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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.
Martin Aranzabe (01:45)
Alright, welcome to another episode of Deal Flow Friday. I'm your host David Moghavem and today we got Martin Aranzabe from Key International. Martin, how you doing? I'm doing great. It's great having you on. It's great having you here. Thanks for having me. You're also the first to experience the new setup of the studio. How do you like it? Exciting. It's amazing. It's a full production. Full production here. Hi, everyone. Hello to the team. Hello, me and myself and Martin, good to have you on. ⁓ You know, you and I.
We've been talking multifamily development in South Florida for some time from when we first met at a Casa Tua Cucina when my brother introduced us. And then we saw we had some mutuals, Omar, all them. ⁓ Shout out to Nathan. Shout out to Nate, honestly, the Babson connection, which we'll get into as well. I wanted to have you on, talk a little bit about South Florida development, think nationally.
It's a time where development just seems tough, but you guys are still active. You guys still have a lot going on. you guys have also done some incredible deals from 1010 Brickle to Eden Rock to 1100 Biscayne and many more. And so maybe give a little bit of an intro on Key International on yourself, what you guys are busy with, what you guys are doing. Then we'll dive into the market. First of all, thanks for having me.
It's my first podcast ever, it's exciting. ⁓ It's an honor. Thank you. So Key International, we're a Miami-based developer investor. We're vertically integrated. ⁓ We focus primarily on residential and hospitality. On the residential side, we do ground-up construction of condominium, usually targeted towards the luxury segment, I would say. ⁓
And the majority of that is, you know, we sell pre-construction and then once we get to enough sales, we will go on and build a building. And we also have a rental platform. ⁓ And that is the majority that is ground up. We focus on anything from garden all the way to high-rise. Although I would say the great majority of our pipeline today is in the garden, maybe up to like the most efficient eight story building that we can find or opportunity that we can find.
And then the other half of our business is hospitality. So we have a portfolio kind of scattered throughout Florida for the most part, somewhere between four to 5,000 keys. We focus on beachfront hotels, mostly leisure. You mentioned hotels like the Eden Rock or the South Beach Marriott. Those were kind of the two that got us started in the hospitality world. We've since transitioned and we've done anything from that to Hampton and Destin, for example. We like leisure.
We like drag to markets. ⁓ And then we also have a platform or ⁓ a footprint in Europe. So we're doing stuff in Spain. We're doing stuff in Portugal. We're currently under construction on the sixth census. So I would say, aside from residential and hospitality, we touch from time to time other asset classes. Like we bought an RV park in Northeast Florida.
Again, similar drivers to our leisure hotels. So it's a type of business that we understand and we like that for that reason. And we're trying to do more in that space. And then we'll get into funky stuff like that or an occasional office building if we like the story, ⁓ retail here and there. But I would say for the most part, we do hospitality and residential. Are you guys doing any developments where you're combining the resi and the hotel as well? Because I know that's pretty common in Miami as well. It is. It is common in Miami. don't love ⁓ urban hotels.
So that's kind of where we struggle with that hybrid. We've definitely looked at it. We've chased a couple of deals that have that. Mostly condos and hotel on the beach. We would love to do something like that. It's just usually condominium can pay the most for the land. anytime that you can do sellable square feet, you'd rather focus on that than give any allocation of a square footage to a hotel. So why the beach? For hotels.
God's not making any more of it. Supply constraint. So I would say it's mostly supply is the number one driver. ⁓ You know, we have a hotel in pretty much every major coastal market from Miami Beach, although, you know, started in the Keys really. Our last acquisition actually was the Perry Hotel in the Florida Keys at the entrance of Key West all the way up to Jacksonville Beach.
and all the markets, you know, are a little bit different, but they all share similarities. And number one is the, the constraint of supply. You know, it's very hard to find land for hotels. ⁓ again, cause if you can build a condo, you can get a much higher residual land value for condominium execution than for hotels. So it's very rare to find a piece of land that's either in title or that the math makes sense. I would say one hotel that we want, sorry, one market that we stay away from is Daytona.
