Scott Stegeman, Strategic Account Director at Juniper Square, recently led a conversation on market trends, opportunities, and best practices with Los Angeles-based commercial real estate leaders: Eddie Ring, Founder and CEO of New Standard Equities, Inc.; Mark Mosch, President of AndMark Management Company; and John Lustgarten, Chief Investment Officer of Summit Equity Investments.
From renovation to rapid response
Ring provided insight on how his team paused their renovations to focus on stemming the immediate and anticipated effects of the pandemic.
“When we saw this coming at the end of February, we immediately stopped our renovation process and made a pivot to fill up apartments. We specialized, we discounted, we did whatever we could. We went from 91% occupancy to around 97% physically occupied within about six weeks, across a 2,000-unit portfolio. And we’ve been able to maintain that occupancy.”
To make sure Mosch’s team stays nimble, their priority has been asset preservation and raising cash. “We hyper-focused on revenues. And as far as our response was concerned, we had three general areas where we took immediate action.
“One was safety, two was cost reduction and cash retention, and three was revenue generation. As far as cost reductions were concerned and cash retention, we told everyone we’re going to retain our entire distribution as a cash reserve, because we couldn’t forecast where things were going.”
The efforts paid off, and they’ve been able to resume their distributions. “We’re retaining the current quarter’s distributions in reserve,” said Mosch, “but we’re able to distribute the amount for the previous quarter that was originally held.”
Maintaining cautious optimism
As he stays flexible and attunes to market conditions, Lustgarten keeps a hopeful eye out for other emerging opportunities.
“Things have been faring well for our portfolio,” he said. “It’s very challenging when you’re doing asset raises. There’s always incomplete information out there, but there’s just more of it right now. Which means more volatility, which tends to impact pricing. It’s not reflected in the price of the assets just now, which has made capital raising challenging but not impossible. Even over the course of the past few weeks, I’ve noticed a much greater inclination on the part of prospective investors to move forward with investments. There’s more comfort with what’s going on.”
Mosch shared how underwriting on new deals has changed.
“The thing is, you have to have more money in your equity stack now because lenders are requiring a COVID reserve, to cover 12 months of principal and interest.
“What we’re doing is finding places where the management company hasn’t delivered, or the owner is under-capitalized on the property. We’re going in and running the property properly, and capitalizing it well by taking care of deferred and whatever’s needed. Instead of raising rents, we’re getting the property filled with paying tenants and getting it to 95%.”
Lustgarten saw opportunity opening up in the form of asset availability.
“We’re focused on locating sellers who, by virtue of external events, may be forced to sell assets in order to take care of other assets. That’s presented some pricing benefits. It’s not something that we see in large quantities, but those opportunities are there if you dig deep.
Ring noted, “I think there’s a scarcity premium on assets right now, so some are being bid up because there’s nothing for sale. However, they’re not quite at the level our institutional partners really want to see returns. There may be a bit of a release valve from some of the seller expectations to really meet or shrink the bid-ask spread.”
As fund managers discover ways to reduce this spread, Ring predicts rent growth.
“Nobody’s increasing the supply of housing so that the price of rent would drop. It’s simple economics. Until they start doing that, we’re going to see housing at a premium. We’re going to see rent growth. We’re going to be able to deliver a high level of return to our investors.”
Growing with Juniper Square
Ring, Mosch, and Lustgarten closed the conversation by explaining how they’re using Juniper Square to manage and grow their portfolios.
Lustgarten shared, “Juniper Square does an excellent job of allowing investors to self-service their own needs—whether it’s checking up on their capital balances or what their recent returns were. And just as important, it makes it very easy for sponsors to put offerings out there. With your attention being pulled in so many places—asset management, property management, etc.—it’s really key to have a great system you can rely on.”
Mosch added, “We love the system. Our high net worth investors were calling us up with glowing reviews, saying, ‘Wow, you guys are batting above your weight class.’ We’re this little company, but they couldn’t tell from looking at our infrastructure from an investor management standpoint. That really helped give us an aura of knowing what we were doing, which is very helpful when it comes to raising funds.”
“There’s nothing better than having reports go out flawlessly,” said Ring. When it doesn’t work, it’s disastrous. We also use the platform as a proprietary portal for future investors to review our company. We really love that function because we’re giving everybody a private war room, as it were, which is just really, really helpful.”
As the economy picks back up our experts are ready to meet the moment.
“It might be 2021, but I’m okay to wait,” said Ring.