The Jacksonville region is one of the most attractive MSAs in the country for multifamily development and investment. Its strong population and employment growth, plus rising income levels continue to drive demand. In fact, 2019 marked the fourth consecutive year that multifamily investment sales crossed the billion-dollar mark in the Jacksonville market. [i] And according to CBRE’s 2021 Market Outlook, Jacksonville is one of the Southeast metro areas that has responded the best to the economic challenges caused by COVID-19 and is consequently well-positioned for solid performance in 2021.[ii]

Attractive Lifestyle Drives Growth

Jacksonville is North Florida’s largest MSA with a population of 1.5 million and is the sixth-fastest-growing MSA in the country.[iii] From 2013 to 2018, Jacksonville’s population grew by over 10%, far outpacing the national average of 3.5%.[iv] According to Colliers International, the primary growth driver is in-migration, fueled by the region’s relative affordability, strong demographics, skilled labor pool, high quality of life, and the state’s business/tax-friendly attitude. EMSI, a labor market analytics firm, ranked Jacksonville as the #1 city for talent acquisitions last year, and Forbes named Jacksonville as the #2 best city for young professionals.[v]

It’s Where the Jobs Are

Bordering the Florida/Georgia line, the Jacksonville region is central to the booming Southeast, and naturally positioned for growth. According to the Jacksonville region’s economic development agency, one in every six jobs is in the health and sciences sector. The region’s healthcare landscape includes Mayo Clinic, a Baptist MD Anderson Cancer Center, the University of Florida Proton Therapy Institute, and cutting-edge medical companies including Medtronic, McKesson, Availity, and Forcura.

In addition to healthcare, job growth is found in manufacturing, logistics, financial services, and technology. Jacksonville is now home to over eighty national/divisional headquarters, three Fortune 500, and five Fortune 1000 companies.

Strong Multifamily Market

Colliers International reported that the Jacksonville multifamily market continued its strong record of growth in the final months of 2019—with Q4 marking the 19th consecutive quarter that overall multifamily occupancy remained above 94%.[vi] And Mashvisor, in its review of top Florida multifamily markets, ranked Jacksonville #4, with a multifamily cap rate of 2.0%. [vii]

Resilient Multifamily Market

According to YardiMatrix, the Jacksonville metro area ranks #3 in terms of investment activity, with 11 deals closed in the first four months of 2020 for a total of $349 million, up 50 percent from the same time last year.[viii] By year’s end, developers are projected to deliver more than 3,000 units in Jacksonville, but that will depend on the overall impact that the pandemic has on construction activity. Early indications are that the region’s construction sector remains strong, with Jacksonville being the only MSA in Florida to show a rise in construction employment between March and April, the height of the pandemic shutdown.[ix] CBRE, which cited Jacksonville as one of the best opportunities for achieving expected revenues and seeing solid market performance in 2021, also noted that multifamily has weathered the 2020 recession better than most property sectors and is looking at a quicker rebound next year. [x]

The Opportunity

Lloyd Jones, LLC has extensive experience as an investor, owner, and manager in the Jacksonville multifamily market. We have worked with investors to find the right multifamily property to generate the best possible returns for four decades, through numerous economic cycles. If you are looking to capitalize on multifamily opportunities in the Jacksonville market, please let us know. To learn more, visit https://www.ljasl.wpengine.com/

[i] https://www2.colliers.com/en/research/jacksonville/q4-multifamily-report-2019

[ii] https://www.cbre.us/research-and-reports/2021-US-Real-Estate-Market-Outlook-Multifamily

[iii] https://jaxusa.org/tools-resources/rankings/

[iv] https://www.globest.com/2020/02/11/jacksonvilles-multifamily-sales-cross-1b-mark/

[v] https://jaxusa.org/industry/headquarters/

[vi] https://www.globest.com/2020/02/11/jacksonvilles-multifamily-sales-cross-1b-mark/

[vii] https://www.mashvisor.com/blog/how-to-find-multi-family-homes-for-sale-in-florida/

