LUR Anna | Underwriting And Due Diligence


Layering projections or making assumptions is what underwriters rely on, and the use of data science is always critical in that process. In this episode, Anna Myers, the Vice President of Grocapitus, joins Lisa Hylton to talk about underwriting, asset management, and due diligence. By using data to understand what makes sense, Anna dives into what underwriters do and what you should look into before investing in deals. Get to know Grocapitus and have a glimpse into how Anna and her team analyze the market, as well as learn the specific numbers needed that can make or break your deal.

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A Deep Dive Into Underwriting And Due Diligence With Anna Myers

I am super excited to bring another amazing guest to the episode. Her name is Anna Myers. Anna serves as the Vice President at Grocapitus, a commercial real estate investment company in the San Francisco Bay Area. Anna is a third-generation commercial real estate entrepreneur who applies her 25 years of experience in technology and business to finding, analyzing, acquiring, and asset managing commercial properties in key markets across the United States together with her business partner, Neal Bawa. They approach real estate through a data science lens to create compelling profits for thousands of investors. Thank you so much, Anna, for coming on the show.

Thank you, Lisa. It’s great to be here with you.

I appreciate it. I enjoy Multifamily University, which I didn’t mention in the bio but I will ask a question on that so the readers can learn about what that is.

I’m glad you have been there and you know what it is.

I’ve been a student and a recipient, a lot of your information and webinars. They’ve been good and I’ve learned a ton. I am looking forward to my guests also learning a lot from this episode with you. To get things started before I read your bio, I didn’t realize that you were a third-generation real estate entrepreneur. I would like for you to start about how you got started in real estate.

It’s a little bit of a journey. I’ll try and hit the high spots though. My grandfather was a commercial real estate developer in Southern California. He started in real estate. He was a real estate agent or something in Tampa. He saw the hot market in California. He sold the swamp plan he had in Tampa and moved to Southern California, and he started by flipping houses because he didn’t have anything, but he was an entrepreneurial and smart guy. He built a large portfolio and eventually was a developer of shopping malls and apartments. That’s the fabric of life that I grew up with. I’m the youngest of sixteen grandkids. My dad’s an architect and he was also a developer as well.

We had big commercial real estate, like a family office, all my cousins, everybody worked in it, but I didn’t because I was the baby. My grandfather died when I was pretty young, but his portfolio provided a lot of fundamental finances and put us all through college. I got to see firsthand what real estate can do for you. He was a self-made millionaire many times over when it meant something to be a millionaire. I didn’t go into real estate though because first, I’ve got this whole art science thing going on. I love art. I love science. They didn’t know what I was going to do when I was growing up, but I had a child very young.

I was a teenage parent and that pivoted me towards my science skills so that I could provide for my child. I became a programmer and use my math skills to make a good hourly wage and be able to provide for my child while I finished my undergraduate and then pursued my graduate degree. I did eighteen years in the tech industry and then that crashed in 2000. At that point, I’d gotten married. My husband was also in the tech industry. I opened a photography studio like what anyone would do. That’s that art side of me. As an entrepreneur in the photography studio, I realized how much I was paying in taxes. That’s when I dug back into my real estate background and said, use real estate to help control how much I was paying to the government.

In that process, I realized that I needed real estate for the next thing because I enjoyed it for one thing. It was much more scalable than photography, which I love, but I owned the job. Even though I had a successful studio, you can’t scale it in any effective way. The power of real estate is in the scalability of it. Thus, landing back in real estate, my family is all like, “Welcome back.” It all makes so much sense to them. Everybody owns properties and is a developer and architect. My brother’s an architect and my sister. It’s all in the family.

How did you meet your business partner and then the creation of Grocapitus and Multifamily University?

The power of real estate is in the scalability of it. Click To Tweet

I met Neal at a multifamily bootcamp that he was teaching. As I was pivoting out of my photography studio, I had a five-year plan and it was all about education and market sourcing. I was using my tech background because I was all about the best data to pick the best markets, and everything. It’s hard to find out there. When I met Neal and his data-driven strategies, the way he talks and thinks I was like, “This guy makes so much sense to me.” I took his bootcamp. He requested that bootcamp for people to volunteer, to write a deal analyzer, which is an Excel model. I virtually raised my hands. It was an eBootcamp. I’m a programmer for many decades. I’m like, “An Excel model, are you kidding? I got this.” There were a bunch of people that volunteered. In my one-on-one call with Neal that you got with the bootcamp, I said, “I want you to understand my background. I led huge teams worldwide on big programming projects.” He said, “You’re my team lead.” I was like, “Okay.” It was a volunteer gig. I was the volunteer team lead of this group and started organizing the group and doing what we do.

After a couple of weeks of interacting with him and giving him an update and he emailed me back one day and he said, “I want you to know, I don’t care if the deal analyzer ever gets made. I want to work with you.” What I didn’t know is that he was leaving his previous partnership. It was something that they couldn’t make public amicably, by the way. He and his previous partner are on good terms. They’ve got a portfolio still together, but he wasn’t going to take any of the existing stuff with him. He couldn’t say anything to anybody. He was fishing for underwriters.

