Topaz Capital’s Marc Hershberg Talks Multifamily Investment During a Global Pandemic
Sometimes a knack for real estate investing is just in your blood. Marc Hershberg developed a taste for the industry very early on, using his bar mitzvah money to invest in his first property.
Flash forward to today, and he’s CEO of Topaz Capital Group, a private equity firm focused on multifamily investment and workforce housing in particular. Commercial Observer chatted with Hershberg to find out what makes Topaz shine in a competitive multifamily marketplace.
Commercial Observer: When did you know that a career in real estate was something you’d be interested in pursuing?
Marc Hershberg: I got into real estate really through the grapevine of my community [in Englewood, N.J.]. A lot of my neighbors were in the business, and at a young age I was starting to see a lot of people be very active in the space. Ultimately, that made me want to shadow them and ask them some questions and that’s where it all started. I actually used some of my bar mitzvah money to buy real estate at a very young age.
What was your first investment?
It was a four-family [property] in Bergen County, N.J. I was a teenager at the time.
What did your family say about you investing in real estate at such a young age?
They supported it. My family met whatever bar mitzvah money I had. They are in the gem business, hence the name Topaz Capital.
How did you get your professional start in real estate?
It actually started with a role at UBS. I managed to get a little bit of exposure to the mortgage side of the business, and I also touched a little bit upon the CMBS side of the business. I then went to Brick Capital, where I was lending but also a licensed broker. So I procured a couple of iconic New York transactions like the Moxy Hotel on the Lower East Side — on the corner of Bowery and Broome Street — and I also did a three-building package in the South Bronx. So I did a bunch of lending with Brick, that was our primary focus, and then in addition to lending I was procuring buyers and sellers and brokering transactions.
When you launched Topaz three years ago, were you responding to a void in the market?
I saw that a lot of people in New York were really focused on New York as the holy grail and the be all and end all of investment. What I wanted to do was to invite a lot of that New York tri-state capital into exploring a greater footprint and thinking a little bit more toward macro economics, and sociopolitical economics, finding the state and the city markets that are pro-business and landlord-friendly, coupled with higher population growth.
What do you offer the market today?
What I think stands out is us being a boutique private equity shop focused on multifamily. We’re focused primarily on workforce housing, and Class B+-type housing — $50,000 AMI to $80,000 AMI is really our sweet spot. And ultimately, we bring that institutional feel to a boutique private equity shop. Our focus is on becoming a household name in the multifamily space.
Multifamily has always been regarded as a safe haven asset class. Do you think that’s still the case, post-COVID?
I think multifamily inevitably will continue to benefit from fund flow. Other sectors are less risk-adjusted, so there will be more capital placed into multifamily. This is coupled with the fact that the debt markets are very favorable right now and the GSEs are very much dedicated and committed to making sure that deals are still happening, that markets are liquid, and activities still flowing. Workforce housing is generally the backbone of our country, and your middle-class America is falling within those lines.
Do you joint venture with other firms in your investments?
We do joint ventures in the form of co-GPs [general partners]. And those tend to be more developers and property management companies, not typically with other syndicators or private equity shops. We have a JV platform called Topaz Property Partners JV.
Are you seeing appetite from foreign investors still for multifamily assets? And do you work with foreign investors?
Yes to both. We are seeing activity and a pent-up demand from foreign investors to place capital in the U.S., especially in multifamily where it’s stable. So we are seeing a tremendous amount of interest there. We do accept foreign investors, but generally speaking those investors have some sort of domestic vehicle which they use for their investment purposes.
So, we don’t have a foreign tax-structured fund that is set up for different regions of the world. However, we have been very successful in having them use other domestic vehicles or related businesses for their investments.
What’s an example of a recent deal you’ve closed?
We’ve just bought a project called Planters Walk in Jacksonville, Fla., which is 216 units in a high-growth rental market. We’re very much focused on the Southeast, so it fits the box of community living, garden-style, and it also fits the box of high-end workforce housing. What I would also say is that it’s part of a big growth story—a lot of population growth and a lot of pro-business legislation for the city.
What were some of the challenges in closing this deal during COVID?
One of the challenges was getting everyone to the property in a timely manner. That was difficult. We had third parties coordinating with our property managers to make sure that they were getting into the property in a safe manner. In addition to that, initially we were quoted with more [principal and interest] reserves . Ultimately, they ended up lowering it back down.
Due to COVID, the biggest issue was the [eviction] moratorium, which caused some hardship. We had late payers or scheduled payers, and all of those tenants were trying to reassure us that they actually are committed to paying their rent and staying in the property. So that was a bit of a challenge, to get them to come to that agreement during COVID. Collections were probably the biggest thing we had to stay up to date on. Collections were something that we were closely looking at week by week; we always look closely at collections, but we used a magnifying glass this time around.
How’s your portfolio faring in terms of collections?
We’re at around 93 percent. Our lease-up is 96 or 97 percent across the board.
What has COVID taught you?
We’re only as successful as our tenants, meaning if they’re willing to work with us, we generally are very amenable and very cooperative. Despite the challenges ahead, as long as there’s a willingness on both sides, things can get worked out.
Secondly,I would say our [limited partner] equity partners have unwavering support for us and have not lost confidence despite the turbulent market climate.
Lastly, what we’ve learned is that the debt markets — in terms of the agency side — have been there when everyone else stepped out. Everyone left the party and they just stepped in to say, “We’re still here to back you guys and to make sure that deals will close and that our economy stays afloat in terms of transactional activity.”
Are you seeing any opportunities for distressed acquisitions or investments?
I think it’s too early to tell. However, I will caveat that by saying we’re seeing distress in markets that are tier three or tier four from the debt perspective. We are also seeing the markets that are very heavily reliant on hospitality and tourism — for example, Orlando, Kissimmee and your coastal, heavy-tourism markets — impacted. But. nevertheless, what we are seeing is that there are a number of opportunities out there, where sophisticated and innovative real estate shops are converting extended-stay hotels with kitchenettes into studios and micro-apartment rental units. So that’s a really interesting play, to play off into the distress of the hotels.
We’re also seeing some of that across the office space, but less so. Overall, distress is probably being seen more with the smaller properties, your mom and-pop owners and operators who have only a couple of properties and under 100 units. Those guys who don’t have an organized system and aren’t so adaptable are the ones that are hurting at this time.
Any other trends you’re seeing?
One thing is we’ve been getting more 1031 capital than ever before out of the north, and they’re looking to place their money into the Southeast. So that’s a really interesting story. This is due to taxes, a warm climate, and high growth and overall economic indicators; with both millennials and baby boomers’ increasing interest in being further south in large secondary markets.
Where do you see Topaz Capital going from here? How do you see it expanding?
As I mentioned earlier, our focus is on building out a household name in the multifamily space. What that means is becoming the premier and leading apartment community provider in the Southeast and potentially across the entire Sun Belt states. We’d like to have north of 10,000 units within the next five years.
What’s your favorite part of the job?
What I enjoy is that every day brings a new set of challenges and opportunities. No two days are the same. I’m very much a deal junkie, so I love the excitement of getting a deal, understanding it, working through it, and ultimately closing it out. I love all the pieces coming together around doing a deal. So, working with attorneys, accountants, brokers and servicers to get everything set up and orchestrated.
One of the things I love about Topaz is our collaborative culture. Everyone’s very honest and open, and the approach that everyone takes is that “keep it simple, stupid,” approach. We try to keep it as clean and simple as possible, and what we’ve realized is that helps us grow faster.