Three major real estate firms announced shake-ups to their leadership teams this week.

Vornado Realty Trust’s chief financial officer Joseph Macnow is stepping down from the role and will be replaced by Michael Franco, the company’s president, the real estate investment trust announced Tuesday.

Macnow, who has been with Vornado since 1981, will stay on as a senior adviser to the firm.

The shake-up comes after the REIT, headed up by chairman Steve Roth, reported a $103 million impairment loss on its retail joint venture during the third quarter, although it recorded a net gain of $187 million from sales at 220 Central Park South, its ultra-luxury condo. The company’s office portfolio has also been hurt as employees continue to work from home in the pandemic.

The firm will reduce its overhead costs by more than $35 million annually by reducing compensation and shedding some 70 jobs.

Another major commercial firm, Cushman & Wakefield, will also see its CFO step down: Duncan Palmer, who joined Cushman in 2014, is leaving the company, according to a regulatory filing with the Securities and Exchange Commission. His last day as a CFO is set for Feb. 28, 2021, and he will remain with the firm as a consultant until the end of next year. A Cushman spokesperson was not immediately available for comment.

Cushman suffered a net loss of $37.3 million in the third quarter, its second consecutive quarterly loss this year.

And finally, the Howard Hughes Corporation announced two changes to its executive leadership team: The company’s interim CEO David O’Reilly will now take on that role officially, and L. Jay Cross, who recently served as the president of Related Hudson Yards, has been tapped as the firm’s new president.

O’Reilly joined the firm as the chief financial officer in 2016 and was promoted to president in June. He became interim CEO when Paul Layne, who took the reins in October 2019, retired, according to the Houston Chronicle.

O’Reilly will continue to wear the CFO hat until a successor is identified.

“Watching him execute on the company’s strategic plan and pivot quickly to adjust to changed market conditions furthered our confidence in him as our new leader,” said Bill Ackman, the firm’s chairman.

Ackman also praised Cross’ “extraordinary development career” — which, along with Hudson Yards, includes leadership roles several sports teams and involvement in building stadium complexes in New Jersey, Toronto and Miami — noting that it aligns with Howard Hughes’ “vision to accelerate strategic development in its master planned communities, and build the cities of tomorrow.”

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Luxury spec home developer Nile Niami has been hit with multiple fines for large parties at his properties that violate Los Angeles coronavirus mitigation codes.

Niami, whose $500 million “The One” megamansion in Bel Air may soon hit the market, has received a third of the 15 total fines authorities handed out between April and August, according to the Daily Mail.

In October, LA. Police added two more written warnings for large gatherings at his properties at 9066 St. Ives Drive and 1369 Londonderry Place, both in Hollywood Hills.

Niami denies approving any of the parties and says he has cooperated with the city. The largest fine handed out for any illegal party this year was $1,050, the Daily Mail reported.

Niami owns at least luxury residential 10 properties across the city, most of them in toney communities in the Santa Monica Mountains. He has reportedly been renting out the mansions to young social media influencers, according to the report.

Beginning in August, the city started to cut power and water to homes that repeatedly hosted large gatherings, which officials say spread the virus.

The same month, a group of TikTok influencers had their power cut to their Hollywood Hills mansion. That group wasn’t connected to Niami.

The developer’s neighbors have complained about crowds of people — many not wearing masks — blaring music and arguing in the street late at night.

One of Niami’s properties — a 14,000-square-foot mansion in Hollywood Hills — received three fines for parties from mid-April to mid-May. The city also issued Niami a pair of fines for parties at another Hollywood mansion that took place over a three-day period in late May.

A neighbor of the 14,000-square-foot mansion told the Daily Mail that a party took place there last month. Daniele Aga said young people turned up around 11 p.m.

“A couple of hours later they were making a lot of noise,” she said. “I could hear them saying, ”Are we going to the next one? [DM] — Dennis Lynch

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Kushner Companies just put 10 Baltimore multi-family properties on the market, a portfolio that the firm’s president believes could sell for $800 million.

Kushner Companies president Laurent Morali said the company bought the properties nearly 10 years ago and is listing them because they reached the end of their investment time horizon. He said the decision to sell was part of an agreement with investment partners, whom he declined to name.

“In the perfect world I would keep them forever,” Morali said of the buildings.

Morali said he expects the properties, which total thousands of units, to sell in the first half of next year.

The apartments are being listed through three brokerages: Berkadia, CBRE and Newmark.

CBRE is marketing five properties: White Marsh, Cove Village, Fontana Village, Harbor Point Estates and Whispering Woods. Newmark is listing Pleasantview and Dutch Village, and Berkadia is listing Hamilton Manor, Highland Village Townhomes and Riverview Townhomes, according to Morali.

Last year, Maryland Attorney General Brian Frosh sued a company owned by the Kushner family that managed some of the Baltimore properties. Frosh alleged the company, Westminster Management, engaged in “unfair or deceptive” rental practices.

Morali previously said the allegations were “bogus” and politically motivated. He said the lawsuit would not impede the sales process.

“The lawsuits have nothing to do with the properties,” said Morali.

Kushner Companies was formerly led by Jared Kushner, who is now an adviser to President Donald Trump. The New York-based company has bet big on multifamily in recent years. It recently bought seven rental buildings from First Real Estate Investment Trust of New Jersey for $266.5 million.

The post Kushner looks to unload multifamily properties for $800M appeared first on The Real Deal Los Angeles.

Homebuyers celebrated Thanksgiving last week dreaming of new, pricier digs.

An index tracking applications for loans to purchase homes surged last week by 9 percent, seasonally adjusted, from a week earlier, according to the Mortgage Bankers Association’s weekly survey.

The MBA metric has been increasing for the past three weeks and last week’s average size for purchase loans hit a record high of $375,000. That loan size had not been seen at any time in the survey’s 30-year history.

“Housing demand remains strong, and despite extremely tight inventory and rising prices, home sales are running at their strongest pace in over a decade,” said Joel Kan, MBA’s head of industry forecasting, in a statement.

While that’s true, economists, including Kan, are also warning that the housing market’s historic recovery is skewed toward high earners who did not lose income in the pandemic, while those who lost jobs or have poor credit are increasingly locked out of the market. That could have dire consequences for the broader economy, they say.

The average rate for a 30-year, fixed-rate mortgage was 2.92 percent, unchanged from a week earlier. Jumbo rates ticked up to 3.19 percent, up one basis point.

Refinancing activity slipped during the holiday week with the volume of applications down 5 percent from the previous week. It is still 102 percent higher than it was the same week last year.

Refinancing applications, which account for 69.5 percent of the home-loan applications tracked by MBA’s index, fell, causing its overall market index to drop 0.6 percent, seasonally adjusted.

The weekly survey covers 75 percent of the residential mortgage market.

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Why, in the midst of a pandemic, would a 25-member board in Indianapolis vote unanimously to expand a convention center, adding up to $155 million to the public debt?

“We see convention tourism racing back in 2023,” Chris Gahl, senior vice president of Visit Indy, the nonprofit that markets the Indiana Convention Center and attractions such as the Indianapolis Motor Speedway, told the New York Times. “When the green flag drops, we’re going to be on the competitive edge.”

On their own, convention centers are not worthwhile to private developers — in fact, they are almost always money-losers — but local governments see them as a way to attract business tourism.

In 2016, the more than a quarter-million conventions and trade shows across the United States drew 84.7 million people, who spent a total of $110.4 billion, according to the latest survey by the Events Industry Council.

While a few convention centers have defaulted, many others are expanding. Georgia budgeted $70 million to double the Savannah convention center’s exhibition hall. In Cleveland, officials are looking for $30 million to upgrade an underused health technology center and add it to the Huntington Convention Center. Nearby an unbuilt $32 million convention center in Indiana, the county Capital Improvement Board just began working on a plan for a $20 million hotel.

[NYT] — Sasha Jones

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Hewlett Packard Enterprise Co. is moving its headquarters out of high-priced Silicon Valley to the Houston area.

The company disclosed its plan to relocate in its fourth-quarter earnings following a year of losses, highlighting its need to lower costs, according to the Wall Street Journal.

