Cortland CEO On The White-Hot Multifamily Market And How To Retain Tenants And Build Talent

The 2008 financial crisis changed real estate forever. While some developers and firms were unable to weather the storm, others used it as an opportunity to refocus their business efforts and pivot to a model that would better serve both the market and their tenants. Cortland is one of those companies. 

Steven DeFrancis founded Cortland in 2005 as a small firm focused primarily on development in Atlanta. When the Great Financial Crisis hit, he decided to pivot the company toward a new goal: acquiring and renovating multifamily communities across the country. Today, Cortland is a global multifamily real estate investment, development and asset management company that owns more than 65,000 units, with plans to expand even further. 

DeFrancis spoke Wednesday to Walker & Dunlop CEO Willy Walker on the Walker Webcast about what led him to make that bold decision, the changes it led to within his organization and what the future holds for the cooking multifamily market. DeFrancis said that during the financial crisis, Cortland went into research mode. 

“We decided to do a pretty significant research project to try to determine where the market was going,” DeFrancis said. “If you put yourself back at that time, in mid-2009, folks were still talking about a double-dip, asking if the economy was ever going to come back. The recovery was not as obvious as we'd like to think it would be today.”

To answer these questions, DeFrancis and his team spent six months with market study groups working to determine the future of the market, researching all things multifamily, from supply and demand to demographics to how the collapse of the single-family market could impact multifamily. 

They discovered two things: The first was that there would be a massive undersupply of multifamily units when the market began to recover due to the underdevelopment of multifamily housing over the past decade because the focus had primarily been on homeownership. The second point they discovered through their research was the beginning of the transition in multifamily tenants. 

DeFrancis said that traditionally, multifamily has been a commodities business, and people lived in apartments in transitional periods of their lives — after college, post-divorce, when they had newly moved to the city — and only stayed there till they could afford a home. The Cortland team realized there would be a new clientele of multifamily renters coming out of the financial crisis, ones with more disposable income who would be interested in staying for a longer period of time. 

These findings led the Cortland team to pivot to a new business model focused on providing the best possible experience to the tenant. 

“Historically, companies focused on the investor as the client, and then somewhere down the line, there would be property operations folks whose job it would be to take care of the tenant,” DeFrancis said. “But we felt that there was an enormous opportunity that we could capitalize on if we really pivoted the whole business to focus on our customer as the true client.” 

This approach led Cortland to bring everything in-house. The company would no longer be outsourcing the tenant experience in its buildings; it would be controlling everything from landscaping to interior design. To ensure this plan would run smoothly, DeFrancis needed to make sure he was hiring the best people. This is why Cortland implemented a series of testing for potential applicants: personality profiling, intellect testing — anything that would help the company build a team of high-performing individuals who would be able to meet their new customers’ high expectations.  

This process not only helped Cortland identify the best talent but helped attract new talent as well. 

“Once you start with a small nucleus of really high-quality people, they attract higher-quality people who want to work with them,” DeFrancis said 

Walker went on to ask DeFrancis about the current multifamily acquisitions market, which Walker called “as white-hot as we’ve ever seen it.” Walker said that Cortland’s acquisitions team has underwritten close to 2,500 assets in the past three years, and he was wondering how DeFrancis views the market right now as capitalization rates continue to shrink. 

DeFrancis said an enormous amount of capital is looking to get into multifamily right now, which is driving down cap rates. But, he said, Cortland’s model of creating alpha through enhanced customer operations is driving ever-enhanced outperformance the lower cap rates go. 

Walker closed out by asking DeFrancis if he would ever consider pivoting Cortland’s model toward another asset class, and he said that while it could be possible, there are no plans to move away from housing for now. 

“Most of the places where I've made mistakes are when I tried to do something that wasn't housing,” DeFrancis said. “I've learned along the way to stick with what you know, or at least what you think you know.” 

On Aug. 25, Walker will host Robert Glazer, founder and CEO of Acceleration Partners. Register here for the event. 

This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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