Why Smart Multifamily Investors Build When Everyone Else Stops | Mike Kron

Mike Kron (00:00)

We’re in the middle of building a 760-door complex in Gilbert, Arizona, and we have another 564 units that we’re in design development for. And people come up to me and say, look, the market’s overbuilt. What are you doing? And I’ve seen this before. What’s going to happen is that overbuilding is going to work its course. All of the other developers stopped building.

I love to jump in. Probably 80 % of the projects we’ve built, I’ve started right under these circumstances where everybody else was sitting there, you’re crazy, this is… And I don’t want to say I can see the future, but I’ve seen how this works out.

Cody Crabb (02:11)

Hello and welcome to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel and today we’re joined by Mike Kron CEO of Management Support, where they own and manage 14,000 apartment units. Mike has also launched his own private equity group, Guardian, and is currently raising capital for the Guardian Net Lease Fund. So today we’re gonna talk about scaling market cycles and what he’s seeing in capital raising right now. Mike, thank you so much for joining us.

Mike Kron (02:37)

Absolutely Cody, great to be with you.

Cody Crabb (02:39)

So ⁓ I’d love to hear a little bit more about you. did you get into the real estate world and kind of how did that bring you to where you are today?

Mike Kron (02:47)

Well, I can go way back to college days when my dad and I bought an apartment complex at the University of Michigan. Little six unit building right on campus and I quickly learned to become a property manager. You know, new.

I enjoyed it back then even though, you know, re-glazing windows and shoveling snow was not really what I saw for my future. It still, you know, has its place. And I learned a lot about property management and, you know, really got a love for real estate back then. Stayed at school, became a real estate lawyer, was doing that.

out to California after graduating, did that for about six years doing, you know, purchase and sale work, lending work, land use planning, that kind of stuff. But always knew that I wanted to be on the other side of the table. And when I got the offer from my then father-in-law,

He had about 2,500 apartment units. He said, you know, I really need somebody to come on and help me grow this thing. you know, Lord knows if I get hit by a bus, the banks want to know what’s going to happen. So I need somebody to step in. And I jumped at the opportunity and that was 33 years ago. you know, here I am today running the company and we’re over 14,000 units.

Cody Crabb (03:53)

Here you are today.

Yeah, wow, wow, that’s quite a story. So it kinda just seems like there was no other path. Like this was always gonna happen. So that’s pretty neat. As close as I can get.

Mike Kron (04:04)

I don’t want to say it was preordained, I’ve always loved real

estate. I always loved chasing deals and putting things together and all the stuff that goes with it. So yeah, mean, probably was.

Cody Crabb (04:11)

Yeah.

Yeah, well, that’s really, I love that. And I think every real estate investor has a different background before they get into real estate. But a lot of times, and it comes in handy in various different ways, obviously, yours is particularly useful being in having a law background and a property management background.

So I think what stands out to me about your story is that you’ve seen this business from multiple angles, acquisitions, law, long-term operations, property management. So when you look at the market today, what are you seeing that maybe others might not about where the opportunities are?

Mike Kron (05:38)

You know, it’s funny, when you have, you know, three plus decades of experience, you get to see a lot of cycles and real estate runs in cycles, like the general economy. And, you know, I’ve been blessed to be through things that we’re going through now three and four and five times previously. You know, one of the things we see, we develop apartments also, 4,000 of our units we built ourselves.

Cody Crabb (06:03)

wow.

Mike Kron (06:03)

We’re in the middle of building a 760-door complex in Gilbert, Arizona, and we have another 564 units that we’re in design development for. And people come up to me and say, look, the market’s overbuilt. What are you doing? And I’ve seen this before. What’s going to happen is that overbuilding is going to work its course. All of the other developers stopped building.

I love to jump in. Probably 80 % of the projects we’ve built, I’ve started right under these circumstances where everybody else was sitting there, you’re crazy, this is… And I don’t want to say I can see the future, but I’ve seen how this works out.

And it follows the same pattern over and over again. Things get really, really good, like they were from 21 to 23 in the apartment market.

Cody Crabb (06:44)

Yeah.

Mike Kron (06:53)

Rents were going crazy. Everybody thought they could underwrite this. Everybody wanted to build apartments. Everybody went in built a ton of apartments. And then we had too many. Then rents start to come down. Developers are like, boy, I can’t do this anymore. Managers are looking at rents. They don’t want to buy anymore. Everybody goes quiet. And then the market goes into a little trough.

