how you start broad and then give a very specific example and that's exactly what the listener probably will get the most value out of. If you look at the significant single family experience that you had, what was most relatable, most relevant in the times of dealing with whether in any part of the, let's call it post acquisition experience as you transitioned into multifamily?

Daniel Angel: Yeah. Definitely. I guess there were a lot of things that we keep from our single family experience and I think the most has to do with the renovation experience. We had been already exposed to those kinds of surprises. We come from the flipping world, which basically for those who probably don't know or are not familiar, in any flipping deal, there's a bunch of surprises once you open up the walls. So it's pretty much that same thing. It was the first time we had it at scale, so it was pretty much like... Now we laugh about it, but at the time it was like, well, we wanted scale. There you have your scale.

Nate Trunfio: You got to be careful what kind of scale you want because again, there's scale in opportunity, scale in success and scale in challenges and potential failure, which obviously you didn't find, which is a lot to your experience. So I got to ask a question I haven't asked anybody in a long while. So specifically in single family flipping, which go back into the memory a little bit, which I'm sure it's really hard to get away from, but be honest with the audience here. Cost overrun. If you were to give a percentage of cost overrun on your expected budget, which I know you guys are experts in construction or very high caliber at that, be honest, what should somebody expect if they've done maybe a couple deals, what would be a safe contingency cost over on budget percentage wise?

Daniel Angel: In the flipping world or in the renovation world, at least 15%. No less than that. And I could cut the story pre COVID and post COVID. Being pre COVID, you could live with eight, 10% post COVID... And the reason I say COVID, it's not necessarily relative to the pandemic itself, it's just what the pandemic brought. Volatility, inflation and all the things that we're dealing with. And I smile or laugh, but it is a pretty serious thing. If you're in that business and if you're starting or in the middle of or whatever, make sure you have that kind of cushion.

Nate Trunfio: Look, the audience can definitely tell you're an experienced and a very smart man. I can tell you're also very honest because anybody trying to tell any lower numbers is absolutely flat out lying in my opinion. And I'm not necessarily the firsthand expert, but I've seen my fair share of deals too. I appreciate you walking us through that. I got another interesting one for you here I think. Could you have done multifamily from the get if you had the same resource that you had at the time that you started flipping? If you were to project, what would've happened differently in your multifamily experience as if you didn't have single family experience to the extent that you did at that time?

Daniel Angel: Right. That's a great question. I think could we have done it? Probably. And we keep saying sometimes we go back... Not that it's good to kick yourself like that. But we keep saying like, ah, if we were in multifamily before at the time when the market was and should have, would have, could have. So could it have been? Maybe. Would we have been successful? Probably. But I just feel the process and the progress is worth it. In our case just starting literally from scratch. And now that we're starting to have conversations with institutional investors where there's a lot of like, ah, there's not enough track record. It's like I get it. But I think the progression helps the experience in the single family space regardless of it being different helps. It has helped us a lot, especially on the renovation side. So I would probably do it again same way. Probably faster maybe just because now we know. At the time we were hesitant about going to multifamily as fast and just staying longer in single, but probably just because we know now. But I think it's worth going through the process.

Nate Trunfio: Again, you're certainly holding up on the honesty end of things because as people listen, whether you're experienced in single family, you're experienced in multifamily, you're inexperienced in all of it, there's a big attraction to multifamily for a lot of all the right reasons. It's do you have the resources, the capacity, and as you've talked about the intangible grit just to persevere through it, whether it's individual, team. I wasn't looking for any specific answer, but I just think that that's just a really impactful insight that you give there. Real estate investing is very fluid by nature and you need to expect the unexpected. It's hard to go big and go multifamily and deal with scale without having dealt with some of the other maybe more learning processes that you go through. And to your point earlier, the repetitious learning processes by having to get to portfolios of 75 assets, which is 75 learning experiences and acquiring repositioning and then eventually at the tail end dispositioning so I appreciate you there.

Daniel Angel: There's actually-

Nate Trunfio: Go ahead please.

Daniel Angel: Sorry. I just thought of something. It has been really helpful for us to have gone through the whole process in another way, which I don't know if a lot of people think about, but we have seen it now that we have it. At some point if you're trying to scale and if you're actually looking to build a business more than just having a side gig, you'll need a team at some point. In our case, we were just us two for quite a while. And a few, I would say now, years ago we decided to start building a team. If you haven't gone through the whole process and just tried to build a team without tangible and actual expertise, I think it's harder to train, harder for the team to adopt and to adapt. So I think that's another reason why it's worth going through the whole process. In our case, it has been a lot helpful now that we're starting to build a team.

