General Real Estate Discussion

I was thinking we should have a place to bs about real estate in general - things we're working on, successes we've had lately, etc.

For me - today is the last day of my pre-grad school REPE summer internship and my going away present was a return offer for next year if I want it. Not sure where I'll be mentally next year, but it's just a great feeling knowing that you were well received. I wanted to thank everyone here for all the info and discussion over the past couple years too. I've went from office broker to asset manager to acquisitions intern and WSO has been there every step of the way.

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Comments (32)

Aug 12, 2015 - 11:51am

Would rather not say at the moment just to hold on to the last shreds of anonymity I have, but it's a southeast MRED program.

Commercial Real Estate Developer

Aug 12, 2015 - 3:12pm
Slothrop:

Do you have to make a decision on the return offer now? Is it an offer for an internship during the summer in the middle of a two-year program?

Why not wait to see how this MRED program goes and take it from there?

Yeah that's how it is. I don't have to make a decision. It's just a cool fallback and I suppose a nice validation.

Commercial Real Estate Developer

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Aug 12, 2015 - 3:17pm
CRE:

Slothrop: Do you have to make a decision on the return offer now? Is it an offer for an internship during the summer in the middle of a two-year program?
Why not wait to see how this MRED program goes and take it from there?

Yeah that's how it is. I don't have to make a decision. It's just a cool fallback and I suppose a nice validation.

Perfect. Ride it out and see what other opportunities you might have!

Aug 12, 2015 - 2:29pm

We are getting ready to market an office asset in CBD and the building is approximately 75-80% occ. There is a big tenant in the market and we are one of the few buildings that can accommodate its footprint.

Unless we get above market rents for the space. The building is actually more valuable vacant than it is occupied. There are more value add buyers than core buyers that will pay premiums for vacancy.

Wonder if anyone has the same thing going on for their assets.

Aug 12, 2015 - 8:35pm

Nice work securing the offer CRE. We're going to miss you after putting out all this content all summer.

I'll throw some topics out there. We have been struggling to find good (read: not overpriced) deals for the last couple months. Everything is getting priced through the roof.

We've shifted over to smaller, off-market properties in secondary markets. Interesting stuff but we won't hit our acquisition targets at this pace.

Bullish on: flex/incubator industrial, student housing, senior housing* (provided it's not already overdeveloped in the market), resorts/lodging*, self storage*, mixed-use (retail users love the captive audience) near public transit

*We don't cover these officially but would love to hear from someone who does.

Bearish: commodity office (Seattle has like 8% of its inventory under construction - good luck!), big box industrial (lots of development), multifamily that's not near public transit

Now if you'll excuse me it's 5:30, the sun is shining, and girls are ordering margaritas somewhere.

Fill the unforgiving minute with 60 seconds of run. - Kipling
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Aug 12, 2015 - 10:58pm

We are having a similar issue finding product. We haven't shifted to smaller markets yet, but we have started looking at flex/incubator/creative office, micro apartments and outlet malls. We have always done some limited student/senior housing and medical office and are expanding on both of those fronts as well.

I'm pushing to be able to do self storage and to look at some lodging, but I've been rebuffed by my committee when I've brought those deals.

Things we are still staying away from: big box retail, middle market malls, multi not near public transport, single tenant office.

Aug 19, 2015 - 12:51pm

Agree with all of these. Another "ugly" asset type I meant to include is manufactured housing as there's increasing demand for families looking to move out of Class B and C apartments.

Fill the unforgiving minute with 60 seconds of run. - Kipling
Aug 13, 2015 - 8:38am
Gene Parmesan:

Nice work securing the offer CRE. We're going to miss you after putting out all this content all summer.

I'll throw some topics out there. We have been struggling to find good (read: not overpriced) deals for the last couple months. Everything is getting priced through the roof.

We've shifted over to smaller, off-market properties in secondary markets. Interesting stuff but we won't hit our acquisition targets at this pace.

Bullish on: flex/incubator industrial, student housing, senior housing* (provided it's not already overdeveloped in the market), resorts/lodging*, self storage*, mixed-use (retail users love the captive audience) near public transit

*We don't cover these officially but would love to hear from someone who does.

Bearish: commodity office (Seattle has like 8% of its inventory under construction - good luck!), big box industrial (lots of development), multifamily that's not near public transit

Now if you'll excuse me it's 5:30, the sun is shining, and girls are ordering margaritas somewhere.

Out of curiosity why are you guys bullish on light/flex type industrial vs. big box aside from the construction aspect which for the most part does not seem to be keeping pace with demand in most markets.

Also, what kind of shop are you?

