David Choi (left) and Eric Panecki are co-founders and managing partners of Leverage Cos., a Newark-based value-add investment firm that relies on data to identify potential sellers and properties. — Photo by Aaron Houston for Real Estate NJ
By Joshua Burd
David Choi and Eric Panecki, both in their mid-20s, made no secret of their inexperience when they launched a value-add real estate investment firm in fall 2018.
“We’re certainly not seasoned veterans,” Choi said, meaning their relationships with brokers were limited, as were opportunities to find off-market deals with attractive returns. That called for them to take a more inventive approach in order to help their new venture succeed.
“We had to figure it out.”
Just over two years later, the Newark-based firm known as Leverage Cos. is indeed succeeding. It’s also growing quickly, thanks largely to its use of hundreds of data points and an in-house platform to help it identify potential sellers and investments. That platform, which is based on an algorithm built by the firm, accounts for everything from how long a would-be seller has lived at the property to whether there is a code violation, a tax lien or some form of financial distress.
“It’s basically a seller motivation score,” Panecki said, which often translates to better value and a higher likelihood of making a deal. That has helped Leverage Cos. determine how to best spend its time and money as it sources properties, primarily in northern New Jersey.
The venture now closes some 10 to 15 transaction per month — mostly involving one- to four-family residential buildings — up from less than one per month in its earliest days, Choi said. And it has grown to about three dozen employees, including a team of 14 in the Philippines that helps it find assets that it can acquire, improve and sell.
The firm is also turning its attention to larger properties in asset classes such as multifamily and self-storage — with plans to be especially aggressive in Newark — as it looks to build on the momentum it has achieved over its first two years.
“We’ve always had an idea behind tech — it is the future,” Panecki said, noting that the firm is generally targeting older, more established sellers. “So we’re realizing who our market is, who our target audience is, while at the same time focusing on the future … That’s why we’re able to leverage some of the tools and resources such as data, (customer relationship management) systems and analytics and apply those to an industry that’s pretty ripe for disruption.”
Choi and Panecki, the firm’s managing partners, first met around 2016 while attending industry networking events. They joined forces in November 2018 after both had developed the itch to be entrepreneurs, with Choi having worked for privately held real estate firms and Panecki in the hedge fund and lending space.
As with many new businesses, Leverage Cos. got off the ground with “blood, sweat and tears until we started getting a couple deals,” Panecki said. He joked that their first office was “slightly better than a shoebox,” but the two partners worked to build the operation as they focused on data aggregation and segmenting.
A breakthrough came in spring 2019, when the firm closed a deal involving a three-family house in Paterson. It was the first deal that the company profited from, which allowed it to make its first hire, in the acquisitions department.
“We were just doing whatever we had to do, but I would say the light was at the end of the tunnel the whole time,” Panecki said. “We just knew we had to get to that next milestone and we were definitely not afraid to keep reinvesting in the company.”
Leverage Cos. took another step forward in late 2019 with the hiring of a data analyst and developer, who helped build the firm’s current platform. Doing so would help advance the concept that Choi and Panecki had established as the foundation for the business.
“We started with motivated sellers,” Choi said. “We just didn’t have the algorithms telling us who to contact.”
The company’s growth and evolution is also a product of partnering with more established players. Panecki noted that, “(in) some of the best deals that we’ve had, we’ve brought in partners that maybe had more experience or had more tools and resources.” Without those deals, he said, “we wouldn’t be where we are today.”
“By no means are we self-made,” he said. “We’ve had a lot of help along the way.”
Admittedly, the COVID-19 crisis put a short-term hitch in the company’s growth, Panecki said, but its deal volume has since rebounded and is now exceeding pre-pandemic levels. Not to mention that its expanding network, which now includes banks and REO companies, could provide additional opportunities in the pandemic’s aftermath.
Leverage Cos. also has important connections to Rutgers Business School, Choi’s alma mater, and its Center for Real Estate. Choi says he “would not be where I am if it wasn’t for the real estate program at Rutgers,” adding that the center is his first call whenever the firm has an open position.
The company also plans to engage the program’s advisory board as it moves into larger syndications in other asset classes such as multifamily and self-storage. That expansion is already underway: In what would be its largest deal to date, Leverage Cos. recently went under contract for a site in Newark’s Ironbound section that would house a new 100,000-square-foot self-storage facility, which it sourced using the same methodology that it uses for its value-add investment opportunities.
“We know that the proof of concept is there,” Choi said. “It’s part of the ’21 vision to get that side of the business operating.”