[0:00]Thank you everyone for joining us. Nick mentioned I'm Ryan. I'll start off our presentation talking about finding the deal. Basically the acquisition process for BAM and I'd say there's there's three components to it. There's the where we're looking, there's the who who's helping us look, and then there's the what we're looking for. And I'll start with the where we're looking. Uh, we are a Midwest focused firm. We are based here in Carmel, Indiana, suburb of Indianapolis and our majority of our portfolio is in Indiana. We also have really uh strong presences in uh Demoin, Iowa, Kansas City, Missouri, market that we have two assets, uh one of them being in fund five, which is open now. Uh we have an asset in Northwest Arkansas, Bentonville, Rogers, Fayetteville, that's a a really emerging market, tons of growth down there. And then Pittsburgh, Pennsylvania, we have uh an asset in our fourth fund there as well as a joint venture development project that's coming out of the ground, starting to lease up right now. So, very Midwest focused strategy, which segues into the uh brokers that that help us look. And they're specifically helping us in those markets. We we have relationships with multifamily investment sales brokers. Uh some of the household names for those you uh maybe seeing them on for lease and for sale signs in in your communities that you live in, CBRE, Colliers, Walker and Dunlop, Cushman and Wakefield and the like. Uh that have flags or presences in those those markets I mentioned, and they're helping us find acquisition opportunities. Um we're not just looking on the deals they're marketing broadly. We're also looking for off-market opportunities, and we like off-market opportunities being it's not broadly marketed. Uh they'll come to us, say, hey, Bam, we've got this owner in Kansas City that has this deal that fits your buybox. They'd like to do do a deal with you directly and and we kind of go from there, and that takes off the table effectively, uh getting into a bidding war with others. Um and we're able to really get in at a really good basis on that, and further, we get the majority of our deals come to us off market. Largely because we have a great reputation in the marketplace. We have uh just done a great job delivering on closing on time. Not retrading uh sellers being really good to work with, and that's helped give us access to a lot of good opportunities and a lot of good operators, even some of our joint venture development partners are all ones that we've transacted with before, they trust how we operate, we trust how they operate, and that's um that's that's been a great source of of deal flow for us. Not just looking at what CBRE is bringing out to market, but rather that broker bringing us the deal, um and us not having to bid against others. But really we're focusing in and kind of getting into what we've got listed on the screen here, we're looking for class A assets. These are institutional quality. They're built within the last 10 to 12 years and they're located in suburban submarkets with A-rated schools. Where they're good jobs, there's population growth, and also these markets that we're looking in, specifically the submarkets, because real estate is a local and even sometimes hyper local endeavor. Uh we're really focused on those those um submarket dynamics, especially with rent growth and occupancy. And then, uh favorable supply supply uh dynamics as well. We we don't want to get into two oversaturated, overbuilt markets, if we can't control it, so that's that's a big component of our our strategy and in terms of of acquisitions. But yeah, really looking for newly built in the last 10 years, uh at least 200 units, that's usually an ideal economies of scale. Larger properties, you can generate a lot more cash flow and growth and also just cast to a wider buyer pool on the exit where we're we're selling to institutions, pension funds, more sophisticated operators, where there's a little bit more liquidity. And we're going to have a little easier time uh on the exit versus smaller, less shiny assets that uh the buyer pool may not be as good or it might be a little tougher to execute on an exit in that sense. But ultimately, we're we're we're targeting over a a three to seven year hold, at least a 15 IRR, two X multiple. Um so that's really kind of what we're looking for, but also specifically, I think, Nick, there's another part of this slide. Targets, target opportunities and situations. So I mentioned specifically the uh, you know, where we're looking, what kind of product we're looking for. But also, it's it's only, you know, where where is the upside? And for us, our upside is in operations. We can grow the value of the property by growing net operating income, which I'll touch on a lot more kind of the how. But overall, the situations we really decide look for, um and and tend to target on these acquisition opportunities is where the operator is in financial distress. That can mean they've got a loan that's maturing soon, and they they need to exit the asset. Um a refinance is not accretive to their strategy. It could be that uh they have equity that wants out. So really an operator in financial distress is is is a target opportunity, and then also merchant developers. Which these are effectively builders of apartments. They're they're focused on building, not so much operating. Their intent on getting the project out of the ground, leased up, sold and onto their next, their next development project. And those