Investability Solutions' Dennis Cisterna is redefining the single-family rental sector.
When Dennis Cisterna, CEO of Investability Solutions, joined the Altisource Portfolio Solutions offshoot’s “one-stop shop” for single-family residential (SFR) investors, he did so with a clear mission in mind. “It should not be difficult to acquire, finance, manage, and structure partnerships in real estate,” Cisterna said. “There is a place in every asset class for small investors and big investors, and it is the responsibility of the industry giants to be a catalyst for positive change.”
Cisterna’s mission aligns perfectly with the Altisource family of companies stated goal of “providing services and technology for the mortgage and real estate industries” while keeping “innovation as a guiding principle. The move also suited Cisterna perfectly, since he had maintained a bead on the single-family residential (SFR) rental industry since shortly after the housing crash.
“Before the crash, I was running acquisitions for Toll Brothers in Southern California,” he recalled, adding that his division went from 160 employees to 16 during the foreclosure crisis. Cisterna knew it was only a matter of time before his position was eliminated as well. “Homebuilding and land acquisitions were the last things on anyone’s mind when defaults were occurring everywhere,” he said.
With a degree in political science and a deep and multifaceted background in development, market analysis, and finance, Cisterna decided his way forward from Toll Brothers would be unconventional. “I got laid off on Friday and started my consulting firm, American Pacific, on a Monday,” he said. Over the next few years, American Pacific consulted with dozens of the biggest financial industry players, including several of the largest banks in the country, about how to manage their swelling book of foreclosed homes, commercial properties, and large tracts of land.
On the other side of the coin, Cisterna also advised large private equity firms and hedge funds how to capitalize on the distress in the market. After nearly five years, he was recruited to run the west coast office of the Carlton Group, a well-known New York-based real estate investment banking firm with a penchant for mega-deals.
“I had companies coming to me to determine the feasibility of buying thousands of houses at a time. They also needed to raise equity or debt to execute that strategy, and in the SFR investment space alone I facilitated and consulted on the deployment of about $250 million in the span of about nine months,” he recalled. Total institutional investment in SFR homes is estimated today at about $33 billion, but at the time, $250 million was unprecedented.
“I thought to myself, ‘Wow, this is really about to take off,’” Cisterna said. “People were buying properties below replacement cost and the big investment firms were figuring out how to operate these investments. It was going to turn into something more like multifamily than we had seen on the SFR side of things previously. I knew I had to be a part of that transition or I was going to end up a well-educated advisor that was not necessarily special or unique in what I was offering the real estate sector. I jumped in with both feet.”
A Passion for Evolution
Cisterna’s version of “jumping in with both feet” involved a transition to Johnson Capital in early 2013 to run their Opportunistic Finance Group and expand capital-raising opportunities within the residential investment space. Within a few months he had teamed up with Blackstone Group, the largest alternative investment firm in the world, to co-create B2R Finance. “That was a huge evolutionary piece of the puzzle for the SFR industry,” he observed. “No one else at the time was offering term financing for single-family rental portfolios on a national basis, and we developed a process to offer them five- and 10-year fixed-rate loans.”
B2R Finance was one of the first private lenders focused on providing term financing for single-family residential (SFR) rental property investors. Dennis Cisterna (at Johnson Capital at the time) worked closely with Blackstone Group to create B2R Finance in 2013 to serve that underserved population of investors.
Today, B2R is part of Finance Company of America.
From there, Cisterna moved to FirstKey Lending, a subsidiary of Cerberus Capital Management, and one of the leading private investment firms in the nation. “We completed the first multi-borrower SFR rental securitization in the market and set a precedent for that type of private lending for the future at the same time,” he said. In 2016, he moved to Investability as the company’s chief revenue officer and was selected to serve as the CEO of the company in mid-2017.
“I feel like this company and my position is the natural continuation of fulfilling that prophecy of taking the single-family investment sector to the next level. My background really fits well into where this industry is headed and, as a thought leader in the space, I want to make sure I can continue to be an architect for how it’s shaped going forward,” Cisterna said. “I’m fully vested into this sector for the remainder of my career.”
A Place for Every Investor on the Cutting Edge of Industry
For someone with a background in “big finance” and institutional investing, Cisterna’s interest in the SFR space is surprisingly oriented on the individual household and the individual investor. “Making money is great, but there is also something inherently attractive about residential investments in general. Investors should feel really good when they see the fruits of their labor resulting in people having the ability to own or rent a good home that they want to live in. You don’t get that same kind of feeling if you finance an office building,” he said honestly.
Because of his background working with hedge funds and huge investment firms, Cisterna believes the best way for real estate investors running relatively small real estate businesses to thrive is to take advantage of everything they can “from the top down” in the real estate industry. Likewise, he said, it is the responsibility of the industry giants to drive evolution, progress, services, and technology.
