Real Estate Excellence ft. Visionary Robert Pereira | Coffeez for Closers with Joe Shalaby Ep. 51

0:03What's up, everybody? Welcome to another episode of Coffees for Closers. Today, we're diving into the story of a real estate powerhouse who's revolutionized the multifamily sector. With over 250 residential projects under his belt right now and over$170 million in capital raised, his journey is a testament to strategic vision and relentless execution. His expertise has driven the acquisition of major properties across the Southeast, making his company a key player in the industry. He also has the investors like Alex Hermozzi, Sharan Srivatsa, all invested in his platform. Stay tuned as we reveal the mastermind behind ARK Multifamily Group, the one, the only founder and CEO of ARK, Mr.

0:54Robert Pereira. Thanks a lot, Joe. Thanks for joining the show today. Absolutely. My pleasure. We're live now with the live studio audience across all platforms right now. I appreciate you coming down here. I appreciate what you're doing. I appreciate the platform that you've created for investors across the U.S. You've got some of the key players on the planet, I think, who are invested in ARC. And that's a testament to their trust in what you're doing, what you've built, and all around the character that you are. Thank you. No, it's been a fun journey. And I always say we're just warming up.

1:33Exactly. I love that. I love that. What I'd like to start the show out with is a traditional question I ask every single guest on the show. and is how does Robert Pereira start his morning? What is your morning routine? Great question. Well, I am an early riser. I've got a team that's based in the Southeast. And so they start their day, we're here in California, three hours behind them. And they start their day West Coast time around probably four o 'clock. So I'm up not too long after that. I'll check in with the team, find out what opportunities, what's happened the previous day and what opportunities exist for this day that I need to be involved with.

2:14And then go about getting my work going to work on the bigger vision for our company, Arc Multifamily. And then I, you know, I'm an active dad. So I like to be, if I'm in the office early, I'll come back. I want to be with the kids for some time before they head off to school. And they're usually out by 8 o 'clock. And then after that, I go to the gym, get a workout in. and then it's a full day of work. Love it, man. Yeah, Southeast, you're grinding really early, way before the crack of dawn. Absolutely. So how did you get started in the multifamily space? Great question. So it's been, I've been in real estate investing now for 16 years.

2:55So I like to say I'm an old dog at this point because I've seen a lot. I started, I'll take it back even further and I'll give you the abridged version, but I moved here from Canada in 2002, born and raised a Canadian. I was an engineer that moved out here to Southern California to work for Broadcom. And I was an engineer for Broadcom for several years. While at Broadcom, I went to UC Irvine for business school and came out in 2008 with a focus in real estate and finance. There were no jobs in real estate and finance because we were in the crash. And so with a couple of good friends, started a company where we would renovate and sell foreclosed homes.

3:41Did a lot of that for about a dozen years. Built our investor base from a few hundred thousand dollars, and it was just us pooling money, to a little bit under 20 million. And then in 2019, you know, you and I had met just around that time, and I was invested heavily in luxury properties at the time in and around Newport and coastal Los Angeles. Loved what we were doing, but there was a lot of stress. I got gray hairs from having a lot of debt on our books without cash flow. And we had a lot of success in the space, but I wanted to do something that was more scalable. I had more investors than I could responsibly deploy capital with.

4:20And so it was one of those things where I, working with Shiran Srivatsa, who has started as a mentor and business consultant to me and then has become my partner. We decided to shift into multifamily and started ARC in 2020, focused in the Southeast, bought our first complex in 2020 and have grown from that$20 million investor base to a little bit over 100 million now, 2 ,000 units that we own and operate. And we've got another almost 500 in our development pipeline right now. So it's been a great ride. We've built a great company. We've got about 60 employees that are between our Irvine and our Atlanta office and all of our onsite teams.

5:10Very hands-on. We live and breathe value-add multifamily all day long. You managed to build a company with$170 million on the books under management in four years, Basically four and a half years? Absolutely. So the 170 is what I've raised cumulatively over the years. 100 is what we currently have deployed. Our current portfolio of properties has a value of roughly 350 million. We've got another 100 million in our development pipeline that we're going to build. We're actually building units now with a couple of partners that are based in the southeast in Atlanta. So we're building another 457 units between now and end of 2025, which will take the current portfolio to about$450 million.

