#296 - Sean Burton - CEO of Cityview - Acquiring, Developing, and Managing Multi-Family in the Western US

Chris Powers: Sean, welcome to the show. Thanks for joining me today.

Sean Burton: Thank you, Chris. Thanks for having me. 

Chris Powers: I've enjoyed researching you the last couple of days, and an excellent place to start would be to tell me how you got into real estate and how you found this career, or did it find you?

Sean Burton: It's always scary when someone says they've done a little bit of research on you.

A couple of different ways, one, I'd always been interested in cities and the urban environment, and I worked in the political realm, so that was always a passion of mine. My first job was in the White House, but my first professional job after law school was at a big law firm. I worked in a real estate group at a big law firm and really got re-engaged and enjoyed that and enjoyed being a part of something very tangible and then really kind of saw the opportunity to invest in communities and build housing and help be a part of positive growth in a community, but also engage all the business and investing skills. It was the best of both worlds. I got to do well by doing good and enjoyed the career. 

Chris Powers: Is there anything you learned being in the white house that transferred over to running a business?

Sean Burton: There were a lot of things. I mean, the most many exciting things about the white house, but one was just a pure kind of work ethic; the hours that people crank in the white house are like nothing I've ever seen, including being a junior lawyer at a major firm or working with kind of investment bankers. It's all done with a public ethic, and there's a set of values there, and people want to change the world. They're trying to do good, and it doesn't mean everybody's perfect or motives are always pure. Still, it was inspiring to see how people approach the problem and the commitment and effort they put into it when they can make much more money and the private sector. They've decided to forego that to try to move the agenda for something they believed in. And so we've also tried to bring some of that ethic.

The city view. We're mission-driven, from our 1st job is to get returns and results for our investors. And we focus on that, but there are different ways to do that. And we try to do it in the right way. And I think some of that ethic comes from the early White House years. 

Chris Powers: I love it. I've done almost 300 of these.

I've never actually talked to someone that was in the White House. One more question, I didn't know we'd go here, but when they make these bills that are like a thousand pages long, who writes them, all these lawyers get them together really quick. Or how do they crank out something that big, that quick?

Sean Burton: They have large teams in Congress on these committees and are experts at what they do. A lot of them are lawyers by training, they also have a council that they work with, and this is their expertise and what they do. And so, yeah, it's a tremendous amount of work and funny.

Knocking politicians and elected officials is straightforward, and I get it. And there are plenty of bad examples, but I will say from, personally working with many of them over the years, the vast majority of people are trying to do the right thing, and they're working very hard and, and they're focused on a positive outcome.

And so, I find it inspiring. 

Chris Powers: All right. And so now you've gotten into housing. Can you describe briefly what City View does and how and how you view the company? 

Sean Burton: Sure, we're a multifamily specialist, a sharpshooter, and we've always worked in housing. When we founded the firm in 2003, the focus was exclusively on housing.

It was forestalled housing then, and we later pivoted to multifamily during the GFC. And the thesis was that a generation of young people wouldn't want to drive to the next freeway off-ramp and buy a home with a white picket fence in a public house in a public home builder development.

But some people were going to live in cities or be in action, be near their job, be near culture and nightlife, restaurants and bars, et cetera. And there needed to be more housing being built for those people. So we founded the firm with the concept that we would create infill housing.

That term has fallen out of the art, but centrally located denser housing could in California. Now, that looks primarily like apartments, and that was the focus, and that's how we got involved in it; when we started, there were 3 or 4 of us, and we now have 150.

We focus on California and the western half of the country, west of the Mississippi. So, coastal California, significant cities, Pacific Northwest over to Denver and Boulder, and then down through Salt Lake and Phoenix into Texas. That's what we do, and we do the work ourselves.

We're not an allocator; we started as an allocator but decided in 2008 and 2009, as we were looking at operating and development partners that were bankrupt or couldn't focus anymore. We ended up taking a lot of projects back and doing them ourselves and realized that we just needed to be closer to real estate.

So we decided to build the platform and started building a development team. And then we moved into construction management and then, about five years ago, added property management to it. So, that's who we are, and we remain focused like a laser on this asset class in those markets.

