Russ Krivor of Sovereign Properties: How We Are Helping to Make Housing More Affordable
An Interview With Jason Hartman
Stop and smell the roses — Don’t let life pass you by. I was always “running” from my memories as the kid with the cheapest sneakers in grade school. Which meant I could never turn down a meeting or an opportunity. In some cases, I missed out on important family events and relationships.
In many large cities in the US, there is a crisis caused by a shortage of affordable housing options. This has led to a host of social challenges. In this series called “How We Are Helping To Make Housing More Affordable” we are talking to successful business leaders, real estate leaders, and builders, who share the initiatives they are undertaking to create more affordable housing options in the US.
As a part of this series, we had the pleasure of interviewing Russ Krivor.
Russ Krivor is the Founder and CEO of Sovereign Properties and a rising star in the real estate development world. The firm specializes in acquiring and developing Class A Multifamily, retail, and single-family properties across the United States. It seeks to provide luxury housing at affordable prices to bridge the housing gap for millennials and middle-class professionals.
Founded in 2017, Sovereign currently has over $500 million in capital under management and has acquired and developed a portfolio of more than 2,600 units across select suburban markets that benefit from underlying economic and demographic strength. This approach has generated an extraordinary 40% average IRR for investors. Russ has been developing real estate since 2004, when he launched his first homebuilding company. He has developed more than 6,500 apartments during the past 15 years and is just getting started.
Thank you so much for doing this with us! Before we dig in, our readers would love to get to know you a bit more. Can you tell us a bit of your “personal backstory? What is your background, and what eventually brought you to this particular career path?
Thank you for speaking with me today! I was born in Odesa, Ukraine, in 1986, which was then a part of the Soviet Union. In 1989, my family emigrated to the United States. We settled into a 2-bedroom apartment with my grandmother in the Chicago suburb of Skokie, Illinois.
While they were considered highly educated in Ukraine, my parents worked whatever jobs they could get to support our family, often working two jobs. My father worked as a parking valet attendant and a night janitor, while my mother worked as a bank teller and sold furs at a salon.
Wanting a better life and more stable income, my parents managed to save enough money to buy a printing press. They started a printing firm that eventually gave our family a middle-class income. While I was growing up, we moved around a lot as my parents wanted us in better school districts whenever possible. Looking back, I’m grateful for what they did to allow me to attend excellent schools, but it was difficult for me to make friends at the time.
At 17, I applied and was accepted to Northwestern University. This was the first time I felt I had achieved something extraordinary. Where I grew up, I didn’t fit the typical mold of a student who got into a school like Northwestern. I was a first-generation immigrant. My extra-curricular activities included working at my dad’s business and helping our neighbors write letters to Immigration Services. To my genuine surprise, Northwestern loved that. My parents always emphasized education in our home, so it was also a significant achievement for them when I received the white and purple envelope with the words “Congratulations! Northwestern” on it! I’ll never forget that day.
Getting into Northwestern was one thing; paying for it was quite another. I had to borrow a significant amount in student loans, work part-time, and finally, my parents would have to pay $9,000 per year on top of that. It was a fortune for us. (Our mortgage was $ 1,500 per month at that time.) I’ll never forget how I went to tell my parents that amount, and I’ll never forget their response: “You’re going. We’ll figure out how to pay for it. You’re going.”
Once I settled into college, I started developing an entrepreneurial “itch.” I had good grades, but I wanted to see if I could find some source of income that didn’t include working for an hourly wage. In 2004, I started a lingerie fashion show/night club party promotion business, which is as exciting and fun (and scandalous!) as it sounds. It really helped me to step out of my shell socially and taught me some great business lessons along the way!
In the winter of 2004, I visited Florida and fell in love with the Sunshine State. Miami was cool. There were pretty ladies, lots of sunshine, and seemingly endless real estate demand. A friend of my father wanted to invest in spec homes in Fort Myers, and I suggested I could take a year off from school, and we could contract a builder to build the houses. It would significantly increase his profit margin on the resale over purchasing the homes. I asked him to split the profit with me. He agreed on the condition that my father would approve. My father agreed on the condition that I finish my degree after that year. (It took many years, one class per semester online, but I kept my promise.)
In the end, I built ten homes. We sold them and did exceptionally well. I made new friends and learned to collaborate with a partner along the way.