5:55And it's a rent cycle repeat. We look for deals that have below-market rents and some deferred maintenance. We buy them where we syndicate the capital, so we're pooling investor capital to buy them. We have over 220 investors, including yourself. And what we do is we go in day one. One, we're improving the property, improving the experience for the tenants. I always say at ARC, I serve three people in servant leadership. I serve our tenants, make sure they're having a great experience at our assets, serve the onsite and corporate teams to make sure that they're empowered to do what they need to do.

6:31And then thirdly, but not least importantly, is our investors. If I take care of our tenants and I take care of our teams, the investors will be happy. And we've done a pretty good job of that. You know, I was going to ask you, and you could just add to this. You've managed to bring in some big brands to invest with you. Me, Sharon Srivastava, who's obviously your chairman, Alex Ramosi. What is the secret sauce for you to really draw in such great, talented people to the ARC multifamily? Honestly, we've just been blessed to have good organic relationships. We've got a lot of my investors that happen to come from Broadcom, where I've worked.

7:08So I've got people who have millions of dollars with us that have been with me for a decade or more. And, you know, candidly, it's all based on substance and authenticity and just doing what we said we're going to do, reporting religiously to the investors to make sure that they're fully informed of how things are going at the assets, and, you know, making sure that we under-promise and over-deliver. And we set realistic goals. When I'm talking to a prospective investor, be they big or small, the question is, hey, if they ask me, hey, can you hit a – can you double my money in 12 months? I said, well, probably not.

7:46Well, I do shoot to double your money in five years between cash flow and equity growth. That's an attainable goal. If we hit it sooner, great, but I don't plan for that. Sometimes you might get a unicorn once in a while. Our first project that we bought in 2020 hit a 60 % return to investors in 15 months. Yeah, I was in on that project. Yes, but that was early COVID, and it was a great buy. And then because of a lot of money that had flooded the economy at the time, there was a lot of cap rate compression. So assets went up like crazy between 2020 and 2022, which resulted in that. But in general, all the other assets that we own, we have nine properties currently across 2 ,000 units.

8:28and they're all modeling very well to hit that 2x return in five years. Now, what is it that drew you to states like Georgia, states like Alabama? Why are you going to the southeast? Great question. Affordability. We live in Southern California in coastal Orange County, right? So even if you go past, we're both in Newport Beach, but even if you go to a city like Irvine, phenomenal location. you know but when you look at the price to rent ratio it's just not nearly as attractive because of how expensive the real estate is here yeah the most recent complex that you're invested in with me uh that we bought called the preston it's in suburban atlanta 2003 build it would fit very well in orange county as far as the look and feel of the asset um the difference is we bought it was 334 units.

9:18We bought it for$52 million,$156 ,000 per unit. We're going to add about$12 ,000 of improvements to each unit in the time we own it. So let's call it all in at just under 170 as per door. We're getting rents pro forma at 1 ,700. So you're getting about a 1 % ratio. You know, 1 ,700 divided by 170 ,000 is about 1%. It's a very healthy ratio. You know you've got a winner when you've got something like that or something close to that 1 % mark. By comparison, if I was to buy that same complex in Irvine, you know, if I was getting$1 ,700 a month in rent, I probably would be paying at least twice the price.

9:57So, you know, California is a great market, but it is more based on speculation that there's going to be continued hyper growth in rents than pure fundamentals. It allows you to gain an appreciation as an investor. You can get equity growth through appreciation. But the actual cash flow, I want to be able to return to investors very quickly. Within six months of buying, I want to start distributing quarterly to investors so they're getting cash flow from operations. And I can't as easily do that in California. So that's why we picked the Southeast. Nice. Now, what year did you start your entrepreneurial journey?

10:33We started in – oh, I started in 2008, right out of the great financial crisis. I graduated from Mirage which is UC Irvine's business school and we started my partners and I started flipping homes in Moreno Valley we were buying homes that had previously sold to give you an idea of how bad it was you're a little bit younger than me but you were probably in the game at that time already we were buying homes for about $80 ,000 a door that had previously sold for $400 ,000 to$500 ,000 24 to 36 months earlier Wow. So it was a real mess that had been created at the time. We were part of the cleanup in a small way, but it got us – and I've always had a – I've always wanted to have a backup plan on whatever I own.

