Dave Frazier, Co-Founder of FLW Capital, joins us to discuss building a team, getting educated, and taking down a 140-unit multifamily real estate asset in Texas. We discuss capital raising, the acquisition process, lessons learned, and much more.

Connect with Dave at https://flwcapital.com/

To join the DJE Investor list visit https://djetexas.com/access

For multifamily mentoring visit https://www.apartmenteducators.com



Devin: (00:02)
All right. Dave Frazier, welcome. How are you?

Dave Frazier: (00:06)
Doing great. Thanks for having me, Devin.

Devin: (00:07)
Yeah, thank you for coming, and you have the honor, hopefully, of being the first ever guest here in the studio. Hopefully we get this thing recorded and published, but thank you for volunteering to be the guinea pig, like we were saying.

Dave Frazier: (00:20)
I appreciate you having us. It’s a good opportunity.

Devin: (00:23)
Awesome, man, so we’re going to talk a little bit about your story. You guys, I know you and your team very well. You guys are here in San Antonio where we are. We’re going to talk some about a deal that you did, a recent multifamily deal, 140 units. Then, but I’d like to just know and dive in and kind of share with the audience the journey, because you guys, your team, FLW Capital, you guys have professional backgrounds, came together and took down a pretty big multifamily deal.

Devin: (00:55)
We don’t have to get into the exact specifics of price per door or whatever, but that was an impressive feat to just decide to come together, start looking at deals, going to contract, close a project. Obviously, there’s challenges on any closing, but maybe before we dive into all of that, a little bit of background on you and how you ended up getting together with your team and pursuing multifamily?

Dave Frazier: (01:21)
That’s great. I am a engineer by trade, professional sales. I’ve also done a lot of land acquisitions and breaking land up and so on. That’s kind of my real estate, besides some personal vacation homes, things like that. Really don’t have a background in single family or really passive investment into multifamily. Have done some passive investment into some renovations, some revitalization groups, so that’s the background.

Dave Frazier: (01:54)
The common link between the team is probably Mark. Mark and I have known each other for a number of years going to church together, and through Mark then met James. That’s kind of how we came together. Mark and James are both extremely active in the single family as well as passive investment in several multifamily deals. They were kind of my calling card to say, “Hey, come join us, bring some of the analytical skills and business knowledge to the team.” That’s kind of where we started.

Devin: (02:28)
I love it. You guys do have a nice division of duties on the team. There’s capital raising, there’s the analytics and the spreadsheet side of it. I know you focus on a lot of that, but it’s good to identify your strengths and what you enjoy doing. It seems like you guys have done a good job of that. I mean, you form FLW Capital and then, I mean, what was it a couple of months before we had a deal on your contract, right?

Dave Frazier: (02:53)
Yeah. We came into this thing as, like I said, just knowing Mark and within meeting James basically one night we were, “Hey, let’s make this capital group.” Within a month, we had that formed and got lucky, get deal flow. Worked on that deal for quite a while, but finally got it under contract. It did, it moved pretty quick, probably within about six months of getting things put together to getting on that deal.

Devin: (03:24)
To getting a deal done. I remember I was talking to James Wenzel, your partner, and James and I have been friends for a long time, but I think he was out at a meetup or something. He came up and he said, “Hey, I didn’t know you could do this team approach. I didn’t, I thought I had to do all this stuff as a general partner by myself.” I said, “I used to have that idea too, but no, you can break it up because it’s a lot of responsibility, especially when you’re doing a first deal because the learning curve is pretty steep.”

Devin: (03:55)
Fundamentally, what we’re doing with rental real estate is not that complicated, but there’s a learning curve in any new job or any new undertaking. I could just see the light bulb going off for James. He was like, “Well, hey man, I think, I think I got a couple guys in mind that we could partner up, go through this together, and go take the deal down.” That’s exactly what you guys did. Walk us through kind of that, the process of how were you looking at deals, how’d you find this deal and all the way up through the cap? Let’s walk through the deal, how you guys got it to the closing table.

