Unlocking Value in Phoenix's Multifamily Sector: A Discussion with WhiteHaven's Ben Leybovich

Andres Sandate, ATLalts: 00:00:02

Hello, everybody, and welcome to another edition of ATL Alts. This is your host, Andres Sendate, and I am joined today by Ben Labovich of Whitehaven.

They are a multifamily investment sponsor headquartered in Phoenix, Arizona. Ben and I are going to spend about the next hour talking about why Phoenix, Arizona, why multifamily? Of course, you know, talk about White Haven.

Why White Haven, and, and really dig in today on ATL Alts and talk about the opportunities and the unique macro backdrop of multifamily. So welcome to the ATL Alts podcast, Ben.

Ben Leybovich, WhiteHaven: 00:00:40

Thank you so much, Andre. Happy to be with you.

Andres Sandate, ATLalts: 00:00:42

Yeah, glad to have you here. I know we've been working on this recording for some months, and I.

I want to give a shout out to our mutual friend Mark Zuba from Pinnacle Capital Group in Long Beach, California, who I met with my partner from Gramercy Park wealth advisors at the FactRight conference back in the fall of last year. So that dates back to, I guess it was probably September.

And I approached Mark at the conference because I thought some of the offerings that they were representing, including Whitehaven, were quite interesting. There's obviously a lot of real estate in client portfolios.

When you talk about alternatives and you talk about where does an investor first start to get exposure after stocks and after bonds and cash, and a lot of investors, you know, that are in a position to invest in alternatives and private markets, often there's a real estate allocation. So I thought what you guys were doing was interesting.

And we're going to spend most of today allowing you to tell us about, again, multifamily, Phoenix, you know, the opportunity, etc. There's so much to cover, but I want to make sure our listeners understand a little bit about ATL Alts.

You know, I started the podcast, I'm a financial advisor with Gramercy Park Wealth Advisors.

And the whole point of our show is to educate, inform, and hopefully inspire investors to expand their investment allocations outside of stocks and bonds.

And we do that by inviting guests like Ben and Whitehaven onto the show to provide insights, analysis and perspective within their very specific area of expertise, in this case, real estate and multifamily. So I would encourage those listening to share this podcast with their friends. We're out on Apple Podcasts, Spotify.

We have a substack now where you can find us at atl. Of course, you can find us up on our website@atlalts.com but again, today's show is all about education.

It's all about helping you as an investor an advisor, maybe implementing ALTS into your practice to understand the opportunity that ALTS and private markets present. Today's conversation is going to be focused again on multifamily.

So I'm glad to finally get to starting to talk to Ben and interview him and ask him questions. As I said, we welcome Ben. He's in Phoenix, so let's jump right in.

Ben, you know, one of the things that ATL walts that we love to do is invite sponsors like yourselves onto the show and ask you to give some background and what you're doing at Whitehaven and why you're so excited about multifamily. So let's start at the top.

You know, an investment sponsor is usually comprised of a core group of partners that make up the GP that make up the general partner. So tell me a little bit about yourself and your background. How did you get to the forming Whitehaven?

Ben Leybovich, WhiteHaven: 00:03:41

So thank you again for having me. First of all, there are two partners, senior partners with myself and Sam Grooms. And it's very interesting. We're complete opposite.

Russia. I came to America in: 1989

I went through the entire process of citizenship, which is fantastic. I went to a conservatory at Cincinnati Conservatory, which was at the time one of the best conservatories in the country.

And then I decided to start making money because I realized being a violinist doesn't exactly pay right. So I started buying small houses and duplexes and 4 plexes and 10 plexes. Long story short, I relocated to Phoenix. I wanted to grow in this space.

ars of doing it, I started in: 2006

He's a classically trained CPA with SEC reporting background guy. Complete opposite. Right? So I grew up in the trenches knowing what it's like to get a call from a tenant, hey, my alternator broke down.

I can't pay rent because I got to get to work, So I got to replace my alternator. So I know those dynamics on the ground that you have to deal with when you run real estate.

What I didn't know is how the numbers are stacked on the page, and that's what Sam brings to the equation. So it's a complete opposite. We had to learn a lot from one another and kind of segregate our opportunities based on our skill sets.

Andres Sandate, ATLalts: 00:05:28

When did you Launch the. Let me ask you for. Yeah, I'll go ahead and jump in. When. When did you launch Whitehaven?

Ben Leybovich, WhiteHaven: 00:05:34

So we started as a JV.

Andres Sandate, ATLalts: 00:05:36

Okay.

Ben Leybovich, WhiteHaven: 00:05:37

n his company, my company, in: 2018

So, you know, I don't know if I, in my mind, segregate the first two or three acquisitions from everything Whitehaven has done, because it's. It's the same strategy.

Andres Sandate, ATLalts: 00:06:03

Yeah. I was going to say a lot of sponsors will get started, you know, in. In this fashion. Right.

If you go and look at the history of a lot of even publicly traded asset managers, if you could trace back the lineage and the founding story, a lot of times it starts with starting the firm with a few deals, right. A handful of LLCs. In the case of real estate, typically you buy an asset multifamily and you go out and raise capital from a handful of investors.

Typically they're all accredited investors and they contribute capital. You and your partner run the investment, if you will, and hopefully return capital. And then that gets you to deal two and deal three.

And at some point, it sounds like you guys elected to form this management company, if you will, and start to bring the whole business kind of together in a more formal manner. Is that fair?

Ben Leybovich, WhiteHaven: 00:06:59

It was almost like when we realized we needed to hire people to help us, but we needed an entity to hire them into.

Andres Sandate, ATLalts: 00:07:06

Yeah.