[viii] https://www.multihousingnews.com/post/top-5-florida-markets-for-transaction-activity/

[ix] https://www.jaxdailyrecord.com/article/jacksonville-only-area-in-state-to-show-a-rise-in-construction-employment-between-march-and-april

[x] https://reintelligent.com/cbre-outlook-quicker-rebound-expected-for-multifamily-in-2021/

Chris Finlay, CEO of Lloyd Jones LLC, shares his view on trends in elderly housing investment, the firm’s strategy and future plans. He also predicts how technology will impact the sector.

by Beata Lorincz
Lloyd Jones LLC is a real estate investment, development and management firm that specializes in multifamily and senior housing throughout Florida, Texas and the Southeast. The company focuses on independent living and age-restricted facilities (ILFs), as opposed to communities that include a medical component, such as assisted living facilities (ALFs) and memory care (MC).

According to the National Investment Center for Seniors Housing & Care (NIC), senior housing occupancy in the U.S. averaged 87.9 percent in the second quarter of 2018, representing an eight-year low. Multi-Housing News reached out to Lloyd Jones CEO Chris Finlay for further insight on the senior housing market.

What do you look for in a senior community?
Finlay: Ideally, for existing assets, we look for properties 10 to 20 years old that we can acquire at substantially below replacement value, then improve or redevelop them so that they are competitive with new product. Unfortunately, very few of these opportunities exist. Consequently, our focus is on ground-up development, where we can create an active senior community designed specifically to our specifications—and to the expectations of our residents.

What are the latest trends in senior housing?
Finlay: More and more seniors are renting by choice. They are looking for lifestyle flexibility as well as freedom from taxes and household/yard maintenance. And they like being around like-minded friends, in a socially active and healthy-lifestyle-focused environment.

What are the greatest challenges in owning senior communities?
Finlay: Getting too attached to your residents. Our senior residents are wonderful. They are great to work with and so appreciative of the opportunities our communities provide.

Research shows that senior housing occupancy hit an eight-year low of 87.9 percent in the second quarter of 2018. What can you tell us about this drop? How does this impact the sector?
Finlay: Fifty-five-and-over occupancy is over 95 percent and ILFs are at 92 percent. ALFs/MC are overbuilt in nearly all major markets. We just got back from a seniors conference and our strategy was absolutely confirmed. This is where they’ve headed and will be staying for a long time and thanks to technology, many seniors may never have to go to an ALF/MC or skilled nursing facility (SNF).

What are your predictions for the senior housing market going forward?
Finlay: I see less demand for assisted living and memory care. With all the technology advances, seniors can avoid institutional facilities and stay independent for much longer.

Which are the most active multifamily markets at the moment?
Finlay: Jacksonville and Daytona are two of the hottest markets in Florida. We also like Houston and Fort Worth, Texas.

What are your predictions for the market?
Finlay: I think we have a few more years in this cycle, but demographics will continue to be positive for our industry for a very long time.

What can you tell us about the company’s strategy going forward?
Finlay: We are not planning to expand to any new markets. Our strategy is to focus on 55-and-over independent senior living, which is still doing very well.

Click here for the full article

Lloyd Jones Capital’s purchase of The Westcott Apartments marked its second purchase in the market in less than a year. The Miami-based real-estate private equity firm paid $57.8 million for the 444-unit garden-style apartment complex in Tallahassee, Fla., expanding its footprint in multifamily assets located primarily in Florida, Texas and the Southeast.

Lloyd Jones, which specializes in the multifamily and senior housing sectors, was launched just four years ago, but its principals have been active in the industry for 38 years. The firm’s core strategy is to invest in cash-flowing assets that are undercapitalized or poorly managed and therefore offer value-add opportunities.

Lloyd Jones acquires, improves and operates multifamily assets with a holding strategy that ranges from three to 10 years, depending on the needs of its investors, which include institutional partners, family offices, private investors and its own principals.

