CEO Dan Byrnes is “extremely proud” of what his Seattle-based apartment management company, Security Properties Residential, has built over the past 15 years.

“It was very successful. We were able to greatly expand our company's footprint, and our business as a whole over the past 15 or so years that Security Properties Residential was our in-house property management arm,” Byrnes told Multifamily Dive. 

But the apartment business is changing, and the operations business no longer matched where he saw Security Properties investment activity. So, with a “heavy heart,” he transitioned half of the group’s properties and many of its site- and corporate-level employees to Bozzuto. The remaining assets will be evaluated through a competitive process as the firm seeks best-in-class operators to partner with. 

“Property management has become an increasingly scale-driven business,” Byrnes said. “The best national operators now bring infrastructure, technology and depth that's hard to replicate when your core business is investment. So rather than trying to be everything to everyone, we're focusing our resources on what we do best, which is acquisitions, affordable housing and investment management.”

Byrnes called the move “a deliberate, strategic decision” and not a reactive move. “Security Properties is financially strong right now,” he said. “We just finished a daylong planning session yesterday, and we are projecting to become even stronger over the next 24 months in terms of our liquidity position and asset health.”

Last year, the company made eight market-rate acquisitions totaling nearly $700 million, including the September purchase of 903 apartments across five properties from Washington Holdings for $400.8 million.

“We're making this move from a position of strength,” Byrnes said. “It's really a question of how we want to dedicate our resources to grow into the next iteration of our company.”

Here, Byrnes talks with Multifamily Dive about how the firm is splitting its portfolio, its geographic targets and the types of properties it's chasing.

This interview has been edited for brevity and clarity.

MULTIFAMILY DIVE: How did you decide to split your portfolio up among property managers?

DAN BYRNES: Bozzuto is a bespoke property management firm that really focuses on higher-end, larger-scale multifamily. While that’s half our units, it's the more expensive half of our units. Nobody is really one-size-fits-all or you're making sacrifices. 

So what was important to us, as stewards for our investors’ capital and our equity partners' capital, was to really match the asset to the manager. Bozzuto and I agreed on what made sense for them to manage. We feel very fortunate that they'll be our manager on those assets. They're going to do a great job. 

But for other assets with other business plans and other strategies, we will RFP for which group we think is best for those assets. We're going through that RFP process right now. We have a really good team running that, and we should have those groups picked within the next couple of weeks.

As you expand, will you continue to focus on your core markets on the West Coast?

The Pacific Northwest and the West Coast will continue to be our bread and butter. That's our hometown. We've been here forever, and we want to retain the expertise and status that we have here. 

How will not having property management help you expand your investment business?

One advantage to not having in-house property management is that we don't need to build our portfolio around efficiencies within the operating class. Our expansion targets, to the extent they exist, will follow where the deals are, where we find good risk-adjusted return and where our investors and partners are interested in deploying their capital. So this gives us a level of flexibility that we didn't really have before, and that's very exciting to us. 

Where are you looking to build up your portfolio over the next couple of years?

Over the past couple of days, we've been spending a lot of time chopping up the data in different markets to really hone in on what our investment thesis is for the next 12 to 24 months, and where we think we should steer capital to make superior returns. And that's very exciting to us. 

We're obviously very busy in the Pacific Northwest, but also in Denver, Austin, Nashville and Northern California. We operate in a lot of markets. On the market-rate side, we're looking at potential expansion markets such as Boise. Then, on the affordable side, we operate nationally. We don't build affordable, but we buy existing affordable through Low-Income Housing Tax Credit syndications and existing yield deals. 

We’ve always operated on a pretty national platform from that perspective, because there are fewer deals, they're smaller deals and they're more scattered. So we have to have a bigger footprint on that side, but we're active on that side as well. We're under contract on a couple of deals in the affordable space, and we love participating in that space. It's the best way to create and preserve affordable housing, in our opinion.

Where do you see the best buying opportunities right now?

We’re still finding the opportunity to buy below replacement costs. It's a good time to buy basis and it has been for the last several years. There's not a lot of supply coming on the market, and we've been able to find good value in buying relatively newly constructed product, as we have for the last five to 10 years. We’ve always liked the risk-return profile of relatively newly built product.

Where have you been able to find those newly built properties recently?

The Washington Holdings portfolio has a lot of newly constructed product that we found, and we were able to get them at a nice discount to replacement costs. We've done similar transactions in Portland, buying relatively new construction. At the end of last year, we also rebought a deal in northern Denver for about the same basis that we bought the same deal for in 2017. 

We have a really good, smart, hard-working acquisition team and, I think, a best-in-class asset management team as well. We can buy the newest, nicest podium deal in Seattle, which is the Liza Eastlake deal we bought last summer from Washington Holdings. And then we can also buy ‘70s product in northern Denver with a life company. And both of those are exciting opportunities. We have the capital relations to play in a big space.

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