Street Smart Success

Although retail has been out of favor over the past several years with the threat of ecommerce, it’s gained traction more recently. As opposed to being venues for traditional soft goods stores, retail space is becoming utilized for other purposes such as medical services, boutique gyms, and restaurants. There’s also been negligible new construction since 2008, so demand for space has outgrown supply, which has resulted in mid-90% occupancy rates nationally.  Alex Smith, Co-founder and Managing Partner of  Regal Ventures, acquires retail, mixed use, and small bay industrial mostly in New York and the greater Tri-State area.

It’s always difficult finding a deal, even in down markets, but if you’re willing to be contrarian, there may be lucrative opportunities that present themselves. One example is vintage 100+ year old multifamily properties in downtown Portland, Oregon. These properties are trading at 300-400 basis points higher than suburban value-add properties that hardly cash flow, and appeal to a large subset of urban renters. Paul Del Vecchio, CEO and Founder of Ethos Companies, is investing in these high-yielding properties. Ethos has developed, manages, and invests in several thousand multifamily units. They also own and manage industrial, retail and office buildings.

Sometimes the best ideas are the simplest and seem the most obvious in hindsight. Co-warehousing is one of these ideas. Co-warehousing was created for small, often start-up businesses to rent smaller spaces for shorter periods of time. These spaces are typically sub-1000 s/ft, as small as 250 s/ft, which are desirable to entrepreneurs who can be moving out of a home office or storage space, or just starting out. Co-warehousing also offers these tenants shared amenities. Jeff Jenkins, Vice President of Acquisitions for WareSpace, was the second employee back in 2021 and is responsible for expanding the company’s footprint nationwide.

One strategy to get big discounts on multifamily properties is to buy the loans from current lenders at below par. Once a mortgage becomes 60-90 days late, lenders will consider selling the note to de-risk their position and redeploy the capital into other loans. Buying pools of these notes is a strategy deployed by larger funds but can also be used by smaller investors to acquire buildings in smaller to midsize markets for short or long-term holds. Chris Zona, litigation attorney, helps clients navigate this sometimes-complex process in order to expand their portfolios for short-term gain or longer-term appreciation.

The single-family housing asset class is the largest in the U.S, valued at $70 billion. In the past few years, however, this asset class has seen some of the same challenges of other commercial real estate classes, such as overleverage, increased interest rates and escalating expenses. As a result, attractive opportunities are starting to emerge that translate into solid investments that can generate a 7% yield. Noel Christopher, Managing Director of Strategy & Growth at Genstone Financial and Property Services, leads the strategic vision and execution for Genstone’s national single-family rental property management business and associated services, including real estate brokerage, construction, insurance, lending, and title offerings. Noel also owns his own portfolio of 50 single family rentals.

Although prices on multifamily have come down, the market still hasn’t stabilized. Rents have come down in many markets and expenses have increased, but prices have still not adjusted accordingly. Additionally, cap rates are still often lower than interest rates. Brian Burke, President and CEO of Praxis Capital, a multi-decade multifamily investor, has transitioned from multifamily to investing in senior living facilities. Brian is buying distressed senior living facilities and renting them out to professional operators on a NNN basis. The tenants are responsible for all expenses and sign 15-year leases with built-in rent increases. Brian is buying these facilities at huge discounts to replacement cost with high cash-on-cash returns. 

As major metros have become too expensive, investors are moving to tertiary markets in order to improve yield, thereby driving up prices in these markets. Smaller markets can be attractive because prices can be 50% less and rents not that much lower. Southern New Hampshire is a great example, as buyers from Boston and other markets are entering this market and paying record prices. Axel Ragnarsson, founder of Aligned Real Estate Partners, buys 10–50-unit value-add apartment buildings in Southern New Hampshire directly from sellers. Southern New Hampshire is a supply constrained, stable market with population and rent growth as residents are moving there from more expensive markets in the Northeast.

In today’s market, investors are finding it difficult to achieve strong, reliable returns. That’s why more investors are acting as the bank, making loans directly to other investors who don’t qualify for shorter-term bank loans despite having excellent borrower qualifications. These loans are shorter-term, real estate-backed loans that often generate low double-digit returns. Fred SaintAmour, Owner and Managing Partner of Boathouse Commercial Funding Group, has closed over 200 hard money loans with no losses. Fred does one-off deals versus a fund that puts pressure on him to deploy investor capital and risk compromising his lending standards.

As a passive investor, one way to reduce risk and also participate in the upside usually reserved for General Partners, is to invest in a GP fund. By investing in a GP fund, you get to participate in the fee income generated by the fund while also sharing in the upside economics of the individual deals. Instead of achieving mid-teen returns, you can potentially do considerably better, even as high as mid 20’s. John Azar, Founder, CEO, and Fund Manager of Peak 15 Capital, is a Private Equity expert and capital allocator who provides investors access to these attractive economics through his multi-asset class alpha fund.

One of the most resilient asset classes in commercial real estate is Mobile Home Parks. Almost no new parks have been built in the last couple decades, and many parks are being repurposed for higher and better use. Mobile Home Parks are the most affordable housing option that has wide appeal to renters getting squeezed by inflation. Patrick McDonald, Principal of Community Management Group, owns and operates 26 parks, mostly in the Northwest. He is fully vertically integrated and has occupancy of 98% across his parks. Given the scarcity of these parks, Patrick is a long-term holder and targets a return of capital via refinance within five to six years.