Dave Frazier: (04:30)
Absolutely, touching base on what you just said, you’re, you’re absolutely right, it is. I think having a team is a huge, because there’s so many. You take advantage of your strengths, and it’s a lot of work. It’s a lot of stuff to get acclimated to as you would say. I don’t think I’d want to do it by myself, so to speak. It’s always more fun to share those successes with other people as well. That would be really tough to do by yourself that quick for sure.

Dave Frazier: (05:05)
This deal, it’s hard to remember back where everything comes from, but it’s really getting just access to deal flow is the first thing, getting some relationships with broker. We obviously had a lot of help from you guys. That was the key in. Couldn’t have done this without going through Apartment Educators. I think this would have been a very tall feat to get done without having that education.

Dave Frazier: (05:31)
I think that’s what really is a start of it is really accelerating that learning curve. That’s the key. Then having a little bit of good graces to get in and see a deal and put that first LOI in. That’s a big, big acclimation, a little bit of stress right there saying, “Okay, here we go. If they accept this, we’re we’re rocking and rolling.”

Devin: (06:03)
You guys went right into bigger deals, I mean, which I think is appropriate if you have the right team. I always say, if you have a line of sight to the debt, how are you going to get the loan? Who’s going to be your key principal? You have a line of sight to the equity. How are we going to raise $3 million or whatever? Then pursue the deal. If you don’t have those things, please don’t waste anybody’s time.

Devin: (06:26)
You guys put the team together said, “Hey, yeah, we’ve got the ability to execute on raising several million dollars capital. We’ve got the team together where we can get the loan.” If you have those two things, you’re in a spot to basically make offers. You guys were in that spot out of the gate, but there’s still that emotional spike of, “Hey man, we might get a deal accepted, and we’ve got to find $3 million equity for it in like a pretty short period of time.” That does take some getting used to. Had you guys submitted a lot of LOIs, letters of intent, before getting this winning one to kind of go through the motions on that?

Dave Frazier: (07:04)
Yeah, that’s a great question. This was, I think, our first LOI that we submitted.

Devin: (07:10)
Woo, lightning striking.

Dave Frazier: (07:11)
Yeah, that’s right. Hit it out. That is one thing that certainly is maybe a strength of mine. It’s a strength of all three of us. We all have people. During that learning process, even before this, we were, if it makes sense to me, then I want to share it with everybody. I would be upset if someone had a good line of sight to making money and they didn’t share it with me. That’s simply all it is. Maybe through some of our experiences, we’ve got a large network of people.

Dave Frazier: (07:45)
It’s just really taking that step to pick up a phone and say, “Hey, here’s what I’m doing. If we find a project like this and we can hit these kind of numbers, would you be interested?” Not many business people that would turn that opportunity down, I think, so if the timing’s right. We primed that pump well ahead of this. When it came down to doing a call for offers, we raised that money, I think, in five days.

Devin: (08:15)

Dave Frazier: (08:16)
That was a great feeling.

Devin: (08:19)
Congratulations on that, and that’s excellent that you guys had existing networks and relationships. Did you have trouble with some of your conversations and pivoting and people saying, “Apartments? Dave, I thought you were an engineer or whatever the case is,” or were people like, “Hey, I’m glad you’re doing this. This is great. Sounds interesting. Keep me posted”?

Dave Frazier: (08:44)
I mean, those conversations weren’t awkward or strange for me. I certainly approached people that we had relationships with. I think the uniqueness between a couple different, obviously James has been involved in this industry for a long time, has a lot of connections in the apartment arena and multifamily. For me, I would say, I think most all of my investors that are on my list, I don’t think any of them have invested in apartments. I think they’re investing in certainly grafts the idea they’re business people. I think they’re investing in us, knowing our success in other industries and saying, “Hey, yeah, that makes sense.”