He was trying me out as an underwriter and also saw that I have a lot of other skills in the process. I came in as an underwriter, all-volunteer. I worked volunteer for nine months, but he’s a brilliant guy. I learned so much. I still don’t work salary. I’m a partner. I make percentages of deals. In the process of doing this and doing that, he saw that I have a broad skillset and now I am the Vice President of the company. Both companies were founded by him. I was one of the first employees on Grocapitus and then, for MultifamilyU I also teach in the bootcamps and host a lot of the webinars. They’re heavily linked businesses they’re two individual businesses, but they’re complimentary.

To be clear, Grocapitus is specifically the investment arm? 

Grocapitus is a syndication company. We’re based out of the San Francisco Bay Area. We all work virtually by the way. We don’t have an exact office. We all work from home wherever in the world that might be. Together we purchased large apartment buildings and other specific assets in key markets around the US and we use our data-driven strategies to do that and also to manage it. I’m also the Asset Manager. We have twelve projects, six are value add apartment buildings, five are new construction multifamily, and then one is a self-storage. That’s a lot to manage as well, which we also use data again to asset manage our portfolio.

Can you talk a little bit about what Multifamily University is?

Multifamily University is for active investors, as opposed to passive investors who want to learn how to acquire, manage, find brokers, and property managers. All of the things we do in our syndication life, we teach in our bootcamps. We offer bootcamps four times a year, once a quarter, often live, although we’re going back to the eBootcamp for short while because of happenings in the world that people aren’t traveling. We all have a lot of free content. I host webinars at different people come in and then also Neal and I, individually do webinars to talk about stuff. Neal has an amazing webinar. He does on real estate trends. It’s well-received every year.

He has developed a new series that we’re going to be going out with on Coronavirus and its impacts on real estate. We super deep dive into that. I’m not sure when this is going to be put out there and aired, but this is a unique time that we’re living in. There’s a lot going on and we are diving deep into it to understand and help our followers understand what is the impact of Corona on real estate because Corona changes everything in a multitude of ways. That is a big education push for us. We love learning as we are diving in to teach other people, we learn ourselves.

Staying on the Corona, what would you say are the two key ways in which you think that Corona impacts real estate?

You have to be a little bit more specific. You have to get into the different classes of real estate. For example, Corona or COVID-19 has decimated the hotel industry, which is a commercial industry. Retail such as shopping malls decimated. Those industries are going to take a long time to recover. However, if we look at multifamily, people have to live somewhere. They have to shelter in place. There are certain risks that we’re probably going to be looking at high delinquency. If you don’t have a job, you can’t pay your rent, but we have to navigate ways to help our residents and get through that period. Multifamily is going to rebound right away. People aren’t going to leave apartment buildings, leave their houses to live, where? You have to shelter someplace. We are in the business of what is an essential need, food, and shelter was on the sheltered side and even self-storage. It’s a shelter it’s like a place for your stuff to live and did well during the recession. We’ve been getting into some self-storage as well. The other part of real estate that affecting all real estate is the interest rates have significantly dropped. They’re going to stay low for a long time.

That is going to be an opportunity for real estate investors to refinance, pull money out of different assets, or when you’re using other people’s money to buy, like what we do along with our investors will certainly be able to lock in some fantastic rates going forward. That’s a huge opportunity, but you do need to be wary about which class you’re investing in, whether you’re investing as a passive investor or an active investor. I would stay away from Airbnbs and who knew? The world’s crazy when it turns. It turns quickly, but certain segments and sectors, if you go for what’s essential for people, human beings have to have certain things you don’t go for needs-based. You go for essentials that are a better projected that in the long run.

LUR Anna | Underwriting And Due Diligence

Underwriting And Due Diligence: People aren’t going to leave apartment buildings or their houses to live. You have to have shelter someplace.


That point right there was important. When you go for what is essential, obviously it will still be around because it’s still needed. People need a place to live.

You can’t outsource a place to live. There always has to be that thing. You can’t virtualize it.

I know that you also are heavily into underwriting and asset management. I would love to dive into both of those aspects with you in terms of sharing with my audience what they are to get an idea of, what it is? Approaching it as a passive investor, what they should know as they think about investing in projects? To start with underwriting, can you give a high level of what it is? What does it mean?

When we say underwriting, people that aren’t used to the multifamily industry, all they can think of is like, “My bank does that when I go for a loan.” Yes, they do. When we are analyzing deals to acquire multifamily or commercial assets, we use Excel models to analyze deals. We are looking at the historical financials of the property and then we’re adding so all that information goes into the spreadsheet. How has the property been doing? They’ve got to provide that to you typically for the last twelve months, they’ll give you the profit and loss statement. If you’re analyzing multifamily, you would also have the rent roll to analyze, to be looking at projected rents. That information all goes into the model.

From there, you’re layering your projections or your assumptions. It can’t be avoided because there’s no magic wand that you can wave to say, “Tell me what’s going to happen in the future.” Underwriters always have to be making assumptions to say, “Here’s what the property is doing now. Here’s what I’m going to do to the property. I want to raise the rents because I’m going to renovate the units and I’m going to raise the rents to this.” How much can the market there? That’s all based on research that the underwriter’s doing to say, “If I put in the granite counters, I could make $200 rent bump on these because across town or across the street, they’re getting that.” Those are the types of projections that you based on research. There are lots of different assumptions. How much is the rent growth going to do? Are you thinking it’s going to grow per year? That’s a guess. We use data science to try and do it, but that is an underwriter making a projection about what rent is going to grow in a market. What are the expenses or how are those going to grow? What’s going to happen with your expenses?

