May 22, 2023
Today’s guest is Todd Watkins
Todd is a COO of a multifamily real estate operator with 4000+ units. He has 30 years of experience in real estate from private law practice to Fannie Mae to current operator. Join Sam and Todd in today’s episode
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Introduction [00:00:00]
Todd Watkins' background and experience [00:00:36]
Challenges in the real estate industry [00:04:24]
Pay more for staff [00:08:54]
Changing philosophy for tenants and staff [00:09:26]
Challenges in the multifamily industry [00:13:28]
Agency Debt [00:17:44]
Changing Underwriting Assumptions [00:18:27]
Name of Real Field Realty Partners [00:22:41]
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Connect with Todd:
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
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Email me → sam@brickeninvestmentgroup.com
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Want to read the full show notes of the episode? Check it out below:
Todd Watkins (00:00:00) - That, uh, that allows us to say, you know, yes, the property right next door has their pool is, you know, two meters longer. Or their, you know, whatever their, their store is open for 15 minutes longer than ours is. But you still wanna be here cuz we are building a community of people of, you know, interesting people, interesting places. It's a, it's, it's a, you know, you're getting more for your rent and again, a, a, a commodity box where you can put yourself.
Intro (00:00:23) - Welcome to the how to scale commercial real estate show. Whether you are an active or passive investor, we'll teach you how to scale your real estate investing business into something big.
Sam Wilson (00:00:36) - Todd Watkins is the c a multi-family real estate operator with 4,000 plus units. He's got over 30 years of experience in real estate from private law practice to Fannie Mae to currently being an operator. Todd, welcome to the show.
Todd Watkins (00:00:50) - Thank you.
Sam Wilson (00:00:52) - Absolutely Todd, the pleasure is mine. There are three questions I ask every guest who comes in the show in 90 seconds or less. Can you tell me where did you start? Where are you now and how did you get there?
Todd Watkins (00:01:03) - So, okay, it's interesting and where did I start? There are a couple answers to that, but I think the one I'd like to say is I, my earliest memory is, um, being told that for the summer of seventh grade I was going to go paint apartment units because my father owns 10 small apartment complexes in Philadelphia. And uh, that's, if he would tell you if he were god rest facility, he not around. But he would tell you that that is how he paid for me to go to college. Cuz he had worked for the public, Philadelphia public school system for, you know, decades. And it, you know, having a kid who he put into private school, it didn't, it didn't pay. So he went out and bought, um, apartment buildings. And so that's how I got my start in the apartment business. Um, what, how's, how I got my start? How'd I get to where I am? Was that the second part? Yeah.
Sam Wilson (00:01:48) - Where, where'd you start? Where are you now?
Todd Watkins (00:01:51) - Yeah, so now I am the Chief Operating Officer and a partner at Real Field Realty Partners. We have about, as you said, about just over 4,000 units. We're in nine markets from, uh, greater dc um, a couple of markets in Virginia, north and South Carolina. And then we flip over to the bigger markets in Texas, sorry, Houston. Um, we're in San Antonio, Austin, um, and Dallas. Mm-hmm. . And so, um, you know, we, we, I got there, you know, as when you, when you said a 30 years experience, all I could think of was, man, I'm old. Um, and I got there, uh, the, the long way, um, I got there by virtue of being a private lawyer. Um, I got there by, um, half by being in, uh, a department that worked with, um, real estate, uh, developers, et cetera, but primarily did a lot of work with Fannie Mae.
Todd Watkins (00:02:42) - Um, and I was living in Los Angeles and, uh, you know, I'm from Philadelphia. Kids need their grandparents. All of a sudden I found myself back on the East coast with working for Fannie Mae. Um, and I had, I was up late doing a deal. Um, this is actually, I was still in private practice, but I was up late doing a deal with a guy from Goldman Sachs and he, you know, asked me a couple of questions. He went off, I asked me to add some numbers together. I did it, kicked back to him, uh, a couple days later, had to do the engagement letter for his firm. Found out that he was going to personally make more than my entire firm was, and I realized I was in the wrong part of the value chain at that point. Uh, started off working my way over to the business side at Fannie Mae and then, uh, with a partner had left about, you know, 18 years ago. Um, and started a couple of things bef you know, we had a, uh, a real estate consulting practice before we finally joined up with somebody else and created rail field.
