In the ever-shifting seas of commercial real estate, where economic tides rise and fall, discerning investors find potential amidst uncertainty. The multifamily market, currently revealing signs of distress, serves as a canvas for strategic investors to carve their path to success.
Daniel Farber, CEO of HLC Equity, shares his perspective, stating, “Challenges in the current economic climate are not obstacles; they are opportunities for those who can discern and navigate wisely. We see potential in challenged and distressed assets, and our focus is on leveraging our expertise to capitalize on these opportunities.”
Navigating the Landscape
As the economic horizon remains clouded, Caesar Nguyen, HLC Equity’s Director of Acquisitions, observes a cautious investor landscape. “We’re witnessing the initial stages of a market shift,” Nguyen remarks. “While many are on the sidelines, a select few are making strategic moves. The real surge is anticipated in the coming quarters, making ’24, ’25, and ’26 pivotal for disciplined buyers as sellers with loan maturities have limited options other than to sell.”
Market Dry Powder
Unlike previous economic downturns, this cycle is marked by significant “dry powder” awaiting deployment. This capital readiness offers investors the flexibility to make direct acquisitions or finance deals with relatively attractive terms. Nguyen emphasizes the importance of analyzing markets with a pro-business stance and strong job growth. “Identifying longer-term winners among industries and pinpointing areas with a strong labor force and pro-business environments is the key to success.” The critical importance of meticulous due diligence is underscored. Investors must scrutinize every aspect to ensure their investment aligns with their goals, especially in the multifamily market.
Multifamily Market Dynamics
In the multifamily sector, recent challenges are steering investment strategies. The flight to quality is evident, with investors veering away from risky ventures. “Financing options for underperforming assets are becoming impractical,” notes Director of Acquisitions, Caesar Nguyen. “Investors are leaning towards properties in good condition within top-performing markets, seeking steady income and utilizing fixed-rate loans.”
Market Velocity
Anticipating a surge in alternative financing options in 2024, many investors are embracing this creative approach as well – such as Mezz finance and subordinated seller notes.
A significant bid/ask spread between buyers and sellers is hindering deals, resulting in decreased velocity. “Owners holding onto deals with cheap, long-term debt from 2020 and 2021 are cautious about reinvesting in the current high-interest rate environment,” observes recent reports. Multifamily distress reinforces the regional nature of the challenge. While overall delinquencies remain low, certain regions, such as many cities in Texas, exhibit distress in debt service coverage ratios.
Charting the Course Ahead
As the multifamily landscape weaves through uncertainty, and opportunities begin to arise, stakeholders must adapt to market shifts, embrace creative financing solutions, and conduct thorough due diligence. HLC Equity stands poised to navigate these complexities, fueled by a commitment to unlocking value in distressed assets.
“In every market fluctuation, there lies an opportunity for growth. Our goal is not to merely weather the storm; but rather to capture opportunities when they present themselves,” concludes Daniel Farber, CEO of HLC Equity.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers are encouraged to conduct their own research and consult with financial professionals before making investment decisions.
Innovation is the lifeblood of modern business. It’s the driving force behind growth, competitiveness, and relevance in an ever-evolving market landscape. But what happens when innovation encounters the intimate world of family businesses and enterprises? In this blog post, we analyze the complexities of balancing tradition and change in family-owned ventures. Contrary to the documented importance of trust in family businesses, a mere 19% prioritize innovation. Why is that? We will explore the duality of this approach, where focused attention should be placed without being inefficient and distracted by change. We will also address the potential challenges and how a lack of innovation can render businesses more susceptible to competitors and disruption. Join us as we unravel the delicate balance between stability and innovation in family enterprises.
Family enterprises are the backbone of many economies worldwide. These businesses often pride themselves on traditions, values, and a deep-rooted sense of trust among family members. While these qualities can be assets, they can also create a culture resistant to change. The familial bonds and shared history that make these businesses special can inadvertently stifle innovation. However, family businesses must recognize that innovation is not the enemy of tradition; rather, it is the bridge to future success.
Let’s first understand the duality of prioritizing innovation in family businesses. On one hand, it can be beneficial for family businesses to maintain focus and not get distracted by every new trend or technology. The conservative approach can help preserve what works and ensure stability. However, this approach can be a double-edged sword. The danger lies in becoming too comfortable with the status quo, failing to adapt to changing market dynamics, and ultimately falling behind competitors.
The challenge of innovation in family businesses is not solely about the willingness to change; it’s also about the capacity to do so effectively. Here are some key challenges family businesses may face:
So, how can family businesses strike the delicate balance between stability and innovation? Here are some strategies:
In the ever-shifting seas of commercial real estate, where economic tides rise and fall, discerning investors find potential amidst uncertainty. The multifamily market, currently revealing
Innovation is the lifeblood of modern business. It’s the driving force behind growth, competitiveness, and relevance in an ever-evolving market landscape. But what happens when
In this dynamic era of real estate investing, the landscape has evolved over the past decade through the emergence of Real Estate Crowdfunding Platforms, which
In this dynamic era of real estate investing, the landscape has evolved over the past decade through the emergence of Real Estate Crowdfunding Platforms, which provided new avenues for accessing real estate projects, proverbially “democratizing” the space. This article compares key differences between the various “deal platforms” and the more traditional owner/operator investment management model.