But other than that, if we can find a piece of land that we can title north of 100 Keys, What's the drawback with Daytona? Land, there's a lot of dirt still Too much, still available. so you guys are looking, targeting on the hotel side at least, supply constraint, beach. And you've found your niche. You probably found your own type of amenities that you can build with it, your partners that you can.
partner with Six Senses, whether it's international or something like and we're also doing stuff more select The last hotel that we finished in the northeast coast of Florida is a Spring Hill Suite in Jacksonville Beach. So there it's a similar idea, supply constraints, drive to markets, your close proximity to Orlando, ⁓ to Georgia, ⁓ big hubs that people can drive to or drive from. And we found that to be a niche.
We like that space. then when you're building this service boxes, you also gain a lot of efficiencies with margins and so forth. it's cool that you guys have a lens on both the multi and the for sale and rental side and then the hotel side because multi yields are super compressed compared to hotels. You're probably getting a lot more cash yield, but different risks, different profiles there. what on the multi side switching gears a bit?
Are you targeting today? What type of yield on cost are you solving to? What's your North Star? I know you guys go vertical a little differently than maybe most merchant developers. So maybe go a little bit into that and what your North Star is into identifying a good deal today. Yeah. So we're trying to build north of a 6 and 1 untrended yield on cost on most of our multi-deals. ⁓ Ideally, you're close to a 7, but hard cost.
creeped up a ton and you can make a spreadsheet say whatever, but when we kind of put our true and honest numbers together, that's usually what we're trying to shake out between a six and a half and a seven. ⁓ We still like garden a lot, particularly in South Florida, if there's still any dirt available for that, it's very rare. Yeah, it's hard to make garden work today, right? In South Florida, correct me if I'm wrong, or you just have to go.
further north past Broward maybe. so ⁓ we still look at a lot of dirt and we chase a lot of dirt. We would love to put garden on. It's just hard to come by. It's either not zoned or you're not getting the right amount of time from the seller or the structure's off. Could be like a funct or like a dead mall or like a dying mall, Or an old office building, but that comes with...
it's zoning issues. Yeah. So you have to rezone it. That's risk of its own. Right. So if you don't get time from the seller, which ideally is what we want, you're taking on, you know, potentially more risk than we're willing to do. So I would say we're, we're focused on garden in South Florida, wherever we can find it, mid rise where it makes sense. And then we, we like certain markets of the West coast of Florida, like Tampa and St. Pete in particular. those that West Florida markets are, you know, ripping.
Are you guys doing anything on the West Coast? Yeah, West Florida. We've been trying to break into Tampa forever. We've had a lot of success in Orlando. And I feel like those two are a bit synonymous, but we found that Tampa just trades a bit tighter than Orlando. I think for a good reason too, like there's some great drivers there and inbound migration there is really strong,
And supply constraints are a little bit higher. Yeah. Like, especially in the core, like you can go out north to Pasco Orlando, yeah, Orlando, they're still building. Like right now they're still building. It's like crazy supply. It's past peak, but it's, it's just plateaued. Like people are just still building, but just not as much. Whether as maybe in Tampa or definitely in some other Sunbelt markets. It's stopped. Right. No, we really like the growth story in Tampa St. Pete in particular. ⁓
specifically speaking about the core. The rent to income ratios are still healthy. You can still deliver product for a good basis. And those are the type of things that we're targeting. Yeah. And to your strategy, think West Florida, can probably find some more garden style type of land than maybe like in South Florida. mean, it's still not easy, ⁓ but whatever there you find, at least you can get a decent structure on it, which is rare down here.
So the 6 and 1 half and 7s that you guys are solving to, are you really seeing that right now? I'm sure there's like,
a few diamonds in the rough, how tough is that to find right now? Super tough. Definitely not easy.
another thing that we like to do when we can is get more aggressive. When we're up deals, right, where it makes sense, if we really like the dirt And that's also part of having that private capital aspect to our firm, which helps a lot, right? It's really our own balance sheet that we put to work, at least on most of the pre-development stuff, right? When we go vertical, it's a different story.
a great amount of partners that we've done business with and then we continue to do business with. on the pre-development stuff is usually our own balance sheet for the most part. And that's, I mean, that's definitely a key as if you want to be a successful developer in this business and any market is having that balance sheet protection when you're doing pre-dev, not putting debt on land and being able to stick it through, tough it out. And then once you're vertical, probably capitalize it.
redo the cap stock in a different way where you can take it through. ⁓ We're also closing on land with our own balance sheet. Yeah. Right. Which not every group does. Some do, but not every group. Yeah. So once you guys are done going vertical, ⁓ at least on the multi-side, like you guys do lease up, do you guys try to flip out of it, hold what's kind of like the structures there usually? What the idea is and kind of usually what ends up happening may differ.