Despite headwinds faced by multifamily—such as rising interest rates and construction costs as well as concerns about oversupply in some markets–Chris Finlay, chairman & CEO of Lloyd Jones Capital, remains bullish on the sector.

“It’s absolutely the best asset class to invest in, primarily due to demographics,” he said. “You have 75 or 80 million Millennials, and about a third of them are still living with Mom and Dad, so there’s a huge untapped market. On the other side of the spectrum, you have the Baby Boomers, about a third of whom are renting now, and every indicator seems to show that percentage is going to increase as they get older.”

Finlay said he’s not concerned about an oversupply of apartments, an issue he feels has been “exaggerated.” Due to high construction costs, most of the new supply coming online is Class A, he said, but his strategy is to focus on what he calls “market-rate workforce housing,” or housing that’s affordable to a median-income family. Since there’s little new workforce product in the pipeline, Finlay is confident that Lloyd Jones is transacting in a niche that will lead to good returns.

MARKET FUNDAMENTALS

Tallahassee is the state capital of Florida, and the multifamily market there is stable, with further growth projected. According to Yardi Matrix, in the second quarter of 2018, monthly rents averaged $1,173, up from $1,088 in the second quarter of 2016. Yardi forecasts average monthly rents to increase to $1,347 by the end of 2023. Occupancies have been holding steady, at 94.6 percent in the second quarter of 2018 and forecast to rise slightly to 94.8 percent by the end of 2023.

Unit in The Westcott Apartments

“The supply/demand balance is very good there,” Finlay said. “It’s an extremely stable market because the state government is there, and irrespective of the economy, that always chugs along.”

In addition, there are two major universities in Tallahassee—Florida State University and Florida Agricultural and Mechanical (A&M) University—that drive both the student housing and off-campus multifamily markets.

“Tallahassee is one of those markets that don’t boom but they don’t bust,” Finlay said. “It’s just a nice progressive growth—reasonable growth that you can count on.”

Other experts agree. “The Tallahassee market has seen consistent growth over the last few years, both from a value-appreciation standpoint as well as rent growth and stabilized occupancy,” said Jad Richa, managing director of Capstone Apartment Partners in Tampa, who handles investment sales.

Richa said that every deal he’s sold recently in the area “has some value-add component to it.” Cap rates on closed deals range from 6 to 7.5 percent, he said, attracting investors priced out of gateway markets that are “chasing yield” in Tallahassee.

THE DEAL

The Westcott Apartments is a 444-unit Class B+ property located at 3909 Reserve Drive, just five miles from the state capital building. Most of the apartments were built in 2000 (300 units), with an expansion completed in 2005 (144 units). The floor plans include one-, two- and three-bedroom units. Rents at the time of acquisition ranged from $950 to $1,250, and the occupancy rate was about 93 percent. Finlay said the trailing cap rate was 5.5 percent.
“It’s a great asset in a great location,” he added. “It’s in an area of Tallahassee that we see a lot of expansion happening, so there’s still room for growth. And it’s very easy to get to downtown.”

Public records disclose that Lloyd Jones, which took title to the property in the name of an affiliated entity named LJC Westcott LLC, paid $54.6 million for the property. The $57.8 million purchase price reported by the company represents its total investment, including its anticipated capital expenditures and rehab costs.

 

The Westcott Apartments Amenities

Finlay said he was presented with the opportunity by the listing broker, Jones Lang LaSalle’s Capital Markets Group, which also arranged a $40.3 million 10-year floating-rate mortgage through Freddie Mac on behalf of the buyer. The seller was Irvine, Calif.-based Oaktree Capital, and the deal took about 90 days to close.

