If you call yourself The Milestone Group, then setting and reaching Olympic-sized goals must be par for the course. And indeed, the Dallas-based investment firm takes its name seriously. It aims for a target few companies can reach: to be recognized by its peers as one of the top 10 multifamily firms in the country. Milestone doesn't want to be highly regarded for its sheer size—nearly 28,000 units and counting—but also for its speed of deal execution and investment prowess. It's a lofty ambition, but company executives say the goal is well within reach.
“If you look at our performance and our track record for the last three or four years, I think we can say that we are there,” says Jeffrey Goldberg, managing partner of The Milestone Group. Goldberg states this modestly, yet confidently, as two other top company executives—Robert Landin, managing partner, and Steve Lamberti, president and COO of Milestone Management—nod in agreement.
While there is no actual top 10 list, the three men eagerly point to their past performance to show they are a force to be reckoned with. In its four short years of existence, Milestone has acquired approximately 28,000 apartment units and garnered national attention for its value-add strategy of acquiring and renovating Class A- to B properties in Sun Belt states. The methods have proven successful, as the firm brings top-dollar returns to its investors, which include major financial institutions, high-net-worth individuals, and public and private pension funds.
Want more evidence? Just listen to what Milestone's peers have to say. “Jeff and Rob are the cream of the crop when it comes to dealmaking, and Steve is the cream of the crop when it comes to apartment management, including the underwriting of acquisitions and hitting aggressive budgets,” says Spencer Stuart Jr., a regional partner at Foster City, Calif.-based Legacy Partners, for which Milestone manages more than 3,000 units.
The company credits its achievements and rapid growth to a vertically integrated structure where all the work—from financing to property management and construction services—is done in-house to maximize efficiencies. “We have developed an empowered entrepreneurial organization that has all of the sophisticated tools to not only implement and execute its strategies but to provide the highest level of service to its investors,” Landin says. “Usually, an operating partner is good at operating an asset but does not have the capital markets or investment management expertise. Milestone has all of those skill sets in-house.”
The company must be doing something right; the capital from investors is flowing despite tenuous market conditions. “Milestone delivers very good financial results to their capital partners,” says Greg Kraus, a partner of acquisitions at Dallas-based Invesco Real Estate, which has invested approximately $1.25 billion to date with Milestone. “They are looking to take advantage of evolving capital market trends, and they have capitalized their assets very conservatively and have tremendous staying power and strength in their ownership structure.”
Milestone's growth story is one for the books—consider that last year alone, the firm grew its unit count by 25 percent and expects to repeat (even increase) that percentage over the next two to four years. Without a doubt, Goldberg and his team are poised to make the leap into being a formidable national player: Today, the firm is armed with more than $600 million in buying power.
EARLY MILESTONES Earning top 10 status wasn't first on Goldberg's mind when he formed the company in 2003. At that time, he simply sought to operate as a small opportunistic investment shop. He had spent the prior 14 years running Insignia Financial Group's private equity arm, the Co-Investment Group, where he headed up co-investment joint venture acquisitions, tender offers, and portfolio purchases. Goldberg decided to launch his own company when Insignia merged with CB Richard Ellis in July 2003.
For Goldberg, the timing was right to strike out on his own. “There is something very empowering about being in control of your own destiny,” Goldberg says. “I spent 14 years at Insignia, preparing for this very moment. I basically said to myself, ‘I have overseen asset management, acquisitions, and corporate acquisitions, and now is the time to take the plunge.'”
The big move came as no shock to his former boss at Insignia, Frank Garrison. “He was allowed a large amount of freedom and the ability to utilize his entrepreneurial skills at Insignia, so it didn't surprise me at all that he wanted his own gig,” says Garrison, now CEO of Ft. Lauderdale, Fla.-based Global Yachting, which owns and operates marinas.
During its first year, Milestone partnered with Addison, Texas-based Olympus Real Estate Partners to capitalize its deals and continue the successful investment strategy used at Insignia. Landin, who headed up Olympus' acquisitions, joined Milestone in 2004 as managing partner. The small team invested money on behalf of high-net-worth investors and owned a couple thousand multifamily units, along with a handful of other assets.