developers and we we know a lot of good ones and we've bought off a lot of great ones, but they are not not being as operations focused, there's a lot of upside in being able to grow net operating income and OI through uh optimizing revenue, realizing some concession burn off on lease up, second generation leases where where there's there's a little bit more upside there, and then also expenses. They're they're very marketing heavy. Um so that's that's a great opportunity for us to add value buying a a project off a merchant developer, developer that's fresh out of lease up. Uh one example is Hayden Flats, which is on fund five, open now in Bloomington, Indiana. We bought that project uh here recently and it was not too far removed from lease up, but I'll touch on a little bit later kind of some of the upside we see there. And then lastly, third party managers. Third party managers work for a developer or an owner as their property manager. They're not vertically integrated, unlike BAM, where we are vertically integrated, and the biggest trend that we noticed with third party managers is they do not operate as efficiently. Because at the end of the day, they're only getting paid on a percentage of the property's income, total operating income, not net operating income. So, with that said, they are not as focused on expense optimization. They're they're not getting a piece of the promoter or anything, they're really just trying to clip a fee. So, another opportunity for us to add value by just running the asset more efficiently. So, uh, I think that covers my piece and I'll kind of let Jim go a little further into how on these acquisitions, we underwrite them and we structure the deals. Thanks, Ryan. Um so there's there's really, we're going to cover six areas of underwriting and deal structuring. And I'm going to go through them in order, but in reality, a lot of this stuff is happening kind of simultaneously as we go through the process of of getting our arms around a deal. So the first thing is market analysis, and some of that happens at a macro level, and from a macro level, we're looking for diverse, stable bases of employment. You know, we don't want, we don't want all of the jobs in an area coming from like one employer, for instance, who could theoretically, you know, find themselves in distress or laying off or, you know, dramatically impact the project. The second things that we look for from a macro perspective are rent and income, you know, dynamics that are that are sensible and in check so that people can actually afford the rent when they when they come to our communities. We also focus on landlord friendly markets. So, you know, we sort of stay out of the um, the ones that are overly, you know, favor the the renter in case we have some problems with collecting rents or need to get a tenant out. On a micro level, we're looking for demand drivers, so there's the demand side, and then obviously the supply side. Everyone talks about supply and demand, the demand drivers would be job creators, new things we see coming into a market, um that could be good for jobs. So for instance, about 15 miles northwest of Indianapolis, you know, Eli Lily's investing in the leap district. And that that's a market that we're clearly investing in and one that we're very focused on. Um similarly, Highnex, which is uh a semiconductor company, is is about to open a massive plant in West Lafayette. So again, those are good demand drivers for those markets. On the supply side is, as Ryan mentioned, we're looking at the construction pipeline. What new projects are either on the drawing board or in process of being built that could be delivered during our hold period, creating, you know, new supply that would put downward pressure on rents? So we need to really understand those, and together the demand drivers and supply side really give us a better picture of of how we need to think about and perhaps forecast rent growth as we underwrite the asset. And then the final piece of a market analysis would be looking at the competitive properties in the market. You know, is is our target asset leasing above those or a little bit below those? You know, if if we're top of market, we know that we're probably going to have a little less pricing power as we hold it and we're going to be relying more on those market dynamics. So, moving into the next, you know, part of the underwriting and deal structuring is is the underwriting model itself. So this is a financial model, it's generally a discounted cash flow model, we call it DCF, and the goal of the models to really determine within our our investment criteria and, you know, as Ryan mentioned, we're targeting a 15, a minimum of a 15% return. But what can we pay? You know, so basically what it does is it lays out all the cash flows that we expect over the three to five year hold of the property. Um and, you know, as we do the underwriting, it's it's important for for people to understand that we look at hundreds of deals for every one that we might bid on. And even as we bid on those deals, a lot of them we don't, we're not awarded the deal in the first order, but sometimes when a buyer that they do select doesn't perform, that deal will come back to us because again, as Ryan mentioned, our reputation with the brokers is that when we say we're going to do something, we do it. And so they they tend to to give us a little, a little more weight and the last few deals in fact, have have gone that route where we bid on them, we're not awarded