Sam Wilson (00:03:36) - Wow, that's really, really cool. I mean, there's so many, I wish this podcast were longer because I'm sure just the things that you, your kind of insider's knowledge, and I know things have probably changed since you've been there. Uh, but your insider's knowledge of how Fannie Mae works, how to get loans done, just kind of all of that Sure. Component is, has got to be some somewhat of an advantage, hopefully, uh, for you in what you guys are doing today. Having had that experience from the private law side, from being inside of Fannie Mae now to an operator with over 4,000 units, uh, under, under your ownership, like what, what are things, where are things going? What are some challenges you guys are are looking at right now? I mean, it's, there's trouble in the water. Yeah, I think, but you tell
Todd Watkins (00:04:24) - Me. Sure, sure. I mean, I think there are a lot of challenges, um, qual uh, I guess, uh, there're on, on the one hand, finding people, you know, the, I think the pandemic and times we've come out of the pandemic have made a lot of people change their ideas of what, how they want to spend their lives and what they wanna do and how hard they wanna work. And hasn't, um, unfortunately changed my investor's views of how much they want make and how much they want those people to work. And so, um, there, there has been, uh, a real tough time in getting quality staff. I mean, just, just bluntly putting, um, the turnover has been much greater. The numbers of people who are good are asking for a lot more, but they're also willing to leave much faster. So there was a time when we, it was sort of easier to have a, a team that you felt you could count on and, and they would be there for you at least for a little while.
Todd Watkins (00:05:18) - And now, you know, we fight for people every single day. Um, you know, the, the, the amount of time that people are spending in their units, what they're looking for in units has changed. So the, the product type and how quickly we have to keep things going, um, to, to make sure that people want to be there. But I guess maybe the greatest thing, and I'm, I see, you know, I know it's only 15 in podcast, but I'd say, um, to, to my mind, I think there's some measure of the philosophy has gotta change in that, or is changing and it needs to be changed. And that we used to sort of think of it as a, something of a commodity product, right? It's a, it's a box where people put their stuff. And now I think because it's a box where people put their stuff, you have to have so much more. And that's one of the things that real field is that we, we try and build communities. And so we're trying to create not just a place where someone can dump this stuff, because let's face it, as soon as I build, you know, the next, next door is gonna be something shinier and brighter and newer. So I've gotta create an atmosphere where people want to live, not just where, you know, the the cost of them moving is gonna be higher than staying at my place.
Sam Wilson (00:06:17) - Yeah, those are, those are all very, very, I think, um, interesting challenges that we're facing right now, especially on the staffing side of things. Are you, are you finding that across the board it's a staffing challenge? Are there certain entry level, mid-level executive level differences in
Todd Watkins (00:06:38) - ?
Sam Wilson (00:06:39) - No. Retentions.
Todd Watkins (00:06:40) - It's across the, it's, it's across the board. I mean, you know, it's, it's easy to say, it's hard to keep maintenance people. That's, you know, they're the, the, uh, piece that, that little bit of gold that everyone is searching for, you know, great maintenance people are just, you know, so few and far between. And when you, you get 'em, all you wanna do is make sure that, you know, their phone only takes your calls and doesn't take them from anybody else. Um, but you see it as sort of every level. And, you know, I think that, um, there has been a traditional path. This kind of goes to what I was saying before about the, the, the philosophy. But there's been a traditional path based on, also on a leasing side, where you go from, you know, you start up as a, an associate, you move up to be a leaser, you know, you have to be an assistant manager, you have to be a manager, um, and then a regional and potentially beyond.