Nate Trunfio: It makes sense, especially if you believe in vertical integration of your business and the control that that can give you to be of value. It's a significant learning and capital investment to try and do that from scratch and/ or it's tough to then try and shoulder it all and outsource almost everything as well in a big scale of multifamily too. So I love that topic here and I can tell you're passionate about leadership and your team. I want to try and bring us back now to the present. We've been a lot in the past here. So what's the team look like? Who does what? What are the departments? Break that down for us.

Daniel Angel: Of course. Yeah. So basically we have three main pillars I should say. We still wear multiple hats and whatnot. That's typical from a smaller company as ours. But we have put together a... And I'll start by what my business partner Daniel Gonzalez does. He leads acquisitions and asset management. So everything that has to do with deal sourcing and that initial underwriting runs through him and his team as well as what we call asset management or actual asset management. And that connects directly with our third party property management company that we work with. Second is our construction or projects or operations team. That's led by Manuela Villa. She's also Colombian and she has her team, which is broken down into what's project management and what we call, let's say logistics and purchases or pre- construction and purchases. And that's how that team is broken down. And then on my side, I do everything that has to do with finance. So my team is broken down in two sub- teams. One is corporate finance, so everything that has to do with treasury and money management pretty much. And the other part of the team's what we call capital markets, has to do with deal structuring and stacking as well as investor relations. That's how the three main pillars are broken down. And then we're geographically located in pretty much two places. Part of the team is in United States here in Atlanta where our main market is, and the rest of the team... Whoever doesn't have to be on site is in our home city in Colombia, in Medellin. So we have a good part of our team sitting in our home country.

Nate Trunfio: That's interesting. So two part question. How many total people and how do you facilitate all that you have to do to look at deals to acquire, to manage, to manage operational and capital markets, treasury items between two countries? So two part question there.

Daniel Angel: For that first part of the question, it's total 20, including Daniel and myself. So it's 14 in Colombia and six here. That's how we're broken down. We've gone from two to 20 pretty fast and it's been an interesting road in terms of how to manage different latitudes. But honestly that's one of the greatest things that COVID or the pandemic brought is just us realizing there's a lot you can do virtually. So there has been a good chunk of time spent transferring what we call knowledge transfer with our team and making sure we can build processes that work from anywhere. So pretty much like anyone that doesn't have to be on site, so projects or similar will probably be in Colombia, so we've managed to do it that way.

Nate Trunfio: That's awesome. So there's got to be some entrepreneurial operating system meeting cadences. In the virtual world obviously it doesn't happen just by osmosis. So can you just briefly talk and touch down even in a little more detail how you again functionally operate between your boots on the ground team and the virtual team that is all boots on the ground in Colombia?

Daniel Angel: Yeah. Of course. So there's no specific software or anything that we're using. We do use Trello or Slack for communication. We have a hybrid system in Colombia, so we do have an office there and they as a team get together twice a week. That helps a lot for team building and culture building and whatnot. And we've had back and forth traveling from the team just to meet the folks and the properties here. There's a lot of WhatsApp going on within the team. I know it's not a big thing in America, but it's just texting back and forth. A lot of Teams meetings and virtual meetings like what we're doing right now. And we've just focused on making sure we have the right people, proper engagement and a lot of knowledge transfer.

Nate Trunfio: That's awesome. Look, in this newfound virtual world, at the end of the day we're in the people business and so we got to emulate meeting people, whether virtual or in person and a lot of ways to skin that cat. Everything you're going through is... I can pick up on it so I know listeners can too. I would call it...I don't know. The right word might not be this, but very sophisticated. Just the way that you very systematically break down the three pillars of your company. You talk about different realms of building culture, which implies leadership. So can you just from a very summary perspective, what's your background?

Daniel Angel: Yeah. And I think that's part of it. Both in my case and Daniel Gonzalez's case. I come from the corporate world. When I graduated from school... Which I went to school here in Atlanta, but I went back to Colombia and I had the opportunity to work for a couple of large Colombian companies and got into the multifamily... I mean not the multifamily. Sorry, the real estate world in other asset classes with larger funds. But I think that experience, that was almost like 10 years. Then I got coincidentally back to Atlanta to work for a cement and ready mix company corporate in Colombia, but they had a subsidiary here in the States. And later had the opportunity to work with Cortland Partners, which is a large multifamily operator here in the United States. So if you see all that, that gave us the baseline for what a large company and large group of people should look like. And I think that's been one of our common ground rule as what we want and where we want to be. Obviously we've paid our dues as we go and just make sure we're taking a step at a time and just putting every single building block at a time. But that's what we envision and that's what we're for. Just making sure it's not just us two. There's a lot of people involved. Not only our direct team, but our subcontractors and a lot of people that have believed in us. Starting with you guys on the lending side. You guys wrote the largest check since we started and similarly happens in the multifamily space. Same thing with our equity partners and investors and everyone at every single step of that way has believed in us, in our passion for what we do and our passion for our team and for our people. And that's been the road.

