One-On-One With Broadstone Real Estate CEO Amy Tait

In less than 10 years, Broadstone Real Estate LLC’s investor base has grown from strictly friends and family to include more than 900 investors spread across three continents. At the same time, the company has also ventured beyond its primary focus on the net-lease sector into the single-family rental housing market.

Amy Tait, Broadstone’s chairman, president and CEO, has presided over those changes.  A civil engineer by training, Tait gained firsthand experience in real estate from her father, Norman Leenhouts, who continues to offer the company his guidance. Tait recently spoke with REIT magazine on how Broadstone competes with its larger, public peers, the experience of working alongside family, the potential growth for single-family rentals and the appeal for a busy real estate executive of owning an alpaca farm.

REIT: Broadstone Real Estate was founded by you, your father and your husband. What have been the benefits and challenges of a family-run operation?

Amy Tait: As with any family business, it’s 24/7, 365 days a year. It means the highs are higher and the lows are lower. Fortunately, we’ve had mostly highs with our business. My father, who I’ve worked with now for more than 30 years, and I think a lot alike and agree on almost everything, so we have a lot of advantages as a family business. We now have about 65 employees, and only a few are family members.

Although my father is still very active and helpful in the business, I assumed the chairmanship from him a few years ago. He now refers to me as his “girl/boss,” and I guess I have to let him get away with that.

REIT: What would you say have been some of the pivotal milestones for Broadstone since its founding?

Tait: We just hit one. In the last hour of business on Dec. 31, 2014, Broadstone Net Lease, our largest fund and private REIT, hit $1 billion in total market capitalization, so that was pretty exciting. 

Another pivotal event was the passage of the Jumpstart Our Business Startups (JOBS) Act in 2012. Prior to the JOBS Act, we couldn’t have more than 500 shareholders without being deemed public. We were getting close to 500 shareholders at that time, but we were clearly too small to consider going public on our own. Now, we have the ability to have 2,000 shareholders and potentially an unlimited number, as certain rulings are still being clarified. That means that we have a very, very long runway to continue to grow without considering having to go public, although it will continue to be a consideration.

We have very happy investors and now we also have wealth managers and RIAs that have gotten familiar with us and have also referred their clients into our funds.

The other thing that the JOBS Act did was allow us to talk publicly about what we do. Before that, our information could only be shared with people we believed to be accredited investors. We feel now that we have the best of both worlds. We can remain private yet still talk publicly, which is the best thing for our shareholders. It saves the company a lot of regulatory and filing costs.

REIT: How has your investor base changed over the years?

Tait: Broadstone Net Lease and Broadtree Homes, our single-family rental platform, both started with capital from our own family. These were things that we wanted to invest in, and we put our own money in first. Only after we got comfortable with it did we bring in other friends and family. We got our first 100 shareholders for Broadstone Net Lease following a few meetings at the local country club. It’s naturally expanded from there through word-of-mouth and referrals.

We have very happy investors and now we also have wealth managers and registered investment advisors that have gotten familiar with us and have also referred their clients into our funds. These partnerships have been an excellent catalyst for growth. It’s been very exciting and pleasing to see this happen as our reputation has grown both nationally and globally. We do not have a distribution network of broker dealers. All the marketing is done by our own employees. There are no broker-dealer fees or commissions to pay, and ultimately our shareholders benefit from that. We are very cost-effective.

CLOSE-UP

Age: 56

Education: B.S. in Civil Engineering, Princeton University; M.B.A., University of Rochester Simon Business School.

Family: Husband, Bob; son, Alex; daughter, Margaret.

Favorite Vacation Spot: Wherever I am currently buying, building, renovating or decorating.

Professional/Community Activities: NAREIT Advisory Board of Governors; Rochester Regional Advisory Board of M&T Bank; National Council and Executive Advisory Board of University of Rochester Simon Business School; Visit Rochester; Finger Lakes Regional Economic Development Committee; recent board chair of United Way and recipient of Alexis de Tocqueville Award; recent ATHENA Award recipient from Rochester Business Alliance.

We now have investors from across the country and several other countries, and the average investment has grown substantially. When we started, our goal was really just to get to 100 shareholders so we could qualify as a REIT. We weren’t even sure we knew 100 accredited investors here in Rochester. We made it very easy for people to come in, with a minimum investment of only $50,000. Today, our minimum investment in Broadstone Net Lease is $500,000 and $100,000 for Broadtree Homes. 

REIT: Why were you drawn to the net-lease sector initially, and what differentiates your company’s approach from its competitors?

Tait: We started buying net-lease properties in 2006 and 2007 with our own money because we felt this was a very stable, defensive investment with great yields. We thought the returns were better and the risk was lower versus other property types we’d been involved with. You have very long-term leases with contractual rent increases. When we compare our portfolio to some of our larger peers, I believe we have the longest average remaining lease term at approximately 14 years. We also have the highest built-in contractual rent growth in our leases of over 2 percent annually. 

Part of the reason our portfolio is so strong is that we underwrite the credit strength of all of our tenants and don’t place as much reliance on public ratings. We have very good, creditworthy tenants, but because they are not publicly rated, they can’t demand as many things in the leases as some of the rated companies do. We also have less big box retail and we don’t have any drug stores. Given the advance of the Internet, we didn’t want to be susceptible in those areas.

REIT: With assets in medical, industrial, convenience stores and fast-food restaurants, is Broadstone’s net lease portfolio as broad as you would like it to be?

