Q&A: Edge’s Joseph Sutton on Starting Its New Multifamily Division

Joseph A. Sutton Jr., managing partner of Edge, spoke with Commercial Observer about its multifamily strategy and why the company made the decision to enter the space. 

Commercial Observer: What led you to start a new multifamily division last year?

Joseph Sutton Jr.: Serving the multifamily community has been a key element of the Edge strategic plan for diversification. The challenge was to build a team staffed with like-minded entrepreneurs that could seamlessly assimilate into the Edge culture.

Rawles Wilcox and Ryan Ogden, who both joined last year, were the perfect match. They were frustrated by the sharp elbows and bureaucracy of the institutional service providers, where their creative, “whatever it takes” problem-solving, entrepreneur style of getting the job done was being stifled. They were simply race horses trapped in a stall unable to run freely. At Edge, they are thriving and we are proud to have them part of our team. 

What were the challenges of getting it going in the middle of a pandemic?

At Edge, we don’t make excuses; we solve problems. While others went to sleep during COVID, we were working hard to find creative ways to best serve the changing needs of our clients. We also took a step back to examine our internal culture, study areas that needed improvement, and reset with the goal to emerge stronger and better prepared for the changing commercial real estate environment.

Even after forgiving large fees to serve the needs of our clients, we still had one of our best years during COVID, because crisis is where we thrive and our clients need us most. I am certain our clients will not soon forget what Edge has done for them during COVID. 

How did you set your strategy for multifamily at the beginning?

In keeping with our entrepreneurial culture, the strategy was first engineered to serve our clients with off-market opportunities for 1031 fulfillment.

Our market penetration through our deep long-standing relationships, coupled with proprietary predictive analytic software developed by the multifamily team, made the strategy ideal for Edge. This tool empowers us to quickly identify a shortlist of properties and fully vet them on behalf of our clients, cutting the time needed to identify an opportunity to a fraction of the time it takes our competition.  

How has your strategy changed as we look ahead to the late summer and fall of this year?

While we emerge from lockdown into a normalized economy now on the rise, we anticipate a strong second half to 2021. With the threat of interest rate hikes resulting from inflation, the future will likely change. Increased interest rates will have a direct impact on property values and, while the market velocity may stall for a bit during the transition, Edge will continue to thrive by helping our clients navigate the change with creative solutions for partnering, financing, and positioning strategy. Again, we have positioned Edge for times of change and crisis when our clients need us most. 

Any notable deals so far?

We closed on one property, Center Pointe Apartments, a 144-unit multifamily community in Waldorf, Md., for $25 million. We also placed five properties under contract off-market that will all be closing in July.

Our two properties on the market are Oxford Georgetown, a 217-unit, Class A, adaptive reuse multifamily development in the Georgetown neighborhood of Washington, D.C.; and The Oxford, a 187-unit, Class A, high-rise multifamily community near National Harbor, Md.

How would you characterize the multifamily landscape in the D.C. region today?

Simply … on fire! Cap rates are the lowest we have seen in decades. Buyer competition is robust. Supply is low. Residential property nearly across the board is trading at market highs. Rental rates are anticipated to rise. 

What attracts you to a property?

Depends on the client’s objectives. Some clients are seeking value-add opportunities; others, stabilized core assets; and others, ground-up development. Whatever the requirement, based on our ownership experience, we treat every property entrusted to us as if we owned it ourselves. This sometimes means advising owners to hold versus sell, depending on their long-term objectives.

What locations are you monitoring? What are the ones you are most interested in?

Edge is active across the country, with a concentration in the Washington D.C./Baltimore metropolitan area. We don’t particularly concentrate on location as much as trends and market velocity, which are all ever-changing. Product type (trophy, Class A, B and C) are moving in different markets and differing velocities. We track velocity at the product-type level as well as location, which guides us when identifying trends to put our clients into or out of. 

How are your other segments doing? What do you envision for 2021?

While our advisory work has been extremely active with helping our clients navigate COVID, it has been our property services group (property management, engineering, construction) that really surged this year by a factor of four. Our team has been on the frontlines of creative air purification strategies and HVAC systems modification during COVID, which have attracted a host of new assignments for Edge.

Edge has built a niche with the modernization of older buildings, where our entrepreneurial and creative problem-solving acumen has set us apart. We leave the trophy product types to the giant firms, where their box is more suitable for their institutional owners. Edge tends to take on more challenging product types where our problem-solving skills thrive. 

Local entrepreneurs, closely managing the bottom line, have found our personal real estate ownership and attendant creative solutions to be a great fit for them. In our “throw away and replace” world, we don’t believe anybody can keep buildings running longer than Edge. It is harder, we have built an expertise in it, our competitors avoid it because it isn’t easy, and we have built a vibrant niche to make an impact helping local owners extend the life of their buildings.

Keith Loria can be reached at kloria@commercialobserver.com.