It’s undeniable that the emergence of real estate crowdfunding has significantly transformed the landscape of commercial investing. Traditionally, investing in commercial real estate was limited to wealthy individuals or institutional investors. Once an asset class reserved only for the elite, most wealthy individuals would identify investment opportunities through their personal and professional networks, whether that be the country club or other social circles. However, with the advent of crowdfunding platforms, barriers to entry lowered, allowing a broader range of retail investors to participate.
Real estate crowdfunding leverages the power of digital technology to pool capital from numerous accredited investors to fund various commercial projects, such as office buildings, retail spaces, and apartment complexes. Born out of the JOBS ACT in 2012, this legislation allowed for syndication companies to offer these investments. Title III of the JOBS ACT, also known as the Crowdfunding Act, has drawn the most attention because it empowered companies to issue securities by way of crowdfunding, something that was not previously permitted. This newfound access to commercial real estate opportunities has, on the one hand, provided investors with greater diversification options, but has also enabled sponsors to secure funding more efficiently and dynamically. This trend has reshaped how investors engage in the world of commercial real estate and has also provided additional liquidity to the market. But it’s not without its downside – especially with shifts and tightening of the economy.
As many of these crowdfunding platforms face new challenges, several high-profile players have been in the news as they have either faltered or been acquired by better capitalized companies. In some cases, mismanagement and even fraud have been reported. Many of these platforms received Venture Capital funding from large investors, which allowed them to enjoy accolades over the past decade, but simultaneously the led to some unforeseen obstacles for these platforms.
A fundamental challenge native to these platforms is their youth, and the lack of storied heritage that engenders investor trust. Operating as intermediaries between sponsors and investors, these platforms offer a diverse array of projects. Yet, their relative lack of proven experience might lead to investor skepticism. Often they rely heavily on consistent deal flow to sustain their operations; however, during market downturns, the availability of high-quality projects diminishes, potentially causing a decline in investor engagement.
In selecting a strong investment partner, you will want to seek out one who is anchored in their consistent ability to identify valuable properties, execute meticulous due diligence, and provide reliable returns, while always having their own capital at risk in every transaction they invest in, otherwise known as “skin in the game.”
The bedrock of deal success for experienced real estate investors and managers lies in exacting due diligence procedures and comprehensive risk management strategies, while also having the knowledge and resources to correct situations when investments have challenges (which they often do). Without this, you’re simply rolling the dice. Private investors are best served by partnering with real estate owners and operators who scrupulously examine potential projects – upwards of 100 per month –assessing financial viability, market trends, property conditions, and other pivotal factors. This approach ensures top deal quality and minimizes the possibility of subpar investments.
Investment owners and operators are constantly in contact with local and national brokers and other service providers who offer deep industry knowledge. Additionally, quality investment groups have their own portfolio to lean on and inform their operational capabilities when performing due diligence.
Juxtapose this against many of these platforms, which rely heavily on “sponsors” – or third-party operators – to bring them deal flow and inform their investment decisions.
Platforms thrive in presenting investors with options, diversity, and access to a multitude of projects. That may sound appealing, however one key fact remains: the principals of the platforms are not personally invested in those deals. Additionally, the scale and reliance on technology often encumbers their capacity to conduct the same thorough analyses that experienced firms can offer. Cons
Real Estate Crowdfunding Platforms employ digital technology to bridge the investor-sponsor gap, fostering a more superficial, transactional relationship vs. a genuine one. While this digitization set the stage to attract significant Venture Capital, from the vantage point of a real estate investor, the absence of personalized interaction might compromise the depth of understanding that investors possess concerning projects and overall investment experiences.
Private real estate investors commit to unwavering transparent communication and the alignment of interests with investors. Investors should seek out a personalized approach, with direct access to the asset and property management teams, fostering a genuine sense of partnership. Furthermore, investors should only invest in deals in which the firm principals personally invest, an embodiment of the alignment that underscores a mutual commitment to success.
The business model of these platforms is fundamentally based on deal volume – a constant flow sustains their “hyper growth” Venture-backed business plan. That business model over the past decade has led to lower investment standards as these platforms are generally paid based on a percentage of deals that are brought into the platform. This is one of the key factors behind the current challenges that many of these platform’s face.
Real Estate owners and operators, however, generate sustained cash flow from investment revenue and management fees, which allows them to be more selective for a longer period, selecting only the best investments they come across.
These platforms grapple with unique challenges during market contractions. Due to their reliance on deal flow to collect fees, in a declining market where transaction volume diminishes, these platforms might struggle to identify projects that maintain investor engagement. Likewise, the quality of deal flow becomes even more questionable, as these platforms continue to collect their fees. The emphasis on volume for revenue might pressure prioritizing deal quantity over quality, potentially resulting in suboptimal investment opportunities for their investors.