I met my next business partner, Helen, at a conference in 2005 and worked with her for the next three years. In total, we built 268 homes in Lee County, Florida, but in 2006, we halted our sales entirely. Evaluating the market, I realized that there were far fewer people moving to Lee County than there were housing permits and starts and that many buyers were out-of-town speculators. Additionally, I conducted some very unscientific research (polling salesclerks at malls about their surprisingly active real estate investments), which confirmed my suspicions: many people buying homes were not qualified and were collecting properties with little or no money down.
This wasn’t going to end well. So, we stopped selling homes at a time when other builders were ramping up sales and behaving as if the good times would never end. In 2007, we finished construction on our last house, which was pre-sold in early 2006. Now, I was left with a real estate development firm and nothing to build. So, we pivoted.
Helen called me on a Tuesday and told me to board an airplane for Biloxi, Mississippi, the next day. Over dinner, Helen explained that FEMA was giving grants to any real estate developer that built homes in Mississippi, and she had found a community of vacant lots for sale. “Russ, can you build a modular home on concrete stilts?” I responded: “Are an Eskimo’s nipples cold?” I didn’t know. But I assumed they were. Helen and I built nearly 300 homes in Biloxi. That made for a great 2007 and 2008.
With my single-family building career winding down after the Biloxi deal, I needed a new challenge. So, I thought to myself: “What’s the one thing people will need after the foreclosure crisis has bludgeoned their credit? Apartments.” Helen wasn’t very interested in large apartment communities, so we ended our partnership amicably. We still have lunch whenever I’m in San Francisco.
In 2008, I purchased the land for 334 apartment units 30 minutes south of Dallas/Ft Worth airport in a suburb called Mansfield. That property eventually became my first apartment community called “Dolce Living at Mansfield.” And the rest, they say…is history. Over the next 15 years, I battled challenging banking environments, the ups and downs of the macroeconomy, and the Covid pandemic and built 6500 apartments across five markets in the US — Dallas, Houston, San Antonio, Minneapolis, and Orlando. These days, my firm, Sovereign Properties, develops more than 1,500 in a typical year and acquires another 1,000. Additionally, we are establishing ourselves in the retail and commercial space and reinvesting in single-family projects as I believe the Millennial generation will have a voracious appetite for homeownership during the coming decade as the US re-establishes its manufacturing economy.
Can you share the most interesting story that happened to you since you began your career?
So, two stories stand out as they each marked important milestones for me, personally and professionally.
The first story happened in 2013. I was in my 20s and in Paris for a business trip. I was invited to visit the home of an important investment fund manager to discuss a potential commitment for our deals. When I arrived, I learned we would have dinner at his home rather than just drinks. His wife, Olga, had made pork ribs. Now, I keep kosher. Back then, I was quite uncomfortable discussing my faith publicly. So, I just said that I’m highly allergic to gluten and couldn’t eat any ribs or salads with lobster in them. Problem solved. Except that I was drinking a Vodka soda! After a moment of confusion, Olga directly asked me if I was Kosher. It turns out her first husband kept kosher. Fifteen minutes later, I was served a spread of seabass and vegetables and happily eating dinner with the rest of the crowd.
This was a critical moment of growth for me because it made me realize that people usually respond in kindness when we show up authentically. It’s our differences that make us more interesting as a human race. And Olga and I bonded for the rest of the evening about her experiences in the Jewish community in Moscow.
The second story was when I closed on my first rental development in 2008 near Dallas. I closed on the property on June 06, 2008. At that time, my banker had indicated we could obtain a 90% loan-to-cost for the construction of 308 apartments on the property. So, I closed on the land and applied for a loan. (I had been working on the zoning and site plan for nearly a year at that point.) Not long after closing, the banker indicated that the bank wouldn’t be lending on construction for a while, and he was going to look for work in the healthcare industry. That was quite a shock. I had a staff and contractors geared up to start the project!
I immediately got to work looking for a new lender. I called every bank in the Yellow Pages for Dallas. (Yes, there were Yellow Pages back then). I flew to Dallas every week on Thursday to meet with bankers-and I must have been turned down more than 50 times. 50 different bank applications and committees! It took nearly a year. But one bank, Meridian Bank of Texas, agreed to give me a loan for the first 111 units out of 308. They gave me a 60% loan-to-cost. But it was a start. We were off to the races. At that time, construction starts had plummeted by 80%, so we were one of the very few in the country. Our apartments had upgraded finishes — granite countertops, stainless steel appliances, and natural wood cabinets. They were a hit. We were 99% occupied three months after we opened, and my investors were thrilled. This tells you that whatever disaster may afflict the world, you must remain focused on your goal. If your thesis makes sense, hold the line. Someone will finance it. And a decade or two later, you’ll tell a magazine about your most difficult deal during a dismal economic environment!
