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Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
Fernando Levy Hara (01:52)
thank you for staying. So my name is Fernando Levihara. I'm a developer of multifamily in the Gulf of America, formerly known Gulf of Mexico. But mainly I'm a professor in real estate cycles in Harvard University. So we deal all the time on trying to get the crystal ball of what will happen in the future. And one of the crystal ball things that we have all the time is
what will happen with cup rates. So after this picture, let our speaker introduce themselves so we start the ball rolling.
David Moghavem (02:27)
Hey everyone, David Mogavum. I'm head of acquisitions at Tri-Om Properties. We're a value add, vertically integrated company. We strictly buy multi-family in Florida, Georgia, Carolinas, Texas, Colorado, Oregon, and California. We have an office here in Miami and we're headquartered in LA, about a billion and half AUM and over 7,000 units.
Branko Kuzmanovic (02:50)
Hi everyone, name is Bronco Kuzmanovich. I'm a director of acquisitions at Empira Group. We're a multifamily development firm headquartered in Switzerland and Europe. We have offices here in Miami. Our strategy is to acquire the best located infill urban walkable sites for class A multifamily development, anything mid-rise and high-rise. I have a few projects here and some in Dallas, Texas as well. So I'm happy to be here.
Jeffrey Ardizon (03:20)
My name is Jeff or is on principle with the state companies. We are completely vertically integrated real estate firm. We have about 5000 units in the pipeline right now. Under pre construction titled or stabilized. Do we build class a product traditionally more merchant building nature or are we entitled and.
develop the lands where also the GC's on its self-perform most of our deals, stabilize the asset and then sell to institutional funds or and buyers once the assets are stabilized TCO.
Sometimes we do have partners where we do some recap or take out deals on depending on the capital structure that we have. Most of our capital is friends and family, more local. And we focus strictly West Palm, Broward and Dade County. Mid-rise, high-rise, garden deals, mixed use projects in general.
Fernando Levy Hara (04:11)
Okay, what do you think that the first question is we know we have been listening a lot in the last panel that spread keep compressing interest rates are still high but for some reason in this last cycle what we have learned in real estate 101 and we have been teaching for 25 years is that when interest rates were going up
the cap rates were expanding. So the first question is, why do you think that this time this didn't happen?
Jeffrey Ardizon (04:41)
let's see how to answer that question. Depends. It happens sometimes and sometimes it didn't happen. If you're asking if the spreads have not generally when treasury goes up and your spreads, your spreads are not as wide as they are when your treasury is a lot lower, right? We go off. We're basing, we're basing sales based on attending your treasury with a spread. if your treasury is going up, you're tightening your spread.
Branko Kuzmanovic (04:43)
Get ready.
Jeffrey Ardizon (05:07)
That's just the way it goes. That's just the general fundamentals of you know when you're looking at just in general acquisitions I can I you know to be honest with you There was just a lot of things happening in capital markets. You know the funds that were had a lot of redemptions People you know I don't know if I want to get to the next into the next conversation, but the buyer and sell spread
with with buyers and sellers is it was still very wide. So I don't know. I think that's more a question for the guys that are actually buying our product. But it seems to me that it's a little bit all over the place because I saw spreads that were very thin last year in a couple of deals when it was the summer and we kind of saw a dip in the 10 year treasury and some some folks took advantage of it.
And then you ask other guys and they're buying at 575 or other guys are at 475 like it's just all over the place right now.
