Swedish retailer beds down in Flatiron district

Flatiron district – A high-end bedding and mattress retailer is set to join a thriving cluster of home-furnishing stores in the Flatiron district. The Swedish-based firm Duxiana recently inked a…



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Real Estate Deal Watch – Crain’s New York Business

Cardinal Group – Embracing Creativity and Passion

Icardinal-group-companies’ve been spending a lot of my time recently thinking about entrepreneurship. What I’m beginning to realize is that it’s challenging, maybe impossible, to understand what it’s like to be an entrepreneur without confronting the fear and saying to the world, “I made this”.

However, the next best thing is to share someone else’s story. Today, I’m excited to welcome Del de Windt of the Cardinal Group, a creative entrepreneur who’s challenging the status quo. What I love about Del’s story is that it resonates with me and provides the confidence to stand up and try to make things change.

Enter Del:

Tell us a little bit about the Cardinal story/brand.
Cardinal Group was conceived in 2004, just as the founding partners began their professional careers out of college, however, the partners just could not fight their entrepreneurial tendencies. The original business model was to invest in student housing and our story is as much a Silicon Valley garage startup as you can get in the real estate space – without the VC money available to satiate our appetites.

We purchased our first institutional asset in 2009 and never looked back. Early successes put us on the map as a small fish in a small pond. In less than five years, Cardinal Group is one of the 25 largest student housing operators in the country and growing. And we’re not just growing in student housing, but in the conventional multifamily space as well. We were just informed that we are one of the 5,000 fastest growing companies in America per Inc. Magazine. Our intent has never been to be the biggest, we want to be the best.

Why student housing?

  1. We were young and felt that our age was actually a competitive advantage in the student housing space. We knew what college aged kids wanted and we knew where to spend money that wasn’t lost on the consumer because we were effectively those kids ourselves. There was a logical investment story for us, it was the one asset class we could raise money behind and we were right.
  2. There was tons of opportunity in such a fragmented space, dominated by a bunch of “Ma & Pa” owner/operators, which is still the case, although there are several institutional players and publicly traded REIT’s in the space now.

Cardinal is active on social media (Twitter/Facebook/Instagram). What’s your general approach/strategy toward these networks? 
Yes, we are active, but we are active for specific reasons, not just trying to put content out for the sake of meeting a certain SM quota each day/week. I think the SM landscape is changing rapidly and it is one of the most uncertain and poorly executed mediums in the real estate industry overall. I believe that if you master the “game” of SM that it can be extremely powerful on several different levels, but most importantly it is a reflection of your brand and what you stand for. I think we are good at “the game,” but there is always room for improvement.

Technology is disrupting many aspects of the real estate business. Is there aspect of the business or one real estate tech start-up you’re really excited about?
This is a loaded question for me. There are so many I could pick from and speak about for days, but I’ll spare you and all of the readers. Two things that aren’t too far out there that currently have me excited:

  1. Crowdfunding for real estate investment. I am really interested in seeing how the model of bringing private real estate investments to the general public will ultimately play out. If it can generate enough critical mass, I hope it will provide further transparency and efficiency to a fragmented and inefficient space – time will tell. Cardinal Group has not raised money this way, but I’m interested in trying this at some point in the future. The one RE crowdfunding site we are exploring and a minimal participant in at this time is Fundrise. I’ve been really impressed with Ben Miller, the company he and his brother are building and their “can do” attitude.
  2. I think there is a big push in the real estate operating system side of the house. This is somewhat boring, but so important to what we do, it’s really the backbone of our platform. Without mentioning names the usual suspects are finally bringing their platforms out of the stone ages and I really credit one company with pushing this entire industry forward. My prediction is that this unnamed innovator will eventually dominate the space and uproot the incumbents. However, even if this doesn’t happen, this company has pushed the industry forward and we have fortunately been one of the much needed beneficiaries. Big things are in the works and coming soon. I think this innovation will level the playing for a lot of operators, which is good news for a lot of owners who use third party management.

Cardinal has recently launched a 3rd party property management arm. How are you disrupting that space?
As of January 2014 we officially launched our 3rd Party Property Management platform. It took some time and convincing, but I credit industry legend Laurie Lyons, who recently joined us as a partner at Cardinal Group Management, in pushing us in this direction. Laurie was the CEO of BH Property Services for 15 years and retired to start a family a few years ago (BH is the 19th largest multi-family operator in the country with over 50,000 units under management). We met Laurie in Denver, shared a business philosophy that is eerily similar and most importantly contradictory to the industry’s status quo. From that point forward we knew we had to figure out a way to work together and as mentioned, Laurie was really the catalyst to launching the 3rd Party platform.

