Everything in Mark Alfieri’s world is very deliberate. For the past six months, Alfieri has gotten up each weekday morning at 4 a.m., put on a pair of adidas sneakers and Nike training shorts, and endured the punishment of P90X fitness trainer Tony Horton running him through an hour of strength training, cardio, yoga, and stretching topped off with another 15 minutes of Ab Ripper X exercises. When he completed his first 90-day cycle of the notoriously brutal exercise regimen, Alfieri drove into work at Behringer Harvard’s Addison, Texas, headquarters, ran into senior vice president of multifamily property management Peggy Daly, and told her how he was starting all over again the next day. Daly wasn’t surprised. “When Mark takes something on, he gets completely into it,” she says, echoing a chorus of colleagues and peers who describe Alfieri as a relentless grinder of deals, a maverick corporate commander with full team loyalty, and an apartment portfolio builder par excellence.
Indeed, since joining Behringer Harvard in 2006 to launch the firm’s multifamily platform, Alfieri has grown the recession-era apartment fund from a one-man show operating out of a cubicle to a platform of 100-plus employees working deals, providing back-end admin support, and operating some 13,105 units across 47 properties (the bulk of which falls under Behringer Harvard’s Multifamily REIT I, which, as of mid-September, included investments in 10,545 units across 38 multifamily communities in 13 states). As the REIT’s COO, Alfieri was the architect behind the original 2007 deal that brought on Dutch pension fund PPGM as a co-investor. And since then, Alfieri has made the discretionary calls on selecting assets and investment channels, and initiated the Behringer Harvard apartment buying spree that began in 2008 and has grabbed up some of the best—and arguably the most—Class A multifamily real estate since the market crash of 2007.
“Starting from scratch, he has achieved the equivalent of going from zero to 100 miles an hour in 10 seconds,” says Jonathan Kempner, president of TIGER 21, a New York City–based peer-to-peer learning group for high–net-worth individuals, as well as a former president of both the National Multi Housing Council and the Mortgage Bankers Association. “With all of the moving parts and development and funds that entails, he has nonetheless maintained his equanimity. Mark is not the only apartment executive who has been successful, but his ability to command both the devotion of his colleagues and the respect of his industry competitors is the true mark of a leader.”
Alfieri himself is not immodest about Behringer Harvard’s multifamily achievements, but he’s not surprised, either. Formed during a peak year of apartment valuations, the multifamily portfolio was designed to be market adaptive with a focus on mostly coastal, core-plus assets. So the selection of which assets to purchase, and at what prices, and by what means over the past five years has been entirely deliberate, Alfieri says. Pitching and then signing on PPGM as a co-investor in the REIT’s nascent days? Deliberate. Ditching third-party managers earlier this year in favor of developing an internal operations platform? Anything but arbitrary. Even where Alfieri sits—no longer in a cubicle, but in an office that opens directly to the fund’s dealmakers, now working a bullpen of phones in his stead—is characterized by the executive as entirely deliberate.
So if Behringer Harvard’s multifamily platform is a model built on cold calculation, what, then, is Alfieri’s next intricately orchestrated move? The answer—to evolve that platform into a vertically integrated firm with acquisition, operations, and development units similar to a traded REIT—tells as much about Alfieri’s achievements as it does about what the firm had planned for its multifamily future all along. And it’s a mission that will likely define him as an apartment executive.
The Deal Grinder
Although Alfieri traces his apartment roots back some 25 years to include leading the Dallas-based regional operator Revest Group, his real dealmaker pedigree—not unlike the majority of Behringer Harvard’s senior management team—comes from AMLI Residential (see “AMLI 2.0?”), where Behringer Harvard president and co-chief operating officer Bob Aisner, then–executive vice president for the Chicago-based apartment REIT, hired Alfieri after a chance résumé crossed his desk.
AMLI 2.0?
Behringer Harvard’s multifamily platform will be guided by a core management team that once worked together at the Chicago-based firm.
It’s no secret that AMLI blood runs deep in the management of Addison, Texas–based Behringer Harvard’s multifamily portfolio. It’s not by accident, either. In addition to Behringer Harvard president Bob Aisner and EVP Bob Chapman (who served as AMLI’s EVP and CFO, respectively), Behringer Harvard’s de facto multifamily leader, Mark Alfieri, was a top deal guy at AMLI until 2006. So it was no surprise that when Behringer Harvard moved to bring the operational management of its Class ?A multifamily units in-house, the firm turned to a familiar face in former AMLI national director of property operations Peggy Daly.
“I think we all bring some integrity out of that background,” Aisner says. “AMLI was a company built on a double foundation of integrity and creating shareholder value. Those are still the two things I think about the most. I give AMLI a lot of credit for that.”
