Build Magazine May 2016

Build Magazine 50 when they are just getting paid more if they spend more,” McSheehy explains. “Even for the groups that would do so, they are directly incentivized to do the exact opposite.” “We operate from a completely different paradigm” Typically, when a real estate group does value add, says McSheehy, “they call and say, ‘Joe, bring in the new cabinets and the sand colored carpets,’ and make a phone call to a designer if necessary for a common area. They get tiny rent increases and they call it a success, and say they are a huge success because they have done a huge volume of apartments – with no quality or high results whatsoever, for the co-investors. Or the residents. We have never had a value add renovation like that – we expect to see higher rent increases which translates directly to IRR, and we do beautiful renovations which we put huge amounts of time into. We do everything so differently. We operate from a completely different paradigm. It comes down to diligence and very hard work. There are no shortcuts.” High IRRs and High Rents - Driven by a Deep Understanding of Human Perception Matt Williamson, Senior Principal with American, says, “It also comes down to the fact that we have a significant advantage, and that is the deep lifetime of renovation experience of Ms. McSheehy. The entire industry is run by men, who have a significant disadvantage when it comes to design.” Ms. McSheehy is unique, in that she is a Senior Principal and she also leads the Value Add strategies and details. “She leads from the front, like Alexander the Great, not from a phone call from afar once a year. The difference in the product and in the Alpha is immense,” he explains. She has studied at the number one ranking best universities and graduate schools around the world, Oxford, Georgetown, London Business School, Sorbonne, she has done Private Equity around the world and in the U.S., and she is also a cultural and style genius, the likes of which have never been seen in the U.S., Europe, London, or the rest of the world. “I remember the story about how, when she was young in the previous generation of the business, she wanted to prove a point. There was an apartment property in the Chicago area that her family had renovated and already exceeded expectations on rent increases following a renovation a few years before. She made a few inexpensive changes and increased rents by the same amount again, as they had done in the original renovation – which had already exceeded expectations. She has always had this tremendous ‘feel’ for what makes renters want to live in a place, and love to live in a place. It is far more and far different than a design perspective; it is a unique understanding of human perception and feeling and what people visually and emotionally want in a home.” Bringing Value to Individuals The higher returns American has, compared to its industry peers, are because “we give residents the opportunity to live in an apartment of a far higher quality than they can get in other apartment properties in the area. “In a way, it fulfils one of the important dreams of people’s lives. We are giving the opportunity to a large number of people, to live in high quality homes that they are proud of. Even if they will one day buy a home, it will never have as high of a design quality as the apartment product that we offer.” Robust Pipeline Able to source the most attractive deals, both on and off market, the company maintains a robust network of relationships throughout the industry, allowing it to have a strong pipeline of deals. “We typically bid on about 2% to 4% of the deals that we see,” says McSheehy. “This allows us to maintain a very high quality of product. We are focusing on key geographic locations which are outperforming in our key metrics. Over the past 40 years, these criteria have been extremely successful at winnowing out which markets will provide robust support for outsized returns relative to the very low risk of apartment properties.” “Rocking Chair Test” McSheehy says that the culture of American is different because it focuses on Triple Bottom Line and purpose. “As a company, we say, ‘this is our Purpose,’ ‘this is our mission, this is our impact on the world, and this is what no one else can do the way we can,’ and every day lead every day with that purpose. “Does your work pass the ‘rocking chair’ test? Does your work pass the ‘deathbed’ test? Is what you are doing having a positive impact on peoples’ lives? This is what I believe is one of my missions in life, it is work that I have been trained in doing my entire life. Within the apartment property asset class, we do great Core and Core Plus, and Value Add, and for me, really, with all of the asset classes, and especially regarding the Value Add, it is tremendous to see the effects of our work in cleaning up entire neighborhoods, making them far safer places to live, far more beautiful places to live, places for jobs to return to, neighborhoods that flourish, and the lives of families and individuals are able to flourish. This creates actual physical Value for people in their lives, brings stable returns and stable alpha for our co- investors throughout every economic cycle, thus helping their lives, and doing our part to contributing to making our economy a more stable and healthy one.”