Todd Watkins (00:07:27) - And I think that some of these, some of these properties and some of the numbers are getting to be so big that, you know, that path requires more than just having sat in the previous seat for, you know, at this point it could be six months. You know, that with the turnover so quickly. So there is, I think, um, there are, there are changes and differences and some of the expectations that people have that they're just gonna go to the next level doesn't necessarily meet our needs. When you actually get to the next level, it would've, they would've benefited by being in that previous seat a little bit longer in, in particular. But, um, but you know, between that technology, um, and, and the demand of tenants, um, or residents, uh, it's there at every level. There's a, there's a change and, um, it's, it's hard to hold on to people.
Sam Wilson (00:08:11) - Yeah, absolutely. Any tips or tricks, things that you guys are doing currently, uh, to kind of mitigate that problem?
Todd Watkins (00:08:20) - I mean, honestly, you know, we're paying more . I mean, you know, I think that's the, you know, I mean, we want to change the paradigm. Um, I'd really love to be able to have different entry points for different people and find a way to, to make them be contented where they are so that everyone's not just looking at their boss, we know to, as a way to get that next job. But the truth is, it's such a fragmented market, just so many owners and operators out there that everyone's trying to steal salad from somebody else. And so I get to, from what we're seeing right now is we just have to pay more.
Sam Wilson (00:08:53) - Right? Right.
Todd Watkins (00:08:54) - And any and for stars, we're willing to do it. And, and, you know, and, and I would just say, you know, it might be if I could make a commercial for us in, in the markets where we're, if you're a potential manager out there for stars, we are willing to do it. We're absolutely willing to pay more. And we, you know, we, we have to. But I mean, I think that, you know, these are, like I said, these are getting to be good sized businesses. You know, you buy property for 60 million, you don't just turn it over to anybody. So you know, the difference of six, eight, $10,000 in, in a manager's salary on a, on a business, that size means nothing. So, right. Yes. Oh yeah.
Sam Wilson (00:09:26) - No, it absolutely doesn't. Uh, you talked about how the philosophy kind of needs to change as it pertains to the tenants. Before we get to that, what outside of pay more, is there a philosophy that you guys have had to change as it pertains to your staff?
Todd Watkins (00:09:45) - Sure. Like I will say, like right now we are in the market for a concierge at a property in Dallas, right? The, the idea is it's no longer enough to have, you know, someone who calls when your toilet overflows or someone who's not, you know, we wanna become a part of the community. We wanna have, you know, if, and I can tell you the name of the property, it's Skyline Trinity, you know, I, I'm talking to the city about having, you know, a 5K start there, you know, or what can we do to get our name out in, in that way to have a concierge shoe sort of, you know, they know all the restaurants, they know the places to go. They're a real resource that, uh, that allows us to say, you know, yes, the property right next door has their pool is, you know, two meters longer or their, you know, whatever their, their store is open for 15 minutes longer than ours is. But you still wanna be here. Cause we're building a community of people of, you know, interesting people, interesting places. It's a, it's, it's a, you know, you're getting more for your rent and again, a a a commodity box where you can put yourself,
Sam Wilson (00:10:44) - Right? No, no, that, that's really, really cool. And I, and that, and that, again, you know, that, that plays to both, both staff and, uh, and to tenants where if you, so we've talked a little bit about the challenges that, that you're, that we're facing right now. You know, how people are living. We've talked about employment and staffing challenges. Have we talked about insurance and kind of the things that are, uh, challenges on that front, and then how you mitigating just the ever increasing cost of insurance?
