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Thoughts on the looming recession

Since the Fed announced its rate cut on July 31st, talks of recession have consumed the markets. With the pending Fed meeting on September 17th, it is largely expected that a consecutive rate cut will follow. A continuation of rate cuts would indicate that the Fed believes the US economy is contracting, and thus we are more likely to be closer to the looming recession.

According to Economist John Mauldin, “Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment. Take it away and they decline. Recession follows. The last credit crisis came from subprime mortgages. Those are getting problematic again. But I think today’s bigger risk is the sheer amount of corporate debt, especially high-yield bonds.”

 

Economists such as Mauldin are pointing to the high levels of corporate debt as the cause of the next recession, or in other words, the “bubble”. Bubbles occur when the market prices an asset above it’s true value. For investors seeking yield but wanting to avoid the risk of investing in corporate debt, real estate investments are a suitable option.

Real estate investments, particularly multifamily, are often recession-proof investments.  Multifamily real estate is recession-proof because during down markets renters have largely proven to maintain their rents. Such housing doesn’t carry the risk of other classes such as single family. The charts below show the percentage change in the prior year for rental and for sale houses from 2008 to 2018. As illustrated below, during the recession of 2008, rental vacancies dropped less than 1% in the following year while housing vacancies decreased by 10%.

 

The Fed’s next meeting may indicate how quickly the looming recession could occur, but sophisticated investors will position themselves to be prepared in advance.

The shift in American status symbols

Throughout recent history, a mark of American status was the spacious home with the plush yard and picket fence. Young couples and growing families strove for this style of living to exemplify their status and enjoy what may be perceived as the American dream.Today, the home with the picket fence is no longer a goal for many. Most millenials and the new era of young families are opting for flexibility, mobility, maintenance-free lifestyle which can be found in multifamily. As mentioned in last week’s blog, We are living in a rental economy, 82% of renters affirmed that renting is the affordable option, and this trend is only growing.

Earlier this year, the WSJ confirmed in their article A Growing Problem in Real Estate: Too Many Too Big Houses that “Large, high-end homes across the Sunbelt are sitting on the market, enduring deep price cuts to sell.” The same homes that were once sought after as a status symbol are no longer regarded as such. The article goes on to state that “Now, many boomers are discovering that these large, high-maintenance houses no longer fit their needs as they grow older, but younger people aren’t buying them.”

According to Fannie Mae’s report, The Coming Exodus of Older Homeowners, boomers’ homeownership is projected to decrease by nearly 30 million over the next couple of decades (see chart below). Across all demographics, we are witnessing a shift toward more practical living, multifamily

Lloyd Jones Names COO of Property Management

MIAMI — Lloyd Jones has named Steven Druth its chief operating officer of property management. Druth brings over 30 years of real estate experience to the Miami- based, real estate private equity firm.

As a commercial brokerage and management specialist, Druth operated his own Boston based firm for ten years before moving to Manhattan’s largest independent real estate agency.

“I am very excited about my expanded role at Lloyd Jones and look forward to further increasing efficiency and resident satisfaction at all of our properties,” said Druth.

Throughout his career, operational efficiency and strategic leadership have been the trademark skills that Druth will now add to the Lloyd Jones executive team.

“I’ve known Steve for many years and his people management skills are exceptional,” said Lloyd Jones chairman, Chris Finlay. “With his extensive experience in our industry, I am very confident that he will take our operating platform to a new level.”

 

About Lloyd Jones

Lloyd Jones is a private-equity real estate firm that specializes in the multifamily and senior housing sectors. Building on thirty-eight years in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Florida, Texas, and the Southeast. Its investors include institutional partners, family offices, private investors, and its own principals.

Lloyd Jones Capital Announces Vice President of Acquisitions

Private Equity Real Estate Firm Expands Its Texas Presence

MIAMI – Lloyd Jones Capital, a Miami-based multifamily investment firm, has announced the appointment of Neil Bertrand, vice president of acquisitions. Neil will lead the company’s acquisition effort for the Texas market.

