The Capital Stack
Q&A With Tory Sheffer
We realized that we haven’t answered the questions that we usually ask our guest interviewees. So, we decided to do a Q&A with ourselves. We hope you enjoy it!
For our new subscribers, we’d like to share some details about Sheffer Capital. Our firm specializes in real estate investment and operates at a sub-institutional level, primarily concentrating on acquiring multifamily properties in suburban areas within the Great Lakes Region. Over the years, we have successfully closed various deals ranging from $2 million to $16 million in value, consisting of 8 to 250 units. Our primary emphasis is on value-add properties. Our current “sweetspot” deal is $3m-$15m, 40-150 units.
1. Tell us about yourself and why you choose to get into real estate?
My name is Tory Sheffer and I grew up as the third child out of nine in Hartland, Michigan. I chose to pursue a career in real estate because I was interested in finding a way to enter the world of private equity, and real estate appeared to be an excellent opportunity to do so. Initially, I started as a real estate agent since it was the easiest way to enter the industry. During my third year in college, while managing my summer company called Superior Recreation Services, a small-scale playground construction business, I obtained my real estate license. As I gained traction as an agent, I decided to quit my playground business. After a few years of working as a realtor, I became intrigued by multifamily syndication, which appeared to be a great way to build long-term wealth. I dedicated three years to learning everything about multifamily while continuing to work as a realtor. My first multifamily deal closed in August of 2020, which prompted me to leave selling homes and dive fully into multifamily real estate.
2. Can you describe your most profitable real estate transaction?
My very first real estate transaction turned out to be my most profitable one to date. The deal involved 232 units and was valued at approximately $16 million. I discovered the opportunity through a mailer and brought it to a mentor who took the reigns. While the deal was under contract, another group approached us and ended up purchasing 184 of the units for a profit of $1.4 million. As I did not have any personal funds invested in the deal, I received 15% of the profits. We have since gone full cycle on the remaining 48 units from that deal as well, 28 units that we were all in for $2.4m and sold for $3.7m, and 20 units that we were all in for $1.8m and refinanced at a $4.15m valuation.
3. What type of deal do you consider to be your “bread and butter”?
The core of our business has been centered around 20-80 unit class B suburban multifamily properties. Currently, we consider a desirable deal to be around 75-units, constructed in 1970 or later and maintained in good condition. Additionally, if the property has been under the same ownership for at least 10 years and has not undergone significant interior upgrades, it would be a perfect fit for us.
4. What marketing strategy has proven most successful for your business?
In terms of generating the highest returns, mailers have been the most successful for us from a monetary perspective. However, when it comes to the number of deals, we’ve been able to secure, cold calls have been the most effective. That said, we believe that building and nurturing a strong network has been the most advantageous for us overall. Through networking, we’ve been able to establish new relationships with investors and gain access to new deals. This snowball effect has proven to be a valuable asset in our business operations.
5. Tell us about the first property you purchased?
After our initial success, our first purchase as a solo General Partner was Creekside at Fenton Heights, a 24-unit property with 10 vacant units at the time of acquisition. To secure financing from a local credit union, we structured a master lease with the seller. Within seven months, we were able to stabilize the property and increase the monthly income from just over $10,000 to $28,276 in February 2023. Currently, we are considering the potential sale of this property as it is situated on 23 acres of land that would be prime for development.
6. How has the current market (increased interest rates) affected your business?
The doubling of interest rates throughout 2022 had a significant impact on the acquisition markets. Between June 2022 and January 2023, the market experienced a considerable slowdown, as interest rates climbed to mid-7%. During this period, many sellers continued to hold out for pricing that aligned with the previous 4-5% interest rates, resulting in a virtual standstill in the market.
7. Can you share three important things you have learned being in real estate?
Buying right takes care of the headaches. As an example, we acquired The Hollyvillage Apartments in November 2021, at the height of the market, for $975k, which was a significant discount to market value of $1.2m. Currently, we are selling the property, and have received offers of +/-$1.7m, despite the overall market being down by 10-15% from its peak. If we had paid full market value for the property at the time of acquisition, our returns would have been considerably lower.
Being prepared to pivot is essential in real estate investment since almost every deal comes with its own set of unique challenges. It’s rare for things to work out exactly as planned, although it does happen occasionally. Therefore, it’s essential to consider the downside and analyze the risks and costs if the original plan doesn’t work out. For instance, at our property in Linden, MI the Pinehurst Apartments, we intended to renovate half of the units in the first year. However, we encountered unforeseen obstacles when working with government agencies to collect rent from tenants who were affected by Covid-related work disruptions. Since we couldn’t evict tenants due to Covid restrictions, we had to wait for up to 3-4 months to collect rent as CERA processed those cases individually. This significantly delayed our initial unit turn and renovation schedule.
Networking is key to success, so it’s important to never stop building your network. I always try to stay active on social media and am always open to meeting someone new for coffee or a call. I’ve found it very worthwhile to invest time in developing relationships, as you never know what contact may prove to be someone who can bring new ideas or value in some other way to improve our business.
8. What about your job do you find the most challenging?
Finding quality properties to buy. Although we have numerous investors eager to partner with us, without a deal there is nothing concrete to talk about. My focus is on maintaining strict discipline and purchasing properties that fit squarely within our criteria, rather than pursuing deals solely for the sake of generating fees.
9. Can you share one of your goals for 2023?
In 2023, my primary objective is to streamline our current holdings and prepare for the next level of growth. We are currently selling a few properties and have our sights set on purchasing several more in the 50-100 unit range, which is a better fit for our investment criteria. My goal is to acquire five top-tier properties this year, which will likely amount to 150-300 units in total.
10. Pick your favorite deal: Creekside at Fenton Heights
• How did you find it?
I gained contact with the owner through my direct mail campaign. The seller initially expressed interest in selling, but then went radio silent on me for about 5-6 months. Eventually, I managed to get in touch with his secretary, which lead to him calling me back. From that point on, he was very communicative throughout the transaction, and everything went smoothly.
• What did you like about it?
The location. Creekside is situated just one mile south of downtown Fenton, an area that has experienced steady growth. Additionally, as someone who grew up only 10 minutes away, I felt a strong connection to the potential tenant demographic in the area.
• What was the business plan?
Stabilize the 10 vacant units as quickly as we can, and then start exploring potential expansion development.
• How was it financed?
We secured financing for the property through a nearby credit union. The loan amount totaled $1,850,000, with a fixed interest rate of 4% for the initial 5-year term, after which it became a floating rate loan for another 5 years. The loan also provided us with approximately $325k in funding to cover renovation costs.
• How’s it going today?
We successfully achieved stabilization within our intended timeline for the project. The next step in our plan is to sell the property to a developer who will take over the construction. We are currently assessing the property’s development potential to ensure it meets the necessary requirements.
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Major Market News
More on New York’s Flat Iron Building
We love to follow a developing story and wanted to share more on the sale of New York’s flat iron building. As per The Real Deal, there were some unconventional circumstances during the auction process, which may have contributed to Garlick’s successful bid. Unlike traditional auctions, participants were not required to provide proof of funds or a deposit to participate. Furthermore, the article explains that Garlick missed the deadline to deposit $19 million, which was 10% of his winning bid of $190 million. It looks like the property will go back to auction. Link to the full story below.
Tips and Tricks
Tips- Contact us anytime.
As we mentioned during the interview, we are always open to engaging in discussions. We are interested in exploring ways in which we can offer value to your business and vice versa. We believe that having conversations with like-minded individuals can lead to exciting opportunities and mutually beneficial collaborations. Contact us anytime.