11:21Do I have what we called hold economics? With those properties, we could have cash flowed them and rented them. We ended up – excuse me. We ended up selling all of them along the way. Some we sold too early. We probably should have held more because they would have gone – they did go up tremendously. But we would always make sure we had margin to make sure our investors could get yield from day one. We had a lot of quick turns where we would buy, fix, and sell within six months. And as we got further and further into the game, we got into bigger projects. Right now, you and I are co-invested on a property that we bought the lot for$3.6 million, built a brand new luxury home on it, and one of our partners who's also the realtor on it is working with buyers right now in the$11 million range.

12:06So it's great. There's great margins on those, but it's not for everyone. What we do at ARC is, I think, more for everyone in that it's got a great hold economics and it's got cash flow nearly day one with the stuff that we do sometimes in the luxury. Luxury property is super risky. Absolutely. It's not going to rent. You've got to sell it. And so we happen to be in a great market right now. So we're going to kill it on this one, but it's not for the faint of heart. Yeah, absolutely. And what's the minimum buy-in to ARC? Small guys, big guys? We do. Our minimum is$100 ,000. And so we've just kept it that number because it's worked well.

12:43And we only work with accredited investors. Accredited meaning they've got to have a net worth of over a million dollars or in their last two years, income of$200 ,000 if they're single, $300 ,000 if they're married. But we've got investors that have$100 ,000 with us and investors that have several million with us. That's awesome. You've really delivered for every investor that I've seen. You've never let us down. Thank you. It's integral in our portfolio, leveraging ARK's entire platform and all the education and all the stuff that we do with the luxury as well. I appreciate you. Under the ARK umbrella.

13:22Yeah. Now, you started ARK in 2019. And then the small stuff is what put you in a financial position to start doing the luxury. Yes. It all kind of stacked on itself. We won well on these$100 ,000 homes that became – then we got into$500 ,000 homes. We got into our first million-dollar home 10 years ago, and then it kind of just grew from there. And then once we were in luxury, when I started ARK, the investors that were with us realized that they could go from getting returns that were in the high single digits, low double digits, to at ARK, we're shooting for 16 % to 20 % annualized returns with cash flow along the way.

14:05So all of those investors that were with us in my previous company, they came in and said, hey, we'll write much bigger checks to come into multifamily because they knew it was safer. Yeah. And it's getting more, I feel like multifamily in the Southeast is by far the safest investment you can make in the country right now. Yeah, good population growth. You've got good job growth. There's not a lot not to like. And we're careful in what we buy. My team is actually very property management focused. You know, I took a different approach when building ARC than other small operators in that they worked from the position of, okay, let's analyze deals.

14:40Let's kind of work with a really skeleton team, rely on third party help. I hired people before we even bought our first asset because I wanted to be in a position where we were getting expert advice from people on the ground. All of my assets have on-site teams, but my corporate team is all within a two-hour radius of all of our assets. So we can get out there, and we do get out there multiple times a week at each asset to make sure we're driving the business plan, making sure that we're, you know, handling any issues along the way, but also, you know, creating great culture day one. I love that.

15:16Now, you know, recognizing your work ethic, it's just like you outgrind everybody, and you're always on, right? Except you. you you have like a resilience about you where do you think that that grit mindset was established was it heritage was it good question birthright well i i liked it i think i think it's the same for you i think it's the immigrant mindset yeah honestly it's one of those things where i don't take anything for granted i tell people i have the immigrant mindset and then they find out i'm from canada my family my family's from india right so my mom and dad were immigrants to canada they really grinded and and built you weren't born in india no i wasn't i was born you're not an immigrant no but i'm an immigrant to the u.s right and honestly it was one of those things i came here 21 years ago i know i know it's it's you know you still have that immigrant mindset from your parents totally and well it's it's more than that like when i moved here right my parents were already really well established in toronto so when i moved here um i loved the fact that you know i i felt like i wasn't under like i had nobody sort of to watch over and make sure that i had to take the safe approach.

16:18It was like, hey, I'm on my own. And my parents actually live out here now, but for the longest time, I was out here on my own. And it really helped to feel like I had nothing holding me back. I never worried about failing. I've been very careful as an investor, but I wasn't worried about getting embarrassed or embarrassing family because of the fact that something didn't go right or exactly as planned. So I think that's what allowed me to dream a little bit bigger and then work really hard to make it happen. So like, you know, for me, it's like, I have fun in the work. It's, you know, we're, we're at, you know, we'll be at 450 million as far as actual assets under management, you know, and plus in about a year's time.