Aug 19, 2015 - 12:47pm

There is a good amount of flex/light industrial that hasn't returned to peak rents/pricing (20-50% off), and we feel that it will return in the next 12-24 months. Not only is it harder to build it than big box, but it requires higher rents to justify it

As an example
2006 pricing at $150 PSF ($1.00+ NNN rents)
2015 purchase at $85 PSF ($0.60 NNN)
Current replacement cost at $135 PSF ($0.80 - 0.90 NNN required)

We have a few different capital sources which include commingled funds (REPE ranging from opportunistic to value-add) and separate accounts (investment management, more core and core plus)

Fill the unforgiving minute with 60 seconds of run. - Kipling
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Aug 13, 2015 - 12:02pm

For the sake of debate, let's talk about your group's bullish outlook on student housing. I'll preface my comments with the fact I have no experience underwriting student housing but find the topic interesting. Is this a function of established institutions growing their enrollment numbers? Or a projected increase in new colleges popping up? I think we're already seeing the for-profit college bubble begin to deflate but I wouldn't imagine them being a significant user base for student housing. Also, does the shift to online learning hurt the demand for this product type? The increase in tuition costs has to hamper the ability to push rents on this demographic. This product type seems to be highly exposed to a tightening in student lending as well. Interested to hear where the durability for this niche is coming from.

Best Response
Aug 18, 2015 - 6:32pm

I did some capital raises in IB for student housing assets. I think the demand is robust for a number of reasons and the asset is stronger than traditional MF. Observe: 1-the leases are ALWAYS gauranteed by the parents 2-vacancy and cylicality is limited since lease up occurs pretty much towards end of summer and rates are locked in with little turnover until the end of the academic year; 3-location is based on proximity to campus instead of in a CBD and thus land acquisition costs may be cheaper, can also be a ground lease from the school 4-the $/sq ft margins are higher becuase you can stick more students into 1 unit who demand less free space than some elite 30something year old making $200K

Student lending doesn't really impact student housing because you are not paying down the debt while you're in school; this coupled with the gaurantees by the parents (most student debt is also gauranteed by parents fyi) I woud suspect makes student housing assets highly desirable as reflected in the cap rates

Aug 13, 2015 - 1:20pm
Gene Parmesan:

We're going to miss you after putting out all this content all summer.

Hah, oh I'm sure I'll still be around

Commercial Real Estate Developer

Aug 12, 2015 - 8:42pm

I'd really appreciate any input you guys have to offer. How would you judge a fair price for a residential property? Or can you point me in the direction of some learning materials. I want to look for my first house but I want to evaluate my options intelligently and independently.

Aug 13, 2015 - 1:22pm
LayeredCake:

I'd really appreciate any input you guys have to offer. How would you judge a fair price for a residential property? Or can you point me in the direction of some learning materials. I want to look for my first house but I want to evaluate my options intelligently and independently.

Comps. Look at what houses have sold for in the same or similar neighborhoods and match up beds/baths/upgrades. I'm not a residential expert, but they're almost always priced on comps

Commercial Real Estate Developer

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Aug 19, 2015 - 4:52pm
CRE:

LayeredCake: I'd really appreciate any input you guys have to offer. How would you judge a fair price for a residential property? Or can you point me in the direction of some learning materials. I want to look for my first house but I want to evaluate my options intelligently and independently.

Comps. Look at what houses have sold for in the same or similar neighborhoods and match up beds/baths/upgrades. I'm not a residential expert, but they're almost always priced on comps

Can confirm. I work in Residential Mortgages and we base everything on comps. Unless the structure has special circumstances, complete renovation, or other unique factors, you can get a rock-solid estimate on value from comps. Of course the appraiser does "valuations" (if you can even call it that) for a living, but you can usually estimate within a 5% variation of what they'll come up with.

Aug 13, 2015 - 7:39am

Anyone on here transitioned from NYC Commercial real estate to a buy-side role outside of NYC or a smaller market? Biggest fear is just getting bored. Simply put, there probably isn't a more active, high dollar volume, and glamorous (for better or for worse) than the NYCRE market. I feel like it would be quite different underwriting development sites that may sell in excess of $1,000 per buildable vs. an 60,000 SF new construction office building in a mid-tier market selling for $300 per SF. Thoughts? Thanks!

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Aug 13, 2015 - 9:19am

I made the switch from SE debt AM to NE equity acquisitions earlier this year. It might be because I'm at a core, instituional focused shop, but I'm actually finding the NE to be quite boring compared to the SE.

Especially when it comes to NYC. It feels like I can waltz into committee with almost any deal in NYC with just a sketchy outline and get allocation to move forward, while that same committee won't even talk to others about platinum plated deals in some markets without them being absolutely fully vetted.

Maybe I'm a masochist, but it kind of takes the fun out of it when you are ready for a challenge at committee and you get nothing.

Given, I do think that there are a lot more interesting ownership structures, legal restrictions, building restrictions and tax situations that happen in NYC and the NE in general that make up for it. But it does irk me a bit that when I talk about XYZ building in NYC, my entire committee has either lived/worked/bought/sold the whole damn city/area before so they have no questions.

Aug 13, 2015 - 10:48am

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