After spending the majority of our lives in larger cities like Chicago and New York, we began to notice an ongoing theme: people could no longer afford to pay their rent. While median incomes have stayed relatively stagnant in recent years, rent prices have grown at a significantly greater rate. As the Millennial and Gen Z generations grapple with an overwhelming amount of student debt along with little to no savings, they are being forced to seek out a lower cost of living.
At DR Capital Management, we wanted to focus on an asset class that younger generations would find both convenient and affordable. We started looking at smaller cities with positive net migration trends, low unemployment, and diversified labor forces. Grand Rapids, with its workforce heavily weighted in education, grocery, and healthcare, offers not only affordability, but sustainability for the middle class. From quantitative metrics to the quality of its residents, we were able to find exactly what we were looking for in West Michigan.
Markets
As rent prices have surged throughout primary markets in recent years, prices in both secondary and tertiary markets have remained more anchored and affordable. While major cities may command higher rents, they are also subject to the most volatile market swings and greatest levels of risk. We’ve also seen a recent net migration trend away from primary markets as prices have inflated to a level beyond the means of the working class.
Scale
Generally speaking in real estate, the smaller the scale of deal, the less institutional interest, and therefore, higher cap rate potential. Macro funds and private equity groups often outbid one another and decimate their profit margins. Our willingness to consider smaller cap deals allows us to avoid macro level competition.
Sourcing
We have a reliable pipeline of industry professionals in West Michigan working around the clock to source and secure deals for us. This is where our local footprint and network foundation provide us with a distinct advantage over institutional competitors.
Underwriting
Using a conservative underwriting model, we are able to hone in on assets that present an opportune level of risk for our equity partners. We rely on strict, quantitative valuation metrics in order to capitalize on assets that fit our criteria.
Teamwork
Our success is entirely dependent on strong teamwork and communication from the ground up. We encourage our equity partners to believe as much in the people managing the assets as the assets themselves. Whether it’s underwriting, property management, or accounting, we demand honesty, commitment, and accountability from every member of our team.