The big one for underwriting is what’s called an Exit Cap Rate. The capital realization rate that when you’re going to sell the building in the future, what is going to be the accepted price in the market for that asset? Whether it’s a class, A, B, or C, there’s a certain selling price that the market is willing to pay that’s represented by the cap rate of the market. How you apply a cap rate to a commercial asset is you look at the business of the building, which is the net operating income. That’s what your business is. It’s your income minus your expenses are your net operating income. Whatever your NOI is divided by the market cap rate.

That’s how we’re able to look in the future of a building when we’re underwriting and saying, “If I run my business like this, five years from now, I’m projecting that my NOI, my net operating will be this amount of number and what do I think the exit cap rates going to be?” It’s a projection, we do that division and we say, “If you invest in us, we think that in five years, we will make this much money for you.” It comes down to NOI and cap rate. Saying that people can play all funny business with that exit cap rate. You can make any building look tremendously good by using bad assumptions or overly aggressive assumptions cap rates that are too low that will inflate the building or rent growth that’s not reasonable.

A lot of active investors also invest passively in deals. When you’re looking to invest in deals, you should look at what are the assumptions that the underwriter’s making and are they reasonable? You start by looking at their rent comps and say, “Do I agree with these rent comps, or is this rent comp for this granite counter that’s $200? Is it way across town and not anywhere close to this neighborhood?” You also have to think, “Is it reasonable to put granite counters in this asset?” Is this something that I would think would be a good idea? Are the tenants going to pay for it? Is that over renovating this property and this tenant base is not going to pay the $200 rent bump?” You have to understand the assumptions and look at it like a rational human being that needs to place to live. That’s how you have to look at it. Even if you’re not a math person, you can use good common sense, and you can also study data to see what makes sense.

To add to that, some of the things, like if someone is looking generally when a sponsor has come with a deal inside the package, they will show some of the comparable properties that they compare their deal to. With that, that’s how someone could then look up those apartments.

That is correct. They typically would have a map that shows you like, “Here are the comps we use, and here’s why we use them.” They should always be able to tell you once in a while you might use one that’s way across town. For example, in the research triangle, we’re building townhomes in Durham. They’re modern townhomes that have coworking spaces and there’s an amenity room that’s like yoga and all this stuff. The immediate townhomes around it are traditional in nature. We did use them as traditional comps, but for our modern comps, when we were looking at the modern ones, we had to go pretty far from where this land is to find them. When we were projecting our rents we said, “Here’s what we think we’re going to get somewhere between these two.” That the modern that’s a little further away and the traditional, but not the rents, the sales price, because we were building to sell in the space. We went with traditional square footage.

If you're too conservative, you're never going to make anything work. Click To Tweet

We undercut ourselves on that and said, “Here’s what we’re paying for traditional townhomes. Our thing is a different thing than a traditional townhome. We think that based on how they’re flying off the shelf in Downtown Durham and Downtown Raleigh, that churns similar stuff, we think we’re going to do good, but we’re going to price it at the same square foot as the traditional.” That’s how an underwriter would be conservative with their projections saying, “I understand what I could do, but here’s what I’m going to do because I’m not going to go wild on this. I’d rather be conservative.” That makes it hard to underwrite. That being said, things are changing. In the next couple of months, the real estate market’s changing, as we know. If it was a few weeks ago, I would tell you, and anybody would tell you, deals are hard to find if you’re overly conservative, you’ll never get any deals. There’s this fine line between if you’re too conservative, you’re never going to make anything work.

Keeping with underwriting, as someone thinks about what the assumptions are and whether they’re reasonable, but are there any other rules of thumb there that investors should look out for from an underwriting perspective?

What’s important for us is the location of the asset. When people are bringing deals to us and they want us to partner with them and they come, they say, “I’ll send you my underwriting. It’s a fantastic deal. It’s going to make so much. It’s going to be at such and such percentage.” I say, “Don’t even send me your underwriting. All I need is the address. Just send me the address.” From that address, I’m going to be able to analyze the market. I’m going to be able to analyze the micro-neighborhood. We again are all about data. We’re looking at the market, jobs, population, and specific numbers though. It’s not like everybody’s looking at jobs and population.

We’re looking at specific metrics that Neal tests. He’s known as the mad scientist of multifamily because he’s always experimenting and optimizing. He’s come up with these specific sweet spots that he calls them the Goldilocks zones. In a market, what we’re looking for is growing populations. A population growth that’s 20% or greater between 2000 and 2016. We’re looking for median household income that’s a 30% growth between 2000 and 2016. Median house value or condo value that’s increased 40% between that timeframe.