Then, in March 2005, Milestone got its first big break—and reached its first major milestone. With Dubai Investment Group as an investment partner, the firm purchased a $1 billion portfolio of 62 multifamily properties throughout the United States, catapulting its unit count to 21,000. “It was fortuitous that I had a relationship with Dubai Investment Group from my days at Insignia and was able to expand on that relationship,” Goldberg says.
With a sizable portfolio in hand, Milestone decided to maximize efficiencies by managing its own properties and acquired the management platform of now-defunct Walden Residential Properties. The firm hired Lamberti, who spent 14 years at Walden, to run Milestone Management. “At that point, Milestone morphed into a vertically integrated multifamily platform,” Landin says.
And the company rolled right along. Over the last three years, Milestone has grown from 21,000 units to more than 27,000 units, which include a combination of owned assets and a small number of fee-managed assets.
Since 2004, Milestone has executed transactions totaling more than $2.3 billion with a realized internal rate of return exceeding 30 percent on more than $1.1 billion of disposition proceeds. In 2007, Milestone grew its owned assets by 25 percent and now approaches $1.5 billion.
The team's quick dealmaking and execution abilities pushed the size of their operations dramatically, landing the firm the No. 38 spot on MULTIFAMILY EXECUTIVE'S annual list of the Top 50 Owners in the country, as well as the No. 35 spot on the Top 50 Managers list.
Goldberg is at the forefront of the growth. “What I think distinguishes Jeff is that he has great instincts, and he has the ability to very quickly understand the atmospherics that surround a deal,” says Garrison, Goldberg's former boss and longtime mentor. “On numerous occasions, I have gotten calls from Jeff when he is at the closing table at a law firm in the middle of the night with some issue that is fairly complicated, and he has come up with a proposed solution and isn't at all panicked.”
STRATEGIC AGENDA Today, Milestone is armed with more than $600 million of buying power through a joint venture fund with Invesco and a high-net-worth fund raised through Deutsche Bank. Where will all that money go? To apartment properties in need of a facelift—typically a dated 1980s or 1990s project, but sometimes a project as new as 2000 that is in need of a little TLC. “Different assets have different opportunities,” Landin says. “It can be a physical repositioning play on an asset or as simple as an inefficient or troubled ownership structure.”
Milestone is specifically focused on investment opportunities in the Sun Belt states and the Mid-Atlantic, and is considering select opportunities in California and Nevada. “We do a thorough market analysis every six months in every major metropolitan area in the United States,” Landin says. “Now we are down to seven to 12 markets that our acquisition officers are very focused on.” (Milestone declined to reveal the exact markets.)
The firm gleans many of its insights via a proprietary database that includes the performance of its nearly 28,000 assets, plus third-party market research. When the firm does find an opportunity, it's able to respond quickly. That's due in large part to the staff, which has grown from four people at the firm's founding to approximately 700 employees spread from Phoenix to Ft. Lauderdale, Fla. “We can evaluate an acquisition opportunity very quickly because we have people in the field located in the areas we want to pursue acquisitions,” says James Canon, asset manager at Milestone.
The firm is now upgrading the interiors and exteriors of approximately 12,000 units at 40 of its properties. Milestone offers three carefully designed upgrade packages, costing the firm anywhere from $1,700 to $3,600 per unit. The firm typically is able to raise rents by approximately $65 a unit by replacing drab cabinetry, flooring, kitchen appliances, and more. The property management team tirelessly searches for innovative interior finishes, such as faux wood flooring instead of carpeting, six-panel decorative doors, and closet organizational systems, all of which brighten up the apartments without draining a ton of money from the bottom line.
The average return on investment is 32 percent, well above the 15 percent to 20 percent norm, Lamberti says. “On the operating side, occupancies are strong in the markets that we are currently in,” he adds. “Rents are continuing to increase around our upgrade program.”
This value-add arena is a sweet spot in the broader housing market and a smart, safe place to be right now, says Kraus of Invesco. “They hedged themselves in a value investment strategy and really positioned their portfolio to take advantage of the volatility in the single-family residential sector,” Kraus says. “It's a well capitalized portfolio that is not over-leveraged, and it's a more durable portfolio than [many] others, which were highly leveraged and speculative.”
