Internship opportunity

We’re looking for a smart, motivated intern to come help us and, in the process, learn about the business.

Tasks will include everything from filing, to arranging deliveries of construction materials, to reviewing potential acquisition opportunities, to tagging along for meetings with architects, contractors, leasing agents, etc.

The harder you work and the more energy you have, the more you will get to experience.

Our last intern never left; we hired him right out of college and he’s been here ever since.

Pay is $15 / hour for 15-20 hours per week. Schedule can be flexible to accommodate school hours. We’re willing to work with your school so that you can get credit, if your school is willing.

To apply, send a short email to moses@adaptiverealty.com telling us a bit about yourself, why you’re interested in the internship, and the name of your favorite band.

Responses to increasing rents

Here’s how housing works in LA:

  1. Lots of people want to come here because it’s beautiful and there is economic opportunity
  2. The population increases
  3. Insanely restrictive zoning prevents developers from building enough housing to accommodate population growth
  4. Responding to pressure from tenants, the city controls rents on most units (via the RSO)
  5. New-comers and residents who want to move are therefore left to compete for the few apartments that are available each month
  6. Insane competition for those few units pushes rent for those units up

You could fix this problem in a few ways:

  1. Somehow prevent people from moving to LA… but that’s illegal!
  2. Remove rent control, which would cause rents to equalize (effectively, all units would be up for rent each month or every twelve months, spreading the impact of increasing demand across the entire rental stock, instead of concentrating it on the few units which are currently available)
  3. Build like crazy, which would increase the number of units available at any one time and thereby moderate prices

Since #1 is illegal, we are left with options #2 and #3. #2 would be deeply destructive to the social fabric of the city (because so many long-term residents would be instantly priced-out).

So #3 is the only option. Build baby, build.

Why I’m voting against Measure S and you should, too

If you’ve been driving around LA for the past few months, you’ve seen tons of “Yes on S” advertising.

Want to take a moment today to explain why I think Measure S is:

  1. Bad for the city; but
  2. Great for me

Before getting into the argument, let’s review what Measure S actually is. Among other things, it’s a two year moratorium on approval of any project that requires any kind of zone change. The idea is to stop big developers who donate money to politicians from making unfair profits building projects which exceed the standard zoning for their lots.

Sounds good, right?

Wrong. LA is chronically short on housing, due to the fact that roughly 50,000 people a year move here and our strict zoning code makes building sufficient housing for this influx of people almost impossible. The effect of our chronic under-building is that rents and sale prices climb much faster than inflation.

The only way to come closer to meeting the demand for new housing is to make it easier to build large apartment projects, particularly near mass transit (where the effect on traffic is muted). That’s because it’s far more efficient to add units in blocks of 100 or 500 than it is to do it in blocks of 10 (like we do).

But even the densest zoning we have (R4 and the rare R5) don’t let you build that densely, in part due to height and FAR limits conceived in an era when LA was basically a conglomeration of suburbs and not a true city.

In order to fit more housing on their lots, developers of very large projects generally go to the city planning department and, ultimately, the city council in order to get special spot zoning.

Measure S would restrict the planning department and city council from granting this spot zoning, making it way, way more difficult to get these large project built.

Fewer large projects -> slower rate of supply growth -> higher rents / prices. That’s bad for the city.

So, if Measure S is so bad for the city, how come it’s so good for me?

Well, I’m a housing supplier with a pretty large portfolio of units in desirable areas. To the extent that Measure S slows supply growth, I will continue to be able to raise rents at rates exceeding inflation. That’s great for me (and my investors!) because increasing rents take my projects from our target ~7% unlevered yields into the stratosphere.

But I’m going to vote against S, because my business is already good and I care deeply about the future affordability of our city for the vast majority of people. I hope you’ll join me.

Our latest 4plex renovation

Thought you guys might appreciate seeing pics of our most recently completed project, a very large 4plex which happens to be located next to another of our projects.

It’s obviously not the best time of year to be in lease-up, but the units are so special that I think they’ll go quickly.

_x9b1051 _x9b0966 _x9b0963 _x9b0962

Why buy in a rising rate environment?

Just had an interesting conversation with long-term partners of ours that I think bears repeating here.

They asked the following (paraphrased) question: Why are you buying now, when interest rates are definitely going up and, therefore, values will be going down?

The premise of the question is totally reasonable. When rates go up, prices go down, all things being equal. So it seems a little to nuts to buy, knowing that prices will be under pressure.

We don’t like to thinks of ourselves as crazy, so why are we moving forward with acquisitions?

The answer is two-pronged:

  1. We are not static, buy and hold investors. We do incredible things to buildings to create very attractive yield situations for our investors… typically something like 7% unlevered.
  2. We are long-term holders

What this means is that we don’t care overly much about rates, at least so long as they remain within reasonable bounds.

If they do go up, then we’ll either borrow less or, in an absolute disaster scenario, not borrow at all.

This will hurt the investors’ IRR (since it’s much better to refi all the money out and return it quickly, rather than have it stay in the deal).

Because it hurts their IRR, it hurts Jon and me, because we don’t participate in the upside until investors get their money back and the promised preferred return.

But, as long as investors are long-term holders happy to get 7% on their money while holding onto multifamily land in well-chosen neighborhoods in LA, things will work out just fine.

The lesson, as always, is to buy good stuff, make it even better, and avoid over-levering. Do that, and things work out.

*Note: Obviously the numbers above are averages, not guarantees. Every investment involves risk.