Tait: We’re very pleased with our diversification. For a fairly small portfolio, we’ve got a huge amount of diversification, both in terms of geography and industry. We have 320 properties in 32 states.  Our largest tenant is Siemens Corp. at 5.7 percent of revenue. Our largest brand exposure is Wendy’s. We have 34 restaurants, which add up to 6.3 percent of revenue. Our largest single building is a hospital building leased long term to Rochester Regional Health System and accounting for 3.6 percent of revenues.

REIT: What are your capital raising estimates for 2015, both for net lease and single-family? 

Tait: For Broadstone Net Lease, we raised $105 million of equity capital in 2014. Based on some of the wealth managers that say they want to broaden their exposure to us, we’re expecting about $200 million of equity to come in this year. Broadtree, which started in 2013, is still getting started and proving itself. We haven’t rolled it out to all of our other shareholders yet, and it has a little over $20 million in equity capital in it now. 

We expect to continue raising equity for single-family rental at a pace of about $1 million per month, although we are also considering potentially bringing in an institutional investor or doing some UPREIT transactions that could significantly increase our pace of capital raising. It’s making great progress, but it’s still in the start-up phase.

REIT: What was the impetus for expanding Broadstone into the single-family rental market?

Tait: It’s still emerging as a sector, and everybody’s waiting to see actual results. I had been looking at the space for several years before we decided to enter it in 2013. It’s all driven by Census data and changing demographics in our country.  The homeownership rate peaked before the credit crisis at 69 percent, and it’s now down to 64.4 percent as of the third quarter of 2014.

The rate continues to drop. In 2014 versus 2013, the homeownership rate dropped 0.9 percent. That might not sound like a lot, but that’s over 1 million families in just the past year that are renting instead of owning. And while a lot of them are certainly filling up vacancies in apartment communities and supporting the growth in multifamily construction, the majority of these new renters want to live in a single-family home.

REIT: Where are your single-family properties located?

Tait: Because we’ve been viewing this as a learning opportunity, we’ve intentionally gone to very different markets to get diverse experiences.

We’re in four states right now. We started in our backyard of Rochester, which has had virtually no distress from the housing crisis. That’s a very nice, steady, income-generating market that’s easy for us to manage. We also wanted to get into some of the other extremes, so we’re in Palm Beach County, Fla., as well as Minneapolis. Our biggest concentration right now is in the suburbs of Atlanta.

Since our primary investor base today is high-net-worth individuals, they really like to see us diversifying our offerings. In many cases, their investments with our two entities constitute the largest real estate holding in their portfolio.

REIT: As in net lease, you face some formidable competition in the single-family rental sector. What is your competitive strategy?

Tait: While there’s competition, I would say it’s very friendly competition because this is a huge, huge market and there is market share sufficient for everyone. Today, there are about 14 million single-family homes that are rented, and only a few percent of those are owned by large institutional investors. Most are in the hands of individuals or very small local or regional operators. 

I still see single-family rentals as a huge opportunity for those who have the staying power and the wherewithal to get up the learning curve to manage this very management-intensive business.

We bought our first 100 homes one-by-one and rehabbed them in order to get experience. Last year, however, we shifted to just buying stabilized portfolios, and 2014 was dedicated to closing and digesting our first portfolio. 

Since we’re not buying vacant homes that need rehab and we’re not carrying those on our balance sheet, it gives our financial results a lot more clarity and transparency, so that our investors and prospective investors and lenders can all see the cash flow that’s being generated by our stabilized portfolio.

Right now, portfolio-wide, we’re 94 percent leased, and that is sufficient to cover appropriate covenants so we can borrow on an unsecured basis. It also covers the 5 percent dividend yield that we’re currently paying on Broadtree Homes.

REIT: And who are you purchasing these stabilized portfolios from?

Tait: Across the country, there are all kinds of entrepreneurs, private equity groups and high-net-worth families that jumped in at the crisis to buy and rehab these homes. Using fairly expensive money, they added value and have subsequently benefited from the rebound in prices. Now that these portfolios are getting predictable and boring, the capital needs to be recycled and they need to monetize their profits.

 There is a phenomenal consolidation wave taking place and an opportunity for these stabilized portfolios to roll into longer-term institutional or patient capital, which is where we fit in. When you buy a portfolio like this, it’s very much like buying an apartment community in that the day you close, you have tenants in residence, you have rental income being generated and there are management personnel in place who are willing to stay on either as a third-party manager or potentially as your employees.

We really see our model morphing more into what we had in the apartment REIT, Home Properties Inc., which our family founded.

REIT: On a personal level, you have owned property in Tasmania. You have renovated the former Historical Society of Rochester building as your private residence. You’re building a home in the rain forest of Costa Rica. You also own a 100-acre farm that is home to alpacas, a llama and two pygmy goats. What’s the appeal of such diverse properties?

TAIT: I’m very fortunate in that I have a patient and supportive husband who I’ve been married to for over 25 years. In all those years, we’ve personally owned probably 25 homes. When we go on vacation, I guess I’d rather go to a home where I feel like part of the local community.

In terms of why I do it: We learned early on that, with outside investors in our funds, it’s very important to have predictable results. So we’re very disciplined and focused. We’re only buying properties that already have income in place. We like to focus on dull and boring real estate because that usually makes the best investment. What I do on the personal side is more of a hobby or creative outlet where we can go a little further up the risk spectrum and have some fun.