“There is a place in every asset class for small investors and big investors. Small investors own more of the market, but larger institutions drive change,” he explained. “Smaller investors should not be threatened by the presence of true institutional investors (companies, by Cisterna’s definition, that have hundreds of millions in assets under management) in the market. Those are the companies that you can look to for unique insights and innovations. They are the catalysts for development, for cutting-edge tools and advances in sector-related services and technology.”
Cisterna cited the evolution of private capital as an example of big business benefitting smaller investors. “There used to be few or no options outside of Fannie and Freddie or hard-money lenders if you wanted to finance an SFR rental property. Now, the industry has billions of dollars available for that purpose, and markets all over the country and investors at all levels have benefited from that shift,” he said.
Another example: property management services, Cisterna said. “There are so many different types of technology today that enable smaller investors to grow and leverage their portfolios in ways that never could have happened prior to big institutions entering the SFR space. The capital markets and the technology available followed the ‘big money’ and evolved to work with smaller real estate businesses,” he continued.
“So many of the innovative online tools and services that make being a property manager at any portfolio volume so much easier evolved out of necessity once the biggest players in the ‘field’ were captured. As you can imagine, if I own a real estate-services company and I’m trying to grow my revenue, once I’ve captured the institutional sales I then must go downstream to the next level of investor. That trickle-down effect in products and services for real estate investors benefits every investor at every level, but those products and services, in many cases, would not have been created, refined, or perfected in the first place if it were not for the initial entry of the large investors in the space.”
Making the Most of the Institutional Presence
While conventional real estate wisdom often advises smaller real estate businesses against diving into housing markets and sectors with heavy institutional presences already, Cisterna’s unique take on the breadth of the SFR sector leads him to present a very unconventional view on the trend of big investors taking on a larger role in residential rental real estate (see sidebar on p. 27).
“You will hear investors say that they do not want to get involved in their local market, for example, because ‘the hedge funds’ are just buying everything in sight. Really, those funds can make a market a lot more predictable for smaller investors because they have certain stated thresholds and they work in a scalable way,” he explained. “The disruption comes into the picture when individual investors see the buying activity from those funds, then overpay for assets themselves. It’s a question of discipline. Hedge funds are more likely to have it than individual investors.”
Looking Forward: Markets, Disruption, and the Best Investments this Year
Cisterna is not shy about commenting on market conditions around the country, and he often cites Investability data as a key component in his analyses. “One of the main reasons we have so much data to discuss is thanks to the Altisource purchase of RentRange a few years ago,” he observed. “Between Altisource data and RentRange data, we are now one of the largest data providers in the single-family investment sector.”
Cisterna emphasized real estate markets are inherently logical, which means there is opportunity in every market if an investor leverages the right system for that market and the right strategy for their own business. “Generally speaking, however, there are certainly some markets that might offer more opportunity than others right now,” he admitted. “I see the most opportunity in the Midwest and the Rust Belt along the Northeast, as well as a couple of markets in the South.”
Cisterna also recommended investors not become too narrowly focused on major metro areas. “There are a lot of good-sized, solid secondary and tertiary metro areas that are experiencing either continued expansion or a resurgence of their local economy,” he said, making particular note of these markets in the South and parts of the Rust Belt.
These markets may appeal to individual investors in part because they are less likely to have high volumes of institutional investor activity. “Typically, if you’re investing in Dallas or Houston, Texas; Orlando, Florida; or Atlanta, Georgia, for example, you will face investors of every size,” Cisterna noted. “But if you go to Birmingham, Alabama; parts of South and North Carolina, Cleveland, Ohio; or Buffalo, New York, then you will likely have less exposure to that competitive set.”
He also mentioned Detroit, Michigan, as a market to watch in 2018. “A lot of people avoid Detroit because it has sunk so far from its zenith from an economic and financial perspective. However, there are areas of the city where we see investors finding huge success. Detroit is adding jobs, and it has neighborhoods that are highly successful.”
Cisterna added Detroit is not alone. “There are a lot of historically great urban centers like Detroit finding new ways to reinvent themselves all the time. There is a tremendous amount of opportunity in those markets, but you must really go in, do your due diligence, and align yourself with service providers who can fulfill your needs. Otherwise, you could end up hanging in the wind,” he said.
“The important thing is to identify which real estate market fits your investment goals. Opportunity in real estate doesn’t have a border.”
Investability Solutions offers an extensive set of services to the institutional SFR investment community in a single, seamless platform including renovation services, property management, acquisitions, data analytics and brokerage services. Investability Solutions is part of the Altisource Portfolio Solutions S.A. (NASDAQ: ASPS) family of businesses.
For more information visit investability.com.