SHOW ME THE MONEY Despite volatility in the capital markets, Milestone's team says investment dollars are still available to firms that can elicit confidence. Milestone's structure, with services committed to property management, marketing, construction oversight, investor reporting, accounting, human resources, and information technology, does just that. And investors can easily count on the firm's reporting and communication transparencies.
“The beauty of their platform is that Jeff and Rob can both really fall back on so much data, and it gives them a perspective and an understanding of trends that have begun to materialize before the general market is aware of them,” Kraus says. “They use that internalized business style to mine information that allows them to be very proactive on the decision-making and strategic side of the business.”
In turn, Milestone's extensive amount of committed capital gives sellers confidence. “When we are in the markets looking at investment opportunities, there are fewer competitors who have the financial wherewithal that we have because there is a great degree of capital markets uncertainty,” says Landin, who adds that as a result of these market conditions, sellers focus less on price and more on the certainty of closure.
To keep the money flowing, though, sometimes you need more than a well structured operations team. Garrison says it's the team's personalities that allow Milestone to make and keep crucial relationships with both financial institutions and property sellers. “Goldberg has a great sense of humor, and I've rarely seen him not in a good mood,” Garrison says. “Even in the midst of a deal crisis, where something is going wrong, he has always got a positive outlook, and that is what helps him keep deals on track.”
Put the top execs in a room together, and you'll see exactly what Garrison means. The friendly jokes start flying. “How do we split the work here?” Landin asks, rhetorically. “It's very simple. Steve does everything; Jeff and I don't do anything.” Goldberg quickly interjects, “But on odd and even days ... so we can split the work.”
It seems a good sense of humor can go a long way toward achieving top-10 status.
LEADERSHIP LESSONS: JEFFREY GOLDBERG
- Age: 46
- First job: Working for our family business, making sour cream, cottage cheese, and yogurt
- Favorite quote: “What you leave behind is not what is engraved in stone monuments, but what is woven into the lives of others.”
- Favorite recently read books:Good Night Moon and Curious George
- Ideal leader: Mike Bloomberg. He leads by his compass and not pollsters.
- Favorite comedian: Buddy Hackett
- Greatest challenge as a leader: Creating a shared vision with meaning and significance
- Best advice someone gave you: Rather than pursue happiness, create it!
- Person you most admire: My big sister Lynny because no one is more giving and more loyal
- Hobbies: Skiing, exercising, traveling, and rediscovering games for 5 year olds
POWER TO THE PEOPLE Milestone encourages its employees to lead the way.
Like being told what to do? Then don't apply for a position at The Milestone Group. Employee empowerment is the company's core philosophy. “This is not an easy place to work,” admits Steve Lamberti, president and COO of Milestone Management. “You have to be self-motivated, have a strong desire to effect change, and be successful at what you do.”
While many companies tout empowerment, Milestone puts this popular buzz word into action. Perhaps the best example: The executives set up a task force to tackle the firm's biggest operational issues, such as finding a new accounting system or surveying options for a revenue management system. The task force is composed of representatives from property operations, site operations, asset management, IT, accounting, and human resources.
Who's missing from this cast of characters? Lamberti and the other senior executives. “I purposely don't put senior executives on the task force because I want the free flow of information and [the] positive and negative exchange,” Lamberti says. “If you have an executive there, it can be stifling.”
Most recently, the task force met for about three months to find a new utility billing provider for its properties. To Lamberti's surprise, the team opted for a smaller vendor, not a larger provider. But the top executives respected and agreed to go with the decision. Such empowerment is critical to the firm's success, says Spencer Stuart Jr., a regional partner at Foster City, Calif.-based Legacy Partners, for which Milestone manages more than 3,000 units. “If you start with good people, let them do their job properly, and don't look over their shoulder, people tend to give you great performance,” Stuart says. “Milestone does this very well, and it works. I am a big believer because I see it in action every day at the local and regional level.”
THE MILESTONE GROUP
- Founded: 2003
- Headquarters: Dallas
- Employees: 700
- 2007 Revenue: Undisclosed
- Units owned and managed: 27,543 (as of Jan. 1)
- Units fee-managed: 6,927 (as of Jan. 1)
- Geographic coverage: Southwest, Southeast, Northeast