David Moghavem (05:59)
Yeah, I think so. You know, you have a lens from from a development standpoint. I felt like it trickled in later, right? But when you're buying value add existing product, you were really just seeing the movement and expansion and cap rates in real time. I think what was interesting is when rate hikes started, obviously there was a little bit of a pause and there was a little bit of price discovery in 2023. You saw cap rates move bit for bit with where treasuries were going and you everyone was, you the
The theme of 2023 was positive leverage or neutral leverage or negative leverage and everyone was solving based on relativity to borrowing rates. And I think that was because it was really more capital stack distress that you were starting to see and not necessarily operational distress. People were still paying rent, occupancy was still fine. Then you saw that glut of supply that people were buying in building in 2021, 2022.
to hit and you started seeing a little bit of operational distress in 2024. That was, you know, vacancy upticks, collection upticks, depending on the market, concessions, and so that's when, no matter what treasuries we're moving at,
there was still a little bit, it wasn't moving bit for bit anymore because now people were starting to factor in some of the operational distress. So I think that's kind of how you saw cap rates expand in the beginning where it was a little bit more bit for bit with where treasuries were moving to now where you have a sale comps, you have a whole set of data for the past couple of years of where things were trading. So I think now people know where the market is of where some of these assets are trading at, whether as in the beginning,
when things blew up and there was uncertainty, there was a little bit more price discovery.
Branko Kuzmanovic (07:50)
Yeah, great point. addition to that, on kind of class A, really well-located properties, specifically for South Florida, if people had a really good capital stack, figured out that they weren't really pressed to sell, they're just not really itching to sell at really expanded cap rates. So they're just, on some of the class A stuff here in South Florida, we just haven't experienced enough trades where it would prove that the cap rates have expanded or not. So people are just perhaps taking properties to market, seeing that they're not
hitting the price per unit or price they're trying to achieve for their investors and they're just saying okay these are great locations we can build this for what we're in it for and we're just going to wait for a little bit longer to see what we're going to do with the property but a lot of people are doing well in class A properties in South Florida as well so it just hasn't proven that cap rates are expanded or not.
Jeffrey Ardizon (08:40)
Yeah,
yeah, I would agree and also there was a lot of capital that was raised to buy Assets at well below replacement cost and I think those guys are struggling to do deals right now because I think the sellers are not there yet Most guys I delivered in the past two or three years Built to a good number right relative to what rents increased at and so
What's happening is that most guys can hold, right? You know, I built a Mil-Gyze, $255,000 a door, class A product, you know, it was built and bought out three years ago and it's been stabilized for one or two years. Like why? I'm not, I'm not in a hurry to sell. Now you are going to have, there is going to be at some point, um, a flexion point where guys do need to recycle capital. Developers need to get out of deals. Um, I don't think we've seen that yet.
But I think it's coming and I think some developers are starting to see that they cannot go on to the next deal because especially if you're like a family or friends, you know, capital raising, it's not more institutional, but more. I think more now are starting to kind of research. Should we go the more institutional route versus the traditional family or friends if we can't recycle capital, you know, and it just, it really just depends on, on, you know, the strength of the sponsor.
And the assets in itself, but I think they think there's there's been quite a little bit of a dislocation there and and honestly It all just depends. Are you a core asset or a suburban asset? You know, are you gonna stretch a little bit more because you can see some potential rank rows or some value-add opportunities That's that's the biggest question, but I think ultimately on our end was always not necessarily get heads and beds even though the capital
You know, your construction loans went from 5 % to 10%, right? And I think for the most part, when people don't understand, is we're not giving concessions because we're having an issue absorbing rentals. We're giving concessions because we need to get to 90 % because debt went up and skyrocketed, and now we need to get out, right?
David Moghavem (10:46)
Yeah, so I guess, guess, uh, you know, the first part of what you were saying is the ability for developers to hold. And I think the experience ones, Fernando and Jeff, you guys have ways and an understanding of how to either get out of your loans or maybe you've structured it where there's some sort of mini perm after, which I would love to hear more about. think what, um, what we are seeing the people that are trying to buy new construction below replacement costs, they're trying to look for maybe the merchant developers who built
Fairly good product, maybe not the best, maybe not the worst, but it's newer construction. But they're cap stack distress where they didn't plan for a mini permer. They did go a little bit over their heels on some of the leverage where they have no choice but to sell. How have you guys been able to kind of navigate the takeout and getting that lease up in order to get a takeout to hold a little better?