The prior owners invested $4.8 million in capital improvements such as landscaping, playground updates, exterior painting, two clubhouse remodels, two fitness center upgrades and unit upgrades. In line with its management strategy, Lloyd Jones plans value-add upgrades and improvements to The Westcott’s existing amenities, which include two swimming pools, two fitness centers, playgrounds and tennis courts.
Finlay said he’s spending some $7,000 per unit to upgrade about a quarter of the units, adding granite countertops, tile backsplashes, stainless-steel appliances, vinyl-plank flooring, and washers and dryers—what Finlay calls “a standard upgrade package typical in a value-add strategy.” Although the program hasn’t been implemented yet, plans call for an average $125 rent premium for upgraded units.
After improving the units, repositioning the project and raising rents, Finlay expects to sell. “This will probably be a five-year hold,” he said. “The strategy is to do the improvements and try to operate the property more efficiently and then position it to sell in five or seven years.”

CRITICAL NEED

The Westcott is just one example of Finlay’s strategy to capitalize on the critical need for workforce housing in the United States. According to the Joint Center for Housing Studies of Harvard University’s “The State of the Nation’s Housing 2018,” nearly one-third of all U.S. households paid more than 30 percent of their incomes for housing in 2016. For renters alone, however, the cost-burdened share is 47 percent. And of the 20.8 million renter households that are burdened, some 11 million pay more than half their incomes for housing and are severely burdened.

“What we focus on is something that differentiates us from a lot of investment firms,” Finlay said. “We focus on the affordability of workforce housing.”

He added that the firm’s first-year projected rents at The Westcott are at 25 percent of the median income for Tallahassee. “HUD basically stipulates that 30 percent is the guideline, and anything above 30 percent is considered rent-burdened,” he said. “We’re not even close to that 30 percent. We’re providing great housing for workforce families in that market when all the new stuff is unaffordable.”
by Robyn A. Friedman

Click here for the full article

Before you entrust your funds to a real estate investment partner, ask some questions.
First: Is your real estate investment partner an Allocator or an Operator? There is a big difference.
Allocators distribute capital on your behalf to Operators. Allocators seek the best operators and invest, on your behalf, in whatever funds and deals operators bring to them. Allocators make sense if you are a pension fund (or similar) with no expertise in real estate investment. You are basically outsourcing that function and knowledge; however, it comes at a cost. You have no input in asset selection or fund strategy. And of course, the Allocator charges fees. This adds an additional layer of costs to you, and these fees come out of the investment thus reducing your returns. An Operator, on the other hand, is the preferred solution if you have the resources to analyze a specific fund or an individual deal. If you invest directly with a real estate operator, you will not only save a layer of expensive fees, but also get to choose a fund investment strategy, (or particular asset), its geography, investment term, and even the potential returns. But be careful how you choose an operator. They are not all the same.
Six questions you should ask your operator:

  1. Focus. What asset class do you specialize in?

If the answer is “retail, industrial, and student housing…” Run! An operator must be an expert in a specific asset class.

  1. Market. What markets do you specialize in?

The same applies to markets. A real estate operator must have a physical presence in the target market to really understand its nuances and trends.

  1. How long have you been in business? In the specific asset class? In the specific market?

Experience is priceless.

  1. How many economic cycles have you experienced? How did you weather the market crashes of early ’90s and ’08?

Real estate is great while the market is booming. Does your operator know what to do in a crash?

  1. Who manages your investment properties? Do you outsource to a 3rd party management company?

There is no substitute for your own, on-site management of your assets. As a wise farmer once told me, “The best fertilizer is the farmer’s foot on the soil.” This applies to property management, as well. You must have your foot – and your hands, eyes, and ears — on the property, at all times. The 3rd party manager has no skin in the game. It’s not his money at risk if there is a budget shortfall.
A word about property management: It is local, hands-on, and very difficult – and probably the most important aspect of a real estate investment. Your management team, especially at the site level, is critical to your property’s success. Few investors/operators pay enough attention to this fact. Let me assure you, it’s very, very difficult to assemble the right team. I can hire 1,000 financial analysts more easily than one, excellent on-site property manager. It’s that hard.