The hiring of Daly also signified that the Behringer Harvard multifamily platform—until then, an apartment portfolio investor with outsourced operations—was serious about building a vertically integrated platform of ownership, operation, and even development expertise, and the similarity of that model to the traded REITs and institutional-level apartment owner isn’t lost on any industry watchers, including AMLI CEO Greg Mutz. “Behringer Harvard is working hard on building a vertical platform,” Mutz says. “Fundamentally, it is difficult to create value without having at your disposal all the various levers of value creation, including acquisition, finance, property management, technology, and development.
“Simply being a great acquisition and finance shop without management, technology, and the rest of the puzzle makes it hard to compete with those that are fully integrated and able to squeeze value out of every aspect of the life cycle of a property. There’s a lot going on underneath the tent at Behringer Harvard. Mark and Peggy are rolling up their sleeves and working on people, process, policy, technology, expense management, discipline, and focus. I really think the world of both of them, and my bet is that they drive performance and ultimately succeed.”
According to Alfieri, speed in assembling an institutional-quality senior management group became critical as Behringer Harvard built out the REIT’s platform and scale and began looking at creating brand, operating for revenue, and opening up additional acquisition and development growth channels. “It was a major benefit to be able to use our contacts and relationships in the business to assemble a team very quickly, particularly a team that was primarily from a self-managed background rather than a fee-management background,” Alfieri says. “At a senior level, I would put my core management team up there with anybody right now. We’ve got a good nucleus to build from, and that’s got to be the focus for the next four to six years.”
So, could an exit strategy for the firm even mirror that of AMLI, which went public via IPO in 1994 and was reprivatized by Morgan Stanley in 2006?
Regarding exit strategies, Alfieri is vague but pointed. “There are a lot of opportunities on the exit front. Anything could happen,” Alfieri says. “I think there’s a lot of demand for Class A multifamily in the traded markets. The world has really opened up, and I think there could be plenty of buyers over the next several years that would love to acquire our platform.”
“I hired Mark in 1999,” Aisner recalls. “I got a blind résumé and called him in for an interview. He had just finished up with Revest and I loved what I saw. I thought he was terrific. He sat in the office right next to me, and I would listen to him working the phones. Nobody works the phones better than Mark; he just grinds out deals.”
Over the next seven years, Alfieri did just that, completing more than $1.4 billion in apartment transactions in the lead-up to AMLI’s $2.1 billion privatization by Morgan Stanley’s Prime Property Fund in February of 2006. What’s more, Alfieri was working extra hours beyond the daily deal grinding, taking an industry leadership role by serving on the National Multi Housing Council’s board of directors from 2004 until AMLI’s privatization in 2006. That’s when the phone rang and Aisner, who had left AMLI in 2003, offered Alfieri an opportunity that the dealmaker couldn’t pass up—the chance to come to Behringer Harvard and build an entire multifamily apartment portfolio and operating platform from the ground up.
“Considering my background, the opportunity to come to Behringer and run a fund at this level was a step up for me—a major step up,” Alfieri says. “I’m probably not a conventional top-down leader. I view all growth as team growth, so I spend a lot of time talking to everybody in the offices and at the properties, because I think it is very important that they know what my goals and objectives are, and, even more importantly, what opportunities have been presented to me. That’s really part of what I sell: Look at what was offered to me, and what has happened, and how I’ve been able to grow and accelerate my career under this amazing platform.”
Class A All the Way
“What has happened” is, of course, the story of how Behringer Harvard went from an office investor known to relatively few in the apartment sector to becoming a multifamily brand name in just five years. But the candidness that the senior managers exhibit when telling of Alfieri’s stretch assignment hire also offers some new transparency into the Behringer Harvard business model. Although the multifamily portfolio is a closed-end investment vehicle, from the outset it was planned as no mere holding company but as a stepping stone to a full-fledged apartment operator platform. While its specific exit strategy remains uncertain—Alfieri says the options range from a sale of assets to a public listing to a merger—what is clear is what the firm will look like when an exit is made: a fully fledged, national owner and manager of core Class A multifamily real estate.
What is less obvious is how the hiring of Alfieri in 2006 was a deliberate move to create that eventual entity. “When I met Mark, he was strictly a deals guy, and he was a great networker, and fun to listen to as he worked his contacts,” Aisner says. “But one of the things we thought when we brought him on to the fund is that he was more than just a deals guy, that he had more talent than that, and he’s gone from being an acquisitions executive to becoming a fund manager. He runs a big team and has become very sophisticated on the operations side. Yes, his reputation on the street is as a great buyer of real estate, but I think that underestimates what he has done in putting this fund together.”