“I think what we are seeing here is a company that needs to seek cost savings wherever it can find them,” Charles King, president and principal analyst at Pund-IT Inc., an IT consultancy, told the Journal. “It’s a sad day for Silicon Valley and hopefully a bright day for HPE and its shareholders.”

However, CEO Antonio Neri said that the move, which resulted from a reassessment of where and how Hewlett Packard Enterprise works, will make it easier to hire minorities. Silicon Valley is relatively homogeneous and is the nation’s most expensive housing market, with simple ranch homes sometimes fetching seven-figure prices.

“Houston is also an attractive market for us to recruit and retain talent, and a great place to do business,” Neri said, adding that as one of the largest and most diverse cities in the country, “Houston provides the opportunity over time to draw more diverse talent into our ranks.”

The coronavirus pandemic, remote working, and rising costs affiliated with Silicon Valley have similarly led other companies in search of alternatives. Texas in particular has attracted more technology companies and startup development in recent years, offering lower taxes, less regulation and more affordable real estate.

Next year, for example, Tesla plans to open a factory in Austin, known for its tech community.

Earlier this year, Palantir Technologies, founded in the Bay Area in 2003, moved its headquarters to Denver.

[WSJ] — Sasha Jones

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UPDATED, Nov. 19, 10:10 a.m.: Smoke billowed across northern Colorado in late October, during what is typically the end of the wildfire season. The Cameron Peak Fire had torn through nearly 500 structures, most of which were homes.

In late September, California’s wildfires reached the Meadowood resort, a Napa Valley institution that was home to the award-winning Restaurant at Meadowood. The Glass Fire engulfed the eatery and other parts of the resort. It also scorched the Calistoga Ranch resort and the Glass Mountain Inn, a bed and breakfast, as it burned through nearly 67,000 acres and 300 properties.

For states along the Gulf Coast and up the East Coast, the growing threat is not wildfires but storms. Of the 29 named storms this year, 11 have become hurricanes.

And this Atlantic hurricane season has been the busiest in recorded history. In late August, Hurricane Laura destroyed parts of Louisiana and Texas. In early November, the final month of hurricane season, Hurricane Eta pummeled parts of Central America and then, as a tropical storm, knocked out power to tens of thousands and flooded the streets of South Florida and the Caribbean. There has also been a rise in tornadoes in states such as Tennessee.

“Out of all the various topics we consider, [climate change] is the most complex and the most important one,” said Aleksandra “Sasha” Njagulj, who leads environmental, social and corporate governance for the real estate investment management firm CBRE Global Investors.

The increasing frequency of climate disasters has a direct impact on commercial property investment around the world, with major asset managers and debt and equity providers now pulling back from markets that are most vulnerable to climate disasters and extreme temperature changes.

In the U.S. alone, roughly $1.3 trillion worth of real estate is at high or extremely high risk from wildfires alone, according to a recent Urban Land Institute report.

“Investors are mitigating risk at the [geographic] market level,” said Billy Grayson, executive director of the nonprofit’s Center for Sustainability and Economic Performance. “Assets can’t be taken in isolation.”

Across the country, more developers and owners are adapting their strategies by investing in design and infrastructure to make properties more resilient and reassessing their portfolios — including avoiding entire regions altogether.

“There’s a lot of discussion going on right now,” said Kevin Fagan, a vice president and senior analyst with Moody’s ratings group on commercial mortgage-backed securities.

“The scrutiny of climate change risk has increased substantially in recent years. If there’s a perceived issue in an area, that can have as much impact on values as the storms do themselves.”

Risky business

The increase in disasters has caused insurance rates to soar, raising costs for property owners around the world. The elevated risk makes buildings more expensive to buy as well.

“In South Florida, hurricanes are a part of our life, so it’s very easy if you live here to constantly think locally,” said Doug Jones, managing partner of South Florida-based JAG Insurance Group.

“What most consumers fail to realize is insurance companies are national if not global,” he added. “As we’ve seen these catastrophes happen around the world, they’re going to affect the overall pricing worldwide.”

In the past decade, extreme weather caused losses of more than $3 trillion globally. And just last year, 40 climate disasters each resulted in at least $1 billion in direct losses, according to a report from insurance giant Aon.

Insurance firms typically buy coverage from other insurers, in case they get more claims than they can cover. But even with reinsurance, some are still wiped out.

In late 2018, following California’s deadly Camp Fire, Merced Property & Casualty Company was liquidated after a state judge ruled it could not meet more than $60 million in outstanding liabilities in Paradise — a town of 26,000 people in the foothills of the Sierra Nevada Mountains. About 90 percent of the town’s 11,500 homes burned.

In Japan, prone to a variety of disasters, two typhoons last year accounted for $10 billion of insured losses, the Insurance Journal reported.

“How many insurance providers are going to continue to provide insurance? When you don’t have a diverse set of insurers, it can cause a looming concern,” Fagan said.

Moody’s recently began to include climate risk data in its ratings reports for CMBS deals. And the research firm Trepp, which is integrating data from the catastrophe risk company RMS into its platforms, has started to create risk scores for properties with securitized commercial loans.

Major asset managers have also taken note. In his annual letter to chief executives, BlackRock’s founder and CEO, Larry Fink, pledged to put sustainability at the center of his firm’s investment strategy globally. Portfolios that take a climate-integrated approach will create better returns for investors in the long run, he asserted.

“With the impact of sustainability on investment returns increasing,” Fink wrote, “we believe that sustainable investing is the strongest foundation for client portfolios going forward.”

Njagulj said CBRE Global Investors, which has roughly $110 billion in assets under management, audited its risk management process early last year with the goal of making climate change a bigger priority than before.

A number of factors play a role in whether the company pulls the trigger on a deal, she noted, including a city’s air quality, infrastructure, economy and transportation system. Njagulj declined to say which markets her firm prioritizes or avoids, but its recent acquisitions could shed light on that.

In September, CBRE Global Investors purchased an office building near Munich’s central business district and public transportation, and in March it bought a Netherlands rental portfolio in which all 916 units have a green energy label.

Mapping out the future

When the Urban Land Institute published an earlier report on climate change in 2018, institutional investors said they did not know how to price global warming and rising sea levels into their real estate portfolios, according to Grayson.

Fast-forward two years, and nearly all of a similar group of firms have started to make “asset-level decisions” using climate change analytics to score their portfolios. The global investors most recently surveyed by the nonprofit organization have pledged net-zero carbon emissions targets as early as 2030 and as late as 2050.

Local governments will need to keep up, too, or risk losing out on private investment.

Climate change and its effects are tied to a number of factors that investors take into account, including proximity to transportation, energy efficiency, elevation, government investment in infrastructure and other trends affecting property owners.

Municipalities throughout South Florida have been issuing hundreds of millions of dollars in bonds to deal with sea level rise by taking measures such as raising roads. Values of properties at higher elevations in Miami-Dade County appreciated faster than those at lower elevations, according to a Harvard University analysis.

In Key Biscayne, a barrier island south of downtown Miami, residents recently voted for a $100 million general obligation bond to mitigate the effects of rising sea levels and flooding. Some of the money will go to protecting the beaches and shoreline from erosion and installing and reinforcing underground infrastructure to withstand hurricanes.

Halfway around the world, Japan has already lost out on investment. Thirty-seven of the country’s real estate investment trusts — representing nearly $265 billion in commercial real estate assets — are exposed to the highest risk for typhoons, according to Four Twenty Seven, a climate risk data firm owned by Moody’s. That doesn’t include the risk of earthquakes and other disasters.

And across Europe, cities have been dealing with extreme temperature swings, floods, droughts and landslides.

The pandemic has clouded investors’ priorities and the impact of climate change on property values. In pockets of South Florida, for example, the demand for coastal single-family homes has skyrocketed since March, propping up residential real estate.

But over a two-year period, coastal Florida areas at high risk from climate change have underperformed the market, a National Bureau of Economic Research paper found.

“Covid complicates things because it creates some noise in the system,” Grayson said.

Florida as a model

When developer David Martin founded his Miami-based company Terra alongside his father, Pedro, in 2001, climate change was not top of mind. But now, resiliency is a key factor in the company’s strategy.

Martin, a former member of the city of Miami’s Sea Level Rise Committee, isn’t shying away from the waterfront.