The other thing we look at a market is crime going downward, not higher than 500 and trending downwards, that’s important for us and then jobs. We are looking at 2% above the annualized job growth. Whatever the current annualized job growth is for the US, we ideally would like it to be 2%. This is like our wonderful as if we can get all five of those were in Nirvana, but sometimes the market’s not going to meet all of those. You’re trying to get the majority of them, but then what’s important in the micro-neighborhood, that’s when we drill down to what we’re looking for. The big thing that I’m always focused on the first thing I look at is median household income.

If the median household income is below $40,000, I have no interest in that asset. Especially if the median household income is below and the unemployment rate is 2% higher than the city’s unemployment, that’s a super bad combination. High unemployment, low median household income, what that will result in from his experience, and his previous portfolio has been through some mistakes. That’s how he’s learned these things and created these rules. That’s what you’re going to end up with high delinquency. People can’t afford to pay you their rent twelve months out of the year.

Median household income and unemployment those things together, I don’t need to see anything else. If those two are off, I’m like, “I’m not interested.” People say, “The rent growth level.” Delinquency is a huge killer of a deal. There’s the projected rent you’re going to make, but if people are living in your units and not paying you rent, what’s it worth? Understanding not only the delinquency for the micro-neighborhood, but you can ask. If you don’t know how to do this, there are free classes that we teach on our website on how to find the best market in the neighborhood, in which passive investors should be doing this type of thing too.

What I was saying is that you should know how to do this, analyze it, and be able to apply it to all of the deals that you’re investing.  There are other metrics as well. There’s five for the micro-neighborhood and five for the market. They all use free tools when we’re teaching it on The whole technique, all use is free tools and it’s a free class. What do you get to lose? People tell Neal, like, “Neal, you give away far too much information.” He’s like, “That’s my mindset. The more I give the more the universe will get back to me.”

It was funny because when you were saying all the different items, I was like, “I wonder what your deal-breaker is?” It sounds like the deal breaker is, as you said, median household income, poverty, and unemployment.

Poverty and unemployment, they usually work together in a neighborhood. Median household income, and then what do we look for when we do like it? The specific things we like are median household income between $40,000 and $90,000 depending on the class and asset. If I’m going for a class B asset, I don’t want $40,000 in median household income. I need a higher median household income. If it’s class C, then $42,000 something like that. We talked about the unemployment rate and then the contract rent. We don’t want the contract, the median contract rent. If you average across the studios, 1 or 2 bedrooms, the average across that shouldn’t be less than $700. If you’re catering to people and the median, the average across the rents is $400, $500, you’re going to have tenants that have a lot of turns. You’re going to get a lot of churns. You’re going to fall back into that delinquency trap, where you need people that have jobs that they can afford to pay $700, $800 a month. They care if their credit gets dinged. Sometimes when people aren’t making much money and they have such low rent, they fall into a group where it doesn’t matter to them.

LUR Anna | Underwriting And Due Diligence

Underwriting And Due Diligence: When you’re looking to invest in deals, you should look at the assumptions that the underwriters are making.


I don’t know if they’re young or whatever, they don’t care about their credit scores. You tend to have more problems. That’s a sweet spot. It’s about $700 to $1,200. We’d say, “Why not $1,500? That’s a great rent too.” Remember, we’re talking about an average across all the rents. Once you get above too high, depending on the Metro you’re in. If you’re in an expensive market like California, and then yes, you’re going to have more expensive rents. In general, if you’re in a normal market, the high rents, you’re not going to be able to make much money off of the asset because the assets are going to be expensive that you’re typically not going to make that much. That’s where that sweet spot is, where you’re able to push rents. You’re able to renovate turn. That’s a value add sweet spot.

Before we move on from there, can you also share about from a value-add when you say value-add, what do you mean by that?

A value-add purchase is when you buy a building that needs work and you’re able to add that work to it and bring the value up versus buying what’s known as turnkey where everything’s already been done for you. In multifamily, when we’re buying value-add, it doesn’t mean that the buildings in distress, like it looks terrible. It might look decent on the outside. It might need a couple of roofs, so there’s could be an exterior value-add where you’re adding that type of thing. Maybe you need to gussy it up a little bit, but the true value-add is pushing rents. Maybe it’s a dated building. It could even only be dated fifteen years. The interiors haven’t been renovated. It’s fallen out of context with the other apartments around it.

Everything else looks better than it. The other buildings around are able to command greater rents because it’s outdated. It’s old looking, it’s dowdy. By going in there and doing cosmetic improvements, which can run anywhere from say $6,500 to $11,000, depending on granite and all that type of stuff. You’re able to push the rents anywhere from $150 to $250. That’s what you’re looking for. You’re looking for buildings that are under market rent because maybe the landlord likes to keep the building at 100% occupancy and he didn’t like to be bothered by anybody so he didn’t fix that much or do that much. He thought, “It’s 100% occupied. That’s what I want.”

In our world, if it’s a 100% occupied, your rents are too low, so you need to push your rents up. Although, we do have some assets that are pretty much all the time run 100% just because there’s such a shortage of housing in those markets. You still are able to push rents well. To add to that, I want to bring it back to what I was saying before. When you’re pushing rents, what you’re doing is you’re increasing your income of the building. Ideally, at the same time, you’re also decreasing your expenses as a good business person, because when you own multifamily, you’re running a business. What happens when you increase your income and you manage your expenses, is you’re growing your net operating income? That bottom line that NOI is becoming a bigger and bigger number each year and then we divide that by the cap rate. That’s how we create value. We’re pushing the value of the building by running and managing it like a business and increasing the bottom line, which is your net operating income.

