Strategy
The Mesos Capital Strategy
The firm seeks to reposition properties through tightening operational inefficiencies, moderate-to-extensive renovations and complete rebranding.
Established as a premiere multifamily boutique firm with nimble investment sourcing, structuring, execution and asset management capabilities. Mesos is a highly skilled and deeply focused real estate investment manager with the flexibility to scale and cater to investor preferences.
Mesos Capital assumes a fiduciary approach to acquisitions and management of U.S. multifamily real estate investment opportunities. Our process is strengthened by a sound foundation of investment principles, comprehensive approach to every facet of the investment lifecycle, and the extensive ‘hands on’ expertise of Mesos’s partners.
Our Process
ACQUISITION
We monitor our markets daily and leverage relationships in the industry to find properties that meet our stringent criteria and will provide strong returns for investors.
Once under contract, we perform qualitative and quantitative due diligence–creating a business plan to increase revenue and reduce expenses.
REPOSITION
After closing, our operations and property management team begin executing the business plan to increase the Net Operating Income and force the appreciation.
We aim to complete all rehabilitation work within the first 18 months of ownership and put all value creation strategies to work within 12 months.
CASH FLOW
Our property management team continues to oversee day to day operations at the property while investors enjoy the benefits of owning a cash flow positive asset.
Investors receive quarterly newsletters with information on the property and market, along with their distributions of cash flow.
REFINANCE
Once Repositioning is complete and the property is fully occupied and stabilized, we have the property appraised and look to capitalize on the newly created value.
This creates an opportunity to return a significant piece of investors’ capital back to them when the equity we’ve created is realized.
DISPOSITION
By monitoring the market and working with our broker relationships, we begin to look for the most advantageous exit of the property that will meet or exceed investor expectations.
Potential exit strategies include sale or refinance to return investor capital, or transition property into longer-term hold to capitalize on cash flow distributions.
ACQUISITION
We monitor our markets daily and leverage relationships in the industry to find properties that meet our stringent criteria and will provide strong returns for investors.
Once under contract, we perform qualitative and quantitative due diligence–creating a business plan to increase revenue and reduce expenses.
REPOSITION
After closing, our operations and property management team begin executing the business plan to increase the Net Operating Income and force the appreciation.
We aim to complete all rehabilitation work within the first 18 months of ownership and put all value creation strategies to work within 12 months.
CASH FLOW
Our property management team continues to oversee day to day operations at the property while investors enjoy the benefits of owning a cash flow positive asset.
Investors receive quarterly newsletters with information on the property and market, along with their distributions of cash flow.
REFINANCE
Once Repositioning is complete and the property is fully occupied and stabilized, we have the property appraised and look to capitalize on the newly created value.
This creates an opportunity to return a significant piece of investors’ capital back to them when the equity we’ve created is realized.
DISPOSITION
By monitoring the market and working with our broker relationships, we begin to look for the most advantageous exit of the property that will meet or exceed investor expectations.
Potential exit strategies include sale or refinance to return investor capital, or transition property into longer-term hold to capitalize on cash flow distributions.
Frequently Asked Questions
Why invest in a multifamily asset class?
Multifamily provides:
- Financial Freedom
Multifamily investing has been one of the fastest roads to financial freedom chosen by many successful investors. This kind of investing is scalable and syndication allows to start in the game with a relatively small amount of capital. If your goal is to reach a state when you do what you want, when you want with whoever you want – you should give multifamily very serious consideration - Attractive risk-reward
While no investment is without risk, value-add multifamily investing provides attractive risk-reward potential with less volatility and better downside protection than investing in stocks and bonds. Multifamily tends to generate annual returns in mid-high teens vs mid-high single digits for stock (and lower for investment-grade bonds) - Asset control
With real estate, you own real assets vs paper assets. You control management of an apartment complex you own, expenses, marketing, revenue streams. With stocks (especially non-dividend paying stocks) you are most likely completely relying on a company’s management team and have no say in the way the asset is managed. With bonds, unless a company is in default, you have no control whatsoever
Multifamily is one of the best investment vehicles for building wealth
- Consistent Cash Flow –Class B/C apartment complexes typically generate 5%-9% annual cash on cash return with expected IRR of 16%-20% over a five year period
- Economies of scale – properties are professionally managed by a carefully selected property management firm
- Attractive risk-reward – on a relative basis, multifamily investing is less risky than most other asset classes
- “Good” Leverage – stabilized multifamily assets are among lenders’ favorites
- Asset Control – once you control the asset, you can force appreciation by renovating, reducing expenses and raising rents
- Tax Benefits – effective tax rate on multifamily assets is low or 0% due to depreciation/cost segregation. When real estate is sold, you can delay paying capital gain taxes if you use “1031 exchange” to buy more expensive piece of real estate
- Favorable Demographics – home ownership is on the decline while population is growing
How did multifamily perform in the last recession of 2008-2009?
The short answer: it outperformed.
More detailed answer:
According to research recently published by CBRE, during the last recession of 2008-2009, Multifamily experienced negative rent growth for only five quarters, with cumulative rent decline during that period of 7.9%. Not bad! For comparison, rents in Industrial, Office and Retail sectors declined 17.5%m 17.7% and 14.1%, respectively, from trough to peak; with negative growth continuing for 13 months for Industrial, 9 months for Office and 21 months for Retail (see the chart below).
As such, Multifamily sector is much more resilient than other types of commercial real estate and most properties in decent locations remained cash flow positive during the last recession which resulted in very low default rates on Multifamily loans.
In summary, we, as investors, should not be panicked by the prospect of upcoming recession. As long as we remain conservative in our underwriting, avoid short term debt and have sufficient cash reserves to last through a potential downturn, we should manage through the recession just fine. Yes, we will probably see some deteriorating occupancy and rent growth metrics but the duration of such period tends to be less than two years and most properties in the “good” markets (= population growth, job growth and job diversity with no industry representing more than 20% of the employment pool) should continue to generate cash even during the recession.