Devin: (09:26)
That’s right. That’s really what most investors are doing. They’re investing in the team, investing in the person, and that’s awesome that you have the network to kind of plug in and transition to that. Well, let’s talk about the deal itself and the closing process. Again, we don’t have to disclose price or anything like that. Although I will say, you wish you could go back and buy three of those because we’ve seen some massive price appreciation and pricing expectations just since you guys have closed that deal, right?

Dave Frazier: (09:59)
Man, you’re not kidding. I would buy four more of those. I’d find the money somewhere, absolutely.

Devin: (10:05)
At the time it still felt like, “Oh, we’re struggling to make this thing pencil.” That’s how they go. On the front end, you feel like you’re paying too much, and then you get three months after closing and go like, “Ah, gosh, I should have bought all of these.”

Dave Frazier: (10:17)
I mean, we were sitting here on the phones. I mean, this is unbelievable. We’re going to kill it. Then, two hours later I was like, “Oh my gosh, this is horrible. How are we going to get out of this?” Certainly a roller coaster for sure.

Devin: (10:29)
It is. It’s tricky, especially when it comes to the debt terms or years of IO, or there’s all these levers that we have to pull, and it can be a little tricky kind of landing the plane into the acquisition. Well, in terms of asset itself, let’s talk about size, vintage, location, business plan, give folks a sense of what type of project it is.

Dave Frazier: (10:55)
It’s a 1973 vintage, 140 units, technically 139. One of the units is an office. We still refer to it as 140 units. Located up in the medical center. For us, looking at it, is this something that we want to invest? We’re invested on the limited partner side as well. Having that sub-market, knowing that it’s landlocked, the demand is high in the medical center, all those things really is what attracted us to this property.

Dave Frazier: (11:30)
Seeing the properties in that sub-market, Oak Creek was out of 10, 11 was in the lower nine as far as rent per square foot. A lot of room for some upside there on rent. Certainly able to match some adjacent properties as far as the, “Hey, if we can match that look, that renovation, then yeah, we ought to be able to get those rents.”

Devin: (11:57)
Love it. Good little pocket, good part of town. I think we were chuckling about this at the time because I think I’m a partner on the deal next door, which is like, “Oh, that’s a good comp property.” Literally next door, I’m a partner on it. Good looking property. What has been your experience since takeover in terms of renovations, and were there any post-takeover surprises on repairs, things like that?

Dave Frazier: (12:28)
We had a few things with some roofs we had to deal with that we kind of were expecting those to be maybe a little better than they were. Really, I think the key to this is having a really good management team. We’ve got a great management team. When these things come up, we’re on weekly calls and kind of joked, they say, “Hey, this is going on.” It was like, “Whoa, this is like my kid calling at 10:00. Start off with everything’s okay. Here’s what happened.” Really having a good management company that is handling a lot of things in house has been terrific.

Devin: (13:09)
You’re talking to onsite property management?

Dave Frazier: (13:10)
Onsite property management, right. Taking care of plumbing, so there’s property that old, there’s some sagging pipes, there’s some plumbing leaks, there’s some roof leaks. Dealing with that and expecting that is okay, but it’s something that’s part of the business. We’ve allowed for it. We’ve done really good with this property. We were able to push rents pretty good. We’re cash flowing well.

Dave Frazier: (13:36)
We did a bridge loan. The money, our CapEx for renovations is kind of on a line of credit, and we haven’t had to start drawing from that yet. That’s been great, so that’s been a big benefit as well.

Devin: (13:52)
With the bridge loan set up, that’s a future funding. You’ve got some dollar amount of future loan dollars that you can pull as you go through your CapEX plan?

Dave Frazier: (14:03)
Exactly, exactly. We have that out there. We’ll make draws on that as needed, but we’ve been able to get a lot done with just the cashflow and the working capital that we had built into it.

