Two Factors to Consider for Multifamily Development

Published on GlobeSt.com
By Jillian Mariutti

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors.

(January 29, 2019) — The real estate development process is wrought with an array of potential landmines, and developers embarking on new projects always look for deals with enough upside to compensate for the inevitable snafus along the way. However, a reasonable expectation of upside only exists in a market where the rent-to-income ratio is not out of control.
According to the Department of Housing and Urban Development, individuals and families who spend more than 30 percent of their total household income on housing are classified as “rent-burdened.” And while these metrics are of critical importance to housing advocates and local governments seeking to provide relief to a rent-burdened population, the same numbers are extremely relevant for real estate developers. In cities such as Boulder, Colorado and Tallahassee, Florida – each of which has distinct merits – the upside for multifamily developers is muted, as each market’s median gross rent surpasses 40 percent of the city’s household income. (All figures are based on Governing.com’s metrics, sourced from the U.S. Census Bureau and 2010-2012 American Communities Survey Estimates).

Generally speaking, multifamily developers want to set their sights on cities where that metric is below 30 percent, providing an opportunity to grow rents.
What cities fall in this “sweet spot”? Not surprisingly, markets in some of the country’s fastest-growing regions. For example, Bellevue, Washington – just outside of Seattle – clocks in at a strong 23.9 percent. As the headquarters of Fortune 500 corporations such as T-Mobile and Expedia, Bellevue seems to be a veritable model of stability, where developers can have confidence that a professional workforce will retain its well-paying jobs.

Texas has a number of attractive markets, including the Dallas suburbs of Plano and Frisco, which clock in at 26.4 percent and 25.8 percent. Dallas, Houston and Austin measure in at respectable 29.2, 30 and 31 percent, respectively. The west Texas city of Odessa outperforms all of these markets, with a ratio of 25.2.

Of course, it should be noted that cities that “perform” poorly – i.e. cities with a high rent-to-income ratio – are not necessarily markets that are struggling economically. Like any ratio, the figure can climb to excessive levels based on either a high numerator or a low denominator; in other words, it changes based on either expensive housing or a weak economy. While both sets of markets indicate locales developers will likely want to avoid, they also represent a proverbial tale of two cities, with depressed Flint, Michigan (49.3) on one hand, and gateway markets like Miami (40.0) and Los Angeles (36.8) on the other. While the gateway markets may have booming economies, incomes have not kept up with the pace of housing costs, which has made those cities particularly rent-burdened.
There are a host of factors that go into the decision of where to build, but the ability to add value is one of the most important. While many seek out markets that boast a strong economy or favorable rental rates, one of these alone is not enough to assure success. But by conducting a rigorous analysis – including an assessment of the rent burden in the local market – developers can put themselves in position to reap maximum value from their efforts.

Jillian Mariutti is director of debt and equity finance at Mission Capital Advisors. She can be reached at jmariutti@missioncap.com. The views expressed here are the author’s own and not that of ALM’s Real Estate Media.

Why Mission Capital? Featuring David Tobin (Principal)

New York (12/18/2018)

Principal, David Tobin, discusses why customers choose Mission Capital when evaluating service and solutions providers to execute capital raising or asset sale transactions.

OVERVIEW

Customers often ask us why Mission when evaluating service and solutions providers to execute on capital raising or asset sale transactions. The answer to that is threefold. Mission is a diverse platform which focuses on capital raising and on asset sales. So, we have a multi-pronged relationship with the counter-parties that we work with when representing a customer. Number two, we’ve kept the band together for sixteen years. So, Mission’s been growing since it started in 2002. We now have six offices around the country and all of the key managers that started or came to the firm since the beginning of the firm are still with the firm. And number three is that we will out-hustle, out-work and out-think our competition. We’re nimble, we’re intelligent, e have a great team and we are constantly trying to outdo our competitive set.

DAVID TOBIN’S MISSION CAPITAL MILESTONES

William David Tobin is one of two founders of Mission Capital and a founder of EquityMultiple, an on-line loan and real estate equity syndication platform seed funded by Mission Capital. He has extensive transactional experience in loan sale advisory, real estate investment sales and commercial real estate debt and equity raising. In addition, Mr. Tobin is Chief Compliance Officer for Mission Capital.
Under Mr. Tobin’s guidance and supervision, Mission has been awarded and continues to execute prime contractor FDIC contracts for Whole Loan Internet Marketing & Support (loan sales), Structured Sales (loan sales) and Financial Advisory Valuation Services (failing bank and loss share loan portfolio valuation), Federal Reserve Bank of New York (loan sales), Freddie Mac (programmatic bulk loan sales for FHFA mandated deleveraging), multiple ongoing Federal Home Loan Bank valuation contracts and advisory assignments with the National Credit Union Administration.

