I would like to start off by warning my humble readers that this post will not necessarily give a solution to the eye-opening news across the real estate industry. This post is meant to inform readers about lot absorption in California. Let's first look at the possible inventory to invest in today as it relates to the residential space. You have foreclosed single family homes, raw land, entitled land, finished lots, and partially built(vertical construction) subdivisions. As home foreclosures slow and investors start/continue to buy these homes at 60, 70, 80 cents on the dollar instead of the initial 10, 20, 30 cents that they were paying, we will see those investors spread across the market and leave the REO world.
Simultaneous to the small ball investors picking up foreclosed homes are the public home builders, developers and institutions that are investing at the single family project level. You have public home builders buying developments with a 5%(exaggerating a little) return in mind. They are buying for job security, keeping stock prices where they need to be... etc. And I'm sure, that in the back of their mind, they are reminding themselves that the more they eat through inventory the more a need is for them to be around! Developers are working with banks, builders and institutions attempting to create a 20%+ IRR. Through anything from fee build/develop opportunities with the banks to teeing up projects for builders to working with institutions for 90/10 equity investments on one-off deals. And you have institutions buying tapes of, well everything... REO's, development projects, backed securities... etc. One thing is clear, every player out buying dirt today is looking for something different. Every player has different objectives than they had at the height of the market. Though whatever the reasoning behind buying up land, absorption is taking place in the development world.
As time goes by and shadow foreclosures show up/get eaten up by the investment community there will be a need to build again. When that need arises those who bought at or below replacement costs will be receiving the returns that they were initially looking for. The most staggering part about those investments, is that they are, by in large, based off of a need to build... Not a need for another 2005 run in the industry. Make no mistake about it, there is not a cut and dry way to make money in the industry. However there is a very clear path of development and population growth.
I think most would agree that the Harvard Housing Reports are top notch efforts put together by the top minds at the Joint Center for Housing Studies(JCHS). JCHS puts out a number of reports, the most interesting to Americap's space is the State of the Nation's Housing 2009. When I first read through the report I was having trouble putting on my opportunistic hat, and felt that the report was a bit negative. Candidly, when I first read the report I was at a point in my career where I wouldn't even read/watch any of the major news outlets in fear that I would be swayed by the hype. I finished the report, put it on the shelf and wrote it off. The very next weekend I decided that I would give it another chance and read through it one more time...(I really needed valuable reading material at the time)
My second read through was almost uplifting, dare I say it... I was wrong the first time around. Carnage in the real estate development/build world has created an opportunity that has the power to propel our careers to the next level. For those of us who feel like we need another wealth creation event in our lives in order to continue success, it is here. The media has gone full circle through some outlets and is now a major proponent for real estate investing. The Harvard Housing Study is not a study that will excite you off the bat, it is not a read that makes you feel good about the current market. Though the adaptable, resourceful group/person will read this study and see their chance. Their chance at success, financial freedom and their chance to fill a gap in the marketplace. I invite you all to read the report with open arms. Knowing that we are all at the gates, waiting to be let in. Those of us who get in before the gates open, will have a plethora of potential buyers that were left standing in front of the gates. I have put a link below for the 2009 Harvard Housing Study. Read through it, get through the gates.
http://www.jchs.harvard.edu/publications/markets/son2009/son2009.pdf
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Stacey Winn: What are the institutional, investment bankers and LP's looking to invest in today?
Justin Clark: The institutional model is very interesting right now. Contrary to popular belief, capital is still relatively patient. Some of the main drivers are some form of income production, now whether that is standing inventory that can be sold today or the traditional condo/apartment arenas. The key is income in the deal today with some back-end kicker.
Stacey Winn: What type of real estate do these players have an appetite for?
Justin Clark: Single Family residential investors are looking for at least a 20% IRR on the deal. The cash flowing investments are typically sitting at upwards of 8% IRR with some cash flow throughout the term of the deal.
Stacey Winn: So, they are looking for good deals and they are deciding that on a case by case basis.
Justin Clark: Correct, it's population driven, it's how pro-growth/anti-growth the city is... It also matters very much how much buildable land there is left. They are looking for infill projects.
Stacey Winn: Would you say that they are currently capitalized?
Justin Clark: The bigger firms are well capitalized. The interesting side of this coin that has yet to show it's side is the residential funds that were trying to raise in 2007 and 2008 never got off the ground. People were not investing in many of the residential funds. Whereas the commercial funds that were up and running during that time were able to raise, however the commercial investment product has gone away. The commercial funds are now looking to make investments in residential real estate.
Stacey Winn: What type of groups and funds are they looking to invest in now?
Justin Clark: Here is the biggest question, do they care about legacy issues or not? What we are seeing today is that the majority of the institutional relationships are double handshakes. These relationships are following the bios as apposed to the brands.
Stacey Winn: How big of a role did the legacy issues play in this process?
Justin Clark: Right, the media wants to make it seem like everybody is Bernie Madoff. The truth is that the legacy issues are not as big of a deal killer as some of us thought they would be. Today it is about the right group/bios going out and implementing a business plan that meets the institutional and investment banking criteria.
Stacey Winn: What are they looking for from the sponsors side?
Justin Clark: Today, the institutional players are looking for 10-20% of the capital to come from the sponsor and the institutional player would put 80-90% of the capital in the deal. This creates opportunity for a company like Americap, because now we have skin in the game and can profit from the deal alongside the institutional players.
Stacey Winn: What size are the deals that are being looked at today?
