Home Private Equity After 50 years, Embrey gets into build-to-rent, private equity

After 50 years, Embrey gets into build-to-rent, private equity


Garrett Karam is chief information officer of Embrey, a San Antonio-based real estate development company that is marking its 50th year in business. He said the company plans to launch a $300 million investment fund this year.

Garrett Karam is chief information officer of Embrey, a San Antonio-based real estate development company that is marking its 50th year in business. He said the company plans to launch a $300 million investment fund this year.

Sam Owens/San Antonio Express-News

This year, local multifamily developer Embrey will celebrate its 50th birthday. Over five decades, it has spread its reach across the Sun Belt, building apartment complexes as far away as Phoenix, Denver and Orlando, Fla.

Rather than settle into a groove, the company continues to experiment with new products. Recently, it began constructing build-to-rent communities — neighborhoods of single-family homes designed to be rented rather than sold. The first opened in Gruene last year, and another is planned for Boerne.

The company is increasing the pace of its deals, Chief Investment Officer Garrett Karam said. Having proceeded with about four to six projects a year over the last decade, it’s now looking to tackle about a dozen, he said. To do so, Embrey has begun relying on private equity funding — drawing money from a broad pool of investors rather than solely traditional financial institutions. This year, it plans to launch a $300 million investment fund, Karam said.


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“We felt like going to the private equity world was an essential step,” he said. “We wanted to diversify that capital base instead of just going to the big institutional partners time after time. The growth path of Embrey as an owner, operator, developer, acquirer of assets had to be supported by the growth path of bringing more private capital into the funds structures.”

Embrey is now headquartered in 7600 Broadway, the mixed-use development it built in Alamo Heights in 2022. It has recently tackled other notable local projects such as Tin Top at the Creamery, an apartment complex near Pearl. Karam, who grew up on the North Side, has been with the company since 2014.

He sat with the Express-News to discuss Embrey’s evolution, the impact of rising interest rates on the multifamily business, and why Denver is the firm’s biggest market. The following has been edited for brevity and clarity.

Q: You seem to enjoy working in real estate development. What’s fun about it?

A: I’ve done a lot in real estate development, but really my forte, I would say, is in the numbers part of the business. When you talk about finance, a lot of occupations are on paper or on the computer more than they’re in real life. You know, if you’re buying equities on the stock market, you’re analyzing a company; that company does something, but you’re very far removed from it. The reason I got into real estate is because you’re very close to what you’re actually investing in. To me, it’s very rewarding being a part of a team that helps go find a site and then conceptualize a project, go get that project entitled and capitalized, and then watch that project come out of the ground.


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Q: Embrey has branched out into build-to-rent housing. Tell me about that.

A: The easiest way to describe them is they’re attached duplexes and townhomes, lower density — kind of a bridge between a 25- or 35-year-old that’s been living in apartment but maybe doesn’t want to own a house or maybe can’t quite afford a house but would like that single-family living environment. We do a lot of build-to-rent projects on the North Side of San Antonio, and it’s a great market for them. Our first one delivered in Gruene just a couple months ago. Our second one just delivered in Fort Worth, and we have another under construction in Boerne. So that is an up-and-coming asset class within our business that we’ll be doing more and more of.

Q: Why is the Sun Belt a good place to invest?

A: We decided many years ago that the population growth and migration trends were certainly coming from the Northeast and Midwest down to the South. So we looked at all these “lifestyle cities” in the South, such as Denver, Phoenix, Austin, Nashville — places where the younger people wanted to be — and we thought that there was going to be a higher demand for housing in those markets. Ultimately, there’s been, I would even say, a higher demand than the market expected, with so much in-migration coming from the North, Midwest and now even West Coast. There’s still high population growth, high job growth projected for the Sun Belt markets. Frankly, we think it’s here to stay, given everything we’re seeing in the economy.

Q: Denver is the firm’s biggest market. Why?


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A: The city of Denver did a great job really densifying their downtown, building Union Station, building Coors Field. They have this really dense, livable, fun city. And then, of course, they have the Rocky Mountains that are irreplaceable. When you go to a market like Denver, you have a lot of young people there, a lot of license plates from all over the different states. You tour projects and ask the residents, “OK, you’re from Michigan. Are you going to go back and raise a family there?” And the answer invariably is, “No. Colorado’s incredible.” There’s a lot of fundamental traits that attract people to Denver.