Todd Watkins (00:11:11) - Yeah, that's a tough one. Honestly, that's what I'm dealing with right now. Um, the, there have been a lot more once in a thousand year events that seem to have hit, um, particularly in parts of Texas, um, along the coast. At the same time coming out pandemic, there are a bunch of insurance companies that have just left the market. And so the premium increases, renewal re increases, sorry, that we're seeing are, you know, a hundred percent, you know, I, I got one in April that was 80%, couldn't believe it. And then just recently got them was 120%. So I think that, you know, and I, I know some of your, um, viewers, listeners are, are smaller. I think there are, what we're trying to find is programs to help small people get together so we can get some of the hef to the, and, and the benefit of size that, that, you know, some of the enormous players in this business have, they can go out, they can create their own towers of insurance or even their own captive insurance companies, you know, but my fourth thousand means I can't do that, but I know, but, but that's sort of some of the things we're trying to look at is even combinations with other operators to see if there are ways to help us, you know, get some benefits of, of scale.
Todd Watkins (00:12:22) - Because I mean, I, I think, and you know, now I'm gonna demonstrate an entire industry I know nothing about, but I think the insurers are really looking for ways to just bring in more profit, more premiums than they're paying out in losses. So, you know, when they look, when they look at my portfolio and do their pricing, you know, it's, you know, I have to have it. And I don't bring a whole lot to the party than, than my 4,000 units. So if I can find ways to help people, you know, I mean the, some of the things that, that have been offered of, you know, well take a, you know, an an enormously higher deductible, you know, there are, that's like part of what the insurers are coming back to me with renewals on. I'm already taking more risks than I wanna, so it's, it's finding some way to be creative, to get more people in to, to truly under or, or to have enough, a good enough relation with my, um, brokers so that they can really tell our individual story about some of our properties. So it's not just, you know, east of I 95 makes a coastal, and so jack up, jack up the premium, it's this property is here, there, or the other place. And it's not the same risk as you might generically think it is by just looking on a map.
Sam Wilson (00:13:28) - Right, man. Yeah. And that's a challenge. I mean, how absorbing that, absorbing that Indian, right? Yeah. Yeah.
Todd Watkins (00:13:37) - Well, so that's the thing, right? So we've talked, so what have we talked about? We've talked about competition, we've gotta pay staff more. I got a hundred percent insurance increase. Um, you know, I mean, I can tell you that the, the local municipalities are not looking for less on their property taxes. Um, you know, it's, it it's an ever bigger challenge, , I mean, it's fun, but it's never bigger challenge,
Sam Wilson (00:14:00) - Ever bigger challenge. But there's a reason you're still in it. So what are the
Todd Watkins (00:14:05) - Opportunities? You're saying I don't have any other skills, ,
Sam Wilson (00:14:08) - , I'm not saying that at all. I'm saying you can do anything you want, and yet you choose to stay, you're in it. So no, clearly not. You have way more skills than, uh, than I do, I promise you that. But, but what are, what's the opportunity that you see right now?
Todd Watkins (00:14:27) - Oh, I mean, you know, look, commercial real estate is, and, and so we are in multifamily, right? That's, that's all we do. We, you know, we, one of my partners like to say, you know, we don't know a lot about a lot, but we know a lot about this, right? Um, , it's right. It's still, it's an incredibly fragmented industry. So, you know, the, the, you know, there're millions s and i, I should have known these numbers, but, you know, million management of, of apartment properties out there and, and, you know, hundreds of millions of units. And the largest operator, owner operator has about a hundred thousand hundred, something like that. So it's, it's an incredibly fragmented, um, uh, market. It, the, the challenge every day there's a challenge in each one of these businesses and coming up with strategy and figuring out how we can keep it best positioned to make the highest return.
Todd Watkins (00:15:12) - Um, you know, it's, it's tangible in a way that, you know, you get to go in and see, you know, say we should pay for something, and then six months later actually seeing it come to fruition. You know, you, you, you go to apartments and you actually see, you know, kids playing on, on swings that you decided to be there. You know, it's, it's a lot of fun actually. , I mean, you know, I suppose, um, you know, everybody finds the thing that they liked or everyone should find the thing that they like to do the most. And I guess for me, you know, at this stage of my life, certainly this is what I like to do the most.
