CrowdStreet’s Darren Powderly is joined by Steve Schwat, Principal at Urban Investment Partners (UIP), to discuss how Washington D.C. has been impacted by COVID-19 and how UIP’s multifamily portfolio performed in April.
Darren Powderly, Co-Founder & VP Capital Markets
CrowdStreet
CrowdStreet
Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.
00:00:05 Hi, I'm Darren Powderly. Welcome to StreetBeats. I'm here today with Steve Schwart from U I P companies. Really pleased to have Steve. He is an absolute expert in Washington DC apartments. Steve's gonna talk to us a little bit today about what's experiencing in his portfolio as well as what he sees going forward. So thanks again for joining. And Steve, just let's just open up with, you know, tell us a little bit about yourself and your experience with CrowdStreet.
00:00:33 Well, thank you and, um, thanks for having me and I'm excited to, uh, I'm excited to be here today. Um, uh, u i p is a 20 year old, um, investment firm based here in Washington dc. We are, um, 98% invested in the district proper. Um, and we do a lot of, um, uh, older building renovations, infill development, um, and adaptive reuse. Um, we are working on our third project with CrowdStreet right now. Um, we raised, um, some equity, uh, for a value add pair of buildings, uh, last year. And then just recently, uh, we finished up a, a sizable raise for a stabilized asset that we actually converted from an office building into a multi-family apartment building. And, um, just recapitalized with, with CrowdStreet.
00:01:31 Yeah, that's great. They've both been successful projects and I know we have another one coming soon. So Steve, the numbers are coming in. Uh, obviously all the data is changing constantly, but we see a trend out there on a nationwide basis. Fortunately, you are in Washington, DC and you know, apartments in Washington DC as well as anybody. What are you experiencing? What are the numbers telling you so far from March and April, and what are you experiencing in your portfolio as that's really what investors care about? First and foremost is how is the, how are the properties in their portfolio performing Once they understand that, then they can start to look toward future investment opportunities?
00:02:11 Well, you know, I think there's a macro view in the micro view. Um, I can give you the micro view. I think, um, groups like C B R E and some of the other big, um, real estate firms that have been putting out reports, um, are, are issuing sort of the macro view. Mm-hmm. <affirmative>, um, and macro view in a report that C B R E put out just about a week ago was that Washington DC was the least affected city out of I think 30 or 40 cities. Um, as it relates to the Covid 19, um, virus in the micro, um, you know, we are not an affordable housing, um, focused group. Most of what we do is, um, either class A or, um, older buildings that we've renovated into Class A and most of the folks that live in our buildings are, are still working, um, albeit from home for the most part.
00:03:06 Um, but most of them are working and most of them are being paid. Um, and we had what was a surprisingly high collection rate, um, in April, we were, we were expecting a lot of bad news. Um, and the majority of our portfolio, which is what I described a minute ago, um, we were well above 95% collection, so we didn't really see much of a difference from March to April. Um, three buildings in particular that I'm very familiar with that are more workforce housing, um, lower income, um, you know, I know, I know the buildings and so most of the folks there are, are likely hourly wage earners and are working, you know, restaurants and, and other types of hourly jobs and, and those buildings we've seen, um, a significant, um, delinquency, you know, um, anywhere from, you know, collection rates of, of 65 to 70%, so not as bad as other areas of the country. Um, but, but clearly, you know, there's a big difference between people who are working from home and people who are not working.
00:04:14 Yes, absolutely. You know, that's, that's an interesting observation at the micro level. I mean, certainly you are in the right, uh, region and you're in the right city, uh, DC I've read those reports as well, one of the best, most resilient cities because of the diversity of the economy, and of course a lot of government workers, uh, and being in the, you know, a and b product type versus, you know, affordable housing or workforce housing, that gives you an advantage as well. With regard to the covid impact, you know, looking forward, has your investment thesis changed at all, uh, the type of opportunities that you're going to be seeking in the market?
00:04:48 Yeah, you know, again, I think macro and micro, um, you know, from the macro view, more focused on the next six years, um, and, and sort of look past the potholes that might be in the road directly in front of us in the close term. Um, you know, we're looking on deals that we're working on now. We're very closely focused on collections to make sure that the buildings are, you know, of the, of the type of tenant base that we, that we want to own. Um, or, or is in a location where when we're done renovating will, you know, secure the type of tenants that we typically like to rent to. I think where we're gonna see the most stress are gonna be in, in, in real estate developers who own AlAllander, um, that haven't yet, you know, either financed it to go vertical, um, don't have debt yet. Um, I think in the very short term, the debt markets are, are seizing a bit.