  1. How much of your own money are you putting in the deal?

Most sophisticated investors want to see the operator have money in the deal. It gives them comfort knowing that if the investment is not successful, the operator will share the pain.
At Lloyd Jones Capital, we always invest alongside our real estate investment partners, but, in fact, maintaining our good reputation and strong track record is what motivates us to succeed. With the transparency in the market today, an operator’s reputation is far more valuable than his money.
In summary, when choosing a real estate investment partner, ask these questions and remember:
Real estate is local and hands-on. Your partner should be, too.
Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real estate operator that specializes in the multifamily and senior housing sectors. Headquartered in Miami, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. Its affiliated management group is an Accredited Management Organization (AMO®) with a thirty-five-year history in multifamily real estate.

MIAMI –  Lloyd Jones Capital, a Miami-based multifamily investment firm, has acquired the Deerwood Park apartment community in Jacksonville, Florida. The property is located in the Deerwood Office Park on Touchton Road, home to 5.2 million square feet of office space and the largest employers in the MSA. Residents of Deerwood Park enjoy an address that offers a live, work and play lifestyle in Southside, one of Jacksonville’s most desirable neighborhoods.

The 282-unit acquisition brings the Lloyd Jones Capital multifamily portfolio to nearly 5,000 units spread across Texas, Florida, and the Southeast.

“We are elated with the acquisition of Deerwood Park. Jacksonville is a key market for us and Deerwood Park is a value-add asset with tremendous upside opportunity,” commented Chris Finlay, chairman and CEO of Lloyd Jones Capital. “Lloyd Jones Capital plans to enhance the property with a value-add program that we anticipate will yield rent and occupancy growth for our investors.”

Built in 2002, the gated property offers one-, two-, and three-bedroom apartments with highly sought-after amenities including attached garages, a resort luxury style pool, outdoor kitchen with gas grills and a dog park.

Deerwood Park will be managed by Finlay Management, the operations group at Lloyd Jones Capital.  Finlay Management is an Accredited Management Organization (AMO®) as designated by the Institute of Real Estate Management (IREM®) and has a 37-year history in the industry.

About Lloyd Jones Capital
Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.
Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals. For more information visit: ljasl.wpengine.com.

MIAMI –  Lloyd Jones Capital, a Miami-based multifamily investment firm, has purchased the Jackson Square apartment community in Tallahassee, the Florida state capital. The property is located at 1767 Hermitage Boulevard which connects Thomasville Road and Capital Circle, NE, just south of I-10. The 242-unit acquisition brings the Lloyd Jones Capital portfolio to 4,500 units spread across Texas, Florida, and the Southeast.

Says Chris Finlay, chairman/CEO of Lloyd Jones Capital, “This is a well-maintained property, with every amenity, in one of the best neighborhoods of Tallahassee.  We expect it to provide steady income and capital appreciation for our investors.”

Built in 1996, the property offers one-, two-, and 3-bedroom apartments; garages; and a modern clubhouse that includes an interior racquetball court.  Lloyd Jones Capital will continue a value-add program initiated by the previous owner. Finlay adds, “Our local teams scour Texas, Florida, and the Southeast for good investment properties; they are hard to find. Jackson Square is one of the best.”
According to Finlay, property management will be handled by Finlay Management, the operations group at Lloyd Jones Capital.  Finlay Management is an Accredited Management Organization (AMO®) as designated by the Institute of Real Estate Management (IREM®) and has a 37-year history in the industry.

About Lloyd Jones Capital
Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast.
Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.
Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals.
For more information visit:  ljasl.wpengine.com.

Wait…There’s a better solution.
Interest rates are plunging around the world; some are even closing below zero. And with negative and minimal inflation, the real interest rates are also pushing 0%.

A June 9th Financial Times article on negative rates stated “Lenders in Europe and Japan are rebelling against their central banks’ negative interest rate policies with one big German group going so far as to weigh storing excess deposits in vaults.” And some fund managers are telling clients to keep their cash “under the mattress”! Wow!
It’s understandable when you see real interest rates. A recent Wall Street Journal article included an interesting chart of selected government bond yields. To calculate a real interest rate, economists subtract inflation from the nominal yield – thus the economic struggle between yields and inflation. And on June 10th, the 10-year US Treasury yield fell to its lowest close in 3 years. (At this writing, after Brexit, the 10-year Treasury has fallen below 1.50%.)
lloyd jones capital interest rates chart
No wonder some banks are considering storing money in vaults! Now, compare those returns to direct multifamily investment. With a conservative 60% leverage, a good multifamily real estate investment can earn 8% returns with minimal downside risk. Plus, real estate is a strong hedge against interest rate changes and inflation.