During these times, private real estate investors are best served by partnering directly with owners and operators with experience that span many cycles, coupled with a rigorous approach to project selection and due diligence. This allows them to adeptly navigate changing market conditions, leaning on their experience, process, and protocol. Industry knowledge enables owners and operators to make informed decisions, mitigating risks associated with market downturns.
When considering an investment partner, it’s critical to ask the right questions. Here is a list of questions compiled for private investors.
The fundamental make up of owners and operators sharply contrasts with challenges that confront many Real Estate Crowdfunding Platforms. While they provide a new and distinct solution to democratize real estate investing, they are fundamentally built for sunny days. There are some crowdfunding platforms that have performed well, even during these challenging times. While the overall model remains challenged, it is feasible that with time and maturity these platforms will offer a viable solution. However, nothing can replace the reputation, stringent due diligence, personalized investor relations, and risk management expertise of established real estate sponsors that deliver investment opportunities that can ebb and flow with market conditions, while still having investor success at the forefront.
In the ever-shifting seas of commercial real estate, where economic tides rise and fall, discerning investors find potential amidst uncertainty. The multifamily market, currently revealing
Innovation is the lifeblood of modern business. It’s the driving force behind growth, competitiveness, and relevance in an ever-evolving market landscape. But what happens when
In this dynamic era of real estate investing, the landscape has evolved over the past decade through the emergence of Real Estate Crowdfunding Platforms, which
In the ever-evolving landscape of business and investments, one principle remains steadfast: the importance of treating your investors as partners. While profit and growth are undeniably critical aspects of any successful business, they should not overshadow the significance of building strong, transparent relationships with your investment partners. In this article, we will explore the fundamental ideas and how it can lead to long-term success for both parties involved.
At the heart of a fruitful relationship lies genuine honesty, and transparency. Investors appreciate being kept in the loop about the company’s progress, challenges, and even setbacks. When sponsors treat their investors with transparency, even during the tough times, it establishes a foundation of trust that is invaluable. This trust, in turn, acts as a resilient bond, withstanding the turbulence of choppy markets and uncertain times.
In an ever-changing business environment, not every decision may lead to immediate success. However, when they are candid about their actions and the reasons behind them, investors gain insight into the thought process, fostering a sense of involvement and collaboration.
By considering your investor community as true partners, you’ve taken the steps to cultivating appreciation and trust. When investors feel valued and respected, they are more likely to remain committed and loyal in the long run. This trust and loyalty, like compounding interest, can yield significant returns, both financially and in terms of business partnerships.
When reality seems grim, the investors who truly appreciate the open and honest approach will stand by the your side. These are the investors who recognize the intrinsic value of transparency and recognize that challenges are a natural part of the business journey. As the partnership weathers storms together, the bond strengthens, and the chances of emerging successfully increase.
A business is not merely a collection of products or services; it is a reflection of the values upheld by the people who run it. Treating investors as partners involves not only aligning business values with success but also integrating personal values into the business ethos.
Entrepreneurs who operate with integrity, ethics, and a commitment to the greater good will attract investors who share the same values. This alignment creates a harmonious partnership, where the collective pursuit of shared goals becomes the driving force behind every decision and action.
Communication is the lifeblood of any successful relationship, and this is no exception. Honest and frequent communication is the thread that weaves trust, transparency, and alignment together.
During turbulent times, it becomes even more critical to communicate openly. As markets fluctuate and uncertainties arise, investors appreciate being kept informed about the business’s strategies, potential risks, and contingency plans. Regular updates, whether positive or challenging, demonstrate a commitment to the partnership’s growth and success.
Adhering to the core operating fundamentals of honesty, transparency, communication, and openness does more than just foster strong relationships with investors. It also helps discern between valuable partners and those who may not fully align with the sponsor’s values and vision.
Not every investor may appreciate this approach, and that’s perfectly fine. In fact, entrepreneurs are better off without investors who do not resonate with their values. By attracting like-minded investors, the partnership becomes more cohesive, making it easier to weather storms together and seize opportunities for growth.
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The bottom line is, treating your investors as partners is not just a lofty ideal; it is a tangible strategy for long-term success. The power of openness, honesty, and transparency creates a foundation of trust that can withstand even the harshest of challenges. When personal and business values align, the partnership becomes more than a financial arrangement; it becomes a shared pursuit of common goals. Communication serves as the glue that binds the partnership, fostering a sense of involvement and shared responsibility.
By following these core operating fundamentals, you can not only build genuine trust but also attract the right investors while weeding out those who may not align with their values. In this way, the partnership becomes a powerful force driving growth, innovation, and success in both good times and bad. So, the next time you think about your investors, remember that treating them as partners can be the key to unlocking a prosperous and fulfilling journey together.