00:05:42 You made a great point that we were speaking about. You know, you not only look for, you know, neighborhoods within DC that show, you know, the, the signs of gentrification or positive move-ins. And you also made a great point about, you know, the type of value add that you perform. Can you explain a little bit more about, you know, how you're gonna be spending money on those value adds, you know, and in relationship to rental rate projections, but can you just touch on that a little bit? You know, the, the specifics around your value add investments and how that will translate to, uh, rental rates that on, on the future deals that you're gonna do?
00:06:18 Yeah, you know, value add, um, can take on a lot of different shapes and colors. Um, you know, value add can be buying an asset, um, that just happens to be in the path of, of redevelopment or gentrification. Um, and, and it's really just, you know, a, a timing effort more than anything. Um, but value add also, most often, at least with us, tends to include, um, capital improvements. Um, much of the type of capital improvements that we make to buildings are, are major infrastructure upgrades. So when we buy building that was built in the 1940s that had, you know, originally an oil burning furnace, now maybe it's gas, um, and the landlord is paying for all of the heat, uh, often is paying for cooling in the, in the summer as well. When we upgrade that building, we're often self-containing utilities. The inverse of that is you're taking it off of the landlord.
00:07:16 So, so overall your expense rate is going down. When we go to sell that asset, the buyer of that asset is not going to be exposed to fluctuations in energy markets and the cost of oil and, and, and the cost of power and taking, taking a building and and reducing its expense rate like that is, is dramatic. We're already starting to see some softening in the construction market. Um, I think interest rates are gonna remain low for quite some time. So I think it's a great opportunity. It's a great time right now, um, to be looking at, you know, value add, um, adaptive reuse, you know, construction projects. If you can finance and build things today in the current environment and, you know, move towards, you know, renting for the next 10 years, I think, I think that horizon looks very attractive to
00:08:08 Us. Steve Schwa, uh, U I p, thank you so much for joining us here at StreetBeats. For those of you ho I tuned in and appreciate the content that we share with you. We do these several times a week. We bring in our best sponsors and several investors and other market participants to share their on the ground experience with you so that you can become a more intelligent and, and well informed investor. So you can register at the bottom right hand corner of your screen, register for StreetBeats, and you will be on the, uh, list to receive these videos on a regular basis. Thank you very much and have a great day. Stay healthy, stay strong.
00:00:33 Well, thank you and, um, thanks for having me and I'm excited to, uh, I'm excited to be here today. Um, uh, u i p is a 20 year old, um, investment firm based here in Washington dc. We are, um, 98% invested in the district proper. Um, and we do a lot of, um, uh, older building renovations, infill development, um, and adaptive reuse. Um, we are working on our third project with CrowdStreet right now. Um, we raised, um, some equity, uh, for a value add pair of buildings, uh, last year. And then just recently, uh, we finished up a, a sizable raise for a stabilized asset that we actually converted from an office building into a multi-family apartment building. And, um, just recapitalized with, with CrowdStreet.
00:01:31 Yeah, that's great. They've both been successful projects and I know we have another one coming soon. So Steve, the numbers are coming in. Uh, obviously all the data is changing constantly, but we see a trend out there on a nationwide basis. Fortunately, you are in Washington, DC and you know, apartments in Washington DC as well as anybody. What are you experiencing? What are the numbers telling you so far from March and April, and what are you experiencing in your portfolio as that's really what investors care about? First and foremost is how is the, how are the properties in their portfolio performing Once they understand that, then they can start to look toward future investment opportunities?
00:02:11 Well, you know, I think there's a macro view in the micro view. Um, I can give you the micro view. I think, um, groups like C B R E and some of the other big, um, real estate firms that have been putting out reports, um, are, are issuing sort of the macro view. Mm-hmm. <affirmative>, um, and macro view in a report that C B R E put out just about a week ago was that Washington DC was the least affected city out of I think 30 or 40 cities. Um, as it relates to the Covid 19, um, virus in the micro, um, you know, we are not an affordable housing, um, focused group. Most of what we do is, um, either class A or, um, older buildings that we've renovated into Class A and most of the folks that live in our buildings are, are still working, um, albeit from home for the most part.