Chris Powers: And everything you do is ground up. No acquisition, all ground up.

Sean Burton: No, that's the most common misconception about us. But about half of our track record is buying existing assets, whether core plus or value add. And the other half is ground-up development. 

That's more of our brand. People know us more from the ground up because it's more visible, It's sexier, It's the kind of pictures we put on our website, but half of what we do and have done is existing acquisitions. 

Chris Powers: How do you all? You mentioned some of the markets you're in; how do you think about the locations you want to buy and the types of properties that you want to buy? What matters to you?

Sean Burton: So, we're a fundamentals-driven company. So the first thing we're looking at and picking markets is that our team is analyzing our markets for some significant supply, demand, and balance. We're looking at places where the population will grow faster than the rest of the country.

Where are we going to add more jobs? Are they good jobs? Are they jobs that are going to drive higher incomes? And so we find markets that have strong demand and then weak supply. So where are barriers to entry high? Where is it hard to build? Where do you have a lot of regulation? Because a lot of people will shy away from those markets.

And go to markets like the Sunbelt, where it's a lot easier to build, but that can lead to problems they're having now with significant oversupply. So, that's how we pick the macro and minor markets. We are picking neighborhoods we want to live in.

Is it close to transit? Is it an up-and-coming neighborhood? As we're running around doing our due diligence on projects, we always look for the most fabulous new coffee shop because that coffee shop will often go into a neighborhood that's transitioning. Land prices are lower than in a year, two, or five years.

So, we love great micro locations that have some energy to them. It's a place where millennials are going to want to live. And that's how we pick them. 

Chris Powers: When finding a development site, are you typically finding sites already entitled and ready to go?

Or are you looking at sites that need to go under contract, and you'll have to entitle it before closing or all the above? 

Sean Burton: Yeah, so it's all of the above. One thing we generally don't do is buy a piece of land that's unentitled and then take it through an entitlement process.

We often option a piece of land, take it through some entitlement process, and then fully design the project and then break ground on it as we're closer to having a GNP and permits. That's a widespread structure. We've done that 40 times over the last 20 years. It's great because you can add significant value to that process.

Sometimes, we've bought fully entitled deals, and there's still some value there, and it's a perfect location. We'll do that and build the ground up, but we've developed expertise as a firm doing entitlements and have much experience.

We have the former planning director for Los Angeles who served on the four different mayors on our team. He's been here since 2007. I sat on the city planning commission in L.A. for five years, from 2008 to 2012. And that doesn't mean we have some secret sauce or can get something done that other people can't.

But it helps us make good choices about, what's possible, what does a community want? What do elected officials want? How can we find that? That, thread that needle so we can find a good project and make good choices. And then, we work very closely with communities when we're doing that.

I learned this on the planning commission sitting on the other side, watching developers, architects, and others come present. You see a lot of people that just aren't very good at it, and they haven't been respectful of the communities and don't think highly of those communities.

They could run them over, and that's a recipe for disaster from our perspective. So, when we are entitling a project, we do many community meetings where we meet with the elected officials early in the process, understanding their vision. And that doesn't mean you could always give people everything they want, but it allows you to make better and more informed decisions, and you have a much higher chance of success if you do that. 

Chris Powers: Okay, I want to drill in more on entitlements. From your experience, we used to develop if we buy industrial now at my firm.

I'll make sure we're on the same page when I say, is it fair to say that maybe the length to entitle, maybe since you started in the great financial crisis to where we are today, like maybe what used to take a year or two now takes almost double that. Everybody I talked to around the country just getting entitlements takes longer.

Do you experience that? 

Sean Burton: Well, not significantly because it's always been challenging in our markets. So it's always taken 12 to 24 months to get entitlements. That hasn't extended, and part of that is in many of our markets, there's at least a recognition that we have a housing crisis, and you need to build more.

You even get a bit more wind age or back regarding the government wanting to complete the entitlements. And that being said, communities are susceptible to traffic and noise, and other things that can slow down a project. 

And community opposition and housing intensity generally have increased over the last few years. And part of that is the traffic's been getting worse. And part of that is social media and the ability to connect and those kinds of things. But it's always been challenging in our markets.