BACKGROUND

From 1992 to 1994, Mr. Tobin worked as an asset manager in the Asset Resolution Department of Dime Bancorp (under OTS supervision) where he played an integral role in the liquidation of the $1.2 billion non-performing single-family loan and REO portfolio. The Dime disposition program included a multi-year asset-by-asset sellout culminating in a $300 million bulk offering to many of the major portfolio investors in the whole loan investment arena. From 1994 to 2002, Mr. Tobin was associated with a national brokerage firm, where he started and ran a loan sale advisory business, heading all business execution and development.

Mr. Tobin has a B.A. in English Literature from Syracuse University and attended the MBA program, concentrating in banking and finance, at NYU’s Stern School of Business. He has lectured on the topics of whole loan valuation and mortgage trading at New York University’s Real Estate School. Mr. Tobin is a member of the board of directors of H Bancorp (h-bancorp.com), a $1.5 billion multi-bank holding company that acquires and operates community banks throughout the United States. Mr. Tobin is a member of the Real Estate Advisory Board of the Whitman School of Management at Syracuse University and a board member of A&M Sports / Clean Hands for Haiti.

MORE ABOUT DAVID TOBIN

www.missioncap.com/team/?member=dtobin

Impact Of Macroeconomic Trends On Residential Mortgage Industry: Favorable Credit Environment For Whole Loans Sales

[Published by the Loan Sales and Real Estate Sales Desk, Mission Capital]

New York (11/29/2018)

  • Current market conditions have created a favorable environment to monetize whole loans.
    • Strong fundamentals in the labor markets led to vastly improved credit performance and fuller valuations in the loan space.
    • Investors continue to recognize the higher returns and wider moat that whole loans offer compared to traditional bond investments.
  • As a macro-economic backdrop, the unemployment rate is now at its lowest level in almost 40 years and wages grew at a healthy pace of 2.9% over the last 12 months.
  • Alongside the positive economic developments, loan sale volumes shifted substantially from Non-Performing to Re-Performing loans as loan servicers developed practices to collect more meaningfully on charged off loans and modify impaired loans more effectually.
  • Meanwhile, the positive credit performance was offset by softness in rates, which sold off in early October in response to Fed hikes and balance sheet run off. Likewise, the Fed’s Dot Plot shows a forthcoming inversion of the discount window, signaling a looming recession.

  • Given the full valuations and improved performance, it’s an opportune time for banks to sell their assets at attractive levels so they can focus on their core business of originating new loans. Further, this source of loan product provides investment managers an opportunity to diversify their exposure away from traditional bonds and into whole loans or privately structured products that generate more attractive returns.  On the buy-side, the strong credit fundamentals provide an opportunity for funds to harvest their lower yielding assets at favorable levels so they can focus on working out more impaired assets.

 

About Loan Sales & Real Estate Sales

Mission Capital represents preeminent financial institutions, investors and government agencies on the sale of performing, sub-performing and non-performing debt secured by all types of commercial and consumer collateral, commercial real estate investment property and tax liens. For more information, visit www.www.missioncap.com/loan-sales-real-estate-sales

One of Mission Capital’s Principals, Jordan Ray, chats about evaluating and working on Hospitality deals. Jordan is a Principal on the Debt & Equity Finance desk at Mission Capital. Explore some of our other Hospitality deals.

JORDAN RAY 10 | HOSPITALITY from Mission Capital on Vimeo.

 

JORDAN RAY
Jordan Ray is the Principal of The Debt & Equity Finance Group at Mission, which he founded in 2009. Jordan has been honored with such industry awards as the 2016 Real Estate Finance and Investment Magazine – Mortgage Broker of the Year Award, the 2013 and 2012 Observer Top 20 under 35 and the 2017 NYU Schack Institute Financing Deal of the Year. Jordan sits on the board and co founded EquityMultiple – an online marketplace real estate finance company – in 2015. Jordan is also actively involved in UK/European real estate financing.

LEARN MORE ABOUT JORDAN RAY:
www.missioncap.com/team/?member=jray

LEARN ABOUT THE DEBT & EQUITY FINANCE DESK HERE:
www.missioncap.com/debt-equity/

VISIT MISSION CAPITAL’S WEBSITE:
www.missioncap.com

Why & When To Sell Performing & Non-Performing Loans With David Tobin from Mission Capital on Vimeo.