When you look at the other cities we develop in, there’s compelling reasons for all of them. Let’s take Dallas. It has just an incredible diverse, strong economy, so that job growth is always going to be there. Nashville — great geography, great “lifestyle city.” Florida and Texas in general — people want to move for the pro-business, great taxes, generally great weather.

Q: Interest rates have been on the rise in recent years. What impact is that having on capital markets?

A: It started about 12, 18 months ago, when the Fed started really raising interest rates. It created a lot of uncertainty. And when there’s economic uncertainty, capital partners, whether they are providing equity or debt — so whether they’re like a big Carlisle (Capital) or a bank like JPMorgan Chase — they get a little bit shy; they don’t invest quite as much. Essentially, what happened is you had a lot of deals being developed or acquired in ’21 and early ’22; but really kind of halfway through ’22 to today, there’s a lot fewer deals because there’s a lot less capital going into the market.

Now what’s happening is you’re seeing what we believe is a stabilization of interest rates. Actually, in current times, the long-term interest rates are falling. We expect the short-term interest rates to fall probably about halfway through (this)  year. And owners, operators, investors are getting more certain of that — of the fact that interest rates have stabilized and will likely fall. So we think 2024 actually will be a much more attractive year for investors and debt partners to be putting capital into our business.


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Q: Are we entering a new era of higher interest rates, compared with what we saw in the 2010s?

A: I don’t think you can expect the next 10 to 15 years interest rates to match the last 10 to 15 years interest rates. Coming out of the GFC, i.e., Great Recession, the Fed was very driven to keep interest rates very low. But is there a fundamental new era? We’re not entering a 1980s or 1990s era where you’re going to see long-term rates at 5 or 6%. We feel strongly that long-term interest rates are going to settle out somewhere in the 3s, which fundamentally we think is good for our business and for the economy as a whole. So ’23 through ’25 are certainly going to be an economically strong and business-friendly environment.

Q: The office markets in Texas cities are struggling with high vacancy rates. Is that impacting your business?

A: To some extent it does. It affects the rental housing industry in the fact that some of the people that are working remotely do want larger living areas now. You have to give your residents an attractive place to work at home. As you may have read, there is a pretty big push nationwide right now to get office workers back in in the office. In most of our markets in the South and Southwest, occupancy is not quite what it was pre-COVID, but it’s certainly approaching those levels. Long term, hybrid work is here to stay, but I feel like there will be a reversion to the mean where those occupancy levels will come back up. But it’s going to take a long time.

The other thing I would say is we develop rental housing for a reason. We feel like it produces the best risk-adjusted returns for our capital partners. And that’s really coming to fruition right now. You know, office is a great asset class, but it can often be a far riskier asset class than rental housing.


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Q: Are you still dealing with the fallout of the supply chain disruptions post-COVID?

A: Yes and no. In ’21 and ’22 and kind of the beginning of ’23, it was an incredibly hard market to execute those projects in. You could get them designed and entitled and capitalized, but when you went to go build them, there were very big supply chain issues and very big labor constraints. Those have certainly eased. It is easier to build an apartment at the end of ’23 than at any time in the past three years. We expect that to continue into ’24 and ’25.

Q: As you ramp up your project load, where will you get the greater funding?

A: The past few years and then going forward, we’ve more and more been welcoming private capital investors into our projects. If you look back the past 50 years, it’s been mostly big companies that have been capitalizing these $100 million-plus deals. But now we’ve structured our business where we can welcome private capital investors. You collect a lot of private capital investors, you put them in a fund, and then you can go execute a number of deals out of that fund. It’s been extremely successful to date.

Q: Who are these investors? Do they come from all over the world?

A: They’re domestic, but, yeah, they do come from all over the United States. We have a great base here in San Antonio. We’re always looking to expand that base. But frankly, throughout Texas, and then some of our other core markets, we’re always looking to build those networks. And that will be an increased focus for us going forward.

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