It's part of what we like. The community piece is tricky because there's less supply, and we can add value.

Chris Powers: From your experience, like in the markets in L.A., there is an intense desire at the city level to build more housing. 

Sean Burton: There is a significant initiative of, we have a new mayor here, mayor bass, and she's very committed to housing story committed to homelessness, she's housed 14,000 people in her first six months. Just pretty staggering when you think about it, but she understands in her team that the only way we're going to get out of this issue, in the long run, is not just to buy more hotels and motels but to build housing and, again, not just for the homeless but affordable housing and Workforce and market-rate housing and so there's absolutely a focus and an understanding on that.

What we try to do at city view and also in our kind of civic endeavors is to help educate elected officials and policymakers about the best way to do that. How do you supercharge a housing development plan? So we're building more than just a few hundred units here or there but building the tens of thousands we need yearly to address our housing needs.

Chris Powers: Yeah. I read that you co-chair the L.A. coalition, which are business leaders across the economy, and I imagine homelessness is probably a big topic. Like, do you have opinions on not just in L.A., but just in general, how do you tackle this problem? Cause you go to a lot of these cities, and the cost to develop public housing is still expensive.

I am still determining what I read on L.A., but it could be 800 grand a door or something close to that to build. What is the solution to this besides just housing? Is it mental health care? 

Sean Burton: Look, I'm not an expert on this, but it's a multifaceted problem, right?

You have housing on affordability at its core because you just haven't built enough housing, right? So more people want to live in housing that exists. So that's the core issue, then you have mental health issues. And that's gotten worse than COVID because, like, here in L.A. County right there, which handles mental health.

The city doesn't handle it. The county handles it; for years, they weren't meeting with people in person because of coping, right? So you had things get worse and worse and worse on that front. You're also dealing with addiction issues, so it's incredibly complicated to build new housing.

You mentioned the 800,000 figure; that's a figure. The LA Times we were reported on what it costs to build homeless and affordable housing per unit, which is staggering because we can build a city view, a brand new market-rate building with a rooftop deck, and a gym that looks like equinox in it at 500,000 a unit.

And that's another thing we're trying to help the mayor, her team, and other elected officials understand. How can you produce housing at all levels? More affordable, it's a problem. It's there's no silver bullet. There's no simple solution, but we all must work on it, and the coalition focuses on this critical issue.

If you look at surveys as to why businesses leave, right? Something we've been concerned about in L.A. In Texas, they got a lot of businesses coming there, right? We're always concerned about why they're leaving L.A. If you look at the surveys, the number one reason people leave, it's not taxes. It's not regulation, and It's because the people who work at those businesses can't afford housing. So it's a critical issue for humanity and economic development in all these cities. 

Chris Powers: How is the L.A. market doing right now? We keep hearing recession, but I returned from New York City today.

Things are moving and hustling up there. Texas is doing the same. My California buddies think things are going well. What's your perspective on it?

Sean Burton: No, it's the same as yours, Chris. I Can't get a restaurant reservation in L.; It's packed with people. There's traffic because everybody's out and about.

The malls are busy, so L. A. He is doing well, at least on that metric, right? And there are plenty of people who are facing challenges here as well. But it's doing well on that metric, and you have not had significant job losses in L. A. You have an incredibly diverse economy. It used to be a kind of aerospace and entertainment once upon a time.

Now you have Tons of manufacturing jobs. You have a lot of tech jobs; content, gaming, and health care are the most prominent, most extensive asset kind of providers of jobs. So it's powerful on the demand front, despite what you read in the media about everybody's leaving L. A. And it's hollowing out.

It's not the experience of those of us who are here. 

Chris Powers: I was in L. A. My TCU Horned Frogs played at Sofi Stadium for the National Championship. I had a fantastic time in L. A. It was cool.

Sean Burton: Well, what did you, what did you think of our new stadium? 

Chris Powers: It's unbelievable. I mean, It was unbelievable.

And it was pouring rain when we left. And so we like, it was adults playing in the rain. We were for a second; we tried strain dry. And then we said, Nope, we're going all in on this rain. And it was like an hour's walk back to our bus. And we had a blast, but no, the stadium was incredible. It was world-class.