Ben Leybovich, WhiteHaven: 00:07:07

So Whitehaven serves as that. As that, like you said, asset manager slash invest platform for our investors.

But each acquisition goes into its own LLC, which is price, the number of its own separate LLCs for GP.

Andres Sandate, ATLalts: 00:07:24

Right.

Ben Leybovich, WhiteHaven: 00:07:24

All that stuff.

Andres Sandate, ATLalts: 00:07:25

Right. Let's talk about. Let's talk about Whitehaven at a. At a high level.

SA, let's call it, founded in: 2018

You form the business that's: 2018

You know, we're in the middle of spring training. You know, a lot of people out in Phoenix right now, you know, that are snowbirds, right? The beautiful weather.

the, the, probably the early: 2000

But, but again, that's my experience. I'd love to hear you talk about why Phoenix and, and why you guys are bullish on it.

Ben Leybovich, WhiteHaven: 00:08:41

So that's a lot of people's experience, actually, and it's also my experience. So I was investing in Ohio. I was living in Ohio with my family, investing, buying this small portfolio.

Some of it I still own in Ohio in a small town called Limo. Ohio, wonderful town, wonderful people. But it's the opposite of a growth market.

And the thing about real estate is you want to be in a growth market because rent growth happens in a growth market because supply can't keep up with demand over the long term in a growth market. So there's dynamics that are present in a growth market that you're just not going to have in a mature, stabilized market.

So by about: 2014

We looked at the Carolinas because that's a good market. Obviously we looked at Texas, obviously, we looked at Florida.

Obviously we'll look at Atlanta, Georgia because that was closer to our, you know, so we evaluated all the options. But every time I came to Phoenix, there's nothing else like it. There's just. It hits you in a head like this, this growth story, this, this.

I don't even know how to describe it. But you know when you are here that you are in a place that's the Wild west in some ways relative to growth. Right.

Andres Sandate, ATLalts: 00:10:16

Well, let's talk about that for a little bit. Like, it's easy to read mainstream headlines and get excited about the growth that the mainstream media will throw out there.

But there's factors behind that growth. To your point, people that have been there have lived there, feel it, see it, experience it.

What are some of the things that are contributing to Phoenix beyond great weather? Right. But there's got to be some other variables that are attracting people, businesses and all the things that come with that to Phoenix.

Ben Leybovich, WhiteHaven: 00:10:49

Well, I don't want to overstep any boundaries because I'm passing judgment, but I find this to be a business friendly environment as it relates to job growth. That's hugely important. It doesn't matter if your governor is a Republican. Or a Democrat.

If they get out of town and go somewhere to get jobs to come in, it doesn't matter to me if they're Republican, Democrat, that's their job. And if they're doing it, they're doing it and they're doing it.

So you might have heard this announcement, I think just yesterday, TSMC, they were already putting in $65 billion worth of into a chip plant on northwest of Phoenix. Well, Trump did this conference yesterday. They're putting an extra hundred billion dollars.

They just opened the first facility, which is a 12 billion they say facility. So they have another $150 billion they're going to spend over the next probably five to seven years. Think of the jobs, think of the level of jobs.

That's, that's not people making $30,000 that are coming in. That's people making 100, $200,000 that are coming in. Right. What does that do to rent? What does that do to real estate?

What, you know, what does all that mean? Right.

Andres Sandate, ATLalts: 00:12:02

So, so it's not just, just to pick up on that point.

,: 2025

But what you're saying is that they're going to be actually manufacturing chips.

This is a Taiwanese company that's going to be coming in and putting 160 plus billion dollars in the ground to, to create the fabrication facilities, the office space and all that goes with actually creating the chips here in the US and in this case Phoenix. Right. So that's going to have the spillover effect to your point, of, of what Jobs, people needing housing, this, this, this.

Ben Leybovich, WhiteHaven: 00:13:10

Transition from a purely kind of a manufacturing slash service economy to electric cars, electric batteries, chips, all of that. That was already evident in the mid tents. Right.

could, you could see that in: 2016

They analyzed it, they made choices, different choices about how they assess taxes, which is a huge thing for business and underwriting to be able to know that. Right. That's why I came here.

That's why I chose going back to the original question like it was a Boat that had its nose pointed in the right direction.

Andres Sandate, ATLalts: 00:13:58

Right.

And you know, not, not to get too deep into the local economy, but one of the things about Phoenix that I experienced growing up is, you know, you would go to Phoenix, you'd fly into Sky Harbor Airport and it would be, you know, Mesa Tempe, Scottsdale, Phoenix, you know, the sort of four or five kind of well known inner ring suburbs today. I mean you have Glendale, you have Anthem, you have, you know, and it's just expanded. There's no right. There's so many communities.

Talk a little bit about that expansion and how that happened.

Ben Leybovich, WhiteHaven: 00:14:34

This is a prior. They call it the MSA Metropolitan Statistical Area. They call it a prime market at 5 million. We're there, we're at 5 million for the MSA.

t projection I saw is that by: 2030

And I think it's because a lot of people who relocated here for remote work were called back.

And so while people still coming in, a lot of people left and dynamically net net, we ended up with 60,000 population growth, usually it's 80, 90 something in that range. So what comes with population growth? Shortage of supply. Residential, both apartments and houses.

Andres Sandate, ATLalts: 00:15:36

Right, right.

Ben Leybovich, WhiteHaven: 00:15:36

And we can talk about construction costs which add to the, the, the kind of a supply situation. Projecting three, four, five, seven years out.

Andres Sandate, ATLalts: 00:15:47

Yeah.

So if you're a multifamily sponsor, multifamily developer like Whitehaven, you obviously, you know, one of the big factors is you, you want to be in a growth market to your point. Right. It. And take nothing away from. I'm from Kansas. Right.

