XN STATE Jorge Canavati

For today's episode we bring back our returning champion Omar Khan, founder of Boardwalk Wealth, an investment firm focused on Class B acquisitions with value-add potential.

Recently, due to the run up in prices we have seen in 70's/80's vintage multifamily buildings, Omar has begun to contemplate alternate investment strategies, including ground-up development.

Today's episode  is centered around this specific topic, as we try to shed some light on  the question of "What makes more sense today, acquisitions, or ground-up development?"

The best way to reach Omar is through e-mail at omar@boardwalkwealth.com, as well as at Boardwalk Wealth's website, where you can register for Omar's newsletter.

Below is Omar's newsletter which spurred our conversation:



A great question to ask, when confronted with any claim:
 
 "Compared to what?"
 
 I was thinking of the risk profile of a new development. It's considered risky in general, but what comparisons do we have?
 
 Well, the current market conditions are really frothy.
 
 Let's take assets built in the 80s/90s. They are now trading at (or close to) replacement cost. This means that 30-40 year old assets are roughly selling for the same amount as the cost to build a new development.
 
 These older assets typically have outdated floor plans with high maintenance expense. So they will require a huge investment, and ramp-up period, to make them work as attractive deals.
 
 Compared to THOSE assets, a real estate sponsor can assume a similar level of risk in a new development. Once built, this new asset requires minimal maintenance. The old asset ramp-up period is comparable to the new development build.
 
 But then the new asset is far more efficient on rent per square foot, as well as cost per square foot.
 
 On top of this, residents in new build communities tend to have higher incomes. And they are able to withstand economic downturns (like a pandemic) better than residents in lower income housing communities.
 
 So in that sense, the new development is lower risk.
 
 Food for thought.
 
 Let me know if you have a rebuttal or would like me to elaborate.
 
 Omar Khan
Managing Partner, Boardwalk Wealth 

Today we are pleased to have Ricardo Outi on the show. 
 Based in Miami, Florida, AIC Capital is a research-based, data-driven alternative investment platform. The firm specializes in capital allocation in private real estate on behalf of funds, institutions, family offices, and high net worth individuals. 
 Ricardo has over 20 years of Wealth Management and Real Estate Investment experience. Throughout a career with Citigroup, Ricardo held positions of head of strategy and business development at Citi Offshore Wealth Management in Miami, Head of marketing and sales strategy in Tokyo, and a senior position at Citi Ventures in Singapore.
 In today’s episode, we dive into:
 The backbone of AIC Capital’s strategy, their data and market research tool that has been developed and perfected over years of data sourcing and data management. We discuss how the company manages to filter over 3,000 opportunities that hit their desk every year. And we hear about the first steps Ricardo took when deciding to leave Citigroup to prepare him for the next chapter in his career. As a friendly reminder, please keep in mind that anything discussed herein is for conversational purposes only and does not constitute investment advice on behalf of Ricardo or AIC Capital.
LinkedIn
Email: Ricardo.outi@aic-capital.com
The Handbook of Real Estate Portfolio Management by Joseph L. Pagliari 
The Age Curve by Kenneth W. Gronbach
FROM THIS EPISODE:
ON DATA
“We have research reports that we read. We stay attuned just to ensure that we are in sectors and cities that we want to locate capital in. The data and this research is the backbone of what we do and why and how we allocate capital.”
“Data has been improving. We live in an information age and data is like the new oil of this economy. So any company that is not leveraging data is just missing it [opportunities]."
ON MARKET DEMAND
“Depending on the sectors there are more variables that are more important. That's what we call the drivers of real estate demand. For example, if you are in the residential rentals/multi-family/single-family sectors what you want is to basically retain. You want job growth, population growth; Population growth will lead to rental growth and home price appreciation. Those are the key drivers of demand.”
ON RISK
“If you're prudent in terms of your capital stack, your amount of leverage; if you are prudent doing your homework in terms of being in the sector, it's very hard to predict losing your capital and losing your investment there.”
“During downturn moments drives a lot of uncertainty across the board. And uncertainty drives people to freeze when it comes to making decisions like buying a house and making an investment. For us we like those moments. We like those moments because when you do your homework and are comfortable in your sectors and the capital decisions you're making, you have less competition.”
ON SUCCESSFUL INVESTING
“When you really want to be a better real estate investor you really need to have both your feet really in the industry. You need to own assets. You need to be in there. You need to be talking to your property managers. Besides researching and looking at data, you need to be investing your own money as well so you have skin in the game.”

