Where would you invest $100m today? RE Equity only
Market, asset class, and why? Be.
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This is a pretty easy answer for me today.
I'm not an american, but I've been hearing Blended Mezz / Pref Equity is very easy to get, tons of funds are offering it. You're thesis is now void sucka!
Yeah, this kind of product is on offer from everyone and their uncle, specifically because it is such a no-brainer.
Like, I'd like to buy raw land in downtown areas at $1/bsf and then build luxury condos! Oh, and I'd like to lock in my construction and financing prices at 2019 levels.
I look at HY pref / mezz deal day in and day out.
If you want 15-16% rate it would have to be ground up construction and you’d have to go to 85% LTC. And top developers don’t want that kind of money right now. It’s a nice thought though.
If we could do 80% LTC/LTV on existing multifamily and get 15%, our job would be super easy
The real answer (excluding debt and pref because that doesn’t answer OPs question) is to put equity to work in distressed situations. There is actual distress today… hotels and office buildings having their notes sold for 50% on the dollar (25% of the equity investors original basis).
There is quality real estate out there with messed up capital stacks. That’s where you want to invest. It’s probably going to have to be office or hotel… no way around it. Maybe office to multi but you need to partner up with a sponsor.
This question also depends on your type of capital. If your unlevered buyer seeking single to low double digit returns… never been a better time to buy multifamily. If you’re an opportunistic investor, I’m not sure how you could invest in multi family right now outside of rescue capital situations. It all just depends, need to provide a more detailed question
The 15% - 16% rate is half accrued, half current. So current of 7.5% - 8.0%. We're seeing construction quotes anywhere from SOFR + 350 bps - 600 bps depending on asset location and quality which would put the rate, which is current, at 9.00% - 11.50% by year-end, give or take? Not to mention proceeds are lower, it is full recourse, and often requires a substantial deposit relationship. So now that I'm talking out loud, mezz at 12% actually feels pretty good, all things considered.
One of those sweet 5% savings accounts...
My hundred mil ain’t going into any RE equity investments can tell you that
$100M in equity today….?
- SoCal home builders (can be other extremely tight markets but I know SoCal best and it’s crushing right now)
- Smaller but we’ll amenitized RTI Condo projects in A+, supply tight markets
- Or, shoot for the money and take down land to build a multi/condo building using all cash throughout, condo map it while building it, refi most of cash costs immediately upon delivery, rent the units out above the mortgage and sell off units over time (think 5-6% cash return over mortgage spread even though mostly all capital is already returned).. only way to bring some juice back to multi today is with condo upside “ options” to bring IRR and EM back to “yesterdays returns”.
Otherwise pure multi dev is extremely hard to pencil or get going today for many reasons…
Can invest in $FPH and get indirect exposure to SoCal home builders via some of the nicer MPC in the market. Although impossible to put $100M into that directly, or anywhere near that number.
You can be Lennar (FPH) or you can be Lennar….
https://therealdeal.com/la/2023/08/07/fivepoint-sells-84-acres-of-homes…
I'd probably go and find some decent opps in European Build-to-Rent and Self Storage - market for SS is still highly fragmented and also plenty of strong regional euro cities with no premium housing stock despite the lack of stock
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