Josh Cantwell: So, hey there. Welcome back to Accelerated Investor. Hey, it’s Josh. And, listen, today we are going to be interviewing a gentleman named Arn Cenedella. Arn has 45 years of experience as a broker and an investor. Today, he owns 1,100 units of multifamily in the Greenville, South Carolina market with an asset value of $140 million. He’s successfully made the pivot from single families and from flips and rentals into commercial multifamily. And today we’re going to talk about a few things. Number one, we’re going to talk about why you should not swing for the fences with your deals, why you should not swing for the fences as an entrepreneur and try to get all of your success all at one time. Number two, we’ll talk about the importance of long-term bank and agency financing. Number three, we’re going to talk specifically about the build-to-rent strategy but specifically about buying the community after it’s been developed by the developer. Okay. So, very important. We’ve had guys on the podcast in the past that talked about build-to-rent and they were actually the developer.

Today, we’re going to talk about just buying the asset from the developer after the CofO has been issued. Number three, we’re also going to talk about how to be self-aware to invest in your lane. And number four, we’re going to talk about the importance of one or two relationships in this business and how those one or two relationships can make all the difference to taking you from a brand new investor to $100 million portfolio. You’re really going to love this interview with Arn Cenedella. He is the President and Founder of Spark Investment Group. You can check out his website at InvestWithSpark.com. Here we go.

[INTERVIEW]

Josh Cantwell: So, hey, Arn. Listen, thank you so much for carving out some time today to join us on Accelerated Investor. How are you?

Arn Cenedella: Hey, Josh. Thanks for the opportunity. Happy to be here. Look forward to having a nice chat with you about real estate investing.

Josh Cantwell: Yeah, you bet. You bet. So, Arn, you’ve had a lot of success over the last 45 years, made the pivot into multifamily about four or five years ago. Tell us a little bit about what you’re up to right now. How has the market impacted your investing? What are you up to personally? And any kind of passion projects that you’re working on that you’re really fired up about?

Arn Cenedella: Well, so as you know, as most investors are aware, the commercial market slowed a little bit, harder to find deals that make sense at today’s debt levels. So, the last deal that I closed was 281 units in Greenville, South Carolina, where I live, and that was back in September 2022. We were fortunate enough to get fixed-rate debt. So, we’re very happy about that. And since then, I’m looking at two or three deals a day trying to find some stuff that makes sense. We have a few smaller build-to-rent projects in the Greenville area that we’re going to purchase at completion. So, we’re not doing the development. We’re going to buy them from the small builders when they’re complete, and we’re excited to be able to bring some newer product to our investors where most of our work has been in 70s, 80s assets.

Josh Cantwell: Got it. Tell me a little bit more about the build-to-rent strategy. Why do you like buying it at completion? What’s the upside and what do you like about it? And then secondly, why didn’t you just do the development yourself?

Arn Cenedella: Great question. So, I’m kind of a conservative old-school guy. I’ve never done any ground-up development. And frankly, in this economy, with this debt market, with construction costs, new development kind of scares me a little bit. So, I’d rather let the builder or developer have some of their profit and I buy brand new product at an attractive price. So, for me, I consider it a win. With the cost of value-add units, you buy a value-add unit 125,000. Today, you got to figure you’re putting 15 into it. So, you’re probably in 140 a door or maybe 800 square foot units, say, 50 square foot units. We’re able to buy 1,100 to 1,200 square foot new construction under 200 a door. And so, yes, we’re going to have the lease-up but lease-up doesn’t scare me like new build does. So, I feel more comfortable buying at completion and let the builder-developer deal with the headaches.

Josh Cantwell: Got it. Love it. So, when you say at completion, so there’s the CofO that’s been issued, you can move people in. Probably very few people have moved in or almost nobody. But now you own these assets. It’s going to have a super low expense ratio because there’s not going to be any maintenance tickets for the most part, and you’re able to just lease it up. And with that structure, help me understand for limited partners because we’ve got a lot of limited partners that invest. Now, this is not a solicitation, right? So, let’s just get this out of the way but let’s talk about the structure. Generally, how would that work for investors?