Mission Capital’s principal and co-founder, David Tobin, shares his extensive experience and insight on Why and When To Sell Performing and Non-Performing Loans.

William David Tobin is one of two founders of Mission Capital and a founder of EquityMultiple, an on-line loan and real estate equity syndication platform seed funded by Mission Capital. He has extensive transactional experience in loan sale advisory, real estate investment sales and commercial real estate debt and equity raising. In addition, Mr. Tobin is Chief Compliance Officer for Mission Capital.

Under Mr. Tobin’s guidance and supervision, Mission has been awarded and continues to execute prime contractor FDIC contracts for Whole Loan Internet Marketing & Support (loan sales), Structured Sales (loan sales) and Financial Advisory Valuation Services (failing bank and loss share loan portfolio valuation), Federal Reserve Bank of New York (loan sales), Freddie Mac (programmatic bulk loan sales for FHFA mandated deleveraging), multiple ongoing Federal Home Loan Bank valuation contracts and advisory assignments with the National Credit Union Administration.

Visit David Tobin’s team page to find contact information and more information:

Team

Loan Sales & Real Estate Sales
Mission Capital represents preeminent financial institutions, investors and government agencies on the sale of performing, sub-performing and non-performing debt secured by all types of commercial and consumer collateral, commercial real estate investment property and tax liens.

NEIGHBORHOOD CHECK-IN – FENWAY PARK: Incredible iconic sports venue in a historic city. Begs the question whether Yankee Stadium should have been renovated instead of rebuilding next door. The ambiance of Fenway, inside and out, is the quintessential “experiential retail”. Contributing to the package: Berklee School of Music, the Boston Symphony Orchestra, the Boston Conservatory and Boston University. Only one deficiency. It’s the home of the Yankees archenemy. Go Sox.

YouTube video

Mission Capital’s Jordan Ray discusses life-cycle of a transaction. Jordan is a principal on the Debt & Equity Finance desk at Mission Capital.

ABOUT JORDAN RAY
Jordan Ray is the Principal of The Debt & Equity Finance Group at Mission, which he founded in 2009. Jordan has been honored with such industry awards as the 2016 Real Estate Finance and Investment Magazine – Mortgage Broker of the Year Award, the 2013 and 2012 Observer Top 20 under 35 and the 2017 NYU Schack Institute Financing Deal of the Year. Jordan sits on the board and co founded EquityMultiple – an online marketplace real estate finance company – in 2015. Jordan is also actively involved in UK/European real estate financing.

CONTACT JORDAN RAY:

Team

LEARN ABOUT THE DEBT & EQUITY FINANCE DESK HERE:

Debt Equity

VISIT MISSION CAPITAL’S WEBSITE:

Home

While Mission Capital / Mission Global was attending the MBA conference in Washington, D.C., we were able to tour the historic C&O Canal in Georgetown which abuts the beautiful Rosewood Hotel Georgetown. It is in the process of being intricately restored. It was saved from becoming a two lane highway in 1961 after a long campaign by preservationists….like NYs High Line or Dallas’ Katy Trail 50 years later.

Our friends, family and colleagues in Florida barely avoided the destruction of Hurricane Michael. Sadly, plenty of folks were not as fortunate. Hundreds of thousands are still without water and power, and many areas continue to be cut off by washed out roads. With that, we are asking for help. A link to donate is in our bio. Your money will go to a local charity with a minimum overhead (compared to Red Cross, for example). Please send help now.

Donate here: https://awf-reg.brtapp.com/HurricaneMichaelReliefDonations

We consider Howard Marks (with his team of course) one of the smartest guys in the room.  He is the “five tool” customer: a lender to, borrower from, JV investor in, asset buyer from and seller of assets to, many of our clients.

[From the Wall Street Journal, Published October 8th 2018]
Mastering the Market Cycle’ Review: The Dangers of Optimism

Read the entire article at https://goo.gl/1wyvGL

Amid so much purportedly expert investment advice, it is worth asking who the experts themselves listen to. One answer, undoubtedly, is Howard Marks, among the world’s most successful investment managers as well as an intellectual leader of the profession. His client memos are widely distributed among investment professionals. “When I see memos from Howard Marks in my mail,” Warren Buffett has said, “they’re the first thing I open and read. I always learn something.”