The developer, who was raised in South Florida, has proposed a mixed-use redevelopment of the Miami Beach marina, with plans to invest $40 million in flood-risk mitigation, floating docks, sea wall enhancements, a public park with natural infrastructure and irrigation systems and a “blue” roof that collects water and gradually releases it.

Though the future of that project is now in question, as voters just rejected a ballot item that would have allowed the city to sell air rights to Terra for $55 million so the firm could build a luxury residential tower, Martin plans to work with the city to move forward.

Terra is also working with Crescent Heights developer Russell Galbut and partner New Valley on a nearby mixed-use project that includes a 3-acre green space along Miami Beach’s Alton Road. Canopy Park’s sustainability features will include a maritime hammock and a weather-based irrigation, water conservation and rainwater management system, as well as habitats for birds, bats, native bees and native plants.

Martin says he wants to “hack capitalism to solve society’s challenges.” As some developers decide against investing in South Florida, he is doubling down on the belief that the region will be an example for others dealing with climate change.

But for the investment to pay off, local governments and developers have to share the cost. Studies have predicted that every dollar invested in resilience will return $2 to $4 over the next five decades.

Walter Meyer, principal of Brooklyn-based Local Office Landscape and Urban Design, echoed Martin’s statements. Florida’s building codes are far stronger than those in other parts of the country and are a model for coping with climate volatility, he said.

“Miami has some of the highest urban winds, most intense flooding and rain of some of the cities on the planet,” said Meyer, who works with Terra. “If it works in Miami, it works anywhere else. Those rains, if they hit New York City, would cause billions of dollars of damage.”

Developer Jonathan Rose, founder of Jonathan Rose Companies, said his company has been climate-focused for two decades. The affordable housing developer and investor has properties in more than a dozen cities, from New York to San Diego to Seattle.

Rose said he hopes to grow in all of those markets, but declined to say which cities he avoids. (He has no projects in Florida.) Over the next five years, his company plans to build 2,500 new units and acquire another 7,500.

In Harlem, the firm is a co-developer of the Sendero Verde project, which will mark the nation’s largest certified “passive house” development. Passive building calls for high energy efficiency, indoor air quality and resiliency. Sendero Verde, which will include about 700 mixed-income apartments and 90,000 square feet of community space, will be much better insulated than the existing housing stock, including properties that have been upgraded to today’s standards, Rose noted.

“If the power goes out in the middle of the winter,” he said, “the temperature may just go down to the 60s.”

But Rose acknowledged that it’s getting “harder and harder” to insure properties and that his company is reexamining how it assesses climate risk. “There are more issues than just flooding,” he said. “There are a lot more vulnerabilities. The times are calling for a more rigorous assessment.”

Skyrocketing premiums

Rising insurance rates are one of the issues that California-based Ideal Capital Group is grappling with, said Kevin Conway, its director of acquisitions. The company owns more than 1,000 apartments in Southern California and has about $150 million of ground-up development in the pipeline.

“Insurance prices have gone through the roof in California due to the wildfires,” Conway noted. “Whether or not there are going to be more wildfires in California due to climate change, they have a direct and immediate impact on us.”

Some property owners decided not to rebuild in Paradise after the Camp Fire — the deadliest and most destructive in California history — tore through the small town in 2018.

But locating in more urban areas does not guarantee safety. Wildfires are creeping closer to cities.

Because of the scale and intensity of wildfires, companies are “more careful about where they develop,” Conway said. “When it comes to these massive infernos engulfing these towns, the only way to mitigate a risk is to not build in those areas.”

The post A challenge of biblical proportions: Developers brace for disaster appeared first on The Real Deal Los Angeles.

The Alabama Association of Realtors and the Georgia Association of Realtors are attempting to cancel the nationwide eviction ban.

The ban, issued in September by the Centers for Disease Control and Prevention, prevents evictions through Dec. 31 for renters making no more than $99,000 this year, or up to $198,000 for couples.

However, the National Association of Realtors and other housing groups say that such moratoriums cause “chaos” as they do not set aside funds for renters or property owners, according to Inman.

“In many cases, these landlords … are small business owners who have themselves suffered economic losses as a result of the pandemic,” the complaint states. “The Eviction Moratorium will cause landlords across the country to lose [$55 billion to $76 billion] in unpaid rent — and billions more if the Eviction Moratorium is extended into 2021.”

The lawsuit alleges that the CDC does not have the power to enact such a ban.

Other groups, such as the National Apartment Association, have filed similar lawsuits against the federal government in attempts to stop the ban.

[Inman] — Sasha Jones

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California received more than $1.3 billion in federal wildfire aid to help with widespread damage, but affected homeowners haven’t received any of the money.

Bureaucratic delays have held up distribution, as California officials drew up spending plans and the federal government reviewed them, according to the Los Angeles Times.

It took two years for the Department of Housing and Urban Development to completely sign off on $300 million in relief funds for 2017 fires, and only last week HUD signed off on $1 billion in aid for 2018 wildfires.

That money is meant to go toward building new housing for low-income renters, along with rebuilding people’s homes and infrastructure repairs. Another planning and review process is expected to start if the federal government signs off on further aid in response to damage caused from this year’s wildfires.

In early 2018, HUD determined that California’s housing department failed to properly monitor how it issued funding for development projects. But HUD officials also admitted that internal oversight issues delayed the approval of disaster relief funding.

The delays have left some people living in limbo.

Linda Adrain’s Santa Rosa home was burned down in the Tubbs fire in 2017, so she moved into a small apartment, according to the Times. Not long after, the now-80-year-old heard about plans to build a complex for low-income seniors on the former mobile home park where she lived.

She signed up for a unit, but the developers couldn’t break ground until they received funding from the federal government and still haven’t broken ground. [LAT] — Dennis Lynch

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With Black Friday foot traffic down 48 percent, travel restrictions tightening and some lockdowns back in place, it may seem like the holiday season is canceled. But it doesn’t have to be all doom and gloom.

Below, The Real Deal has a list of gifts that travel well even when you can’t. These presents are thoughtful and shippable, so they can bring your well wishes to clients who’ve escaped the city, colleagues stuck in the suburbs, or the family members you can’t travel home to see.

There’s no substitute for celebrating face-to-face, but there are clever ways to send someone a virtual hug or a reminder that you’re thinking of them.

Check out our staff picks below.

An upgrade from the classic candle

What gift do you get when you don’t know what to buy? A candle, of course. But you can upgrade this reliable go-to with one of something more thoughtful and more seasonal. Nest’s diffusers are safer, longer lasting, and include two holiday fragrances. Because your colleagues have enough candles.

The Best Apple Pie in NY

If social distancing meant your friends and family members missed out on pie last week, send one their way. These are homemade in Manhattan’s Hell’s Kitchen, but they’ll be perfect when they’re warmed up in a home oven.

A Thoughtful Bouquet

You can’t go wrong gifting flowers. If you usually bring a bouquet to your host at every holiday party, you can up your floral game with Urbanstems delivery. They’ll deliver the flowers fresh, in a tasteful vase, and with a celebratory balloon.

A Giant Chocolate Babka

There is nothing more New York than a giant chocolate babka, except for buying your giant chocolate babka and taking it to your great aunt’s for the holidays. You may not be able to visit your favorite great aunt this holiday season, but every aunt, uncle, friend, boss, client, or person with tastebuds will appreciate this confection from Oneg Bakery. Send it to someone you know is missing the city.

Libations for Zoom Celebrations

If you missed the liveliness that comes from one too many Thanksgiving dinner drinks, let the usual hosts know you were thinking of them. This Cabernet trio from Napa is a set of the perfect reds to be enjoyed during upcoming holiday meals, or Zoom parties. Or meetings. It’s the holidays, after all.

Famous Key Lime Pie

Send a little sunshine to the coworker you know is missing their annual escape to the tropics. Not subject to travel precautions or quarantining, this famous key lime pie, all the way from Key West, Florida, is sure to put a smile on anyone’s face.

Tasteful Teas or Coffee for a kick

Whether these turn into nightcaps after a virtual holiday party, caffeine on Christmas morning, or a boost to get through all these long winter days, these two drinks are perfect presents. The tea set comes with 40 options in a holiday-themed tea chest, and the gourmet coffee has four varieties of beans straight from a roastery in Rhode Island. Pick your poison.

