6D — January 25 - February 7, 2019 — 2019 Forecast — M id A tlantic
Real Estate Journal
C apital M arkets
By Derek Weissman, Procida Funding & Advisors Where to find Opportunities at the end of the cycle
s most know, we are currently in one of the longest economic
much of the capital markets chasing those deals, Procida Funding is focused on deals which seem to be forgotten. Going into 2019, we are look- ing for owner-occupied invest- ments and market-rate hous- ing outside of major cities. We keep a close eye on building permits and our research has found that although building permit approvals continue to rise, primarily these permits are within 15 miles of major cities, if not in the confines of the given city. Given this phenomena, we see an op- portunity to enter the under-
served markets which are not in cities and are in an afford- able price point for entry level buyers. Additionally, we are begin- ning to see a glut of inven- tory coming onto the market much of which broke ground in 2015-2017. The inventory coming to market, particu- larly within big cities and the high-end market, will pres- sure pricing inevitable forcing landlords to drop prices. As prices are pushed down, it will begin to cut the margins and test the underwriting of many deals. In projects that
were recently completed or nearing completion, we push our clients to reunderwrite based on the current market conditions and in many in- stances, I recommend being the first to drop prices in order to assure a quick lease up period. As I discuss with my clients daily, if you are the first one to cut prices, you will be able to sustain continual growth in the times to come. Those wishing to squeeze out the last dollar are playing a tricky game. In 2019, Procida Funding will continue to focus on the
Opportunity Zone program which was created in the Tax Act. Over the past six months, we’ve seen a plethora of capi- tal raised. However, the issue we are finding is much more capital has been raised com- pared to the deals currently “shovel ready”. Due to the program’s restrictions and pressure to put the money out given the defined time period of Opportunity Zone investments, I expect to see a tsunami of money chasing limited deals on a tight time- frame. It will be important to keep strong fundamentals in underwriting and not just chase deals in order to put the capital to work. Many of these Opportunity Zone’s present additional challenges to a tra- ditional deal. Investors must be very careful when selecting who they will be giving their opportunity zone allocations to. As a developer or inves- tor, you cannot be looking to create one spectacular asset in a community full of dilapidated buildings. The bigger developers will need to try and encourage local vendors and smaller develop- ers to consider investing in their assets as well to help the continual growth in the community from the newly invested capital. I think it will be important to include job creation initiatives and community involvement to assure that the goal of the program is met. Many of the projects which I have com- pleted in the past three years are now in regions which have been declared “opportunity zones”. As I have seen first- hand, developing in these neighborhoods involves con- necting with the community. On one of our recent deals, we completed a $50 million his- torical renovation which has provided over 200 fulltime jobs to members in that com- munity. I believe in 2019 the Opportunity Zone program can be great for real estate and development if navigated correctly. Derek Weissman is Vice President of Procida. He joined the company in 2015 as an asset manager. Since joining Procida, Derek has been an in- tegral part in over $300 million in originations and over $250 million of payoffs. Derek specializes in distressed debt and con- struction financing.
expansions in hi story . In 2019, we e x p e c t t o see capital continue to chase deals, making pric- i n g m o r e competitive
for the good deals. I see a lot of the money entering the market looking for a very similar product multifamily cash flowing. In response to
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