May 2022 Update to Investors

It’s cold comfort in times like these, but no less true: calm seas never made a skilled sailor.

To state the obvious, the seas are anything but calm right now. As of typing this letter, the S&P
500 index has shed ~17% of its value in the first six months of this year alone. The 10-year treasury is fluctuating around 3% – its highest level since November 2018. Inflation continues to run rampant, hitting a 40-year high. And of course, the ongoing situation in Ukraine portends sustained geopolitical risk

The next thirty-six months in our global economy will likely look much different than the last. At
Revitate Cherry Tree, while we acknowledge the uncomfortable truths clouding the current global
economy, we remain focused on the path ahead. That means sticking with our long-term strategy of
buying cash-flowing multifamily real estate in growing Midwest markets. The same catalysts that
underpinned our strategy on day one are as relevant as ever:

  • Supply-demand imbalance: the historic imbalance between multifamily supply and demand shows no signs of slowing down. Apartments-for-rent are an essential need in our country as housing prices remain at all-time highs, while the cost of mortgages has nearly doubled in the past six months.

  • Inflation hedging: our belief that multifamily real estate is an effective hedge against inflation remains unchanged. Apartment rents outpaced inflation this past year, and we continue to see strong leasing trends in our markets today. As inflation increases, so do rents and the cost of building new apartments.

  • Long-term trends: population growth, job creation, delayed household formation, and similarly favorable trends are fundamental tailwinds for multifamily demand in the years to come.
Continued Opportunity in Midwest Workforce Housing

Revitate Cherry Tree continues down our differentiated path of unlocking value in overlooked
Midwestern workforce housing markets. While institutional capital that has flooded the apartment
asset class over the last decade continues to search for the next “value-add” deal in the Sunbelt,
we look elsewhere. Our strategy of buying stable and cash-flowing - albeit unglamorous - workforce
housing assets in the middle of the country looks better by the day, especially now when cheap cost
of capital, market euphoria, and buy-side liquidity are in regression. Three particularly notable

  • Significant Growth in Midwest & Sunbelt Regions. Over the next decade, Midwest & Sunbelt metros are expected to see the greatest share of in-migration, household formation, and employment growth amongst the young adult population relative to gateway markets, as quality-of-life and cost-of-living are providing a robust tailwind to apartment demand. Even within these regions, recent rent increases in the Sunbelt will only further increase demand for attainable product.

  • Relative resilience of workforce housing. If past recessions and inflationary episodes are any indication, we can expect demand for workforce housing to prove durable, particularly as households increasingly prioritize more affordable rents at the expense of higher priced, Class A product.

  • Specific focus on the “I-70 Triangle.” We are particularly intrigued by the I-70 triangle, defined as the nearly 600 mile stretch of U.S. Interstate 70, which runs from Columbus, Ohio to Kansas City, Missouri. The Tier I markets that define the outline of the Triangle have seen steady and robust employment and population growth of nearly 20% and 10%, respectively, over the last 10 years.


“Value-Add” by a Different Name

Too much investor attention remains on a dominant perception of what “value add” means in the rental sector. But we see a path to unlocking value in workforce housing through what we call operational value-add.

What does that mean? It’s about rolling up our sleeves and digging into our properties’ P&Ls regularly to understand where we can drive internal efficiencies. It’s about drawing on decades of operational experience within our team to implement hands-on asset management and operational systems and increase the performance of our communities - without displacing our residents.

It’s not easy work. And it’s not glamorous work - especially at scale. But this is our competitive advantage, and early indicators of performance are promising. The three assets currently in the Revitate Cherry Tree portfolio are enjoying a stabilized occupancy of 95% and have generated an annualized 9% cash-yield, exceeding our original budget. Deal flow in our target markets is healthy, and our on-the-ground relationships with local property managers remain strong. We’ve garnered a significant presence in the Midwest over the past several months and have established ourselves as a best-in-class operator within the broker community.

Doubling Down on The Things That Matter

As we look ahead, we’ll continue to double down on the things that matter:

  • maintaining focus on the active preservation of existing and attainable workforce housing – and specifically older, yet well-maintained B and C level properties well below replacement cost – poised to weather economic headwinds while Class A “value-add” multifamily endures heightened volatility;
  • prioritizing B+ Midwest markets where limited-to-no new competitive supply, coupled with growing demand, will result in significant and prolonged supply-demand imbalance for attainable housing;
  • operating our communities using best-in-class asset management procedures which we believe will add inherent value over time; and

  • managing risk proactively by evaluating deals with a disciplined and conservative approach, utilizing long-term, fixed-rate debt, and executing on a repeatable business plan uncorrelated to market volatility;

As stewards of your capital, we thank you as always for your trust in us during these challenging
times. May we all prove better sailors by the end of this journey.


Alex Bhathal
Co-Founder & General Partner
Revitate Cherry Tree
Chris Marsh
Co-Founder & General Partner
Revitate Cherry Tree
Lisa Merage
Co-Founder & General Partner
Revitate Cherry Tree


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