Arn Cenedella: It would be your typical multifamily LP investment, 7%, 8% pref on these. We’d probably do a 75/25 LP/GP split. And I think these are more attuned to a long-term hold. There’s not really a value-add component to it. So, it’s more a bet. It’s an investment. It’s a belief in the market in the future. And as you noted, lower expenses are really going to help. People like living in new buildings. The other thing that’s really nice is they’re generally all separately metered. So, you don’t have to worry about utility costs and sub-metering or billing back. So, I think people like the new product. I think they understand the rationale and primarily a long-term buy-and-hold investor. That’s how my dad taught me. That’s always been my approach. And so, I think some of the newer product fits very well into it. I think our intent would be buy it. We’ll have to use bank debt to buy it. No pre-pay. We’ll get it leased up. We’ll get it stabilized. We’ll then probably go to some kind of long-term agency debt. So, we’ll try to get some nice fixed-rate debt on it. And typically, I go for step-down prepay, which isn’t as onerous as yield maintenance or defeasance.

So, it kind of fits with what I like to do, which is kind of take a more long-term perspective. After 45 years, I know you’ve been at it a long time. I think we all understand with real estate, as long as you buy it right, financed it right, have ample cash reserves, there may be a year or two of turbulence but you’re going to win, right? If you go into it right, the price of housing is going to be more five years from now than it is now. It’s going to be more than ten years. Ten years from now, it’s going to be more also. So, I kind of like the long-term approach.

Josh Cantwell: I love it. I wanted to ask you about that. You mentioned buy it right, finance it right, invest for the long term. You know, with all of your years of experience, this is probably going to answer my own question but when have you seen people get in trouble? And that’s one of the things I like to make sure that my audience understands because everyone has this big dopamine hit of the latest acquisition. I got an acquisition fee I got to promote. These kinds of things happens, great. But what we saw in 2021 and 2022 was a lot of short-term bridge debt, a lot of stuff with variable rate financing, all of the “sins” that you shouldn’t be doing. And people did it because they had to do it in order to get the highest leverage, the highest proceeds. But I want to ask you from your experience, what are some things for people to avoid? What are some words of advice for people to avoid to be successful in the long term? Because it’s not about success today. It’s about success over the long haul.

Arn Cenedella: The finish line is in a year from now, it’s five years from now, it’s ten years from now. And of course, we’re old enough to have gone through 2008, 2009. I was around when one-third of American Savings and Loan crapped out in the early 1980s and that turned to be a great time to buy. So, I would say, number one, I don’t really like to swing for the fences. I like to kind of hit line drive base hits. That’s what I’m comfortable doing. And so, I don’t mind buying a deal at 60% or 65% leverage. I don’t mind having 5,000 a unit in operational reserves. Yes, maybe it reduces my IRR 0.5% or 1% but I would rather give up a little on the upside to be more secure and protect about the downside. We have to fight another day. So, I don’t swing for the fences. I generally don’t over, well, I never over-leverage and I usually take less than what the lender will give me. And I really raise a lot of capital to have it in the bank. And honestly, some of my investors will go, “Arn, why do we need so much operational reserves?” And I explain it when I go through it. They understand. They give up a little of the upside but the risk is much reduced.

And so, it’s easy to get carried away when the value of property is going up 30% a year. Right? 40% a year. I mean, that was the reality of multifamily investing. And when you do that, you can get out on your skis and you can be okay. But eventually, Murphy shows up, the worm turns, right? It’s just a normal economic cycle and the ones who reach too much and didn’t have a proper foundation are now under pressure. And I don’t want any stress in my life. Running a business and apartments, it’s enough stress so why do anything that would increase that stress? Keep it at a level that’s manageable. So, that’s kind of my approach.

Josh Cantwell: I love it. In your investing journey, when did you become so self-aware that you wanted to avoid the risk, that you wanted to invest for the long term? I wrote this down. I wrote this down on why this popped in my head but you said, “Don’t swing for the fences,” and I wrote down, “Arn’s still in the Hall of Fame,” and I wrote down, “Ichiro and Tony Gwynn.” Because when you said don’t swing for the fences, what I meant was there’s a lot of guys that make the Hall of Fame that just hit doubles in the gap and they hit singles up the middle. That was Tony Gwynn, that was Ichiro, and that’s you. When did you become so self-aware that that’s where you were comfortable and that was going to be a good long-term strategy for you?

Arn Cenedella: Yeah. Well, so it’s a great analogy. I love sports. I know we kind of have that in common. So, my father was my mentor. When I got out of grad school, I have a master’s degree in chemistry. Never did anything with it. Went back to the San Francisco Bay Area, started selling residential real estate in Menlo Park in Palo Alto. To put it in perspective, my father was born in 1921, which means as a kid, he lived through the real Depression, not the 2008 mini-depression. So, he was a great mentor towards me. Not so much on a verbal basis but I just observed the way he went about his business and his investing, and he was a big single-family investor. Interestingly enough, he never moved to apartments. He actually moved to multi-tenant office buildings and for some reason he just like that better. So, I’d have to credit my father, who has a very old-school perspective. You know, the time we come of age influences who we are and how we perceive the world. And so, I just kind of modeled his behavior. I saw that it was very successful.

