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  • Navigating Central Texas Real Estate Landscape with Andrew Campbell: Insights and Lessons Learned [Ep178]
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November 7, 2023

Navigating Central Texas Real Estate Landscape with Andrew Campbell: Insights and Lessons Learned [Ep178]

In today's episode, we have the pleasure of sitting down with Andrew Campbell, a seasoned real estate investor. With a portfolio consisting of value-add deals and new construction projects, Andrew plans to hold onto his 2022 investments for a long period of time. He also delves into his experience with development deals and his partnership on a 313-unit apartment project in San Marcos. Throughout our conversation, we explore the factors that impact investment returns, the growth potential of Central Texas, and the unique qualities Andrew looks for when considering a property. We also dive into the importance of conviction, executing deals, and the challenges of a competitive market. Join us as we delve into the world of real estate investing with Andrew Campbell on this insightful episode!

Episode Timestamps

  • 00:02:36 San Antonio launches Fund with Chamber of Commerce.
  • 00:05:53 High retention rate. Bigger, appealing 1500 sq ft units.
  • 00:09:50 Born in Austin, focus on long-term growth.
  • 00:10:43 Development deal: risk, build, sell, partner, lease, finance, 5 years.
  • 00:15:52 Parcel with individually plotted lots, flexible selling options with HOA.
  • 00:17:50 Austin's growth fueled by tech and stability.
  • 00:22:51 Doom and gloom, but people still move.
  • 00:26:46 Fortunate track record, disciplined underwriting, location focus.
  • 00:28:28 Higher leverage can result in higher returns.
  • 00:30:49 Staying in Central Texas; avoiding risk.
  • 00:36:13 Investors are unique with different circumstances and goals.
  • 00:39:37 Real estate deals: value-add, new construction, future plans.
  • 00:41:24 Approach investments carefully, execute with expertise.

Episode Table of Contents

  • Pursuing Value Creation and Stable Growth in Central Texas
  • The Importance of Underwriting Factors
  • Focus on Central Texas and Its Growth Potential
  • Balancing Development Risk and Returns in Central Texas Through Local Partnerships
  • The Potential of Central Texas’s Real Estate Market
  • Building a Team and Tailoring Outreach for Real Estate Success in Central Texas

Pursuing Value Creation and Stable Growth in Central Texas

Pursuing Value Creation and Stable Growth in Central Texas
Photographer: Rui Matayoshi | Source: Unsplash
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Andrew's Approach to Real Estate Investing

Andrew starts off by discussing his frustration with his current approach, which leads him to seek the ability to execute more interesting real estate deals. He shares that his current portfolio consists of 40% value-add deals and 4 new construction deals, showcasing his inclination towards value creation.

Andrew reveals his plans to own the 2022 deals for a long period of time, aiming for stability and long-term growth. He does not have a specific unit count target, but rather focuses on executing deals that make sense in markets he knows well. Andrew wants the operational expertise to be able to pursue interesting opportunities as they arise, rather than stretch to meet a predetermined goal. His approach is to stay conservative and not overextend the company's capabilities.

Andrew's portfolio mix of value-add deals and new construction highlights his focus on both stabilizing cash flow from existing properties and developing properties that can drive long-term appreciation. His emphasis is on thoughtful growth in familiar markets, executing on deals when the timing and return profile align with his disciplined underwriting approach. Andrew aims to balance opportunities for value creation with building a stable portfolio.

Andrew's Thoughts on Market Growth

Andrew shares his perspective on Austin's continued strong growth, even with the recent tech sector layoffs. He believes Austin will likely double in size every 20 years, continuing its long history of rapid expansion.

Factors Andrew cites that make Austin's growth sustainable include its mix of tech, government, and university anchors; its growing biotech and medical presence with the new medical school and hospital; and its continued ability to attract residents and companies fleeing higher costs and more regulation in other states. He sees the political balance in Texas keeping policies modestly pro-business.