And, and you're, you know, got some roots in Ohio it sounds like, I mean certain markets, sub markets, tertiary markets in those states are growing for sure. Not to disparage those states but, but they're not growing as much or as rapidly as a market perhaps like Phoenix. Right.

So let's talk about multifamily within the context of Phoenix. So there's a lot of different areas you can invest in within a geographic area. Right. There's self storage.

That's a play on the expansion of the market. You could invest in infrastructure, you can invest in multifamily, in the housing. Talk about multifamily.

It's obviously your roots and your background, but it introduces a lot of complexity Right. There's permitting issues, Construction has been difficult. Right. Costs have risen, labor costs have gone up, interest rates.

There's a lot to break down. So I don't want to pack the question too much, but you know, you had to start somewhere. You guys started in multifamily a year, you know, years ago.

Talk about multifamily and why that makes sense as a space and why investors should care.

Ben Leybovich, WhiteHaven: 00:17:09

Okay. Multifamily makes a lot of sense because people need a roof over their head.

Andres Sandate, ATLalts: 00:17:15

Sure.

Ben Leybovich, WhiteHaven: 00:17:15

Yeah, that's beginning.

age rent is about, it's over $: 1000

Interest rates come down dramatically. And I'm not talking 1 or 2% dramatically or housing costs come down dramatically. You know, I, I do think interest rates are going to come down.

I just don't see them coming down dramatically. We're talking 50 basis points, maybe one cent. Maybe we're just not talking about three and a half percent. We're not going back there anytime soon.

So that creates a real opportunity for multifamily in a growth market, if you have people coming in, but you don't have a lot of supply coming in, you're going to have rent growth. And that's what we want to achieve. Returns that we're looking for.

Now, there's a dynamic that has been present coming out of the pandemic because of the supply chain issues. And we experience that a lot because we're a heavy value add in some cases company.

It's not all that we do, but a lot of what we do is heavy, heavy value add, say 30,000, $40,000 per unit. We got everything and we rebuild everything. So we have a lot of construction exposure and sensitivity to what's going on in the pipeline.

ts. Historically, you talk in: 2016

That's just what we did in Phoenix. Okay.

Andres Sandate, ATLalts: 00:19:16

And this is the whole market. Sorry, the whole market. So all sponsors, big publicly traded REITs, all the way down to a smaller operator doing a new 25 unit apartment.

Not that you see a lot of those, but you're saying about 6,000 units annually are being delivered.

Ben Leybovich, WhiteHaven: 00:19:35

About eight.

Andres Sandate, ATLalts: 00:19:37

Eight. Okay, eight.

Ben Leybovich, WhiteHaven: 00:19:39

ed up with a dynamic where in: 2024

Andres Sandate, ATLalts: 00:19:56

Okay.

Ben Leybovich, WhiteHaven: 00:19:57

And in: 2025

That creates an interesting dynamic and the set of opportunities that are, we feel a limited window of opportunities for new construction acquisition at a huge discount to replacement cost. And we can revisit that if you'd like.

But the other issue is that because the construction costs have gone up so much and the interest rates are so high, nobody can afford to pencil anything. So there's a cliff.

And once you get through the new deliveries and you absorb those units, there's going to be a shortage of supply, and that is going to create excessive rent growth. So we're setting ourselves up for another cycle, unfortunately.

Andres Sandate, ATLalts: 00:20:51

Yeah. Another. Another cycle.

Well, I, I think, you know, I, I think one of the things that is really helpful about having guests on who are, you know, obviously deep in their particular area, whether it's real estate or it's credit or it's, you know, growth equity or private equity, is that we get opportunities to really dig in with the second, third, and fourth iteration of the question to really unpack what you just said.

So let's go back to what you said before, which is historically, Phoenix is attracting somewhere in the 60,000, to call it 90,000, depending on what data source and what year. 60 to 90,000 new folks are moving into Phoenix kind of net on an annual basis. Right. They need a place to live.

They want to be in the greater metropolitan area of 5 million people. So apartments are obviously a place where they're going to look, given what you talked about earlier, which is that affordability gap. Right.

I want to go buy a three, two.

I have one child, maybe a second on the way, but then I go down, try to get a mortgage, you know, and all of a sudden it's like, I can't afford that payment. So we're going to go to an apartment for the first year or two, and then we're going to evaluate our options.

There's not enough apartments is one thing that you just described. Is that correct?

Ben Leybovich, WhiteHaven: 00:22:15

So before the pandemic, the statistics were that Phoenix needed 150,000 new apartment units.

Andres Sandate, ATLalts: 00:22:25

Yeah.

Ben Leybovich, WhiteHaven: 00:22:26

Accommodate expected population growth over a decade.

Andres Sandate, ATLalts: 00:22:30

Yeah.

Ben Leybovich, WhiteHaven: 00:22:31

Hence we're delivering six to 8,000 a year. We're always chasing that, that, you know, need with our supply, and we're always a little behind. Hence we've always had strong, strong rent Growth.

Andres Sandate, ATLalts: 00:22:46

Right. And so you what and then you, then you went to.

If I understood what you described, because of the forces of the pandemic and supply chain, we saw builders, developers, real estate, multifamily sponsors deliver a lot of units in a very compressed amount of time. 20,000, 25,000 units were all delivered.

And as a result, instead of that being paced out now the rent growth as kind of a boomerang effect, we may start to see rent growth as that new supply was, is absorbed and was absorbed, that 20,000 plus units. As that boomerang effect takes place, we may see a scenario to this could be advantageous to an investor.

Now, not somebody trying to rent an apartment per se, that's a whole separate podcast conversation.

