Moving from Multifamily to new CRE asset class in California?

Question

I've had great success with both a 6-unit and 14-unit value-add multifamily deals in Long Beach, CA.

With the continuing regulatory jungle of California, I'm looking to other commercial RE asset classes, in California, that are the next best transition for value-add investments.

We invest with our own capital, no syndications.

I'm interested to hear from anyone who has transitioned from multifamily to a new asset class, specifically for value add deals.

We like 1-3 year hold periods, in which we are at least doubling our equity invested in that time period.

Thank you and looking forward to any thoughts!

Nathan G. · Answer

Thank you @Scott Meyers, @Jeff Wallenius and @Taylor L.

From a value add standpoint, massively forcing equity in a short amount of time, it really seems that Self Storage is the most conducive to that strategy.

Appreciate the insight here, and will continue to do my research, education and networking with a new groups of brokers, managers, contractors, etc!

Jeff Wallenius · Answer

@Nathan G. we're in both multifamily and storage builds. The storage arena is underserved in quite a few markets and we're able to go both ground up and are also looking at conversion of big box stores that have gone out of business.

Scott Meyers · Answer

@Nathan G. - I made nearly the exact same move nearly 20 years ago and it was, by far, the smartest thing I've ever done.  As you've undoubtedly learned (or may learn yet) tenants can be ... "challenging" and the cashflows all too often get eaten up when you have a bad one.  Personally, I sold ALL of my single-and-multifamily assets (400 or so units) and now am strictly involved in Self Storage.  To date, I've been involved in dozens of deals around the country and I'd never go back to any type of residential.  Self storage has simply been the best asset class for me - no tenants, no toilets, and no trash!

Taylor L. · Answer

I've gotten into Self Storage this year, having invested in multifamily historically. You're right that there's a smaller market in self storage, there's also a lot more competition from the big boys at smaller dollar valuations in self storage.

Nathan G. · Answer

Thanks @Barry Ruby @Jeff Wallenius @Greg Dickerson @Brant Garner for these great comments.

I think this is going to be an interesting conversation for many of us in California who've built a great value-add process with the plentiful MF assets that are ripe for turn-around here.

Self Storage, Office and Retail is very interesting, Self Storage probably being the closest asset class to MF, but there are far fewer deals to be found compared to MF.

I think the key will be A) locating deals, priced attractively, that have a clear and forecastable plan to increase NOI, B) attractive debt options, and C) the right contractor/vendor team that will probably be different than what we use for MF.

Thanks again for the insight, it's greatly appreciated.

Brant Garner · Answer

@Nathan G.

We’re seeing a lot of CA-MF money going into other asset classes with the majority being retail. Rent control is scaring a lot of MF owners in other areas too.

Greg Dickerson · Answer

@Nathan G. there is a lot of opportunity investing in other types of commercial and industrial properties both value add and ground up. I currently focus on Mixed use, adaptive reuse, retail strip and professional office both strip and condo. There is also a lot of opportunity in the industrial space as well for storage, flex space and industrial co-working space. Feel free to reach out if you would like to discuss.

Barry Ruby · Answer

Hi Nathan,

Given the scarcity of viable SF and MF product in many national markets, I am focusing on finding and vetting raw ground in the form of vacant land and assemblages. Placing properties with development potential under contract with the right terms and conditions (meaning at the right price, option payment structure and closing date) and getting them entitled and defined as to use and density provides an opportunity to create value that can be realized selling the entitled property/project to a developer or developing all or part of it yourself.

Many developers prefer not to go through the entitlement process which involves time, capital and a certain amount of brain damage in working through figuring out the highest and best use of a property and securing the entitlements required to build the project. Getting through that process to arrive at a "shovel ready" project is no where near as capital intensive as ground up horizontal and or vertical development and can be very rewarding if it is done correctly and provides the option to develop all or part of the project yourself or in a JV with investors.

I am working on a 30 acre site that will be developed as a "build to rent" single family project that will provide the value add opportunities note above. If entitlements are secured, I can sell the project on a "paper" basis, do the horizontal improvements and sell improved lots or build out all or some of the vertical improvements by selling some of the improved lots to local homebuilders.

Nathan G. · Answer

@Joel Owens Thank you very much. I have friends in NNN who love it, and I'm very interested in retail/hospitality NNN in the future.

I definitely expect there to be competition everywhere. We've been successful getting multifamily deals by offering aggressive closing terms in our offers, and a reliable reputation with brokers.

I've just had it up to my head with the rent regulations in California and need to head into a new value-add commercial asset class that we can at least move some of the way up the learning curve with our residential experience and team.

Joel Owens · Answer

Yeah I do not like residential. I am a specialist in commercial retail. There is competition in ANY asset class. If people think they will come to retail and there will be no competition for deals they are in for a rude awakening. We are more specialized knowledge to intimately understand the space.

Multifamily many people think it's just single family with a bunch of tenants crammed into one big building so it's easier for investors to understand as a whole. That creates a glut of people to buy. I remember in 2008 and 2009 you couldn't give multifamily away at the bottom.

Moving from Multifamily to new CRE asset class in California?

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