You also play in value-add and development projects, I’d like for you to talk a little bit about the underwriting of a development project and I know it has to be different from a value add one.

For new construction, it’s all comes down to time and money. How much does it cost to build? What are all the components that are needed to build? That has to be validated. When we do new construction, we require a market feasibility study that’s done. That’s part of your professional assessment. That’s done to even see if it makes sense to build whatever you were claiming you want it to build there. Often builders will be like, “I was thinking I was going to build off this, but based on the market study, I’m going to build off that.” You do find things out. That’s usually early on in the process.

There are risks for new development related to zoning, entitlement, and permits. There’s time that’s built into all of that stuff and different cities, counties, and states of course have different timeframes and how friendly they are to developers and how smoothly that’s all going to go. The riskiest part is getting into a new development project that’s before it’s zoned, entitled and permitted because you could have significant time legs. Looking at that timeframe and then the cost of labor and materials. You can usually get that down and get three different opinions of what the cost is going to be. The cost could change, but they’re doing their best. These are professionals you’re working at this point. It’s good.

We’ve got the market feasibility study, which is a professional assessment of the exit cap rate and rents. You pay thousands and thousands of dollars for this and they’re using the best information possible. From that standpoint, it’s easier to underwrite when you have a professional study because you’re taking all of the information that they gave you and you’re plugging it in because you’re not second-guessing them. You’re not saying, “I don’t think they were right here.” You paid $10,000 for this study. They’re an expert. They’re a certified person in this, and they’re using all these extreme sources. That part is easier. You’re plugging in the data of the build.

The first couple of years for new construction, there’s no income. Typically it can be a different type of investor that is willing to accept that. No income for the first two years, and then you have a lease-up process. In a value-add, you tend to be leasing 5, 6, people move out, people move in. You’ve got a project where you have to go from 0 to 90 or 95 quickly. You need to be good at leasing up, which fortunately is something that we’re good at. We have a virtual army that we have on our side and we’re skilled at leasing and doing that pre-leasing, whether it’s a pre-leasing of a new construction or ongoing leasing and marketing to tenants for value-add.

Delinquency is a huge killer of a deal. Click To Tweet

Have there been times when you are managing a project where you’ve underwritten a project and the costs have been different from what you underwrote and how did you handle that process?

I would say that has happened and not only to me, but a lot of us underwriters for value-add related to the cost of renovations. In general, when we were all underwriting the cost of renovations, I’d say around the end of 2018 early 2019, the general rule of thumb that we were all using was $45,000 to $6,500, maybe $7,500. It was fancy. Those numbers didn’t end up being accurate, even though they were widely used numbers. The cost of material and the cost of labor in all markets continued to go up. The reality was, instead of we were saying $5,500, and it would end up being more like $7,800 to do what we thought would take $5,500.

We needed to pivot and say, “What are we going to do? Are we going to continue doing it at $7,800 and take more money out of a different bucket of the capital expenditures, the CapEx budget? Maybe not do something we thought, not do a dog park and put more of that money into the interior renovations? Instead of doing premium units, we’ll do moderate units so that we can bring the costs down to $4,500.” That’s where it gets into a lot of our experimentation too. You do a certain type of renovation and then you test the market to see what they’re willing to pay. We’re tracking all of that and elaborate trackers from the asset management side.

Our property managers putting in, they’ve got the budget that they’re going to be using to build. They have to stay on budget and stay on time, which is another big thing of asset management is keeping your property manager on time, so they’re not taking too long to turn units. Once you follow a few of those and you say, “Look at this, this is interesting.” We’re able to get a rent bump of $150 by only spending $3,500. When we were going to be spending $6,800 or $7,800, we were only going to be able to get, $195. You’re going to be able to analyze your numbers. Data is king, not only when you’re acquiring, but especially when you’re managing. We say, “You can’t manage what you can’t measure.” We’re always measuring because we need data to be able to make decisions. We have several different trackers. We’ve got weekly and monthly trackers that our property managers go in that the partners then use to make key decisions.

This perfectly segues into asset management here, which is also a key area. Having spoken to a lot of people here on my show who are playing in the space. I know a lot of them have said to me that as the market continues to turn, grow, or move in a different way, etc. They talk about how it’s important that asset management is going to come much into the focus in terms of what is going to be important. What are your thoughts about that and how do you manage asset management on your side? What does it mean to asset manage?

First of all, we are all about it. What it is, we’ve talked a lot about underwriting and we talked about when you’re underwriting, you’re creating a business plan for your business. You’re saying, “I’m going to buy it. Here’s how it’s going to do. Here’s the way I’m going to run it.” That’s your underwriting. When you’re asset managing, you’re taking that business plan and implementing it. Your property manager is your partner and asset manager is not a property manager. We have our property managers that manage the building on a day-to-day basis. We were buying larger buildings. Included in the budget is full-time staff. You have a full-time leasing agent, you have a full-time local property manager. You’ve got repairs and maintenance. They’re all part of your property.