16:58But the goal, you know, someone asked me the other day, well, what's your long-term goal? I'd love to be at 10 ,000 plus doors between the Southeast and the Southwest. We're going to start a Southwest division within the next 18 months. What states are you going to hit there? Great question. So So Southeast, we're in currently Georgia and Alabama, and we're probably going to buy our first asset in Nashville because I have a key employee that's joined us who's based in Nashville, so I'm going to buy something there. You have numbers pencil in Nashville? They are because of what's happening with the interest rates.

17:31Personally, I love these high interest rates for what we're doing on the acquisition side right now at ARK. They're allowing us to buy while others are on the sidelines. So I feel like we're going to have a good entry point if the interest rates stay high in Tennessee and then the Carolinas is where I'd also like to be. I'm staying out of Florida purely because I'm a cautious, boring investor, as you know. Immigrant mindset. Exactly. But I can't do anything about what's going on with weather patterns and the fact that insurance is going through the roof in coastal areas. So I'm not coastal in the southeast.

18:05I'm inland where I can handle my insurance costs. I want to make sure I can control everything as much as possible. In the Southwest, like I said, California is not in play right now, although I'd love it to be, but it isn't. So we're probably going to start in Arizona and Nevada, Phoenix and Las Vegas. And then I also like Colorado and Utah. So if I had 5 ,000 units in the Southeast, 5 ,000 in the Southwest, call it in a dream scenario a couple hundred thousand per unit as far as costs. So that's about$2 billion worth of real estate. That's the five - to seven-year goal. So I need a lot more people to want to come in and invest with us.

18:43Yeah, hey, hopefully this podcast will get you a couple people to think about you guys. I hope so, too. Now, what really motivated you to start your own company? You know, I love the fact that we live in a very expensive part of America because that's what helped me. You have no choice. 100%. You had Glenn's turn. Success isn't an option. Totally. You had Glenn Stearns on your show a few months back, and he's a legend, right? And he talks about how he was resting on a bench in CDM and then found out. He's like, what does the homeowner do? And so it was the same thing for me. I was an engineer at a great company, Broadcom.

19:21But engineering wasn't going to get you to Newport. Not – I was a good engineer. I wasn't like the best engineer on earth. Unless you invented something. Exactly, right? And so having said that, I was like, okay, real estate looks like a path that I can do something that I love. I'm naturally a people person. And I was like, okay, let me try and see how big this could get. And that's really what this is becoming. It's really aspiring to bigger things because we're in an area where if you don't, then you can definitely feel like you're getting left behind. Yeah, you don't strike me as an engineer personality.

19:55But, you know, it's funny. I geek out on tech. Even the studio setup you got here, for me, I understand the tech behind it. So I love what's going on with AI. I love what's going on in general. And the kind of stuff I used to do at Broadcom, it was like programming into semiconductors that went into things like iPhones and TVs and DVRs, all that fun stuff. I love that you segued into AI because AI is obviously revolutionizing every business. we continue to implement different AI solutions and strategies into our ecosystem and tech stack now. So what are you guys doing at ARK to implement AI? Great question.

20:36We're using a lot of it. A lot of it right now is being used among our teams to make sure that we're being as efficient as possible and being able to, by efficient, I mean if we can get a lot of the back office work done, it allows our on-site teams to really be obsessed about the customer experience at our assets. Our smallest asset has 102 units. Our largest asset has 420 units. So these are big properties, right? And so we need to make sure that we're connected to the tenants. I think AI and technology in general is a blessing when it allows you to free up your time to have more human interaction because ultimately we're creatures of interaction and communication.

21:15So we're using it for that purpose. We haven't yet gotten, and we do also have tools that are used to do virtual tours of different assets. If someone's coming in when the office is closed at any of our assets, they have the ability to get into our model, get a visual tour of the model, and then they can ask. Online, they can get into the point where they're leasing a property without having necessarily talked to one of our on-site team members. So there's that level of technology that's being used. it does play well especially with millennials they actually don't want to come in and meet someone um at you know at one of the clubhouses of our assets it's more they want you know want to see the product see the amenities and then make a decision um so that it's been very helpful there um but like i said for me it's like how do we use technology to free up our time to you know work even more and more on culture um now i wanted to segue because we're talking about ai now given all these new revolutions, what do you foresee in the multifamily space in the next couple years?

