What do you get when one of the most influential real estate professionals in the country joins forces with a hedge fund wizard? A whole new game.
When David Osborn and Tommy Prate created Magnify Capital to target single-family residential real estate, they knew they were on to something.
Multi-family residential assets like apartment buildings, townhouses, and condominiums had always been popular with institutional investors—so much so, that more than half the multi-unit properties in the country were institutionally owned. David and Tommy both knew that it was a competitive market.
But the single-family residential market? That was something very different.
“It’s a whole different game,” says Tommy Prate, co-founder and CEO of Magnify Capital. “Both markets are over three trillion dollars, but just 2% of single-family homes are owned by institutional investors. That’s a huge untapped space.”
Better yet, the demographics were also suggesting that the single-family residential (SFR) market was only just beginning to take off. People are less likely to buy a home now than they were thirty years ago. Of the 3.9 million new renter households slated for 2020, nearly 40% will opt for a single-family residential rental property.
This is especially true of millennials. Increased student loan debt, later marrying ages, and increasing home prices have created a generation more averse to homeownership. As the majority of millennials reach homeownership age, they are consistently moving toward flexible, long-term rentals in areas with low crime, close to good schools and work.
A great opportunity, however, is nothing without the right strategy. When Tommy was introduced to the single-family residential asset class, and then met David, he realized he was seeing a perfect opportunity to execute what he refers to as “hockey philosophy.”
“In baseball,” Tommy says, “the pitcher is your most important player and can carry a team. In football, you have the quarterback. Even a basketball team can have a single player that dominates. Hockey is different. Hockey requires a team of role players, where each member plays their role to the best of their ability, while they all strive for the same goal. No one player is more important than another. The team is everything.”
For Magnify, this is more than metaphor. While many of the large Real Estate Investment Trusts (REITs) focus on using technology to scrape the MLS, or purchase pools of assets to achieve economies of scale, Magnify has built a network of partners in real estate markets across the country. Not only do these “Magnifiers” have access to off-market deals largely unknown to traditional REITs, but they also house their own analysis, acquisition, renovation, and property management teams to efficiently execute at the local level. For Magnify Capital, they are key team members that provide access to deals, lean operations, and attractive returns for investors.
For anyone who knows Tommy, the hockey philosophy has literal roots. Tommy spent almost two decades building and managing the operational infrastructure for hedge funds and PE funds totaling more than $11 billion in AUM, but hockey was never far away. He started playing the game as a kid, then moved to junior hockey in Minnesota and at the collegiate level in New York. He recently turned 40, and continues to play the game today in Austin where he lives with his wife, two boys, and two Great Danes who are appropriately named, “Skates & Gretzky”.
It was while coaching his oldest son’s team, however, where he formed the philosophy that would become the cornerstone of Magnify Capital. “It was so crystal clear that wins were about the team, not the stars,” he says. “You needed a cohesive group of players where the sum of the parts added up to something much more. Business is exactly the same.”
Like Tommy, David also knows the value of a team. He founded and co-owns the fourth largest real estate brokerage company in the United States. With close to 5,000 agents, it generated more than $10 billion in sales last year. David knows as well as any hockey coach how much people matter.
David has used that same team philosophy for more than 25 years. He is the founder and operating partner of a company specializing in acquiring distressed assets and has underwritten over $1 billion of debt, invested in over $90 million of assets (UPB) and produced returns north of 41% ROI (unlevered). Since 2007, David has bought and sold over 1,000 single family homes in 40 US states for his own personal portfolio, and is the operator of over 35 profitable real estate related businesses in the US and Canada. He is also a New York Times best-selling author, and has his own “home team”—he’s a father of three and lives with his wife and family in Austin, Texas.
David and Tommy knew that a key part of Magnify’s team would be the Chief Operating Officer. “Just like hockey, without solid fundamentals, a firm won’t be successful without the right foundation,” explains Tommy. In addition to Chief Compliance Officer, Champ Caputo, Magnify recently expanded its leadership team with the addition of Mike Cavanaugh as COO.
Mike is a former Senior Vice President of Supply Chain at Amherst Holdings/Main Street Renewal, a large real estate holdings company with more than $3.5 billion of assets under management within the single-family residential space. His addition to the Magnify team adds deep operational insight and extensive supply chain management experience. He’s a Lean Six Sigma Master Black Belt, and completed the real estate investment program at Harvard.
Like David and Tommy, Mike’s dedication to his family, strict work ethic, and relationship-first philosophy is a huge asset, and a perfect fit for Magnify’s team-first culture.
Tommy, David, and Mike were all on the front lines during the 2008 financial crisis. They’ve seen firsthand what can happen when you don’t create the right team and execute on the right vision.
“A hockey team with 15 goal scorers may be able to win a couple of games, but they will never win a championship,” proclaims Tommy. “They won’t survive the tough times. They don’t endure.”
This firsthand experience has inspired the Magnify team to create a risk resilient strategy and a nimble internal structure—one that allows for flexible long- and short-term investment options, and maintains stable cash flow even through economic downturns.
As with hockey, the seasons in real estate remain variable. What determines the outcome is a team’s strategy and ability to adapt. For those that endure, every team member plays a specific and important role; no star can carry the team. At Magnify Capital, this philosophy is in constant play, as operational infrastructure, supply chain management, and on-the ground real estate experience combine to create something enduring in a market rich with untapped potential.