Andrew does acknowledge Austin's challenges like traffic and housing affordability given the influx of high-paying jobs. However, his optimistic outlook is based on a multi-decade time horizon in which he sees Austin's overall quality of life and business climate continuing to draw new residents and investment. Andrew aims to ride the growth wave in the market he knows best.

Tech Boom in Austin: "I think a lot of that has been fueled by tech into the big headlines, you know, the Oracle and Tesla and Samsung, Facebook. I mean, every FAANG company has a big presence here"— Andrew Campbell

The Importance of Underwriting Factors

The Importance of Underwriting Factors
Photographer: Gus Ruballo | Source: Unsplash

Cap Rates, Rent Growth, Taxes, and Leverage Affect Returns

Andrew emphasizes how cap rates, rent growth assumptions, property taxes, and leverage all impact returns in real estate underwriting. He discusses the ability to show higher returns on paper by using more aggressive assumptions, like lower cap rates, higher rent growth, lower taxes, and increased leverage. However, Andrew believes in maintaining reasonable assumptions to ensure investments are appropriately risk-adjusted. He understands there are inherent risks in pushing assumptions too far just to artificially boost returns on a pro forma.

Keeping Leverage Discipline Provides Stability

A key underwriting principle for Andrew is avoiding excessive leverage, even when it may produce lower projected returns than higher leveraged deals. He shares that Wildhorn Capital has long had a rule of not exceeding 70% leverage to keep deals balanced. While painful to lose deals during times of easy money and low rates, this discipline has provided stability. With rising interest rates compressing values, Andrew's portfolio is not over-leveraged or bleeding cash like some over-levered investors. His underwriting discipline gives confidence the portfolio can weather challenging times.

Focus on Central Texas and Its Growth Potential

Focus on Growth Potential
Photographer: Suzanne D. Williams | Source: Unsplash

Andrew's Optimism about Central Texas

Andrew, as a native of Austin, Texas, expresses strong conviction in the long-term growth potential of Central Texas. With his local roots, Andrew considers himself knowledgeable of the Austin real estate market and confident in its ability to continue flourishing. He points to key drivers like attractive job opportunities and population influx that make Central Texas a magnet for investment. Andrew operates with a long view, investing in assets that align with a 5 to 10-year ownership horizon.

The Success of Austin: "It's not as much about what we're doing right as much as it's what other places continue to seemingly do wrong."— Andrew Campbell

Disciplined Approach Focused Locally

Operating with discipline, Andrew remains focused on Central Texas for acquisitions rather than venturing to other unfamiliar markets. He concentrates on value-add multifamily properties with a 3 to 5-year business plan. Andrew emphasizes the importance of securing deals in unique, high-conviction locations like sites near top-ranked schools or areas with limited development potential. His localized approach enables hands-on oversight and market expertise.

Balancing Development Risk and Returns in Central Texas Through Local Partnerships

Balancing Development Risk and Returns in Central Texas Through Local Partnerships
Photographer: Christophe Hautier | Source: Unsplash

Balancing Risk and Return in Development Deals

Andrew shares his fear of not properly executing development deals and becoming over-leveraged. This has led him to set a strict rule of not exceeding 70% leverage on any deals. He discusses how riskier development deals often aim for a shorter 2-3 year timeframe, with plans to build and sell the properties once completed.

However, Andrew prefers to take a more conservative approach. His company Wildhorn Capital partners with an experienced homebuilder in Central Texas. Together they focus on optimizing floor plans, unit mixes, and finishes for their build-to-rent projects. Their goal is to lease up the new properties and secure long-term financing, with an expected hold period of around 5 years on average. This allows them to balance risk while still capturing some development upside before transitioning to stable cashflow operations.

Partnering with an Experienced Builder

Andrew appreciates that his homebuilder partner has over 30 years of experience constructing communities in the Central Texas region. This intimate knowledge of the local market helps inform decisions around floor plans, sizes, and interior finishes as they aim to optimize the new rental properties.