“The addition of Neil to our team is instrumental as we continue to seek acquisition opportunities in Texas, one of our key strategic markets,” commented Chris Finlay, Lloyd Jones Capital, chairman and CEO.

Neil Bertrand’s 20-year real estate career includes positions with four of National Multifamily Housing Council’s Top 50 Firms. Throughout the course of his career, Neil has been responsible for the oversight of conventional, tax credit, senior housing, and student housing portfolios. Neil has led projects including acquisition analysis, due diligence, renovation, new construction, and lease-up of assets in Texas, Arizona, New Mexico, Oklahoma, Louisiana, Arkansas, Missouri and North Carolina.

“I am excited to join the Lloyd Jones Capital team. With a successful history of more than 35 years in real estate, the company continues to produce positive results for its investors. Leading the state’s acquisition efforts should yield long-term results as Texas continues to lead the nation in employment growth,” remarked Neil Bertrand.

Neil attended Lubbock Christian University in Lubbock, Texas, and holds the Certified Apartment Portfolio Supervisor (CAPS®) designation from the National Apartment Association. He is also an Accredited Residential Manager (ARM®) and a Certified Property Manager (CPM®) Candidate with the Institute of Real Estate Management.

About Lloyd Jones Capital

Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.

Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals. For more information visit: lloydjonesllc.com.

Lloyd Jones Capital Acquires Jacksonville Apartment Community

MIAMI –  Lloyd Jones Capital, a Miami-based multifamily investment firm, has acquired the Deerwood Park apartment community in Jacksonville, Florida. The property is located in the Deerwood Office Park on Touchton Road, home to 5.2 million square feet of office space and the largest employers in the MSA. Residents of Deerwood Park enjoy an address that offers a live, work and play lifestyle in Southside, one of Jacksonville’s most desirable neighborhoods.

The 282-unit acquisition brings the Lloyd Jones Capital multifamily portfolio to nearly 5,000 units spread across Texas, Florida, and the Southeast.

“We are elated with the acquisition of Deerwood Park. Jacksonville is a key market for us and Deerwood Park is a value-add asset with tremendous upside opportunity,” commented Chris Finlay, chairman and CEO of Lloyd Jones Capital. “Lloyd Jones Capital plans to enhance the property with a value-add program that we anticipate will yield rent and occupancy growth for our investors.”

Built in 2002, the gated property offers one-, two-, and three-bedroom apartments with highly sought-after amenities including attached garages, a resort luxury style pool, outdoor kitchen with gas grills and a dog park.

Deerwood Park will be managed by Finlay Management, the operations group at Lloyd Jones Capital.  Finlay Management is an Accredited Management Organization (AMO®) as designated by the Institute of Real Estate Management (IREM®) and has a 37-year history in the industry.

About Lloyd Jones Capital

Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.

Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals. For more information visit: lloydjonesllc.com.

 

Lloyd Jones Capital Acquires 242-Unit Tallahassee Apartment Community

MIAMI –  Lloyd Jones Capital, a Miami-based multifamily investment firm, has purchased the Jackson Square apartment community in Tallahassee, the Florida state capital. The property is located at 1767 Hermitage Boulevard which connects Thomasville Road and Capital Circle, NE, just south of I-10. The 242-unit acquisition brings the Lloyd Jones Capital portfolio to 4,500 units spread across Texas, Florida, and the Southeast.

Says Chris Finlay, chairman/CEO of Lloyd Jones Capital, “This is a well-maintained property, with every amenity, in one of the best neighborhoods of Tallahassee.  We expect it to provide steady income and capital appreciation for our investors.”

Built in 1996, the property offers one-, two-, and 3-bedroom apartments; garages; and a modern clubhouse that includes an interior racquetball court.  Lloyd Jones Capital will continue a value-add program initiated by the previous owner. Finlay adds, “Our local teams scour Texas, Florida, and the Southeast for good investment properties; they are hard to find. Jackson Square is one of the best.”

According to Finlay, property management will be handled by Finlay Management, the operations group at Lloyd Jones Capital.  Finlay Management is an Accredited Management Organization (AMO®) as designated by the Institute of Real Estate Management (IREM®) and has a 37-year history in the industry.