Jeffrey Ardizon (11:39)
So generally, on three of the deals that we've structured most recently where we had that pressure, we got it to 80%, 85 % on these few deals. One of them was at 20%, 30%. But the cost of capital was so high. at that time, like a year ago, you didn't know if this was going to last another three, two, four years. And we were like, OK, let's go out and get a temporary bridge loan.
three-year term on it and with one year guaranteed and hope within the hopes that in the next or two three years we'll be able to trade out and not get long-term permanent financing on it and and always you know we always talked about that and for us was always and in times like this it's just you got to remain flexible you know if I need if I need to trade an asset and it makes sense I need to have the flexibility where it's not going to cost me as much so although it didn't mature
that construction loan didn't mature, it was time to get out because I needed a little bit of more time. Yeah, Yeah, more runway exactly to get out to market. So I don't know that answers your question.
David Moghavem (12:36)
More right.
No, doesn't
and you know construction or value-add it's the same cap stack problem because as on the value outside everyone was buying bridge. is just another form of construction for value-add and that also had an expiring date and runway was the number one priority. If you can get runway from your loan
you're putting good money after good rather than if you're doing a pay down and doing a loan mod, but you're only getting one year, that's good money after bad because that runway is not going to save you when the time comes to sell or come up with a better.
Jeffrey Ardizon (13:16)
100%.
Fernando Levy Hara (13:18)
So actually what we are saying is that the opportunity cost side interest rate has not been demonstrated that have been so influential because as I asked two weeks ago to a big fund manager why you are investing in my project with a spread of 1.4
when you could be investing that money in treasuries and going to play golf, okay? And we will go back to the wise. But what we are saying, I'm sorry that I get to the academic part, is what, actually what Jeffrey is saying that is very interesting. Interest rate eventually will start having an effect in people that needs to get rid of an expensive construction loan. And we know that these last three, four years, we got more expensive construction loans that we can digest. And we may see, start
next year in two years that people that is terming out in these construction loans will need to get out and this is if interest rate doesn't go down that we may start seeing the impact.
Jeffrey Ardizon (14:17)
Yeah, but you know, at the same time, the supply has peaked somewhat here in South Florida. And I think you're going to be in a different environment when those guys have to refinance, whether it's temporary financing or not, whether treasuries are below four at that point, and then whether it makes sense to trade an asset.
It was it was it was you know in the beginning for the most part was that was just like the borrower the developer just needed to be in a position where we need to make financial sense for ourselves and not necessarily that the market was not providing that you know that the antenna there's no absorption we don't have that problem right now of course there's a little bit of and and I think for the most part since we didn't know when we were going to trade it for us was like okay we have to
This is not the market where it was two to three years before that where you were selling the dream, right? And you're a negative leverage for the first three or four years. No, like now you have to, you have to prove rents and for, and for, for my guys and for our strategy. I told them from the very beginning is, people are not running underwriting the T threes like they were before. you can show absorption going up, but you know, they want to know what you can rent at. so, we always, you know, focused on the last
year, four years is like kind of really maximizing rents to see where they need to be. Because we knew that the end buyer was going to be less focused on on trying to make the deal work quote unquote, know, and guys getting very aggressive. So as as as a sponsor, we try to build the valley on that side of it. Maybe brought up the expenses a little bit, but that kind of flushes out on its own, especially once you're out of lease up. But that was kind of our our indication where cap rates were going to go up. Okay, well, we have to we have to prove these friends.
Same time trying to get the building to 90 95, you know, it was just a struggle. It was it was it was a time like what's more important and what was more important two months ago versus today was way different. We just so much volatility and uncertainty with these markets and and it was.
David Moghavem (16:09)
And you're delivering during other peak supply and I guess like one of the questions I guess for the two developers here is also like now you're under you're seeing supply nationally fall off a cliff right is this a good time to be contrarian and build what are you and what are you solving to on like a yield on cost to really
Jeffrey Ardizon (16:12)
Exactly.
