Michael Flaherty founded Sacramento-based L5 Investments to find hidden opportunities in the multifamily market. He began his career as a civil engineer and became a real estate developer before turning to investing more than 20 years ago. Bisnow spoke to Mike about his investing style and larger market trends impacting the Bay Area.

Mike and his team have developed a method for evaluating opportunities that focuses on cash flow and location. “The ideal investment is cash-flowing real estate in growing submarkets near thriving central business districts,” Mike notes. “Our focus remains on well-located B and C class value-add apartment opportunities with good DNA—meaning general affordability in rents, excellent access to jobs and mass transit, and an abundance of retail choices for our tenants.”

The Bay Area has many such opportunities and economic growth across the region—especially in the tech sector—remains resilient, he says. A young, well-educated workforce means people will want to live in communities with luxury touches and amenities.

Yet, the same tech boom that brought so many into the area has priced them out of several neighborhoods in San Francisco such as SoMa/South Beach, Mission, Hayes Valley and Pacific Heights. L5 searches for opportunities in well-located and more affordable submarkets. “We are very focused on offering our tenants the luxury touches Class-A properties provide but in a more affordable rental community,” Mike says.

Baby Boomers are an important consideration. He calls senior housing a “powerful” force in the market but cautions that older tenants demand “attractive, safe and affordable housing choices” and their interests and preferences should be studied and understood thoroughly.

L5 is optimistic about the future and planning to expand. With 280 units in escrow, the firm is looking to double the 1,100 units acquired over the past year by next July.