As a long-term investment strategy, the apartment sector has proven it can weather economic downturns and sluggish recoveries, as long as new construction doesn’t get too far ahead of demand. “When you acquire apartment communities that are 85 percent to 90 percent occupied, that’s where research meets opportunity,” says David Colman, co-principal of Roco Real Estate Inc. in Bloomfield Hills.
The company was founded in early 2012. Since then, Colman, along with his brother, Michael, and longtime high school friend Tyler Ross, have — in just 18 months’ time — built up a portfolio of a dozen multifamily properties totaling more than 3,200 apartments. The goal is to boost occupancy at existing communities, most of which are in Michigan, while looking for acquisitions nationwide.
“Tyler and I worked at Edward Rose & Sons (in Bloomfield Hills) during school, which has developed 65,000 apartments and now owns 57,000 apartments,” Michael says. “Our goal is to become as big and well-respected as Edward Rose & Sons. We buy from motivated sellers or from banks and, once a deal is done, we look to upgrade the properties.”
The approach has proven successful, especially given the fact that the new housing sector has yet to recover from the 2008 global economic crisis. In Michigan, single-family housing permits began to decline in 2004 due to sluggish demand and a falloff in the sale of large-ticket items like luxury cars and pickup trucks, combined with tougher lending standards.
Those factors have helped drive up rents, albeit slowly. With tighter vacancies and higher rents, the principals at Roco, all of whom are in their 20s, are riding a steady upturn in the multifamily sector. The pace of new home construction isn’t expected to reach pre-recession levels anytime soon, especially as banks continue to require large down payments on new and existing home purchases.
“We found it was a lot easier to start up a business here in Michigan than other states,” says David, who joined Roco after leaving his job as a product strategist at BlackRock Inc., an investment management firm in New York.
Once a property is acquired — Michael researches the acquisition targets, Ross oversees financing and analysis, and David manages the assets — the trio hires managers to review and upgrade the communities, where necessary. “We could have gone into tech or built apps,” David says. “But we went with our strength, which is bricks and mortar.” db