Important Disclosures: www.hlcequity.com is a Website owned and operated by HLC Opco LLC (“HLC Equity”, or “HLC”, or “we”) By accessing the Website and any pages thereof, and any general HLC Marketing Material, you agree to be bound by the Terms of Use and Privacy Policy, as each may be amended from time to time. Furthermore, HLC is not a registered broker, dealer, investment advisor, investment manager or registered funding portal. Nothing contained in this Website or Marketing Material constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Any such offer or solicitation will be made only by means of an offering memorandum and organizational documents (collectively, the “Offering Documents”). This Website and Marketing Material excludes material information detailed in the Offering Documents, including, but not limited to, risk factors. Investors may not rely upon the information set forth herein and should only make a decision to invest based solely on the information provided in the Offering Documents. Furthermore, information regarding HLC’s investment opportunities are intended and available for US Accredited Investors only (criteria HERE). HLC urges potential investors to consult with licensed legal professionals and investment advisors for any legal, tax, insurance, or investment advice.
The information on this Website and Marketing Material may include historic results of certain investments made by HLC; however, past performance is no guarantee of future results. Historic returns may not reflect actual future performance, may not reflect potential deductions for fees which may reduce actual realized returns. Investors are advised that any investment with HLC may experience different results from those shown. All investments offered by HLC involve risk and may result in loss.
Some of the statements contained on the HLC Website and Marketing Material may include forward looking statements that involve risk and uncertainty. Sentences or phrases that use words such as “expects”, “believes”, “anticipates”, “hopes”, “plans”, “may”, “can”, “will”, “projects”, and others, are often used to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Such statements reflect HLC’s current opinion and are designed to help readers understand HLC’s thinking. By their very nature, however, such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Moreover, past performance is no guarantee of future results, therefore no guarantee is presented or implied as to the accuracy of specific forecasts, projections, or predictive statements contained herein.
Although HLC believes that the expectations reflected in the forward-looking statements are reasonable, guarantees of future results, levels of activity, performance or achievements cannot be made. Moreover, neither HLC nor any other person or entity assumes responsibility for the accuracy and completeness of forward-looking statements. Neither HLC nor any other person or entity is under any duty to update any of the forward-looking statements to conform them to actual results.
The information on this Website and Marketing Material contains a preliminary summary of the purpose and principal business terms of the investments offered by HLC. This summary does not purport to be complete and is qualified in its entirety by reference to the more detailed discussion contained in Offering Documents. Further, the overviews presented on the HLC Website and Marketing Material do not constitute an offer to sell or a solicitation of an offer to make an investment herein. No such offer or solicitation will be made prior to the delivery of Offering Documents relating to such investment. The information on this Website and Marketing Material does not constitute an offer of, or the solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.
The landscape of urban life is undergoing significant transformations driven by a multitude of factors, including changing priorities in a post-pandemic world. From shifting work dynamics to the rise of the caring economy and the renewed emphasis on outdoor spaces, cities are adapting to meet the evolving needs and desires of their residents. In this article, we explore the seven key dynamics that are shaping the future of cities and redefining urban living.
1. Redefining Urban Priorities
Traditionally, work was a primary driver for people to head into downtown areas. However, the pandemic has accelerated remote work and demonstrated that the city’s appeal extends beyond employment opportunities. As a result, cities now need to focus on creating vibrant spaces that prioritize parks, culture, and the overall environment. Revitalized shopping districts and a diverse range of amenities can attract residents and foster a sense of community.
2. Ensuring Safety and Security
Safety is a fundamental concern for any urban dweller. Ensuring the well-being of residents is crucial for attracting and retaining a diverse population. Cities must invest in effective security measures, including enhanced lighting, surveillance systems, and well-designed public spaces. Collaboration between law enforcement agencies, community organizations, and residents is vital to creating a safe and inclusive urban environment.
3. Emphasizing Walkability
In the pursuit of convenience and sustainability, walkability has emerged as a key factor shaping the future city. People increasingly seek cities that prioritize pedestrian-friendly infrastructure, such as wide sidewalks, bike lanes, and well-connected public transportation systems. Compact and mixed-use developments that integrate residential, commercial, and recreational spaces create vibrant communities where residents can live, work, and play within a walkable distance.
4. Promoting Affordability
The affordability crisis in many cities has reached alarming levels. To retain talent and foster diverse communities, city planners and policymakers must prioritize housing affordability. This involves implementing strategies such as mixed-income developments, rent control measures, and public-private partnerships to ensure that city centers remain accessible to a wide range of residents.
5. Rise of the Family Tech Sector
As the digital landscape continues to evolve, so do the needs of modern families. The rise of the family tech sector highlights the importance of a robust digital infrastructure within cities. High-speed internet access, smart city technologies, and reliable connectivity are essential for families to thrive in urban environments. By embracing technology and providing the necessary support systems, cities can attract and retain tech-savvy families.
6. The Caring Economy
With changing demographics and an increased focus on work-life balance, the caring economy has gained prominence. Health care, childcare, and elder care services are now key considerations for families when choosing a city. Urban centers that prioritize accessible and affordable healthcare facilities, quality educational institutions, and comprehensive support systems for families will be more appealing in the future.