As president and head of CA’s Latin American division, Tony DiBiase focuses on international investment and development opportunities.
Prior to joining CA, Tony served as chief operating officer at U.S. Equities Realty, a Chicago based real estate company also in Latin America. In real estate for over 25 years, Tony has spent over 15 years growing operating companies and working with large-scale real estate projects in international markets. His real estate experience includes commercial management and leasing, property and facility management, retail and mixed-use properties, student housing, receiverships, start-ups, and business unit sales. 
In today’s episode, we dive into:
Navigating the finance challenges with banks outside the US and how to get buy-in when the concept is completely new to their market.Growth and competition in global student housing and how CA Ventures defines a potential growth market. https://www.ca-ventures.com/
FROM THIS EPISODE:
ON US MARKET TRENDS
“The Sun Belt in general has been the focus of people moving in those states and cities and I think that will continue to happen especially within this economy where we’re finding we can work almost anywhere. They are going to choose small-town living and temperate weather”. 
“This is why multi-family is the trend of the next foreseeable future. It’s primarily because of the younger generation who are valuing experience over ownership. The younger generation worldwide isn’t seeing the value in (homeownership). They would rather have a mobile lifestyle. They rather have an experience of living rather than an asset on their balance sheet.”
ON FACILITY MANAGEMENT
“Facility managers are the owners of the real estate but they are also the tenants of the real estate. They need real estate executives to make their space-efficient. They are not looking for a return on investment for space. What they want is an efficient use of the space.”
ON MARKET OPPORTUNITIES ABROAD
“We look at opportunities agnostic of the country. And what we find is Latin America has a massive need that’s not being met in student housing, industrial, and also in multi-family.”
“Real estate is a transferable skill and a transferable product. The United States may be ahead of the curve in a lot of these product types but the rest of the world wants and needs it also. The challenge is having the financial systems in place that can keep up with the evolution of real estate.”
ON RISK
“Here’s the reality - there’s risk everywhere. It’s just a matter of getting comfortable with it. And that’s something I would like to see our universities do a better job with because I don’t think we are well-educated on identifying risk and overcoming risk.”
“With student housing, you're underwriting the University, not the city. The difference is that without the University there is no secondary market. Whereas with multi-family, you’re underwriting the city or the geographic area and asking - does that area have growth? What type of growth? Are people moving to that area because jobs are prevalent or leaving because it’s a dying area?”
“I think the market is not never-ending. Already we see that there is some slow down in student housing because it’s starting to get built up to the demand that it has today. Moving forward I think universities have a really big and important struggle that they will have to get through over the next decade which is maintaining their costs and/or lowering their costs of education.”
Book mentioned in this episode: How to Win Friends & Influence People by Dale Carnegie

As Vice-President for Southern Home Builders, Steve spent the major part of the last decade leading the company’s expansion into the Texas market with what was a new product at the time, the office condominium. A venture that not only led to great success but also resulted in countless valuable insights and lessons, which we dive into. 
Today, Steve Hextell has his sights set on exciting new ventures, both through his property management company called The Houston Office Company, and through a new development company called Tenet Developers, conceived to seize opportunities within the office condominium space, and beyond. 
In today’s episode, we dive into:
What exactly is the office condominium product, what makes it unique, why it flies under the radar, and why it works. We discuss marketing, storytelling, the significance of knowing your customer, we discuss managing trades and construction costs, we discuss the main attributes to consider when looking for land for development, and much, much more.Email: steve@thoc-llc.com 
Website: www.houstonofficecompany.com/