Sean Burton: Yeah, that's good to hear. Stan Kroenke and Kevin Demoff from the Rams did a great job building that, and it's a treasure. We're big Rams fans here. So we spent a lot of time at that stadium. 

Chris Powers: Do you look for sites all over L. A. or specific pockets of L. A. or suburbs? Or are you everywhere?

Sean Burton: Yeah, no, no, we're looking for specific pockets and suburbs.

I'll tell you where we don't build in L. A. and haven't in 20 years despite being based in downtown L. A. We've never built down there because we don't do high rise. That's an asset class on the riskier edge of the spectrum regarding housing, but we like to build near jobs and transit.

So we're in Koreatown, Silver Lake, and Echo Park near USC. We're just completing 300 units there and opening that in the next few weeks. We're on the West side, in Culver City, in West Hollywood. So we're in vibrant markets where, again, kind millennials would want to live, and if we're building new products, it has to be a market where the rents can sustain the cost of new housing, which is not an expense of land's expensive.

But so is labor, and our materials and interest rates tripled last year. So it has to be a market where they can sustain rents to get an adequate return for investors. 

Chris Powers: Do you see any similarities to what's going on today to what you experienced in 08, 09, as you were getting into development, or is it two different kinds of?

Sean Burton: It's different, and it's the same.

We have yet to see distressed products start to move. It's starting to happen; we track every deal that goes to market, do at least a desktop underwriting within our markets, and then deep dive into the ones that make sense. And I would say Q4 and Q1 were very slow.

You saw little trade. You've seen a lot more multifamily hit the market. In the last 6 to 8 weeks, you're seeing even the ask be at a significant discount to replacement cost, and the bids will probably be lower. So, that looks similar to the GFC, but wide-scale job losses caused the GFC.

I mean, it was caused by a lot of things in the financial reason, but you were, I think when, when Barack Obama became president in January of 09, we were losing 800,000 jobs a month, right, but here we are, and, this disruption downturn, whatever you want to call it. And we have a three-and-a-half percent employment rate and nine-a-half million open jobs.

So it feels very different from that perspective. As you said earlier, everybody's talking about recession, but it seems pumping everywhere you go. So it's weird; it's different in that sense. 

Chris Powers: Yeah, people keep saying hard landing, soft landing, but nobody's. I've never heard the definition of what a soft landing would be or what a rugged land is.

They're just terms we use, but this one feels soft right now to me. 

Sean Burton: I mean, we think of hard landing as significant job losses, and you see actual layoffs, and the unemployment rate gets up, you 3.5% to 6%, 7% or 8% to us. That's a hard landing.

It is very funky and convincing what the Fed does in July. And we're praying that inflation stays low because it seems persistent and is driving these higher interest rates, which impacts the real estate business at least.

Chris Powers: Are you seeing anything as relates to building costs? Have they stabilized? Are they coming down or holding firm at where they're? 

Sean Burton: It's interesting. We've seen them stabilize significantly over the last six months, but we just analyzed in L. A. County from the beginning of Covid until the end of last year.

It costs 38% higher to give you a sense of how much things shot through the roof. Now, you don't see costs going down. You've seen lumber go down, and some other commodities' shipping costs are way down, but labor is moderating and looks more like 2 to 4% annual inflation versus 5, 10, 15%.

So, that's good. I do think there's going to need to be some reduction in costs to start building multifamily and,  in a big way again, because interest costs are gone up so much that when we're looking at new development deals, which don't make sense today, interest costs can be 70 to 100% of what the land cost is now, right?

I mean, in your pro forma, which is staggering. So then, when you also have, obviously, high building costs. That would come out of the land traditionally. Still, the land is only 10 to 15%, generally the cost of a budget and a multifamily deal, unlike industrial or others, where it will be much higher.

And so, you can't reduce the land enough to make up for that difference. Like, no, one's going to give their land away for free. So you'll have to see some moderation on the cost front and reduction as well as interest rates to come down to see a kind of boom and multifamily development again.

Chris Powers: Yeah, you might have answered it, but my next question was, what would it take for a development deal in this market to make sense for you all?