7. Easy Access to the Outdoors:
The COVID-19 pandemic highlighted the importance of outdoor spaces and the connection with nature for physical and mental well-being. Urban dwellers now seek cities that seamlessly integrate the best of both worlds – vibrant city life and easy access to nature. Cities that provide green spaces, parks, bike trails, and nearby recreational areas offer residents the opportunity to enjoy the outdoors without compromising the amenities of urban living.
The dynamics reshaping urban life reflect the changing priorities and aspirations of residents in a post-pandemic world. Future cities need to embrace these shifts and adapt to the evolving needs of their communities. By prioritizing these, cities can create an environment where residents can thrive, fostering vibrant and inclusive urban centers that stand the test of time. As cities evolve, it is crucial for policymakers, urban planners, and stakeholders to collaborate and create sustainable and resilient cities that enrich the lives of their inhabitants.
Important Disclosures: www.hlcequity.com is a Website owned and operated by HLC Opco LLC (“HLC Equity”, or “HLC”, or “we”) By accessing the Website and any pages thereof, and any general HLC Marketing Material, you agree to be bound by the Terms of Use and Privacy Policy, as each may be amended from time to time. Furthermore, HLC is not a registered broker, dealer, investment advisor, investment manager or registered funding portal. Nothing contained in this Website or Marketing Material constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Any such offer or solicitation will be made only by means of an offering memorandum and organizational documents (collectively, the “Offering Documents”). This Website and Marketing Material excludes material information detailed in the Offering Documents, including, but not limited to, risk factors. Investors may not rely upon the information set forth herein and should only make a decision to invest based solely on the information provided in the Offering Documents. Furthermore, information regarding HLC’s investment opportunities are intended and available for US Accredited Investors only (criteria HERE). HLC urges potential investors to consult with licensed legal professionals and investment advisors for any legal, tax, insurance, or investment advice.
The information on this Website and Marketing Material may include historic results of certain investments made by HLC; however, past performance is no guarantee of future results. Historic returns may not reflect actual future performance, may not reflect potential deductions for fees which may reduce actual realized returns. Investors are advised that any investment with HLC may experience different results from those shown. All investments offered by HLC involve risk and may result in loss.
Some of the statements contained on the HLC Website and Marketing Material may include forward looking statements that involve risk and uncertainty. Sentences or phrases that use words such as “expects”, “believes”, “anticipates”, “hopes”, “plans”, “may”, “can”, “will”, “projects”, and others, are often used to indicate forward-looking statements, but their absence does not mean a statement is not forward-looking. Such statements reflect HLC’s current opinion and are designed to help readers understand HLC’s thinking. By their very nature, however, such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Moreover, past performance is no guarantee of future results, therefore no guarantee is presented or implied as to the accuracy of specific forecasts, projections, or predictive statements contained herein.
Although HLC believes that the expectations reflected in the forward-looking statements are reasonable, guarantees of future results, levels of activity, performance or achievements cannot be made. Moreover, neither HLC nor any other person or entity assumes responsibility for the accuracy and completeness of forward-looking statements. Neither HLC nor any other person or entity is under any duty to update any of the forward-looking statements to conform them to actual results.
The information on this Website and Marketing Material contains a preliminary summary of the purpose and principal business terms of the investments offered by HLC. This summary does not purport to be complete and is qualified in its entirety by reference to the more detailed discussion contained in Offering Documents. Further, the overviews presented on the HLC Website and Marketing Material do not constitute an offer to sell or a solicitation of an offer to make an investment herein. No such offer or solicitation will be made prior to the delivery of Offering Documents relating to such investment. The information on this Website and Marketing Material does not constitute an offer of, or the solicitation of an offer to buy or subscribe for, any securities to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful.
Andy Hagans is co-founder and co-CEO at WealthChannel. Get all of the episode details via WealthChannel here.
Princeton, Texas – March 10, 2023 – HLC Equity, a leading private equity firm specializing in real estate investment and management, has successfully refinanced Southgate Apartments, a 156-unit multifamily property in Princeton Texas into long-term debt. Originally a lease up investment, Southgate Apartments exceeded expectations by reaching occupancy much quicker than anticipated. This result, combined with foresight of capital market unease, enabled HLC Equity to pursue long-term debt in less than a year after taking ownership.
In the face of turbulent and unpredictable times in the market, HLC Equity’s proactive approach to secure long-term financing resulted in positive leverage, balance sheet health, cash flow, and the ability to make future distributions to our valued investors.
Daniel Farber, CEO of HLC Equity commented “Our firm has a wealth of experience navigating a variety markets, and we were able to proactively secure favorable financing for Southgate Apartments. Our internal team, along with Berkadia, was able to facilitate the deal. We are excited about the positive impact this will have for our valued partners and investors.”
“Fannie Mae rewarded HLC Equity for the strong lease-up of the property with long term, accretive financing that provides them with several years of interest only and a higher amortization than typically offered in the marketplace. Additionally, we were able to lock in the rate at a time when there was a drop off in the treasury which helped save on debt service costs and gives HLC Equity stability in a turbulent capital markets environment,” added Phil Brannigan, Director of Mortgage Banking at Berkadia.