them, and then they came back to us. And then we we, you know, negotiating the purchase, there's a little bit of back and forth, but, you know, again, putting that's effectively putting the property under contract similar to when you would like do that with buying a house after you win the the, you know, the bid. The next is really developing the business plan or or forming the investment thesis of the property. And this is really kind of understanding why the property is a good fit for BAM Capital and how we can formulate the specific things that we can do that Ryan will go into about ways that we can add value at the operations level. So, you know, there's numerous factors that kind of go into thinking about the business plan and really what it does is it helps us formulate an opinion of how long it will take to execute the business plan. Um the specific, you know, steps that are going to be involved in executing that business plan, and all of that sort of determines our hold period. And so, so that's uh that the hold period obviously is important and I'll get into kind of marrying that up with the debt later. But another thing that we really go through as we underwrite and deal structure is the physical inspection. Um it's important to walk every unit. Um we don't want any surprises after we close, we need to know what residents are doing in those units and what the physical condition is. Obviously, we're doing the physical inspection to also understand if there's allowed deferred maintenance or if we have to budget capital as we as we look at the overall investment and, you know, just to to really understand the general condition of the project. But we also don't just tour the property itself, we really look at the surrounding areas. We're looking at access, you know, to the property, visibility of the property, you know, potential noise from either traffic or other, you know, neighbors in the area, problem neighbors. You could have a a restaurant that has a a distinctive smell if it's like a a barbecue place or something like that, you know, or or worse. And then we also really contemplate vacant parcels to make sure that somebody's not going to build a competing project, you know, adjacent to us or something along those orders. The next step in the underwriting and deal structuring is is contemplating debt. Um obviously, cost and debt coverage, you know, from the cash flow of the property are are significant considerations, but we're also trying to marry up that debt with with our expected hold for the project. You know, if you go back to the investment thesis where we were talking about the idea of really thinking about the business plan and how long it might take to execute that business plan. We want the debt to to have some adjacency to that. Um it needs to be flexible so that if we execute the business plan a little quicker, we can sell a little sooner, but it also needs to be flexible where if if even if we've executed the business plan and and the capital markets are in such a situation where we can't, you know, we don't think it's in the best interests of our investors to to sell at that time, you know, maybe we need the flexibility to extend. So all of those are kind of factors as we contemplate the debt. Um and then the final thing that we really look at is risk management and downside analysis. Um one thing I could say with confidence is almost everybody who's ever underwritten a deal knows that they're all wrong. Um 100% of the time, something will go a little bit differently than you planned. And, you know, so so we always we always say what could possibly go wrong. And, you know, there's no question that that we need to have contingency plans. You know, we need to build into our underwriting and our modeling, you know, contingencies, significant and rational reserves, which, you know, we pride ourselves on being very conservative with that. We need to hedge for interest rate exposure, you know, in case interest rates spike, we generally are buying caps to to make sure that we're not going to get blindsided with, you know, additional debt costs and things like that. So, you know, and then obviously, we we don't just think in terms of how much we can make off a property, you know, we're looking at, again, what could go wrong, look at a downside analysis so that even if things don't go perfect, perfectly according to plan, we're still going to make a reasonably good return for our investors. All of this is really, you know, with a, with a minds eye towards, you know, how can we, how can we make sure that we're going to do do right by our investors and and deliver a good, a good investment return for the fund. So, I'll uh turn it over to Ryan to talk about the operations. Yeah, so, as as I'm sure we've we've said Adm at this point, I mean, it's it operations is everything, that's, you know, it's a three to seven year hold typically on these assets. And it's three to seven years of hard work going into operating the property to only achieve our desired outcome for our investors. So, with that, we operate with the axiom, you know, BAM management, our property manager and asset management arm operates the axiom that for every dollar we can increase an O I, net operating income, be it we're reducing expenses, or we're growing revenue. We're basically increasing the value of the asset by $20. Uh that's that's that's kind of our approach. So, any any way we can move the needle on NOI, it's moving the needle on value. And focusing on what we can