In a market that has become crowded with value-add apartment investors that are following fix and flip strategies, GDL Asset Management is motivated by more than just profits.
“When I founded the company in 2009, my vision was to offer dignity in living for people who are the economic engine of this country,” says Genaro Díaz, president and CEO of GDL Asset Management and Greenwater Real Estate Management. Díaz firmly believes that those people have the right to the same “A Class” living as everyone else. The company’s strategy is to buy class D assets and elevate them to as close to a class A property as possible.
Over its 13-year history, GDL Asset Management is a general partner that has acquired more than 32 properties and 8,500 units in Texas, Arizona, Florida and New Mexico. “We purchase problems, and we fix them,” adds Díaz. The solutions that the company provides go beyond just repairs and renovation. The company is cleaning up crime and bad elements to create safe and secure properties for families with modern amenities, free activities and exceptional customer service. “It’s about creating a community for the people who live there,” he says.
Díaz left Mexico City in the late 1990s with a law degree, a family history in real estate and a desire to live a better life with more meaning. Many of the communities he has transformed have been predominantly Hispanic areas struggling with safety concerns. He has always believed in the power of impact investing, and he strives to empower people and to create happier societies where kids play outside, spend time with their families and feel connected to nature.
For investors, the firm follows a 1-2 years strategy to buy, reposition and then sell out of an asset. “We focus on the longer-term strategic big picture of maximizing values of each rental property and realizing the highest return on investment or ROI for investors,” says Veronica León, Senior Executive Administrator. However, it’s not just a one-and-done investment where the company makes improvements and then moves on to the next project, the philosophy is to create value for investors, residents and the community, she adds.
Heavy lift value-add
GDL typically targets maintenance-deferred assets that were built in the 1960s, ‘70s and ‘80s. “We look for what we call the ‘diamond in the rough’, which oftentimes is a property that hasn’t been touched since it was built,” says Joshua Stewart, district manager for Greenwater Real Estate Management, GDL’s full-service property management company that oversees remodeling, property management and leasing.
Oftentimes, the first step is cleaning up problem tenants, crime and creating a safe environment for residents. The company creates gated communities to control access, as well as improving lighting, adding security cameras and working with local police to increase patrols. Renovation work involves comprehensive repairs and improvements to both the exterior and interior, including landscaping with new trees, plants and flowers to create a park-like setting.
“Honestly, properties are in pretty bad shape when we get a hold of them, but there is so much potential that we see in them,” says León. Typically, the interior and exterior model is complete and there is a completely fresh tenant base in place one year after the firm acquires an asset.
Consistent with its focus on creating communities, adding or improving existing common area spaces is another priority. In many of its properties, GDL installs playgrounds that are on par with city parks with equipment, outdoor fitness areas and mini soccer fields for kids to play. If there is a pool in place, the company removes it and installs a new resort-style pool, usually with awnings and outdoor grills so people can swim in the pool and have barbecues with their families, notes Stewart.
The property management team also implements new services and programming that range from after school tutoring to soccer tournaments and movie nights. “We create a nice community where, at the end, people and families are interacting,” says Díaz. Creating relationships and rapport with tenants helps improve the tenant experience and enhances tenant retention and ROI for investors, currently at 30% at the limited partnership level.
GDL has a strong track record of delivering results for its investors. For example, the company acquired the 212-unit Huntington Park Apartments in Tucson in December 2020 for $17.2 million or $81,132 per unit. Management successfully implemented a repositioning program that materially improved the performance and value of the property.
Cap-ex improvements included interior and exterior renovations and repairs, the construction of carports, significant landscaping improvements and the addition of family-friendly recreation areas, such as a playground, mini soccer field and barbeque area. Additionally, GDL made significant improvements to security that included creating a fenced and gated access, improving exterior lighting and adding closed-circuit surveillance cameras. The project is under contract for sale with a pending price of $40.2 million, which represents a profit of $15.5 million and a total IRR of 67.4% for investors.
One of the keys to success for GDL has been taking a hands-on approach to the operation and management of its investment properties. While other investment groups typically hire a general contractor or third-party management team, GDL is able to leverage its own in-house team with Greenwater Real Estate Management. Greenwater creates added cost efficiencies, as well as making sure everything gets done as planned and nothing falls through the cracks, notes Stewart.
The success that GDL is having in repositioning problem properties also is getting noticed by the city and local authorities. The company often receives a warm welcome when it acquires another asset because they know the firm will put in the work and the capital needed to improve those problem properties, notes Díaz. “We are not only a solution for people, but we are a solution for the city and local government,” he says. GDL has many examples where the company purchased a property or portfolio of properties that had problems with crime and drug trafficking. “We fix those problems by creating a safe atmosphere where people and families can live with dignity and interact,” he adds.
For Díaz, the reward is not just a formula on paper that calls for investing per unit to deliver a certain IRR. The reward is when the work and investment result in that “magic” where people have a beautiful community where children are running and playing. “There are many places where people are not living in the right way, and we want to be the solution,” says Díaz.