About HLC Equity (www.hlcequity.com)
HLC Equity is a multi-generational real estate investment management company, with over 70 years of experience and an expansive real estate portfolio. Their entrepreneurial spirit of a startup is juxtaposed with institutional level execution. HLC Equity utilizes its real estate portfolio to carry out its mission of building thriving communities. For more information about HLC Equity, please visit www.hlcequity.com or email press@hlcequity.com
It’s tough out there. The CRE markets are facing perhaps the most challenging environment since the 2008 crisis, with tightened Fed policy and heightened geopolitical uncertainty providing a one-two punch to the CRE space.
While some onlookers are signaling that it’s time to head for the hills, we believe that the current moment presents significant opportunities for CRE investment firms, Family Offices, and most importantly- the investors we represent here at HLC Equity.
Let’s take a hard look at several CRE and MF challenges we may collectively face in the days, weeks, and months to come.
Private equity slowed significantly in the second half of 2022, in stark contrast to the period of unprecedented activity we saw from late 2020 through the middle of 2022.
This change was a result of widespread market disruption and uncertainty, largely driven by recent energy shocks, geopolitical chaos, the withdrawn debt market, and the twin dragons of rising interest rates and inflation.
Over the same period, PE volume dropped by 22%, compared to the same period 12 months earlier, and in most cases, has returned to the levels we saw before the COVID-19 pandemic. In light of record levels of dry powder- with US PE holding roughly $1.1 trillion, PWC expects the rise of more creative approaches to deploying capital, including all-equity deals, private debt placement, and minority investments.
They also see a broader recovery in activity, either as a result of the Fed reining in inflation or as a result of depressed asset values. Regardless of the long-term outlook, it’s clear that PE firms will be tested by the near-term investing climate.
HLC is currently weathering the storm, largely as a result of prudent decisions taken during the runup, but we are not immune to the winds of change dislocating the wider PE markets. With that said, this is not HLC Equity’s first downturn. Over our 70+ years in the markets, we’ve seen several severe declines, including the high-interest rate climate of the 1970s and early 1980s, the 2008 crash, and the steep decline we saw during the start of the pandemic. Our multigenerational long-term investment thesis, and ability to execute on a high level, has ensured we’re able to continue to deliver value for our clients- good times or bad.
Now, on to the question that’s probably at the top of your mind: what does the next year have in store?
First, we’ll start with some of the obstacles we expect to see in the year to come.
As Q1 approaches, the big question on everyone’s mind right now is:
We’re entering what is potentially the most challenging financing environment in recent memory- even taking into account the high rate atmosphere we saw in the 1980s.
Senior lenders lending on non-full stabilized assets want 7-8%.
The preferred equity and subordinate groups want somewhere in the range of 13-15%…so what does that mean for equity pricing?
In theory equity pricing, needs to be at 20% given current market conditions and interest rates, but that’s not what we’re seeing on the ground. We’re seeing a disconnect in the market- and we’re not seeing the tailwinds at our backs as we have for the past few years.
How do you price that? How do you plan against that? And how do you mitigate the negative effects – those are some of the questions we’re asking.
Up until now, negative leverage was offset by historical rent growth – at least 6-8% annually – on a renewal basis, rents are still sticking, but we’re also seeing significant challenges and softening rents- not just in the markets we serve, but nationally.
Despite challenges, with both broader markets and specific properties within our portfolio, real estate remains incredibly attractive compared to other asset classes- like equities, with some high-flying stocks down more than 70% from their peak- a number we’ve not seen anywhere in the RE space- even in the most impacted properties.
If you can buy and hold for a long period of time- you’re still probably going to do very well.
Every cloud has a silver lining, and one takeaway we’ve gleaned from our current market woes is that HLC’s long-term thesis continues to deliver value for our partners. If you can buy and hold for a long period of time- you’re still probably going to do very well.
A short-term focus might pay dividends- and it might not- at the end of the day, your gains and growth are at the whims of the market- that’s closer to gambling than investing. Conversely, a long view, with the right thesis, allows us to better withstand market tides and create and defend value over time.
The HLC Equity thesis is simple- we believe that a focus on core markets with attractive demographics and a healthy demand/supply ratio is the best way to protect and grow investor value.
Real estate is still a solid investment on a risk-adjusted basis- because of many of its historical advantages, like favorable tax status and its position as a shield against inflation, etc.
A lot of this is reinforcing the faith we had in our historical underwriting model- being practical and moving deliberately. That measured approach is paying dividends right now as the majority of our portfolio is enjoys fixed rate debt and consistent income growth.
Over the past few years, if something went wrong, you could employ the (at the time) awesome power of negative leverage and count on rents to continue to grow enough over time to cover you.
Leading experts in the multifamily space do expect some moderation of rent growth, although rents are still projected to grow at a higher rate than the historical average.
In addition, income growth will likely remain positive, with the Freddie Mac Multifamily 2023 Outlook forecasting a decline in property values, and positive gross income growth, with fundamentals rebounding, albeit slowly, in early Q3.