Wise investors are beginning to recognize the value of multifamily real estate investment. In light of this (sometimes negative) interest-rate scenario, it’s time to assign a portion of your investment portfolio to solid multifamily real estate in high growth markets with, of course, conservative leverage.

Look at the Harvard University endowment. Its fiscal 2015 real estate portfolio was its highest returning asset class, at 19.4%. And Yale’s legendary endowment fund, which has consistently outperformed its counterparts, attributes its success to its alternative assets.
Duplicating Harvard’s results going forward is unlikely. But multifamily assets can produce easily an 8% yield and a conservative 16% IRR over the next seven-to ten-year period. And, with depreciation, they will provide a significant tax advantage for the individual investor.

Granted, these investments are not available on your Bloomberg terminal, unless you want to invest in REITS, which are like stock. Even REITS can produce 4% returns and offer liquidity, but the after-tax returns will be substantially less than a good multifamily direct investment. An experienced real estate investment specialist will guide you through the investment process. Be sure that firm has a strong operations arm. Operations is the key to property performance.
So what is the proper allocation? In my opinion, you need 20% in direct, multifamily real estate investment. (Harvard’s real estate commitment for 2016 is between 10% and 17%. Yale University allocated 17.6 percent to real estate in 2014.) After that, I’d suggest 40% stocks; 30% bonds; 10% alternatives.

In all my years (35 in this business) I have never seen such a disparity between yield on the 10-year Treasury and a quality multifamily asset. You’ll notice that I stress “multifamily.” I would be extremely cautious about retail and office investment. But nothing makes more sense than direct multifamily investment. The demographic demand is unprecedented. And everybody needs a place to live.

Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real-estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, manages and improves multifamily real estate on behalf of its institutional partners, private investors and its own principals. Headquartered in Miami, the firm has operations throughout Texas, Florida and the Southeast. For more information visit: lloydjones.wpengine.com.

MIAMI, Fla. – Lloyd Jones Capital, a private equity multifamily real estate firm, has acquired the Pendleton Park Apartment Villas & Carlyle Court Apartment Homes near downtown Orlando. The two properties offer a variety of studios, one-, two- and three-bedroom, one-story apartment rentals.

The new acquisitions are adjacent properties located on Curry Fort Road, close to highway access, schools, major universities, dining and retail stores. Select units will receive partial internal renovations including new cabinetry, plumbing and flooring, which will complete the upgrades installed by the former owner. Finally, select amenities will be upgraded, which include a new clubroom. “These are very well-maintained properties in an improving neighborhood,” said Chris Finlay, Chairman and CEO of Lloyd Jones Capital. “They will produce excellent cash-flow for our investors.”

The two acquisitions add 310 units to the company’s growing portfolio. The company anticipates another closing this month with several more in the pipeline. “Good properties are hard to find in this market,” says Finlay. “It takes patience, local knowledge, and diligent underwriting to recognize a good investment. Then it’s up to our operations team to ensure it performs well. Property management is one of the most critical aspects of multifamily investing. We are proud to have a successful history of operations with our partner, Finlay Management,” said Mr. Finlay, who is also the Chairman and CEO of Finlay Management, Inc.

ABOUT LLOYD JONES CAPITAL
Lloyd Jones Capital is a private equity real estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, improves and operates multifamily real estate in growth markets throughout Texas, Florida and the Southeast.

Lloyd Jones Capital provides a fully integrated investment/operations platform. Its property management arm partners with the investment team to provide unparalleled local expertise in each of its markets. Headquartered in Miami, the firm has offices throughout Texas and Florida. The firm’s investors include institutional partners, private investors and company principals. For more information visit ljasl.wpengine.com.

