Investors Get Creative as Financing Challenges in Multifamily Continue: Forum

Investors are getting more creative when it comes to building multifamily in the United States, as economic conditions continue to be uncertain at best.

At Convene’s space at 101 Park Avenue for Commercial Observer’s National Multifamily Investment Forum, leaders throughout the multifamily development world gathered June 18 to share their thoughts about the good, the bad and the ugly in multifamily real estate.

The morning began with a fireside chat between Grant Cardone of Cardone Capital and Wells Fargo Managing Director of Multifamily Capital Horatio Jones, who picked the former’s brain about raising capital through creative means such as cryptocurrency, and taking a cowboy mindset to volatility.

Crypto’s integration into real estate and government investing could turn the real estate investment trust world on its head, according to Cardone, especially as the next generation invests in digital tokens.

“When everything is stable and certain, what fun is that? I like the adventure,” Cardone said. “The $4 trillion dollar REIT business is broken. The model’s broken. You see it right now with redemptions and cash distributions. They’re playing this money over here to pay out this, and you’ve got pension funds that are pissed off. It’s a problem.”

The best asset class in the near future will be rental homes, Cardone said, as the young people he interacts with through his social media presence seem to show little interest in owning homes.

The first panel of the day, titled National Multifamily Market Outlook: Investor Sentiment for this Red Hot Market, was moderated by Eric Herburger of Citrin Cooperman Advisors. It featured Jeff Rosen of MAG Partners, Yisroel Berg of Harbor Group International, Shawn Townsend of Ease Capital and Daron Tubian of Barings.

Rosen noted that when competitors and clients are scrambling for solutions to debt, that’s the time to strike.

“When capital is constrained, we see that as an opportunity because a lot of players are going away,” Rosen said. “A lot of developers are moving into other asset classes or other markets, so just looking at it from a MAG Partners perspective, the more constrained it gets, the more that very small subset of capital that’s not in the credit equity side is going to move to those top-tier developers.”

Leo Jacobs of law firm Jacobs P.C. moderated the following panel, The Great Reset: Floating Rate Maturities & Opportunistic Strategies Geared for Generational Wealth. Panelists were Teodora Zobel of Midwood Investments, Brian Flax of Meridian Capital Group, Andrew Dansker of Dansker Capital Group and Tom Keefe of MF1 / Limekiln Real Estate.

One prominent takeaway from the panel was that new capital is not really entering the market from wealthier families or individuals with cash on hand, as they are essentially skipping multifamily as an investment.

“I’m not seeing a plethora of equity capital entering just ready to jump into anything,” Flax said. “You’re seeing a lot of cautious capital and people being incredibly selective because there’s also a lot of deal flow out there. There’s a lot of different distress opportunities so people can pick and choose.”

After a few sips of coffee during the networking break, the conversation resumed with a fireside chat between BRP Companies co-founder Meredith Marshall and Grace Betancourt Powers of DL Partners, during which Marshall discussed his start in multifamily real estate as a hobbyist looking for passive income.

After building the 30-story, 539-residence project at Jamaica Crossing in Queens, Marshall is working on developing a site in Hudson Yards with BXP and Moinian Group. At least 35 percent of the units will be affordable for people earning 30 percent of the area median income (AMI).

While the Low-Income Housing Tax Credit (LIHTC) is making the project possible, there’s still something missing on the policy side to  help lower- to middle-income renters affected by inflation.

“It covers low income up to 60 and 80 percent AMI, but what if you make 85, 90, 100 percent of AMI?” Marshall said. “What if you make $100,000 like a lot of my younger family members who are recent college graduates? They’re in my basement right now. They would rather spend money on other things than spend 50 percent of their take-home pay on housing, so we have to address the missing middle.”

Marshall said his firm is coming up with models to address this with the private sector.

David Shamshovich of law firm Belkin, Burden, Goldman moderated the panel titled Addressing Affordability & Workforce Housing Across the Map — Tax Incentives, Removing Barriers & the Role of Public-Private Partnerships. Speakers were Robert Sanna of BFC Partners, Andrea Wenner of MSquared, Richard Roberts of Red Stone Equity Partners and Eleonora Bershadskaya of Vistria.

New York may have tax incentives with the 485x abatement program, but it’s not nearly enough to make deals pencil out when affordable housing transactions can require up to 10 to 12 sources of financing, according to Roberts.

“A lot of that is driven by cost,” Roberts said. “I used to tell people that there’s no such thing as an affordable brick or an affordable nail. Maybe you get a break on labor because you’re operating in a somewhat different cost environment in the affordable realm relative to the market-rate realm, but we have to subsidize things so much to create a single unit that it creates a tremendous amount of complexity in bringing things to market.”

Mike Leipart of the Redeavor Group led the final panel, Following the Capital: Understanding Which Geographic Markets Are Attracting Investments & Why. Panelists were Asi Cymbal of Cymbal DLT Companies, Danny Fishman of GAIA Real Estate, Marc Hershberg of Topaz Capital Group, Jordan Kornberg of Mast Capital and Roy Stillman of Stillman Development International.

“I think in order to attract capital to a condominium project, you have to have many, many elements that distinguish it from the market. You can’t just be another project that’s being dumped onto the market,” Stillman said. “You have to really think that the market is smarter than you as opposed to the normal bias that you are smarter than the market. If you approach the analysis with the belief that the market is smarter than you, then you’re going to be very careful by first studying the market.” 

Mark Hallum can be reached at mhallum@commercialobserver.com.