I wouldn’t necessarily say we are disrupting the space (yet!), but our approach to property management is fundamentally different than others. I think our approach will be a much needed breath of fresh air in the space. Essentially the difference lies in two things: 1) our approach of becoming a business partner as opposed to a property management, and 2) taking more of a hospitality approach to our HR platform, namely on the recruiting and training side of the house.

What advice would you give to someone just starting their real estate career?
This is more general advice and business cliché, but the older you get the more truth and wisdom you find in old expressions. Measure success by your happiness and passion, not the number of zero’s behind your name. The only way to be successful and happy in business is to do something you’re passionate about and surround yourself with like-minded individuals who share that passion. Specific to real estate, I would say there are so many facets to real estate, do not underestimate the importance of understanding the operating side of the business. It may not be the sexiest part of the business, but it is where the rubber meets the road and tremendous value can be created or destroyed depending on the day-to-day operations.

Del, thanks for sharing your story with us, keeping making things change. 

A Student of the Real Estate Game

This Week’s Recommended Reading

6 Articles to Read this Weekend Designing a Better Office Space The office of the future may not be about trappings or technology as much as the exchange of ideas, with a focus on employee engagement–what some experts are calling the “new sustainability.”… Entrepreneur.com Here’s How To Create A Workspace That Empowers Your People And […]
THE TENANT ADVISOR

Value Add Deals Needed To Keep Up With Apartment Building Demand- Freddie Mac

Apartment building investors should be looking at renovation, value add and repurposing deals according Freddie Mac’s David Brickman, EVP for Multifamily Business. In an Executive Perspective note published last week Brickman covered these points:

  • Demographic forces alone could create as many as 4.7 million more renter households by 2023.
  • That even the 3.1 million new units expected over the next 10 years will not be enough to meet demand.
apartment kitchen remodel

Photo credit: http://www.apartmenttherapy.com

  • Compounding the issue, the existing rental housing stock is aging.  Nearly 60 percent of U.S. rental properties with 20 or more units were built before 1980.
  • Supply already could be 1.5 million

             apartments short, by some estimates.

  • Nearly 6 percent of all units are retired each year; almost double that number for lower-income units.
Apartment Exterion Renovation

Photo credit: http://mollycones.com/

  • Modernizing existing units could help keep them viable.
  • Modifying units could help better meet evolving needs.  For example adding amenities that promote working from home or increasing storage space, especially for Baby Boomers who previously owned homes.
Photo credit: http://www.brownstoner.com

Photo credit: http://www.brownstoner.com

  • Some enhancements could help preserve not only the units themselves, but also the subsidies – such as Low-income Housing Tax Credits (LIHTC).
  • Modernizing, rehabilitating, and preserving existing units typically costs less than building new ones and benefits tenants as well as the property developer/owners and the surrounding communities.
Photo credit: http://hipparis.com/

Photo credit: http://hipparis.com/

  • Boosting overall multifamily rental-housing inventory – through more emphasis on rejuvenating existing units in addition to new construction – would help close the supply gap and offer more housing options.
Photo credit: http://www.apartmenttherapy.com

Photo credit: http://www.apartmenttherapy.com

See the whole Executive Perspective here.

Ashworth Partners

Saving money with design-build

The de Blasio administration wants the state to give it permission to build major infrastructure projects faster and cheaper by bundling design and construction bids into a single contract.

A 2011…



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News – Crain’s New York Business News Feed

#Multifamily REITs best performers in 1st half 2014

REIT.com had a piece called REIT Returns Outpace Broader Market in Solid First Half Showing out late last week and the part that caught my eye was the section titled: Apartment REITs Lead the Pack in First Half:

  • Apartment REITs were the strongest performers during the first half.
  • Total returns as of July 7 in the sector stood at 23.8 percent.
Apartment Building Investment REITS perform best during 1H 2014

Click image to view article on REIT.com

“There was increasing comfort in the market that fundamentals in the [apartment] sector were not decelerating as fast as many had feared,” said James Sullivan, managing director at Cowen & Co.