But somebody that's an investor in multi family may be in a situation where it's like, okay, now we're going to see rent growth as that, you know, new supply was absorbed. And that could happen in what time frame you anticipate? If I'm, if I'm looking at dynamic.

Ben Leybovich, WhiteHaven: 00:23:54

So I, I speak to a lot of builders, I told very large builders think totally.

Andres Sandate, ATLalts: 00:24:00

And again, we're not offering investment advice. I always tell people listen to the show for education, for insights.

It's no different than turning on, you know, any Bloomberg, CNBC TV show and listening to somebody discuss what's going on in the market. It's just an opinion. You should definitely consult with an expert, an advisor, a cpa, et cetera.

But what we, but what we are discussing is a situation where we could see from your point of view the dynamic, pretty favorable dynamic setup for an investor in multifamily in Phoenix.

Ben Leybovich, WhiteHaven: 00:24:31

Let me take a step back.

Andres Sandate, ATLalts: 00:24:32

Yeah.

Ben Leybovich, WhiteHaven: 00:24:33

So for a merchant builder, for it to be worth building, they have to have a profit margin.

Andres Sandate, ATLalts: 00:24:40

Sure.

Ben Leybovich, WhiteHaven: 00:24:41

Today if you ask a builder in Phoenix, how much rent growth do you need to experience in order to be able to capitalize an exit on your new construction Constructed multifamily so that you can make a profit. They will tell you plus minus 20% they need to see rents pop plus minus 20% from their level today. This is a systemic issue.

This is why we're setting ourselves up for rent growth cycle, because rents have stagnated because we've been delivering so many units in such a short time. But that means builders can't make a profit. They're not going to build if they can't make a profit. So what's it going to take?

20 rent growth, how long is that going to take? I don't know, but they're not coming back in if you don't bring in new supply. And TSMC announces another hundred billion dollars worth of investment.

, but your supply is not past: 2025

Andres Sandate, ATLalts: 00:25:57

Yeah. So it becomes a whack a mole scenario. And, and so, and you can look at this from multiple angles again ATL Alts is all about helping investors. Right.

Gain insights, education and information around private markets and diversifying. Right. So into alts again, not offering advice, just offering education.

And one of the things that I love to do is I love to bring experts like Ben Leibovich from Whitehaven on to provide insights on areas of the market that investors just might not be getting exposure to and ideas they may not get exposure to from their everyday advisor who's got them in. You know, with all due respect, mutual funds and index funds, I'm in a lot of those things.

We put a lot of clients, clients in those things as their core allocation. But then we look and we're not working directly with Whitehaven yet, but this is a process.

We get to know a sponsor, we understand the dynamics, we get to know the team and, and one of the things that I think investors can benefit from is just getting educated around the ideas out there in multifamily. Again I think a lot of people read the headlines and they say Phoenix is growing. That's, that's interesting. It's a data point.

I went out there for spring break or I took, you know, took a guys trip, we went and played golf.

But if you want to actually go to the next level, which is how do I make money from all of the growth, all of this that's happening, you got to find a way to do that and you got to find a way to access that space.

And that's, that's kind of one of the things that I'm most excited about is finding experts on the ground trying to make money in a risk adjusted way, guarding any losses, etc. And downside protection, but also looking for angles and niches and seams where they can deploy capital in a smart way. So we've talked about Phoenix.

You've given the background of multifamily as the category. Now let's talk about your all special sauce.

As an opportunistic real estate investor with those macro dynamics, you know, you want to get up every day and, and like most productive folks, you want to execute, you want to do deals but you got to be smart with investors capital. You can't just be willy nilly.

And you know, and, and I think that being disciplined and having yes and urge to transact and do deals and put your clients capital to work has to also be balanced with being, you know, okay, just waiting. Okay, just being patient. So describe given the backdrop, how you're navigating kind of going forward.

Ben Leybovich, WhiteHaven: 00:28:38

So we, we started in: 2018

Phoenix is such a young town and it's such a fastly growing town that mid-80s construction is just class C. Okay, sure, we started there and in we have, we can't be blind to the cycle. You can only take what the market cycle gives you.

Otherwise you're trying to do a square pair ground hole situation. So when we say opportunistic, that really translates to where's the market pointing us? Where's the real opportunity?

Today, not yesterday, not tomorrow, today. What's it look like today?

So in: 2018

And it's a kind of a different feeling and acting asset when you're done from what you purchased in the first place. We started in the 80s, we sold out that entire portfolio.

By: 2020

And then the dollars we're spending on renovations went up from about 15,000 to about 25,35,000 on the average per unit. We're building clubhouses, spending a million and a half, 2 million to renovate everything in the clubhouse.

This property then essentially becomes competitive with new construction. Why did we do that? Because we recognize there would be a wave of new construction.

And while there's still an opportunity, it has to be competitive against the other product that's going to be selling that you're going to be competing against. Right. Today, however, the definition changes again because the real opportunity may be to purchase new construction below replacement cost.

So when we talk about deploying capital smartly, it may be value add in some cases, but in some cases it may be if you know that the builder is going to spend 300, $320,000 a unit. To build this thing and that they're not going to do it until they think they can sell it for 375 to 400 because they need that risk margin.

They need the profit margin. Right. They need the risk. But if you can buy it today for 275 or 300, you're buying it today at 25, 35% discount to replacement cost.

And that may be the safest thing to do in this part of the real estate cycle. Now, once the builders come back in, what does that mean?

That means they think they can afford to build and sell for $400,000 a unit, which means you probably don't want to buy there anymore. You want to buy something that's heavy value add, but your basis is going to be considerably low with a new construction.

