Napali Capital Expands Texas Portfolio with Westwood Acquisition

In an area where more affordable housing is dear, it’s becoming more and more rare to get a press release announcing that someone is entering that market in Dallas. But Napali Capital, a Southlake-based investment firm, has done just that — twice.

Last month, the private investment firm announced the acquisition of the Westwood Apartments, a 187-unit property consisting of one, two, and three-bedroom apartments. It’s adjacent to Briar Gate Park, and is near grocery stores, schools, and shopping.

It’s also not a luxury property. Neither is the Adira, the 164-unit property in Dallas Napali Capital acquired last November. Nor is the Monterrey, a property in Fort Worth the firm acquired in March 2017.

“I would say we’re more of a B class operator, and some C,” said Napali Capital co-founder and managing partner Dr. Thomas Black. “We’re not strictly affordable housing — I would say we’re more middle of the road.”

Class B properties are typically older, and more affordable units, with a decent array of amenities. Class C properties are usually more than 20 years old and may require more updating. Class A properties are typically new and have significant upgrades in finishes. They also may have more luxurious amenities.

The firm actually now owns nine properties in Texas, Georgia, and North Carolina. After purchasing the Monterrey, Black said that despite growing up in the Dallas area, moving into the Oak Cliff market was a little concerning for him — until he realized how much had changed, and how rapidly those changes were happening.

“Having grown up in the Dallas-Fort Worth area, I was a little concerned about buying a property in Oak Cliff,” he said. “Oak Cliff was a bad word in the 1990s.”

“But then I actually took a drive down with my 11-year-old daughter, and I was shocked and surprised at the renaissance.”

Black’s foray into real estate began, he said, first at Wells Fargo Financial where he worked as an undergrad, overseeing residential mortgage loans. After he graduated from medical school, he began investing in real estate, first investing in single-family rentals, then multifamily housing.

Before that, though, were stints in three of the four branches of the military, he said, after high school, where he said he was a “horrible student.”

“I went into the military, and then decided to be a doctor,” he explained, adding that he then worked for Wells Fargo before going to medical school, and from there did his post-doctoral work in emergency medicine.

“I was working an insane amount of hours in the emergency department,” he said, adding that he decided he began looking at investing in real estate for long-term rental prospects.

“I was never interested in flipping,” he said. As Black began increasing his income (and his portfolio of rentals), his colleagues became interested in what he calls a “passive income.”

Before long, he bought three acres in East Texas, developed it, and then sold it.

“I remember thinking this was the best thing ever,” he said. “I would leave the ER and drive my truck to the work site and just watch.”

Black eventually found himself in North Texas, where he is now Regional Medical Director for eight Baylor Scott and White Emergency Hospitals.

As luck would have it, his brother Tim was the chief operating officer for Great Wolf Lodge. “He developed 12 of their resorts,” Black said, “including the one in Grapevine.”

Eventually, Tim would agree to partner with his brother in a private investment firm — Napali Capital.

“Finally I convinced him,” Black said. “He retired with Great Wolf Lodge, and we formed Napali Capital.”

Napali brands itself as a place for physicians to invest, in particular. “We’ve essentially become a private investment group for physicians,” Black said.

So far, Napali has concentrated in the Atlanta area, and the Dallas-Fort Worth area, where they own three properties. They just closed on a property in a new market near Charlotte, North Carolina, at the end of July.

“We like Atlanta, and we’re closing on an asset in Charlotte,” Black said, adding that the desire to add the latter property was enhanced by Amazon’s announcement that it would be building a new complex three miles away from their newly-acquired property.

And while they’re focused on acquiring properties, and not building them, Black stresses the company is also aware of what some multifamily operators have done, and his group is taking pains to avoid bad practices.

“We don’t drain the property like a lot of multifamily properties,” he said. “We do a lot of value-add things. What we’ve found is that a lot of multifamily operators have it reversed — and we want everyone to be happy all the way down the line, from our investors to our tenants.”

Black said they do use third-party management groups to oversee the day-to-day operations, but that doesn’t mean the firm’s principals are unaware of what happens at each property.

“We take seriously who interacts with our tenants and clients,” he said. “We’re also strict on our renter profile, but we’re also operationally superior to most multifamily operators.”

The firm sticks with properties that were built in the mid- to late-1970s to early 1990s. They also look for properties that have a strong economic base, low unemployment, and good job growth.

“We are definitely location driven,” he said. “We look for operational advantages, and what management has done in the past.”

“We are not a company that does a lot of rehab,” he added.

Take, for instance, the Westwood property. The area fits in nicely with Napali Capital’s strategies, the firm said, because of its proximity to the areas that will benefit from initiatives like GrowSouth, as well as its proximity to the RedBird area, where a renewed focus on growth and improvement is expected to drive a housing demand.  

Black said the previous owner had put about $2 million into the property, making it an attractive choice. Napali Capital will put in another $400,000 or so in upgrades and amenities.

“We’re putting in pergolas, grills, and other aesthetic improvements,” Black explained. “For the most part, it is things like facade repairs and safety improvements.”

Black said they would also upgrade about 40 units with new flooring, appliances, lighting, counters, and countertops.

“We want to modernize a few more interiors,” he said, adding that these spruce ups are not only great for attracting renters but also actually helpful in keeping the property better maintained.

“People tend to respect their homes more when they are modern, clean, and updated,” he said. “People that don’t make $100,000 want nice things, too.”

The improvements Napali Capital has planned will happen over the next 12 months, and the company will retain Place 10 Residential to continue onsite management.