The post These holiday gifts go the distance appeared first on The Real Deal Los Angeles.

The world was still feeling the aftershocks of America’s subprime mortgage crisis when Julien Haccoun landed his MBA and became a principal of his family office in South Florida. The country’s unemployment rate was stuck at about 9 percent, and the housing market had yet to recoup.

Rather than returning to his native France after graduating in 2011, Haccoun moved into his family’s second home in Miami, where he witnessed hundreds of properties being sold off in foreclosure auctions on a weekly basis.

Seeing an investment opportunity, he and his brother, Adrien, raised money from their family, developed software to analyze potential deals and spent about $30 million buying up distressed condos in South Florida. Those assets turned into rental properties, which they still manage today.

“It was really an amazing investment,” said Haccoun, who studied entrepreneurship at the University of Chicago Booth School of Business. He noted that the condo units would be worth about four times more if he were to sell now.

That was a key entry point for the Steinmauer Family, a french family office founded by Julien’s father, David, who made his fortune when he sold his computer memory company to a Chinese conglomerate in 2009. Steinmauer, the last name of another family member, was chosen to help maintain privacy. Over the past decade, the family’s real estate investments have grown to about 50 percent of its holdings.

Haccoun declined to give the total value of Steinmauer’s portfolio, which also deploys money through private equity, venture capital and the stock market.

Family offices, private entities that manage the financial affairs of the high-net worth, have been allocating a larger chunk of their money to real estate in recent years, according to financial data provider Preqin.

On average, their share of investment in real estate — including residential, industrial, office, hotel and retail assets as well as raw land — has grown to more than 20 percent this year, up from about 12 percent in 2015. For comparison, the share of family office investment in natural resources, which was at more than 10 percent five years ago, fell to 5.4 percent in 2020.

“From a contrarian perspective,” few took advantage in the wake of the Great Recession, said DJ Van Keuren, of Evergreen Property Partners, who specializes in family office real estate investments. “They were sitting on the sidelines,” he noted.

Now with the pandemic and economic downturn taking their toll on real estate, many family offices are looking for a fresh chance to buy at steep discounts. In hindsight, family offices realize “that they missed out on some really good opportunities,” Van Keuren said. “They haven’t forgotten that memory.”

This time, however, residential properties are far from the cause or conundrum, leading some to approach with caution.

Private family affairs

As of last year, there were more than 7,000 single-family offices, serving one family per business entity, overseeing total assets valued at $5.9 trillion globally, according to an estimate by the advisory firm Campden Wealth.

“There has been significant growth in the family office space over the last decade,” said Rebecca Gooch, Campden’s director of research, who added that the number of family offices in North America alone rose by more than a third between 2017 and 2019 and now sits at roughly 3,000.

But because they are loosely regulated and tend to keep their dealings very private, the exact number of family offices is hard to quantify. In the U.S., for example, most are not required to register with the Securities and Exchange Commission, as long as they limit their financial advice to their own family clans.

Family offices also come in various shapes and sizes, and understanding them has become increasingly vital for brokers, asset managers and other real estate players as the sector grows.

Dan Bsharat of the Westchester-based real estate investment firm Hudson Hill Partners said family offices are starting to play a more essential role as they invest more directly in properties. And many of them are able to ride out various cycles due to their “long-term investment horizons,” he noted.

At the same time, the odds are against high-net-worth families in the long run, given that about “70 percent of the wealth is lost by the second generation, and 90 percent is lost by the third generation,” Van Keuren maintained.

Now, more families that generated their wealth through other industries are parking their money in real estate, allowing them to “create and maintain true generational and legacy wealth,” on top of the many tax benefits, he added.

Even with some significant tax overhauls expected under a new administration, physical property has become increasingly attractive for family offices as stocks and bonds become less reliable, said Matthew Koelliker of M360 Advisors, a California-based investment management firm.

Stalled pandemic plays

But while many family offices are ready to pounce on discounted properties, opportunities so far have been limited.

Koelliker, who works with single family offices, said the distress opportunities he had “anticipated at the beginning of the pandemic are taking longer to play out.” He added that it would likely take another three to six months for many to materialize.

While there are certainly opportunities with hotel properties, which have been among the hardest hit during the pandemic, Van Keuren said family offices aren’t pulling the trigger as much as he had expected. “The amount of money that has gone into buying distressed hotels isn’t to the level that you would think,” he noted.

With the growing need for housing around the U.S., multifamily rentals still remain the preferred property type for the bulk of family offices, according to industry experts.

Just before the pandemic hit, Van Keuren surveyed roughly 120 family offices about their real estate investments. Nearly 80 percent said their portfolios included multifamily properties, followed by 57 percent with investments in office buildings. And when asked what types of real estate they would be interested in adding to their portfolio in 2020, the majority picked multifamily and industrial assets. (Most of the families surveyed picked more than one asset type.)

Haccoun said that, if anything, the pandemic has discouraged his family from investing in hotels. “We’ve been looking to invest in the hospitality sector for a long time,” he noted. “We haven’t done so yet. And I think, right now, we’re going to wait. We are not very optimistic in the near future. Coming back to normal will take time.”

Instead, Steinmauer’s real estate arm is developing a 70-unit workforce housing complex on a site about 20 miles south of downtown Miami. Additional developments include a shopping center in Texas anchored by a grocery store, and other projects in Europe where Steinmauer works with European families.

One emerging trend among family offices is to invest in real estate through debt rather than equity plays, said Richard Wilson, founder and CEO of the Family Office Club, a wealth management trade association. That allows the family offices to collect fixed interest payments without having long-term stakes in specific projects.

“More people want income coming in right now, and want to make sure that there’s steady return of capital to put it to the next opportunity,” Wilson said.

Since the onset of the pandemic, banks have pulled back on lending for many ground-up development projects, and family offices are stepping in to help fill the void, Bsharat noted. “We’re seeing more development projects that have lapses in capital … so that’s starting to happen to a degree,” he said.

Wilson said his organization’s members also have been busy with “blue wave planning,” trying to figure out what to do with capital gains and estate planning after Joe Biden proposed significant changes to tax laws on the campaign trail.

“There’s been a lot of planning going on over the last six months, just preparing for this moment,” Wilson said of the election. “A lot of it is around making sure that things get structured now versus [next year].”

Direct business

A growing number of family offices prefer to directly act as landlords or co-developers rather than pour their money into real estate investment trusts or mutual funds.

“In almost every one of our projects … we keep a certain allocation for family offices.”

One prominent deal grabbed headlines in October when Cascade Investment — the primary family office of Bill Gates — teamed up with Singapore’s sovereign wealth fund GIC to acquire stakes in StorageMart, one of the country’s largest self-storage chains. The deal was valued at about $2.7 billion, according to media reports. Cascade did not respond to requests for comment.

And though they may not technically call themselves “family offices,” some prominent real estate firms effectively play the same role as they directly invest their family wealth into their real estate holdings.

Rudin Management, for example, operates the blue-blooded Rudin family’s own real estate portfolio, including 36 residential and commercial buildings in New York. Bill Rudin, the firm’s co-chairman and CEO, declined to comment.

Silverstein Properties has a separate family office led by Lisa Silverstein, the company’s vice chairman and one of the daughters of its founding chairman Larry Silverstein.

But the Silverstein family office invests outside of real estate — in industries like technology — to avoid any potential conflicts, said Tal Kerret, president of Silverstein Properties and the husband of Lisa Silverstein. All of the family’s real estate investments go to the company’s own projects, he said.

More broadly, Kerret acknowledged that family offices are upping their stakes in real estate. And a handful have remained longtime partners over the years.

“In almost every one of our projects … we keep a certain allocation for family offices,” Kerret said, noting that those investors get the same terms as the company’s own family members.

“It’s more about the relationship than anything,” he added, “because financially, it’s easier to only deal with institutional investors.”

Collective efforts

While pandemic deals are still few and far between, according to industry sources, distressed condo projects in New York are gaining more attention from family offices.

Seth Weissman, a managing partner at the real estate investment firm Urban Standard Capital, said he’s putting together a bulk purchase of condos in a new development on the Upper East Side for his family office clients.