Are you able to identify a “tipping point” in your career when you started to see success? Did you start doing anything different? Are there takeaways or lessons that others can learn from that?
My tipping point was in 2006. Against the advice of peers, colleagues, and just about everyone else, I decided to sell all my single-family properties and land in Florida. The real estate market was scorching hot, and people couldn’t build or buy fast enough. I went against the herd and made a bet — on prudence. The lemmings were in full force during this time, and I was a bear in a sea of bulls. Selling out at the top — which I didn’t realize then–was when I felt I could see through markets and trust my instincts. The same thing happened in late 2021 into early 2022. We looked at the market and realized that 3% cap rates were unsustainable, with significant rate hikes coming and rising inflation. So, we sold nearly our entire portfolio. And our average IRR, at 40.1% for Sovereign Sponsored deals, has proven out our thesis. Now, we’re on the acquisition and development hunt again. Everyone is fearful, so we’re ready to be bold!
None of us can achieve success without some help along the way. Is there a particular person to whom you are grateful who helped get you to where you are? Can you share a story about that?
Ooh, too many to count. I firmly believe I am where I am because several people cared for me, believed in me, and invested in me. My parents, for starters. They believed in me and invested in me. I think about this so frequently. Not only did my parents believe in me, but they taught me entrepreneurship from a very young age. I made sales calls for my dad’s printing firm when I was 14. If I wanted something as a teenager, I had to work and figure out how to pay for it. These are extraordinary lessons for a young person.
Next was my mentor and college prep counselor. She lives in Chicago and is in her 80s, but we’re still incredibly close. I walked into her office when I was 16 years old. She charged $100 per hour at that time, which was a fortune, and she had a 6-month waiting list. I brought my mother’s blintzes and walked into her office between students. I told her I needed help and couldn’t wait, and then I asked if she could discount her time a bit because we were both immigrants. She appreciated my determination and spent countless hours with me, developing my writing and test-taking skills. She’s the reason I got into Northwestern. I still speak to her weekly and visit her whenever I’m in Chicago. She believed in me. And I’ll never forget that.
And, of course, I have to say my team at Sovereign. They’re the reason we’re able to do what we do. They show up and believe in our firm and thesis, even when the days are long, and we’re going against the herd. (Obtaining financing during such times is particularly miserable.) But they get up every morning and show up determined to tackle the challenges and execute with excellence. And by the way, executing with excellence sounds like a great tagline. However, excellence is difficult to achieve at a growing firm when market conditions are difficult. Building things during inflation, fundraising when everyone is nervous (and is the best time to deploy funds incidentally), and making that next phone call when you’re discouraged are the challenges we face daily. That’s what we push ourselves as a firm to do best. Everyone at the firm receives a percentage of profits from our deals. If they’re going to take their lumps on the miserable days, they should participate in the “wins.”
Do you have a book, podcast, or talk that’s had a deep impact on your thinking? Can you share a story with us? Can you explain why it was so resonant with you?
I have about 100 books! My absolute favorite is Shoedog by Phil Knight, the founder of Nike. What I love about this book is that there are 200 pages of challenges and seven pages of wins — many books written by celebrity executives or entrepreneurs are the opposite: 200 pages of wins and seven pages of challenges. My most significant victories in life and business have resulted from overcoming challenges. As is often said, “It takes many years to become an overnight success.” Another one I love is Grit by Angela Duckworth. There isn’t a more important trait one must have if you want to accomplish the extraordinary.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
My favorite life lesson quote — and I think it’s self-explanatory —
“Do not correct a fool or he will hate you; Correct a wise man and he will appreciate you” — Proverbs 9:8 If you’re not open to feedback, you’re living an unexamined life, and your endeavors will eventually fail. Look for honest feedback, especially the critical kind. Parse the garbage from the useful and implement changes based on that feedback. In life, we’re either growing, or we’re degenerating. Always strive for growing.
Let’s now shift to the main part of our discussion about the shortage of affordable housing. Lack of affordable housing has been a problem for a long time in the United States. But it seems that it has gotten a lot worse over the past five years, particularly in the large cities. I know this is a huge topic, but for the benefit of our readers can you briefly explain to our readers what brought us to this place? Where did this crisis come from?
