As West Coast Investors Flock to Austin, A Local Firm Benefits

When many of his fellow MBA students at the University of Texas were being courted by Wall Street investment banks and packaged-goods companies as graduation approached, Robert Grunnah was busy researching the growing trend of so-called mom and pop investors.

That was 2004 — after Grunnah had experienced firsthand as a tech executive the rise and fall of the dot-com era and decided to reset his career path. Little did he know then that he was getting in position to ride a wave of investment capital leaving California and flooding markets across the country, including Austin.

Three years later the company Grunnah founded, Castle Hill Investments, has rapidly ascended the residential real estate ladder, logging $60 million in sales volume last year, up from $41 million in 2005. With a chic new office chosen to convey a sophisticated image and an expansion plan that includes new hires and a development ramp-up, Castle Hill is on its way to hitting a targeted $70 million in sales volume this year.

The company recently moved into a 4,400-square-foot office in the modern, mixed-use 04 development on South Congress Avenue. And as Castle Hill expands its renovations business, Grunnah expects to add another five experienced full-time agents by year-end to handle one- to four-unit investment sales.

Grunnah got his start shortly before graduation when a friend in California asked for advice on investing in Austin duplexes. To Grunnah’s surprise, he enjoyed the education process and decided to launch a Web site and a company to field inquiries from other West Coast investors.

To capture a significant segment of the mom and pop investors who were largely Internet-savvy, Grunnah spent heavily on online marketing using pay-per-click search terms that would make the company the first one to show up in Google searches. The strategy paid off.

Following the dot-com bust, U.S. investors were looking for relatively stable investment vehicles that still offered the kinds of returns they had been used to, says Jay Hartzell, director of the Real Estate Finance and Investment Center at the University of Texas.

“Rates were low, so bonds didn’t look as good and the stock market wasn’t going to earn them the types of returns they had experienced. So they turned to alternatives like hedge funds, private equity and real estate,” he says.

California real estate investors looking to diversify their holdings often looked to Austin because they saw a similar lifestyle and barriers to entry that they were used to, says Hartzell.

“Our goal was to create a one-stop shop, turnkey business that provides every step that an investor, particularly an investor from out of state, would need to buy residential rental property,” says Grunnah.

Working solo through 2004, Grunnah finally hired an assistant in 2005. Today the company has a total staff of just 10 people, despite its tremendous volume.

“We grew organically, only adding when we were absolutely busting at the seams,” he says.

Branching out from pure brokerage, Castle Hill has increasingly involved itself in infill redevelopment within what Grunnah likes to call “the loop” of Austin, bounded by I-35, MoPac Expressway, William Cannon Drive and U.S. Highway 183.

In the last few years, Castle Hill has purchased, renovated and sold dozens of single-family homes and duplexes in relatively cheap parts of South Austin. With an infusion of about $30,000 per property, the company has taken mostly 1970s-era properties and injected new life into them. And by keeping costs low, Castle Hill has flipped all of the properties for under $300,000, and most for under $200,000, says Grunnah.

“There will always be buyers for remodeled infill single-family homes in the $200,000 price range, no matter what happens to the economy,” he says. “In a sideways or down market, it’s the volume producer of lower-margin properties who comes out on top while the niche provider of too-expensive-to-afford properties gets slammed.”

With a $6 million line of credit in hand, Castle Hill will purchase up to 100 more single-family homes to renovate in the target area in the coming year while seeking out underutilized commercial properties to do the same.

Though, for the most part, he wants to leave the risk of major new development to others, Grunnah is also working on two very modern infill projects with architects Cindy and Rick Black: a condo development at 53rd and Guadalupe streets and green office condos on West 17th Street.