Brotherly Love: How 2 Brothers Took Over Philly’s Multifamily Scene
Backed by reputable family office and high-net worth investors, Post Brothers’ Matt and Mike Pestronk have remade Philly’s multifamily high-rise arena
BY MACK BURKE JUNE 5, 2019 10:00 AM
Post Brothers President Matt Pestronk believes there’s a small window within every business cycle in which it’s best to cultivate relationships with financiers.
“About seven years out of a 10-year cycle, there’s probably more capital available than there is opportunity,” he said. “In the other three, two are neutral and one’s a down year. It’s in the neutral years when you build relationships. In the years flush with capital and fewer opportunities, it’s about treating people fairly as things heat up and become white-hot. What follows the heat can be pretty ice cold, I’ve experienced.”
Matt, 42, and his brother, Post Brothers CEO Mike Pestronk, 39, started their business in 2006, just ahead of the biggest cold front in the history of the U.S. financial sector.
In a matter of just a few years, Matt and Mike came seemingly out of nowhere to take over the Philadelphia multifamily high-rise scene, uniquely backed by a cohort of eager family office and high-net worth investors they had been building for years.
They mounted two campaigns, with a divide and conquer approach. The first battle was a financial one in New York, led by Matt, and the second was in Philly, where Mike was on the frontlines, laying the groundwork for what would become the city’s most prolific apartment owner.
The brothers Pestronk grew up in the Washington, D.C., area but have a keen understanding of the nuances of development in Philly. They know it so well that some with whom they’ve worked believe they grew up there.
“If people identify us as Philadelphian, we don’t argue,” Matt joked.
“Philly is their home base,” said Starwood Property Trust Managing Director Kent Daiber, who first worked with the brothers in 2016, refinancing their most precious holding, the 1,000-plus-unit Presidential City complex in West Philly. “They know every square inch of that city and have their finger on the pulse of what’s new.”
Both brothers attended Drexel University in Philly. Matt was a history and political science major and was planning a track to law school.
“I thought that was going to prepare me for the LSAT and briefs, but I just did not have the maturity at that point to buckle down in law school,” he said.
Mike studied engineering. Once they graduated, they each got internships at commercial real estate companies, where their entrepreneurial itches set in. It was in their early to mid-20s, in 2003, three years before its actual launch, when they first conceived the idea for Post Brothers.
“We wanted to be headed where the puck is going, not where it is now,” Matt said, using a famous quote from hockey great Wayne Gretzky. “We wanted to be a first mover. This idea is 15 years old now, but back then, no one was developing [our kind of multifamily] in northwest Philly.”
The name Post Brothers was from an old sporting goods and military surplus business, called Post, that had been in the family.
Prior to officially launching the business in 2006, Matt had spent a few years working in office leasing in Philadelphia and then in acquisitions at another firm before joining New York brokerage Ackman-Ziff in 2005, where he set out to assemble the financial ammunition that would propel his and his brother’s business.
Meanwhile, beginning in 2006, Mike, then a 26-year-old, fresh-faced CEO, started acquiring a handful of small, non-amenitized properties in Philly’s Germantown, an area that had been overlooked for decades.
“We didn’t have a lot of capital when we first started, so we started buying non-amenitized buildings—50 or fewer units—in tertiary neighborhoods in Philadelphia, areas that many people regarded as being crappy neighborhoods,” Mike said.
Their mantra is: If there are comps, there’s competition. They wanted to create what they call “category killer” projects that were hard to compete with.
They set out renovating those small prewar buildings, appealing to locals and “upwardly mobile” young professionals willing to pay premium rents for better product, Mike said, “hyper-amenitizing” each.
To get them started in 2006, their first buy was a 10-unit, $1 million project.
“That gave us [an asset] under our belts,” Matt said.
Matt, then a 29-year-old mortgage broker, was one year into what became a nearly eight-year tenure at Ackman-Ziff. Mike held the fort down while Matt leveraged his position to establish a roster of high-net worth investors and lenders.
“While he was here, he was helping his brother secure financing for his deals,” said Ackman-Ziff Principal Russell Schildkraut, who worked with Matt directly for five years at the brokerage. “I was interacting with Matt in the normal course of running our business, while he was also running his brother’s deals.
“We were able to help Matt raise their first high-net worth family equity to do those [early] deals,” he added. “Matt then went off and joined his brother full-time. When Matt moved over, we as a firm continued to do financing for them and have done so for almost 11 years now.”