I'll
say hell yes, but I just say it right now. you can, it's so, so here's like for us is we have, we have a lot of scale, right? We have a lot of economies of scale. We're, on GC as well. and so for our labor and when we pitch out, it's, it's not necessarily that we're not the highest payers, right? We're not, but they know they're getting the next deal.
And so I can, I can bring down my cost, right? Maybe more in tune of like 10, 15 % than your normal builder can, you know, because I can, can really crunch numbers, especially with 5,000 units in the pipeline. So that, that allows me to, that allows me to really, to really focus in on being more of the Valley play for most. I just don't, I don't.
What I'm trying to figure out and what we're trying to figure out is where do we stand in the next year or two, but the supply that's online right now is getting absorbed really well, especially in South Florida, in Miami, in Broward and West Palm. But I don't even know what to tell you where six months is going to be from now. Like it's just so difficult to have an understanding. I don't
Branko Kuzmanovic (17:42)
We also see that while there's so much supply, certain sub markets have less supply than others, like Windwood and Edgewater are so overwhelmed with the amount of deliveries and concessions of two months. some really are struggling with lease up, some are actually trying to get to that occupancy as quickly and deal with their loans. But certain markets are well positioned, they're high barriers to entry lands, expensive like Coral Gables, obviously, Coconut Bro is impossible to get anything, but Brickhole, West Palm Beach downtown.
certain pockets are doing really well and there's not that much supply. But on the yield and cost, it has to be in the six and a half in order to attract your investors. For development. For development, in order to get anyone into it. mean, unless it's a really amazing story, an incredible location, can be slightly lower where you can prove that your exit cap rate is not going to be five and five plus. But it has to be in the sixes and it has to be a really good story, like Jeff said.
Jeffrey Ardizon (18:39)
Yeah, and it's gonna put upward pressure on rents. mean, when you're delivering, if you can get off the ground right now, and you can deliver an asset in two years, where supply, 70 % of the starts did not happen. Most of those guys are selling sites and doing the live local and doing like those, they're not real. I hate to say it like that, but it's not happening, right? Like it's so, while...
While supply is peaking out, if you can get off the ground right now and deliver a new product in two years, I think you're going to have, as a merchant builder for ourselves, you're going have two scenarios. You're going to have one where you're going to start seeing a little bit more rent growth, right? Because the market supply was able to absorb those units. And you're going to get into an expansionary phase, I think, on the rent side. And hopefully, by that time, the inflation and rents have actually subsided.
I do think if you can get off the ground now and build to a six and a half to a seven, which is extremely difficult, you know, and you can have that room for that spread in two years, you're gonna be delivering at a time where there's not a lot of new product. Does that make sense?
David Moghavem (19:43)
It's kind of like it makes sense in theory qualitatively, quantitatively when you're kind putting pen to paper, you start underwriting the cost of capital, you start underwriting the construction costs and now you have tariffs, so now construction costs are even higher. So how do you get to that six and a half with all that going on? Meanwhile,
there's yields that are kind of expanding with where rates are at today to buy new product, maybe at replacement costs, maybe below, a little below depending on who you ask.
Jeffrey Ardizon (20:17)
I think scale.
got to have like in order for bring pricing down, you got to have scale. You got to have economies of scale. If you don't right now, you're not building. most banks are not, you know, people before we're doing, which was crazy, which was they were building to five and a half yields. And I think those are the projects that are now going to be coming online. And I think those are the projects that are going to have a very hard time. And I think that's where you could possibly see some distress.
David Moghavem (20:42)
It's interesting if
you if you hit that five and a half like there is new construction today that's trading five five and a quarter worse you know what I so like they'll be it's not a home run but like they'll be okay they're not gonna like lose they're not gonna get their equity is not gonna get wiped you know maybe they'll lose a little bit of money if they hit the five and a half they'll be fine if they didn't hit the five and a half they might be a little bit in trouble
Jeffrey Ardizon (21:06)
problem was they
hit five and a half with construction costs at six.
