Thursday, November 20, 2014

Meridian Pacific Properties: An Exclusive Interview

Meridian Pacific Properties doesn't churn out profits; it beautifully crafts a returning customer.  The lifeblood of this outstanding real estate company is not getting to this deal, or the next, rather it is making sure that the investor client is better off (for having invested) long term.  CCM blog first presented MPP to its readers back on June 26, 2014.  See: Investing-with-meridian-pacific....  It was due time, therefore, to catch up with MPP and Founders, Kevin Conlon and Jeffery King.  I was able to meet with these two gentlemen recently and ask them key questions about the status of the residential real estate market, M.P.P., and "homeownership" for our struggling Millennials.

1) What challenges exist going forward for residential real estate investing in the Memphis, TN area and for Meridian Pacific Properties?

K.C.:  Challenges are often opportunities.  When home prices came down so low in 2009, our business model really caught fire.  We were able to pick up foreclosures at great values, renovate them to fit our quality standards, and sell them to investors knowing they would get a cash-flowing asset.  We've since moved out of that real estate cycle and foreclosure inventory is much closer to what it was in 2005-2006.  From our standpoint there is certainly now more competition, yet we continue to thrive in other ways.

CCM: "How so?"

K.C:  Our culture here at M.P.P is about anticipating what's around the corner and seeing it before others do.  That's why we evolved our business model and moved into new construction.  We saw, again, opportunity, from developments that had been left unfinished and are now bank owned.  Lots or tracts that had been left undone became another element of our core business.  These "infills" presented us with a chance to provide our clients with more savings and still get the same rent yields even today.

J.K.:  If an investor buys a brand new home, there is no worrying about things wearing out right away.  Maintenance costs remain low for several years.  That's not necessarily the case with an REO, even with the great job I think we do (renovating) prior to handing a property over.  This new construction product is the preferred product, we are finding.  Still, we are much in tune with the investor philosophy and our goal is to get them into a balanced portfolio...maybe owning a few REO's, a couple of newly built homes...and so on.

K.C:  Essentially we buy these lots in foreclosure from a bank and understanding the covenants of the area, size restrictions, finding qualified builders, and so forth, we build homes in such a way that it suits the investor.  A home owner may want carpet.  We know an investor would prefer laminate because carpet is a service item.  In other words, we harden the home and give the investor a better return long term.

2) There are several companies that sell turnkey investment properties in Tn.  Why should investors buy single family properties from M.P.P. and not them?

J.K.:  I think the biggest thing we find missing in real estate is integrity and honesty.  It seemed when we first started out that most people went out of their way to make a sale without thinking of clients.  Our (Kevin and his own) background from being in the military doesn't permit us philosophically to behave this way.  We truly make a conscious decision to spend more money so that an investor's future returns may be higher.  We also keep our ear to the ground when the market is expanding or shrinking, and there are areas (in Memphis) we will simply not invest in versus our competitors who thrive on these.  You know, they (the competition) can be like the manager at the Hotel can get in, but you will never leave.

K.C.:  It boils down to three things.  1) Integrity, thoroughness, and transparency.  2) Product quality.  And this has two components.  There has to be quality of location and that is why we map out all of the zip codes in Memphis.  Also, there has to be quality of home design, making sure it makes sense to an investor.  3) Our property management business (Meridian Property Management) is in the top five in the city of Memphis.  Frustrated by the lack of quality management and professional standards, we saw this as a point of entry.  We have a culture of continuous improvement here.

3) What would you say to Millennials that have a burning desire, a dream of owning a home, but can't for lack of credit or down payment?

J.K.:  It's great to start with a goal and have the discipline to meet it.  Don't fall for the trap of keeping up appearances and recognize that the items you buy may provide you with an emotional return, but not a financial one.  Think about instead of investing in assets.  Homeownership doesn't have to follow convention.  Instead of saving to pluck down, say in California where homes are very expensive, a large down payment, buy a rental out of state where 20% may be more doable.  Use this rental as the engine to build wealth and have the discipline to keep going.

Quality "hardened" floor by M.P.P.
4) Where does M.P.P. see itself positioned in the next 5-10 years?

J.K.:  We'd like to continue to build our passive income by keeping more homes in our own portfolio.  Right now I'd say 80% of our income is active from operations with just 20% being from passive sources.  Like any great company we'd like more stability and this means getting down to about 50% income coming from passive and 50% from our deals.  We don't want to be entirely transaction based.  So we're now looking at land development, even larger transactions such as re-positioning multi-unit apartments, and of course to continue to refine what we're doing.

K.C.:  I'll tell you what's not going to change in whatever we do...our culture.  We realize that property management is a key competency.  We're good right now, but we can be great.  We also know that real estate comes with cycles and each phase presents us with its own set of opportunities.  We want to continue to be the first on the scene and not be hearing at conferences what others have done that's ahead of us and we're now late.  For example, the infill business has a finite life.  Our business model has to be evolving so we see what's around the corner.  We are now catching the attention of private equity, hedge funds, larger investors, and I believe it is because of our proven track record.  So we must continue to prove we are worth their vote of confidence.

CCM:  Thank-you for your time, gentlemen, and good luck!

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