Before the pandemic, the development was priced at $1,750 a square foot, and Weissman’s family office clients are pooling their money to buy a bunch of unsold units at about $1,100 per square foot, he noted. Those units would be rented out until the price goes up to the point where investors could sell them at a profit. Weissman declined to give the property’s address because he said the deal hasn’t been finalized.

A growing number of family offices are teaming up to invest in those kinds of opportunities because they share the similar long-term investment horizons.

“They want to be working with people who say: ‘This is generational, and we’d like to be invested in things for the long term,’” Bsharat said. “So that’s often why they pool their capital together.”

That’s also been the case for Steinmauer, which teams up with other family offices to invest in real estate.

Haccoun said his family’s main objective is to prosper beyond the third and fourth generations, “which are the most difficult in a family office.”

“We are here on a long-term basis,” he said, noting that Steinmauer plans to stay invested in its real estate holdings for 10 years or more to help preserve the family’s wealth. “We keep on growing this part of the portfolio because we believe it’s an amazing asset to transfer to the next generation.”

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A week after it banned outdoor dining, Los Angeles County said it will provide $5.6 million in aid to help pandemic-affected restaurants.

The county will award up to $30,000 each to restaurants that will help cover employee payroll, business expenses, changes that were made to stay open and other expenses, according to the Los Angeles Daily News. It gives preference to restaurants that were providing outdoor dining as of Nov. 24, when the measure went into place.

It does not include properties in the City of L.A. and Pasadena.

It would be difficult to find a restaurant that hasn’t lost business because of the pandemic, given the continued ongoing struggles to contain the virus.

County restaurants have been able to operate at some capacity for most of the pandemic, but were hit with a gut punch recently, when authorities suspended outdoor dining. They are now subject to the strictest guidelines since the near-complete shutdowns this spring.

The county’s recent move to ban outdoor dining came in response to the sharp increase in the spread of coronavirus over the last several weeks. Restaurant owners and local government officials have sharply criticized the measure.

Pasadena broke with the county and is allowing outdoor dining.

The Beverly Hills City Council on Tuesday approved a resolution demanding the outdoor dining ban be repealed, according to CBS LA. It also directed city staff to explore options to establish its own health department to make policy independent of the county. [LADN] — Dennis Lynch

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The famous windmill house outside Amagansett where Marilyn Monroe and Arthur Miller hid out from the press in 1957 is on the market.

The 1830-built home at 64 Deep Lane is asking $11.5 million, according to listing in Realtor.com. The actual house was a real working windmill in a past life, and was converted to a home in the 1950s by the founder of the Fabergé perfume company, Samuel Rubin. It totals 1,300 square feet with two bedrooms and one bathroom. The home is on five acres.

There is also a studio and a two-car garage on the property, which isn’t fenced in from the surrounding wilderness. It’s not uncommon to see wild turkeys, deer and other local fauna around there, said listing agent Bobby Rosenbaum. The movie star and famed playwright reportedly would sneak off to the home from another one they rented nearby.

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Investment firm KKR & Co. is in talks to buy a portfolio of warehouses valued at more than $800 million, as a surge in e-commerce is driving investor interest in industrial space.

The deal includes about 100 properties in markets like Atlanta, Baltimore, Dallas and Chicago, according to Bloomberg.

Barclays is organizing financing in the form of $700 million in commercial mortgage-backed securities, Bloomberg reported, citing a source with knowledge of the matter.

Barclays and New York–based KKR both declined to comment.

Interest in warehouses has surged in recent months as investors look to capitalize on an e-commerce sector that has been propelled by the pandemic.

On Wednesday, Stockbridge Capital Group and a partner announced a warehouse deal valued at about $2 billion, according to the Wall Street Journal, marking one of the biggest commercial transactions this year.

KKR’s Roger Morales said in July that the company was taking a bigger bet on logistics.

“We believe that the current environment will lead to continued acceleration of e-commerce penetration, which drives demand for large modern distribution centers like the ones we are acquiring,” he said.

He added: “Logistics real estate represents a growth opportunity as more and more U.S. consumers migrate to shopping online.” [Bloomberg] — Sylvia Varnham O’Regan

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While hotels, retail and offices sink, the multifamily sector is sailing along.

Rent collection has been largely steady despite high unemployment and early threats of rent strikes. Occupancy, too, has suffered less than expected except in dense areas and at the high end of the market, where tenants were more likely to relocate to a second home and new leases dwindled.

Commercial properties have lost revenue to lockdowns, reduced travel and online shopping, but people are using their residences more than ever. That has benefited the sector.

“For multifamily, these are peoples’ homes, and for many it’s become the place to work as well,” said Marc Wieder, co-leader of the real estate group at accounting firm Anchin. “It’s become even more important than before.”

Multifamily assets have not yet seen widespread distress. Firms whose portfolios are short on multifamily are looking to acquire more, and some are pondering converting nonperforming assets to apartments.

“There really isn’t any distress to speak of in the multifamily market. But any owner would be lying if he said income hasn’t gone down.”

Still, multifamily profits have diminished, and the sector would not be immune to a long recession. A U.S. Census survey found 15 percent of tenants were not current on rent in October. Eviction moratoriums and the prospect of rent control loom. Some owners are impatient with moratoriums, arguing that the possibility of eviction is necessary to get some tenants to pay.

“There really isn’t any distress to speak of in the multifamily market,” said Stuart Boesky, chief executive officer of New York-based investment firm Pembrook Capital Management. “But any owner would be lying if he said [net operating income] hasn’t gone down.”

Collections stable for now

The memory of federal stimulus checks has faded, and the $600-a-week federal unemployment supplement ended in July. Rent collection, however, has not fallen much, a survey of 11.5 million market-rate apartments shows.

Jeffrey Levine, chair of Douglaston Development, said that in his affordable portfolio, rent collection is about 80 percent and occupancy is in the high 90s. In units covered by Section 8, a federal subsidy, occupancy and collection have not dropped at all, because of steady checks from the government.

Not all apartment owners are faring so well, however.

Daniel Goldstein, managing partner of E&M Management, a New York City owner that in recent years has become the Hudson Valley’s largest landlord, said rent collection in the firm’s portfolio has dwindled to 65 percent of normal. It was better early in the pandemic, he said, when tenants were receiving enhanced unemployment benefits.

Still, Goldstein said he is thankful to not be an office landlord. In fact, his firm is in contract to purchase two office towers outside of the city to convert into apartments.

New York-based Gaia Real Estate, led by Chief Executive Officer Danny Fishman, is pursuing a similar strategy. His firm is considering converting hotels in New York City to residential, but he declined to share details.

Although rent rolls have not suffered the losses predicted in the spring, many landlords are troubled by the prospect of extended eviction bans. The Centers for Disease Control and Prevention implemented one in September. Some states and cities have more stringent bans. Many in the industry expect the moratoriums to endure, given surging infections.

“If there is a feeling of possibly being evicted, instead of buying a 40-inch TV, tenants pay the rent. Not having that feeling is causing a lot of problems.”

“If things go along the way they have been, or possibly worse, there is a good chance the eviction moratorium will be extended,” said Wieder, the accounting firm executive. “It is imperative that the government look out for people in their homes, because they will become a burden to the government if they are evicted.”

Wieder also lamented the lack of government assistance for landlords, who were ostensibly shut out of the Paycheck Protection Program — although a number of landlords and developers were able to tap into it through loopholes and affiliated entities.

Even as some industry professionals acknowledge that evictions are problematic during a health crisis, others say some tenants are exploiting the protections unfairly.

One large New York City property owner, speaking on condition of anonymity, expressed hope that Gov. Andrew Cuomo would lift the eviction limits in New York for “those who are taking advantage of the pandemic by using it as an excuse to not pay rent, despite their ability to do so, or abide by the nuisance terms of their lease.”

Goldstein put it more bluntly: The threat of eviction compels tenants to pay rent, he said, and without it, some tenants choose not to.

“If there is a feeling of possibly being evicted, instead of buying a 40-inch TV, tenants pay the rent,” Goldstein said. “Not having that feeling is causing a lot of problems.”

Beyond Covid

The problems that do exist in the multifamily market were brewing long before Covid.

In New York City, a spate of tenant-friendly regulations passed last year, and subsequent electoral gains from tenant-backed politicians pushing more rent regulation will be a driver of distress in the multifamily market, said Boesky.