Justin Clark: Initially, the institutional players were saying that they had no interest in placing less than $10 million at a time. These $10 million pieces have lots that we have no interest in holding today. The major value deals are the smaller 100 to 300 lot deals. We are finding today, that the institutional players are saying let's put 4 deals together and invest our capital that way.
Stacey Winn: Would you say that deals are happening today?
Justin Clark: The big news is the money on the sidelines. There is a ton of money waiting on the sidelines, however deals are happening today. The smart money is getting in now and buying the deals they want, rather than buying the deals they can get.
While getting sunburned in San Luis Obispo last weekend, I had some time to reflect on what social networking websites are working for us here at Americap Development Partners. On Linkedin.com there are over 39 million members in over 200 countries in 170 different industries! They add one new member every second, that alone is amazing. Not to mention, how easy the site is to navigate through. I currently have 78 members through LinkedIn. Those 78 members are connected to over 5300 people. So, through my entire network of those 78 people, and their 5300 people I am easily connected to over 539,900 people. With one click of a button I can be introduced to any one of those 540,000 people.
Americap has also started it's own group on LinkedIn, The Dirt Club. I started this group a week ago and we already have 47 members. Now those are 47 people that are interested in what Americap has to say about real estate investing. That's truly amazing to hit those numbers in 6 days!
What I'm really getting at here, is that while it is great to go to networking events and great to shake palms with like-minded individuals... But when you have 39 million people in one arena, you'd be foolish not to take advantage of that. In my two years at Americap I am finding that my time is becoming more and more valuable and more and more of an asset to Americap. In addition, I am 21 years old without a wife and kids, what's your time worth?
Join LinkedIn.com, get a great profile going. Update it and look at it often and see which one of those 39 million people can help take you to the next level. You will not regret joining LinkedIn.com!
Many are asking the question, is it time to invest in residential real estate? I envision the entrepreneurial person up at 10:00 at night googling whether or not they should put their money to work in real estate now. Thinking to themselves, it must be time.
I am in the business, I work with investors, I see the opportunity, I represent a company who is taking advantage of the biggest buying opportunity of all of our lives. Some of you will get in now, others will get in a year from now... you'll all be fine! The rest will invest when their father, brother, mother, sister, father-in-law, cousin and next door neighbor tell them it's time... Three years from now this portion of the herd will be our buyers!
If we are looking at the facts of the industry today, we are finding fact after fact telling us that we are burning through existing inventories, the population levels are soaring, we are not replenishing the market with new homes. Let's even take a step back... we can all now pick up the newspaper and find articles that the real estate market is bottoming. When mainstream has it in their sites, you'd better have a personal plan of action. Folks, it is time. Get out there and take advantage of American Real Estate opportunities. This sounds salesy, this sounds like it is written for the less-analytical and the more excitable types. The truth is that this is written for the person that needs that push, I am declaring that we are in an amazing buying trough and I am personally helping every one I can get into this. Americap is changing an industry one acquisition at a time. We're great educators, if you are interested in learning more we should share notes. Contact me anytime for education.
Shoot me an email with questions or comments: jclark@americapdp.com
Call me any time 925-824-4302
Get out and join the social networking world. Get on LinkedIn, join twitter, start a youtube.com channel of your own.
Good Evening,
It is safe to say that my motivation has gone through the roof over the past few weeks. Many fall victim to the idea that they don't think they can work much harder/smarter than they had been previously been working. Scott Clark, CEO of Americap has always told me that I am only as busy as I think I am and to work smarter not just harder. I believe him, what's important in our current economic time is to make sure that we focus all of our time and energy to creating a successful end result. For Americap, it is capitalizing on the opportunity to acquire 10,000 residential finished lots and continue to build a brand that is changing an industry. I was lucky enough to attend a "Get Motivated" seminar a few weeks ago, what a great event! To have the opportunity to hear Steve Forbes, Rudy Giuliani, Zig Ziglar, Dr. Earl Mindell, Michael Phelps, General Colin Powell, Krish Dhanam, Phil Town and others speak was truly mind-blowing. I left with strategies for how we can all be more successful. The key is forming strategic alignments with the following: People who believe in you, People who challenge you, and People who share similar values. I have found that Americap uses these values in our every day work, these people are the ones that are Building Relationships that Create Communities that Bring People Together!
Get Motivated, These Are The Great Times!
We have bottomed, now it might be a little rocky....
It is time to start telling people it has bottomed, will we still experience a small price decline in homes? Will we still see another round of foreclosures? Will we still see investor confidence dip? The answer to all of these questions does not necessarily even matter. We are in the buying trough and trying to time the bottom is irresponsible investing. We are seeing 30% of foreclosures bought with cash in California, only 6.7 months left of home inventory... The numbers are out there, affordability is key. I am lucky enough to be surrounded by the top experts in the bay area, both in our advisory board and our Americap team. There is a distinct supply and demand issue that will continue to build. This continues to help our business model as we are acquiring 10,000+ residential single family lots. I would like to see discussion in the comment section of this page, please let me know your thoughts on investing in foreclosure homes vs. investing with a particular company meant to take advantage of the current market.
Good Evening,
This is the inception post of this blog. Thank you very much for visiting. My hope for this blog is two fold. One, to create a light at the end of the tunnel. We are all bombarded with the doom and gloom in the market place, let's take a look at the opportunity at hand and how we are all going to take control and profit from this! Two, to educate and inform the community about current trends we are seeing in real estate and in the investor world.
My name is Justin Clark, I am in the Investor Relations department with Americap Development Partners. We are a residential land investment company buying distressed residential projects at extreme discounts. You can imagine the opportunity. www.americapdp.com
