On Taking Risks and Being Contrarian

NEWPORT BEACH, CA—Seeking tertiary markets and focusing on distressed assets has helped TwinRock Partners sidestep the competition and achieve greater upside value, its principals say. In 2014, the Newport Beach-based firm acquired roughly 1,300 apartment units in the Tulsa and Oklahoma City markets with plans for its most recent Oklahoma acquisition to upgrade image, install new management, renovate interiors and brand where necessary. In doing so, “we expect to achieve above-average occupancy and rents compared to other multifamily properties in the surrounding neighborhoods,” says Alex Philips, the firm's CEO and investment officer.

While TwinRock has its eye on several out-of-California markets—many of which are probably not high on the list of major real estate investors—Oklahoma has proven to be one of its prime areas of opportunity that has performed beyond expectations. In fact, taking risks in less-popular markets is one of TwinRock's key investment strategies. According to Philips, “Our firm's investment strategy was and still is to identify and take advantage of the continuing unsettled market conditions that resulted from the soft economic environment over the past several years. By planting our investment flag in markets such as Tulsa and Oklahoma City, we are realizing the value of long-term, high job and population growth. Based on our research and analysis, we expect these and our other target markets to recover at a faster rate than the nation as a whole. Our investment pipeline continues to reflect our confidence in the growth prospects of selected markets in the Midwest region as we continue to target properties in Oklahoma and other parts of the country.”

Being contrarian in its investments is another key strategy for the firm that goes against the grain. TwinRock was formed as a real estate investment entity at the beginning of the Great Recession by Michael Meyer, chairman, and Philips, who decided their best bet was uncovering multifamily opportunities in more-affordable, out-of-the-way markets with a strong potential for future market improvement.  “Our investors understand and appreciate our contrarian strategy since it's reaping significant returns on investments in all our funds,” says Meyer. “They like the concept of finding good multifamily properties in good locations in markets without a lot of investor competition that show signs of employment growth but may have less-than-adequate apartment inventory to house new workers and their families. Our goal is to find the special properties that we believe will benefit from renovation and repositioning in their marketplace to increase rental income and create greater asset value as the local economy improves and employment grows.”

Also during the recession, TwinRock also chose to invest in about 100 distressed homes in the greater Las Vegas metropolitan area, a region with a national reputation for being pummeled by the economic downturn, with the intention of fixing them up, renting them and eventually selling them for profit. A lawsuit decision by the Nevada Supreme Court in favor of HOAs in owner delinquencies turned out to benefit TwinRock in this situation as well—another risk that paid off for the firm. “Our guiding mission is to find opportunities in markets such as Tulsa and Las Vegas that are undervalued product types that include market situations in which an asset's acquisition basis compares favorably to its perceived intrinsic value,” says Meyer. “We are actively pursuing opportunities where we believe we can rehabilitate, reposition or completely convert an asset to improve the property's physical characteristics and/or market value. Additionally, we continue to seek unique opportunities such as the HOA situation where regulatory, legal or other issues may be in play with a potential upside potential that we believe cannot be ignored due to the possible risk.”