So it's a different proposition to the marketplace. Right. So in everything we do, we're reacting to what the market is doing.

Right now we're in an environment where builders, merchant builders, have development loans that are three year loans. The net incomes are down because incomes are down because there's so much supply over the last two years. The incomes are down, they can't refinance.

And so they're forced to sell at, you know, hopefully to get their cost out in some cases even below being able to get their cost out, but certainly dramatically below where you would think replacement costs to be. And that may be the opportunity.

onths ago. We're looking at a: 2016

And we're also looking at a: 1986

So you have to be very cognizant of the cycle and you have to be malleable with your thinking if you're going to be deploying capital throughout the cycle.

Andres Sandate, ATLalts: 00:33:39

Yeah.

One of the things that, you know, we see a lot of in Atlanta when you have a, you know, a very attractive environment for deal making is you see a lot of multifamily capital chasing and not, not chasing, but pursuing, you know, their, their sweet spot of deals. Right. That fit their buy box. And I would imagine Phoenix is, is no different. Right.

The story is out on Phoenix and so sponsors will flock to markets where they can deploy capital and where they see growth. Right.

And certainly some of the markets that you and your family explored, I think all by all measures would likely, you know, fairly be categorized as growth markets. You know, the Sun Belt, Smile States, etcetera, as they call them.

How do you compete for deals in an environment like this when let's say overall volume of deal volume is down, deal transaction volume is down. A lot of capital has been raised in the alts and private markets over the last decade. Decade.

More and more investors are trying to get into private markets and into syndicated deals and into private vehicles. So you have all those as tailwinds for a sponsor.

But then you've gotta, you've gotta weigh that again against deploying smartly, not overpaying for deals. You know, they always say the maximum, the maximum is you make money on the buy, right. Not on the sell. So talk about the competitive environment.

And you gave those three examples. But you know, do you run into a lot of competition? What's that competitive dynamic look like in this environment today out in Phoenix?

Ben Leybovich, WhiteHaven: 00:35:32

Well, let me, if I may, let me take a step back. You mentioned all these other markets, Carolinas, Georgia, Texas. You know, there's a reason I'm in Phoenix, there's a reason I pick Phoenix.

I'd like to take a minute to address that because I think it's important. It's why so much institutional capital is attracted to Phoenix. Phoenix is a lot more transparent than a lot of other markets.

First of all, the weather. There are no natural events in Phoenix. What does that mean? That means much, much more controlled insurance exposure. I cannot overstate that.

I mean, things in Houston, Texas that are costing $2,500 per unit to insure in Phoenix are costing 450 bucks. I mean, it's, it's not even close. It is a, it is a huge thing in terms of operations. Okay. We already discussed the business friendly environment.

Andres Sandate, ATLalts: 00:36:32

Okay, Right.

Ben Leybovich, WhiteHaven: 00:36:33

Which, you know, a number of these markets would fit into that. But certainly the insurance taxes in most municipalities, they chase purchases. In other words, you pay X amount.

Your amount of property tax is based on what you are paying. This is not the case in Phoenix. There's a statute in place whereby taxes cannot increase. In the most basic words, I'm not giving it justice.

But in the most basic sense, taxes cannot increase more than 5% per annum. Neither can the taxable value. And that is not going to be impacted by a transaction. So it doesn't matter what I pay for the property.

This is a statute they passed.

I believe in: 2014

And then you have to lay people off. And you can't operate the city when you lay these people up. So this was a very smart decision.

So from a, from an operations standpoint, the underwriting standpoint, this is huge because you never know what your taxes are going to be until they tell you not. So in Phoenix, you know what they're going to be because it's the law. Okay, so all of those are factors why there are many growth markets.

But I pick Phoenix. This is why it's much more transparent for me to underwrite and to understand.

Andres Sandate, ATLalts: 00:38:17

Yeah.

Ben Leybovich, WhiteHaven: 00:38:18

Now go ahead.

Andres Sandate, ATLalts: 00:38:20

No, I was just one. One other thing you hear a lot about is in real estate is, you know, cost of materials, cost of construction, cost of labor.

All of these things as input to, if you're heavy, value add. Value add, you're going in, you're replacing kitchens, you're replacing bathrooms. You know, it's, it's not so much as a, a cap rate trade, right?

If, if, if you will, of, of buying a core asset and effectively renaming it and putting it in a big public REIT, and your investors expect like a 4% return, you know, with what you guys are doing.

When I hear opportunistic and I hear value add or deep value add, if I'm the advisor to the client, I'm saying we are going to tie up our capital with the sponsor for a period of time that could be, you know, a year to buy the asset, you know, a year to reposition or do the value add. You're not doing all 300 units at the same time. You're doing them in phases, right?

So you're taking units offline, you're taking, you know, a hit to your, your noi, but you're adding those units back at a higher rent. Right. So it's like educating the client, but talk a little bit about costs and labor.

Do you have enough workers, you know, to meet the demand for when the market, let's say, you know, recalibrates, you know, in the next six to 12.

Ben Leybovich, WhiteHaven: 00:39:48

Months, costs in Phoenix are higher than they are in most places in the nation.

Andres Sandate, ATLalts: 00:39:52

Okay.

Ben Leybovich, WhiteHaven: 00:39:53

I couldn't tell you why. I just know statistically they are. And this, this is Both labor and materials.

Andres Sandate, ATLalts: 00:40:01

Okay.

Ben Leybovich, WhiteHaven: 00:40:02

More so labor than materials, but both really.

Andres Sandate, ATLalts: 00:40:05

Yeah.

Ben Leybovich, WhiteHaven: 00:40:06

So to develop a new community in Texas, you'd probably be spending 250, 250, 260,000 in, in soft and hard costs before the profit margin risk premium. Just, you know, the.