Sam Wilson (00:15:46) - Right. Is there, is there any strategy or, um, anything, I guess when you think about the multi-family space holistically, is there something where you're like, Hey, this is where our niche is and this is why we're staying here?
Todd Watkins (00:16:02) - Yeah, so, um, you know, we don't develop, that's a whole different set of skills. So, you know, looking at a piece of dirt and, you know, turning it into a, a building, I mean, I, I could only pray to be that creative and, and to deal with all the headaches that, that go along with that. You know, we, um, we don't do like really high end stuff. And we have some stuff that, that we have, um, uh, bought that's relatively newly built, but, you know, not skyscrapers, um, you know, Manhattan and all that sort of stuff. We are, you know, and maybe it's, um, it goes back to our time at Fannie Mae, but we're sort of BC market buyers. Um, you know, we like, um, the solid part of the market. It's not, you know, I'm a brain surgeon, but I just feel like renting it's people who, you know, if they don't necessarily need to rent, they're on the cusp of it.
Todd Watkins (00:16:53) - You know, they, they, they wanna rent. Um, and we wanna provide great, um, homes for 'em. But it's, it's people who, um, you know, are not just, you know, having a, having a, a, you know, a pieta tear because their place at the Hamptons is being worked on. Um, so that's sort of the, the part of the market where we stay, we know it, we think it's the deepest part of the market. Um, having been lenders, it has proven to actually, um, provi perform the best in downturns. Hmm. And so, you know, once you're a lender, you know, you always sort of watch the downside, um, a lot more than the up. So yeah, that's, that's kind of where we've come from, where we're, we'll probably stay.
Sam Wilson (00:17:29) - What, what are you guys doing, uh, speaking of lending? Like what's an attractive, what are attractive terms? What are attractive loans that you guys are, are looking for and liking right now?
Todd Watkins (00:17:44) - So that's actually not my part of the business. Um, I have a partner, John Siegel, who, who runs that. But typically, you know, we've been getting, and, and I, I jumped over something quickly, which I should have forgotten. It's, it's not only did we come from Fannie Mae, but one of my partners, Ken Bacon, actually used to run Fannie Mae. He ran Fannie Mae multi-family for about 12 years. So, um, we have done pretty well with agency debt. Um, it's typically, you know, uh, seven to 10 years. Um, we get as much interest only as we can. Um, and, you know, it's a, it's a cashflow business in the collection business . So, but in terms of actual terms right now, that would be something John would've to you, you'd be better off talking to him. Gotcha. Say they've better off talking to him. ,
Sam Wilson (00:18:27) - . I doubt that. Here we go. Let's talk, uh, about underwriting assumptions. Maybe, uh, maybe you can talk to us about, cuz I think one of the things you mentioned earlier was that, you know, we have all these, we have all these rising costs from everywhere from staff Sure. Insurance to, you know, all those challenges coming at you, and yet you also have investors who are still wanting that amazing return that they were getting in 2019 and 2020. How are you changing those underwriting assumptions for 2023, and then how are you communicating that back to your investors?
Todd Watkins (00:18:58) - So it's, um, honestly, it's hard and, you know, they're not many deals are getting done. Um, we actually are just, have just circled our first deal for the year, um, just this past week. Um, and it's, it's difficult. Um, we actually, you know, it's, we have different investors who have different, um, requirements and so we can kind of, um, try to find a fit for them, but it's been very, very difficult. And in fact, I mean, I don't know who else you're talking to, but I haven't heard of many deals going off this year. I think volume is just way, way down. Um, so I think that there is a, how should say, a sort of a bid ask that is, or, or readjustment, um, that's gonna have to happen. Um, as truth be told, some of the sellers are gonna have to come and start to realize that, you know, some of the amounts that they thought they were going to get, you know, 15, 18 months ago, just aren't going to be there.
