What You Need to Know About S.F.'s Red-Hot Capital Markets
It's a competitive market out there when it comes to locking down deals, from increased foreign investment to escalating prices. One thing's for sure, whether you're buying small with local capital or looking to access that hungry Chinese or Middle Eastern money, investment dollars are flowing.
Veritas Investments CEO Yat-Pang Au owns and operates 4,000 units across a few hundred buildings in S.F. with a combined asset value of $2B. That's a large portfolio of properties, but he says he's in a "niche-y" space because he buys them 30 units at a time. He told attendees at Bisnow's recent Capital Markets Extravaganza event at The Fairmont Hotel that means large Chinese capital typically isn't partnering or competing for deals.
StepStone Global partner Brendan MacDonald says the vast majority of clients he reps on the real estate side come from Asia and the Middle East, with a growing interest to place capital in the US. But investing that capital is increasingly challenging when there's more liquidity and competition swirling. Post financial crisis, he says there's been a clear shift of investor sentiment to the larger, more established managers raising $5B funds. Those managers can't focus on transactions in the $10M to $50M range, so that's where he finds the most compelling opportunities.
Ackman Ziff principal Patrick Hanlon says 401 Harrison (Tower Two at One Rincon Hill) was vetted in China a month before it was taken to market stateside. That atypical tactic got Chinese investors up to speed because they knew the local players would bid right away. No Chinese investors bid on it, but his client did and won. It took three elements to do so, he says: having a fast closing, paying the highest price and plunking down the biggest deposit.
DLA Piper managing partner Steve Cowan notes time is of the essence when it comes to being the winning bidder. Panelists are seeing sales strategies run the gamut, with compressed due diligence periods and plunking down the highest price. But certain for-sale product like opportunistic and value-add buildings can make it harder to move quickly.
Realty Mogul VP Brian Esquivel claims his LA-based firm is the longest standing crowdfunding company and has locked down 60 partnerships to date. He's heard there are 100 other commercial real estate crowdfunding platforms in the US, but he thinks that's a gross overestimation. "It takes someone to build a website and call themselves a crowdfunding platform." There are few barriers to entry; the largest barrier is developing the crowd itself. He admits his closest competitor (RealtyShares) is here in S.F.
Other advice dished out on the panel: Pang says having discipline to acquire one building at a time is key. Last year he bought 50, and the firm has picked up 20 so far this year. Multifamily is still a hot asset class, he says, but cap rates have compressed and values have gone up so it's harder for folks to buy. His plan is to continue acquiring smaller buildings and build scale over time.