Borrower profile: The Connor Group sees return to transaction activity in 2024

The Dayton, Ohio-based multifamily specialist continues to see good liquidity from regional banks. 

The Connor Group, a Dayton, Ohio-based multifamily investment and management company, sees a return to transaction activity – but possibly not until 2024. The firm has scaled back its acquisition activity for 2023 as the commercial real estate transaction markets remain hamstrung by rising interest rates and broader market volatility.    

The company completed $3 billion of transactions in 2021 and 2022 and anticipated a similar volume of deals this year. But transaction activity has slowed substantially, said Larry Connor, founder and managing partner.   

“We tend to be planners and we thought this year would be a record-setting year, that we would do $2 billion of acquisitions. But we have only bought six properties,” Connor said. “We have no pressure to put money out, which is good because this is the most unusual and unpredictable market we have seen in 31 years.”  

Connor anticipates the remainder of the year will be slow but does see what he believes will be an avalanche of deals in the apartment sector as floating-rate loans mature. “We are anticipating that managers will have debt coming due and problems refinancing it,” he added. “Many of the problems we are expecting to see are financial, not operational.”  

Despite a pullback among bank lenders, the firm has seen good liquidity from that part of the market. The firm recently put under contract a property in Charlotte, North Carolina, close to Lake Norman, and had six banks competing for the loan.   

“The regional banks don’t want to have individual exposure much above $50 million, but will offer leverage of 70-75 percent,” Connor said. “If you’re a regional bank – and many have held up better than we think – you have to put money out.” 

Investment strategy  

Last year the firm viewed more than 700 apartment communities, focusing on class A assets in what it believes to be similar-quality locations. The Connor Group then completed due diligence and analysis on 325 communities, visited 173 and ultimately bought 11. “We look for good properties in good locations that are poorly managed,” Connor said.  

After acquiring an asset, the firm seeks to improve management, find new sources of revenue, reduce costs and raise rents to accommodate amenities added to the property. “If a property was built 15 years ago, one of the things we can do is upgrade the units,” Connor said. “But we have to do these things concurrently in order to meet our return goals and we find that most tenants will pay for the added value.”  

Connor believes his firm takes a different tack than many other owner-operators by hiring no one from the real estate industry, spending several months on up-front training for property managers and other support staff, and running each asset as its own business. “These are $80 million properties with five to 10 people running them,” he said. “We do not see these as a passive investment, especially because the way properties are valued is based on the bottom line.”  

The firm tends to be a short-term holder, often selling within 24 to 36 months.  

“Most people in the industry think about scaling by assets under management or number of units. We think of it in terms of transactional volume, what we buy, sell or refinance,” Connor said. “Capital events are where the big return opportunities are, which means that we will not buy a property unless we think we can improve the bottom line by 60 percent in the first 24 months.”  

Looking ahead, Connor sees a return to transaction activity – but possibly not until 2024.  

“If people say they know what is happening, they are either naïve or lying to you,” Connor said. “We do think that 12 months from now, things could be calm, and someone could have waved the all-clear flag and we will see a more balanced market. Fundamentally, apartments do very well in recessionary times.”