David Moghavem (21:11)
Yeah. If they hit,
if they actually hit that five and a half, like they were on budget, they were on time, which like in. Very, very tough to do. I don't know. Brando, guess like as the other developer, how are you guys like solving through now?
Jeffrey Ardizon (21:18)
Yeah, they be okay, yeah.
Fernando Levy Hara (21:27)
One of the things that are happening and why the pipeline is drying up because there are not too many projects that are working and if they are construction lenders probably are not lending. So what Jeffrey was saying about 70 % of the project not happening. Actually in the real numbers this is what we see in our research after two years of delivering almost 1 million
new units, which was 2022 and 2023. Last year, the number already dropped down to 750. And if we see now, the amount of units being built, started in the last 30 years, 30 days, is less than 100. So supply is really going up, down very fast. It will depend on also in the...
regions. So I want to ask Branco and David a question that we cannot reply because we are a single market guys. He's in South Florida, I'm in the West part of Florida. So do you see differences between the difference market where you are operating, which one are the ones that you see more realistic and why are more artificial?
Branko Kuzmanovic (22:48)
We, our firm is.
focus on South Florida and then Dallas in Texas. So we're lucky that both of those markets are pretty vibrant and exciting and fundamentals in both markets are great with population trend jobs, relocations of firms and decision makers. So somewhat similar fundamentals in both. There's been a little more, I feel like a little more development in Dallas depends on where you are, but definitely the suburban parts of Dallas. There's been so much and so many deliveries, but
Overall, we're excited. mean, when you go through Dallas as well as in here, people are looking for deals. They want to make things work. The capital is there versus any of the other kind of historic gateway markets like Chicago or San Francisco or some of that. So the dynamics in both markets are really good, and people are trying to make numbers work and are trying to get projects off the ground.
David Moghavem (23:37)
Yeah, I say we're in a bunch of different states, Florida, Georgia, Carolinas, Texas, Oregon, California, Colorado. So we have a pretty good lens on kind of where cap rates were and how they've moved and shifted. It's so interesting because pre-rate hike, everything was solving to the same. Whether it was even value add core plus, different markets, everything was.
Same cap rate. No one was really even looking at the cap rate. They're all solving to maybe some return on cost. That completely reset when rates ran up and you're starting to see all these different markets price at different cap rates, depending on the risk, which is how it should be. So you look at a, you know, the Carolinas, Raleigh, Durham, this is like the sexy market right now that people want to invest in and has good collections. Good. Everything is super tight cap rates.
to
Is are you getting a risk-adjusted return and is that risk justified and what I'm finding right now at least I try on the sentiment is we we really like out-of-favor markets, so We you know we just we bought a deal in Atlanta in October We have another one under contract a lot of people are kind of saying that Atlanta is out of favor justifiably so but you're getting some incredible yield positive leverage day one for quality institutional assets and what you're also finding is
the headline risk for some of these markets are a little bit over amplified and we're seeing some of these struggles operationally that may have hidden out a favorite market start to trickle into the favorable markets. So by having boots on the ground you kind of see how these dynamics shift. South Florida, similar issue where it's a sexy market there's I mean we're all in Miami for a reason it's amazing here but you're seeing delinquencies start to trickle up you're seeing the supply
start to hurt some of the operations. Insurance, you know, really hit the past couple years. It's starting to stabilize and come down. So it's priced accordingly, right? So now it's a good time to take a step back and saying, is the risk adjusted return make sense on these deals?
Jeffrey Ardizon (25:47)
Yeah, and also think it has to do with like, there's some discovery on cap rates too, right? Which takes time. A year ago, we had no idea where they were panning out. And I think it's ultimately a question of, you chasing yield or are you chasing a core plus asset that, you know, it's going to be great for you. You're not going get the yield that you want. But you kind of like, it's kind of like weighing them both out and trying to find a perfect scenario.