I would say when we go into it, usually build it or design it ⁓ in such a way that we believe we're going to hold it forever. No shortcuts. That's at least the intention. We design it in such a way that we would want to live there, we would want our friends or family to live there. But sometimes it happens that you build it and then the market does whatever it does and then you get a good offer and it makes sense to sell and then we'll sell. So I would say our focus or idea is to build it and keep it.
Uh, doesn't always happen that so going back to kind of the yields and how difficult that's, that is to get the six and a halfs. I feel like if you have the ability to go longer, that you don't have to flip out of it, you're not a merchant developer, a typical merchant developer that you have to flip out of it. You are able to have conviction and lean in on the right side. You will see past.
the numbers and say, okay, maybe it's a low six instead of a six and a half, but I have conviction and I can hold onto this. And maybe if it's a low six on paper, I can still get this cash yield that's better than what you can buy today with, you know, if I were to refire. Yeah. And that's, would say another thing that I kind of learned from, you know, my mentor in the office or my mentors in the office is we like to focus on good dirt so that, you know, development kind of works in dog years. it takes so long for,
for a development to go from the initial kind of due diligence or even when you're looking at the deal, to when you put a shovel in the ground, that in between that timeframe, so many things move that ideally you're protected just on the dirt, right? Just on the real estate, like what is it that you're building and what does the dirt look like? So we tend to focus on those opportunities, which has proven to help us when markets get a little bit more complicated. And another thing that we've...
been lucky enough to be able to do it. just structure land in such a way that we kind of have the ability to play with time. ⁓ So we've done a number of deals ⁓ whereby we get just enough time from the sellers so that we don't have to close or we're not forced to close until the right time.
one of the points I wanted to kind of pick your brain on, if you kind of look on CoStar, I'm not here to rip on South Florida at all, but you're seeing a lot of supply in the pipeline. You're seeing absorption starting to plateau a bit. I think I pulled some stats. Like right now there's been
there's 16,000 units under construction. the way, this is just like Miami date. Just Miami. Yeah. So like Florida, like I think, I think this, I pulled this without even pulling like Broward and so I don't think Broward has as much supply, but there's that, you know, that adds to it. it's like 12,000 units. is it? Yeah. So Miami date is 16,000 units and 12 month deliveries, 10 K. So that's basically, yeah, like 25, 26,000 units, coming online. 12 month absorption was six.
K the past 12 months at peak. It was 14 K. So my question is as a developer, you know, and again, like trying to sell to their egos, like, how are you getting comfortable with some of that supply? And, they get end of the day, this is a supply demand type of game we're in. And you hear the buzz. Like, I mean, we both live here. We both love Miami. We see it. There's a lot of people living here and it's getting more expensive, but then you see all the supply. So how do you kind of.
anecdotally weigh what you're seeing on the ground with what you're also seeing on the numbers with some of the supply. Right. It's tough. And like you said, your everyday life, you're like, wow, Miami is the most exciting city in the world. Everybody's moving from anywhere in the world, like South America, Europe. Yeah. You're starting to see people from Asia and obviously domestically too. that's one thing, but then you see the numbers and it's a different story. That being said, absorption.
Maybe plateaued rent growth is definitely plateaued. ⁓ But we're still seeing, you know, and it's all very specific to pockets and sub markets, right? Downtown may be different than wind, with an edge water than brick or for example. Yeah. So we try to focus as much as we can on lots that we really like and study the micro market as much as possible. Yeah. And focus on what are the fundamentals for that specific site when we look at properties, right? That is on the rental side.