If you follow news in the P/E and CRE spaces, you’ve probably heard about some of the redemption issues at the Blackstone REIT, amongst others. In early December, the $69 billion dollar real estate fund for wealthy individuals gave notice that it would limit redemption requests– a move that many in the industry viewed as a potential “canary in the coal mine” for the broader real estate markets.
The news spooked investors, with the firm’s stock falling as much as 10% on the Thursday after the letter was published. Beyond the headlines, we’ve also heard of similar issues through the grapevine. There are a lot of challenges with fund structures, many of which were first made clear during this recent discovery phase.
These woes are not limited to the public markets. Private real estate firms are facing similar hurdles, with private partnerships having to start to call capital on projects- particularly if they are facing issues with floating rate debt. The inability to tie down debt costs and our current advanced inflationary environment are both major challenges faced by many private real estate companies right now.
However, there are strategies investors can take to not just survive- but thrive, during a market downturn. HLC Equity’s strategic plan for success in a down market includes:
-Mitigating the impact of rising interest rates through the strategic repositioning of assets
-Solidifying and protecting previous growth
-Embracing a holistic approach, with expense reduction, supplier and vendor management, and process improvement as equally important priorities for the HLC Equity team
Let’s look at some of the trends currently buttressing the HLC Equity portfolio and the multifamily market as a whole.
We believe demand for multifamily housing will continue to grow in 2023.
Despite softening conditions globally, we are seeing tremendous sustained demand for multifamily. Rising mortgage rates across the board have put a damper on the overall housing market- to the benefit of the multifamily sector.
Home sellers and home buyers are staying on the sidelines for two main reasons.
For buyers, it’s the fact that financing costs have gone through the roof compared to last year.
And many sellers are not yet ready to come to terms with the fact that their homes are probably worth a lot less than they were last year.
Hence, the decline in home sales and overall home-related transactions, like refinances. This is part of the reason we see demand for multifamily housing continuing to grow- people still need a place to live, and if they’re not buying, they’re renting.
Multifamily starts are also likely to decline significantly- restricting future supply and defending existing multifamily investors. Lower lending volume is leading to higher financing costs, which is curbing new projects. You’ll see less multifamily delivery on the market as a whole.
While we may see some projects come online in 2023-2024, due to the advanced/almost-built state of these projects, that is likely to slow to a trickle in 2025- largely due to the multi-year nature of the development and construction of a new multifamily property. Greenstreet and several other firms see new supply in 2025-2026 coming in at 1% of inventory- which is not enough to absorb all the coming demand for multifamily units.
We plan to meet 2023’s challenges head-on. Here’s where HLC and other owner/operators can find and defend value in the coming year.
Like everyone else, we’ll be impacted by rising interest rates. To mitigate any rate-related issues, we plan to follow several strategies, including:
-Reducing our total interest expense via refinancing
-A focus on revenue growth to create the conditions to refinance when the opportunity presents itself
-Implementing effective cost controls
We’ve had a good run these last few years- and it’s vital that we solidify that growth. This may be more challenging simply due to worsening market conditions, but there are several paths to protecting said growth.
Enacting more robust occupancy management will reduce our dependence on offering concessions, giving us the ability to bring renewals that are currently at a discount-to-market up, ideally resulting in net rent growth despite declining asking rents.
We’re also laser-focused on reducing expenses wherever possible. Our expense reduction strategies include (but are not limited to):
-Capping exposure to energy costs through long term contracts
-Property tax appeals where necessary
-Vendor evaluation and consolidation to achieve better pricing through economies of scale
The vast majority of the HLC Equity portfolio is fixed-rate debt- our properties are performing at a high level, and for the few where we do have challenges, we have people on the ground, managing them diligently, and we believe we’ll manage through the current challenging environment to produce solid results in the long term.
ChatGPT is the new AI text generation tool everyone in commercial real estate seems to be talking about. It appears to have virtually limitless knowledge and an uncanny ability to write humanlike sentences. However, practically speaking, how useful is ChatGPT and other AI chatbots for commercial real estate teams? Will they really save you time, or does the technology need to mature before it becomes a game-changer?
First, a preview. We gave ChatGPT the following prompt: “Write a 200-word social post about the best ways to boost the value of an apartment acquisition.” Here’s what we got:
Acquiring an apartment property can be a great investment, but it’s important to take steps to maximize its value. Here are a few ways to boost the value of your apartment acquisition:
Boosting the value of your apartment acquisition takes time and effort, but by implementing these strategies, you can increase the property’s income, reduce operating costs, and make it more attractive to renters. This can help you achieve a higher return on investment in the long run.