Nate Trunfio: It's awesome, man. I know we shared a little bit. I knew a little bit of that, but as you've really embodied throughout old conversations and the ways that you and your partner and your team run the business, you can tell that you have a lot of experience in call it as you said, corporate world, and that's why it's just easy to pick up on the sophistication. So again, we've been fortunate at Lima One Capital to see the proven success in execution that you've delivered, and it's just really awesome just to further break down here and understand that it doesn't come together at once. It's over a lot of time and learning lessons, and it's not even the lessons that you learn specifically in United States based real estate investing and single- family, multifamily, it's everything. You bring all your life experiences into what you make of your company, whether that is corporate, non corporate but it sounds like you're certainly building this for some great vision and goals in the future. I want to have you hit last topic here. The pillar of the company that you run, I would love to call it the money center, the money department. But you've referenced raising capital. So what's been a transition in capital raising over time to where you're at now and looking forward, what's that look like in the future?

Daniel Angel: Yeah. Absolutely. And that's a really important question, important topic, especially right now. But I guess our transition, we started off with our own equity. Later, started transitioning more into the friends and family space. I think that's pretty natural to companies like ours where you start finding your closest people who trust what you're doing and can see a easier the track record that you start building. We've had a really good opportunity to have a couple of family offices follow us along the way and continue to invest in our recent projects. And as we go, as we keep tweaking our buy box and what we feel is our next steps and get more into that middle market and more institutional road, we're having another transition more into the institutional world, which we can break down into smaller institutions, family offices, multifamily offices, or more like the institutional asset management companies locally or abroad that look for operators or sponsors like us to deploy or structure a programmatic investment approach.

Nate Trunfio: Whether it's known now or where are you forecasting is... We talked a lot about transition. The transition in capital and investor relations from the small mom and pop investors to institutional, what's that transition? What's the difference is probably even a better question.

Daniel Angel: Yeah. Definitely. The whole reason why we've set up a investor relations department has to do a lot with that. Originally it was pretty much follow- ups with quick text to our friends like, " Hey, here's how things are going. Check this picture out. This is what we're doing." And later on just getting obviously into more sophisticated ways of reporting or giving feedback and letting our, what we call community know where we stand and how our projects are doing. And slowly but surely getting into more sophisticated ways. We're now looking into a software that can support our investor relations and similarly in each one of the departments, just making sure we can keep up with the counterparties or stakeholders that we're reaching out to.

Nate Trunfio: It makes sense. It's been cool here as we look to close out, just to hear the number of transitions, but anybody that's in real estate or wanting to be in real estate investing, that's just the name of the game. And I think you've just done an awesome job exemplifying it. Just a broad question. Take this wherever you want. I've learned a lot and I know the listeners have too, but if you were just going to impart one last piece of wisdom on anything that comes to mind here, what would you want to leave the audience with?

Daniel Angel: I would say depending on the different audience that we have, if there's anyone that is either starting in the middle of or wherever within the real estate world, investment world, I would just say keep grinding. Never shoot low or short. Just shoot long and just go for it. In our case, it's just understand that there's a lot of pivoting. There will never be a single plan and exact execution. There will always be challenges, differences, deviations, variances, however you want to call it along the way. But you just need to learn how to appreciate, learn, and have fun while you're doing it regardless of what you're going through.

Nate Trunfio: So profound. I don't know if we can ever tout that message enough. So, man, Daniel, I appreciate you. I'm excited because we will make you our first ever third guest on The Real Estate of Things podcast coming up here as you continue to grow, find success and transition along the way, man, so thank you so much for being on the show and sharing all your knowledge.

Daniel Angel: No. Thank you, Nate, for having me. It's great to be back and always keep sharing what we're doing. Thank you so much for all the support. I will never get tired of repeating myself. I sound like a broken record. But Lima One has been so great for us. We look forward to working together again in the future.

Nate Trunfio: And that's a wrap. Thanks so much to Daniel Angel from Apex Development Group. This was awesome to have him for a second time. Make sure you subscribe on your favorite platform. Check us out every Tuesday for new episodes to drop, and you can always check all things on The Real Estate of Things on our website, www. realestateofthings. co. We will catch you next time.