Today, we’re talking Phoenix multifamily: why we’re excited about investing in this asset class and our "long-game" approach. Even more importantly, we're sharing how "superpowers" and potent insights have emerged amid swamp-like market conditions.

Inspiration for this issue:

"The Inner Scorecard" with Mohnish Pabrai

"Richer, Wiser, Happier" by William Green

"How to be Successful" by Sam Altman

A Deep Dive Into the Swamp

Two years ago, ATLAS was scaling its business, developing and buying industrial and retail assets. We were keen to diversify our portfolio and needed another analyst to support our growing team. When a resume for a candidate with a strong multifamily background hit my inbox, I had a gut feeling this was worth a close look.

Fast forward to today: ATLAS has a dedicated team deploying a comprehensive and disciplined multifamily strategy, led by Klayton Duxbury, the aforementioned candidate. Since launching this vertical in March 2023, we've faced considerable market contraction, with multifamily sales velocity in Arizona reaching near-record lows. To be brutally honest, it has been an absolute slog.

Let's paint a picture of the swamp we walked into and are still swimming in…it’s deeper, murkier and COLDER than we expected:

Oversupply:

• Approximately 33,000 new apartment units are estimated to hit the Phoenix market in the next 18 months

• Slowed absorption is placing downward pressure on rents (4-8% in certain submarkets)

• Concessions are on the rise, including discounted rent, waived fees and other financial incentives

Economic Volatility:

• Property values are deteriorating due to higher interest rates and cap rate expansion

• Operating expenses have surged, particularly in payroll, repairs and maintenance, and insurance premiums, with the latter skyrocketing by 30-40% in the last 18 months

• Distressed sales are on the rise, partially due to an uptick in foreclosure activity

Market Stagnation:

• “Bid to ask” disparity is wider than we’ve seen in years

• Short term loan extensions are stalling sales activity and resulting in fewer transactions

• Investors and Sponsors are rethinking their exit strategies, holding onto properties in lieu of selling at discounted prices

So, it hasn’t exactly been a warm welcome. The “swamp” is freezing, so to speak. The good news? Yesterday’s rate cuts might provide the needed boost to warm things back up, and Phoenix remains attractive for long-term investment despite strong headwinds.

Here's why ATLAS loves Phoenix:

1. Pro-Business Environment: Lower taxes and fewer regulations

2. Strong Population Growth: Domestic migration from CA, WA, TX, and IL

3. Robust Job Market: Diverse economy with growing tech, healthcare, and manufacturing sectors

4. Major Infrastructure Developments: Multibillion-dollar expansions by companies like Intel and TSMC

5. Lifestyle Appeal: Flocks of tourists and retirees are drawn to the sunshine, landscape, hospitality scene, and major sports/lifestyle events

The 30-40% decline in Phoenix multifamily property values since their 2022 peak presents a golden opportunity for investors willing to play the long game. Buyers who are well-capitalized, patient, and disciplined in their approach will find themselves well-positioned to benefit as the market recovers.

A Wolf Pack - with Superpowers - is Born

This is both humbling and energizing – a sense of synergy and collaboration has given us all a better gauge of our “superpowers” and how to leverage them.

In Klayton’s case, we have a laser-focused “market intelligence agent” with insatiable curiosity, cyborg-like discipline, and absolutely dangerous analytical skills. Over the last 18 months, he’s underwritten nearly 300 multifamily deals. Who does that? Klayton Duxbury, that’s who. From undercover prospective renter by day to nightwatchman rolling through target properties at 1am to scan for after-hours shenanigans, this guy is boots-on-the-ground, nose-to-the-grindstone.

Milo Moran, the most recent addition to Team ATLAS, also deserves a shout out. He might be the baby of the group by years, but he towers over all of us at 6’5” with the solid, rock steady presence of a wise oak tree. His superpowers? Calm, collected, and accountable with a can-do attitude.  Oh, and he’s also a bona fide martial artist. Basically, we’ve got ninjas over here.

If I had to name it, the superpower I’m wielding is “torch bearing.” I’m holding the vision for what’s possible for ATLAS, with unshakable self-belief and a limitless mindset. My metaphorical torch also doubles as a “defeatist deflector” – swiftly and soundly redirecting the energy when alarmist headlines, negativity or naysayers creep.

This collective expertise gives way to an unbiased, real-time snapshot of how a property functions, identifying hidden risks and highlighting potential opportunities. We’re blending modern technology – (yes, AI!) – with old school tactics – touring properties and cultivating genuine relationships – to arrive at a streamlined, simple strategy. We’ve been diving deep into the mucky morass of this swamp, so that we can make super clean and clear investment decisions.

As I spend more time mentoring, the age-old tenets of hard work, patience and persistence are ever-present. In case you missed it, Jerry Seinfeld concurs. These principles are not trite, but perhaps easy to cast aside because they’re not easy to implement. There is no silver bullet or get-rich-quick strategy here.

Luck has its role in most success stories, too. I can think of more than a few times where Lady Luck has shined favor our way. But luck doesn’t typically happen in a vacuum, sans parallel effort. One must take action so that luck can do its part, and when that action is rooted in integrity, knowledge, and soul, things work out in wonderful ways.

The Marathon

This marathon demands endurance, but also wisdom in how we’re running. Our ethos shapes the journey – more than simply reaching a “finish line,” we’re reflecting on who ATLAS is becoming along the way:

• We’re resilient and adaptable, rolling with inevitable setbacks and unpredictability.

• We’re informed, with encyclopedic knowledge of multifamily assets and market dynamics.

• We’re refined, deploying algorithmic precision to identify off-market assets that align with our long-term investment strategy.

• We’re connected, placing high value on developing and maintaining genuine relationships with all key players – brokers, owners, property managers, friendly competitors, and capital market experts. This affords us a 360-degree view of the market to navigate its challenges more effectively, and access to unique investment opportunities potentially hiding in plain sight.

Perhaps most of all, we’ve developed the sense that we are running our own race, resisting the urge to compare. The "infinite game" perspective reframes the sprint toward short-term gains and ego-infused competition, expanding the aperture toward sustainable progress, collaboration and intrinsic rewards like innovation, learning and continuous growth.

Sure, it sure would have been sweet to break into this asset class with ease, to enjoy a quick “win.” But good things come to those who wait. Even better things come to those who work for it…and dredge the swamp…and patrol prospective apartment complexes at 1am.

At the time of this writing, we are nonrefundable on a multifamily deal with a new partner, set to close on Halloween. We are more energized by this strategy/asset class than when we started and are poised to leverage our superpowers and market knowledge for long-term success.

What about YOU?

What unique gifts or "secret sauce" do you bring to your work and life? Recognizing and harnessing these individual strengths can be transformative, both personally and professionally.

We'd love to hear your thoughts and experiences. Share your superpowers with us, and let's continue to grow and succeed together.

Chris & Team ATLAS

If you’re new here, Soul Dose just rolled out about a month ago. Click below to check out the first couple of issues. Cheers!