How we benefit from being local

Adaptive is a weird company, in the sense that we do a ton of deals in very small area (basically, from East Hollywood through Silver Lake, Echo Park, and over into Highland Park).

Why do we limit ourselves like this? Surely there are other places where it’s easier to find screwed-up apartment buildings to buy…

The answer is that our business is highly dependent on three estimates which we make on every deal:

  1. The cost of renovations;
  2. The achievable rents at the project, post renovation; and
  3. The rent multiple (GRM) achievable on sale.

The cost of renovations is pretty much a known quantity, since we have renovated roughly 20 buildings in the last four years.

The other two estimates are trickier and that’s where our extensive experience in one area gives us an edge.

On the rents:

  • We currently manage roughly 100 units across our submarket, with another 50 or so in the pipeline
  • These units range from studios to 3 beds, with and without parking
  • Almost all are nicely renovated
  • I personally make all of the decisions regarding rent increases, asking rents, etc., and I personally sign all of the leases
  • So,we  know better than anyone what you can get for renovated apartments of every type in our areas

On the GRMs achievable on sale:

  • If you’re bored, go do an MLS search on deals in the last six months in our areas
  • What you’ll find is that Adaptive has done an unbelievable number of the apartment deals, ranging from duplexes all the way through 16 unit buildings
  • Whether I did the deal personally or one of my agents did, I know roughly how long it took, how competitive it was, etc., in addition to knowing the GRM
  • We also actively representing a ton of buyers making offers, so we know from day-to-day how interest rate changes are shaping buyer demand (usually, the buyers know more about how prices are moving than the sellers do)
  • So, we know what buyers are offering, what sellers are taking, and (often) whether the prices were flukey or not

When you know the renovation costs, the rents and the rent multiples, repositioning deals become relatively safe and predictable. And, frankly, how we and our investors prefer it!