Apartment REIT managers are some of the best multifamily operators in the world and it pays to pay attention to what they’re doing. Unfortunately the returns on REIT shares are too often driven  by capital flows from the stock market rather than the pure performance these managers generate. Patient contrarian investors  can be rewarded however by waiting for apartment REITs  to fall out of favor with stock market investors and pick them up at bargain prices.

Click on the image above or use this link to see the article on REIT.com: REIT Returns Outpace Broader Market in Solid First Half Showing

Ashworth Partners

NYC Speaking Engagement

For those interested in coming out, I’ll be speaking in New York City on July 15.

Click Here for More Info

And don’t forget to check out the progress on our personal residence on TheScottPad.com!


1-2-3 Flip

Apartment Investment Loan Rates Remain in 4.6-4.7% Range As Spread To Treasury 10yr Holds

The apartment building loan rate we track came in today at 4.765% (see below for loan details), making it 22 straight weeks below the five percent mark. The spread to the 10 year Treasury (T10) also remained in the 2.1 and change range where it’s been since the beginning of March, indicating that the very competitive market for multifamily loans continues on.

For the gold plated ULI less than 60% LTV loan the spread dropped into the 1.2s from the 1.3 range where it had been holding since late February, taking the implied rate for these core institutional apartment loans down to 3.77%.

10 Year Treasury versus Apartment Building Investment Loan Rate

Speaking of the spread between the T10 and the apartment building rate we track, the green line on the chart represents the six months trailing average spread. We track changes in the trend for signs apartment lenders becoming more or less competitive. Note that since rates are only quoted on business days the chart averages the last 120 business days which equates to roughly six months.

We track the 10 year Treasury because that is the benchmark most lenders base their long term rates on. In order to lure investors away from Treasuries to buy mortgage bonds lenders have to offer a premium (AKA ‘spread’) over what can be earned on the Treasury. So when the T10 moves, rates on all kinds of longer term loans including on apartments tend to move also. As you can see in the chart, the spread also widens and narrows as market forces make an impact.

Notes about the apartment loan rates shown in the chart above: The rates shown here are from one West Coast regional lender for loans on existing apartment buildings between $ 2.5 – 5.0M. The rate quote they send every Monday that I track is a 30 year amortizing loan with a fixed rate for 10 years (They also have other fixed periods at different rates). The max LTV for this loan is 75% (they have an even lower rate on their max 60LTV loans) and the minimum Debt Cover Ratio (DCR, aka DSR or DSCR) is 120. Note too that these are ‘sticker’ rates, LTVs and DCRs and ‘your millage may vary’ depending on how their underwriting develops.  I usually figure that we’ll end up at a 70LTV which also helps the debt cover and provides a larger margin of safety, which is half the battle from a value investing standpoint.

The prepay fee is 5,4,3,2,1% for early repayment in the first five years and you do have the ability to get a 90 day rate lock. The minimum loan is $ 500k (at a slightly higher rate for less than $ 1M loans) and they’re pretty good to work with as long as you go in knowing that it takes up to 60 days to close their loan. If you are looking at acquiring an apartment building in California, Oregon or Washington I’d be happy to recommend you to my guy there for a quote. Send me a message through this link and I’ll make an introduction for you.

The other rate we track is the from the Trepp survey which the ULI (Urban Land Institute) reports on. According to the ULI the Trepp rate is what large institutional borrowers could expect to pay on a 10 year fixed rate, less than 60% LTV loan for a “crème de la crème” core property located in a gateway market. We track this rate as a barometer of what the largest lenders are offering their best customers on the most secure loans for any advanced warning about future rate and spread changes. Note that the spread we chart is between 10yr loan we track and the T10.

How the St. Louis Fed calculates the 10 year Treasury rate displayed above: “Treasury Yield Curve Rates. These rates are commonly referred to as “Constant Maturity Treasury” rates, or CMTs. Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of quotations obtained by the Federal Reserve Bank of New York. The yield values are read from the yield curve at fixed maturities, currently 1, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years. This method provides a yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. For even more detail see: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/yieldmethod.aspx

As a reminder, one basis point or 1bp is equal to one-one hundredth of one percent or .0001. When you hear ‘fifty basis points’ that’s one-half of one percent; ’125bp’ would be 1.25% or a percent and a quarter, sometimes referred to as ‘a point and a quarter’. A bp seems like a tiny number, too fine to make a difference but in the debt world if you can squeak out an extra 20bp on a 100 million dollar deal (like a pool of apartment building loans) that’s $ 2oo,000.00 in your pocket. To paraphrase Everett Dirksen: “20bp here, 20bp there and pretty soon you’re talking about real money.”