Sean Burton: Well, for us, we're always very focused on the yield on cost because that's,  people can play games with IRR and other metrics, but the yield on cost is if it's numbers that you believe in.

It is a good metric, and we've expanded our expectations on the yield on costs, like 100 to 150 basis points of what they were pretty, pre-summer of last year in urban markets. You're seeing it, not a lot, but we were breaking ground on a 267-unit deal across from SpaceX here in L.A., and it's the best yield on cost I think I've ever seen in the L.A. market, and that's on, actual costs with a G. M. P. and a loan with actual interest rates and real rents, we have, 40 plus buildings here in L. A. We know what rents you can get and what neighborhoods for what product type, and so that's encouraging.

I'd like to see more of those in the future, but it always takes a little time when you have this sort of shift that we have today in terms of the economy and financing and other things for them to close that spread. So you're starting to see it, but you'll see more in the next 6 to 18 months.

Chris Powers: To the extent you can share, was there anything in particular about that deal that yielded the best return on the cost of just a good buy, or is there something particular SpaceX ended up coming there unexpectedly or something? 

Sean Burton: It was an excellent buy; we're an experienced developer.

We build more than anybody else in L.A. County. And so, we have good relationships with G.C.s and subs, and we get the best pricing out there; we need to get some great, special deals, but we get the best price out there.

And this is a very high-demand market. SpaceX is an excellent location; that area of El Segundo and Hawthorne has companies like Ring that have moved there; they have a whole tech hub. It has a whole aerospace hub and a new space hub there.

And there's only 1 apartment building in the whole area, so there's a ton of; I met when we were underwriting this deal, and we were driving some investors down there, and I asked him to meet me at eight in the morning. So we'll meet at 10 or 11 because I want to show you something at eight.

So we met at the Starbucks and drove down the street, and there's an oversized parking garage across from SpaceX right next to our site. And we had to wait in the crosswalk because hundreds of people were walking out of the parking garage into the building, and I said, there you go, that's the thesis for this deal.

Those people would rather live here than where they do and have to drive in and park. And that's part of what's driving—the extreme yield on cost on that deal. 

Chris Powers: So you pull up to the site, and everybody is walking across that, I guess, are Space X employees, like from an investor standpoint, who's sitting there with you, like kind of how did that advance the discussion?

Was that a deciding moment to do the deal, or what it meant to them?

Sean Burton: Yeah, it was, it was trying to put a visual to our thesis, which was we were, you had an area that a solid employer base, lots of jobs, lots of millennials who are going to want to live in apartments, friendly apartments, and that there was no other housing.

So they had to drive in, and SpaceX had to build this massive garage across the street from their campus. To accommodate everybody, our thesis is, look, if we can build a terrific class, an apartment building next door with a rooftop deck and credible amenities and gyms and everything else, fire pits and all that people want to live here.

It is your renter. And so that's, things like that drive at that investment thesis and drove that attractive yield on cost.

Chris Powers: I've never asked this question in almost 300 episodes. So you'll be the first, but you just said it when you think if somebody, some of the folks that listen to this or new developers, or maybe they've, they're raising money for the first time or second time, what makes like an excellent tour to show equity a project?

Everybody sends a deck, but you've toured equity across many projects; how do you conduct those tours? 

Sean Burton: Yeah, it's a great question. So we focus on the neighborhood. Real estate is a very hyper-local business. And so we usually are, maybe the investors, not on the site, but somewhere nearby; we then take them on a neighborhood tour.

Here's where all the jobs are. Here's where people go to have lunch; here's where they go to have coffee. Here's where they work out, here's where they get the dry cleaning down, get people a sense of who your renter is and how they live. And then we're going to look at some comps and say, look, you three other buildings, and we'll take you inside and show you.

What do the finishes look like, what are the amenities, and what kind of rent they pay? We will ask the leasing agents what they think they're saying in the market because they're right on the ground, and you put everything together. And in theory, it does a strong investment thesis, but it is very neighborhood and community-focused.

Chris Powers: Speaking of neighborhood community focus, and the office market in L.A. may hit a little bit harder than other parts of the country, you're a developer; there's a conversation about an office-to-residential play. Is that even a real thing? Or is it something that's on your radar? 