Ackman-Ziff taught Matt the tricks of the trade: how to stay ahead of what a lender needs, how to compromise and above all, to never waste the time of a financier.
“[Matt’s] like a bulldog,” Schildkraut said. “He’s very hands on, and I’d say he’s very opportunistic. [Matt and Mike are both] good at seeing value where others don’t.”
The first example of this was immediately following the crisis.
They had bought a property at 319 West Chelten Avenue that they’d call the Delmar Morris from PNC Bank for $2 million in 2009. Matt said that after five months of lobbying, and amid the mass hysteria and a general freeze on lending, he was able to nab and syndicate just a small $6.6 million construction loan from First Federal, Penn Community Bank and another bank that’s now called DNB First. That would finance the repositioning of the asset into an attractive property in Germantown.
They still own and operate the Delmar today but are a few weeks away from closing its roughly $11 million sale, Matt said.
“When the crisis happened and a downturn followed, it was an opportune time for Matt and Mike to be able to buy some distressed assets at very favorable prices, but they weren’t large deals,” Schildkraut said.
“Through the crisis, we didn’t have any loan defaults, no workouts, no nothing,” Matt said. “Because of that, and the fact that we treated the banks fairly, they came to us. [Our business was young] and we were one of a few borrowers that wasn’t distressed.”
They continued on that track of acquiring and renovating distressed smaller assets for a few years, leading into and through the financial crisis. But they only had eyes for one property.
“In 2009, the financial crisis was in full effect, and there wasn’t really any money for new deals,” Mike said. “We just kept our heads down, finishing, renovating and leasing the projects we had and those worked out well.”
The end goal was to climb the ladder until they could eventually make a move to acquire a 1,000-plus-unit, four-building complex called Presidential City, an asset that the brothers had seen chew up and spit out many developers who had tried—and failed—to unlock value.
“We always knew we wanted Presidential City,” Matt said. (They refer to everything in their timeline before they made the move as “P.P.C.,” or “pre-Presidential City.”)
“I’d say, from 1999 through 2012, I saw five or six owners on Presidential City, and no one really made any money with it,” Matt said, explaining that the size and scope of the project made it difficult for some to find value, so many didn’t take the risk. “We looked at it and thought, ‘We know exactly what to do.’ ”
Their conversion of Presidential City at 3900 City Avenue in Philly is what really put Matt and Mike on the map.
“It needed to be gut renovated, emptied out and hyper-amenitized,” Matt said. “The number of units could absorb a spectacular amenity package.”
So, in 2010, the duo stuck their heads out and “came up for air.” The brothers impressed with their first batch of projects, following through for their investors and staying on budget during the downturn. Once the smoke began to clear and lenders started twisting on their capital spigots, Post Brothers’ investors urged them to push on.
They started searching for more assets that would fit the model they had developed, targeting older, 50 to 100-unit buildings ripe for a renovation…until one of their more prominent investors told them to aim higher.
“He said, ‘why do you want to do these pissant projects? Why don’t you do a real project that you can sell to an institution when you’re done?’” Mike said. “We said, ‘Well, that’s great! We just didn’t know you’d write a check for that; that’s wonderful.’”
That’s what led them into their massive 620-unit Rittenhouse Hill project at 633 West Rittenhouse Street in Germantown.
They had bought and renovated eight projects in the area prior to their 2012 buy of Presidential City, but they used Rittenhouse Hill as a prototype to their vaunted mega development. Post picked up the 16-acre, highly leveraged complex (which was in such a state of disrepair it was “actually physically scary to walk into,” Mike said) for $27.3 million in April 2011.
Rittenhouse Hill served as a useful model, an example of how their “category killer” could work on a large-scale project. A year after the purchase, Post nabbed a $52 million loan from a European bank to finish redeveloping the asset, which included two acres of amenities.
By 2012, they were promising to do something similar for Presidential City. Post ended up buying the behemoth for just $51 million in 2012, nabbing a syndicated loan from Natixis to fund construction costs for their renovation plans.
When Starwood stepped in to lend Post $183 million to refinance the asset in 2016, “they had proof of concept, for sure,” Daiber said. “With that many units, the proof of concept can peter out, but that certainly didn’t happen. It really was an amazing vision and an amazing turnaround where a lot of other guys had swung and missed. That continues to impress me, to this day.”