About Lloyd Jones Capital

Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast.

Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.

Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals.

For more information visit:  lloydjonesllc.com.

 

Lloyd Jones Capital Acquires 240-Unit Houston Apartment Community

MIAMI – Lloyd Jones Capital, a Miami-based multifamily investment firm, has purchased the Regatta Bay Apartments from FRBH Regatta Bay, LLC.  The property is located at 2555 Repsdorph Road in Seabrook, Texas, 30 minutes southeast of Houston.  The acquisition adds 240 units to the Lloyd Jones portfolio of approximately 4,000 units spread over Texas, Florida, and the Southeast.

Says Chris Finlay, chairman/CEO of Lloyd Jones Capital, “This is a well-maintained, core-plus property that we intend to hold for several years. We expect it to provide a steady, long-term cash flow for our investors.”

Built in 2003, the property offers one-, two-, and three-bedroom apartments; garages; and a modern, updated clubhouse.  Lloyd Jones Capital will implement a light value-add program to further upgrade the units.  Finlay adds, “Our local teams scour Texas and the Southeast for investment properties. They are hard to find in this economy, but we’ve got another good one here.”

According to Finlay, property management will be handled by Finlay Management, the operations group at Lloyd Jones Capital.  Finlay Management is an Accredited Management Organization (AMO®) as designated by the Institute of Real Estate Management (IREM®) and has a 30-year history in the industry.

About Lloyd Jones Capital

Lloyd Jones Capital is a private-equity real estate firm that specializes in the multifamily sector. With 37 years of experience in the real estate industry, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast.

Lloyd Jones Capital provides a fully integrated investment/operations platform.  Its property management arm partners with the investment team to provide local expertise in each of its markets.

Headquartered in Miami, the firm has offices throughout Texas, Florida, and the Southeast, plus New York City.  The firm’s investors include institutional partners, private investors, and its own principals.

For more information visit:  lloydjonesllc.com.

 

Lloyd Jones Capital Names Chief Financial Officer

MIAMI –  Lloyd Jones Capital has announced that Raul Ramirez has joined the private equity real estate firm as chief financial officer. Chairman/CEO, Chris Finlay, says “These are exciting times in the multifamily investment world. Lloyd Jones Capital specializes in very compelling investment strategies, namely workforce housing and senior living.  Raul will serve on our investment committee as we underwrite and analyze potential acquisitions for our investors. And, his experience – and education – in real estate and financial reporting will assure our investors of institutional-level reporting.”

Ramirez began his career in the tax department of PricewaterhouseCoopers. He then turned to real estate development, first with Toll Brothers and later with WCI Communities.  In both cases, he worked in the tower division, involved with the firms’ high-rise projects.  He later moved to Morgan Stanley Smith Barney/Citigroup in New York in its alternative investment group. Eventually he returned to South Florida with an owner/operator of significant resorts, urban hotels, and multifamily communities.

At Lloyd Jones Capital, Ramirez is responsible for all financial reporting, underwriting oversight, and securing/closing all debt and equity.He sits on the company’s investment committee and is a member of the executive team.

Ramirez holds an MBA/real estate from Wharton, a master’s degree in professional accounting and financial reporting from University of Texas at Austin, and an undergraduate degree in finance from the University of Miami. He graduated with honors at every level.

About Lloyd Jones Capital

Lloyd Jones Capital is a Miami-based, private-equity real estate firm that specializes in the multifamily sector. With a thirty-seven-year track record of successful development and investing, the firm acquires, improves, and operates multifamily real estate in growth markets throughout Texas, Florida, and the Southeast. The firm provides a fully integrated investment/operations platform that includes its award-winning, property management company, Finlay Management, Inc.

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Media Contact:
Mike LaPosta
Mlaposta@lloydjonescapital.com
(305) 415.9910

Finlay Management, Inc. Chooses New President and Chief Operating Officer

MIAMI, Fla.-– Finlay Management, Inc., a private multifamily property management firm with offices in Florida, Texas, and South Carolina, has announced the appointment of Holly Costello as president and chief operating officer.