As asset managers, we manage the property managers. We make sure that they do the job that they’re supposed to do, which is to implement our business plan. How do we know if they’re implementing our business plan? They said, “I’ll send you a report once a month.” For us, it’s not good enough. We have specific trackers that we use. This tracker to us is an Excel spreadsheet. We use Google Sheets quite a lot because we share data across the partners that are on the project. We have specific weekly trackers that the property managers have to fill in.

For example, one which is our Monday Morning Report, that’s the general industry term for it on the MMR. That one gives you occupancy information, vacancy, related to economic vacancy, evictions, who’s going to be moving out? Traffic leasing and current collections. How much should they collect? Say it’s the 10th of the month and how much rent was due to come in? How much of that rent have they collected by the 10th of the month? These are important things that you need to drive your property manager on. The MMR is a slice in time that shows at that moment in time, here was the state of the building.

We’ve got the CapEx tracker where they are tracking the interior and exterior renovations. They’ve created a budget that they agreed to that said, “It’s going to take this much to do a premium renovation. This is the cost of each of the items and this is how long is it going to take.” We say, “How long is it going to take you?” They say, “We can do it in fifteen days.” We say, “Can you do it in twelve?” They go, “Okay, we’re going to do it for twelve days.” You always got to push, time is money. On the tracker, we’re tracking when did the person move out, the lease that became available? When did the renovation start? When did the renovation end? When did the new lease get started?

From person moving out to newly starting, that’s your no money time. If your people are saying, “We’re going to take twelve days.” Say they’re only taking twelve days to renovate, good for them, but they didn’t get into the unit to renovate until seven days after the person came in. They took another three weeks to lease it out. The interrelationship between all of those timeframes has to be analyzed and to figure out, where they’re not doing well? Where they need improvement? They need to improve on which area?

LUR Anna | Underwriting And Due Diligence

Underwriting And Due Diligence: There are a lot of different measures that need to be put in place and things that have to be adapted in times of crisis.


It’s not common to have a property manager that’s running on all cylinders at all times, but by data, we can look at it and they might be surprised too, like, “I didn’t realize that we’re not getting in those units in time. We need to do a better job on that.” We don’t use it as a whipping post. It’s a communication tool, but we are holding them accountable. By the way, we’re using other people’s money and we are the shepherds of those people’s money to make sure that to hold the property manager accountable. The property manager is the person that does can sink your property if you don’t have a good one. We will change property managers like nobody’s business if they’re not performing.

A couple of things here. How long do you take for the apartments to turn? Is it about twelve days that you mentioned as an example?

I would say it’s to anywhere from 10 to 15 days, depending on the level of the turn. Ten days might be a class C building that’s getting resurfaced for mica versus new granite. It’s a good upgrade for that class, but it’s not as extensive as ripping out the stuff. Sometimes we’re taking out partial walls to create openings. Those are the things that take the time that is going to push you to those longer times, especially when you’re opening up walls. Everybody likes that open space. Not every footprint can allow it. We have to look at that, but when it’s possible, it’s a great upgrade for a unit to open up space.

It sounds like you do use the third party. Do you use third party property managers? 

Yes, we do use third party property managers because our assets are spread out all over. We’re in California. We don’t buy in California. We buy in specific markets where it makes sense to buy. Mostly that’s in the Southeast. We also have properties in Utah, Arizona as well as Texas and Florida. We’ve got the Sunshine States, the Smile States going on.

In terms of best practices, it sounds like the Monday Morning Report is one of them and then having the CapEx trackers. 

I’ve got some more for you. Those are the two weekly reports that they deliver and we meet with them every week. On a monthly basis, they are returning the financials to you. For the previous month, they close out the books and return the financials, and then they have to do a budget versus actual report. In the budget versus actual, they have to describe why they’re off if they’re off. Even if they’re under or over, it doesn’t matter. What is the variance? Why is the variance? If it’s a good variance, then we want to do more of it, like, “What did we do here? This is some good news. Let’s do more of this.” Being all about the numbers, not just getting the financial report and saying, “Thank you,” but diving into it. The other thing is on our financial review, which we do every month. We have our CFO or controller, Loretta as part of that meeting. She has the superpower of being able to read financial docs like nobody’s business. She is an independent resource. Meaning that she doesn’t have a share in the project. She gets paid hourly.

That’s important to know because she is paid to protect our investor’s equity. She’s digging into the financials and pushes the property managers on all stuff to say, “I don’t like this trend that’s going on here. I need you to give me all the reports that substantiate all of these transactions. I want to know what’s going on here.” She sees so much stuff. We’re like, “I don’t even know how you saw that.” I’m not saying they were doing anything wrong, but once they have Loretta every month, she’s direct and polite, but she’s brilliant at what she does. She drills into it. No financial mischief is what her objective is. That also keeps our property managers on their toes.

We also do investor updates. Every month we’re sending out investor updates, they’re detailed. Not in like pictures and all that type of stuff. On a quarterly basis as asset managers, we are responsible to do a quarterly webinar that presents the financials to the budget versus actual to our investors live. It’s up to us to explain to them. It’s on us. The buck always stops with us. We are the ones that are accountable. We have to explain to them live, “Here’s where the property is. Here’s where we’re off, here where we’re on. These are the reasons.” We are accountable to our investors.

