Steve Firestone has a fighting spirit — the kind that keeps local competitors on their toes.
With his tenants and equity partners in mind, he’s not afraid to go head to head with other multifamily owners in Greater Atlanta to show how strategic management can make a world of a difference. Firestone speaks proudly of his company’s management style, which he considers a cornerstone of its success as a local owner and operator. His real estate firm, Crown Bay Group, looks to proactively bolster its multifamily portfolio, which now consists of about 1,000 units across three properties.
Firestone is also a big believer in upgrading assets to help validate rent increases. With one recent acquisition, the Park at Netherley in Georgia’s Union City, about 20 miles from Atlanta, his company splashed $30,000 on a pair of lake fountains. Firestone sees that and other perks as “doing well by doing good” as Crown Bay works through a 12-month period to bring 294 apartments out of rent control under HUD.
Crown Bay, which operates as a small ownership team with a separate management arm, bought the Park at Netherley for $31 million in August 2021, marking the Atlanta-based firm’s highest-priced multifamily housing asset to date. The lakeside property is close to full occupancy and has been undergoing other upgrades financed by a three-year bridge loan from Lument with extension options.
Crown Bay, which started buying properties in the Atlanta region in 2015, now has its eyes on other housing markets in the eastern half of the Sunbelt region, including metro areas in Alabama, Tennessee, and the Carolinas.
Firestone sat down with Lument to talk about the evolution of Crown Bay’s investment strategy and how his firm navigated complex HUD regulations to acquire and upgrade the Park at Netherley.
This interview has been condensed and edited for clarity.
Lument: Can you elaborate on how the Park at Netherley acquisition stands out from other assets that you’ve bought and sold?
Firestone: We traditionally buy more C to B-minus class properties under $15 million. It’s our sweet spot, really. Mostly because we came up from that and got so good at it and also partly out of necessity of funds. But because of our extensive track record we recently started getting a lot more equity groups and funds interested in investing with us.
As with everything there’s a price to pay. They want a minimum of $5 million in investment — sometimes $10 million. So, we’ve got to go out and find higher-priced properties. When you get up to properties in the $30 million to $40 million range, you need equity groups to come in and take a bigger piece, as much as 50 percent. And when you’re going after bigger properties, that brings even more competition.
Lument: What’s driving all of the investment activity in the suburbs around Atlanta?
Firestone: Frankly, a lot of operators think it’s easy to run these properties. There are a million new sponsors trying to get into the market. Many are buying these 100-unit or so properties out of necessity, because that’s all the buying power they have. But what they don’t realize is that they’re actually very time consuming and very detailed to operate. A lot of them find that out the hard way.
Lument: With so many potential buyers flooding the market, how does Crown Bay separate itself from the pack?
Firestone: Well, first off, we do what we say. If we make an offer, we don’t retrade. We’re sure of what we’re doing from the get-go and we try our best to stick to timelines. Our first rule is you have to buy right. Our second is management efficiency — that’s free. Our third rule is meeting the physical needs of the property.
We always treat physical needs, as a matter of course, and then we try to add whatever amenities we can within our budget. We’ve seen 200-unit properties that are family-oriented that don’t have playgrounds. Crazy things like that. Another property had a really bad parking lot. Those are the kinds of things we zero in on. We also have great broker relationships and what we do buy is generally considered “off market.”
Lument: You partnered with Lument to secure bridge financing for the Park at Netherley, as well as financing on several other properties Crown Bay has bought and sold. How has that relationship evolved?
Firestone: The folks at Lument have proven, over the course of several deals, that they understand our underwriting and they understand our projections. Ted Nasca, who worked on the Park at Netherley financing with us, has been a great friend and business associate. He and his team have been really committed to helping us work through issues that have come up, even the smallest.
Lument: The Park at Netherley acquisition required a detailed buying strategy. How did that deal come to fruition?
Firestone: It was at a time when the market was very active. This deal further showed the strength of our relationship with local brokers in the Atlanta area. We bought the Park at Netherley from a big investment group. With this deal, a broker I know had heard directly from the seller about six months earlier that this was one of their assets they might look to offload. If the property had gone on the market, it probably would have traded for a significantly higher price.
Eventually we got the seller on the phone — they were used to dealing with the bigger brokerages who tend to get angry if those guys don’t sell through them. I wouldn’t say our conversations were warm and fuzzy, but we convinced them that we were actually able to do the deal. We changed some terms a bit, not knowing how complex it was going to be.
Lument: Atlanta has been seeing significant rent growth. How do HUD rents correlate with that?
Firestone: We actually had a very nice surprise this spring. We were waiting for HUD to come out with their new max-allowable rents, which have gone up between $200 and $250 more than what we’re already charging. That’s already made this property a homerun — that was our five-year projection for rents with conservative underwriting.
Lument: When people hear about affordable housing being converted to market-rate, there’s often a knee-jerk reaction — regardless of location. What’s the best way to address that in terms of your messaging?
Firestone: What I find is that we’re playing a very integral part in the overall food chain, so to speak. We’re obviously money-driven and we’re not a nonprofit. But we’re actually filling a need in the market, because there’s such a shortage of housing for the next group that make too much money to live in LIHTC properties. We’re always inundated with applications because people don’t really know or they just try it anyway. Some folks see it as owners like us taking away from the affordable housing stock, but tax credits have to be used every year and HUD is building this kind of housing every year.
Lument: Are multifamily prices still on the rise in the suburbs around Atlanta?
Firestone: Yeah, prices have been on the rise for a while. It’s really a crazy market right now. But with all of the uncertainty in the economic market and interest rates going up, you’re starting to see buyers and sellers bump heads on pricing. After the COVID slowdown, it wasn’t like a creeping in of buyers and sellers again. It was all of a sudden. That drove pricing up really quickly.
Lument: How often do you find yourself competing with larger institutional buyers on deals around Atlanta?
Firestone: Not that often, actually. We’re talking to the brokers in a friendlier and more neighborly tone. The brokers know me, so if there’s a property that those bigger groups are looking at and we get the whisper price, we usually just won’t spend our time on it. The potential deals that are a little quieter — where a few of those companies may be looking at the property and it may have opportunities for improvement— those are the ones that we’ll go head-to-head with them on and at least have a shot at.