CrowdStreet’s Darren Powderly is joined by Larry Bond, Founder and Chairman of the Bond Companies, to discuss the firm’s multifamily collection levels under COVID-19, why space could become the most compelling apartment amenity, and how recessions impact commercial real estate.
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 everybody, this is Darren Powderly, co-founder of CrowdStreet. Welcome to our next edition of StreetBeats. Very pleased today to have Larry Bond, uh, founder of the Bond Companies. He's in Los Angeles, California. Larry and I have known each other for several years. We've worked together on a project or two, and, uh, just very pleased to have you today, Larry, why don't you tell us a little bit about yourself and your firm?
00:00:25 Darren, thank you for inviting me. I'm really, uh, delighted to be part of StreetBeats. It's such an amazing program and, uh, honored to be part of, uh, StreetBeats today. I founded Bond companies back in 1987 with my brother Rob. We have offices in both Los Angeles and Chicago. We picked Los Angeles, Chicago, a cuz we live here, but b more importantly, they're two great American cities with robust economies, which we can talk about later today if you'd like. And just diversified industries, great education and so on. The other part is since 1987, we've complete over 4 billion in transactions, primarily in the multi-family space. And that's the area that we continue to grow our business and looking forward to future collaborations with CrowdStreet, which has been a really a amazing opportunity for us to get involved with your company.
00:01:13 Well, thanks and, and we're honored to be working with you as well. I know you've done some really, uh, some of the, some of the most dynamic and, and well-known multi-family projects and any of you retail in a number of different asset classes as well. I was looking at your site today about some of the, uh, more notable, uh, la uh, uh, projects and just impressive projects. And for those who want to go to, uh, bond companies websites and check out their portfolio, please go ahead and do that. You can also find some of their information on CrowdStreet.com. Before we jump in, actually, I should also mention you can register for StreetBeats and receive this, uh, on a weekly basis, delivered right to your inbox, uh, for, you know, uh, kind of hard hitting and, and, uh, features from, from industry Liebers like Larry. So let's talk a little bit about what's going on in the market. Larry, what are you seeing out there? Uh, let's just start overall and then we'll kind of jump into your existing portfolio and some of the numbers and metrics that you're seeing. But, but generally speaking, uh, it's, it's late May. Uh, what are you experiencing in your portfolio? Well, in our
00:02:14 Portfolio, we are very fortunate that we're doing quite well in our Los Angeles apartment properties. We're running almost 97% occupancy. And more importantly, or as important, our collection level has been over 95% in Chicago. We're actually even doing better since, since the Covid 19 crisis hit. We've collected over 99.5% of our rents. And we think that's attributed to a couple of factors. We have a very, very robust resident screening process. And the other part of it is the types of tenants that we have historically attracted to our properties. They work in the tent pole industries that allow them primarily to be able to work from home. So even though the crisis is, is quite frankly, devastating to our, and devastating to so many people, and my heart goes out to many of those people that have, have had economic losses and so on, our residents have been able to really almost not skip a beat other than the fact that they have to stay at home.
00:03:12 Yes. Uh, and that is, that is remarkable on 99.5% of rent collections in Chicago. Um, and I agree with you, it, it is sort of heartbreaking to hear all the stories of, of suffering and, and, you know, loss, uh, happening as a result of the pandemic. But, uh, it's also nice to focus on some bright spots, and I, I haven't heard all that many bright spots. Is what you've experienced in your portfolio, uh, economically from, you know, a business core fundamental business standpoint. So everyone's paying rent, which, which is, uh, amazing in, in almost everybody's paying rent in la uh, that that's really strong. Uh, what are some of the things that, you know, from a development point of view that, that you think, um, you know, you see have changed in in this, in this market? You know, what are, what are some of the factors that you're seeing kind of change with from, specifically from a development point of view?