Have you always done those quarterly webinars live?

Grocapitus has only been around since mid-2018. Yes, we do quarterly. Once the property is six months in, sometimes we don’t do it on the first one because we’re still stabilizing. We don’t have enough data. It depends on the asset. Sometimes we do it right away. Once we get into the groove with an asset, then yes, we’re busy with our investor updates and our quarterly webinars. We like to be transparent. I also will tell you that times like this, we’ve already talked about COVID-19 going on, we send out a lot of more messaging to our investors. We’re clear with them about where we are, what steps we’re taking, what we’re doing at the property. That’s another level of asset management. How do you asset manage through a crisis? It’s not business as usual.

You always got to push, push, push. Time is money. Click To Tweet

For example, you have specific rules that the property manager has, every property manager is going to have about what are the rules about when is rent late? What do I do if people are late? At what date do I file an eviction? This is a whole new territory. First of all, we can’t file an eviction. It’s not legal. I’m not saying it should be, but it’s not. That’s a little challenging because people are going to know that they can’t be evicted. Even if they are getting money from the feds to help us through this time, they could choose not to use it to pay rent and to hold onto it instead. Where does that leave us? That’s a challenge.

We have to be proactive and figuring that out. We also want to be proactive in providing information about services to our residents because they might not know. We are doing the research to find out how people can benefit from the federal programs that are being created. The State and County Programs, how do they apply for unemployment? What are the resources that they can get? This is us being good community members and trying to look out for our residents and help them in a time of need. Also creating creative strategies around collecting rent that might work. We have to look at things differently. We have to be more lenient and work with it. Maybe they’ve got their source of employment doesn’t allow them to pay for everything once a month. They need to pay twice a month. Normally we’d be like, “That’s not acceptable,” but these are different times. We’d rather get paid in full over two times versus not getting anything. There are a lot of different measures that need to be put in place and things that have to be enacted in times of crisis.

This brings me to my last item, which was the economic outlook. Things have changed a lot and will continue to change. What’s your thoughts on the market cycle specifically, for the markets that you’re investing in those small states?

Everything’s changed. It’s going to be interesting to see. I know that when we invest in markets that have strong market fundamentals, those market fundamentals are going to help carry that market versus a market that has no good fundamentals at all. You start out without bad fundamentals and then you layer crisis on top of it. That market’s going to fall apart much faster than a market that’s facing the same crisis but had strong fundamentals of job growth and all these various things. The data is going to give you more forgiveness as the shit hits the fan. In terms of where are we going? We love that we’re in multifamily. It has proven its point that the asset class we’re in is we’re happy that we’re in it. We are sad for many people we know that are losing a lot of wealth and are struggling to get through. We have a lot of friends in the commercial hotel business. It’s hard days.

We talked about how essential multifamily is. Looking at investing in that way is going to help you as you navigate this. Being ready for the upcoming opportunities is something we’re also focusing on. Battening down the hatches with our asset management to get through this crisis will be uncomfortable a few months, which are likely going to happen with delinquency. Preparing for the feast that potentially could come of opportunities that the combination of low-interest rates and people that may not have been as asset managing or it’s for various reasons fell underneath and weren’t able to make it through. We might be able to get some bargains that way.

My last bit of questions on my Level Up questions that I ask all my guests. There are three of them. The first is what are you grateful for in your life?

I’m grateful that I work for a company that is investing in multifamily. Many people have been displaced out of their life. I’m in the Bay Area. We’re sheltering at home. For me, I don’t have that much difference in my life because I already work from home. I’m already working in a technology company that’s masquerading as a real estate company. We did not need to change any processes about anything we do because it’s just another day in the office. I’m grateful that we were already tech-forward enough that us and all of my team members. I have twenty team members that are in the Philippines. They’re also facing COVID-19 and we’re all able to work safely from our houses and not being impacted as many people are.

What would you attribute your constant growth and success to?

I’ve always been a little bit of a go-getter. A lot of it was being a young mom and feeling responsible for being responsible for a life from the time I was young has caused me to focus and get on it early and then continued to have kids. I have kids and grandkids. I’ve got a large family.

Lastly, what do you now know that you wish you knew at the beginning of your real estate journey?

That multifamily is the bomb and that you should not be afraid to scale. A lot of people are thinking they want to do it on their own and they want to be on a team. They’re afraid to use other people’s money. They’re afraid to play in the big field. I know I was, and I stayed doing single families for a long time. It was like my husband and I using our own money and it’s a slow way to grow your portfolio. I will say that the real magic of real estate is in commercial real estate. The formulas that we talked about, how properties are valued based on a business, not based in single-family, it’s based on what your neighbor sold their house for? In the commercial, that’s why I love it. You control your destiny with commercial real estate and then the scalability of it is off the hook. I wish I had known to go big much sooner.

LUR Anna | Underwriting And Due Diligence

Underwriting And Due Diligence: The real magic of real estate is in commercial real estate.