Unfortunately, the homebuilder community has no widespread commitment to building affordable housing in this country. Essentially, many families and households are getting squeezed out of home ownership opportunities because of a lack of focus by policymakers and real estate developers on affordable housing. Additionally, laws in certain states that restrict rent growth only deepen the affordability crisis by discouraging development. Due to skyrocketing interest rates, the average family must pay nearly 40% of their income to service the median mortgage in the United States, up from 25% pre-pandemic. By our estimates, between the increases in interest rates and the rising price of a single-family home, nearly 19 million Americans have been priced out of homeownership since 2020.
Further, due to the higher rates, most Americans who have low-interest rate mortgages refuse to sell their homes. Pre-pandemic, there were 1.18 million homes on the market, and now there are only 500K for sale at any given time. Additionally, banks have tightened credit standards for developers and buyers. Single-family permits in the American South, the fastest-growing region by population, have dropped by an average of 20% YoY for the past eight months. For the past six months, multifamily permits have dropped by almost 40% on average. That sea-change in construction will be felt for years to come. 2025 and 2026 will see significant rent increases and home prices simultaneously as manufacturing in these states will create massive inflows of additional jobs and residents. I just wrote a Forbes article about this issue, which we believe is not covered closely enough.
Can you describe to our readers how your work is making an impact to address this crisis? Can you share some of the initiatives you are leading to help correct this issue?
We are doing a few things to help correct this issue. We have a pipeline of inexpensive land (old land prices and impact fees grandfathered in from 2020 before the massive increases in land prices and impact fees that came in 2021). Additionally, we are working with our contractors to build larger apartments with more closet space and larger living spaces (like dining rooms) that are ideal for families who must delay purchasing their first home. Additionally, we are working with municipalities to see if we can structure incentives for our firm and other developers who can provide affordable housing. The cost of materials and construction has made it challenging to build genuinely affordable units without some form of property tax abatements. Currently, we have nearly 700 units in our pipeline that would serve lower-income tenants-and we’re excited to add more to our portfolio.
Additionally, while other firms have delayed projects due to the availability of financing, we are pushing forward with numerous projects thanks to our extensive lender relationships. These apartments and single-family homes will be delivered during the crucial 2025 and 2026 timeframe, when housing deliveries will likely drop by 30–40%.
Can you share something about your work that makes you most proud? Is there a particular story or incident that you found most uplifting?
I’m proud of our stellar results, but am most proud of our team. We are a cohesive group that operates with integrity in everything we do. We work on behalf of our investors first and foremost, and it is ingrained in the culture of our team to focus on positive outcomes for our tenants and partners.
For example, in post-COVID 2022, when people bid enormous amounts of money for properties, we sat on the sidelines and waited it out. Again, it’s a lemming effect — if everyone is running towards the edge of a cliff, don’t follow. And again, going against the grain was the right move. Even though we had access to capital and were often pressured to deploy capital, we weren’t interested in doing unattractive deals just to remain busy. We’re driven by the desire to generate long-term success for our investors and partners, which often requires us to be disciplined and patient.
In your opinion, what should other home builders do to further address these problems?
These are complicated challenges, often dealt with at local levels. There are knee-jerk reactions and herd mentality in our business. We must take a comprehensive view of all economic indicators and find innovative ways to create affordable housing around these growing markets. We also need to better anticipate demand by using data on local manufacturing investment and job growth coming 3–5 years out. Sometimes, developers must exercise discipline and “shelve” projects until the market is ready. We must anticipate demand when there is a macro event and work to increase permitting for housing and amenities like retail and food venues to accommodate the coming demand. Finally, in some cases, the jobs that are coming don’t match the high-cost housing that is permitted. That requires us to work with municipalities to develop affordable housing solutions. This will ensure healthier housing markets and shorter commute times, further driving economic growth.
If you had the power to influence legislation, are there laws which you would like to see introduced that might help you in your work?
Yes! For example, in Florida, legislation on property tax reduction was passed at the state level. It’s been an enormous boon for that state’s affordable housing sector, and we need more of that in metro areas in large states like California, Texas, New York, etc. In addition, we need legislators to become more educated on real estate matters and enlist real estate experts who understand the present-day reality of housing challenges throughout the development process at local and macro levels to influence policy and rely less on a traditional academic approach. Another suggestion is that local municipalities must engage with the real estate community to develop boutique affordable housing programs tailored to their city’s specific needs. A program that works in San Antonio may not work in Denver or New York. Finally, and I’ll get a lot of flak for this: we need to amend New York’s rent stabilization program and the legislation enacted in 2019 restricting a landlord’s ability to raise rents by refurbishing an apartment. In New York, you have tenants who are wealthy but inherited rent-controlled apartments from a family member and live on Central Park South for next to nothing while market rents are skyrocketing 8% per year. That apartment should be occupied by someone who needs the subsidy. Meanwhile, an estimated one million units of housing in the city are unoccupied or underutilized because landlords don’t want to invest in them to maximize their utilization and improve the quality of those homes.