Cody Crabb (07:03)

Yeah.

Yeah.

Mike Kron (07:16)

then all of a sudden we work out of it and things start going back up, which is about where we are right now. I always tell people, said, you know, if you wait for things to look good, you’re too late in real estate. You need to have some conviction, do your research, figure out where you want to be and what you want to do, and see if it makes sense, not today, but when that project’s going to be finished and five years after that.

If I looked at the market today, I probably wouldn’t build anything. I’d probably stick my head in a hole and come out two years from now and see what the world looks like.

Cody Crabb (07:50)

In the bunker,

yeah, yeah.

Mike Kron (07:51)

Yeah, but you

know, that’s not how we operate. You know, we’re blessed in the multifamily side, family office of being long-term owners. So I can look at the world a little bit differently. If I miss, you know, we underwrite deals very, very conservatively. Far more conservatively than I think a lot of other developers, because I don’t have to, I’m not a merchant builder. I don’t need to make money on the exit. I just need to

build something that’s going to be successful downstream. If I miss my numbers a little bit, the great thing is I get to mark my lease to the market every 12 months. And when I do that, eventually I’m going to get to where I want it to be. Maybe a little more slowly, sometimes more quickly. Thankfully, in most cases, more quickly than more slowly. But, you know, we’re going to get there. ⁓

Cody Crabb (08:38)

Yeah, think

the takeaway I think from that is, you’re, I like that you’re not acting for today’s market at all. You’re just, don’t care about it almost, it sounds like. Like obviously the things that are relevant right now, like the rates you can get and things, that’s relevant, but you’re focusing on the bigger picture and down the line and where things are gonna be at. that’s something I hear often from people like you is, you know,

they’re not as worried about stuff like interest rates depending on their strategy. just, kind of, if you have a short term, the financing isn’t gonna impact you too bad. I guess my point is like you said, I think it really depends on your situation. People say good market, bad market, but it’s way more complicated.

Mike Kron (09:22)

Yeah, no, I think that’s very much the case. And I don’t want to dismiss looking at what’s going on today. And the perfect example I give you is what we’re doing on the private equity side. You know, our fund is focused on single tenant net lease retail properties, know, high credit tenants, CVS, Walgreens, Walgreens, 7-Eleven, O’Reilly Auto, Sherwin-Williams, Tractor Supply names that everybody has heard of and has seen the stores.

looking where the market’s going but I’m also looking at where’s my entry point today is today a good entry point I you know I don’t want to enter something you know I can on the multifamily or the

private equity side. I don’t want to something if I don’t think that it’s a good place to get in. But my definition of a good place to get in isn’t, boy this looks really really good right now because the numbers are so good I can’t help but make money. I’m looking at it from the standpoint of it looks good to me because I think in this cycle this is where we’re going.

And this is a really good place to jump on, even though the market might not be perfect for what I’m doing.

Cody Crabb (10:24)

Yeah, yeah. And that really is the heart of investing because it’s the long strategy that ultimately matters. ⁓ So when you say good entry point, what are the signals that you’re actually looking for that tells you that this is the time? It seems like your cues may not be the same as someone who’s watching the market.

Mike Kron (10:33)

Yeah, very much so.

Yeah.

Yeah. You know, on the Nest lease side, which is obviously a little closer temporally to what we’re doing because we’re out raising money now and acquiring product, it was really a relatively simple analysis. The the net lease market is probably the most highly correlated to interest rates of any of the real estate markets. Because if you think about it, if I buy an O’Reilly auto store,

I’m getting a six to six and a half percent coupon from O’Reilly. I’m really buying their credit. It’s almost like their bonds as much as real estate. So I’m looking, where are we in the interest rate cycle? I would have loved to have launched this back in 2022. I was ready to. The Federal Reserve had a very different idea of what the interest rate environment was going to look like. And there it wasn’t that, gee, I’m going to borrow money. It’s going to be more expensive. It was the interest rate cycle is going up.

If that happens, rates are going to go up, my values are going to go down, and I’m going to be upside down. So I couldn’t do that. So I waited till October 24, the end of 2024, when I felt like the Federal Reserve had topped out, it was probably going to start lowering interest rates, which turned out to be the case. And the 10-year Treasury, which is really what I focus on, is a correlation.

started moving down. mean people forget now when it’s hanging around 4.3 that it used to be over 5. And what we saw to you know that goes right along with that is that in Q2 of 25 cap rates peaked and they sort of just held there for a couple of quarters. To me that just screams it’s time. It’s time to go out and buy this product because we’re going to start seeing those cap rates drop.