control. So, it starts with our in-house management and construction. I mentioned vertical integration earlier. I'm sitting here at our our corporate office, next door to me is Laura, our VP of property operations, next door to her is Ashley, our VP of property management, next door to Ashley is Danny, our VP of maintenance. And I'm in a meeting with them every week. I talk to them daily. We are very much aligned and integrated on what the strategy is for each of these assets and it makes us, that alignment and responsiveness is everything. Because in a lot of cases where you're using third party management or everybody's scattered, it it can be really challenging, but uh for for us being integrated is everything. And also BAM companies start as a property management company. We started managing other people's deals, learned through that and and grew through that, and and moved on to what we do today, which is focus on our assets. We don't do any third party management, so it's all focused on our portfolio and and that in-house management. And then the construction piece, to be clear, is not development or new new builds, we're not a general contractor, we're not a developer. But that construction arm is uh a team of individuals that have been in the multifamily property management, property maintenance, uh renovation, you know, capex, painting, things of that nature. They all have experience in that, and they're captive to us in that they're working on projects that we need that we can realize some savings, whereas if we shop that out to a vendor, uh we'd be paying their overhead, we'd be paying their their markup and everything else, whereas we can control all the pricing on those projects that we have the capacity to be able to do ourselves. Uh that segues into kind of a typical area of expense savings.
[21:40]We the biggest controllable expenses we have are general administrative expenses, uh all all the odds and ends, operating the properties, uh marketing, which kind of speaks for itself. It costs we spend to advertise the properties and the rental units and leasing and all of that. And then repairs and maintenance, which is the biggest controllable operating expense we have, and utilities being another, largely controllable. Um repairs and maintenance is the biggest that we can really influence with our in-house management construction. We have a really robust training program internally that teaches our maintenance supervisors and technicians how to do a lot of these maintenance tasks on these properties that typically a lot of companies will hire out to third party vendors, such as Hvac, heating ventilation, cooling, fixing furnaces that go out in the winter, fixing air conditioners that go out in the summer. We we can replace units in house, a typical Hfac replacement these days, uh full systems about 8 to 10 grand, if you're calling out a vendor, but we're doing that for probably about $4,000 in a lot of its materials. So that's a really material savings, not only to to the bottom line, but to cash flow and only the value of the property. Um and then they're dealing likewise on appliances, on plumbing work, on electrical, and we even have a specialized team of some individuals that were formerly plumbing and electrical and Hvac contractors that uh can go to specific sites and support where they're needed in in high times where there's a lot going on or for we're short staffed for whatever reason. So, we have a lot of flexibility and capability there and ultimately it it helps drive value. And then economies of scale. We hit on that earlier briefly, but economies of scale being big for us and and what we do where we have a great concentration of properties within a submarket. Where they can share vendors. Those vendors are going to get more aggressive on pricing and terms and they're going to prioritize our projects and needs over that of smaller customers. So, it really behooves us to strategically acquire properties within close proximity to one another. And we realized a lot of that here in Indianapolis, in Demoin, Iowa, and we're actively working on that in Kansas City, Pittsburgh, Northwest Arkansas, these markets that we've recently entered into. So, economies of scale is everything, getting just a little better pricing and a little better terms and better service and only it makes operations a lot smoother and and impacts the bottom line. And then next is increasing rents as underwritten. So, at the end of the day when it comes to rents, I I don't want to say that we we have total controller because at the end of the day, we're market participants. Supply and demand dictate a good deal with that. That said, we're very strategic as Jim's talked about in our our underwriting, very conservative, looking very closely at supply and demand, you know, that construction pipeline. And really looking at the fundamentals within the market and within these submarkets and where they're trending. If we feel like occupancy is really high, supply is limited, and demand is still really strong, that's an indicator that there's probably good good chance we can push rents a little bit, whereas, um in some cases, it it might be different, we might have to pivot, and that's not uncommon. But that leads on to really what we especially can control, whether supply and demand are high or low, ancillary income. And what ancillary income is effectively the fees that we collect on top of rent. The biggest being our utility bill backs for master meter, water, sewer, trash, and uh