SAN DIEGO—Investors looking to avoid institutional competition and obtain better yields may want to take a look at secondary markets like Atlanta, Chicago, Dallas, Houston, Las Vegas and others, Sunroad Enterprises' Mike Dow tells GlobeSt.com. Dow recently joined the firm as president of its multifamily division. We sat down with him for an exclusive chat about his new role, acquisition strategies and trends in the market.

GlobeSt.com: How will your prior experience inform your role with Sunroad?

Dow: My prior experience includes 30 years of continuous service in the multifamily industry. I have spent equal time doing both asset/property management and acquisitions and development work. Over my career, I was able to participate in the acquisition, development, redevelopment or property management of more than 300,000 apartment units valued at more than $2 billion. I have been fortunate to work for several of the top firms and people in the property-management industry at FPI Management, Riverstone Residential and build relationships in the industry with both large institutional clients like JP Morgan and TIAA-CREF and elite privately held firms such as Colrich, Kennedy Wilson, Watermarke Properties and TruAmerica Multifamily. I was able to learn directly from CEOs like Dennis Treadaway at FPI and Walt Smith and Terry Danner at Riverstone (now Greystar Partners).

Regarding the development and acquisition side of the business, I worked for 10 years at Interland Corp., where we developed and redeveloped large multifamily assets in both Sacramento and the Silicon Valley. I was fortunate to learn from and work with two seasoned multifamily executives, Don Lewis and Don Christy. At my last firm, Arenda Capital, I served as multifamily advisor to Loma Linda University and its $1-billion endowment fund and was able to collaborate with Jay Burns, one of the top acquisition executives in the country.

GlobeSt.com: What acquisition strategies are emerging in the competitive multifamily market?

Dow: A lot depends on what happens with interest rates, but I believe that in many core markets, the hot multifamily sector may be in the “seventh inning of a nine-inning game.” However, there are still historically low financing opportunities and significant private and institutional equity that needs to be placed in this cycle. Institutional buyers that seek out either core, core-plus or value-add assets are finding markets like the San Francisco Bay Area, Southern California, New York, Boston and Pacific Northwest, Austin and parts of Denver and Washington, DC, to be ultra-competitive. In these markets, assets are receiving 15 to 20 purchase offers, and it is challenging to make a best and final round. These deals are often closing at sub-4.5- cap rates with very aggressive terms. I have heard instances where buyers are putting up large, nonrefundable deposits upon signing a PSA and before completing a due-diligence period. This is obviously a risky tactic, but it helps brokers and sellers choose between three or four prospective buyers that are all at the same pricing level.

Smaller private-money buyers and regional sponsors seeking to avoid some institutional competition and find more moderate cap rates are willing to take on greater risk and look to invest in secondary markets such as Atlanta, Chicago, Dallas, Houston, Las Vegas, Nashville, Orlando, Phoenix and Salt Lake City. Institutional money is willing to enter a few of these secondary markets as well, which in turn has pushed smaller investors to tertiary markets like Birmingham, Jacksonville, Memphis, Pittsburgh, Tucson, Reno and Sacramento. Buyers in these secondary and tertiary markets mitigate their risk with strong local knowledge, presence and asset-management acumen.

GlobeSt.com: What other trends are you noticing in this field?

Dow: While certain trends in the multifamily market are appropriately popular, others are being mismanaged or overdone. Many of these issues could be avoided with candid input from property managers and good demographic information provided by market-research teams. For example, the use of luxury vinyl plank flooring in both new construction and as a renovation upgrade is very popular—and should be. It typically provides owners a $35-to-$50-per-month rent lift. The notion that it belongs only in wet areas (baths and kitchens) or installed only in first-floor units (due to sound issues) is where many property managers lead their clients astray. I recommend installing it everywhere in the unit except bedrooms, since it does command greater rent and it will last 10 to 15 years longer than inexpensive apartment carpet. Using the new AcoustaMat underlayment product by Shaw Industries will allow owners to install the LVP in all floors and still achieve reasonable sound proofing.

The trend of designing so many new urban units as micro units (less than 500 square feet in size) is being overdone, in my opinion. It can be very appropriate in select markets like New York or San Francisco, where larger units are just not affordable, or smaller is a lifestyle choice. In other markets, however, I believe that there are developers who, in some cases, are not taking the time to understand the resident demographics before they decide to build so many micro units.

Making a property pet friendly is a trend that is definitely here to stay. Communities that accept large and multiple dogs now outnumber those that don't. While apartment owners certainly want and need to keep pet owners happy, equal concern should be shown for residents who don't have pets. Policies should be in place to control barking dogs, keep leashes on in common-area hallways, insist on pet owners using designated pet areas to “take their dogs out,” limiting larger dogs (more than 50 lbs.) to first-floor units and reserving pool areas and clubhouses for humans only. With good management policies and control, both pet owners and non-pet owners can happily co-exist.

Developers are certainly required to raise the bar constantly when it comes to designing and proving resident amenities. I'm concerned, however, that in some cases expensive amenities like golf similators, rock-climbing walls and temperature-controlled wine-storage units are being used in communities where residents would simply like to see a better fitness area or a space to get a free coffee, relax and unwind. With proper demographic information and market research, multifamily property owners could spend amenity dollars on spaces that would be best suited to resident profiles.

GlobeSt.com: What else should our readers know about your firm?

Dow: Many people may not realize that Sunroad Enterprises is both a real estate developer and an automotive business. We have a new platform to venture outside the development world, and we are looking to acquire core-plus and value-add assets. Sunroad's mission is to build upon its development experience, new properties and its new acquisition platform.