“The biggest problem New York has is the new rent regulations that came into existence last year,” the investment manager said. “That’s a bigger issue [for multifamily] than the coronavirus.”

Investors are concerned that rent regulations will be expanded to new development — although legislation to do so has made little progress — and are less willing to assume that risk, Boesky explained.

“There is a huge chilling effect caused by the rent regulations, even though they don’t apply to new development,” said Boesky. “Why would you take the risk until you know for certain it will blow over?”

At the same time, industry forces prevailed in California with the defeat on Election Day of two ballot measures viewed unfavorably by real estate. Proposition 15 would have raised taxes on commercial real estate owners, and Proposition 21 would have allowed localities to expand rent control. The real estate industry spent more than $100 million on opposition campaigns.

The changes in New York, which some say eroded multifamily asset values 25 to 30 percent, have not yet resulted in widespread fire sales. Among those whose equity was wiped out by the new law, few are ready to sell at prices low enough to entice buyers.

“Eventually, there will be an opportunity to purchase those [assets] at cap rates that make sense,” said Levine, referring to buildings purchased with rent-hike expectations that were dashed by the new law.

Laurent Morali, president of Kushner Companies, explained that it may take some time for the rent-regulated market to stabilize.

“If you’re going to buy something today [in New York City] it takes a bit of courage — you don’t want to be an investor buying something and then six months later look like a fool because a much bigger trade takes place at a much lower price,” he said.

Even in the city, where the vast majority of the state’s rent-stabilized portfolios are, only those overleveraged will be at risk of default. It’s unclear what fraction of the market that could be, and lenders, rather than take back the keys, might prefer to let borrowers restructure their debt.

New York’s rent law reform stemmed from a progressive turn in the state’s politics. Yet some multifamily owners see signs that, despite more wins by far-left candidates this year, state politics are moderating.

In the November election, some Democrats hoped to secure a veto-proof majority in the state Senate — allowing them to pass more progressive legislation — but the Election Day ballot count suggests they might lose a seat or two. With a more evenly divided statehouse, many expect Cuomo to push for more moderate legislation.

One large property owner, speaking on condition of anonymity, was encouraged by the federal and state elections but worried about next year’s mayoral and Council races.

“We are looking toward next year’s New York City elections with the hope of a city government interested in governing for all New Yorkers and those looking to move to New York, not merely implementing unsustainable policies that meet the demands of tenant advocates or socialist politicians,” the owner said.

“The stability of New York’s housing is on the edge of a precipice and requires pragmatic leadership to secure it.”

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Smart-glass company View is set to go public through a special purpose acquisition company merger.

The company announced Monday it had reached an agreement with a SPAC sponsored by Cantor Fitzgerald. The deal values View at $1.6 billion, according to Bisnow.

The company, which is expected to be listed on the Nasdaq stock exchange, will reap about $800 million.

It has been a boom year for SPACs, which have raised more than $30 billion as of September, compared to $13 billion in 2019, according to the New York Times. The mergers offer a quicker way for companies to get to the stock market, avoiding a lengthy IPO process.

Founded in 2007, California–based View makes “dynamic” glass windows that reduce heat and glare and adjust in response to light, according to its website.

Cantor Fitzgerald CEO Howard Lutnick told Bisnow his team was excited to work with View “to not only help deliver the capital needed to further build out View’s capacity, but also leverage our real estate platforms to create awareness, scale and drive change across the real estate industry.” [Bisnow] — Sylvia Varnham O’Regan

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The City of Los Angeles issued a stay-at-home order limiting nonessential businesses to 20 percent capacity, mirroring a countywide order that took effect Monday.

The city’s measure, announced Wednesday night, also bars gatherings of people outside immediate households with exceptions for outdoor religious events and political protests, according to the Los Angeles Times. Those are also the same cutouts as the L.A. County order.

Coronavirus cases have exploded in Southern California. L.A. County currently has a 15-day average test positivity rate of 5.1 percent, up 1.6 percent from two weeks ago. Statewide the positivity rate is 6.9 percent.

“Don’t meet up with others outside your household,” Mayor Eric Garcetti said as he announced the tougher measures. “Don’t host a gathering, don’t attend a gathering and follow our targeted safer-at-home order. If you’re able to stay home, stay at home.”

The measure isn’t as restrictive as the stay-at-home order that went into effect this spring. L.A. County Public Health Director Barbara Ferrer said that officials hope the tailored approach means they can avoid a more restrictive order like the previous one, which was imposed as Covid first took hold.

Wednesday’s order allows retail businesses to open after implementing county regulations for in-person shopping. Those rules include regular sanitation, implementation of contactless pay when possible, and symptom checks on customers.

Businesses considered essential are limited to 35 percent maximum indoor capacity, while “lower-risk” retail businesses are limited to 20 percent of maximum occupancy.

Parks, trails, golf courses, tennis courts, and beaches will remain open. Music and television production is also allowed.

Gov. Gavin Newsom this week said he is considering a statewide stay-at-home order as well. [LAT] — Dennis Lynch

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A former Cushman & Wakefield senior accountant is claiming he and other employees of color on his team were paid less than white colleagues with comparable experience.

In a federal suit filed last week, Ivan To Man Pang, who is Chinese, said when he complained to his supervisor in Manhattan about the discrepancy, Cushman retaliated. The company gave him a poor performance review, falsely claimed he made several mistakes and missed deadlines, and then fired him for forwarding an email to his personal account, according to his suit filed in the Southern District of New York.

He is seeking his job back and $100,000 in damages.

At least five other discrimination suits have been filed against Cushman since 2018 in federal court, involving allegations of gender, race, age and disability bias, a review of cases show. The Real Deal previously reported on two of those suits.

The ones that were not reported on include Andrea Pesacov’s suit in October 2018. The former senior director of retail services for Cushman’s Philadelphia and New England region alleged she was sexually harassed by co-workers and by her boss. Her suit was filed in Pennsylvania. Pesacov took time off because of a medical emergency, and when she returned, she was fired, the suit alleged. Her case was eventually settled.

In a 2018 suit filed in Tampa, Florida, Luis Valdivieso said Cushman discriminated against him because he is Hispanic. Valdivieso, a maintenance engineer, said he was subjected to disparaging comments, denied promotions, provided with less favorable working conditions and eventually terminated. And in a suit filed in Missouri in 2019, Carol Gaal said she was let go because of her age, and was denied reasonable accommodation for an eye disability.

A Cushman spokesperson would not discuss any of the lawsuits, saying the company does not comment on ongoing litigation. Pang, who filed his claim himself, did not respond to requests for comment. Lawyers for Valdivieso and Gaal did not respond to requests for comment.

In Pang’s case, he alleges his $75,000 starting salary in 2014 was below the comparable range of $90,000 to $110,000 that his white colleagues were paid.

He received excellent reviews from supervisors, Pang alleges, but that changed in 2018 when he complained about his pay. He was given a poor performance review for the year, followed by a larger workload, according to the suit.

Pang analyzed the salary of the seven other employees on his eight-member team over a five-year period. Pang provided a copy of those salary comparisons as part of the lawsuit. Including a manager and director, the team had three people of Chinese descent — two men and one woman — one of Dominican descent — a woman; along with three white women and one white man, according to the data sheet Pang included.

He claims the salary increases of his white colleagues ranged from 19 to 36 percent, while the people of color received salary increases ranging from 11 to 16 percent.

In late April 2019, Pang received a three-page “Memo of Expectation” from his supervisor, also included in the lawsuit. The supervisor called him a “valued member of the accounting team” but detailed a number of alleged mistakes, missed deadlines and behavior issues. The memo also said that Pang used his position to access a co-worker’s salary for the purpose of the comparison, which was inappropriate. The supervisor warned Pang that if his performance did not improve and other issues weren’t addressed, he would be terminated.

When Pang protested, saying that the mistakes were falsified, he was suspended, the suit alleges. Claiming he was desperate to find ways to prove his innocence and refute the claims, Pang forwarded work emails to his personal account, he said. He alleges that Cushman then fired him, saying he violated company policy, a rule he didn’t know existed.

Pang included in his lawsuit an updated version of the “Memo of Expectation” that is dated mid-May, saying the director of employee relations revised it to correct inaccuracies in its allegations.