other fees, pet fees. Half of American home households have pets. So, we we experienced that the same and that's that's a great revenue source, and we we have a lot of great amenities for pet owners at our properties. And then valet trash is a good example of an ancillary income stream. With these being class A communities, a lot of these residents desire convenience. So, valet trash is effectively where five five of the seven nights a week, there's a special trash can that our residents can put their waste for that day in, and a vendor will come by and pick that up and take it to the dumpster for them. And it's uh really nice convenience for them, but it's also a good ancillary income stream for us. We're typically making about $10 a unit per month on that, and also that that trash fee also offsets some of our expense for the larger uh trash compactor dumpsters on site. And then bulk internet, another convenience. Internet is basically like water these days. Like you got to have it, and uh rather than residents have to worry about picking a a provider to come in, hook everything up. They're paying whatever the rack rate is, they're doing with all the increases. We've this has become a very common trend in our industry in our portfolio where we as the apartment community owner and operator will contract with a provider, and they'll provide the same internet service to all the apartments and we'll charge them a flat fee that's usually a little bit less than what the rack rate is if they subscribe directly with the provider. And we're able to get a nice little profit off of that. I'll I'll give an example, we're in the process of implementing that at five of four of our five communities in Demoin, Iowa, that we own and operate. And uh we're looking at, once, once that's all ramped up, it usually takes up to a year to realize it. But we're looking at about $30 a month per unit in NOI growth, which translate that back to the $1 of an NOI growth to $20 of value. That's across those five assets about over $5 million in value creation alone. So, really proud of that, but overall, I mean, that, you know, improves the resident experience and it makes our our communities more attractive, uh in the in this uh rental environment these days. And with that, uh I'll hand it over to Jim for the the payoff, the really exciting part, the exit, where it all all comes comes together. So, take us home, Jim. Great. Thank you. Hey, I just want to emphasize this too. Uh on the point, you'll illustrated it there on the on the internet, but also I was just thinking about when you're talking about the valet trash, for example. If it's $10, you know, a month per unit on that, right? The every property that we own is around, you know, two somewhere between two and 400 units. So, you know, scaling that across all the units on the property, that makes a massive impact to the bottom line. And so, I just wanted to call that out. So, you can you can do that, right? Bulk internet, you talk about valet trash, you know, pet fees, you know, those kinds of things. Those are really big needle movers for the property, and then at the end of the day, for the investor, which uh, we'll get to the example now. Absolutely. Thanks. Um we've we've thought it would be really helpful to walk through a a super, super simplified example. And um as I walk through this, I wanted to, um, I wanted to, to really point out two things that I want you to kind of, kind of, you know, grasp onto as takeaways. And the first is that, first, we do not need to double the value of a property in order to double our investor's money. Um for some people that that's obvious, for others it's not. So, so keep focused on that as we walk through the numbers. And then the second thing is that the sponsor doesn't earn a promote until all investors get their capital back, plus their preferred return, which for fund five is either seven or 8% depending on how much you invest. Um, so in our hypothetical example, we're we're buying a $100 million property. Um if you can go down a couple. Yeah. So the first thing we would do is is is within our underwriting, look at the mortgage, make sure that it's affordable, we have good conservative coverage. And in this case, I've I've said we're going to get a 62% mortgage or $62 million for a $100 million asset. We would put a little bit of preferred equity on it from the BAM Preferred Credit Fund, and then fund five would the balance of it would come from fund five as common equity, which is which is what we're talking to you today mostly about. So in this case, again, super simplified example, there's no, there's no prorations, we don't have a lot of deal costs in there. We're just we're trying to to, to, you know, make this simple so that it fits the scope of this discussion. Um after we've bought the property, you know, as as Ryan indicated, you know, we go through, we do all the hard work of of managing it. We lean on the property management team, the operations team, the leasing teams and the maintenance teams to to create a great resident experience, add value at the property level, and increase the net operating income so that when we decide it's a good time to sell into the capital markets, we take the project out for sale. By doing that, we we basically, um, you know, work with the brokers who brought us the deal in the first place. Um generally, we're we're pretty loyal to the person who brought us a deal on the buy side, they'll often use them for the sale. Um they'll do a broad marketing, they'll