Book referenced: The Tipping Point  by Malcolm Gladwell


FROM THE EPISODE: 
ON OFFERING LIMITED OPTIONS FOR CUSTOMIZATION
“First of all, the product was really good. The floor plan was outstanding. And so there wasn’t a need to structurally change a lot of things.”
“People don’t like to make a lot of changes.”
ON KEEPING CONSTRUCTION COSTS LOW
“When you're recruiting trades, you have to find people that are the most value trades out there. You can get them to do your project if you can promise them consistent delivery of available ready units for them to get in and out.”
“Construction costs are an ongoing management process of exploring and looking at trades, riding other projects, construction sites, constantly with your business card out looking for other trades that can come in and competitively bid.”
“When you layer on a general contractor and you layer on commercial trades and big trades, the numbers just don’t work. You almost have to be a 1-2 person show keeping your costs so low and driving your costs.”
ON MARKETING
“We don’t advertise, there was really no awareness campaign at all because we knew who the target audience was.”
“We had a really good brand. We knew early on in our first project that our website, our collateral, our image, our logo, everything had to be really first class.”
“When you do a good job well then you get referrals, and you don’t pay for referrals, you just ask people.”
“Your place has got to look great. You’ve got to build a good product, you’ve got to communicate, you’ve got to ask for referrals. But you have got to have a plan in place. A strategy to execute.”
ON FINDING OPPORTUNITIES
“One of the key tenets is I always looked for land. I try to buy land in up and coming areas but buy it soon enough that it’s affordable.”
“Be prepared to get involved in the market… You have to join the chamber, you have to join the economic development council, you have to talk to people, you have to ride the construction sites and get to know the trades.”
“I still think being there with the clients, talking to them and watching your costs every day is crucial.”
“Have your hands in every aspect of it. You could lose vast amounts of money really easily if there’s a mistake.”
“You have to understand and know every penny that’s being spent.”
“There’s an opportunity to be excited about what’s coming. And jump onto as much of it as you can. Be positive about it.”
“Be the positive person in the room. Be the positive person about the future of what’s coming.”

Elie Rieder is founder and CEO of Castle Lanterra Properties. An active real estate investor, owner, and manager since 1998, Mr. Rieder has been directly involved in acquiring in excess of 20,000 multifamily units.

At Castle Laterra, Mr. Rieder specializes in value-add acquisitions, where property performance can be enhanced through multiple operational and capital improvements. His investments have shown a strong history of success in improving both the quality of life for the tenants and the cash flow to the owner through improvements to unit quality, community amenities, and property aesthetics. 

In addition to his activities with Castle Lanterra, Mr. Rieder is an equity partner in a substantial number of units owned and managed by Fieldstone Properties, an active New Jersey investor, owner, and operator of multifamily communities in the eastern United States.

In today’s episode we discuss:
The different principles Mr. Rieder acquired from his father and grandfather, and how these have played a crucial role in shaping his investment philosophy. The case for an acquisition-based strategy vs. ground-up development.The significance of having boots in the ground before making an investment in a new market. And we discuss on of Castle Lanterra’s latest acquisitions, The Triangle, a landmark property here in Austin, Texas. 
To learn more about Elie Rieder and Castle Lanterra Properties, please visit www.castlelanterra.com.

Today we host the founder and CEO of International Capital Partners, Agustin Barrios Gomez. 

Building on an extensive and varied career in both the business and political sector, Agustin has capitalized on his knowledge of 28 years of investment experience, parlayed with a partnership with FOINBRA, the largest private equity commercial real estate fund in Mexico, to create his real estate investment product.

In today’s interview we discuss: 
Why Agustin sees his product as so attractive on a risk-adjusted basis and a must-have for any investment portfolio. The significance of the spread between cap rates and cost of financing and how this factors into ICP’s strategy. The characteristics that ICP values most in a tenant when considering an acquisition   . And we touch on today’s political environment surrounding the US and Mexico, and what it means for investment purposes as we head into 2021.
Agustin brings a tremendous perspective to today’s show. It’s quite impressive how well Agustin understands real estate, his markets, his product, and his investors.

Thank you for tuning in to another episode of XN STATE.