Devin: (14:17)
That’s good to have, you need some cushion to kind of get contractors started, get them paid and everything before you start processing your draws. You guys opted for third-party property management on this asset. That saves you, well, you’re not going to go out and build a whole management company for one project, but how’s it been working with the third-party management team on an asset like this?

Dave Frazier: (14:44)
We learned this in going through the education process. It’s putting together the right team. Certainly feel like we have right team. They’re taking care of a lot of the business side. We meet with them. We talk with them weekly to get updates, to go through and strategize on different things. For the most part, they’re taking it soup to nuts and taking control of it and doing a great job. Allows us to go out and look for the next property.

Devin: (15:11)
Well, that’s an interesting point. Deals and dollars is where your focus and the biggest bang for your buck is. You’re finding capital and you’re finding the next project. I’m always amazed and still to this day, about how much the onsite teams do in terms of leasing, marketing, collections, renovations. I mean, it’s a lot. It’s a lot for what you pay, 3, 4, 5% of revenue. If they’re doing a good job, they are absolutely earning their money, right?

Dave Frazier: (15:41)
Yeah. Going into this, just even the balance sheet and having to keep up with that and just the thought, “Hey, make sure that is done right,” and having them have the professional software and the accounting team and taking care of that, that is something I don’t know that necessarily expect it, but man, is a blessing. We’re able to do what we’re good at: go find deals, put together capital, get more projects.

Devin: (16:09)
I love it. Well, you guys, it’s maybe a blessing and a curse. You had a one shot, one kill on your first LOI. Are you guys like, “Hey, let’s just go submit another LOI. We’ll get our second deal. We’ll just keep 100% close rate here”? I mean, has that been tough to temper the expectations when you started like that?

Dave Frazier: (16:28)
Yeah, I mean that’s what we thought on the second one we submitted and the third one and the fifth and the sixth and seventh and the eighth. As some of the tough and trying to get some of that closed and some of the dealings we went through, man, just finding a deal now is tough. It’s competitive. Making sure we’re looking at those in the right ways. We’ve been pretty close on a couple here. We expect to have one by the end of the year is the goal is to have another one by the end of the year.

Devin: (17:02)

Dave Frazier: (17:04)
We’re looking. We’ve walked a couple yesterday. We’re going to be walking some tomorrow. We’re getting a little smarter each time.

Devin: (17:13)
We’re talking, we’re recording this on September 1. Those tours hopefully get a little better as the year goes on. I mean, those July and August tours are for the birds, man, woo.

Dave Frazier: (17:23)
Yesterday was hot.

Devin: (17:24)
It was cooking.

Dave Frazier: (17:25)
When you figure out the one that you’re walking is not the right one, you’re like, “Okay, I’m ready to go.”

Devin: (17:31)
Let’s wrap this up. The 2:00 PM tour or whatever it is. I did it a 2:00er yesterday. It was 11:00 and it was already kind of heating up. Well, what would you say to somebody or to yourself before you started this process of, “Hey, watch for this on the closing or whatever,” maybe some things? Because you’re just going to learn things doing it, that even if you learned it earlier or heard it, it really doesn’t click until you’d go out and do it.

Devin: (17:59)
You guys have gone from zero deals to one deal, and that’s a huge transition in terms of how brokers treat you, how investors might treat you. You guys have done the thing. There’s a lot of people that want to be there but aren’t. Do you have any thoughts, having gone through that relatively recently, that you might share with somebody that hasn’t gone through that yet?

Dave Frazier: (18:22)
Yeah, I think you even cautioned us on this a little bit, but some things you got to have to learn the hard way maybe a little bit. The debt financing is picking a horse. We kind of not knowing, trying to look around and trying to figure out what’s going to be the best team for us. That delay or that hesitation really put us into a point where now we’re at 30 days, and we got to get this thing closed and stuff we should have probably had done 15, 20 days earlier, we’re starting.