Andres Sandate, ATLalts: 00:40:21

Per door. Per unit.

Ben Leybovich, WhiteHaven: 00:40:22

Per door.

Andres Sandate, ATLalts: 00:40:23

Yeah, yeah.

Ben Leybovich, WhiteHaven: 00:40:25

Now I'm sure somebody's going to tell you, oh, I can do it for 180. Oh, I can do it for, you know, talk to somebody big. Okay. Talk to somebody who's, who's can. Has the systems to be able to do thousands of units.

They will, they will tell you that this is what the cost is. Now in Phoenix, that cost is a little higher. It's probably about $50,000 higher per unit. Okay.

Andres Sandate, ATLalts: 00:40:48

So you have to account for that as an investor, as somebody deploying capital.

Ben Leybovich, WhiteHaven: 00:40:53

Right. But the way it's accounted for is the cap rate.

Andres Sandate, ATLalts: 00:40:57

Right.

Ben Leybovich, WhiteHaven: 00:40:57

The reason is Phoenix is a fairly low cap rate market. The market's been very disrupted over the last two years, but still basically quality product is not traded much above 5 cap.

It's basically stuck at 5 cap. And historically, Class A and Core plus is plus minus four and a half cap in Phoenix.

And so the window of opportunity here is if you can buy new construction today at discounted prices when the cap rate returns to historical average, which is only 50 basis points down from where it is today. That's what we call in the business easy money. You just have to be able to finance it. Right. And wait for a while for the market to kind of stabilize.

But the reason it's a low cap rate market is because low insurance cost, low taxes, low, you know, it's predictable market. There's, there's less risk premium in this cap rate than Houston cap rate.

Andres Sandate, ATLalts: 00:42:00

Yep. Okay, makes sense.

Ben Leybovich, WhiteHaven: 00:42:01

Phoenix is such high growth population. I spoke a couple of weeks ago to a colleague of mine that has properties in Phoenix, I mean, in Houston.

Vacancy in Houston, you know, is 25% plus vacancy right now in Phoenix is 7%. In spite of the fact that we're absorbing 20,000 units per year. Stabilized occupancy is at 93, 92, 93%. So institutional capital knows this.

They want predictability, they want stability, they want growth. Now the real opportunity right now is institutional capital is on the sidelines because they're waiting for a go ahead from the Fed.

They're waiting for a complete green light.

They need to check the box, which is our opportunity because we can be buying institutional product that we wouldn't necessarily have a chance to Compete for if Blackstone, State street and all those guys were buying and all of those guys are in Phoenix. The other issue in Phoenix is that the average community size is very large.

Unlike many markets where you see a lot of 40 unit, a lot of 80 unit, a lot of 100 unit, the average size in Phoenix is well over 250 units, which makes for an institutional check size.

So when institutional capital goes on the sidelines because they like more stability with a 10 year treasury, with the Fed forward curve, with the sulfur forward, I understand that they have these boxes they need to check, but there's no buyers because the deals are so big. 80, $120 million deals. How many people can do that if the institutional capital doesn't come to play?

So what does that do to the valuations circling back to the opportunity with new construction right now, because these builders built for the institutional capital to put into their REITs, into their funds, and that's not happening. And that's the opportunity for the discount today on new construction.

Not to say that there isn't opportunity on value add, but there's just different shades of opportunities in this point of the cycle.

Andres Sandate, ATLalts: 00:44:34

Yeah, yeah. Let's talk a little bit about, you know, the investments that, that you and Sam have made in the platform. Right.

So we, we, we, we have seen a lot of sponsors through ATL alts that, you know, they get to a point where they've outgrown what, you know, the two partners, he and she can do together or, or the solo founder can kind of do on their own. And so you have to start investing in the business. Right. Instead of just in the next deal.

And all good sponsors, we're, we're looking at and saying, how much of your capital are you putting at risk alongside our investors capital? That's a, that's a key piece.

But we're also underwriting the operations, we're underwriting the asset management, we're underwriting their capabilities. Especially if it's a strategy where there is more of a roll up your sleeves approach. Right. When you talk about value add, deep value add.

So maybe give a sense for how you've built a team.

What are the areas that you've invested in in terms of personnel and trying to round out the investment executive leadership acumen that you and Sam brings.

Ben Leybovich, WhiteHaven: 00:45:41

So we run lean. We don't have a lot of employees. We outsource as much as possible. We learned by doing it the other way at first.

So when we first started hiring, our perspective was, well, we can train these people. Let's just get people for a bit less money and we can train them well. We learned that doesn't work very well.

You need to hire professionals who are better than you at everything. You expect them to do better than you could do. And forget teaching them, they will be teaching you how to do this.

So in terms of employees, right now we have an asset director who is the liaison to the third party management. Essentially underneath her there is a construction manager. He's in charge of all of the construction. In terms of liaison to all of the general.

What's the word I'm looking for?

Andres Sandate, ATLalts: 00:46:44

General contractors.

Ben Leybovich, WhiteHaven: 00:46:45

General contractors, all of that.

Andres Sandate, ATLalts: 00:46:46

Yeah.

Ben Leybovich, WhiteHaven: 00:46:47

We used to have guys in house on our payroll that would swing hammers. We tried that. The problem we found with that is that if one of them calls sick then you know, like my tile calls in sick tile guy.

He pushes everybody else back two days. And that really has an impact on operations because in the entire ecosystem the property hands us a unit to renovate.

They want to know how to market that unit to be pre leased. So they want to know when it's going to be done. So we have to give them the date. It's going to be done by such and such date.