Alfieri’s first deliberate move in that direction was booking a flight to the Netherlands, where he spent the better part of a year pitching Dutch pension fund PPGM on Behringer Harvard’s Class A investment strategy, culminating in PPGM’s May 2007 initial $100 million investment as a co-investor in Behringer Harvard’s multifamily strategy.
“PPGM was the launching pad for our platform, and to sign them up essentially before we had raised any money and made any investments was really a remarkable thing,” Alfieri says. “Everything aligned well: They were looking for a six- to 10-year hold; we were looking for a six- to 10-year hold, and they were interested in core real estate assets. We put on a terrific show, predicated on previous experience in the Netherlands with Dutch pension funds via AMLI. I was the front man, but we could not have done that without [Behringer Harvard founder and CEO] Robert Behringer, Bob Aisner, [executive vice president and co-chief operating officer] Bob Chapman, [chief administrative officer] Jason Mattox, and the whole team.”
A Step Ahead
Since then, PPGM has twice extended its co-investments for a total commitment of $300 million, and Behringer Harvard has shown no recalcitrance when it comes to placing those dollars alongside its own multifamily platform capital (boosted by a $150 million Freddie Mac credit line) to make mezzanine loans, provide development equity, and, of course, purchase Class A multifamily apartment real estate out of distress.
“One of the things that we are most proud of as a fund sponsor is the way we have adapted to the changing environment,” Alfieri says. “We first entered the market in 2007 at peak values with some mezzanine development deals that included an option to purchase, and in hindsight that worked out to be a great strategy, because when those assets were marked to market [after the crash], the prices had dropped dramatically. Then, at a time when everyone was on the sidelines, we said it’s time to jump in. We attacked and bought with vigor in 2009 and 2010 and felt like the pricing for the assets we purchased was a once-in-a-lifetime opportunity. That’s our strategy: We are trying to stay a step ahead of the markets, and we’re doing the same today.”
Any lingering expectations of a quick IPO or liquidation flip of apartment assets from the Behringer Harvard multifamily platform were quelled early this year when the firm announced it had wooed Daly over from Atlanta-based Place Properties to head up property operations for the entire apartment portfolio. Fee managers were given notice, and asset by asset, all units in Behringer Harvard’s multifamily portfolio have been integrated into an internal management and operations unit. “We are clearly in a different phase in the evolution of our fund,” Alfieri says. “We were all acquisitions for an extended period of time and utilized third-party managers out of convenience. It just didn’t make sense to make the up-front capital investment [in an operations platform] at first, and now we are transitioning into a total operational mode. I’ve been there before, with Revest; I have owned and built a property management company and understand the investment in both capital and time—it is a huge undertaking.”
LEADERSHIP LESSONS: Mark Alfieri
Age: 50
Title: Executive Vice President and COO
Favorite Quote: “Integrity is the essence of success.”
Best Business Decision: Getting into the multifamily business out of college.
Greatest Business Challenge: Building a sustainable multifamily platform in adverse economic conditions.
Leadership Philosophy: Lead by example with a hard work ethic, can-do attitude, and optimism.
Playing on his iPOD: Van Morrison, Kenny Chesney
Last Book Read: Outliers: The Story of Success, by Malcolm Gladwell
Particularly since Behringer Harvard intends to remain highly active in Class A multifamily investments while the property management arm develops. Like Aisner before him, Alfieri is now listening to the dealmaking prowess of an acquisitions team charged with looking for distressed properties, mezz and equity placement opportunities, and, increasingly, development deals with established multifamily builder outfits. “My day-to-day has dramatically changed. In the beginning, I was very involved in every deal and made every single call,” Alfieri says. “Very deliberately as a group, we hired very talented young acquisition associates who didn’t necessarily have a background in multifamily. Now, I sit next to all of the deal guys, and I can hear them on the phones all day long and then they hear me all day long after they get off the phone giving my two cents’ worth. So I’m still involved in that standpoint, and I am still involved in negotiations on every deal, but they’re seasoned now and make the calls and do the groundwork.”
Alfieri’s “two cents” is something the entire Behringer Harvard team is familiar with. Though he is patient and thoughtful in comments and responses, his reputation unanimously across the firm is of a strong and consistent communicator whom some of his colleagues even call politely relentless. “He’s the first one to go around the table [and solicit opinions]; he’s awesome even at a company bowling event getting people motivated and handing out personal bottles of wine to everyone,” Mattox says. “The same skills that he used to become such a great deals guy are the ones that he uses to shape structure and process policy. A negotiation is never over with Mark. He wants to make sure it is as good as it possibly can be. Other people will move on; he keeps on [going] until he gets it right.”