MEDIA CONTACT:
Samantha Savory
Director of Marketing/PR
Lloyd Jones Capital
Ssavory@lloydjonescapital.com
O: 305.415.9910

###

The West Coast is different. It’s entrepreneurial; it’s leading edge, and it’s full of big ideas. So I headed west to LA to pick the brains of the big guys – some of the smartest in the real estate investment industry. I visited three large real estate funds and two very large family offices. Here’s my take-away.

At Fund #1, the managing director was lamenting that over the past two years, they have acquired only one multifamily investment. In retrospect, he said he wished they had bought more, because it has been their best performer of all real estate asset classes.
When I asked why they had bought only one, he admitted he couldn’t get his head around the prediction that rent growth would be in the 3% to 5% range. Consequently he had presumptively marked his proforma down to a lower number, and the returns were not as good. Surprise!! In hindsight, even those aggressive assumptions have turned out to be conservative. In fact, in many cases, those rent growth numbers have been exceeded.

My take-away:

Obviously, last year he was premature in his concern about rent growth, but he may be right on target for the next several years. In my opinion, multifamily rent growth will be hard to maintain, especially in A and B product. That is, of course, unless – or until – inflation raises its ugly head.

There may be a little room left in C product, but that will hinge more on the ability to pay than on demand. Demand will be insatiable, but already, almost 50 % of all renter households are rent “burdened” (spending more than 30% of income on housing costs).

Major Fund #2 voiced concern that we’re at the top of the market. To confirm his position, he pointed out his office window to a 100,000 square foot spec home under construction. With a $500 million price tag, this home is the highest priced residence in the world. And it’s a spec building! It does make one pause.

Nevertheless, after recently raising substantial funds from one of the big California pension plans, he agreed that multifamily still makes sense. But he added a caveat: It is critical to underwrite the investment very carefully in order to weather any future downturn.

My take-away:

I couldn’t agree more. We need to go into our investments with the mindset to ride out any storm. The multifamily demographics are so overwhelming that I am certain any storm will be a short one, but like all storms, if you are not prepared, it can mean death.

#3 Fund is a multi-billion dollar fund that invests in all asset classes and all around the world. This fund is still very bullish on U.S. multifamily, but it has substantially reduced its return metrics to what is achievable in this market.

My takeaway:

How on earth do these guys expect to deploy all that capital? They, like so many other funds, are collecting billions of dollars for real estate investment. Everybody wants real estate. But where do they find enough assets – and good deals – for all that capital? This is not a distressed situation. Assets are for sale, but at what price? It’s hard to find a really good multifamily real estate investment – primarily because people are paying too much, or at least more than rents can justify.

Another thing we have to consider: A lot of major pension funds are now at the exit stage of previous investments made five to seven years ago. And they have been reaping huge profits. That capital will have to be re-deployed into real estate investments.

Family Office
Finally, we visited a billion dollar family office.
Real estate – specifically multifamily real estate – will be this group’s major investment focus going forward. In the past its investments were spread over all asset classes. This group confided that it now realizes that multifamily provides, without question, the best return metrics in terms of both cash flow and IRR.

In summary, it was a great week with the big boys. It’s always fun to learn how those West Coast brains work. I was happy to see that we are in agreement on most issues.

My final take-away is that my meetings confirmed what I have been preaching for some time:

• Look for C and B product in good neighborhoods. This is still the best possible real estate investment.
• Do not over-leverage.
• Remember that operations/property management is key.
• Be realistic about rent growth.
• Underwrite to weather any upcoming storm.
• Avoid the buying frenzy; be patient; and keep underwriting everything to find the right deal.
Then you will have a safe investment with excellent returns.

Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real-estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, manages and improves multifamily real estate on behalf of its institutional partners, private investors and its own principals. Headquartered in Miami, the firm has operations throughout Texas, Florida and the Southeast. For more information visit: lloydjones.wpengine.com.