If we are two weeks late, then all of those costs that went into marketing the unit for pre leasing, potentially they found somebody. This person wasn't willing to wait for another two weeks. Now they have to find a new person. It's just incredibly inefficient.

Now the way to solve that is to hire two tile guys. So if one of them is sick, the other one can pick up. But that's inefficient on the other side of the deal because that drives construction cost up.

So what we eventually, after about four properties, what we eventually figured out is let's have a very high level construction guy that has work both on the supply side and on the construction side, understands the both ecosystems and can put both of them together. Let's have him in house managing everything for us. But let's hire some very large general contractors with a lot of redundancy and a lot of capacity.

So it wouldn't matter to them if they're doing 5 units or 35 units per month. They can do they have the manpower and the scale to do it and let's have our guy manage them.

Andres Sandate, ATLalts: 00:48:42

Okay?

Ben Leybovich, WhiteHaven: 00:48:43

And that's worked out very, very well because the cost increases.

Minimal maybe, but when you think about us being able to turn units in three to four weeks like clockwork and the property gets the unit and the property can lease the unit. That's money we, you know, the property starts making sooner.

Andres Sandate, ATLalts: 00:49:04

Okay, sure.

Ben Leybovich, WhiteHaven: 00:49:05

And then as far as property management, we thought about bringing it in house. We just don't see, we don't want to look at it as a profit center for White Haven because that's the wrong way to, to look at it.

So really you got to look at are the operations going to be any better.

And you have all kinds of, both accounting and legal and all kinds of things that Graystar can do with, you know, whatever, how many hundreds of thousands of units they manage that we cannot do. Not to mention talent attracting talent, paid packages, all of those things. Right. So are there some inefficiencies with third party management?

For sure. But there are also inefficiencies bringing this thing in house and we're kind of splitting the difference.

We have a very high level person in our business that essentially manages all of the third parties. So she has direct access to most of their books relative to our assets, direct access to regionals, to property personnel.

She's over there all the time. And it works better that way. It keeps our payroll close by so we don't have to feel the pressure to transact in order to support the payroll.

On the other hand, we're still getting, we think, better property management. And listen, no, property management is great.

Andres Sandate, ATLalts: 00:50:39

You know, it's just, yeah, it's, yeah, you want your tenant experience to be as good as you can offer it.

But, but you know, at the end of the day you're going to have some percentage in 100, 200, 300 unit, you know, where you're just going to have stuff that breaks and you're going to have to react and you're going to just do as good as you can as a sponsor to make sure that you've got property management, whether it's in house or external, that are responsive and are dealing with all the important needs, maintenance, security, security, you know, all that. You know, as we think about wrapping up the conversation, you know, we've talked about why Phoenix, you know, why multifamily.

You know, one of the, you know, core pieces of, of these, you know, conversations is the sponsor and, and how they sort of approach it. You know, last couple of thoughts. I want to give you a chance to sort of give a synopsis or summary of all the stuff that we talked about.

You know, there are a lot of things going on in our economy. There's a lot out there. Geopolitically, it can be quite distracting to an Investor who's got a long term orientation and a long term horizon.

You know, what, what do we need to pay attention to, Andres? What are, with, what are the things that we really need to be thinking about in our portfolio?

And as their advisor, one of the things I'm always thinking about is, you know, have a long term orientation, right? Be long term greedy and on in the short term, like, let's try to take the emotion out of it.

Let's try to find sponsors who think similarly, that they're, they're positioned and nimble to take advantage of opportunities, which is why we need to think about deploying capital to them.

But we also, you know, have to entrust them and give them time to deploy the capital so that we get a return on the capital, you know, in five years and seven years if we're going to tie it up.

So with that as the backdrop, you know, thinking about investors, how do you, you know, how do you and your team sort of get excited about what's ahead given this backdrop, given the macro. It's so much uncertainty, but at the same time it's, you know, it's also normal, right? In a sense, we see this all the time.

Ben Leybovich, WhiteHaven: 00:52:57

What was that thing Warren Buffett says? Be fearful when everybody is greedy. Be greedy when everybody is fearful? Yeah, Case in point, that situation, right?

You as an investor, you could write a check to Blackstone and invest in B REIT and call that a day. You're not gonna get 12 IRR, 15 IRR, seven, you know, you're not going to get it going that route.

And that's where you guys come in with, with alts, because you have direct access to ground level opportunities. Instead of putting money into, you know, a fund that's very highly diversified. We are local, we are specialists in Phoenix.

We live here, our office is here, all of our contacts are here. We know the deal flow before most people know the deal flow. We have access to all of the brokerage community both in terms of property and debt.

We understand this market, we understand the growth story of this market. So many sponsors live in one place and invest somewhere else. That's okay.

But you cannot do the kind of value add that may be necessary in order to make the investment perform well.

Living somewhere else like we are at the property, every day, somebody, it's either the asset director or the construction manager, somebody from our office knows what's happening at the property level every single day. You can't do that. I couldn't do that if I lived in Phoenix and bought a Property in Houston.

So what advantage do you get by investing me if I'm buying property in Houston? So the ultimate commitment I made is if this is a market I like to invest in, I'm just going to move here.

Andres Sandate, ATLalts: 00:54:59

Yeah, just be there. Yeah, right, be there. Yeah.

Ben Leybovich, WhiteHaven: 00:55:04

So macro. I want to be very careful not to prognosticate. I'm not an economist. Missed.

I, but, but, but still you're kind of paying me to, to, to guide you at least a little bit in some extent. You know, I'll tell you. And this, this will, this will get technical in a hurry. But essentially everything resides on the 10 year treasury yield.

Andres Sandate, ATLalts: 00:55:35

Right.

