A Houston-based real estate investment firm is growing fast three years after shifting its focus entirely to acquiring, upgrading and managing apartment complexes.
Arrowstar, which has acquired 10 properties since 2019, recently signed a lease in Houston-based MetroNational’s 945 Bunker Hill building in Memorial City after working out of a coworking space at The Cannon West Houston for the past three years.
The new office will have five full-time employees for now, while the rest of the around 20 employees work at the company’s apartment complexes. Kyle Fletcher expects that number to double in the next few years.
Kyle and Chad Fletcher founded Arrowstar in 2005 as a side business to their oil and gas company, QIC Inc.
They sold that company to Genoa, Italy-based Rina in 2015.
“Once we sold and stuck around with the buyers of our oil and gas company for a short period of time, we decided to go all-in on our real estate company,” Kyle Fletcher said. “And then in 2019, we decided that we really loved the multifamily real estate space.”
Since starting with one acquisition the first year and two the second, Arrowstar has acquired between three and five properties each year. For this year, Fletcher expects to purchase one or two more and three or four next year. The company has currently two of its properties under contract to sell.
Arrowstar’s strategy is to buy value-add properties — Class B or C apartment complexes — and upgrade them by building new roofs, renovating both exterior and interior, and adding safety features.
“We think that there’s a shortage of that kind of housing in the market,” said Joel Moore, Arrowstar’s third managing partner. “And on top of that, as interest rates have continued to rise, that creates hardship for first-time new homebuyers, which generally correlates to an increase in renters.”
Arrowstar invests anywhere between $500,000 to $1.5 million into upgrading the properties, Kyle Fletcher said, and manages the complexes in-house.
The goal is to serve tenants that can’t afford to live in luxury apartments but still want a safe and well-managed place to live.
Although Arrowstar does increase tenants’ rent after an upgrade, it’s generally low enough not to push them out, Kyle Fletcher said.
“Whenever we go into a new project, we are trying to keep the tenant base,” he said. “(We) improve it, they see the improvement and typically stay in our apartments and are happy to be a part of it.”
It’s a niche the company wants to stay in for the foreseeable future while not ruling out the possibility to eventually acquire higher-quality apartments or maybe even develop their own one day.
“I think there’s always a need for that kind of housing regardless of the kind of socio-economic movement in the market,” Moore said. “There’s always a need for that kind of space for that kind of rental rate and that kind of value.”
While Arrowstar currently has eight properties in Greater Houston — most of them inside the Beltway 8 — and two in Lubbock, Texas, the goal is to eventually expand to other Texas cities as well as other Southern states.
“The market is still hot here, just not as wild as it was six months ago,” said Ryan DeGennaro, senior associate at NAI Partners, who is marketing several similar Houston-area properties for a California-based investment firm. “Buyers are definitely more worried about existing and future cash flows, as they can’t bank on month-over-month appreciation.”
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