Sean Burton: It's on our radar, and we've looked at a bunch.

It's tough to pull off because you need an office building of the right size with the proper floor plates. You have to think about things like plumbing. We have many common areas in an office building that could be more useful when building or converting to residential.

So we look at it, but often, especially if you're in more of a premier suburban location, looking at an office there, the best play is to scrape the building and add units, starting from scratch. And we look at that as well, but we'll have to figure out something to do with this empty office space.

I mean, downtown L.A., now they're saying it's 30 to 40%. That's just not sustainable. So we do have to, we have to figure this out as an industry and as a society, but it's challenging in many cases to convert from pure office to residential.

Chris Powers: Even if you can't, it's doing it at scale.

It's a one-off situation. So it takes a lot of work to build a predictable strategy around it. 

Sean Burton: That's a great talking point. I go a lot of places, and I hear all these people talking about this is what we're going to do, but executing it is a challenge. And that's funny. We've done it in the warehouse space.

We did 1 of the 1st significant projects in the arts district in L. A, and we took old furniture from the old Parker Brothers furniture warehouse and converted it into 300 units. So it's a massive play. And what we had to do with 1 of the buildings is actually. Cut a massive portion out of the middle of it and create a courtyard.

We could create light for the units and some air, fresh air, and other things. So it's not for the faint of heart. That was a very successful project. And we were an early mover in that neighborhood, but people think it's cheaper than building ground up, and it's not.

Chris Powers: You've been doing this since 2008, almost 15 years. If you had to, like, think of one or two things that you go, man, we've gotten good at this and, didn't even, it wasn't even on our radar in 2008 when we started, like, what makes a great multifamily developer and operator from your perspective?

Sean Burton: Yeah, we've been doing this since 2003. 

Chris Powers: Okay, 2003. 

Sean Burton: Yeah, so, for 20 years, I can't believe it's been that long. So, look, it's a couple of things. One is. You've got to be disciplined, right? It's straightforward to get caught up, and the hype or whatever, but he's talking about investors and others in our business often moving in and the herd mentality and that's a great way to get in trouble.

So we work hard to be disciplined. And stick to what we think are our fundamentals, so that's one thing we've learned to focus on execution, especially on the development side constantly. It's essential on the value outside as well. But I think the value is more accessible than development when more people do it.

And it's harder to add value, in value add, than it is on the ground up, but you have to be experienced. You have to be very focused on the details. You got to be very focused on the timeline. So, we've continued to improve over the years, but I need to remember execution, as you don't just make your money on the buy.

People often say that real estate it's all about basis. And you make money on the buy, especially with the ground up. You have to be able to execute because it's a lot of work, and it's hard work.

Chris Powers: It's brutal. If when you think about tech and amenities. Is there anything? Let's start with amenities.

Is there anything from an amenity standpoint? The question is things you're doing now that you didn't use to do or amenities that don't matter that everybody thinks to matter. What do you think about amenities in these projects today and in the future? 

Sean Burton: Yeah, so the amenities that matter still are for, look, we're in warm weather markets generally, except for Colorado.

And, but the rooftop deck is an essential amenity, right? People like to sit outside around a fire pit, and that's incredibly important. A great gym is an amenity for this generation. It's more health-conscious, and we're often expanding gyms or our value add projects.

We have a project now in Portland. I'm in the East Burnside neighborhood, and we came into that project, and it was a light-value add strategy. It's only 8 or 9 years old, but we identified two big bike rooms, and 1 of the big bike rooms was on the street, and no 1 used it. So we're making that into a high-end gym.

So that's incredibly important. We do standard rooms, and they're nice, but they are used less. Then people think that the money put into that kind justifies another standard amenity we do in all our projects.

And we did a pre-coven, and we've even ramped it up since coven is we have what we call CV works where we create kind of-working space and make it very agile and flexible so that you can slide walls around and tables around and those kinds of things. And you put great wifi in there and great coffee.