Cody Crabb (12:50)

Yeah.

Mike Kron (13:09)

And I want to be in before that happens. I don’t need to see it. I’m content that interest rates are moving in the direction I think they are and we’re going to be okay. You know, on the multifamily side, yeah.

Cody Crabb (13:18)

It’s nice to hear that sentence. I don’t hear

that sentence too much anymore, so we’re gonna be okay. Sounds extra nice right now. Yeah. So okay. Let’s kind of pivot a little bit. So I wanted to ask you about your experience in multifamily specifically. do you operate exclusively multifamily at this point?

Mike Kron (13:24)

Yeah. Yeah.

We do. I mean, in the family office, it is 100 % multi-family. We own everything we manage, and we manage everything we own. We just have always liked having that control. You know, there’s a lot of things that happen on the sites that give you clues as to the health of the assets, that give you clues as to where the market is going.

Cody Crabb (13:51)

And why is that?

Mike Kron (14:03)

And if you’re managing it and it’s your people that are giving you direct feedback, I just think the information loop is a lot shorter and we get it much more quickly than I do with a property management company. that’s, you know, I don’t want to impugn them at all. There’s some great property management companies out there and I know lots of guys who do that.

But for us, I always wanted that firsthand boots on the ground knowledge of what was happening. And I think it’s allowed us to adjust more quickly to market conditions.

Cody Crabb (14:29)

Yeah.

Yeah, absolutely. I think, you said, it’s something like spotting a maintenance issue before it’s a problem. mean, that stuff is invaluable. That could be tens of thousands of dollars saved just from a little decision like that.

Mike Kron (14:38)

Mm-hmm.

Yeah, and you know, look, there’s also incentive differences. If I’m paying a property management company, how am I compensating them?

Is it a straight fee? Is it a percentage? It’s percentage of what? know, net or gross, that matters. And what their behavior is going to be. I don’t have that issue. I can compensate and incentivize my employees for exactly what I want them to do. And, you know, again, that’s just better control over what’s going on.

Cody Crabb (15:07)

Right.

Yeah, so tell me a little bit about the management company side. I’d be interested to know kind of how that actually, do you kind of operate it as a different entity or is it kind of involved with the rest?

Mike Kron (15:22)

It’s largely involved with the rest. I, for a long time, when I was the chief operating officer, I would spend a lot of time over on that side. I would balance my time between the asset management and the property management. Now, I spend less time and I’ve hired, I’ve got a great team around me that can handle that. But we sort of operate it as a independent entity.

But again, they’re still providing us information. When we want to go into a market, when we want to develop a property, or we want to buy a property, we’ll talk to our Vice President of Property Management, we’ll talk to our regional managers who are in that market to get all the feedback we can from what they know about the market. It’s not like, okay, you guys are over here and we’re over here and send us a report once a month. We’re talking.

Cody Crabb (16:05)

Mm-hmm.

Mike Kron (16:12)

daily, weekly, monthly, as needed to kind of get a feel for what’s going on in the various markets.

Cody Crabb (16:19)

So with everything that you’ve built, I’m curious, what’s the future look like for your company and for the, I mean 14,000 units is…

That’s a pretty tall, ⁓ I was gonna say tall order, but I don’t even know what to call it. That is much more than tall order. ⁓ So I’d be curious, do you have any plans to expand even further or pivot or anything? It sounds like you’ve got a pretty nice setup here, but I would be curious if even then you still have some thoughts about growth.

Mike Kron (16:36)

Yeah.

Yeah, know, growth is funny. We don’t, we never really focused on like, we want to grow this number of units. And I always, I don’t remember where I heard it, but the best thing I ever heard was when you set goals, that becomes a ceiling. And then suddenly you’re good with that. Where if you just sort of have an idea of where you want to go and just keep building it.

You can surpass even what you thought you were going to do. So, to circle to your question, the future, I think, is probably going to be… The patriarch of the family passed away not that long ago.

His activity level was dwindling over years anyway, but now we have a chance to set a little bit different course and we’re in the process of working through that. very much see.

the multifamily and the private equity side sort of merging together after a fashion to create a larger private equity group as we go forward. And I think that will give us the opportunity to continue to build, continue to expand.