They finished the renovation of Presidential City in 2017. In the center of the development is the Sora Pool Club, an extremely popular, amenity-laden center that features three salt-water pools, bocce courts, a gym and multiple terraces.
Since inception, Post Brothers has raised around $400 million from family offices and high-net worth individuals, and has owned and operated more than 30 properties and roughly 5,000 units. Its current portfolio comprises around 3,700 rental units.
In the lending community, Matt and Mike quickly established a name for themselves as prudent dealmakers who operate with an impressive level of reciprocity—long-term players staunchly equipped with reputable equity backing.
They both exude versatility.
After they began successfully executing on Presidential City, word started to get around. In 2013, a recently active commercial real estate investor was having lunch with a friend, hedge fund king, Bill Ackman.
Ackman (whose father Larry was the Ackman in Ackman-Ziff) urged this investor to take a trip to Philadelphia to meet the young brothers shaking up the City of Brotherly Love.
“I went down there and spent the day with them,” said the investor (who declined to be named). “[What appealed was] the combination of youth and energy and experience, which in the financial world is exciting and nice to see. I’m still involved with them, and the strength of their proof of concept is embedded in that statement.”
Post Brothers has done ground-up, gut renovations and adaptive reuse redevelopment of old office and industrial buildings, but the common thread for them is acquiring, renovating and delivering the “category killers.”
Post’s rental building, Goldtex Apartments, at 315 North 12th Street in downtown Philly, was the city’s first LEED high-rise building and the first to have a roof deck, Mike said.
Rittenhouse Hill and Presidential City, for example, are driven by “amenity centers,” which span two- and four-acres, respectively.
Two years after meeting with them, the investor who declined to be named entered into an influential advisory role for the Pestronk’s then decade-old firm.
“We’re generally dealing with [investors] who’ve made their own money and aren’t just caretakers,” Mike said. “They tend to understand that not everything can be calculated in terms of a return on cost metric; there are always some intangibles. They understand that sometimes the best thing is to change the plan, because you might come up with a better idea.
“We’ve talked to a lot of [financiers] but we keep coming back to the family office types of people,” he added.
Schildkraut said, “There are a lot of owners out there who wouldn’t take the risk on some of the deals [Matt and Mike] have been on, but [they’re] allowed to take it by virtue of the fact [they have] very high-net worth capital [and] understand the give and take of risk and reward. As a result, I think they’ve made a lot of money on the deals they’ve done together.”
One brother is the yin to the other’s yang.
Matt is “affable” and has the “gregarious” personality of a New York mortgage broker, acting as the unofficial front man for Post Brothers, sources said. Mike tends to be a bit more reserved and introverted, handling all the development and management duties and working to maintain a healthy internal structure; he’s the man pulling the levers.
Many who’ve worked with them believe that’s by design.
“I think when you need some insight or confidence around the execution of the plan, Matt has a handle on it, but it’s Michael who knows it intimately,” said Natixis Managing Director Michael Magner, who worked with them on a $240 million syndicated loan on Rittenhouse Hill. “If you’re meeting with them and you’re now down to, ‘Okay, I like the deal and the general plan’ but I need more, it’s speaking to Michael. That’s when you really get the confidence in the plan; the execution; what he’s thinking; how he’s designing; how they’re looking to sub out certain contracts and where the opportunity is to make the deal work better. It’s not something you’ll see up front.”
Matt said he can’t remember a time when he and his brother, as adults and business partners, have had to raise their voices to each other.
“They’re a great team; they finish each other’s sentences,” Daiber said. “They seem to divide and conquer extremely well…they’re so young, but they’re becoming a juggernaut. Nothing scares them when it comes to size and ambition; they have a perfect developers’ mindset in that regard. That doesn’t mean they’re cowboys; these guys are disciplined and very focused.”
More recently, in 2017, the brothers nabbed a $103 million loan from Natixis to renovate another rental high-rise in Philly, called The Atlantic. That year, they also inched their campaign closer to New York with their $166 million purchase of The Duchess apartment building at 7601 River Road on the Hudson River waterfront in North Bergen, N.J.
Every source who spoke to CO said they believe Matt and Mike could translate their work to New York, although Mike acknowledged the obvious challenges and said Post has benefitted from becoming “a big fish in a small pond.”
When asked about how often they think about breaking into Manhattan, Mike said, “Very much so…every day, I would say.”
Watch out New York, the Pestronks are coming for you.