And I think just personality-wise, I’m okay just making steady progress because I think as long as you’re making steady progress, the truth is even with slow and steady, in ten years, your life could be totally different, right? If you just execute the plan for even ten years, your financial situation is going to be so much different than it was at the start.

Josh Cantwell: Yeah, no doubt. I love guys that are slow and steady because it means investors, things are predictable. There’s going to be things that happen but it’s easier to manage small hiccups than massive hiccups. And so, that’s meaningful to me. I believe one of your websites is InvestWithSpark.com. Is that right?

Arn Cenedella: Correct.

Josh Cantwell: All right. So, InvestWithSpark.com. So, if you guys want to look at some of Arn’s upcoming opportunities or some of his past portfolio, check that out, InvestWithSpark.com. I wanted to ask you, Arn, you mentioned your dad and kind of the entrepreneurial mentor that he was. In your entrepreneurial journey, has there been other relationships or is there one or two relationships that you have that stand out that really kind of make or break, made or broke your entrepreneurial journey in some of your investments? Because what I find is there’s just a few relationships in my life that have made all the difference, like 98% of all of my progress, I could look back at a few relationships. Did you have some of those relationships? And tell us about it.

Arn Cenedella: Yeah. So, great question. And I’ll talk about the one that actually was instrumental in me moving to multifamily. I moved to Greenville 2014 about nine years ago, and I was at the gym one day on a treadmill and there was this tall, young African-American guy on the treadmill next to me, and we started talking, “Well, what do you do?” “Well, I’m in real estate.” “Well, what do you do?” “I’m in real estate.” So, we developed a friendship. And when I first met him, he was flipping houses. He’s probably now mid-thirties and I would bet he probably owns 2,000 units. So, here’s a younger guy, 30 years younger than me, that we developed a relationship, a friendship. We talk to each other and he’s the one who actually shifted my mindset to multi-family. I saw what he was doing. It made sense to me. And actually, it kind of all happened during COVID. It was March of 2020. Mario called me on the phone. We usually talk about twice a week just what’s going on with the market, house rentals, things like that. And he goes to me in March of 2020. So, this is right when we were finally becoming aware of how big a deal COVID was, right? March 2020, we knew we were in for a little bit of a rough going.

He calls me up, goes, “Hey, Arn, what do you think’s going to happen to rent collection?” And I said, “Mario, I don’t know. Talk to me April 5^th,” meaning let me see what comes in April. And I had made mostly single family at that time, and they were kind of 1,500-a-month rentals so kind of white-collar tenancy, which generally did better than workforce at the early onset of COVID. But at the end of the conversation, he turned me on to a couple of podcasts very much like yours, and that provided me the education and the motivation to kind of make the shift from single-family to multifamily. And Mario’s the young guy’s name. Mario and I have partnered on a few deals and I’ve learned a lot from him. So, I would say that’s one relationship that really totally changed the direction of my investing career, because at that point I was just doing single-family and he kind of exposed it to me, open my mind, and it clicked. And I really enjoyed learning this aspect of the business.

Josh Cantwell: That’s fantastic stuff. And just in the last three or four years, you’ve gone from residential to 1,100 units of multifamily, $140 million assets under management. That’s a big, big end result from a relationship at the gym on the treadmill. That’s fantastic. So, that’s sometimes how it goes.

Arn Cenedella: Yes. You just don’t know where you’re going to meet people. And it’s interesting. There’s kind of destiny and serendipity and you just happen to be at some place and you meet somebody and there’s some kind of connection and it’s maybe unspoken. And that’s happened in my personal relationship life, too, you know? Yeah. So, it’s kind of fascinating how that can happen.

Josh Cantwell: Is that the scenario with you moving? Obviously, Palo Alto, California, people would say at this point like it’s uninvestable. It’s just too expensive. The cap rates are too low. Some of the politics are just not very favorable. And so, you move to South Carolina where it’s the opposite. It’s very investible. It’s very landlord friendly. What was the epicenter of that decision? Because that could seem like a very big not only life decision but investing decision to go from a place uninvestable to a place that’s really an up-and-coming market.