You know, I still have a 564 unit project that’s a legacy project that we would like to get out of the ground this year. We’re working towards that. our growth has lately largely been in development as opposed to acquisitions. But part of that was the predilections of the owner.

and whether he wanted to sell assets and take risks and buy more. And as he got older, it was kind of just stand pat. And now we have the opportunity really to start looking at what our growth pattern will be and take advantage of some of these downturns in the market. mean, people are getting blown out after they overwrote the deals in 23 and 24. And, you know, I think there’s…

Cody Crabb (19:12)

Yeah, absolutely.

Mike Kron (19:15)

Again, I wouldn’t wait for the perfect opportunity, but I think there’s some very good opportunities. And if you can acquire quality multifamily assets in good locations at a reasonable price, I don’t think you’re ever going to go wrong.

Cody Crabb (19:28)

So what is it that, let’s say you’re talking to a room of investors. They’re either new or have not invested and they’re wanting to invest. You have 30 seconds, it doesn’t have to be 30 seconds, you have less than 30 seconds is all I was gonna say. You have up to 30 seconds to say something to them that you think they need to hear. You’ve been around investing and.

know, property management, this world for so long, I’d be curious to know what you would say to them. And I’m handing you the mic right now, what would you say?

Mike Kron (19:57)

I would tell them to keep their eyes on the horizon and not on the present. To look forward as you’re looking at what you want to invest in, not look at what looks good today, but what you think is going to look good tomorrow.

And most importantly, trust the people that you do it with. You need people are everything. I mean, I can be the greatest guy in the world and not be able to run real estate or I can, you know, be a complete idiot and you wouldn’t want to put your money with me. You really need to get to know the people that you’re going to invest with.

Cody Crabb (20:27)

Absolutely. So tell us a little bit about if people are interested in what you provide and they want to work with you or contact you, tell us a little bit about what people can do and how they can get in touch with you.

Mike Kron (20:39)

Sure, absolutely. I’m happy to have people email me. It’s mike at guardian-advisory.com. I answer all of my emails personally. I don’t have a bot that does it for me or a team. I like to communicate with people. And you can always visit our website, which will give you more information on the Net Lease Fund. And that’s guardiannetlease.com.

Cody Crabb (20:50)

Awesome.

So just before we close here, tell me a little bit more about the net lease fund and what that’s aiming for.

Mike Kron (21:05)

Sure, we’re trying to put together, we’re trying to raise $100 million. We will use 65 % leverage. And as I said, we’re gonna buy high credit tenant stores. So we’re really buying a high credit thing, which separates us from really everybody else. The best of the best in the REITs, Realty Income or Agree Realty are no more than 65 % credit. We’re 100%. And I always felt that…

I could produce the same kind of returns that they do with far less fees and focusing on much better tenants because I don’t need to get wealthy by sucking it to you, sticking it to you and with this fee and that fee and the other fee, we just charge a one and a half percent asset management fee and that’s on equity. And then we take our money at the end. figure if you’re paying me, I should be able to make my money on the real estate, not by taking fees.

with you. And we’re looking to aggregate 70 to 80 stores and we think that if we do that, you know, we can provide a five to six and half percent coupon for our investors paid quarterly because of the triple net nature of the stores. Really good tax advantages and as I alluded to earlier with the good entry point, you know, we can get overall returns in the mid to teens if interest rates move the way we think we are.

ultimately, we think if we can aggregate 70 to 80 stores, which is our goal, then we’ll be able to sell them to one of the bigger players because what we’re doing is exactly what they’re doing. We’re just doing it on a different economic basis, which I think is more beneficial for the investor.

Cody Crabb (22:32)

Hmm.

Hmm, well, I personally think that sounds like a great thing. If you’re looking to invest, that’s a great thing to look at. Can you give us the website one more time?

Mike Kron (22:47)

Sure, it’s guardiannetlease.com

Cody Crabb (22:50)

Is there a dash in there? Okay, because there’s a dash in the email. So yeah, okay. Just making sure. guardiannetlease.com Well, thank you so much for the insights you provided. ⁓ I think this has been a great episode. And thank you listeners for listening as well. If you liked what you heard today, give us a like, subscribe, all the things, and don’t forget to follow us so that you don’t miss more conversations with people like Mike. Thanks so much. I really appreciate you giving us some time today.

Mike Kron (22:51)

Nope, just guardian at least. One long word.

You’re welcome, Cody, enjoyed it.

Cody Crabb (23:18)

Yeah, you take care.