AMA: West Coast MF Investment and Development
Currently transitioning between jobs so I have some downtime. Most of you are probably think who the fuck is this guy doing an AMA, some background below. Ask me anything you want and I will do my best to answer.

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Location: Tier 1 West Coast city

Market: West Coast out to Denver and everything in between

Roles: MF value add acquisitions, MF asset management, MF ground up development. Majority of my work is in institutional class A product but have enough experience in B/C class on the institutional and non-institutional spectrum as well.

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Fire away.
[{"id": "ehvpjsb", "text": "What are your thoughts on ground up development at this point in the cycle?", "replies": [{"id": "ehvrv2n", "text": "That's a pretty broad question. Broadly speaking though, it is heavily dependent on the group developing and their capital source. There is still plenty of opportunity for good deals to be done, but what defines a good deal for a specific group varies greatly.\n\n&amp;#x200B;\n\nNot sure how else to answer your question unless you get more specific", "replies": [{"id": "ehvsj1v", "text": "I guess to be a little more specific, what can developers of multifamily do to help mitigate any recessionary risks in the market? I\u2019ve only been in the business for 4 years, but am considering an opportunity with a developer in South Florida. It seems like the best place to be (on the multifamily side), would be in the workforce housing and class B space where demand would sustain during a recession, NOT in development. \n\nIt seems that in order to make ground up deals work these days, you need to target really high rents. And I\u2019m not sure how sustainable those rent levels are during a recession.", "replies": [{"id": "ehvv1ap", "text": "Again, the answer to this question is highly dependent on group strategy. You will get a very different answer for merchant developers, fee developers, long term hold developers etc. Additionally, to my point earlier about capital source - we recently lost out on a deal where the capital source was CalPERS. That source of capital is targeting safer return metrics in the 8-12% IRR range so the developer has a lot of room to make the deal viable for their investor. We shoot for +18% IRR's and our capital is all internal (one Ultra HNW family). In terms of mitigating risk we really only want to be in core markets where the asset can ride the wave of a recession and not see large swings in rate and occupancy. Everyone is waiting on the sidelines for a recession to start to deploy their capital when it hits. Does this answer your question a little more?", "replies": [{"id": "ehvz3r8", "text": "This helps. I suppose that assuming you have flexible capital and don\u2019t over-lever, it\u2019s easier to weather the storm.\n\nHowever, putting capital aside, do you have any concern about leasing up during a recession and not being able to meet debt service? ", "replies": [{"id": "ehw1lnr", "text": "Lease ups during a recession are always concerning. But right now I\u2019m more concerned about over supply in some of the markets I\u2019m in. In Seattle for example we have an asset in lease up in an awesome location downtown but it\u2019s a concession war with our comps and prospects have so many options it\u2019s extremely difficult to lease up. ", "replies": [{"id": "ehw2gdh", "text": "You mentioned earlier that everyone\u2019s waiting on sidelines for a recession to hit so they can deploy their capital, what do you mean by that? Why would someone want to start building during a recession?", "replies": [{"id": "ehw6e5i", "text": "Because it\u2019s cheap to buy and the investors are betting on the market rebounding in a couple of years so they get the appreciation ", "replies": [{"id": "ehwojfv", "text": "Makes sense. And sorry for all the questions I\u2019m not trying to play devil\u2019s advocate or anything, just trying to better understand as I think about this potential opportunity.