Todd Watkins (00:19:57) - Um, I mean it's, you know, it's, it's just a math. Um, you know, investors, you know, investors still do want some of those returns now. They're, you know, they also will have to at some point come to grips with the fact that, you know, uh, if if they're going to put money out, it's gonna have to, they're gonna end up having to do something at lower than the returns that they were, um, looking for as well. But that's, you know, how a market will be made, right, is people, both sides will have to give some,
Sam Wilson (00:20:22) - Right, right. Yeah. And I, I would think just, you know, from a, uh, outsider's perspective, we only have a couple multi-family properties in our portfolio, but from an outsider's perspective, those deals with agency debt, you know, that was acquired two, three years ago at two and 3% fixed for 30 years. I mean, those are the ones that I think will still trade at, you know, uh, you know, at a premium. Am I in, in incorrect in that assumption?
Todd Watkins (00:20:50) - Well, all, especially if it's a sum. Um, the, yeah, well that's, that's largely what we've, we've been trying to do is assume is a assume loan. Um, but, but again, remember agents, so just so we're clear, multi-family, um, tends not to have the 30 year death. A standard product that comes out of Fannie is like a 10 year product. Okay. Um, single family will go out, will go out to 30 years. But typically on multi-family it's, it's 10. Um, sometimes you might see something out of FHA that goes longer, but I think it's typically it is 10 as the horizon. But yeah, that's where, that's what, if you have, um, if you have loans that can be assumed that where the math works there, that's probably where the action's gonna be. Right? Or quite honestly, if you're, I mean, you know, I think, you know, back to my father, um, you know, and one of these things it's like, you know, there's always gonna be a deal because someone always gets divorced, dies, you know, has to sell for some, you know, has some cash requirement.
Todd Watkins (00:21:46) - Um, I think there were deals done a few years ago that had variable rate debt, um, where either the rates has gone up so much that they can't afford it, or the escrowing for the next cap has gotten to be so much that they can't afford to hold them anymore. And I would imagine that some of those, you know, there could be, that could be where some of the movement starts. Cause some of those people, I mean, you know, God bless 'em, I hope they're all doing, but, but I, I would imagine if they're not feeling it, feeling great right now,
Sam Wilson (00:22:17) - Right? No, no, they're not. I can, I, I can, I can only imagine as well. And having talked to some of the people on this show, uh, who have been in that exact and are, are in that exact predicament right now, where it is, um, yeah, they're feeling, they're feeling that pinch. Todd, I got one last question here for you. Rail Field, why that name for your company? What, what does that come from ?
Todd Watkins (00:22:41) - So, um, uh, you know, it's, uh, the short answer, along short answer was we were starting with a, uh, a program and investor who, you know, needed a name. And it was already written in the documents because my partner Ken had come from, when he had come over, he had a, he had a company called Refield. Um, so we just took it longer answer. Um, the, originally there were two partners, ones African American and one was Asian. And the Asian person said, when my family came over here in the mid, you know, 19th century, you know, they were probably working on the rails. And the, the African American guy said, well, at the same time, I'm probably working in the fields and you got rail and field . So
Sam Wilson (00:23:21) - There you go. There you go. Fantastic. I love, I love, I love both answers as short and the long. That explains it very, very clearly. Todd, if our listeners wanna get in touch with you, learn more about your firm, uh, what is the best way to do that?
Todd Watkins (00:23:35) - Rayfield realty.com. Um, it's the long name, but I think it's worth it. Uh, but yeah, look us upfield realty.com.
Sam Wilson (00:23:42) - Rayfield realty.com. Yeah, we'll make sure we put that there in the show notes. Todd, this has been certainly insightful. Your, uh, your experience is unique and you've shared a lot of really great stuff with us here today. So thank you for taking the time to come on the show today. We certainly appreciate it.
Sam Wilson (00:23:57) - Thank you so much for
Todd Watkins (00:23:58) - Having me. I really enjoyed it.
Sam Wilson (00:24:00) - Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can, do me a favor and subscribe and leave us a review on Apple Podcast, Spotify, Google Podcast, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank hire on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.