00:04:08 Well, there's, there's a number of things. Uh, space is the new amenity, right? So as, as we're all stuck at home through, uh, different, uh, you know, local city, federal, state regulations and requirements, space has become such an amenity because we have to create social distancing. So as people think about apartment buildings and apartment development, you have to build features into your properties to allow people to have social distancing and have a little bit more, uh, space amongst each other and, and navigate the process. The other part of it is you need to be thinking about how can I make the experiences as contactless as possible mm-hmm. <affirmative>, because as we've learned, the virus can stay on metal and other things. And how do you, how do you navigate that in, in a robust, uh, way going forward? And how do you make your environment as safe as possible for your residents? Because at the end of the day, we need, we need to make sure everybody is healthy and safe. So interestingly, uh, our style of development, which has been really looking at multi-family, not as a place just to go to sLiebp, but multi-family as a vertical neighborhood is community. And so we've created amenities for years that have spoken to things that you can do at your community that you might normally have ventured outside of your community to
00:05:26 Do. You touched on work from home and, uh, I thought it was brilliant that you guys were ahead of the curve. Where do you think that trend is going? Um, uh, are there things that you think are coming around the corner for multi-family apartment buildings, uh, that will make that even more attractive?
00:05:43 You know, it's, it's certainly in vogue and topical for what's going on and how we are reacting to, uh, the work at home environment. There's been some recent studies that have come out that about 30% percent of all people based on what's happened, want to work from home or work less at the office than they were historically were doing, people are still wanting to stay at home because they're still worried until there's a vaccine for covid 19, people are still gonna be nervous about, do I go back to my workspace and, and so on.
00:06:17 Yeah. Another fascinating data point. I mean, I just was visualizing the thousands of elevator rides that I've taken in, in major metro markets and big buildings, and they were already a nightmare <laugh>, you know, so it's gonna be, uh, brutal. So let's talk a little bit about going on a go forward basis. Where do you see the opportunities for development?
00:06:39 So as, as I mentioned earlier, I've been in, we start our company for development in 1987. So I've been around this game for 33 years, and in 33 years, I have not seen a better time to be a real estate developer in multifamily than I do today. And that may be shocking to a lot of people listening to our StreetBeats today, but I'll give you four reasons why. First reason sellers are adjusting the prices downward for AlAllander. Because we're in a recession in recessionary times, sellers have to lower their pricing expectations and therefore we buy things cheaper and you always make great money on the buy. So we get pricing or AlAllander cheaper, and we have less competition. Second, construction lenders only less lend to their best customers. So a lot of our competitors that we were dealing with in the last three to five years no longer can get construction financing.
00:07:31 Third, our general contractors and subcontractors are buying for less projects to bid on. And as there's less competition, as there's more competition for them because of less projects, they have to lower their prices to be competitive. Mm-hmm. <affirmative>, mm-hmm. <affirmative>. So we're seeing five and 10% reductions in construction pricing that we frankly haven't seen in a decade. And the fourth point is interest rate savings, because today, lo everything, all the construction loans are priced over an index called L bor. Lior is a international, uh, index that banks used to price construction loans and other permanent loans as well. L i bor is almost at zero right now. So before even a year ago, l i bor was one and a half percent. So you're literally reducing your interest rates by 1.5% relative to a year ago. So now we have lower borrowing costs, cheaper AlAllander prices, lower construction costs.
00:08:29 Let's talk also about, you know, distressed acquisitions of apartment buildings. Do you think that there will be distressed opportunities out there, limited, widespread, what do you, what do you, what does your crystal ball tell you about, you know, multi-family and getting good deals because they're out there,
00:08:48 You know, so, so the second part of our business, so even before the virus hit, we were going back to our roots and when we first started, we were buying B and c multi-family, renovating them, increasing the rents, increasing the quality of the properties, and then selling them to investors that were looking for more stabilized investments. So B and C communities are fantastic still, and they're great investments because why space is the new amenity. And what happens in older communities is you get more square footage and more space and with stay-at-home orders, if you have a little more space, that's an opportunity and people really enjoy that. The other part is it's lower rents. So for people who make maybe a little bit less money or having are struggling even right now, they can still have to have a place to live. And having a lower cost apartment community to live in, that's still high quality and well maintained is gonna be a really attractive feature in these gateway cities where we like the job growth.