On the condo side, it's a bit of a different equation. ⁓ Usually you're selling in pre-construction. So you want to make sure that whatever your marketing pitch is, it's well put together, that you're selling something that is special. And I imagine that it's only multifamily. That was just multi. Right. Yeah. So you also have a lot of shadow inventory coming from the condo market. For sure. That will see how it plays out into multi. So I would say.
Being disciplined is what we've been trying to do internally on the sites. We're seeing as much dirt as ever and probably more than ever, just because people that bought may be now considering to get out because of whatever reason the math didn't pencil or because dirt has gone up to a point that it makes sense for them to sell or whatever the reason may be. ⁓ So we'll see how it plays out for the time being. think we're staying as disciplined as we can.
The shadow inventory on the rental side is very real. ⁓ yeah, I don't think this includes it. I think what's unique to Miami is how you can fund with pre-construction deposits ⁓ on the sale side, right? And that's why you see a lot of condos being built rather than apartments because you can't do that with apartments and then you compete with shadow inventory on the backend. Whereas on for sale product, you can now equitize
your deal with pre-construction deposits from buyers and then you can go vertical with that much less equity that you have to put down. So in condo, the rush just seems to be ⁓ sprint to 50 % sales as much as it can. So you can kind of funnel that equity or deposit equity ⁓ on top of your own equity to the construction of the development. There's a lot of units.
that are under construction or starting construction or soon to be delivered in that space. Most specifically in the, think, I don't think the kind of ultra luxury will compete with any other rental, right? But ⁓ I would say more of the kind of commodity product for lack of better term. Maybe some of the inventory that was pitched or sold as a short term rental, that will come online. And then I guess the first step will be to see how that short term rental execution goes, right?
You have a lot of units that are renting out on a short-term basis and almost mimicking a hotel. Yeah. ⁓ and you have, you also have a lot of foreign capital, re you know, high net worths that are just buying up a couple of condos here and there, renting them out, parking their money in us real estate. And so just because people aren't going to necessarily live there, doesn't mean they won't buy it. They'll buy the condos and then they'll maybe rent it out. So that's where like the shadow inventory comes in.
Yeah, and that's kind of been done right over time. Miami went through so many ups and downs, especially on the condo side. I feel like it's been an oversupplied market up until COVID basically. I mean, look, I wasn't around working to know exactly kind of how it went down. The stories that I hear is that that kind of speech of Miami's oversupplied has been...
the case at least two or three times in recent history. Right. Specifically talking kind of in the mid 2000s, right? Supposedly there was inventory for decades and came 2012, 13, 14, 15. All that supply was gobbled up. then the next way it started again. building. And then it's kind of kept going since. Yeah. Maybe there was a slowdown somewhere between 17 and 2020, right? Right. But...
but it's still going and you see it every day. People are coming in and jobs are moving in and higher earners are moving into the city. I think the net migration is one thing, but I guess the migration and what that means for income levels is different. You definitely have access to higher paying individuals now, which kind of helps on the rental side and then also on the shadow condo inventory. Yeah, that's true. That's true. think
the net migration, as you said, might be netting out as people that can't afford move out and people that can't afford move in, but income levels are going higher. And that speaks to the rental growth and things like that and absorption in that regard. And I think as the city continues to densify itself, like Miami has high density zoning pretty much all throughout the core. And I think I was reading a stat or maybe I listened in some sort of podcast that
You can still, we can still 10 X the density that we have built today. Yeah. and, and what would be worrisome is to see a city that goes so dense, but then doesn't necessarily have the infrastructure. So I would say that that's what we're trying to also feel. feels like brickell, Yeah, but, I mean, you definitely have a traffic issue, ⁓ but some of the public, some of the public, ⁓ transportation, you know, we're hoping that it'll improve and.