Thank you so much, Anna, for coming on. If my audience would like to learn more about you, where’s the best place they can go to? is where you’ll find me hosting lots of webinars and you’ll hear my voice quite a bit and teaching bootcamps. That website is one place to check us out and then is where you can find out about what projects we’ve got available and find out more about our portfolio.

Thank you for coming on. I learned a lot and I know my readers have learned a ton as well. I appreciate it.

Thank you, Lisa. It’s been great spending time with you and getting to know you.

Thank you so much, Anna, for coming on the show. I appreciate it. It’s such an awesome episode. Some of my insights from this episode with Anna, there are many good things. The first one was for me, at least knowing her story about how she met her business partner Neal. How essentially, she volunteered for nine months everything from working on the deal analyzer that she spoke about and ultimately then building that partnership. For people out there who are looking for partners, what an amazing story about one, she also went to his bootcamp. Getting out there, going to bootcamps, going to things like that, or networking online because of the situation, enables you to meet business partners that might evolve into things that were bigger than what you set out to do initially.

From there, we talked a little bit about the Coronavirus and she mentioned that hotels and shopping malls where the heaviest impacted asset classes. Noting that multifamily while is being impacted as well because of high delinquencies that can also come with people, losing their jobs is poised to rebound faster as it is an essential need. People do need places to live as opposed to shopping or travel is something that you can stop doing and then resume doing when you are in a different place. What I loved is her quote that she said, “You want to invest in what is essential.” It’s super important. This experience of what is going on highlights that.

When talking about underwriting, she mentioned that as someone, if you are passively investing or you’re looking at a deal that is coming to you, understanding what the assumptions are and then thinking about whether those assumptions are reasonable. Looking at what are the comparable properties that they are comparing. Does it make sense that these properties are good comparisons? Are they close? Are they nearby? What do they look like? In terms of what upgrades do they have? What kind of rent and what tenants they’re attracting?

The key thing that I thought was important here was when she spoke about when people bring deals to their group to potentially invest or partner with. She mentioned that the first thing she looks at is the location of where the asset is. She’ll ask them to provide, “Can you send through the address of the asset?” That alone can enable them to analyze the market as well as the micro-neighborhood. Looking at things such as job and population growth, household income, condo values and crime to understand whether they would even want to be in this particular location. The first thing that thought came to my mind was, “What is the deal-breaker?” She then went on to talk about, which was for her median household income.

The marriage of that and unemployment. If unemployment is greater than 2% of the unemployment of the city and the median household income is less than $40,000, it’s a no go. She noted that the reason is high delinquencies. That will kill the deal without a doubt. She also mentioned at an average rent, shouldn’t be less than $700. She noted that’s not median, but average. Looking at all the rents across all the different apartment styles, be 1, 2, or 3 bedrooms all of them. Summing them all together and then dividing it by the total amount of apartments that give you the average. That shouldn’t be less than $700. If it is, this also indicates that you’re going to have a lot of turns and then hence a lot of delinquencies. You could also be potentially dealing with tenants who don’t necessarily care about their credit.

These are things to think about as an active, as well as a passive investor of real estate. It’s super important. Some of the other insights that I took from our conversation was that “You can’t manage what you can’t measure.” She spoke about all the different ways in which they are managing their asset managers. Everything from the Monday Morning Reports and all the different metrics that they’re looking at on a weekly basis. CapEx trackers also on a weekly basis, budget to actual, and how they’re doing.

On a monthly basis, the financial reports coming and digging through them and hiring a controller that is going through and checking those numbers and digging into the numbers. Looking for trends and looking for things to see whether it makes sense. They are the stewards of investor’s money so they want to make sure that they are deploying it and taking care of it and doing the right things for it. It’s an amazing interview with lots of good nuggets. Those were some of my insights. I enjoyed talking with Anna. I learned a lot of good information. Until next time. Keep leveling up, take care. Bye.

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About Anna Myers

LUR Anna | Underwriting And Due DiligenceAnna serves as Vice President at Grocapitus, a commercial real estate investment company based in the San Francisco Bay Area. Anna is a third-generation commercial real estate entrepreneur who applies her 25+ years of experience in technology and business to finding, analyzing, acquiring and asset managing commercial properties in key markets across the U.S. Together with her business partner, Neal Bawa, they approach real estate through a data science lens to create compelling profits for 2,000+ investors.

As the lead underwriter for the company, Anna teaches deal analysis for MultifamilyU in quarterly Boot Camps. MultifamilyU is an apartment investing education company owned by the principal, Neal Bawa. Also via MultifamilyU, Anna hosts weekly webinar events featuring top speakers in real estate. As the asset manager for the Grocapitus portfolio, Anna brings a data-driven approach to track and insert optimizations to the properties to help drive property performance and investor returns. Anna regularly speaks on podcasts, webinars and at conferences covering topics including Asset Management, Deal Analysis, Real Estate Trends, Opportunity Zones, How to 1031 into a Multifamily Syndication, and much more.

Related to Syndication with Grocapitus, Anna and Neal have successfully completed equity raises of $50 million+ for Multifamily, Mixed-Use and Self-Storage Acquisitions in the last 18 months, resulting in over 2,000 units purchased. Grocapitus is on track to close another 1,500 in the next 12 months.

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