 

Ashworth Partners

Rare retail-space bargain seized in SoHo

SoHo – The women’s fast-fashion apparel maker Brandy Melville just proved that fate casts even the city’s best retail space into deep discounts from time to time.

The brand just leased an…



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Real Estate Deal Watch – Crain’s New York Business

70% of Americans think housing crises continues, 51% say renting is more appealing #Multifamily

A MacArthur Foundation survey conducted by Hart Research Associates shows that 70% of Americans polled think that the housing crises isn’t over and 19% think the worst is yet to come, good for apartment building investment I believe. As reported by the Wall St. Journal in an article titled: Allure of Homeownership Slumps Amid Worries of Continued Crisis  the worst is yet to come figure is unchanged from last year, which may reflect a segment of the population that has been deeply scarred by collapse of the lending and housing bubbles. The still in the crises figure is down from 77% a year ago but it is still a big number that’s having a positive effect on apartment demand:

51% say renting is more appealing; positive for apartment building investment

Referencing the chart above, the article stated that 51% of those polled said renting was more appealing than in past decades which is definitely positive for apartment building investors. Note that while urban apartment demand and development has been getting a lot of action, 35% of suburbanites think renting is more appealing. This lines up with moves large institutional multifamily investors are making recently with value add suburban deals. For more on the suburban apartment trends see: Blackstone Hunts for Apartments in Latest Rental Foray on Bloomberg.

The survey also asked about the deductibility of interest expenses on 2nd homes and homes worth more than $ 500,000. Overall a majority favor eliminating the tax break by a slim margin but when broken out into different geographical areas some surprising results show up; see the article for the chart and discussion on that as well as how appealing homeownership is among different groups.

Ashworth Partners

What can you do to add value to your home before you sell?

Every home owner has some vision for the property he/she has, but in most of the cases, they do not know exactly how to invest economically in them. Before selling any property, there have to be some renovations that add value to the house which you wish to sell. The spring season is the ideal time to begin the renovating ventures. It is the best weather to go ahead with the job. If you are looking to buy property e.g. buying houses for sale in Birmingham from expert estate agents then you may hope that the previous owners have completed the following steps;

You can make your choices for remodelling of your house which also suit your pocket. The fundamental goal of a prudent homeowner is to spend every bit of money wisely in the venture of remodelling the house. Whether the remodelling involves painting a room, adding another storey or renovating the kitchen or the washroom, you must ensure to make intelligent moves and there is a lot that can be done before selling the house in order to make it give you a better bargain.

You must make your own decisions. The first and foremost decision that you need to make is whether the job requires a contractor or not. This also depends on how much money you can shell out, how much time is there on your hands and what are the changes that you wish to incorporate in the house. If there is even a slight doubt that you, yourself will be unable to take on the task, then it is best to employ a contractor. It may involve money, but you will get something that is an attraction for the potential buyers.

Go for the process of renovation one by one. You must not attempt to do a big task at once. You must start with the smaller projects first. These will be the things that you may be able to do on your own like fixing new lights and painting. Then you can go to the projects that require more work like major systems or new windows etc. Finally, turn to the final touches and the cosmetic and beautification part.

It is best to make use of the standard materials and simple designs. Granite and wood are always the best to use and durable too. You must also try and use inexpensive fixtures for most part of the house. The other systems that require some proper renovations should be identified and then the budget for working on them could be decided.

Lastly, there is a need to cushion your budget. This is because, when you start with the process of renovation, there may be some surprises for you. You may start renovating a part and then realize that another part needs to be worked on. So, you must reserve 15% over and above your budget in case there is some extra work that is required to be undertaken. This is most necessary in case you hire a contractor. Don't forget the legal fees as I'm sure every estate agent in the UK will add.

The key lies in having a good knowledge of what you wish to do in your home and what it will cost you. You must investigate and determine what are the stages involved in the changes that you wish to make and how much is the total estimate of the expenditures. Utilize your knowledge to your benefit and ensure to make prudent choices for your home.