2024-04-23 03:01:39
Larry Connor knew how to combine real estate returns and excitement: piloting a fighter jet, traveling in space or even diving into the depths of the ocean, the billionaire does not shy away from any extreme activity.
Article by Giacomo Tognini for Forbes US – translated by Flora Lucas
It’s late January, it’s an overcast day in Dayton, Ohio, and Larry Connor digs through a stack of reports on his desk, which overlooks the runway at Wright Brothers Airport and a hangar that houses a replica of Wright Model B, one of the first aircraft. The walls are lined with framed mementos of his exploits: a skydive from a balloon at a record height of 11,625 meters, a mission aboard the International Space Station (ISS) as one of the world’s first private astronauts, and a dive to the bottom of the Mariana Trench, 10,935 meters below sea level, the deepest place on earth.
“You have to be willing to take calculated risks, not stupid risks”, explains Larry Connor. This strategy proved successful for him and his real estate company, the Connor Group, allowing him to achieve astronomical returns for thirty years and build a personal fortune of two billion dollars.
Since co-founding the Connor Group in 1991, his investments in luxury apartments have produced an annualized return of 30.4%. That’s almost unheard of in an industry where titans like Blackstone and Brookfield have returned 16% and 18% in real estate since the company’s inception.
The key to success?
Larry Connor achieved this by seeking quick returns in a thin market. “I want to maximize value in the shortest possible time”, says Larry Connor, who strives to sell real estate profitably as quickly as possible. On average, he holds a property for five and a half years, compared to ten years for listed real estate investment trusts. He once sold a building in Charlotte, North Carolina, in just over a year, making a 75% return.
This is what he calls the “transactional model”, where each property is continuously analyzed to optimize income and minimize costs, while at the same time monitoring the local market. Larry Connor flips through the report for an apartment building owned by the Connor Group in Fort Lauderdale, Florida, showing metrics such as capital expenditures and revenue improvement, as well as ease of administration. One of these measures is simply called “instinct”. Everything is considered with sales in mind. “Each property is assessed twice a year. Eighty-five percent of the time we meet or exceed our forecasts. »
Each sale is immortalized in a meeting room located in the entrance area of the company’s headquarters. There, beyond the glass space suit that Larry Connor wore in orbit and behind a table made from used aircraft parts, are 135 plaques commemorating every transaction made since 1995, with a total value of more than six billion dollars.
“It’s clear he has a big ego and really believes in his own abilities.”says Roger Lipson, executive coach and sole non-employee partner of the Connor Group, who has known Larry Connor for thirty years. “But he is measured enough and has this internal risk calculator that has enabled him to keep his feet on the ground. »
The Connor Group currently owns and operates a $5 billion portfolio of 51 apartment properties in 12 states, from Colorado to Florida. Between 2020 and 2022, when the post-pandemic boom sent rents and property values soaring, the company’s funds returned 42.5%. Many buildings were sold less than three years following acquisition, with returns ranging from 17% to 159%.
How did a self-described computer science major build one of the most successful real estate companies in the United States? “They are all real estate agents”explains Larry Connor regarding the competition. “We are not real estate agents. We are investors who invest in apartments. »
At Connor Group, everything must be maximized, from time to money. The meetings start at unusual times to be as short and efficient as possible (during the visit of Forbes, one of which started at 12:37). Every dollar spent must be accounted for, for example colleagues checked every dumpster in a Dayton apartment complex one night and noted how full each trash was. With many nearly empty, the team reduced the number of weekly next-day pickups, saving the company $27,000 a year on its garbage bill.
Top performers can get a stake in the company through annual distributions. Sixty-six partners, including the chief engineer and a janitor, share a 7% stake in the company (Larry Connor and his family own 93%). Employees must consistently score 8.25 on a 10-point performance scale to maintain their share.
“You will feel very uncomfortable if you do not perform well enough and it will not take you long to improve or move on”explains Roger Lipson. “If you are elite and a high achiever, you will have enormous opportunities. »
Larry Connor’s Journey
The son of a father who was a World War II veteran and a mother who served in the Red Cross, Larry Connor grew up in Dayton. He barely graduated from high school, but he had an entrepreneurial spirit and made money painting houses. After graduation, he bought used cars, filling the trunk with cheap “damaged label” wines in Dayton, before selling them to students in Athens, where he went to college from Ohio. While studying, he collected corpses on weekends and took them to a local funeral home for five dollars each.
