People are moving again

Bloomberg is out today with an article confirming that people are, once again, moving around the country.

This is a big deal for the real estate business.

The Great Recession essentially froze people in place, because they couldn’t sell their (underwater) homes and had little confidence in finding work in other cities.

This was really bad for our economy, which depends upon the labor market efficiently allocating workers to growing companies.

If workers are stuck in place and can’t chase higher pay in new places, companies can’t grow as fast as their demand would otherwise allow, reducing the potential GDP growth rate.

Now that people are starting to move for work again, LA (and the rest of coastal CA) needs to ask itself: Do we want to be the kind of place that can attract ambitious people from other parts of the country?

Right now, we can’t, because our housing costs are so high that the act as a barrier to (particularly younger) workers relocating here.

We urgently need to target transit-rich neighborhoods for radical up-zoning in order to bring tens of thousands of relatively affordable units onto the market, and thereby get our share of the hard-working, risk-taking labor willing to move here in search of better lives.

Who passes on a 7% unlevered deal?

We just cancelled escrow on a deal that I thought was pretty likely to end up a 7% unlevered return.

How do you pass up a deal like that, particularly in this market?

I know this is going to sound crazy to long-time readers, but, sometimes, it’s not about the numbers.

On this particular deal, the following factors came into play:

  • The physical layout of the structure, which would have made for decent-but-not-spectacular units
  • The very narrow width of the driveway
  • The fact that we’ve never done a deal in this particular neighborhood, so felt less confident than usual re the rents
  • The fact that, as a 4plex, we would be looking at a subpar (low LTV) refinance which would have required us to take recourse

Any of the above, in isolation, would probably have been fine. We could even have lived with 2-3 of them.

And I still believe we would have hit our numbers.

But the combination of the four issues gave Jon and me the creeps, and sometimes you have to go with your gut.

Heading to RealShare tomorrow

Tomorrow, am headed to RealShare, which is the premier LA multifamily event.

Why?

 

A huge part of doing deals is having the relationships necessary to get your offer picked over others’.

Those relationships generally get created during deals. The more you close, and the better you behave, the more brokers like you.

But it’s easy to forget about someone if you haven’t done a deal together in a while.

And I don’t want brokers to forget about me, particularly since any one of them might stumble across a deal tomorrow that has the potential to make my partners and me a lot of money.

So, I hit up RealShare every year to show the flag and remind the most active brokers in our market that we’re here, ready and able to buy stuff.

Maybe I’ll see you there.

Restaurants and bars and Historic Filipinotown

At Adaptive, we’re 100% focused on multifamily.

But that doesn’t stop us from observing what’s going on with other asset classes in our little submarkets.

And, recently, I’ve become convinced that there is are opportunities for smaller, food and beverage-driven retail along both Temple and Beverly, south of the 101 in Historic Filipinotown.

Driven by the wave of new construction and the rehab / repositioning of older homes and apartment buildings, the population of relatively affluent residents in that area is increasing rapidly.

Currently, there are few bars / restaurants / performance venues that serve this new population – 1642, Crawfords, Tribal Cafe, Bootleg.

But I believe the neighborhood would support more, including both additional bars and more casual restaurants.

The downside to Temple and Beverly is that automobile-centered development overt the years has left both streets scarred by parking lots, making them less walkable than, say, Sunset in Sunset Junction or Echo Park.

But therein lies opportunity: There are plenty of larger, vacant commercial spaces that come with parking / room for outdoor space.

My guess is that there would be little community push-back, particularly if the proposed business(es) target a reasonable price point (think Red Lion, not Ostrich Farm).

We’re not the people to do this kind of thing, but the opportunities are DEFINITELY there.

In, out, and (possibly) back into the brokerage business

Regular readers of this blog have probably noticed a shift in our business here at Adaptive.

When I first started writing, roughly five years ago, we were knowledge-rich but capital poor. We knew a ton about buying, renovating, leasing, managing and selling apartment buildings from our experience doing 12 deals between 2008-2012 through Better Dwellings. But we lacked access to enough capital to take advantage of all of the opportunities we could see.

In order to survive this period, we did a lot of brokerage. Initially, it was just me. I brokered all kinds of deals, from condos to duplexes to larger apartment properties. When word of mouth and this blog brought in more business than I could handle, I brought on and trained sales agents to help.

Concurrently, we were doing tons of of fee development projects where we provided our expertise along the whole process of repositioning apartment buildings in exchange for cash fees. This is not a business we loved (because we had no ownership stake in the projects!) but the cashflow was incredibly important to us.

Also concurrently, we began to raise capital, initially in chunks of around $100k for discretionary investment funds and later via joint ventures where we partnered with wealthy families who provided all of the capital required for specific deals.

Along the way, as our assets under management grew, we de-emphasized our brokerage business. The reasoning was pretty simple: We could make more money from one small development deal than we could from overseeing several reasonably active sales agents… and we have the capacity to do 10-20 of those development deals at a time. And, on top of that, the brokerage business caused information leak, because our agents and (some of) our clients learned our model and copied it, competing with us for deals.

But now, we are considering re-building our brokerage business, in a slightly different form. Why?

Well, mainly it’s because we have a bunch of talented people working with us on leasing, etc. who deserve to have wider scope to make money as their skills and experience grow.

But it’s also because, at heart, we’re deal junkies who know a ton about buying and selling real estate in Los Angeles.

More to follow (maybe!).