00:09:48 Great advice. I love it. Maybe we will, uh, wrap on that high note and, uh, I know that you and your firm are out there, uh, looking for those opportunities. Larry, thank you for joining us on StreetBeats today and, uh, we look forward to working with you again on another project, partnering up with you and introducing you to our investor base. Again, Larry Bond with Bond Companies, feel free to visit his website or on CrowdStreet. We're, uh, you can learn more about Larry and his firm.
00:00:25 Darren, thank you for inviting me. I'm really, uh, delighted to be part of StreetBeats. It's such an amazing program and, uh, honored to be part of, uh, StreetBeats today. I founded Bond companies back in 1987 with my brother Rob. We have offices in both Los Angeles and Chicago. We picked Los Angeles, Chicago, a cuz we live here, but b more importantly, they're two great American cities with robust economies, which we can talk about later today if you'd like. And just diversified industries, great education and so on. The other part is since 1987, we've complete over 4 billion in transactions, primarily in the multi-family space. And that's the area that we continue to grow our business and looking forward to future collaborations with CrowdStreet, which has been a really a amazing opportunity for us to get involved with your company.
00:01:13 Well, thanks and, and we're honored to be working with you as well. I know you've done some really, uh, some of the, some of the most dynamic and, and well-known multi-family projects and any of you retail in a number of different asset classes as well. I was looking at your site today about some of the, uh, more notable, uh, la uh, uh, projects and just impressive projects. And for those who want to go to, uh, bond companies websites and check out their portfolio, please go ahead and do that. You can also find some of their information on CrowdStreet.com. Before we jump in, actually, I should also mention you can register for StreetBeats and receive this, uh, on a weekly basis, delivered right to your inbox, uh, for, you know, uh, kind of hard hitting and, and, uh, features from, from industry Liebers like Larry. So let's talk a little bit about what's going on in the market. Larry, what are you seeing out there? Uh, let's just start overall and then we'll kind of jump into your existing portfolio and some of the numbers and metrics that you're seeing. But, but generally speaking, uh, it's, it's late May. Uh, what are you experiencing in your portfolio? Well, in our
00:02:14 Portfolio, we are very fortunate that we're doing quite well in our Los Angeles apartment properties. We're running almost 97% occupancy. And more importantly, or as important, our collection level has been over 95% in Chicago. We're actually even doing better since, since the Covid 19 crisis hit. We've collected over 99.5% of our rents. And we think that's attributed to a couple of factors. We have a very, very robust resident screening process. And the other part of it is the types of tenants that we have historically attracted to our properties. They work in the tent pole industries that allow them primarily to be able to work from home. So even though the crisis is, is quite frankly, devastating to our, and devastating to so many people, and my heart goes out to many of those people that have, have had economic losses and so on, our residents have been able to really almost not skip a beat other than the fact that they have to stay at home.
00:03:12 Yes. Uh, and that is, that is remarkable on 99.5% of rent collections in Chicago. Um, and I agree with you, it, it is sort of heartbreaking to hear all the stories of, of suffering and, and, you know, loss, uh, happening as a result of the pandemic. But, uh, it's also nice to focus on some bright spots, and I, I haven't heard all that many bright spots. Is what you've experienced in your portfolio, uh, economically from, you know, a business core fundamental business standpoint. So everyone's paying rent, which, which is, uh, amazing in, in almost everybody's paying rent in la uh, that that's really strong. Uh, what are some of the things that, you know, from a development point of view that, that you think, um, you know, you see have changed in in this, in this market? You know, what are, what are some of the factors that you're seeing kind of change with from, specifically from a development point of view?
00:04:08 Well, there's, there's a number of things. Uh, space is the new amenity, right? So as, as we're all stuck at home through, uh, different, uh, you know, local city, federal, state regulations and requirements, space has become such an amenity because we have to create social distancing. So as people think about apartment buildings and apartment development, you have to build features into your properties to allow people to have social distancing and have a little bit more, uh, space amongst each other and, and navigate the process. The other part of it is you need to be thinking about how can I make the experiences as contactless as possible mm-hmm. <affirmative>, because as we've learned, the virus can stay on metal and other things. And how do you, how do you navigate that in, in a robust, uh, way going forward? And how do you make your environment as safe as possible for your residents? Because at the end of the day, we need, we need to make sure everybody is healthy and safe. So interestingly, uh, our style of development, which has been really looking at multi-family, not as a place just to go to sLiebp, but multi-family as a vertical neighborhood is community. And so we've created amenities for years that have spoken to things that you can do at your community that you might normally have ventured outside of your community to
00:05:26 Do. You touched on work from home and, uh, I thought it was brilliant that you guys were ahead of the curve. Where do you think that trend is going? Um, uh, are there things that you think are coming around the corner for multi-family apartment buildings, uh, that will make that even more attractive?