I think the county is doing some good things to funneling funding into public transportation and with a metro mover, which is still, I think, underutilized. Yeah. I don't know how I know you work in downtown and live in Brickell I know. I use I like to walk, but if it's a little too humid or it starts raining in the morning, I'll definitely use a metro. Yeah, I think the metro is great. Yeah, it's great. It's great. It's great for downtown. Many people use it. Many people use it. It's as you said, it might be underutilized. I think just maybe with
like the efficiencies, like it's only efficient for me to get from my place to the office, but it's not efficient for me to get from the office to my place just because of like connectivity. Yeah, exactly. Yeah. So we're focusing also nodes like that, like very, highly connected nodes that where it kind of makes sense for people to maybe live elsewhere and then work in Edgewater. Yeah. Work in Bricko downtown and maybe live in Edgewater. So, so on that note, what, what kind of pockets are you most
most bullish on? Well, we really like Brickell. Even with the supply, even with everything. think Brickell within itself, it's kind of bifurcated into maybe three. But if you want to simplify it to, like East Brickell and West Brickell, you can also add South Brickell to that. ⁓ We really like that sub market. We really like certain pockets of Edgewater where it makes sense. Obviously, the beach.
anything that you can find out there in certain pockets of it or not most of it is great. We have a couple of hotels on the beach. We have a few opportunities in Brickle. So I would say we're focused on that in the core of And then anything that you can go suburban and add kind of lower density product, know, we still think it's cool. double clicking on that, on that like suburban three story garden sale, cause that's our bread and butter. Where are you looking?
in terms of building in those regards? So we're, we canvas Miami as much as we can. I would say we're also looking north, Broward. We have a couple of sites that we either own or that we're looking at ⁓ to add that type of density. Yeah. We just finished phase one of a two-phase project in Delray Beach together with, in a joint venture with 13th Floor Investments.
So we deliver the first phase, it's going well. Multi. Multi family, Five and three story product. ⁓ And that already got delivered? That already got delivered. least up well. Rates are good. That's a great pocket of like if you want to get some good yield for new construction, think that's like a nice, because you want to buy anything in Brickle that's brand new.
That's trophy asset, know, still in the fours, but I think in Delray, you can probably get a little bit more yield and a great amount of demand. Yeah. I mean, I'm curious to hear what you're seeing on, on, on the steals that you're chasing. We, we try to look at built multi. ⁓ we, you know, we just haven't had any like kind of buying, buying stuff.
at a yield that makes sense for us. At least in markets that we like. You're not buying six and a halfs for multi, but you're buying below replacement costs. You're probably buying a five cap today for a new construction, maybe in Delray could be five, maybe a low five if you're lucky or something like that. It depends how you look at concessions and how you see that burning off.
brickles definitely, you know, four caps, right? Something like that. don't remember the last time anything in brick will trade it. Yeah, exactly. But like there's, you know, there's some off markets that kind of are like floating and things like that. So you kind of like know where it's going to price, where it's going to be over yet. and then I would say Tampa new construction is I, mean, I would say is maybe like 25 bits wide, depending on like the location, things like that. Orlando is maybe, ⁓
price similar to Tampa, maybe like a touch wider on yield. ⁓ Which is why we kind of like Orlando is you get some good yield for new product and still have the inbound migration and all that. And it's central Florida. So insurance is a little bit better. ⁓ And we like that garden style, like first ring suburb product where the schools are a little bit better.
there's a little bit more stickiness to the residents that are living at your product. ⁓ and the, you know, the, the just, I don't know, garden's just been our bread and butter forever. And it just feels like less, I don't want to say a capital intensive because like it's, it has its own issues, but like, I don't know. Sometimes when you buy like some of these high rises and trying to cure some of the deferred, gets
Yeah. A little dicey with some of the systems. Yeah. Because one bus is a huge number. Elevators, things like that. Yeah. So I like the three story walk up, like non-elevator service stuff. Yeah. It's just hard to come by. Yeah. Yeah. Exactly. I know you guys are well capitalized. You were just telling me before this, you're going naked on a deal. the first time I've heard that. I'm just not in the development space. Um, but you know, for us guys that are capital raising right now, it's definitely harder than it's been.
⁓ since I've been in, in, in the business, ⁓ I guess when you guys are going vertical, how are you guys capitalizing? Who are you partnering with? how are you strategically partnering with people and getting deals capitalized? So the company has, has its own balance sheet, where, you know, we'll put a certain percentage of the equity ourselves and then we'll go out and we'll raise the risk.