Arn Cenedella: Yeah. Another great question. Laura and I have been together 19 years. We’re not married but for all intents and purposes, we are. Okay. She’s a smart girl. She’s very independent.

Josh Cantwell: I have an aunt and an uncle that are exactly like that. They’re not married but they’ve been together 30 years. I get it.

Arn Cenedella: Right. Okay. I’m glad. So, anyway, she was a lifelong Bay area person, worked for Intel, Visa, and Intuit. So, she kind of had a tech career and we were just at the point of our lives where we wanted a different life, not quite as of a hectic lifestyle, not as an expensive place to live, and we kind of focused on the Carolinas. My dad at one point moved to Charlottesville, Virginia from the Bay Area, so we had some familiarity with the Southeast and we could tell Greenville was on the rise when we first visited. There’s kind of an energy and a vibe to communities that are on the go, right? There’s this positive energy. You can see it in the construction, you can see it in the tall cranes in the sky. And we actually moved for kind of a lifestyle transition. And then when I got here, of course, everything looked very inexpensive compared to Palo Alto. So, I said… What’s that?

Josh Cantwell: The whole world’s inexpensive compared to Palo Alto.

Arn Cenedella: Yeah. So, in any case, we moved for a lifestyle change and I just continued investing and then made the transition to multifamily. So, we love it here. We’re in fact just flying back from the Bay Area as we speak. She’s in the air. She just spent about nine days back there visiting a lot of her old friends and family.

Josh Cantwell: Love it. Arn, how was that help? So, back to multifamily, so many people who are investors, both active operators and limited partners and GPs that invest way outside of their backyard investing from California into Texas or into the Carolinas or into the Midwest. How has that decision helped you if it has helped you to be in your backyard where you live in Greenville and you just bought a 281-unit there, what kind of benefits has that given you, if any?

Arn Cenedella: Well, again, I’m old school and we kind of know it’s location, location, location. And an investor’s competitive advantage is an intimate knowledge of the market, which you get from living there. Yes, there’s CoStar and there’s lots of data but that doesn’t replace kind of the practical experience of owning and operating buildings in a particular market. So, when we go look at something, I don’t have to go to CoStar to figure out what the rent should be or what they could be because I know the market. We also know within MSA, there are various submarkets and the whole character of the area can change for a quarter mile. One side of the street could be fabulous. The other side may be a little rougher. So, in order for me to ask people to entrust their capital with me, I have to have a high degree of confidence that I know the property, that I know the market, that I know the underwriting, and the pro forma I’m putting together makes sense.

My other main partner here is also located in Greenville. I kind of focus on the acquisition side. He’s more on the operational side and I listen to an interesting podcast she had about you and your partners have swimming lanes they stick in, and we’re very much the same. So, both Brian and I are located in Greenville and we prefer to stay in Greenville County. We have looked elsewhere in the Carolinas but haven’t yet pulled the trigger on anything because we got the team here. We know we can run these assets and I don’t like to fly. So, I’d rather just drive a couple of hours to a property than get on a plane.

Josh Cantwell: Yeah. Well, I mean, being self-aware of what you like, what your risk tolerance is I think is one of the superpowers of an entrepreneur. You seem to have that really dialed in. You’re invested for the long term. Like you said, you’re not swinging for the fences. You’re looking for base hits. You’re investing in your backyard. You don’t like to fly. You’re in a market that’s up and coming. All of those things seem to work. And I hope that our audience can do the same to be self-aware of what they’re wanting to invest in and does that fit their personality, their intuition? Does that fit their instincts? You, Arn, seem to be living that which I really enjoy. Oh, that’s fantastic. Also, I’m on your website right now. Guys, go check it out at InvestWithSpark.com. I’m looking at your portfolio and you guys have everything from a 6-unit to a 279-unit and all pretty close to home, whereas other people may live in California and say, “Well, I only want to do 200 units or more,” and they’re very spread out. They’ve got portfolios in Texas, Alabama, Florida. I don’t really subscribe to that because I think it’s hard to manage.

Like you, I would rather own a larger portfolio, maybe even buy some smaller assets, a 28-unit, a 52-unit but have it be in and around the rest of my portfolio. So, again, you’ve already kind of touched on it but maybe talk to that for a second and why you would rather buy a smaller asset in your backyard than a larger asset that’s kind of the sexy play that’s in a whole new market that you have to invest and own virtually, if you will.