Pang also brought the discrimination claim to the Equal Employment Opportunity Commission’s New York office. The office dismissed the case. In its letter to him, the agency concluded it failed to find “violations of the federal laws enforced by this agency,” but added that did not mean Cushman had complied with the law.

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Shopping online more than usual? Real estate investors are taking notice.

With a surge in e-commerce creating more demand for distribution space, Stockbridge Capital Group and the National Pension Service of Korea have acquired a portfolio of 23 facilities in a deal valued at $2 billion, the largest of its kind since the pandemic hit. The transaction was first reported by the Wall Street Journal.

The seller is Hillwood, a real estate development and investment firm founded by Ross Perot, Jr.

It is one of several major industrial deals of late, as investors look to capitalize on the growing sector. It was reported this week that New York investment firm KKR is close to finalizing a warehouse deal valued at more than $800 million.

The portfolio acquired by Stockbridge and its partner spans 14.3 million square foot with facilities in Atlanta, Boston, Chicago and other areas.

“We see this acquisition as an exceptional way of tapping into the rapid acceleration of ecommerce growth — one of the most impactful investment themes post-Covid, and likely of the decade to come,” said Terry Fancher, Stockbridge’s executive managing director.

The transaction marks an expansion of Stockbridge’s already growing logistics footprint. Last August, the firm acquired an 6.4 million-square-foot portfolio, followed by an 8.7 million-square-foot portfolio in November.

[WSJ] — Sylvia Varnham O’Regan

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“Schlep blindness.”

That’s what Common CEO Brad Hargreaves said is needed to bring about change in the U.S. multifamily industry, which is valued at more than $250 billion but operationally hasn’t innovated in decades. The pandemic’s tolls on the rental market’s margins and occupancy, however, have made landlords much more willing to adapt. And it’s also led them to consider more creative uses of their assets.

In September, Common closed on a $50 million Series D funding round, cementing its position as the most well-capitalized co-living startup (Let’s leave WeLive out of this). But co-living is just one arm of its business: Common has expanded into property management for workforce housing, a family-focused co-living service called Kin, and a product catered to remote workers. It now manages over 3,500 units across 10 U.S. cities and has partnered with big institutional players such as Nuveen and Tishman Speyer.

In an extended conversation with The Real Deal, Hargreaves laid out his philosophy on building community in multifamily, the challenges of repositioning assets, and lessons he’s learned from Airbnb and WeWork.

Lizzie Widdicombe of the New Yorker had this great phrase about Common targeting this period of “extended adolescence,” which everyone in New York knows. But it’s safe to say that you’ve gone beyond that.
Community is always a really important part of what we’ve done. I think we’ve expanded the definition of what that means. Originally it was very narrow, focused on “roommates done better.” So, sharing apartments, and really fixing the experience of sharing an apartment, keeping the affordability, keeping the social environment, but making it much more high-quality.

But now we have three brands under our umbrella. One of those is Kin, which is focused on families with young children. When you do look at who is leaving cities, a lot of it is families. It was already hard. The pandemic made it harder. With Kin, it’s, “how do you create something that a young family — who loves the urban environment, loves the amenities, loves the togetherness … [and] doesn’t want to go live in a single-family detached home — how do you provide all those good things but just make it easier to be a family in an urban environment?”

The value proposition for a family in New York was always on the edge. A little bit more yard space, and someone would take flight.
So much of it is wrapped up in identity, too. I grew up in a rural area, and we love being residents of the greatest city on Earth, New York. That is part of our identity and the idea that “we’re going to give up, we’re going to move out to a suburb, we’re going to move to a smaller city,” is challenging to a lot of people.

“When everyone’s hitting their pro formas, there’s no incentive to try anything else.”

What is the Kin equivalent of the white picket fence?
Bringing families together in ways that are both utilitarian as well as fun. Like date night drop-off — everyone wants to go out on Friday night, it’s kind of silly for everyone to go hire their own babysitter, so this is a place, a program where you can drop your kid off, with someone provided by the building. Makes that date night so much easier. There’s also just fun programming for kids. Story time is something we run at both Jackson Park and Kin on Union.

And it’s a revenue sharing agreement with the landlords?
Property management. We do that because it’s not just a layer on top … It’s not as fun to talk about, but the core of our business is a layer of technology and automation that lets us do a lot of things that save money and add value on the property-management side.

Right, it’s also waste disposal, etc. That’s the stuff where landlords really will need to start saving now. Because they were building into a rising market, with rents steadily creeping up, but if rents are flat, they will have to find the savings elsewhere to make the numbers work.
That’s been actually the biggest driver of our growth this year. So far this year we’ve [tripled] our number of units under management, going from around 1,500 to around 4,000 units. What Common does across all of our brands is centralize a lot of operations. When a lead comes in, that lead doesn’t go to an on-site leasing agent, it actually goes to a central call center. That lets us respond to that lead immediately.

The faster you respond to a lead, conversion rate increases — not by 10 percent or 20 percent, but by 3 times or by 5 times if you can get back to that lead within 30 minutes, ideally within 10 minutes. It lets us either schedule an in-person tour with an on-site leasing agent, or a virtual tour. Pre-Covid, about 30 percent of our members converted from a virtual tour alone. They never stepped foot in the building.

Initially, I’m assuming there was a lot of you going to pitch landlords, “Hey look, we can come in and do this better for you.” Now, given what’s happened in the market, I’m guessing they’re coming to you as well? Help me understand the level of anxiety.
It runs the gamut. We have some wonderful partnerships with owners who see the value in the centralized operating model and are looking to really create something more tech-enabled for their buildings. So a great example of that is Nuveen. They’re one of the 10 largest real estate asset owners globally, very institutional [a subsidiary of TIAA]. But they really love the technology side, the centralized operations, the standardization. It’s less about co-living or any specific real estate product.

On the flip side, we have owners who come to us and say, “Hey, I have a hospitality asset, I don’t know what to do with it, we hear you guys are really good with micro apartments.” We manage a lot of micro apartments, in addition to co-living, they’re really two sides of the same affordability coin. When we speak to new owners, we often ask them to send us their stuff that’s not doing too well to underwrite.

Let’s say I take the train into Manhattan, to Hudson Yards or Grand Central. When you go there now as a landlord, it’s terrifying. These hulking buildings, some of them brand new. A lot of that space is just not going to be used as office anymore. How do you reposition that space, both from a technical sense and a philosophical sense? If you have a million-square-foot building, and you’re taking over 150,000 square feet, how do you make sure it doesn’t feel like a hulking office skyscraper once you’re done with it?
The answer is usually you have to scrape and start from scratch. Not to get too technical, but…

Our readers are real estate people, so definitely get technical.
With commercial office buildings, converting [to co-living] does not work 95 percent of the time. You end up with a really, really high loss factor. You also have to run additional mechanical [systems] up the building: gas, water, sewer, electric. The needs of a residential building are quite different. Once you’re talking about ripping out and replacing all those systems, really all you have left is the steel and the concrete structure, which is in many cases more of an impediment than a benefit.

The majority of stuff that we’re taking a look at is existing residential. It’s an existing workforce housing asset, and we’re going to make it operate better. It’s an existing Class A multifamily asset, where maybe the units are too big. We convert those to co-living and are able to bump NOI significantly.

Ownership is not in the cards at all for you guys?
No aspirations. We’d be competing with our clients. That’s not what we want to do.
Just going back to the type of assets we see … We’ve converted a number of churches, hospitals, schools.

That’s what I find most interesting about your business – you’re blurring the lines between assets. Let’s say you have a property that you can convert successfully. How do you add community in a building that previously didn’t have any?
The first thing is just breaking down the walls and encouraging people that this is a friendly place to live, we don’t want to all be anonymous here. And then giving forums for people to connect around very specific interests. Our philosophy on building community is that it has to start interest-based, and that also takes the burden off of us to run every single event and be the cruise director of the building. So if one resident says, “Hey, I go for a run at 7:00 a.m. every Saturday, I’m going to have to start a running club for everyone in the building.” They can do that and we don’t have to staff or organize that. When the property manager is too hands-on, and too involved in curating that community, it actually creates a watering down of the events. So there you get the wine and cheese night at 6:30.

“In a world where workers are choosing where they go, economic development becomes less of a B2B activity, and more of a B2C activity.”