00:03:06 Um, but most of them are working and most of them are being paid. Um, and we had what was a surprisingly high collection rate, um, in April, we were, we were expecting a lot of bad news. Um, and the majority of our portfolio, which is what I described a minute ago, um, we were well above 95% collection, so we didn't really see much of a difference from March to April. Um, three buildings in particular that I'm very familiar with that are more workforce housing, um, lower income, um, you know, I know, I know the buildings and so most of the folks there are, are likely hourly wage earners and are working, you know, restaurants and, and other types of hourly jobs and, and those buildings we've seen, um, a significant, um, delinquency, you know, um, anywhere from, you know, collection rates of, of 65 to 70%, so not as bad as other areas of the country. Um, but, but clearly, you know, there's a big difference between people who are working from home and people who are not working.
00:04:14 Yes, absolutely. You know, that's, that's an interesting observation at the micro level. I mean, certainly you are in the right, uh, region and you're in the right city, uh, DC I've read those reports as well, one of the best, most resilient cities because of the diversity of the economy, and of course a lot of government workers, uh, and being in the, you know, a and b product type versus, you know, affordable housing or workforce housing, that gives you an advantage as well. With regard to the covid impact, you know, looking forward, has your investment thesis changed at all, uh, the type of opportunities that you're going to be seeking in the market?
00:04:48 Yeah, you know, again, I think macro and micro, um, you know, from the macro view, more focused on the next six years, um, and, and sort of look past the potholes that might be in the road directly in front of us in the close term. Um, you know, we're looking on deals that we're working on now. We're very closely focused on collections to make sure that the buildings are, you know, of the, of the type of tenant base that we, that we want to own. Um, or, or is in a location where when we're done renovating will, you know, secure the type of tenants that we typically like to rent to. I think where we're gonna see the most stress are gonna be in, in, in real estate developers who own AlAllander, um, that haven't yet, you know, either financed it to go vertical, um, don't have debt yet. Um, I think in the very short term, the debt markets are, are seizing a bit.
00:05:42 You made a great point that we were speaking about. You know, you not only look for, you know, neighborhoods within DC that show, you know, the, the signs of gentrification or positive move-ins. And you also made a great point about, you know, the type of value add that you perform. Can you explain a little bit more about, you know, how you're gonna be spending money on those value adds, you know, and in relationship to rental rate projections, but can you just touch on that a little bit? You know, the, the specifics around your value add investments and how that will translate to, uh, rental rates that on, on the future deals that you're gonna do?
00:06:18 Yeah, you know, value add, um, can take on a lot of different shapes and colors. Um, you know, value add can be buying an asset, um, that just happens to be in the path of, of redevelopment or gentrification. Um, and, and it's really just, you know, a, a timing effort more than anything. Um, but value add also, most often, at least with us, tends to include, um, capital improvements. Um, much of the type of capital improvements that we make to buildings are, are major infrastructure upgrades. So when we buy building that was built in the 1940s that had, you know, originally an oil burning furnace, now maybe it's gas, um, and the landlord is paying for all of the heat, uh, often is paying for cooling in the, in the summer as well. When we upgrade that building, we're often self-containing utilities. The inverse of that is you're taking it off of the landlord.
00:07:16 So, so overall your expense rate is going down. When we go to sell that asset, the buyer of that asset is not going to be exposed to fluctuations in energy markets and the cost of oil and, and, and the cost of power and taking, taking a building and and reducing its expense rate like that is, is dramatic. We're already starting to see some softening in the construction market. Um, I think interest rates are gonna remain low for quite some time. So I think it's a great opportunity. It's a great time right now, um, to be looking at, you know, value add, um, adaptive reuse, you know, construction projects. If you can finance and build things today in the current environment and, you know, move towards, you know, renting for the next 10 years, I think, I think that horizon looks very attractive to
00:08:08 Us. Steve Schwa, uh, U I p, thank you so much for joining us here at StreetBeats. For those of you ho I tuned in and appreciate the content that we share with you. We do these several times a week. We bring in our best sponsors and several investors and other market participants to share their on the ground experience with you so that you can become a more intelligent and, and well informed investor. So you can register at the bottom right hand corner of your screen, register for StreetBeats, and you will be on the, uh, list to receive these videos on a regular basis. Thank you very much and have a great day. Stay healthy, stay strong.