blast it out to, you know, 100 potential investors, 200 potential investors, you know, whatever they have in their in their cadre, probably thousands in in reality. And we'll negotiate a sales, we'll select a buyer, they'll go through diligence and it's time to sell. So then we finally get to the closing table, and in our hypothetical example, we've said that we took our $100 million property, added enough value so that we've negotiated a sale, um of $145 million sale price. And so at that time, you know, when when we close, Nick, if you can kind of keep going, um the first thing we pay back is the mortgage, then the preferred equity, and obviously, every sale has sale costs. And that generates a deal level proceeds. Um in a success scenario where the investors have gotten above their preferred return and their capital back, the sponsor will earn a promote. And then that yields up um net proceeds that will go to the fund investors. In this case, kind of following through the math, it says 62.7. That $62.7 million includes the investor's original $30 million from fund five, you know, which is the second line at the top. And that effectively generates a 2.1 multiple on invested capital, which we refer to as MOIC. So in this hypothetical example, you know, we we added $45 million worth of value to to a property that we bought for $100 million and we were able to generate a 2.1 time multiple on our investor's equity. So, kind of to to summarize this, you engage with BAM Capital because we are experts in our local markets. We rigorously search and underwrite deals. Our operations, leasing, and maintenance teams execute at the property level, which is hundreds of people involved in the process. We deal with curveballs in the market or at the property level, and then we pick the right time to exit, at all along, focusing on how we can maximize value for our investors. So, um Nick, do you want to, um, take a few questions? Yeah, we'll we'll state it. Or did I miss, or did I miss anything? Well, I appreciate you asking me that. Thanks, Jim. Uh, I'm always here to correct the CFO any chance I get. Just just kidding. But, uh, yeah, excellent overview. Just I just want to uh click double click on one thing there just on the on the net proceeds, you know, back to the investor on the 2.1 times return.
[37:12]So just to put it into real, so if you were to invest a million dollars, just easy example, a million dollars, back to you, you would you would receive 2.1 million in this example. So, just to put that uh real example there for for the for investors. That's right. Yep. Excellent. But yeah, that that and just to illustrate, I just want to illustrate the point. There like we covered a ton of ground, and the reason we showed that picture at the beginning, uh I'm going to I thought I was going to pull it back up here. But that that picture with all those people in it, they helped execute and to operate this. And and as Ryan and Jim talked about, when it comes to operating the property, the team on site, that's our team, as well. The team here in the office that works with that team to make sure that we're executing the business plan day in and day out, making adjustments and pivots as we need to to respond to the market, to things happening at the property, uh that that's all here on our team. Having a pulse on the ground in person is super important. Uh so I just wanted to stress that one more time. So, thanks everybody. Thanks, Jim and Ryan for for going through everything, for answering the questions. Thanks everybody for joining us today for the conversation, uh questions, the insights. We really appreciate that. If you have interest in learning more, right, if you haven't spoken to somebody on our team yet before. So, Mark, you and your wife, I didn't catch her name, that's my fault. Uh we'd love to chat more and learn more about your situation, what you might be looking for, concerns, um opportunities that that you might have for us to partner together. So, appreciate your time. Great to meet you all. And the last thing before I let you all go, we love meeting people in person. So if you happen to be in Indiana, or coming to Indiana in the next couple of months, we've got events, we've got an event for you. We've got our annual town hall, which we host here in Carmel, Indiana, suburb of Indianapolis, April 29th. So hopefully you've got an invitation for that already. If you haven't, um we can be sending more information about that, but it's a opportunity to meet our team, small smallish group setting, a couple hundred of your best friends in a room, meeting people, mingling, but then um hearing from our founder CEO, Ivan Barrett, and our um president and uh CIO, Adam Erret, they'll be giving updates that day. Then we're doing a day at the track, Indianapolis 500, big deal here. We love it. We're we're having a day at the track with a day at the track with investors. So, please if you can join us, uh let us know and come on out. And then we're doing a trivia night with our philanthropy partner, Firefly Children and Family Alliance, Thursday, June 11th. So if you want more information about that, or you want to come to one of those, just reach out to us at invest at Bam Capital.com, and we'll look forward to meeting you in person, putting faces to names. So, thanks everybody. Great to see you all, great to meet you. Hope you have a great Friday, enjoy the weekend, and and Mark and and your wife enjoy your cruise and uh hope you safe travels. Take care everyone.
