Triten CEO Talks Recent Multifamily Acquisition & Future Opportunities

Scott Arnoldy, CEO of Houston-based Triten Real Estate Partners, has developed and acquired nearly every type of real estate asset over the years. But these days, he said he's finding exciting opportunities in the industrial and multifamily markets and having fun developing multiple mixed-use projects alongside another prominent local developer, Radom Capital.

Most recently, Triten scooped up a three-building apartment development in Spring Branch that Arnoldy said will provide a new cash flow and create new opportunities.

While noting that his company has expanded into 10 markets besides Houston, Arnoldy also said there's no place like home.

"We never forget about our backyard," he said.

Arnoldy sat down with the Houston Business Journal to discuss his company's recent growth, where he's finding new opportunities in an uncertain economy and where he hopes to bolster his fast-growing team.

Why don't we start with a quick update on where things stand for Triten Real Estate Partners here in Houston?
Over the past few years, the business for me has taken an interesting evolution. We are now in 11 markets across the country. But I would say that lately we've been doing less mixed-use work and more industrial and, specifically, more multifamily.

We are dedicated to Texas, but we have seen opportunities sprout up across the country, everything from development to acquisitions. The assets we are seeing are in the (industrial outdoor storage) and old Class B product. I was just on a call about a nine-figure acquisition of a big portfolio across several markets. But we never forget about our backyard.

What is going on with regard to your multifamily development strategy lately?
We actually have pivoted our mixed-use plays to be more multifamily anchored. Our core value as a shop is to find the best relative value for our developments. We aren't just building to build.

We've broken ground on The Landing at Aliana development in Richmond. We're developing that 294-unit project (at the corner of West Aliana Trace Drive and Fairbairn Way) via a joint venture with NewQuest.

We've also been making some acquisitions recently.

Most recently, we found these three properties called Three Corners North and East in Spring Branch, and we recently acquired the final piece of it. They're in a little pocket north of I-10, where we take our kids to play sports. There are a lot of expensive townhomes and great single-family residential.

What does the portfolio consist of?
The last piece we acquired was 3 Corners West, a 283-unit apartment community in Spring Branch. We acquired the other two pieces last year, which consists of 3 Corners North and 3 Corners East, in November.

Together, the portfolio spans 997 units across more than 35 acres along Kempwood Drive, giving the firm full ownership of one of the area's largest multifamily communities. We plan to implement a coordinated operating strategy across all three properties, focusing on operational efficiencies, improving performance, maintaining the communities and enhancing the resident experience.

The properties offer one-, two- and three-bedroom floor plans, and the amenities include multiple swimming pools, a fitness center, covered parking and landscaped courtyards.

What attracted you to that property?
Well, it's about 1,000 units in a great part of town.

It was institutionally owned by a group out of New York, so they've maintained it really well, even though it was built in 1979.

If you've been keeping up with what's happening with older vintage product, it's been pretty ugly from an ownership perspective. A lot of people just overpaid. There is a lot of product that's been mismanaged or they're not investing capital back into the development.

We thought this one was very high quality, and we thought that if we brought in a long-term investor, a group called Evergen Equity out of Austin, we could pick it up because it was priced appropriately. It would allow us to get an actual cash flow.

We're going to keep it the way it is because we're dedicated to providing housing that segment of the market; we're not going to do a bunch of upgrades to make the rent super expensive.

It's a great piece of land, so with a good cash flow it seemed like a good investment opportunity.

What kinds of future development prospects do you see on the horizon?
Houston is kind of the bell of the ball in terms of fundamentals, especially on industrial. You've got manufacturing coming back. We are very bullish on the growth of Houston, so we have been making a variety of bets in that area. We actually have some assets in our portfolio that we want to redevelop, including a property right next to Cleburne Cafeteria in West (University Place). It's a little early, but the idea is to put something with density, maybe adaptive reuse. That's a little longer term.

You also have some mixed-use, adaptive reuse projects that are already underway. Can you tell us about those?
Well, we have the Swift BLDG project that we are doing with (Steve Radom of Radom Capital), which is going really well.

We've got the stuff next to M-K-T, which is four industrial buildings that we will likely look at activating once we get through leasing the Swift BLDG. Right now, Radom isn't involved with that one because we bought it before he and I were doing everything together. We might end up doing it together. I just keep telling the architect, "Don't overthink it. Look next door and just do the same thing here."

You mentioned that the multifamily market has been facing some challenges lately. Can you talk about that a bit?
It's a bit of a conundrum because I don't think the rent-versus-own (gap) has ever been this wide for this long.

In a lot of areas, there's nothing to buy because no one wants to sell. The cost of moving with a new interest rate is crazy high. You can go rent for literally 40% less than that.

Usually, the market would correct for that, but there are real-world things that can get in the way of that. You and I might not want to rent a house with a family, whereas someone younger who doesn't have kids might just say, "Forget it; I'll just rent for now." That ate up a lot of the supply.

I think it will work its way through the system. But you had a lot of product come onto the market, so renters had a lot of options, which put pressure on rents.

The third leg is that it costs a lot to build a multifamily project right now between inflation, higher interest rates and construction costs. That makes the math hard.

Something's got to give at some point, or you're not going to see much getting built inside Beltway 8. You're going to need to see some improvement in the fundamentals before that happens.

We've been hearing that the industrial market remains strong, if not as red hot as it was during the pandemic. What's your read on that segment of the market in Houston?
It's still pretty hot, in Houston especially. We keep putting up some good absorption numbers. You're seeing a ton of absorption in the bulk big warehouses and really good absorption in the infill developments with smaller tenant bases. The in-between has been slower but on a relative basis.

We just delivered a development near the airport that has seen really good activity already.

How does Houston compare to the other markets you're in, with regard to industrial?
I hate saying this to the HBJ, but the only market that's probably outpacing Houston is (Dallas-Fort Worth). That market has been absorbing tens of millions of feet. But both markets are strong with good velocity, good leasing and good fundamentals.

In Houston, you always have to be careful about not overbuilding. I fear we're heading that way quickly. There's something like 30-plus million square feet getting built. That's usually when we will pull back and say, "Let's take a little bit of a pause." We're a little less bullish on new developments right now unless it fits a very specific box or where we think there's a gap.

You mentioned the Swift BLDG mixed-use project. Where does the leasing on that stand?
Right now, we have commitments for 87% of that project and 72% leased. We're probably 70% through construction, so it's close to being done. It's going to be pretty cool.

On M-K-T, which we also did with Radom, we kind of ran point on the project in terms of construction because that's how the project evolved. On Swift, we flipped it and let them run point. They're doing a great job.

We expect that to deliver over the next few months.

What about your The Mill mixed-use development in the East End? Where does that stand?
It's in lease-up right now, and we're happy with its performance. The East End is still continuing to get its legs in some ways. But you're seeing all of these green shoots over there.

The Mill was an opportunity zone investment that we're doing as a long-term hold. We do have a second phase planned, but the math doesn't work on it yet.

What comes next for Triten?
We are still very focused on growing the company. We are very focused on finding good talent in Houston or people who are willing to move to Houston.

We're looking to recruit some people on the capital markets side.

And then we're just focusing on trying to find where we can build good industrial and multifamily projects.