\n\nDespite it being \u201ccheap to buy\u201d, won\u2019t it be hard to finance since the capital markets will presumably be in flux during a recession? Not only that, you will be making a very risky bet that by the time you hit lease up the economy will be recovering and you won\u2019t be impacted, your lease up Period could very well start in the worst part of a recession. \n\nSecondly, why did developers get crushed in 2008 if they could have just bought cheap?", "replies": [{"id": "ehx795c", "text": "To address your comment about financing - this is why relationships are important in the RE world. My current shop has great relationships with banks and they all get very aggressive to finance our construction debt because we have a strong reputation of performance. So for a good developer with good relationships and a strong track record, financing wouldn\u2019t be an issue. ", "replies": [{"id": "ehx89zk", "text": "That doesn\u2019t make much sense and I disagree. I talk to a lot of people who lived thru 2008 and they said it was impossible to get construction financing for 2-3 years until the market picked back up. Lenders simply don\u2019t want to lend in that environment and don\u2019t have the funds/allocations to do so.", "replies": [{"id": "ehxc46k", "text": "I can't speak to the experiences of the people you talk to, but private developers with large balance sheets and all the big boys in the market (Hines, Related, Tishman, EQR, Essex, Avalon etc.) have no problem. The banks and developers will be hyper sensitive to the assumptions in underwriting but the deals will still get done.\n\nEdit: Also just adding that I am not saying you or I are right or wrong, this is one of those scenarios where there are a lot of variables at play and both of our experiences are relevant.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}, {"id": "ehxoazv", "text": "The people that were able to buy in 08-09 era that had cash hit home runs. Over leveraged deals is where people had trouble. ", "replies": [{"id": "ehxwiim", "text": "Realistically, not many firms have cash to capitalize an entire ground up deal. I\u2019m more curious how it would work if the banks pull back on lending. ", "replies": [{"id": "ehxwlvu", "text": "The 80 unit plus MF deals no but Dollar Generals or other NNN deals yes. ", "replies": [{"id": "ehxyuj7", "text": "Well that\u2019s a different conversation. My question (and OP) specifically referenced large multifamily development. ", "replies": [], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}, {"id": "ehx726l", "text": "I think someone else answered this below but land values will drop when a recession hits making deals more feasible. Development takes a while and is usually a couple of years before you break ground because you need to go through entitlements. So the developers who get crushed in a recession are the ones who are delivering product right as the recession kicks off. ", "replies": [{"id": "ehx8d95", "text": "Right but are you not concerned at all about leasing up during the recession kick off? How can you time that? ", "replies": [{"id": "ehxcje6", "text": "There is always that concern, yes. But you can't time the market and you will never be a successful developer if you're too cautious to jump in. Our job as developers is to mitigate risk as much as possible where we can, no deal is ever the same and you are constantly putting our fires to make projects successful along the way. This is also why development deals require larger returns, because we are dealing in the riskiest form of real estate investment.", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}, {"id": "ehw5ufx", "text": "18% IRR, in this market environment is eye-popping.  I can't imagine very many deals pencil out a return in the high teens.  Buyers are driving up prices and compressing yields.  If I may ask what markets are you seeing 18?\n", "replies": [{"id": "ehx7gyi", "text": "18% is definitely not heard of. That\u2019s what most developers are targeting. We see deals in the mid 20s all the time (we also look at a shit ton). Seeing this in all the major metros in the west coast and the returns are higher on the east coast and especially in the southeast (my team is nationwide, I just focus on the western region). ", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ehvu16a", "text": "How many years have you been working? You said transitioning so I assume it is to a new job? What is the compensation package?", "replies": [{"id": "ehvugur", "text": "About 5 years, and yes to a new job. Compensation is structured as base salary in the low 6 figures with a guaranteed 5 figure bonus and a deal based bonus on top of that which will be 5 figures as well. All in &lt;$250k.