Q&A with Julia Boyd Corso, Co-President, Interstate Equities Corporation
Todd Hankin, Partner-in-Charge of the Audit and Assurance Practice in California at EisnerAmper and leader of the firm’s West Coast Real Estate Private Equity Group, sits down with Julia Boyd Corso, Co-President of Interstate Equities Corporation (IEC), a California-based real estate investment firm that invests in apartment communities in the state. She discusses her outlook for real estate investing, trends and more.
EisnerAmper: How has investing in California apartment communities changed in the past five years?
Boyd Corso: Five years ago, we were in an earlier phase of the economic recovery. Deals were more reasonably priced, whereas today we get routinely outbid in competitive auctions. Now our teams have to work harder to source overlooked and under-optimized opportunities. Operationally, we see residents consistently expecting modern amenities and finishes. Whereas this was an emerging trend in 2013, it feels much more consistent today. Modern design continues to be democratized as a function of media, informing all of us about current style trends and lower cost modern finishes coming to market.
EisnerAmper: What do you predict will happen in the sector over the next five-to-ten years?
Boyd Corso: Affordability will remain a focal point with a continued battle between building enough supply to meet housing demand and the Not In My Backyard (NIMBY) sentiment. I expect more cities to bring rent control to the voters to decide upon. I also expect this will disincentivize development, especially if rent control is applied to new construction. Rents will rise for the few units that vacate and operators will be deterred from optimizing the quality of their assets where they can’t get a return on improvements. This will hurt the housing stock, neighborhoods, and residents rather than help them. Real estate technology will continue to bring forth new artificial intelligence applications, including deal underwriting, valuations, legal, leasing, and marketing.
EisnerAmper: What are the biggest challenges for IEC at the moment?
Boyd Corso: At this point in the cycle, it’s hard to find many deals that pencil. Our team must be creative about sourcing and evaluating opportunities. We take a volume approach to our pipeline, exercise pricing restraint, and often find that deals come back to us after they fall out of contract. Rising construction costs and limited crew availability continue to challenge our teams to get repositioning work completed efficiently.
EisnerAmper: What impact has technology had on IEC’s approach to investment and property management?
Boyd Corso: We manage many assets, including some relatively small communities. In order to do so efficiently, we rely on a cloud-based, fully-integrated technology platform which allows all of our stakeholders, investors, corporate departments, site-level associates and residents to access data centrally. We find this reduces errors, simplifies tasks, and allows for nimble decision making. We are also providing technology offerings to smaller properties which previously never had such conveniences (online rent payments, bluetooth-enabled thermostats and washer/dryers, electronic door locks, etc.), the same technology offered at our larger communities.
EisnerAmper: What is shaping up to be the most interesting trend for 2018?
Boyd Corso: Not sure if it’s exactly a “trend” but it’s been an interesting year in the market cycle. The abundance of capital is driving values higher. Meanwhile, its been a year of flattening rent growth and lender underwriting appears to be tightening as interest rates rise. These late-cycle, conflicting data points are creating an interesting mix of sentiment amongst industry participants. Our team is taking this opportunity to observe and act with caution, preparing our portfolio for an eventual downturn in this cyclical business.
EisnerAmper: When it comes to your career, what has helped you get to where you are now, and what advice would you have for others who want to set off in a similar direction?
Boyd Corso: I love to work. Hard work and a commitment to delivering results has always served our business well. I recommend to others that they embrace being gritty, willing to get their hands dirty and work alongside team members in the trenches. This is how you will learn the most. Unwavering honesty and open communication with team and investors alike encourages trust and partnership.
EisnerAmper: Do you remember a specific experience (e.g., could be related to a deal or a property strategy, etc.) where you wish that you had done something differently? If you were to do it over, what would you change?
Boyd Corso: We acquired a twenty unit community in a Northern California submarket dominated by larger, amenitized properties. Local demographic groups preferred size and amenities to a more personal, boutique living experience. They viewed the institutional assets as a status symbol. We had not seen this consistently and had to overcome renter objections. It taught us some valuable lessons on demographics and to be mindful of sensitivities to asset size and amenity packages.
EisnerAmper: On the flip-side, and without giving away a competitive advantage, what is a practice that you have implemented that you think everyone in your space should be doing, and why?
Boyd Corso: I’m a big advocate for prioritizing risk-management. We rely on an amazing group of business partners, including lawyers, accountants, and HR advisors that provide invaluable guidance to mitigate risks in new situations. We sometimes cross paths with managers who out of concern for costs, write their own contracts, cut corners in operations, dive into new, unknown markets, or underinsure their portfolios. As a fiduciary in a business delivering a risk-adjusted return, it’s important to manage portfolio risk whenever possible.