What are your “5 things I wish someone told me when I first started leading my company” and why?
1 — Always stick to your guns — when you go against the herd and have a unique thesis, you may start doubting yourself. Trust your gut and the data, regardless of which way the stampede is headed.
2 — Stop and smell the roses — Don’t let life pass you by. I was always “running” from my memories as the kid with the cheapest sneakers in grade school. Which meant I could never turn down a meeting or an opportunity. In some cases, I missed out on important family events and relationships.
3 — Invest the time to hire the right people — a bad hire will cost you more time and money than it takes to hire someone excellent.
4 — Give your employees a piece of the pie — Empower your employees as shareholders and let them invest alongside you. Doing this creates lower turnover and increases morale.
5 — Nice guys finish first — being kind and respectful costs nothing but wins many hearts and minds in the long run.
You are a person of enormous influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)
If I could inspire a movement, it would be one of “resilience.” Young people today fear failure — and they’ve never experienced it because there was a whole movement of “participation” trophies. I hope that movement subsides. Too often, parents are quick to protect their kids from disappointment, which isn’t necessarily the right thing to do. Life and business are full of disappointments and failures. If you don’t let kids experience failure, they will look back on those moments as devastating events and not just as a sidebar or a footnote in life. The confidence you gain from overcoming failure is priceless.
I sit on the Board of Tikva, a Jewish orphanage in the Ukraine, and I’m also involved with figure skating for kids in Harlem. I’m deeply passionate about supporting charities that lift up kids in at-risk communities. When I have the opportunity to speak to these groups, I always preach resilience. The success that I’ve achieved wouldn’t have been possible if I hadn’t been resilient in overcoming the failures that I’ve also experienced. I believe that’s an essential principle for everyone to internalize at an early age.
Is there a person in the world, or in the US whom you would love to have a private breakfast or lunch with, and why? He or she might just see this, especially if we tag them. :-)
Former President Bill Clinton. Regardless of the scandals, he left us a balanced budget! He connected with people on both sides of the aisle and could read the American people like no other President we’ve had since. I feel he did what was best for our country even if it wasn’t politically expedient-and by today’s standards, he was very centrist.
How can our readers further follow your work online?
Sovereign Properties website: https://sovereignproperties.com/ or follow me on LinkedIn at Russ Krivor.
Thank you for the time you spent on this interview. We wish you only continued success.
About The Interviewer: Jason Hartman is the Founder and CEO of Empowered Investor. Jason has been involved in several thousand real estate transactions and has owned income properties in 11 states and 17 cities. Empowered Investor helps people achieve The American Dream of financial freedom by purchasing income property in prudent markets nationwide. Jason’s Complete Solution for Real Estate Investors™ is a comprehensive system providing real estate investors with education, research, resources and technology to deal with all areas of their income property investment needs. Through Jason’s podcasts, educational events, referrals, mentoring and software to track your investments, investors can easily locate, finance and purchase properties in these exceptional markets with confidence and peace of mind.
Starting with very little, Jason, while still in college at the age of 19, embarked on a career in real estate. While brokering properties for clients, he was investing in his own portfolio along the way. Through creativity, persistence and hard work, he earned a number of prestigious industry awards and became a young multi-millionaire. Jason purchased a California real estate brokerage firm that was later acquired by Coldwell Banker. He combined his dedication and business talents to become a successful entrepreneur, public speaker, author, and media personality. Over the years he developed his Complete Solution for Real Estate Investors™ where his innovative firm educates and assists investors in acquiring prudent investments nationwide for their portfolio. Jason’s sought after educational events, speaking engagements, and his popular “Creating Wealth Podcast” inspire and empower hundreds of thousands of people in 189 countries worldwide.
While running his successful real estate and media businesses, Jason also believes that giving back to the community plays an important role in building strong personal relationships. He established The Jason Hartman Foundation in 2005 to provide financial literacy education to young adults providing the all-important real world skills not taught in school which are the key to the financial stability and success of future generations. We’re in a global monetary crisis caused by decades of misguided policies and the cycle of financial dependence has to be broken, literacy and self-reliance are a good start. Visit JasonHartman.com for free materials and resources.
