Street Smart Success

Even though B Class apartment prices have come down 20%-30%, sales volume for these properties is still at a ten-year low. Prices are still not low enough in most cases, however, to make sense in today’s interest rate environment. In Class C apartments, this is even more the case. Prices still have a ways to go further contract before they make sense. Andrew Cushman, Founder and Principal of Vantage Point Acquisitions, owns B to A- class garden style properties in secondary and tertiary markets in Georgia and Florida panhandle. Despite headwinds that have plagued many other operators, Andrew’s portfolio continues to excel and perform according to proforma. 

The Private Credit asset class is growing rapidly because investors love the cash yield and the lower risk profile than many equity investments. With first lien lending, you’re first in line to take over a borrower’s asset if they don’t perform. The $5 million to $10 million lower-middle market arena, in particular, is an underserved market because it’s too large for most ma and pa lenders and too small for larger lenders. Beau Hale, Founder and Managing Partner of Pine Peak Partners, lends to borrowers in the lower to middle market space as a GP and raises capital from investors. Beau generates returns for his investors in excess of 10%.

As people are traveling at record levels, the hotel industry is flourishing with demand that is exceeding 2019. Leisure travel has grown significantly, and corporate travel has growth for several quarters. Since almost no new supply has been constructed in the last five years, there’s a current supply-demand imbalance that’s benefitting hotel operators. Greg Friedman, Managing Principal and Chief Executive Officer of Peachtree Group in Atlanta, owns 70 select service hotels, mostly in the Southeast, and is a lender to other operators. Greg currently has 130 first lien loans out to other operators. Peachtree is a vertically integrated firm that develops, acquires, manages, and finances hotels. 

In order to generate great returns in an otherwise saturated market, identifying asset classes with a higher barrier to entry can be necessary. Affordable Housing, in particular, can be a challenge because of municipal regulatory hurdles and compliance issues that make acquisitions and operations complex. As a result, these properties can be lucrative, and few investors have what it takes to acquire and operate these properties. Denis Shapiro, Managing Partner of SIH Capital group, is expanding his portfolio of affordable multifamily properties. Denis is also building a portfolio of beach properties on the Jersey shore, close to where he lives.

As multifamily values continue to plummet, big institutions are jumping back into the game. Companies like Blackrock and KKR have announced plans to invest big in multifamily. In particular, many Class A properties are coming on the market at steep discounts to replacement cost and at prices up to 25% lower than the peak of the market. As the gap between what it costs to own a home and what it costs to rent far exceeds $1,000 per month, coupled with the long-term shortage of rentals over the next several years, the fundamentals for multifamily are strong for the foreseeable future. Travis Watts, Director of Investor Relations at Ashcroft Capital, helps passive investors generate cash flow and has separately invested in many dozens of syndications of his own.

Unlike many Real Estate asset classes that offer low initial cash flow, but promised upside, neighborhood strip centers provide 10% in-place cash flow in addition to healthy upside. By improving a shopping center’s visual appeal and bringing rents to market, great value can be achieved. Additional value can be created by selling off Quick Service Restaurant outparcels on the site, thereby returning significant amounts investor equity. Andy Thelan, Principal and Director of Capital Markets at The Criterion Fund, is acquiring strip centers in secondary markets in the $4 to $15 million dollar range and creating great value for investors. 

In the world of Alternative Investments, there are many ways to achieve cash flow. Bronson Hill, founder of Bronson Equity, has helped passive investors generate cash flow through different asset classes, including multifamily Real Estate. Many of these investments have done quite well, some have had challenges. Regardless of recent challenges, however, now is a great time to invest in multifamily properties as the market has corrected as much as 20%-30% on high quality assets. In addition to investing in equity, there are also opportunities to invest in debt with returns in the low teens, but with less risk. 

There are still thousands of small businesses that require commercial office space to operate. Despite the negative press of office buildings in large downtown markets, many small suburban office buildings are completely occupied. Adam Craig, Founder and CEO of CLE Real Estate Group, shops buildings that have languished on the market, sometimes for up to 18 months, and makes lowball offers to acquire them at a low enough basis to make money. These buildings are typically non-financeable, so there are often no competitive offers. Once the properties are improved, and stand out above the competiton, Adam finds tenants with local Facebook ads. 

Self-Storage has more resilience across different economic cycles. Whether people are downsizing or upsizing, storing expensive toys, or making space for a home office, they need to rent storage space. Increasingly, small businesses are also utilizing self-storage. A third of all Americans utilize self-storage facilities for various needs. In the right markets and the right locations, self-storage has a steady, predictable revenue stream with low operating expenses that results in high operating margins and profitability. Jacob Vanderslice, Principal of VanWest Partners, owns 19,000 storage units across 38 facilities in smaller markets with less competition and strong market fundamentals. Jacob has generated great returns for his investors in self storage over the past ten years. 

There’s great money to be made in Section 8, affordable housing. Occupancy is generally very high, and tenancies can last for many years. It’s a recipe for steady, predictable income and high margins. On the management side, however, it can be hard figuring out how to manage lower income, working class tenants, working with local governments to get paid, and doing it at a profit. It takes a special focus and very tight systems. Mike Bonadies, Co-Owner and Managing Partner at TerraVestra properties in rural Southern New Jersey, owns his own portfolio and manages over 900 units for other landlords. The properties in Southern New Jersey are often 100 years old, so in-house maintenance and construction are keys to Mike’s success.