Dave Frazier: (18:58)
We did, we got it done, but it probably increased the stress level more than it needed to be. Moving the second property, the stuff that we’re doing, that stuff is upfront. I think we’re not only going to be able to close quicker than a lot of people, but with a lot less stress because we have the team in place from the get go. That is definitely the biggest takeaway is knowing the pieces that you need to have upfront, getting them and going.

Devin: (19:32)
That makes sense. On you guys’ next project, you think you’re using the same team in terms of legal insurance, property management, the whole way through? Are you going to trade out some players, or how do you guys foresee that?

Dave Frazier: (19:45)
You know what, we’ll probably use the same team. It worked pretty well. We’ve talked about, “Hey, should we look at maybe changing this out?” I think what we’ve decided on, on the second, we’re going to keep it the same way and move it fast and then see how that goes. Then, we may look at adding some different peoples to that team. It really depends on we’ll see on the next one. I think we’re going to keep it the same going forward for now.

Devin: (20:16)
Like we talked about, there’s so much of a learning curve that you don’t know what you don’t know when you’re going through it. There’s so many new things to pick up, but if the team performs, boy, it gets a lot easier the second time around. The attorney’s seen the legal docs. They’re probably very similar on the second time. Property management company, probably very similar. You’ve all done deals. I mean, it gets a lot easier as it goes on.

Dave Frazier: (20:40)
I think the education that we’re getting, so we want to understand what each team, what their job is and what they should be doing. We learned that on that Oak Creek. I think the process is to “Let’s look at that again on the second deal.” Then we know how to evaluate our team, our team members by that. When we start understanding more about what they’re responsible for and what they’re doing, I think help us make some more educated decisions on who’s the best fit for that team moving forward.

Devin: (21:16)
That makes sense. Did you guys discuss a rebrand on the property? Because I don’t think you’ve rebranded it, right? That’s a popular move or can be sometimes in apartments. Is it, “If it ain’t broke, don’t fix it” type of deal? What are your guys’ thoughts there?

Dave Frazier: (21:31)
Great question. We kind of relied on the management company on that and asking them. They’re the professionals at it. They looked at it, they made their recommendations of keeping the name the same. We’re doing some upgrading and some signage and visibility, things like that, but there wasn’t really anything tied negative to the name. The thought was just to keep the branding the same.

Devin: (21:58)
I like that. It’s simpler. It’s not a bad name, and if there’s not a bunch of terrible history associated with it or whatever and you don’t require a rebrand, save the money, save the $10 grand on the monument sign or whatever you’re going to do. That’s great. It’s tempting, I think, to spend a bunch of money on properties in all these areas, especially when you’re first coming into it, but it really is like a, “What’s going to impact NOI? What’s really going to move the lever?” You guys have been doing some interior renovations. How are those going?

Dave Frazier: (22:30)
Yeah, we are, so that’s great. Our target was to try to get about four, four to five a month. We’re kind of in that three to four range. We’re getting turnover increases of un-renovated units between 6 and 9% …

Devin: (22:44)
Wow, wow.

Dave Frazier: (22:46)
…. which is great.

Devin: (22:49)
Without doing the renovation?

Dave Frazier: (22:49)
Without doing the renovations. As to why we bought this property based off how it was positioned, currently, so the renovated units, that was a little bit of a delay, with the construction materials, the cabinets and things like that. Not only just pricing, but just availability of trying to get that stuff, it delayed renovating a few units early on, but that seems to be going well. We’re getting bumps now in the 15% range on renovated units.

Devin: (23:22)
That’s huge.

Dave Frazier: (23:23)
Yeah, that’s great. That’s really good.

Devin: (23:25)
That’s incredible and probably outstrips what you had in your pro forma for [crosstalk 00:23:28].

Dave Frazier: (23:27)
Absolutely, absolutely.