When Emerging Market contagion reaches the shores of Sardinia and Amalfi, it could be a sign that summer is over!!

https://www.wsj.com/articles/you-should-worry-more-about-italys-bond-market-1538672646

[From the Wall Street Journal – October 4, 2018]
You Should Worry More About Italy’s Bond Market
By James Mackintosh
Oct. 4, 2018 1:04 p.m. ET

There are lots of reasons why contagion has been contained, but none are entirely satisfactory

The Italian bond market has a whiff of panic about it, while the rest of Europe has remained remarkably calm. This makes little sense, and is unlikely to last.

The basic logic runs like this. The rise in Italian yields relative to those of safe Germany is a sign that investors think Italy is more likely to default on its bonds, more likely to leave the euro and repay in devalued lira, or both. Fair enough: The populists now governing in Rome are unpredictable, and Italy’s government-debt pile is large.

Yet, it is obvious to everyone that if the third-biggest economy in the eurozone were to default on €2.3 trillion ($2.64 trillion) of debt or leave the currency area, it would at the very least blow up the rest of the Southern European countries. The bond yields of Spain, Portugal and Greece would soar, even if somehow they were able to remain within the euro.

“Italy is not Greece” is usually invoked as reassurance. In fact, the situation in Italy is a whole lot worse than Greece, because the solution applied to Athens—a default within the eurozone and capital controls—couldn’t plausibly be applied to Italy’s much more important economy and much larger debts.

This should mean that higher risk to Italy is also a higher risk to other countries that would face trouble, not to mention the many large European banks with significant Italian exposure.

So why has contagion been contained? There are lots of answers, none entirely satisfactory.
First is the idea that everything is fine because Italy isn’t in a full-blown crisis. While Italian government-bond yields have jumped, pushing up the spread over German yields that is the standard risk gauge, they aren’t high enough to make Italy’s debt unsustainable by themselves. Put another way, investors think everything will be fixed after a bit of pressure on the government in the form of higher yields.

“It’s fairly consensual that it will be resolved with another round of market pressure,” says Gilles Moëc, chief developed Europe economist at Bank of America Merrill Lynch.

But this is a dangerous game. If the market pushes up borrowing costs too much, Italy would be unable to service its debt with politically plausible tax levels. At that point, the spiral would become self-fulfilling, as investors fled and credit ratings were downgraded, and yields rose even more. Serious contagion would be all but assured. Don’t forget how suddenly Italian bond yields spiked in 2011 and again in 2012.

Harvinder Sian, a bond strategist at Citigroup, thinks a 10-year yield of 3.5%-4% is now the tipping point, after which yields jump toward the 7% reached at the height of the last euro crisis. Italy isn’t quite there, but on Tuesday its 10-year yield briefly reached 3.46%, the highest in four years.

A second explanation is that the lack of contagion is due to the quirks of supply and demand in Europe. Investors in European bonds are desperate for yield, and while they now worry about Italy, they have simply switched to other countries offering a decent pickup over German yields, such as Spain. At the same time, the threat of billions of euros of extra Italian bond issuance to finance its planned larger budget deficit next year means a higher yield is needed to attract buyers.

If eurozone governments were regarded as equally risky, any significant gap in yields would be pounced on by speculators. But arbitrage is difficult when there is such an obvious danger of a sudden jump in Italian yields, and outright buyers are deterred both by the risks and by worries that clients may be upset to find themselves heavily exposed to Italy.

One exception is UBS Wealth Management, which has piled into short-dated Italian bonds recently for the extra yield, arguing that Italy won’t default in the next two years.

Chief Investment Officer Mark Haefele says rather than infect other eurozone government bonds, Italian contagion shows up in the fall in the euro—perhaps linked to the idea that the European Central Bank will step in to buy more bonds of countries such as Spain that have restructured their economies and followed European debt rules.

This leads to a third possible explanation, involving even more intervention. A catastrophic Italian default or euro exit might finally push the rest of the eurozone to integrate properly, something that has proved politically toxic in Germany. “Italy could be the final straw that forces Europe closer together,” Mr. Haefele says.

True risk-sharing across the eurozone—in effect a united states of Europe—would make Spanish bonds only as risky as German bonds, justifying the absence of contagion. But it is hard to believe that divided European leaders worried about a populist backlash could take such a step, let alone bring German voters with them.

The market can stay irrational for a long time, and Italian politics is even more unpredictable than usual. My best guess is that a compromise will calm everything down for a while. But the danger of an Italian falling-out with Brussels prompting a self-fulfilling market crisis is real. At that point, contagion would be inevitable.