Typically speaking, ⁓ I would say is a lot of family offices or ultra high net worth. There are still, you know, we're still seeing a lot of that private capital for certain deals and especially for, I would say special, no pun intended, kind of longer term horizons and properties that are very well located where you're building something ⁓ truly special. That's where we're seeing that type of capital still very active. ⁓
Of course, we also have other institutional partners for different types of deals or other deals. I would say where we're seeing the most. They're out right now. From the capital side, it's been on the private side, which is good and bad. We've historically focused a lot on the private side. it's something that I would say comes naturally to us. That being said, our pipeline has grown. And then deals, just on an individual basis, have gotten a lot larger.
land pricing, not so much, but I would say the big bulk of that increase has been hard cost. And the fact that where you used to do 250 to 300 unit deals, now maybe you're doing 350 to 450, right? Oh, so you're saying density has increased? would, on average, on an average deal size, I would say density has increased. Yeah. Yeah. Interesting.
I wanted to switch gears a little. So we mentioned in the beginning, Nate was the one who introduced us, my brother, the Babson connection. And I've seen it from my brother. I've seen it from you. Like there's a really strong network and connection with Babson. I kind of wanted to pick your brain a little bit on how that's played out in your career.
and how you've been able to leverage Babson both on the education side with entrepreneurship and that type of approach to life and then also the network. Yeah, I would say I'm super happy that I ended up there. Just like anybody else, I was looking at a few spots. What's been great about going to Babson has been how diverse the student body is. Yeah, exactly. We have people from all over the world.
Nate knows someone in every country at this point. It's crazy. That's a huge part of it, right? Every major city that I go to, I'll either know somebody or a friend of a friend is there, right? Yeah. So that's one huge positive. It's also a sneaky real estate school in the sense that a lot of people end up in real estate. ⁓ I think a lot of that has to do with kind of the skill set, ⁓ right? Like we're not Dartmouth in the sense that it's not a...
It's obviously a good, uh, can, I'm cool school. It's great. It's amazing, but it also attracts a lot of people with, different skillsets. It's very social, right? Like people are always kind of out and about, uh, meeting new people. So, so that's been good. then translating that kind of background in school to Miami, it's, it's been a good transition because it has a very strong Latin base in Miami, obviously is the capital of South America or Latin America. Um,
So has a very strong foundation in Miami. So that's been a huge help for me. from all the way back to when I first got a job, right? ⁓ It was two mentors of mine from Babson. really? That actually connected me to where I am today at Key International. So that's been full circle. then kind of as we started to do stuff and started to do deals, it's also been good to running to people that we know from back then or that we have a connection through school.
Yeah, I know Babson has a entrepreneurship school and you were saying how they're, you know, they fall in real estate. do feel like real estate is entrepreneurship end of the day. When you're, the venture is the property and the business plan. Yes, sure. It's a road that's been paved, ⁓ unlike maybe some other ventures, but you're still pitching equity and you're executing on a business plan and it's social. And that's very similar to entrepreneurship.
Yeah, it's almost like being a, you know, like a movie producer or like, ⁓ or like a band director in the sense that you're dealing with a lot of different entities. You're orchestrating. A of different types of people in, in one particular project, obviously in acquisitions, ⁓ as well and, development too, in the sense that you're working from anything from attorneys to designers to architects to civil engineers, right?
So working with different types of personalities and kind of putting all that together kind of has its entrepreneurial, you know. Yeah. You miss Boston at all? I miss the Boston days. I don't miss the Boston weather. The weather. Yeah, exactly. I think I don't miss the Boston weather, but there was something nice about having like four seasons, you know, and the winters were winter. You appreciated the sun a lot more. Yeah.
Yeah, but I mean just life here is amazing and obviously I don't want to repeat the lifestyle That everybody knows about and talks about but but it's been truly life-changing It's so good and can't wait for the shitty weather to pass by in a couple weeks and we'll be back into the swing of things ⁓ Here in Miami. Yeah Yeah, really appreciate it. Thanks for hopping on. Thank you for having me and ⁓ Looking forward to see what you guys do next. Likewise. Awesome.