Costello is a 25-year veteran of the multifamily real estate industry and has held executive-level positions with some of the nation’s leading property management firms. “Holly brings a wealth of experience and exciting new ideas to Finlay Management,” says Christopher Finlay, chairman and CEO.

Costello’s long career includes nine years at Balfour Beatty, where she was vice president of both the multifamily and Navy military divisions. Earlier she had served as senior vice president with Walden Residential where she was instrumental in positioning the 24,000-unit portfolio for a successful market offering. Her expertise covers all residential asset classes including affordable, conventional, student, and military housing. Her management portfolios have included new construction/lease-ups, troubled receiverships, and major renovations.

According to Christopher Finlay, Finlay Management serves as the operations division of its affiliated multifamily investment firm, Lloyd Jones Capital. He explains, “Operations is the most critical component of a successful multifamily investment. Our investors will appreciate Holly’s extensive management background and her understanding of real estate investment.” Holly will sit on Lloyd Jones Capital’s executive and investment committees.

Costello holds a Certified Property Management (CPM®) designation and was the 2016 president of the West Coast Florida chapter of the Institute of Real Estate Management (IREM®). She has held executive board positions with the Bay Area Apartment Association, Florida State University Executive Real Estate Committee, Urban Land Institute Multifamily Council, and the University of Florida Bergstrom Council. She attended the University of South Florida and Florida State University and holds numerous management, tax credit compliance, and appraisal designations.

FINLAY MANAGEMENT, INC.
Finlay Management, Inc. is a private multifamily property management firm with almost forty years of experience in the market-rate, senior and affordable housing sectors. The firm holds the esteemed Accredited Management Organization (AMO)® designation from the Institute of Real Estate Management (IREM)®. Finlay provides property management services to its affiliate, Lloyd Jones Capital, a multifamily real estate investment firm with offices in Texas, Florida and South Carolina.

MEDIA CONTACT:

Samantha Savory
Director of Marketing/PR
Lloyd Jones Capital
Ssavory@lloydjonescapital.com
O: 305.415.9910

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Affordable Housing – It’s time to shake it up.

Once upon a time, not so long ago, the American dream was to own a modest home in which to raise a family. This was more than a dream; it was an assumption, an expectation. Even the lowest-income workers aimed for and usually achieved, this dream. Not anymore. There is a tremendous last of affordable housing. Millions of our working families cannot even afford a rental apartment.

But that can change. I submit that we can double affordable housing assistance without increasing funding. We currently spend

$50 billion for affordable housing programs

plus

$130 billion to assist non-low income households via tax deductions

Billions. That’s a lot of money. Where does it go?

1. Affordable housing.

Federal and state governments have literally hundreds of programs designed to provide housing assistance – $50 billion worth. This massive bureaucracy comes at a tremendous cost to efficiency, and it meets the needs of only a fraction of the very-low-income population. Plus, it drives up the costs.

2. Assistance for home-owners

We spend $130 billion to assist non-low- income households through mortgage interest and real estate tax deductions. $130 billion to home-owners when we have homeless families?

I’ve just finished reading a 2015 report by the Congressional Budget Office (Federal Housing Assistance for Low-Income Households). It looks at several potential policy changes to address the problem of affordable housing: revising the composition of the assisted population, adjusting tenant contributions to the rent payment on HUD’s voucher program, and repealing and/or replacing various programs. (Just repealing the LIHTC [Low Income Housing Tax Credit] program would increase revenues $42 billion over the next 10 years per the Joint Committee on Taxation.)

This CBO report is an analysis of various options; it offers no solutions. I propose an additional option, but first, we have to address the real issue.

The real issue:

In my opinion, these options do not address the underlying problem: the massive bureaucracy inherent in any government program. Layer upon layer of bureaucracy: administration, multi-tiered approvals, pages and pages of legislative rules and regulations, legal fees, accounting fees, compliance fees – and record maintenance into perpetuity. In one of my LIHTC compliance newsletters, the writer took over 350 words to explain “simply” which income limits to use to qualify a household. If it takes 350 words to tell me which year’s income limits I must use, it’s not simple. It takes attorneys, accountants, and compliance experts to understand the intricacies of each program. How many thousands of people are involved in every project? It’s very expensive to produce affordable housing. I recently read that the cost to construct a low-income housing tax credit unit is $250,000 – for one unit!! I suspect that same unit, market rate, would come in around $150,000.

