Shakti C’Ganti didn’t get into real estate to sweep water out of apartment buildings, but when the Texas power grid failed in 2021, he pulled out a broom. Pipes had burst in 10 percent of his 1,200 apartments.
The past few years have been a roller coaster for Sun Belt multifamily investors, and C’Ganti’s firm, Ashland Greene, has been one of the fastest-growing shops in the space. After buying its first Dallas Fort-Worth deal in 2018, the company has bought a slew of older, value-add multifamily projects in the Metroplex. This month, it landed on the Inc. 5000 list of the fastest-growing private companies in America.
TRD spoke with C’Ganti about his journey from Brooklyn brownstones to Texas donuts, where he finds deals in today’s tumultuous multifamily environment, and whether sellers still want yesterday’s price in today’s market.
After your time at Lehman Brothers and in private equity, you floated around for a while. How did you ultimately make the switch from finance to real estate?
I was just like, “I think I’m gonna get my real estate license and be a broker, and see if I can eventually buy a place.” So that’s what I did — hustling around New York, brokering deals. In 2010, I had my first opportunity to buy a piece of real estate on the corner of Ashland Place in a neighborhood in Brooklyn called Fort Greene. That’s why the company is called Ashland Greene.
It was a distressed condo sale. The developer went out of business, and the bank basically took the offering plan and slashed the prices in half, so I bought a 1,000-square-foot condo on the 26th floor of this building for $543,000, when the prior price was close to $1.2 million.
Fast forward, my wife and I built a small portfolio of brownstones in Crown Heights that we were renovating and renting out. I was brokering deals, and she was working at Citigroup and at JPMorgan on their algorithmic trading desks. 2017 was almost my 10-year anniversary of doing this, and I had a choice: Did I want to continue down the path of being a broker and investing in my spare time? Or did I want to spend the next chapter of my career full time investing, taking all the skills that I had learned in finance and brokerage. I had a kid, and a second one was coming, so I decided to try buying larger properties.
In New York City, once you go to a five-unit property or greater, you start getting into rent control and rent stabilized properties. I looked in the Bronx, Brooklyn, all over, but I couldn’t really find a 20-unit building that wasn’t rent-stabilized or rent-controlled. I visited California, where my parents live and I grew up, but the same thing happened there. They have a lot of rent control and rent stabilization. So I started looking into the Sun Belt. I spent about a week in Atlanta and made a bunch of offers, but couldn’t get anything. Then I stumbled upon Dallas. My first offer was accepted in 2017, and we closed our first deal in 2018.
Why did you bring property management in-house?
When Covid hit, we were using third-party management. We had about 1,200 apartments in Dallas-Fort Worth, and we would get on these biweekly calls to speak with the property management company. We would see the performance, and we would say “Can you fix this?” but we’d come back two weeks later and nothing had happened.
I picked up a book called “The ABCs of Property Management” by a guy named Ken McElroy. It’s a 300-page book about why never to do property management. I read about 150 pages and said “There’s no way I can do this — this is going to fundamentally alter the course of my life.”
I like doing deals. I give them to the management company and then focus on doing deals. Property management companies make 3 percent, so they don’t care if they collect $150,000 or $155,000 — 3 percent of each dollar is not enough of an incentive to move them. Then, switching property management companies every time is pretty challenging, because you have to reset. So when you switch a management company, you go back three months, and then the new management company learns how to operate the property, and then you find out they’re not good.
You just get into this cycle, and the only thing you can do at that point is take over the property management. So that’s what we did. And it’s not advisable, it’s actually a money-losing situation with 1,200 units. It gets us around breakeven, but the control that it gives us over the asset and the ability to make changes quickly is worth its weight in gold. That’s ultimately how you protect your asset and how you protect your investors.
The last couple of years have been a wild time in Sun Belt multifamily, between slowing rent growth, frozen capital markets and rising rates. How have you managed the choppiness?
We thought we had it all figured out in 2021, and then 2022 came around. The Fed pivots from the concept of transitory inflation, saying “We’re never going to hike,” to hiking. We were trying to exit six deals, and we were able to navigate those waters in 2022 and get close to a 30 percent return for our investors. But I feel like I’ve gotten a few gray hairs in the last couple years that I didn’t have before.
The thing with growth is that you want to go fast, but you also have investor money. You can’t go so fast that you can’t control it, so we’ve been really thoughtful about where we buy and the types of assets we buy. We only buy in DFW, so all of our assets are within a 45 minute drive of our office here in Uptown.
Everyone looks good when you have 15 percent rent growth. Everyone’s being a syndicator, and everyone’s piling into the market, and money’s flowing freely. Warren Buffett says you don’t see who’s swimming with their pants down until the tide goes down, and the tide has now gone down. Capital markets are frozen to a certain extent, but these are the times that are fun for me. These are the times where people make great buys, and you learn more as an organization. When things are moving fast and everything’s easy, you don’t learn anything. It’s times like this where you’re just like a sponge.
Where are you finding deals now?
Texas is a hyperlocal market, and now there’s a lot of outside capital. The market and the players here have changed, but it’s much more local. Generally speaking, we try to just stick with off-market deals we can underwrite quickly. We’re sourcing deals with brokers — we don’t go directly to sellers. It’s just too hard to compete with the brokers — they have these armies of young analysts, and their job is to make 50 to 100 calls a day. There are only so many multifamily properties that are in this sphere that we would buy, so if you have two analysts at each firm, there’s 10 firms, they’re gonna get through all the inventory way quicker than I will.
Are some of the groups that got out over their skis now creating opportunities for you?
The groups that bought a lot of deals are now having to manage many different things at once. If you have a 50- or 75-property portfolio, and all those properties were purchased in the last 18 months with bridge loans that are coming due with rate caps, it’s really, really challenging.
If you’re an upstart, even if you have a team, if you’re trying to manage 50 different assets that have expiring rate caps, you are stretched extremely thin. I think human nature is to freeze, so we are seeing opportunities from groups that bought aggressively in 2021 and 2022, for sure.
Have sellers begun to adjust to the new dynamic, or are they still seeking 2021 prices?
That’s probably been another one of the reasons why the first half of this year had 80 percent less transaction volume than last year. If you’re borrowing at 6 or 6.5 percent, you’re getting a deal with a cap rate of 5 to 5.5 percent. That’s what we call negative leverage. Now, we have the benefit of being a value-add specialist, so we can force appreciation and grow income by investing the dollars, but that takes time. Even if you’re buying a 5 or 5.5-cap, and you’re borrowing at 6.5 percent, it takes six to 12 months of getting through your business plan before you can raise rents enough to get cash neutral with your debt.
The prices that sellers are getting are far below broker guidance, and the sellers are approaching a wall of maturities. We’re in that zone, starting in like October or November, all the way through next year. So I think sellers are going to hold out for as long as humanly possible.
The less sophisticated, non-institutional, less well-capitalized borrowers that don’t have operational control and own older deals with lots of deferred maintenance own the properties that you’re going to see come up first.
A year ago, you had Class A, Class B and Class C properties all trading for 3.5 to 4 caps — there was no distinguishing in pricing. Now you’ve got the Class C deals at almost 7 percent. The Class B’s are in the mid-fives, and then you go down from there to the Class A’s. We’re starting to see a differentiation in pricing, which is what a down market does.
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