After college, he worked as a salesman at a Volkswagen dealership, then as a travel consultant, which took him to Morocco, Mexico and Europe. Returning to Dayton in 1977, he opened a bar, Newcom’s Tavern, with $52,500 raised by 21 investors. “The success has been phenomenal”, he says. Investors made a 300% return when he sold the bar two and a half years later.
He pocketed the money and moved to Orlando, Florida, where he started a company that was said to be the second largest IBM microcomputer dealer in the state. This success did not last. “Margins are reduced”he remembers. “We ended up going out of business following nine years. I did a PhD in business failure. »
He returned to Dayton, unemployed and $900,000 in debt. “It’s 1990. I’m completely broke”he said, pausing. “But I was determined to pay back every penny. »
He turned his attention to real estate, brought in two partners and a sole investor, and struck a deal with a Kansas City-based savings and loan institution to buy three apartment buildings in Dayton. It is then that crise des Savings and loans erupted, derailing the deal and reducing property values. “We found ourselves back where we started”, he explains. However, the tide soon turned in his favor and a year later he bought the buildings for a million dollars less than the originally agreed price.
In 1994, he paid off the debt. Nine years later, he bought out his partners’ shares and took over the reins of the company. When the financial crisis hit in 2008, Larry Connor’s obsession with cutting costs paid off when he went on a shopping spree. “Late 2008 and late 2009 are probably the best buying opportunities I’ve ever seen”he declares. “When blood flows in the streets and most people flee, he calculates”explains Roger Lipson.
The company was declared an important business during the pandemic because it managed apartment buildings, and Larry Connor made the most of it. Between 2020 and 2022, Connor Group bought 32 properties for $2.5 billion, sold 28 for $2.7 billion, and grew revenue by 26%.
A risky strategy that does not always pay off
But in a sector as volatile as real estate, the risk of failure is always present. According to Fitch Ratings, the crime rate for apartment buildings is expected to double by 2024 in the United States, surpassing the peak reached during the pandemic. In addition, investment in apartment complexes fell 61% to $119 billion last year, the lowest level since 2014. What if Larry Connor wants to sell but no one wants to buy?
COMMENT PLAY
Couple William Baldwin
The first element to consider in a real estate investment company is the working capital, which is the money available to pay dividends. The other thing is location. Sometimes real estate is at risk of being expropriated through rent control. For this reason, the cautious investor will avoid the Equity Residential real estate investment chain, despite its attractive dividends: half of the assets are in New York or California. Essex Property Trust, otherwise attractive, should be avoided for the same reason. Prefer Camden Property Trust, which is distributed throughout the southern United States and of which only 6% of the 60,000 apartments are in the coastal states.
William Baldwin is an investment strategies columnist for Forbes.
“They thrived, but the situation has completely changed”says Michael Costantini, co-founder of Cincinnati-based brokerage 3CRE. “If you look at the big markets [de Connor Group], you understand that it is difficult to sell these assets now because the chances of achieving a return on investment are low. »
Larry Connor admits his strategy doesn’t always work. “The year 2023 was not a good year according to our criteria”, he declares. However, he does not believe the conventional wisdom that prices will continue to fall. “More buyers will enter the market”he insists. “We will probably start selling in the summer. »
To support his argument, he points to the company’s higher rents, which have increased by 4% to 9% in 2023, compared to a US national average of 0.5%. He is not worried regarding debt (on average 70% of the value of the company’s portfolio). It carried out a significant refinancing when interest rates were low in 2021 and conducts regular stress tests to ensure a margin of safety. Additionally, in the best-performing markets, such as a Fort Lauderdale property, he sees no reason to sell right away: “We’re going to keep them.”
Regardless, 74-year-old Larry Connor isn’t slowing down. A week following the meeting Forbes, he flew to Florida and Indiana to inspect Connor Group properties in those areas. He also has big plans on the horizon. “If you think of land, sea and air, in reality there is no land and there is no air”he says, hinting at his next adventure, which will be revealed later this year. “When it’s announced, you’ll laugh. »
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