My Proposal: Let’s dismantle the entire bureaucracy!

Let’s use the funds – from all sources – and provide assistance directly to the end user whose income is too low to afford a median-income rental apartment.

How many would qualify?

According to the CBO report, in 2014 the federal government provided about $50 billion in housing assistance to 4.8 million low-income households. But we have 20 million eligible households (those earning less than 50% of Area Median Income), so we still have 15 million very-low- income households that receive no assistance.

And what about those between 50% and 100% of median? Families earning $30,000 to $60,000 dollars? According to a 2015 report from Harvard’s Joint Center for Housing Studies, 20 percent of households earning $45,000–$74,999 (median area income range) were cost burdened in 2014.

The term “cost burdened” typically refers to those paying more than 30 percent of income on housing expenses, including utilities. In my opinion, that definition should be raised to 35 percent or 40 percent.

New System:

Now let’s design a system to provide funds directly to the end user– the household or person needing the assistance. Note that I said “directly.” Let’s cut out the middlemen. Let’s keep it simple. Basically, the recipient needs to prove his/her income, perhaps with an income tax return.

Households whose incomes are below national median income (adjusted for family size) will receive a stipend to supplement their incomes to the point that they can afford a median income rent (i.e. 30 percent of national median income.) This stipend will allow renters to go to any apartment in the country and rent whatever they want and wherever they want.

Assume national median income is $55,000. (In 2015, it was $55,775, per US Census.) Affordable rent for a median-income household of four is $1375 per month. ($55,000 /12 x .30)

So, let’s make sure every household can pay $1375 (adjusted for household size).

For instance, if the household earns only $40,000, it can afford $1167 without being overburdened. That household would receive a monthly stipend of $208. ($1375-$1167)

What if the household lives in a high-income area? Let’s take Dallas as an example.

Median income is $71,700, so median income rent is close to $1,800. This same household would have a choice: Stay in Dallas and pay an extra $450 out of pocket (The difference between national median rent and Dallas median rent) or move to a more affordable community. Again, it’s a choice.

The point is: instead of spending billions of dollars on bureaucracy and expensive production, give the money to the end users. Let them decide their own priorities. Proximity to work? Superior school system? Or maybe someone just likes a blue building. Whatever. The recipients may decide to spend more (or less) than 35% of their income on housing (like our Dallas household). That’s OK.

They can’t do that now with a HUD housing voucher. HUD restricts the amount they can pay, so they have no choice of lifestyle or location, or even the number of bedrooms, for that matter.

Employment- a very important issue

I’m talking here about low-income wage earners. There’s no employment requirement to receive HUD housing vouchers. In fact, the CBO report refers to studies that indicate receipt of a voucher reduces both household employment and earnings. About one-half of HUD’s housing voucher and public housing recipients are of work age and able-bodied, but only half of those count work as a majority of their income. Their other income comes from supplemental non-housing assistance.

In my plan, to receive the proposed stipend, households must show a willingness to work, preferably in a full-time capacity. But, per the report, the cost to wean recipients off housing assistance will cost about $10 billion. (more bureaucracy/administration?)

What has happened to common sense? Our voluminous legislative regulations, encouraged by special interest groups have us so tied up in “programs” that we are failing the working American family. There’s a lot of talk about adjusting programs, but I am talking about eliminating them.

Of course, my broad-brush vision is just that – a general concept. But it is based on my thirty-five years in the multifamily industry, as LIHTC developer, manager and now, investor. I think the number crunchers will show it can work. To get from here to there, however, will not be an easy task.

Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real-estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, manages and improves multifamily real estate on behalf of its institutional partners, private investors and its own principals. Headquartered in Miami, the firm has operations throughout Texas, Florida and the Southeast. For more information visit: lloydjones.wpengine.com.