00:05:43 You know, it's, it's certainly in vogue and topical for what's going on and how we are reacting to, uh, the work at home environment. There's been some recent studies that have come out that about 30% percent of all people based on what's happened, want to work from home or work less at the office than they were historically were doing, people are still wanting to stay at home because they're still worried until there's a vaccine for covid 19, people are still gonna be nervous about, do I go back to my workspace and, and so on.
00:06:17 Yeah. Another fascinating data point. I mean, I just was visualizing the thousands of elevator rides that I've taken in, in major metro markets and big buildings, and they were already a nightmare <laugh>, you know, so it's gonna be, uh, brutal. So let's talk a little bit about going on a go forward basis. Where do you see the opportunities for development?
00:06:39 So as, as I mentioned earlier, I've been in, we start our company for development in 1987. So I've been around this game for 33 years, and in 33 years, I have not seen a better time to be a real estate developer in multifamily than I do today. And that may be shocking to a lot of people listening to our StreetBeats today, but I'll give you four reasons why. First reason sellers are adjusting the prices downward for AlAllander. Because we're in a recession in recessionary times, sellers have to lower their pricing expectations and therefore we buy things cheaper and you always make great money on the buy. So we get pricing or AlAllander cheaper, and we have less competition. Second, construction lenders only less lend to their best customers. So a lot of our competitors that we were dealing with in the last three to five years no longer can get construction financing.
00:07:31 Third, our general contractors and subcontractors are buying for less projects to bid on. And as there's less competition, as there's more competition for them because of less projects, they have to lower their prices to be competitive. Mm-hmm. <affirmative>, mm-hmm. <affirmative>. So we're seeing five and 10% reductions in construction pricing that we frankly haven't seen in a decade. And the fourth point is interest rate savings, because today, lo everything, all the construction loans are priced over an index called L bor. Lior is a international, uh, index that banks used to price construction loans and other permanent loans as well. L i bor is almost at zero right now. So before even a year ago, l i bor was one and a half percent. So you're literally reducing your interest rates by 1.5% relative to a year ago. So now we have lower borrowing costs, cheaper AlAllander prices, lower construction costs.
00:08:29 Let's talk also about, you know, distressed acquisitions of apartment buildings. Do you think that there will be distressed opportunities out there, limited, widespread, what do you, what do you, what does your crystal ball tell you about, you know, multi-family and getting good deals because they're out there,
00:08:48 You know, so, so the second part of our business, so even before the virus hit, we were going back to our roots and when we first started, we were buying B and c multi-family, renovating them, increasing the rents, increasing the quality of the properties, and then selling them to investors that were looking for more stabilized investments. So B and C communities are fantastic still, and they're great investments because why space is the new amenity. And what happens in older communities is you get more square footage and more space and with stay-at-home orders, if you have a little more space, that's an opportunity and people really enjoy that. The other part is it's lower rents. So for people who make maybe a little bit less money or having are struggling even right now, they can still have to have a place to live. And having a lower cost apartment community to live in, that's still high quality and well maintained is gonna be a really attractive feature in these gateway cities where we like the job growth.
00:09:48 Great advice. I love it. Maybe we will, uh, wrap on that high note and, uh, I know that you and your firm are out there, uh, looking for those opportunities. Larry, thank you for joining us on StreetBeats today and, uh, we look forward to working with you again on another project, partnering up with you and introducing you to our investor base. Again, Larry Bond with Bond Companies, feel free to visit his website or on CrowdStreet. We're, uh, you can learn more about Larry and his firm.