Don’t Be in a Rush to Buy, Radow Advises

The RADCO Cos. and founder Norman Radow have experienced rapid growth by investing in and managing multifamily real estate assets — essentially, apartment complexes.

Radow, a Congregation Etz Chaim member and the CEO of the company he founded in 1994, answered a few questions about RADCO, the apartment market and what’s ahead.

Q: How was 2017 for RADCO, and how is 2018 looking?
A: Last year was a phenomenal year for the company. We won the Pacesetter Award from the Atlanta Business Chronicle for the fastest-growing company in Atlanta. We also were named the fastest-growing middle-market company in all of Georgia by the ACG (Association for Corporate Growth). At the same time, we were fast becoming one of the best multifamily platforms in the industry. In 2018 we expect to remain about the same size, with approximately 20,000 apartments in 10 states. Many of our 2013 and 2014 acquisitions are ripe for selling, and there is less to buy that makes sense today.

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Q: How do you keep up the rapid growth for RADCO, or is that even a goal?
A: It is not our goal. We grew the way we did because we recognized the renting nation phenomenon before most others. We bought as much as we could in 2012 to 2016 because we knew we could always go back and backfill our infrastructure. However, we could not go back in time and buy inexpensively. Today, our focus is on execution, which is far more important, given the higher values today. Quite frankly, our residents are the hardworking men and women of America who are the backbone of our country. They deserve the very best service for a value, and that is why our motto is “Building Better Living.” We do it better than almost anyone else because we care.

Q: Where is RADCO looking to expand geographically?
A: We intend to stay in the Southeast and central U.S. We look for pro-business, low-tax, right-to-work states with good weather. Don’t tell people in New Jersey, Connecticut or Illinois, but that is where the jobs and people are moving to.

Q: Where is new multifamily construction happening in the Atlanta area, and where is RADCO investing?
A: New construction is happening everywhere in Atlanta, and there’s too much of it. We really are a tale of two markets: the new double Class A market, and then there is everything else. We have a serious housing shortage, but the double Class A developers are building an infinite amount of units for a narrow demographic who can afford those rents. Plus, those tenants have the means to buy a home or condo as well. Our Class B apartments are finite in number. No one can afford to build them today, but the average worker can only afford to live in Class C-plus or B apartments. Our average rents are under $1,000, and we offer a great living experience for that value. The new stuff is twice that or more. We expect to see weakness in the double Class A space for another 18 months or so while the excess product is absorbed.

Q: From an investor’s perspective, what’s the outlook for the multifamily market in Atlanta in the next few years?
A: I am very optimistic. But again, it’s a tale of two markets.

Q: What are the risks of a bursting bubble? How do you protect against that?
A: We don’t. We never consider capital markets (interest rates or the amount of equity driving up values) when we buy. Anyone who has predicted either these past 10 years has been dead wrong, again and again. So we look to the fundamentals. Are the rents below market? If so, why? Can we add value through targeted investment in improving the property? Is the area improving? The capital markets will take care of themselves. We may sell a little ahead of where we projected to take advantage of the capital markets, but we don’t financially engineer our buying decisions.

Q: From a resident’s perspective, how do rising but still historically low interest rates and the new federal tax law affect the decision whether to rent or buy?
A: My joke is it’s like Congress was working for a real estate developer. Nearly everything about it is good for our business. Three things will steer a potential purchaser to renting. The first is the lower tax rates limit the tax benefit of owning. Second, the increased standard deduction mitigates any tax benefit except for the wealthy. And third, interest rates have risen a lot recently, which is having a major impact on the decision to buy or rent. We actually saw a noticeable increase in leasing activity this year.

Q: The American dream traditionally involves homeownership. Does it have to? Should rental housing be seen as more than a step to something else?
A: I laud anyone who treasures the notion of owning a home. But I think we artificially drove people into homeownership who really were not ready, financially or experience-wise. Owning a home is a big responsibility. And the true costs are much higher than just a mortgage and taxes. I have seen some of my employees buy homes. Then the AC goes out, and the cost to replace it is $5,000. The roof leaks, and then the rains come, which could cause drainage issues in the basement. Cha-ching. Most people are not fully aware of these costs, let alone have the ability to shoulder them. Hence, homeownership should be considered very seriously before people act.