From Buyer to Builder
Certainly what Alfieri has accomplished at Behringer Harvard in the past five years is laudable, but what comes next—running the multifamily portfolio just like a traded REIT with vertically integrated acquisition, operations, and development units—will define his role within the greater apartment industry.
It seems an odd time for creating that kind of a business model, particularly one that is fundamentally built on job growth and household creation, but it’s precisely that disruption in the economy and capital markets that Alfieri says has enabled Behringer Harvard to make its moves. “Growth is a great thing in any environment, but especially in an environment like we’d had for the past few years,” Alfieri says. “Everything that we have had to sell has been very positive: no legacy investments, no layoffs. We were growing from day one with me in a cubicle with a laptop to having more than 100 dedicated multifamily employees today.”
Alfieri says he’s used to getting strange looks when he talks about an acquisition strategy built around distress, but he insists there are plenty of discounted deals that have yet to clear the market, and continued volatility on Wall Street and in global economics could hasten the appearance of those deals.
“Our last three acquisitions were distressed acquisitions,” Alfieri says. “One was a foreclosure, a big condo deal in San Francisco that was foreclosed, and we bought it from the lender. The other two we bought out of a bankruptcy liquidating trust in Boston. So there are not as many of them, but we are targeting our core markets—Class A, East and West Coast, and finding the distress that is still out there in the market. I think we are still seeing it, and I think we’ll continue to see it over the next couple of years as these really high-end condo deals filter through the system. But I believe that if the stress that we are seeing in the capital markets right now continues for another couple of weeks, it’ll open up a whole new world of opportunity for us on the buy side.”
Still, the days of growing Behringer Harvard’s multifamily platform through successive one-off acquisitions might be coming to a close as market competition raises prices on assets and the firm stretches for scale. “We’ve seen several portfolio and platform opportunities over the past six months and continue to look at them,” Alfieri says. “From a strategic standpoint, [programmatic investments] are something we are going to consider very strongly as opposed to doing one-offs, which, in the current competitive environment, are much more difficult.”
Push him on what kinds of companies, programs, or portfolios the company might target, and Alfieri doesn’t miss a beat. “Strategically, we are most aligned with the traded REITs, on where and why and how we intend to build a portfolio,” he says. “Their growth across the board right now is through development presales, providing equity for developers, bidding on off-market deals, distress opportunities—they are evolving like we are and taking that next step. You won’t see a lot of REITs in open market bids, but when you find a foreclosure, they are chasing you. Like us, they have capital and they are out there.”
On the development end, Behringer Harvard will likely look to establish co-investment relationships with national, brand-name builders to provide equity and debt in projects that result in an ownership stake.
Behringer Harvard
Headquarters: Addison, Texas
Year Founded: 2001
Year First Multifamily Program Launched: 2006
Number of Behringer Harvard Employees: 449
number of Multifamily-Focused Employees: 183
Number of Multifamily Properties: 47
Number of Units Owned and Managed: 13,105
Market Coverage: 13 states, mostly coastal core and high-growth markets
“Having interacted with Mark at both AMLI and Behringer Harvard, I can personally attest to his leadership skills and strong work ethic, which have served to build one of the strongest multifamily investment platforms in the institutional investment universe,” says Charles Brindell, CEO of Dallas-based Mill Creek Residential Trust. “Mark also brings a unique understanding of marketing and operating fundamentals together with a customer-focused appreciation for the needs and desires of the rental apartment customer, which, when taken together, create very strong investment performance results.”
Just like the move toward portfolios, turning on the development engines is a result of pricing and cap-rate compression in core markets. “We’re looking to invest, but we are focused on developers who are familiar to us and have opportunities to stick with our core Class A focus,” Alfieri says. “We’re looking at providing equity and financing for development, but if we see opportunities with land acquisition, we have all developed multifamily in the past, and I think we could do a fair amount of in-house multifamily development in the future.”
All of which positions Behringer Harvard’s multifamily platform alongside its traded REIT peers in portfolio pedigree, operational capability, development brawn, and national scale. It’s an evolution that is likely about halfway complete and one that is deliberately intended to create a fund adaptive and attractive enough to avail itself of any market opportunities that present themselves. “Anything could happen,” Alfieri says. “That’s what is great about the position we are in: I think our portfolio stacks up well against anybody on the traded side, and I still think the public markets are the best long-term execution for an institutional-quality fund in this sector. But I think any institutional investor or pension fund would also love to have a young portfolio like ours with high rent per unit.”
Which is Alfieri’s deliberate way of saying that market adaptation leading to consistent growth and shareholder return presents a universe where the opportunities are endless. You just have to get up every day at 4 a.m. to get there.