Street Smart Success

Amongst the many benefits of owning real estate, the ability to depreciate the assets and show a loss for tax purposes, is unique. With depreciation, and the option to further defer taxes through tax-efficient exchanges, you can compound your money dramatically over time with Real Estate. Erik Oliver, Vice President of Business Development at Cost Segregation Authority, works with tax professionals and Real Estate operators to maximize tax savings through depreciation and cost segregation.

Operating in your own backyard creates operational scale, competitive local knowledge, and access to better deals.  All of these significantly reduce risk for operators and investors. Long-term holds of well-located properties in established markets, as well, adds to mitigating risk and heightening returns. Raj Khatiwala, Principal at Eclat Investments, specializes in New Jersey shore markets near where he grew up and currently resides in the summer months. He operates across several asset classes including hotels, apartments, mixed-use buildings, commercial condos, parking lots and office properties within these supply constrained markets, and has generated outsized returns for his investors. 

Multifamily is an easy business to understand, but hard to run. It’s a low margin business, so efficiency is critical, and lack of efficiency can bury you. Just barely moving the needle in leasing, for example, can translate into a huge impact on profitability. The same can be said of maintenance. Nothing adversely impacts tenant retention than slow maintenance response times or poor work. Multifamily is a great business, but a lot of things must go right every day. Ivan Barratt, Founder and CEO of the BAM companies, has done a great job building an impressive portfolio of 25 assets with over 6000 units and $1.3 Billion assets under management. 

When deciding who to invest with, experience is what matters most, starting with the number of deals someone has done. Forty percent of Multifamily operators have done fewer than five full cycle deals. Like anything else, Real Estate takes years, even decades, to master. Elijah Brown, Founder of GoldHawk Capital, has first-hand experience operating multifamily. Elijah leverages this experience to help him identify other experienced and proven sponsors for others to invest in. Once he finds a great deal, he negotiates favorable terms for himself and his investors.

Although the market for multifamily has taken a big hit over the last two years as interest rates have risen, lenders are extending loans and sellers are still holding out. Over the next couple years, this will change as lenders can no longer extend and sellers are forced to sell. This will likely present great buying opportunities, Over the past several months, there’s been net absorption as the fundamentals for multifamily stay strong. By 2026 and 2027, supply will decrease significantly because of the dearth of current new construction starts. Zihao Wang, Principal and CEO of Motiva Holdings, invests in value-add opportunities. He owns 20 buildings surrounding Los Angeles and properties in Florida and Texas. 

One of the little discussed sectors of multifamily investing is townhomes. Townhomes are easier to build than large apartment complexes, and they have strong appeal to certain segments of renters. Townhomes appeal more to families and attract stable, higher income households. Tenants also tend to stay longer in townhomes than traditional apartments. Josh Green, Co-founder of Traverse Capital, has many years of multifamily development experience, and is developing his first ground up townhome community in Southern Utah. Josh loves the economics of townhomes and will continue to develop and acquire existing townhome communities.  

Over the past two years, multifamily has faced major challenges that’s resulted in price reductions of 25-35%. Class C in particular has taken a major hit in several markets, but Inflation has recently been tamed and expenses have been mostly stabilized. Solid operators are improving their daily operations and increasing occupancy and collections. Class C also still presents the best pricing value, and upside opportunity. Craig Berger, Founder and CEO of Avid Realty Partners, is successfully optimizing leasing efforts, maintenance, and other aspects of his operations. He’s also patiently searching for opportunistic acquisitions in all classes.

As demographics and lifestyles change, so do the requirements for where tenants choose to live. This is why architectural and design components for living spaces increasingly impact the desirability and value of residential properties. For example, the work-from-home trend and common areas have become more important as people are placing a higher priority on socializing where they live.  Kurt Volkman, Associate Principal at HED, one of the largest architecture and engineering firms in the U.S. – specializes in the design of Multifamily, Mixed Use, and Senior Living. 

Although much of the hospitality industry has rebounded from Covid, many hotels are stiff facing headwinds. What compounds this challenge is the requirement national brands place on operators to invest large sums of money into their properties to maintain certain standards. Many operators don’t have, or want, to invest this capital.  As a result, there is an enormous opportunity to acquire these properties as steep discounts. Ryan Sudeck, CEO of Sage Investment Group, is acquiring older hotel properties and converting them to affordable multifamily properties. Sage Investment Group currently owns nineteen of these converted properties. 

AI will change the world even more than the internet, with profound implications for all aspects of society. It will impact most aspects of commerce, including Real Estate. Amongst other implications, AI is creating an insatiable demand for Data Centers. Peter Lewis, Chairman and Founder of Wharton Equity Partners, has over 35 years of experience as a real estate owner, developer, and operator, and is now allocating his valuable time and resources to the development of Data Centers to address this enormous demand.