In this edition of Markerr’s Data Dialogues series, Markerr’s Research Analyst Galen Faurot-Pigeon chats with Bob Hernandez, SVP at Carmel Partners. Bob joined the firm in 2003, and has led the research department since 2016. Bob and Galen discuss how data supports Carmel’s ethos of “rigorous creativity” and allows their investment committee to identify new opportunities.
Galen Faurot-Pigeon: Can you give a brief overview of Carmel and the firm’s strategy?
Bob Hernandez: Carmel Partners was founded in 1996. Carmel focuses on creating homes and improving communities in in the United States through multifamily development, renovation and debt investments. Since its founding, Carmel has bought, renovated or developed, or is in the process of renovating or developing, more than 46,000 apartment units and has made 22 debt investments with a combined estimated gross value of more than $15.7 billion.
GFP: From your perspective, what differentiates Carmel from its competitors?
BH: Carmel targets the nation’s most desirable, supply-constrained and competitive markets. Within those markets, we track specific market conditions to identify attractive investment opportunities. We use the phrase, “rigorous creativity” – essentially combining analytical and creative processes – and we apply this to everything we do, from the details of a renovation or development to the structure of a deal. This enables us to deliver unique assets reflecting a neighborhood’s character.
GFP: You’ve had a very successful career with Carmel. Tell us how your role, and the firm overall, has evolved since you joined.
BH: Carmel has always focused on the multifamily sector. When I joined Carmel in 2003, we primarily sought value-add projects with some development deals. Today, we are focused more on development and continue to seek out value-add opportunities. But we always sought the right opportunity given the market cycles. For example, we did some condominium conversions and sales and operated student housing. We also bought, and continue to look at, select multifamily debt investments.
Through it all, I have learned a great deal. I started with Carmel already with a multifamily debt financing background. While I started out as a debt financing team member, Carmel was a smaller company then and many of us, including myself, needed to take on several disparate responsibilities. This helped me gain more insights concerning our business execution ad strategy. Certainly my focus was primarily obtaining debt financing; working with lenders required analytics and creativity to negotiate the best deal. All these experiences strengthened the way I look at research when I took ownership of the department in 2016.
GFP: You lead the research department. Not every CRE firm has one of those – how did you get it off the ground, and how do you work with other teams and the leadership at Carmel?
BH: Again, it comes back to “rigorous creativity”. Carmel already decided to centralize the typical research that a real estate company like ours requires. But there was also another strategic goal for our new research department. As Carmel already identified the target markets to invest in, we also wanted to determine specific neighborhoods within these target markets to focus our attention in identifying opportunities. We call this initiative “Market Strategies”.
Already being a data geek, I was tapped to lead a portion of this initiative working alongside our investment, development and asset management teams. Every year we update our Market Strategies, combining data driven analysis along with the local knowledge of our professionals within each market.
GFP: One trend we’re paying attention to is work from home and how it impacts urban areas in particular. How do you evaluate the future of work from home and how it may impact Carmel’s strategy?
BH: Certainly, the WFH environment is something that large real estate investors are tracking, and we are no exception. And we expect that over the long term, there will be a segment of employed persons that will be working from home but will also need to be in the office at least 1 to 2 days a week.
A few surveys we have reviewed – conducted pre-pandemic and more recently – indicate that renters and homebuyers have a healthy preference to live near their place of employment and also to live in walkable neighborhoods featuring various retail, food services and proximity to rapid transit. With climate change increasingly manifesting itself more and as potential residents consider their carbon footprint as part of their “where to live” equation, we expect continued and growing demand within walkable urban areas and adjacent to employment centers.
GFP: How do you incorporate Markerr’s insights about employment, income, and demographic growth into your analysis?
BH: In addition to appreciating the granularity of the data, the Markerr products also allow us to track – over various time periods – the employment and demographic trends of any hyperlocal area. The data particularly helps when we are targeting an investment opportunity in a neighborhood that our investment committee members may not be as familiar with.
GFP: Have you noticed a shift in the CRE industry’s attitude towards data and its role in the investment process? How do you think things will change (or stay the same) in the next few years?
BH: I’ve been in the real estate industry since the late 1980’s. Getting data – pre-internet – was essentially going to the libraries at UC Berkeley and searching through microfiche or journals, printing on a coin-operated printer, taking it back to the office and conduct a data input using Excel v. 2.x on a Macintosh (with a 9-inch grayscale screen and a 60 MB hard drive). The process was time-consuming and the data certainly was not hyperlocal and typically at least a year old. The amount of data available today, while easier to access with a few clicks of the mouse, can be overwhelming to a novice as well as to an experienced real estate operator.
But the real estate mantra has always been “location, location, location”. And part of any business operator’s success is understanding their targeted client. So generating an accurate profile of the neighborhoods attributes and dynamics through available data, particularly as it evolves and improves, will help deliver a targeted product to the right demographic.