The homebuilder had previously sold its communities to retail buyers. But recently it noticed a trend of investors purchasing multiple homes. Recognizing the demand for built-to-rent housing, the homebuilder was excited to partner with Andrew's operating company Wildhorn Capital. Together they are able to leverage the builder's development expertise while positioning the properties for long-term ownership and stable returns.

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Investor Relations and the Power of Human Connection: "I think every investor is unique. I mean, on the other end of that phone is a story in someone who's got a different set of circumstances, a different set of values, beliefs, risk appetite."— Andrew Campbell

The Potential of Central Texas’s Real Estate Market

The Potential of Central Texas’s Real Estate Market
Photographer: Patrick Federi | Source: Unsplash

Andrew Remains Optimistic About Central Texas’s Consistent Growth

Andrew highlights Austin's consistent ranking among the fastest-growing cities and best places to live, making it an appealing location for real estate investments. He points to the city's long history of doubling in size every 20 years as evidence of this sustained growth pattern. Major tech and corporate expansions, with companies like Oracle, Tesla, Samsung, and the FAANG companies setting up large presences, have fueled massive development downtown and attracted thousands of new residents.

Despite Tech Layoff Concerns, Central Texas Has Quickly Rebounded

Some feared tech layoffs over the past couple years could negatively impact Austin. However, Andrew explains the effects have been muted, with many talented workers scooped up quickly by other companies. He credits Austin's thriving job market across sectors like government, tech, and the growing biotech industry for the city's resilience. People continue moving to Austin, drawn by the lower congestion, cost of living, and business-friendly environment compared to other cities companies and residents are fleeing.

Building a Team and Tailoring Outreach for Real Estate Success in Central Texas

Building a Team and Tailoring Outreach for Real Estate Success in Central Texas
Photographer: Annie Spratt | Source: Unsplash

Building a Multifaceted Team for Success

Andrew shares how as his portfolio grew, he realized the need to delegate tasks and build a team with diverse expertise. Underwriting was the first function he chose to offload, as it wasn't his strength. He hired an acquisitions analyst, followed by an asset manager, internal controller, and investor relations professional.

Andrew explains that people should focus on their weaknesses and interests when deciding the first roles to outsource. For him, it was underwriting that he offloaded initially. Others may prefer delegating tasks like investor communications that they don't enjoy.

He emphasizes building a team with multifaceted skills in areas like underwriting, acquisitions, asset management, construction management, and investor relations. This ensures the operational ability to effectively execute deals and fundraise when attractive opportunities arise. Andrew highlights the importance of staying disciplined in underwriting and prioritizing good investments for investors.

Importance of Having the Ability to Execute: "We gotta have the capital, the investor relations piece, the team to support asset manage, oversee, construction manage if it's a redevelopment play. It requires us to build a multifaceted team that is always able to execute on interesting deals."— Andrew Campbell

Adapting Investor Outreach to Individual Profiles

Andrew explains that every investor has unique circumstances, values, beliefs, and risk appetite. He enjoys investor relations and having conversations to understand each investor's financial goals. This helps adapt outreach and identify opportunities that align with their individual risk profiles.

With rising interest rates and economic uncertainty, Andrew notes there is some hesitation among investors. However, he has had many discussions where investors see benefits like predictable cash flow in long-term real asset holdings. The speaker emphasizes tailoring outreach and offerings to each investor's preferences and objectives. A one-size-fits-all approach may not be optimal for attracting capital and finding the right investors for specific deals.

Where To Find Andrew Campbell

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Darin Batchelder


Wealth creation through real estate provided me with a new passion to get the word out and let others know that they have an alternative to investing in the stock market.

If I can inspire and educate just one person to take action that results in life changing wealth creation then the work to launch and grow this podcast is well worth the effort.

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