And again, that was a famous pre-call because we've always got a percentage of people that work from home. But now, with flex schedules, it's become prevalent. And I'd say another exciting thing it's on movie theaters, so when we 1st started in this business, everybody had to put a movie theater within their project with a big screen T.V. and a bunch of really comfortable chairs and a popcorn machine and make it extraordinary.

And then, those were empty for many years, and no one used them. And just in the last year or two, we're getting a ton of demand for those again. So we're starting to see those designed again, and I don't know if it's the access to streaming services now that you can get in there and people want to sit in there and watch their shows, but that's been a back-to-the-future moment for us is seeing kind of movie theatre demand come back for projects.

Chris Powers: I love it. What about anything you're implementing on the tech side, whether it's apps or how people view or tour properties, anything from a tech side?

Sean Burton: Yeah. So, all the above, like we've done a little bit of virtual leasing before COVID, we got good at it during COVID and, as a lot of people did, but for a lot of our projects.

We attract people that are moving in from out of state. And so that's been a beneficial tool smart homes with climate controls and those kinds of things have, have been, a core part of what we've done, but if we've continued to ramp up, latch and electronic systems for door locks and those kinds of things, making your phone, your key.

And so, we're always at all the trade shows looking at technology. We're looking around at our competitors to see what people put in. And that's something you want to stay. At the front edge of it, you don't always want to be at the bleeding edge of it because you want to avoid putting in buggy technology.

That's over-engineered and more trouble than it's worth, the more expensive than it's worth. But you want to stay on your front foot regarding technology that enhances. The lives of your residents or enhanced, and the kind of their value system, a lot of our millennials are concerned about, our buildings impact the climate, how healthy the building is, and whether we're being responsible.

And so we incorporate that into our design and our features. We remember that our first job is to deliver returns for our investors. So you want to avoid doing inordinately expensive things, or you need to get enough bang for the buck.

Chris Powers: What are some things that are financially prudent and good for the environment?

Sean Burton: The climate control systems, right? So you're not wasting energy is essential. Now, one thing we do is virtually all of our buildings as we get fit well certified, which is an exciting program. That's where the lead is more focused on the investor community, and those kinds of things fit.

Well, it's more focused on the experience of the renter. And how are you making the building as healthy as possible for them? And so we go through that, which concerns air filtration systems, lighting, and other health-focused amenities. And that's something that we do.

And it resonates with our tenants when they come into the lease or decide whether to stay in the building. 

Chris Powers: How are you positioning yourself for the next few years open for business, looking for deals? Is the market shifted, like you've been in this for 20 years and through multiple cycles, how are you telling your team, and what are you thinking about over the next couple of years?

Sean Burton: Sure, so it's an exciting time, we're 95% plus occupied across the portfolio, and we're getting solid rent growth. We're getting high retention concessions in most of our markets and projects.

So the assets are performing operationally, but you have this vast dysfunction and destabilization of the financial markets, with interest rates tripling. And so we're focused on asset management, which is hand-to-hand combat, ensuring that our assets continue to perform.

And then, on the acquisition front, we're very much open for business. And although we haven't closed a new deal in a year, which is the longest we've gone, even since the GFC, that's been because you've had this changing dynamic. It's been hard to get price discovery, and we want to be patient with our capital, discretionary.

We've been very patient, but there are only so many best ideas or significant opportunities right now from our perspective. One is this ability to buy things at a deep discount to replacement cost. We have not seen this pricing Opportunity since the GFC And only some things are trading.

So it's very early, we're in the early innings, but it's coming. We track loan expirations and several different factors. Many Operators and others bought multifamily in the last couple of years with variable rate debt, and they only put a 2-year cap on it because that's what was cheapest. They're underwater now and not getting enough rent growth to stay afloat. So they're going to need to buy another cap, or they're going to need to exit or recapitalize, or in some cases, people are going to give things to banks, and so we're, kind of a poised to take advantage of those opportunities and, find good deals for our investors.

So that's 1 area on the value add front. The 2nd area that we like is on the land front. We're seeing some exciting opportunities to not just buy land at a significant discount to where it was even six months ago but really on much better terms. So you can option land through some approval or light entitlement process.