Arn Cenedella: Yes. So, yeah, great question. So, I think there’s kind of a critical mass that you need to reach as an investor, right? So, for example, I love Greensboro, North Carolina as a market but since I don’t have anybody there, my team’s not there and I don’t know it like the back of my hand, if I go buy a little 30-unit building, basically, I’m starting at square one in terms of selecting the property manager and your renovation contractor. And I would say it’s hit or miss whether you make the right decision out of the gate. I mean, people will always talk a good game but you only know their performance when they do it. So, I think once you’re established in an area and you have your team, even if you’d prefer to buy a 150-unit, if you got a 28-unit a quarter mile down the street, it’s easy for you to scale your operation. You know that market, you know who’s going to renovate the units, you know who’s going to manage it. So, for me, I’m kind of more geographic-focused and I don’t care as much about the size of the asset because it’s just another adjunct to my existing portfolio.

And I think the other thing I would say is sometimes you can make a better buy on a 30-unit building than you can a 300-unit building. I mean, the level of competition is much different. The sophistication of the owner, the broker could be very different. So, I actually don’t mind buying the smaller units. So, anyway, that’s what I do. But I wouldn’t go buy 20 units 4 hours away because now I don’t have that critical mass there and it’s a pain. I can give you a story. April 27th this year, we had four inches of rain in Greenville. So, we’ve got a southeastern climate. We had a tree go down on one of our buildings. Nobody was hurt, punched a hole in our roof. The property’s 5 minutes from my house, the property’s 5 minutes from my partner’s office. Tree came down at 3:00. By 3:30 and 4, we were on site, had the roof covered, the tarp up, and all of that. And so, there was an immediate response which prevented additional damage if it had taken us 12 hours to rally somebody to the site. So, that’s a practical experience where if you’re a little closer and have your team, it works out.

Josh Cantwell: Yeah. Arn, I love it. I would ask you about advice but, man, you’ve given us so much already. Don’t swing for the fences. Stay in your lane. Be self-aware. These are all things that we’ve learned. Invest in your backyard. Build a portfolio local that you could manage. Focus on buying even some smaller things at times if it makes sense to round out a portfolio instead of getting spread super thin. Tremendous amount of stuff here, guys. I want to just again recommend that all of you guys go to InvestWithSpark.com, check out Arn’s portfolio, /portfolio is there. Arn, as we wrap up this interview, is there any other places that our audience can go and connect with you online or any final pieces of advice?

Arn Cenedella: Well, sure. So, first, to say all my old friends in Silicon Valley who are making good money, I’d encourage you to invest out of area but I would say when you’re picking an operator, pick an operator who’s got a huge footprint in that market. Right? So, it’s okay to invest out of area. I’m big on Facebook and LinkedIn either under my name, Arn Cenedella or under Spark Investment Group. So, easy to find. I love talking real estate and happy to talk.

Josh Cantwell: Yeah. Awesome stuff. Thanks so much for joining us today on Accelerated Investor. We appreciate you.

Arn Cenedella: Thank you so much, Josh. Appreciate your time.

[CLOSING]

Josh Cantwell: Guys, well, there you have it. Listen, I love having guests on who have a very similar strategy as me. Maybe it’s because I think my strategy is the right one. So, it’s great to talk to Arn and hear more about his long-term hold. His long-term approach is don’t swing for the fences approach, doing build-to-rent, investing in multifamily, and investing in your backyard where it’s easy to buy, find, manage, and do value-add when you own stuff in one market. You guys have all heard me say before, I recommend you buy in one market and not spread out all over the country. Okay. Find one or two markets and go deep in those markets.

If you enjoyed this podcast, guys, subscribe right now. Open up your phone, tap on the little link in your email inbox. If you got an email about this episode, tap on the link, open it up, and then just tap the five-star review or leave us a written review. Don’t forget to subscribe and like wherever you get your podcasts. It would mean so much to me if you shared this on your Facebook, your LinkedIn, share this all over social media so we can get the word out about Accelerated Investor. Finally, don’t forget, if you are looking to level up, you have a couple of opportunities within my organization. You can go to ForeverPassiveIncome.com to get a ticket for our upcoming event, Forever Passive Income Live, learn all of my strategies for multifamily investing. Or number two, apply to join our mastermind directly at JoshCantwellCoaching.com. Finally, if you’re a limited partner looking for deal flow and looking to make a relationship with us, visit us online at FreelandVentures.com/Passive. We’ll see you next time. Thanks so much for being here. We’ll talk to you soon.