Ben Leybovich, WhiteHaven: 00:55:35

Because most loans are based on Fannie Mae, let's put it Fannie Mae and Freddie Mac, most of their loans are based on 10 year treasury. So with the 10 year blowing out the way it did, that creates a problem.

Now a lot of loans are also based on sulfur, but that's also blown out because that tracks Fed funds rate. Real question we're all asking you are asking yourself, I'm asking myself is when's the 10 year going to come down?

Like we've been sitting and asking ourselves that question because if every, everything starts with the 10 year and that's risk free, then as an investor do you really get paid to assume the liability and the risk of an investment if you can get your 5% and be done and just, you know, live a happy life. Right. So at some point that equation needs to change.

If you ask me what I think, I think it's going to come down because I think inflation is going to come down because I think shelter is falling like a rock. And, and we're tracking it and it's, it's approaching trend, historical trend.

So I, because that's such a big like 40 plus percent of core, core PCE, core CPA. You know, I, I think, I think my math is telling me we're going to be okay.

The Fed is going to be able to come down twice the market is pricing in more than twice in the last three weeks. But we'll see.

Andres Sandate, ATLalts: 00:57:11

Yeah, we'll see.

Ben Leybovich, WhiteHaven: 00:57:12

Yeah, that's a macro picture.

Andres Sandate, ATLalts: 00:57:15

Yeah.

Ben Leybovich, WhiteHaven: 00:57:15

But the interesting thing is that doesn't even matter because we know what it costs to build. So if you can purchase stuff that you cannot replace, if you're buying it so far below replacement cost, people have to have a place to live.

You're going to get rent growth. So even if your multiples don't compress or expand or change in any way simply by growing your revenue you're going to create value in the property.

And where we are in the cycle is so interesting because it's a mechanical proposition. Yeah, they cannot afford to build, they just can't.

So once we blow through nationally as well as Phoenix, I mean the, yeah, this is not just a Phoenix phenomenon. There's a national phenomenon across the country. Once we blow through that, what next?

I think Besant knows that and he knows he needs to do something about the 10 year and both him and Trump are being very vocal about that being necessary. I think they're aware whether they succeed or not, we don't know. But I think the powers that be realized this 10 year yield is not sustainable.

So they're working very hard. Are they going to cause recession in the process? Potentially, to some extent, we don't know. But construction costs are what they are.

And until in order for builders to come back in, rents have to grow. If rents grow, the values are going to grow. And that has nothing to do if you take today as a blank slate, nothing changes in the next two years.

What I'm saying today I, I really believe is still going to happen. Rents are going to grow, values are going to grow.

As a result, even if capitals don't change or the interest rates don't change, they're going to grow much more if the interest rates and cap rates change. So it's a very exciting time to buy stuff, whether it's 86 value add or new construction or something in between.

Very exciting time to buy below replacement cost assets. I think good things will happen when you own something below replacement cost.

Andres Sandate, ATLalts: 00:59:37

Well, that's a great way to, I think to end the conversation. One of the things I want to encourage our listeners to do is, is to check out our substack.

As I mentioned, you can find that on substack if you just type in atlts. You can find the podcast out on Apple and Spotify and anywhere else you get your podcast, you can always shoot me an email.

Andres tlalts.com and and of course visit our website, which is www.atlts.com. that's how you get a hold of me. If you want to learn more about Ben and Whitehaven.

Ben, tell us how we can learn more and how our guests can learn more about what you guys are doing and to pay attention to, you know, some of the things that you mentioned, construction costs and how the, the Fed and, and, and the Trump administration are going to deal with the economy. Because there's, there's a lot of points that you left us with there that I think we'll have to monitor and see if they play out.

But how do people learn more about you and and your firm?

Ben Leybovich, WhiteHaven: 01:00:36

So our website is www.Whitehaven.com. very simple www.Whitehaven.com and my email address is Benighthaven.com that's probably the best way. I don't do much social media nowadays.

I don't post my stuff. We do have an email list that you can jump on at our website and we do communicate that way. But really the website and the email is the best.

Andres Sandate, ATLalts: 01:01:05

Awesome. Well, I would encourage folks that want to learn more to to check out their website again.

lio as we get rolling here in: 2025

Again, I want to thank Ben Leibovich of Whitehaven for joining us to talk about Phoenix multifamily, the opportunities that Whitehaven and the team are seeing. It's an exciting time. It's an interesting time. Interest in alternatives and private markets is, you know, certainly at record highs.

Investors are seeking opportunities to get educated and informed and are looking for great sponsors.

And that's what we're all about here at ATL Alts, which is highlighting folks that are on the ground, in the trenches making things happen that can provide investors with, you know, attractive risk adjusted returns. I'd like to leave everybody with an opportunity, you know, to reach out to us. How do you support us?

People always ask, well, send the show if you found this conversation interesting. If you found what Ben had to say, follow him.

Reach out to them, but tell your friends, tell your colleagues, tell your clients and then reach out to us again.

Andres tlalts.com the website for the podcast is www.atlalts.com and you can find us out on Substack where I will post the transcript for today's show as well as some additional information about Whitehaven for our members. So please join us as a member where you can get those exclusive member only insights and information. Thanks so much for joining us today, Ben.

I hope you have a great rest of the week and a good spring out there in Phoenix, Arizona.

Ben Leybovich, WhiteHaven: 01:02:53

Thank you so much. Spring is always good in Phoenix, Arizona. You know that. The weather is fantastic. Thank you Andreas so much. I enjoyed our conversation.

Andres Sandate, ATLalts: 01:03:04

We'll do it again. Thank you so much.

Ben Leybovich, WhiteHaven: 01:03:06

Thank you sir.