Do your design drawings, do your construction drawings, get your GMP, and then have the option to take down the land; we like that strategy in this kind of market because, in the places that we buy and build, you have this vast supply demand in balance. Today it will even be more the case in 18 or 24 months because nothing new is getting built because of financing costs.

So we're working to create what we call our golden pipeline. We can then go vertical on shovel-ready deals in supply constraint markets and 18 months, 24 months, et cetera, with maximum optionality. So we're excited about that, and our team is aggressively out, underwriting those deals, and you got to kiss a lot of frogs because it's a challenging time, but we're excited about that strategy. 

Chris Powers: I love it. And I should have asked this earlier, but you just mentioned J.V. Then you mentioned discretionary capital; how do you all capitalize deals, or how do you think about which deals go where?

Sean Burton: We've had a series of discretionary commingled funds. We have an active one right now with dry powder and then, but we've always had a good deal flow, more opportunities, and discretionary capital. So we've,  have a lot of J.V. relationships and platform separate account types relationships.

It is what is available, and there are also several times when our fund will sit in the G.P. position, and we'll bring in a joint venture partner and then basically give the fund the promotion. So, the fund investors benefit, and we always have to ensure that those who've entrusted us with their capital or get exclusivity for that fund get maximum benefit. But that's yeah, so we like having that optionality and structure, and we do deals directly in the fund where we'll do 100% of the deal. And then, if it's a portfolio or a bigger deal, we may get co-invest from our existing investors or bring in third-party J.V. investors and sit in the G.P. position. But it's great to have that kind of flexibility and optionality because that way, we can focus on what's the best real estate and execution. And then we have different capital solutions for that.

Chris Powers: Mostly institutional or family office or all the above?

Sean Burton: The vast majority of our capital is institutional, giant kind of very large, U. S. public pension systems, insurance companies, a little bit of international capital from Europe. And then, we recently opened a family office leave and started taking family office investments, which has been successful.

That's a great group to work with because they move very quickly. They're very entrepreneurial. They need to have some of the denominator effect issues you've seen with big institutions. And so that's been a success, and we also have some ultra-high-net-worth investors.

We know we've done some opportunity zone deals over the years, and that's been the vehicle for that. But we've been very fortunate to have a good diverse mix of good capital sources.

Chris Powers: I love it. I have one more question, mainly because you're based in L.A., you have an insight on this or none, but I read there was a bank the other day.

I believe it's out of L.A. I can't even pronounce it, they said we're not lending on multifamily anymore, but the real question was around the first Republic that I know filled a massive kind of lending requirement for multi-in general. Do you have any thoughts about what happened to the First Republic?

Did you all bank with them in Texas? We're secluded from it all. Do you have any thoughts on it?

Sean Burton: We, city view, had never gotten a real estate loan from the First Republic, but we knew them well. And some of the partners here have a relationship personally with that bank. Still, the more significant issue for us is concern about regional banks for what we do in multifamily.

Regional banks play a crucial role. We also work with the big money center banks, but the regional banks will be there through thick or thin. And one of our concerns was the failure of Silicon Valley Bank and Signature. And then the take of 1st Republic is the regulators cracking down on solid regional banks that don't have some of the issues that took down Silicon Valley bank, but that there would be an overreaction. They would crimp lending for housing when we needed the most. So that's something that we're focused on, we're part of the real estate roundtable in Washington, and it's something that we've talked to our representatives about making sure that you always want prudent loans to be made with plenty of capital reserves, et cetera, but not to overreact and punish regional banks or paint them all with the same brush for the sins of a few.

So that's what we're focused on, and we've been blessed to continue to get loans again; I mentioned earlier that we're starting construction next week on this project near Space X, and it was a big, two big regional banks, that came in and made that loan and, it's critical because I don't know if the money center banks would be there at this time.

So it's a critical part of the universe for what we do. 

Chris Powers: If you're listening to this support, your local and regional banks are critical to business and American business. All right, Sean, this was great. I appreciate your time today. Thanks for joining me. 

Sean Burton: All right, Chris. Thanks for having me.

Chris Powers: I hope you've enjoyed this episode of the Fort podcasts. Follow us on your favorite podcast platform or hop over to YouTube to watch full video episodes. If you prefer that, for more information, you can check out Fort pod.com.