Devin: (23:29)
The supply chain issues have been so weird. I mean, like we couldn’t get paint on some deals, and then labor’s another issue too, trying to find maintenance guys and leasing staff, the whole thing. There’s kind of been some challenges there, but everybody seems to be getting through it all right. Did you guys have big COVID impacts? We’re talking in September, 2021 right now, we’re having this conversation, or was most of that kind of behind the property by the time you guys stepped in?

Dave Frazier: (23:58)
We haven’t really seen the impact on that.

Devin: (24:00)

Dave Frazier: (24:00)
We overtook the property. There was pretty high delinquent fees there, which maybe it could be related to COVID, surely. Management group did a really good job of applying for assistance, working hard to get the different tenants on different rent relief programs. That has, I mean, really knocked out a large, large chunk of that delinquent. I think that’s been under control, and I think it really takes the key there was the diligence of the management company working with tenants to get them on different programs to take care of that.

Devin: (24:41)
There’s a lot of assistance available. We’ve done the same thing on our portfolio, just trying to get folks signed up for that help. It’s good. Multifamily did really well through COVID, and now we’re seeing this rent growth, like you guys are talking about, just kind of organic on just straight up lease renewals, seeing these huge numbers, which makes it a little tricky for underwriting.

Devin: (25:03)
Because I’ve been doing this for a lot of years, you underwrite a 2% rent growth, 3% rent growth. Is that realistic over the next year? That’s probably really low. Have you guys kicked that around on like, “Gosh, how aggressive can we be on our year one organic rent growth”? I mean, it’s kind of a hot topic right now.

Dave Frazier: (25:19)
That’s the magic question. That’s the crystal ball. That’s when you look at these. We’ve had a couple of deals where LOIs are in, and we miss it by $100 grand on a $14 million property. You’re like-

Devin: (25:32)
Should’ve been there.

Dave Frazier: (25:32)
… “If I would’ve known it was $100 grand more, we’d have been there. We’d have been $200 grand.”

Devin: (25:39)

Dave Frazier: (25:39)
I heard a great comment the other day. Really changes your thinking, if new apartments are being built, the cost to build a new unit is $200,000, and you can get something existing for $100, $115, why would you not do it? That’s changing, but still, like you, we’re investors first. I think that’s a challenge too. We’re in a business model that is certainly focused on investors, investors first. If you’re competing against somebody who is maybe not as investor holden or different model, that makes it a little tougher.

Devin: (26:18)
For sure.

Dave Frazier: (26:20)
We’re not looking. We’re looking at doing three to four deals a year, so just find the right three or four.

Devin: (26:26)
I love it. There’s different profiles. I was talking with a broker yesterday. They had sold a nicer, newer deal to a group, and their model is hold forever. If you’ve got a hold forever model, it’s a little bit different than trying to get in and out in three, four years or whatever the case is and hit a certain IRR for investors. There’s different profiles there. Well, that’s great. I’m so excited to see the performance of this deal.

Devin: (26:54)
I’ve enjoyed being an investor on this project as well. Love seeing you guys go through the process, the ability of you guys to raise capital really quickly. I mean, look, if you’ve got that piece kind of buttoned up like you guys do, then it’s just really a matter of deal flow, so looking forward to seeing where you guys take it. If somebody listening wants to connect with you and the FLW team, what’s a good avenue for that, Dave?

Dave Frazier: (27:19)
I think the best way to connect with us is flwcapital.com. You can click on there. There’s obviously plenty of opportunity there to get signed up on our investor list, get on our mailer list, and that’s where it’s at. That certainly is growing as well. That’s exciting. Flwcapital.com, that’s certainly how you can get our contact info.

Devin: (27:43)
Excellent. Well, we’ll link to that in the show notes. If you’re listening, you can just go through and click in the description. We’ll link right to the website. Listen, congratulations on the deal. Look forward to seeing the next project you guys have out. Thanks for coming into the studio today, Dave, enjoyed it.

Dave Frazier: (27:56)
Thanks, Devin.

Devin: (27:57)
All right, see you.

Dave Frazier: (27:58)