But you know, like it's out Florida, long-term fundamentals. mean, you can't go wrong, right? And what's happening with the growth with this city, the regulatory environment is...
pretty much non-existent here. And you have other metro areas in the United States that do have those issues. New York, Chicago, mean, there's Washington, there's places where capital is no longer being a place that people may want to invest too much time in. And we saw a lot of that capital, the flight come over here. And now we're trying to realize how much...
of it is actually going to stay. So I can tell you one thing. The renter in Miami, in South Florida, in Broward, the demographics have doubled, like household incomes have doubled in our buildings. And not necessarily because we got guys who are getting high salaries and relocating down here, because that is happening, by the way.
But it's those people that they cannot consolidate. You can't buy a home. you know, you're coming out of college, making a hundred grand a year and you get married and you have a household income of $150,000 a year. You can't find a home to live in. You can't. The only thing you're going to do is that you got to go live vertical. And so we start, we're starting to see those types of consolidations happening in our rental buildings. And while what used to be a hundred and four, you know, 140,000 on household income.
Now it's 250 average, know, in our Aventura projects is 250 average. And you know, you're averaging 34, 3500 dollar rents. Now we'll see when, when, you know, it's adjusted for the inflation. It's kind of seeing where we're at at that point, but there's, kind of want to be in those markets. I would assume that have, you know, when you talk about risk adjusted returns, we want to be in markets that, yeah, although I'm getting a lower cap rate, you know, I know that my money's somewhat.
kind of safe, right? Not safe in a sense, but it's appreciating with a long-term vision. So I guess it's really what you're looking for. When you guys, and question for you guys is, you looking to sell five, seven years? Like your investment strategy, is it more long-term in nature or is it very flexible?
David Moghavem (28:18)
It's
good question. mean, we're generally three to five year holds. So our outlook is definitely more of a three to five year hold outlook. We have partners that have 10 to 15 year holds and their perspective is very different. For instance, they won't invest in Florida because of natural like insurance risk and they miss out on the boom, right? But they're also thinking long-term about the insurability of Florida. So whether as for us,
We're kind of on the same boat where we're like, there's so much amazing stuff happening here. And if you can pencil insurance costs today in Miami and you diversify that insurance risk by having a master insurance policy and stabilize it, you'll get paid when kind of some of that insurance starts to come down and stabilize. So by three to five year holds, you're just assessing different types of risk. Whether as.
we probably wouldn't be as bullish on a market with political risk, right? Like a LA, which I'm from, and I moved here, so I'm one of the data points. So that's tougher for a group like us raising capital to underwrite that risk.
Branko Kuzmanovic (29:27)
All of our capital is European pension funds and insurance companies, so it's a much longer term hold. And that's kind of what David said. We feel that if we pick the right locations here over that kind three to seven year period, you will get lucky quote unquote and you will exit the investment at the right time where insurance stabilizes, cap rates come back. And that's why we love it here. think this is long term, this will be the ideal. We've always kind of tried to expand into other
markets but as Jeff said why go somewhere else where there's so much to do in South Florida so many markets that are continuing to do better there's scarcity of land and then just so many infill opportunities where developments will do really well.
Jeffrey Ardizon (30:04)
100 % Yeah,
like all the characteristics of the fundamentals you look for They really check the box right? They always have you like your insurance and that's kind of subsiding right now Those guys are on the road insurance at higher, you know, 2200 bucks 2300 bucks and now you can get it, know 15 16 1700 Depending what the asset class is and where you're at
They're looking at, we're doing well, but then they got hit with something else. It's always something. It's never perfect.
David Moghavem (30:35)
I would say if Miami didn't have the insurance risk, the cap rates would be trading tighter than like Raleigh or some of these other places that are sub five caps even for core core plus deals. So the insurance has kind of played a little bit of a role where you're actually getting a little bit of an expansion in cap rate, but it's still Miami, you still have foreign capital coming here. It's from coming out of COVID, it's now a standalone market. It's transformed
larger than any other city I've seen coming out of COVID.
Jeffrey Ardizon (31:08)
and what what
do you guys underwriting sorry if i'm asking these questions for them because you i love it what is your
Fernando Levy Hara (31:13)
I love a moderator
that doesn't need to.
