Core’s Target Market for Acquisitions

Wally Smith:
Are there specific areas where you’re looking at?

Jeff Montgomery:
We are. So, we have a lot of history on DST side with Sunbelt, Midwest. We are bringing that. We’re continuing to search there and opening new markets as well.

Wally Smith:
Mm-hmm.

Jeff Montgomery:
What we’re primarily focused on when we’re identifying a new market is we want to know that this is going to be a stable market, a good, solid investment for the next 10 years. So we’re coming in with the investor’s eye on targeting a market. We first go in and identify a group of areas that are potential, and then we dig in. So we’re doing the work in advance of trying to find a deal. We’re identifying a market, sniper approach to that, doing our diligence, boots on the ground. For example, in Denver, before we entered this market and said, “This is a market that we have belief in,” we did all the research entering. I personally, it was down, boots on the ground, driving neighborhoods, meeting with local brokers and investors, and asking the questions of, “Where do we target? What’s the right side of the street? What’s the wrong side of the street?”
We want a real, deep understanding of the market so that we can really sell this to ourselves and to, ultimately, the investors, that we believe in this investment and this market.

Wally Smith:
Very good.

Jeff Montgomery:
That’s where we’re at now. We expanded into Denver. We’re looking at other markets, including some of the Texas markets, next on our list. We’ve been out in those markets, doing boots on the ground, driving the markets. Think in San Antonio I put 400 miles on the rental car. We’re out in the market, trying to get a real, detailed understanding.

Wally Smith:
Are there any specific areas or markets that you’re intentionally avoiding?

Jeff Montgomery:
Overheated markets.

Wally Smith:
Okay.

Jeff Montgomery:
We use data providers like Whitman Advisors and CoStar. What we’re-

Wally Smith:
You’re concerned about red, blue states, migration.

Jeff Montgomery:
That comes into play, but more so we want to know that they’re pro-business.

Wally Smith:
Mm-hmm.

Jeff Montgomery:
So believe Denver just went blue, but Denver is a good example of this. We like the market because we understood that the leadership was focused on expanding the business, bringing new companies in. You had the whole Broomfield corridor, where you saw tremendous growth over the past five years. We target markets like that. So it’s not specifically a red-blue deal. It’s how pro-business are you, because that’s ultimately our client base.

Wally Smith:
Are you looking, generally, for markets that’ll mature so you’ll have an exit within that DST time line, within seven to 10 years? Or do you have longer horizon than that?

Jeff Montgomery:
No, our horizon, from the DST investor side, that underwritten business plan is seven to 10 years. We’re putting debt on it that is going to be stable throughout that whole period, also providing that optionality on the exit. We’re buying core, core plus. The takeout’s going to be family office, institutional, value-add players. We do target the markets with an eye on the horizon and trying to read our crystal ball as best as we can, understanding that these are going to be good markets today and through our hold period, and are going to sell well, ultimately, to that next investor.