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ehw2n3d", "text": "How did you get into this/what was your entry level position? As someone with a bachelors in Economics from a pretty good school and two years into a data analyst position in an unrelated industry, do you have any advice as to what roles/firms I should be looking for? Thanks!", "replies": [{"id": "ehx8dix", "text": "It was pretty difficult. Took me 7 months post grad from a state school with a sub 3.0 gpa and a double major in finance and accounting. My family invests in sfh homes which I was able to spin in interviews. My first role was an acquisitions analyst that I found and applied to from a craigslist ad. I was able to show a strong interest in RE and they gave me a modeling test which I knocked out of the park. \n\nMy advice to you really depends on what you want to do in the industry. Idk exactly what you do as a data analyst but start networking on LinkedIn with people in roles you want, get them on the phone or to meet for coffee and ask them what they do, find out how you can spin the skills you have into the position you want and go from there. It\u2019s gonna be a grind but real estate is one of the few industries where your hustle will get you to where you want to be. \n\nAlso, go read the real estate forum on Wall Street oasis. Lots of good info there, make sure to use the search function. ", "replies": [], "depth": 2}], "depth": 1}, {"id": "ehwj0j8", "text": "What kind of multifamily asset class/type and in what West Coast locations would you primarily look if you had a budget of $25-30M and a goal to hold long term? ", "replies": [{"id": "ehx7pti", "text": "From a personal standpoint?\n\nB/C class multifamily under 150 units in Southern California, parts of the Bay Area, Portland suburbs, Seattle and Bellevue Area. \n\nEdit: throw in Boise, Salt Lake, and Colorado. ", "replies": [{"id": "ehxepsx", "text": "Which parts of the Bay Area do you like? Cap rates are super low in SF and along the peninsula.  ", "replies": [{"id": "ehxfk7x", "text": "East Bay and South Bay, lots of hidden gems still.\n\nEdit: East* not Easy", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ehxjdcb", "text": "What was your compensation package with your MF Acquisitions position?", "replies": [{"id": "ehxl5e8", "text": "1st job: MF Acquisitions ~$30k (severely underpaid, but got my foot in the door) paid hourly\n\n2nd job: MF Asset Managment ~$100k all in base + bonus\n\n3rd job: MF ground up development (current gig for the next week until starting the new role) ~$110k all in base + bonus\n\nNew job: MF Acquisitions ~$130k-$200k all in base + bonus\n\nEdit: Formatting", "replies": [{"id": "ehxlwx0", "text": "Were your previous 3 jobs with the same company where you were promoted to each position or did you apply each time to a new company. If so, how long were you at each position before requesting a transfer?", "replies": [{"id": "ehxm8mk", "text": "All different groups. A little over 1 year at the first job, 2 years at the second and 3rd job.", "replies": [{"id": "ehxneiq", "text": "Were you recruited to your second and third job, or did you search for these opportunities?", "replies": [{"id": "ehxoikx", "text": "Recruited for the second job, applied through Linkedin on the 3rd job", "replies": [{"id": "ehxpj5z", "text": "Very nice. Seems like you excelled at your job and parlayed that into something very nice for yourself. Congratulations! ", "replies": [{"id": "ehxptcb", "text": "Thank you! This is why I love real estate, if you hustle hard enough you will be rewarded (probably can be said for anything really).", "replies": [{"id": "ehyfzbd", "text": "Gotta respect the hustle", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ehxzzu6", "text": "I don\u2019t read good", "replies": [{"id": "ehy20ca", "text": "huh?", "replies": [], "depth": 2}], "depth": 1}, {"id": "ehza6z1", "text": "Have you worked in San Diego ?", "replies": [{"id": "ei04428", "text": "Physically, no. I have looked at a handful of deals there though. We also just hired a guy to cover southern california and he is trying to find a deal in San Diego that we can do.", "replies": [{"id": "ei055m4", "text": "Just sent a pm", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ei21whj", "text": "Do you see condo's as a viable contingency plan for new 150+ unit multi-family structures.  The Seattle market has an over-supply of apartments and it is difficult to convert them to condominiums.  A new structure, built to condominium standards, that's easier to convert, could hit the market faster if gross vacancy continue to increase due to over supply of rentals. Wrap policies have also become much less expensive, so mitigating your liability on the construction is becoming more feasible. ", "replies": [{"id": "ei3m0k7", "text": "In theory that makes sense, but it depends on your initial underwriting/investment strategy. I have only worked on 1 condo project that was a high rise in SF so I have a somewhat narrow view here.", "replies": [], "depth": 2}], "depth": 1}]