22:23I think there's going to be, let me break it up in two parts. One, the situation with interest rates and what we're going to go through as far as unwinding of certain assets that are probably going to go through some tough times. And then secondly, we're going to see the actual trends in the industry. So as far as the interest rate environment, the last couple of years we've had higher interest rates, which at ARC has helped us buy assets at prices we wouldn't have gotten when interest rates were lower. So it's been a blessing. We aren't selling anything right now. We do have a few assets that are ready for sale.

23:00We have a three - to five-year business plan on our assets. Some of them we've really crushed the ops, and so we've only owned it two years. But if we were in a lower interest rate environment, I'd be selling for a profit and then cycling the money. We try and 1031 exchange into the next asset. Right now we're on the sidelines on selling, but instead we're working really hard to bring in investor capital to buy where it makes strategic sense to do so. So I do think there's going to be turbulence caused by the higher interest rates because of the fact that you've got competitors that have assets where their debt is resetting, and so they might be in a 3 % mortgage.

23:34They're going to a 6 % or 7 % mortgage in multifamily, and they don't have the income to support that. So they're going to have to either get an equity injection. I'm getting approached by other operators that are asking us to come in with rescue equity. And, you know, we're looking at actively looking at those opportunities where we can bring, you know, our own expertise. Because we also do, we're vertically integrated. We have on-site property management at our assets that is run by ARC. It's a separate company we call Axia Residential. We're very, very heavily based in operations. And so if we can add strength to an asset, we'll look to partner with someone if it makes sense to do so.

24:12So there's that opportunity. It's a huge opportunity. Yes. Because that could – like companies like yours will save the multifamily and commercial space in general with that strategy and mindset. Yeah. There's a huge fear right now economically that commercial is just going to plummet and totally implode and then cause a more devastating crash. Yeah. than the 2008 crash. But what's your opinion on that? So I think certain sectors are going to be in real trouble. It's very hard in office right now. I mean, you know, the work from home has fundamentally changed office. And there's also functional obsolescence of office buildings.

24:51That is hard right now. So I don't have an answer for how we're going to get through the office dilemma. The other segments, I think that, you know, if you've got good fixed rate debt and you've grown your income significantly, you know, we've had inflation the last three, four years, but that's actually caused, in some cases, our assets have seen rents grow by 30 % plus. Yeah. So sadly though, that's sad. Right. I mean, it does impact the consumer, but from an operator's perspective, you, you know, if debt's up a little bit in price, but you've grown your income that much, you've got no problems.

25:24So in general, I don't think multifamily is going to be, uh, it'll get hit, but it's not going to be decimated. I think office is going to have, you know, a lot of distress, um, that's going to have to be worked out between banks and operators because the banks don't want to take back the real estate, especially something like office where it's not like they can just go lease it up right away. Multifamily is a little bit easier in that sense. But back to your point on trends that I see happening in multifamily, I think there'll be continued adoption of technology. I think that we are becoming more of a renter nation.

25:57Millennials are more inclined to rent than to own. And so I think that there's going to be more and more demand for multifamily as time goes on. I think there's also going to be even more and more 55-plus communities that are coming up as the boomers are aging, wanting to potentially sell their properties if they're living in colder states and want to come south. They may not want to buy. They might just want to rent. And so I think there's going to be active lifestyle communities that are already active or already prevalent but are going to get more and more as the boomers become a bigger and bigger part of the apartment renting sector.

26:32Now, how do you think AI is going to affect the multifamily space? I think that we're going to have more and more use of automation. You know, I think, you know, I do worry that we'll get to a point where you have almost nobody at certain sites where they've got just a, you walk into a clubhouse at a 400 unit apartment complex and you talk to a screen and you do everything remotely as far as service requests and everything else. and you know that might be the most profitable way to run things but i think that it it takes away from the consumer experience right so i think you know i'm hoping there's a hybrid of the two where technology enriches the end user experience but it doesn't make it so cold that people can't feel like they're part of a community because i think everyone wants you know a home uh is a home because it's got a sense of warmth whether you have a you know a big house or you have a modest apartment, but are part of a larger community.