What happens when a mixed martial arts professional goes into business with a top gun Air Force fighter pilot? You get a gutsy new real estate venture aiming high, that’s what.
The fighter — Ryan Larson — and pilot — Chris Kopacek — founded Lonestar Development Partners in Austin in 2015 and they are well on their way to producing affordable homes at different price points in key locations. But this is an entirely different delivery platform. They are leasing and managing the new homes rather than selling.
Already developments in Oak Hill and Pflugerville are 100 percent pre-leased as construction continues at a torrid pace. Other developments are underway in Leander and Lakeway.
A separate project, the Rail at MLK — which I’ll describe later since it’s a different kind animal — is set to break ground. One common thread with all the projects is providing attainable housing for middle income households — a big sector so often left out in the cold.
Key to Lonestar’s single-family home development success has been securing well-placed infill parcels. That’s a challenge for every builder in the Austin market today. Land in the metro area is extraordinarily expensive even before development costs are added in.
So how in the world has Lonestar been able to pull it off? For starters, Larson and Kopacek have strong backgrounds and connections in finance and land entitlements. They met as students in the MBA program at the University of Texas.
The two bring fierce traits to the table. Larson played soccer at Westmont College in Santa Barbara, California, and became a mixed-martial arts competitor. His contract was eventually acquired by UFC.
“But fighting did not pay well,” Larson said.
He’d moved to Austin and was working with a real estate pro doing condo conversions while at grad school at UT.
Kopacek, a graduate of the U.S. Air Force Academy where he also played football, flew F-16s and was stationed all over the world. An assignment in San Antonio convinced him that Texas was where he wanted to settle down.
Eventually, Kopacek also enrolled at UT to secure a graduate degree and initially got involved in private equity mostly related to the oil and gas business. When that sector went south, Kopacek turned to real estate and the friendship that had evolved with Larson. Good fortune followed that teaming when they met Taylor Wilson, son of long-time Austin homebuilder Clark Wilson.
Taylor Wilson was eager to deploy his unique skill set — multifamily property management, deep leasing knowledge and site selection savvy, which he had learned in Boston after moving to the East Coast for college. When he returned to Austin, Wilson resurrected a failed residential project in Round Rock and quickly ascertained the need for larger sized rentals.
Call it the law of attraction, but through a series of events Wilson met Kopacek and Larson and the trio plotted their path. By now Taylor Wilson had convinced his father Clark that there was opportunity in the build-to-rent platform. That was another fortuitous circumstance.
Clark was open to expanding his conventional homebuilding business. A reliable and knowledgeable contractor is a prize in a red-hot market that is nearly tapped out in construction talent.
But back to the premise that there is a need for build-to-rent homes. The concept is still largely embryonic. But it’s not totally untested or frivolous.
For starters, it’s long been documented that demand for housing in Austin — as well as other booming cities — is strong and supply is short. Growing households that require more bedrooms are particularly hard pressed when faced with a conventional apartment model.
Three-bedroom apartments, for instance, represent the smallest fraction of units within complexes and lease for the highest price per square foot. Many apartment complexes don’t even offer three-bedroom units, and moving forward most developers are focusing attention on smaller units.
Squeezed out of existing apartments, many households have been unable to save for a house down payment, usually about 20 percent. Rapidly escalating home values add to the challenge. It’s this perfect economic storm that led to the build-to-rent concept, first gaining traction in Southern California where housing prices are also ungodly.
Mark Wolf, a former director with national brokerage and capital markets firm HFF, recognized the need for more leased housing in the aftermath of the 2008 subprime mortgage meltdown in 2008 when loan underwriting became super strict.
Wolf formed AHV Communities, which built whole single family neighborhoods for lease. Many doubted the wisdom of this model, but AHV has growing rapidly and attracted national attention. It has a community in Pflugerville and several others across Texas.
Another hint of this sector’s viability rests with the strategies of big institutional money. Divisions of The Blackstone Group and Starwood Capital Group, for instance, have invested millions buying individual single family homes in major markets, particularly those hard hit by the Great Recession. Critical mass — acquiring many homes in a given city — is key.
Amherst Holdings, a quiet Austin-based investment banking and asset management firm, operates a large division in the single family rental sector — owning, leasing and managing thousands of homes across the nation. This must work, right?
Still, the concept was a tough sell for Lonestar Development in its initial attempts to raise start-up capital.
“We met a lot of folks and we got a lot of no’s,” Larson said. “But we finally got a breakthrough with Bee Caves Vista.”
That project which is 50 percent complete and 100 percent pre-leased is located in far southwest Austin near the “Y” where Texas Highway 71 and U.S. 290 converge. It’s a picturesque and affluent neighborhood with many new homes priced around $500,000 and above.
Assuming a 20 percent downpayment of $100,000 at current interest rates, the monthly payment would be about $2,150. But who has $100,000 saved up to even get in the game?
For about the same monthly payment, Bee Caves Vistas offers a 3-bedroom, 3.5-bath unit that is brand new. Walden Square in Pflugerville units are pre-leased from around $1,900 to $2,100 per month.
Taking the down payment out of the equation is huge for most families.
To help Lonestar acquire the best infill sites and focus energies efficiently, the principals recruited Austin real estate veteran Tom Etheredge, formerly president of Forestar Group’s multifamily division. They’ve also retained former Austin City Councilman Mike Martinez to help navigate city processes.
That has especially come in handy as the team prepares to break ground on The Rail at MLK, a 235-unit transit-oriented apartment project near East 17th Street and Miriam Avenue in the Chestnut Commons neighborhood.
What makes this different from other East Austin apartments, Lonestar principals said, is that most units, rather than a small fraction, will be affordably priced. The company is waiting for a loan with the U.S. Department of Housing and Urban Development, which should close in the next week or two.
It’s a busy time for Lonestar Development and hopefully the beginning of a long and successful enterprise. Rounding out the team is Patrick O’Shaughnessy, director of marketing and communication, who has known Larson for years.