(Related: Real estate’s biggest VC on the industry’s existential shifts)

I’ve been to an event like that, and I took the glass of wine, and I went and became antisocial again. Whereas here, there’s a lot happening behind the scenes that you’re not even part of, you don’t have to invest any money in, but it’s happening.
We looked at renewal rate, and one of the things it correlates most highly with is, “are you friends with three or more people in the building?” Living in the same building is not necessarily enough to break the ice. Make people social with each other in the way that, “Hey, we all like to watch Schitt’s Creek” or “we all like to go running” would. Those are reasons why someone would form a relationship. … Our job is not to get people hanging out just because they live in the building and get them talking about how awesome the building is. So if we could just connect people with shared interests, it makes our job a lot easier.

Are landlords getting that? Because they’ve done things a certain way quite successfully for a long time.
I would say it’s particularly powerful now. Since the pandemic, people are feeling some pain and they’re looking for new ways to do things. When everyone’s hitting their pro formas, there’s no incentive to try anything else.

Perhaps more importantly, our way of doing community can be scaled outside of Class A [buildings]. Because it’s a lower cost, lower touch way of doing it.

I’m fascinated by the other bet you’ve taken, on remote work.
Back in the spring we started seeing more and more companies, particularly West Coast tech firms, but also creative firms, say, “Hey, we’re never coming back to the office. People can work remotely forever.” I think it raises a lot of really interesting questions: Where do these people go? How do cities approach this new world of competing for talent? If I’m an economic development officer of a city, the way I’ve always worked is through brokers, through public RFPs, to recruit headquarters, to recruit factories, to recruit new offices that each bring a chunk of 300 [jobs] here, 500 here, 5,000 there, to my city. Suddenly, in a world where workers are choosing where they go, economic development becomes less of a B2B activity, and more of a B2C activity.

So we released this remote-work hub RFP, which is really for people who can choose to live and work wherever they want. It could be a freelancer who wants to move from place to place, or someone who’s really looking to pick a new home and settle down, but wants a lot of the comforts and trappings of the density they perhaps left. We think that people are going to migrate primarily to less expensive secondary and tertiary cities. It’s not going to be about people going into the wilderness in Wyoming — people are going to get tired of that pretty quickly. But they don’t necessarily want to go back to the super expensive hubs of New York, San Francisco, L.A.

(Related: Multifamily’s next frontiers)

We’re bullish on that middle range of cities that have density, have good amenities, but have real affordability. And in many cases, these cities really weren’t able to participate in the evolution of the tech ecosystem. So the remote work hub is not about attracting any one specific company. And it’s also not about tax incentives. It’s about: “Is there a site that makes sense for this, and how do we make the permitting process, the entitlement process super easy?”

You’ve said the most exciting thing for you would be if a Common member in one city goes and lives in a Common [space] in another city, sort of ping-ponging around. Have you seen that happen yet?
I would say it’s under 5 percent of our market right now, but we do allow people to transfer seamlessly within any of our brands.

What does seamlessly mean?
Means two weeks’ notice. You don’t have to break your lease, you can just transfer it to a new lease in a new city. There are obviously certain restrictions around that — you can’t, for instance, stay in a unit for under 30 days. You can’t use it as a hotel.

Would you take into account that someone who may choose to live in one of these buildings would also maybe want to go to South America 90 days later? You’re going to be dealing with a bit of a mobility problem. The type of people who are going to live in this complex are also flighty – they have the economic ability and mindset to jump.
Right now we certainly let people transfer within the network.

I just meant buildings like that would have higher attrition than a standard complex.
We just have to plan and underwrite for that. If the rents support it, if the staffing supports it, it’s totally okay to have some segment of people on three- or six-month leases.

Are you hiring, for example, people who are experts in urban mobility? I’m interested in your hiring, because that’ll tell people where you’re going as a company.
I wish I had some sexy answer for you. But it’s software engineers to build more automations, to improve our platform, because we’re rolling out software that makes everyone more efficient.

Where it gets exciting is we’re hiring a PR and partnerships manager to work with major brands that want to do product placements, and partnerships to access the Common audience. And some of it might be more digital partnerships as well, so partnerships with a financial organization to help our members work through financial issues, or consolidate their debt or what have you. Those kinds of partnerships get me really excited about the future and what we can do at scale. We’re also really leveling up the size of our real estate and our underwriting team. The people who go out and win deals and do new projects for us.

Your business actively tinkers with people’s lifestyles — that’s maybe an inelegant way to put it. Would the next evolution of it be something like providing healthcare [for building residents]?
There’s always a build-versus-buy question, or a build-versus-partner question. Certainly for something like healthcare, I think we can only tackle one incredibly complex legacy industry at a time. So it could be a partnership, where we say, “Okay, we’re working with One Medical, or HealthJoy, to offer this service to our members for a discounted rate.” Particularly if we have a lot of freelancers that gets really interesting.

One area we’re really going to expand into in the coming years is cleaning upsells, allowing people to book any cleaning at any time. That, we’re probably going to do ourselves.

You’ve talked about residential rentals being a $250 billion industry. You are going after the whole thing, as opposed to a chunk of the thing.
One of the challenges, but also the big opportunity here, is that we’re full stack. We’re not just an app, we’re not just a brand, we’re not just a property-management platform or a property manager. We’re all of the above.

We looked at every step along the way and we said, “There’s nowhere we can just kind of insert ourselves in one layer of the value chain and build a big business there.” I think there’s a reason you’ve seen a lot of the roommate matching apps fail. There’s been a thousand of them and none of them have worked. I don’t think it’s because Roomi was profligate in spending money, I think it was an unworkable business model, and they just got noticed because they spent a lot of money. I think if you had run a lean roommate matching startup, it still would have failed because the business model doesn’t make any sense. Because you’re just dumping people into the same broken system, in the same broken buildings that have always existed. So if you actually want to add value there, you really have to get in the weeds of it and replace multiple parts of the stack, which unfortunately is expensive.

You came up among a breed of glamorous — some would say overheated — startups. I wonder how you resisted the lure of spending money too quickly.
Obviously there are a lot of places where we wasted money. We had beautiful furniture that was way too expensive.

The Scandinavian stuff.
We shouldn’t have gone all the way down to IKEA, that would have been a mistake, but we didn’t really understand our audience and how much they needed all that. The truth is they really didn’t. It had to look beautiful, it had to photograph well, but you can make a beautiful building, a beautiful furnished unit that photographs well, spending well less than $20,000.

Did you take anything away from the whole crazy rise and fall of WeWork?
I think to defend Adam and WeWork for a second: There’s some things they did which, to a tech audience, were unforgivable conflicts of interest, but to a real estate audience were totally normal, run-of-the mill stuff. Like you’ve got your propco over here, you’ve got some investors in that, you’ve got your opco here, you’ve got some investors in that, they’re dealing with each other. Personally invest in a few of the deals too, and it all just kind of works. And as long as everyone makes money everyone’s fine. That is totally normal in real estate.

(Related: Reeves Wiedeman on the manic rise and fall of Adam Neumann and WeWork)

That is the culture of real estate.
I feel like one of the things that got WeWork in trouble was they were trying to combine this world of big-company tech, public markets, with private, tightly held New York real estate. There are some things that are okay in the world of tightly held New York real estate that would never fly in the growth-stage public markets. There’s different cultures out there, and I think you have to be super cognizant of your audience.

You’ve probably learned a lot from Airbnb. They were faced with this existential challenge at the beginning of the pandemic. Brian Chesky said, “I woke up one day, and essentially 80 percent of our revenue stream was frozen.”
One thing they did really well is they really doubled down and focused on stabilizing the supply side. Their community of hosts, that is their asset. So the shift toward long-term stays, anything to get dollars in the pockets of hosts. And they started a bailout fund for their hosts. That shift in focus was extraordinarily smart. If those hosts were to disappear or go under, it would take Airbnb years to recover that community.

What is your life blood in that sense? If you had to define your main asset, what would it be?
It’s really our relationships with our real estate owners and our clients. Without that community, we’re nowhere.

This interview has been condensed and edited for clarity.

(Write to Hiten at hs@therealdeal.com. To check out more of The REInterview, a series of in-depth conversations with real estate leaders and newsmakers hosted by Hiten, click here.)

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