David Moghavem (31:15)
Your job's easy.
Jeffrey Ardizon (31:16)
In general,
in general, what's, you know, when you're underwriting a transaction and buying a site or buying a project, um, what, what are you really looking in terminal value? Like what's your, when you underwrite a deal today, let's say in South Florida, um, what do you, what is your terminal exit value? Like what, what, what cap rates are you guys using? I know that's a very, it's like a crazy question, but you're, you're, doing it. So I got, I would really like to know that.
David Moghavem (31:43)
No, mean, I think what we conceptually try to use as a North Star is you have a whole set of comps at peak of where things are trading from a price per pound basis. Obviously, the cap rates were insane. I don't think we'll get back to those cap rates. But I think those price per pounds at least give you a little bit of a reference point that if you buy a deal today, and you're trending rents, and you're putting an exit cap, and it's in line with where things exited at,
peak. Our take at least is that we'll get back to that price per pound in the next three to five years. Okay. So if we're past that, if we put an exit cap and we trend rents and our exit price per pound is higher than kind of where comps were, it's like, all right, that's a little bit too stratosphere. We're a little over our heels. Let's at least try to not break records. You know, so that's kind of like our north star. I'm curious to hear what you think.
Branko Kuzmanovic (32:35)
The challenge that we have is just on the mid-rise and high-rise product, we haven't had enough transactions in the last year or two. As the rents have gone up, simultaneously the exit price per unit will go up as well. But we just haven't had that many like in Brick Hall and downtown and Coral Gables that are-
kind of allowing you to underwrite these deals with an exit price that's, I don't know, $500,000, $600,000 a door on a brand new construction. So you know that that's what it costs, too. We get the bids. You know it's expensive. You know you're getting really high rents, mid-fors. You know your exit has to be, I don't know, $500,000, $600,000 a door in a really good location. But you just don't have the comps to prove that because nothing's transacted. So that's something that we are continuously struggling with and adjusting underwriting and saying no to projects because
We just don't want to be the ones that are underwriting a crazy number that we don't feel comfortable going forward with. So I think that for all of us that are developing brand new product, it would be awesome for some of the properties that have high rents to transact to kind of give us that ceiling where we can comp it out to that. Because our firm just doesn't believe that you can.
buy a class A product in a great location, significantly below replacement cost in this market. Let's say it's like a downtown.
Fernando Levy Hara (33:55)
Especially when all the money is going to that market and with demographic, right? When we teach real estate cycle, we say follow the people and follow the money. So if the money is going to a market and the people keeps coming, so my question that we have just two minutes, what do you think that will happen if in a year or two interest rate went down 1.5? Because if...
We have this high cap rate with this short gap with this interest rate. What may happen in that case? And we have one minute 43.
David Moghavem (34:28)
Ten
seconds in September of 2024, Treasuries hit mid threes and the market was ripping. You just saw the BOVs and things were so like. And now we're 50 bips higher than that today. I think the five years at 4 % right now. So I think we already got a glimpse of like what's going to happen just from 50 bits. I don't even think we need the full two minutes.
Jeffrey Ardizon (34:39)
It was just like, was like,
It's 100 % myth.
Fernando Levy Hara (34:54)
We are developers, that's why we are optimistic.
Jeffrey Ardizon (34:56)
No, and we saw it even even even in the summer when it dipped and we saw a few Transaction happened then guys who closed and listen the guys who are gonna win a lot of guys that are gonna win Are guys that also can also go in and buy cash and don't have and can do stern like a quick close There's not as many of those guys that are out there But for right now if rates are not at where they need to be Those are the guys that are getting a little bit more competitive, but I agree with you I think I think the floodgates open below a four 100 % they open up
Yeah. And it'll be interesting to see what buyers open up to down here. Who's going to be out on the market, for sure.
Fernando Levy Hara (35:34)
Okay, so thank you very much everybody that stayed until the end. Thank you very much to these great speakers and see you next year.