Now for the Cliff’s Notes version: Yes, ChatGPT is very powerful. Yes, it can probably handle big portions of your content needs, particularly if you want more basic, conversion-oriented text. On the other hand, ChatGPT is still far from perfect. It produces factual or grammatical errors fairly frequently, often emphasizes the key points of a subject to the detriment of the entire picture, and generally displays a relatively basic compositional ability. If you are building a reputation as a highly qualified professional in commercial real estate, ChatGPT should be used prudently, and probably fits best for the following tasks:
“From tenant interactions to our communication systems with our investors, the HLC Equity team is working on areas in which we can benefit from implementing AI into our daily operations. While we believe that nothing replaces human touch and interaction, we are confident that by implementing AI to execute repeatable tasks, our team members will be able to spend more time focused on high-value touch points to better serve our customers in meaningful ways,” said Daniel Farber, CEO of HLC Equity.
ChatGPT can be used for a million tasks, and like any real employee that can do a little of everything, there will be compromises to depth of expertise. When used specifically as a copy or content writer, our assessment is that the tool, as it is today, is about as sophisticated as a fairly competent, native-language, beginning writer with a great grasp of Google. You likely won’t be getting highly complex writing, but in general what is there will be solid. Unfortunately, it’ll still be surface-level. Don’t go in expecting ChatGPT to turn out expert-level content to power your blog.
AI text generators don’t actually know what they are writing. The data ChatGPT was trained on came from 2021, and the platform is not connected to the internet. Collectively, this means that it is difficult to get ChatGPT to write content with consistently accurate, attributable, specific information like rent or vacancy rates.
You also need to be prepared to screen for glaring mistakes. During our testing of ChatGPT we caught both large grammatical errors and factual inaccuracies in things like market descriptions and NOI calculations. In one case, while describing the transformation of a real-world city’s downtown area, ChatGPT took two different names for the same streetcar, and presented the information as if they were two separate transit options.
Errors like this are frequent enough that you’ll need to carefully proof everything that comes out, even if you’re satisfied with the overall tone and complexity. Open AI, the company behind ChatGPT, will likely offer the ability to custom-train a text generation model for your specific use case, but it is still unclear how costly this will be, and indeed how much benefit it will offer.
What about concerns that we’re slipping into a future where all sorts of writing is actually AI-generated? Here’s a follow-up question: Does it really matter, for commercial real estate professionals? Sure, you’ll need to double check the claims of the OMs you read, but you’re probably already doing that anyway.
ChatGPT and the new wave of AI tools are very much raising the bar for what this technology can do. It’s now possible to build amazing article skeletons, social content and even answer high-level research questions almost instantly. If you’re a commercial real estate investor, having an instant copywriter available 24/7 could be a paradigm shift when it comes to developing prospecting materials or property collateral. ChatGPT isn’t the only game in town, either. Competitors like Jasper are already out there. With time, competition will likely lead to refinement.
On the other hand, we’re still a very long way from being able to generate expert-level market commentary, property descriptions and online content with the push of a button. For the time being, at least, superlative writing quality will still take time, effort, and a human touch.
The ongoing challenges facing homeownership are placing strain on the real estate market, but demand for housing remains strong due to supply shortages. To address this issue, innovative rental solutions such as furnished rentals are gaining popularity as remote work becomes more prevalent and work/life standards have changed due to COVID-19. These flexible options offer a potential solution to the housing supply gap. Growth is expected to continue, so much so that in 2022 it is forecasted to account for $139 billion – and expected to grow to $627 billion by 2032. Within the overall market are two broad segments driving growth and largely based on who pays for the stay – company paid and individual pay.
Jon Wohlfert, Managing Director for the HLC Equity-owned Layers brand, and a 35-year veteran of the flexible furnished rental industry comments, “Several years ago, most of the demand came from the “company paid” segment as companies were permanently relocating employees to other offices, sending interns and new hires to headquarters for training, or temporarily assigning employees to other locations to assist with projects. At that time, options were limited to extended stay hotels and corporate apartments. Now, with the growth of the global nomad and work-from-home, the individual-pay segment is gaining ground on the company-paid segment. Because of democratization through technology and the emergence of AirBNB-fueled flexibility, options are quite vast. Layers and its new technology offering, are here to help owner/operators capture more of this expanding marketplace.”
Layers, an innovative flexible furnished brand, has created a proprietary technology platform – Layers Prime – to deliver the individual pay customers directly to corporate housing and multifamily partners.
Layers has begun rolling this out to a few key partners, including Manilow Suites in Chicago and United Corporate Housing in Washington, DC. Layers Prime seamlessly and affordably delivers access to the previously hard-to-reach individual pay market. This solution allows owners to eliminate frivolous spending on resources to secure prospects and tap into a pipeline of qualified residents across 85 travel sites. The internal Layers team handles all set up, 24/7 customer support, and deliver reservations right to your front door.
For more information on Layers and Layers Prime visit layerslife.com/partners or email jon@layerslife.com
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HLC Equity CEO, Daniel Farber was recently a guest on the IREI Podcast.
“Daniel Farber, CEO of the real estate investment firm HLC Equity, is also the producer of the PropTech360 conference, whose latest iteration will take place in June 2023 in Tel Aviv, Israel. He joins the program to discuss the conference and the continuing evolution of the booming proptech space.”
Listen to the episode below!