Multifamily investment opportunities can have various structures, risks, and return profiles. But what makes this what makes this investment option compelling and potentially actionable? And how can Opportunity Zones play a role in that?
Neil Sherlock is the Vice President Capital Markets at Starpoint Properties, LLC, a private real estate firm with over 25 years of delivering market-leading returns throughout the United States.
Click the play button above to listen to our conversation with Neil.
- What investment advantages will multifamily real estate produce for a portfolio.
- Why multifamily properties can be more resilient than other asset classes amid ongoing economic uncertainty.
- How do Opportunity Zones offer multifamily investing in tax-beneficial ways.
- What is the location criteria for investing in multifamily real estate and what are other considerations when searching for multifamily properties.
- What are the different forms multifamily real estate comes in.
- How can investors access institutional-quality real estate in the multifamily sector.
Featured On This Episode
Industry Spotlight: Starpoint Properties
StarPoint Properties, located in Beverly Hills, California, is a real estate investment and operating company with a 25 year track record of delivering above market returns by focusing on the acquisition,
Learn More About Starpoint Properties, LLC:
About the Opportunity Zones Podcast
Hosted by OpportunityDb.com founder Jimmy Atkinson, the Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.
Jimmy: Welcome to the “Opportunity Zones” podcast. I’m your host, Jimmy Atkinson. On today’s episode, we’ll be discussing resiliency of the multifamily sector and how to access institutional-quality real estate. My guest today is Neil Sherlock, VP of Capital Markets for Starpoint Properties, a real estate investment, and operating company. Neil joins us today from Beverly Hills, California. Neil, thank you for joining me and welcome to the show.
Neil: Jimmy, thanks for having me.
Jimmy: Absolutely, Neil. Pleasure to be with you here today. The majority of your portfolio at Starpoint Properties, Neil, is multifamily located in California. And California has its share of, I would say, headwinds or at least perceived headwinds. You know, it’s a state that is in the media a lot, some good, some bad. What is the case for investing in real estate in California? Give me the case for it.
Neil: Sure. When we’re talking about real estate here, I think specifically we’ll focus a little bit on the multifamily sector, but I would say that California, you know, constantly faced with an ongoing housing shortage. Home prices here are generally, you know, very high compared to, you know, across the country national average. And not only that, they’re growing here pretty rapidly, you know, it’s about an 18.7% increase year over year to a median home prices in Los Angeles area from July of 2020 to now. And I think that lack of supply and expensive home prices essentially pushed a lot of residents here to rent. Not surprisingly, we’ve got incredibly low vacancy rates, you know, about 4.5% across LA, and actually Long Beach is even less at about 3.5%. So, those two or three variables there that we just talked about really make multifamily in this area just an incredibly attractive opportunity.
Jimmy: Good. Yeah, definitely some numbers that are favorable for California, for sure. What about the impact of COVID and all of the political and economic uncertainty that we’re seeing in the economy today? How has that impacted the residential market?
Neil: Yeah. I would say divide that up into two. I’d say first off in response to COVID, you’re seeing a lot of people that are really evaluating their home environment. I mean, part of that is brought on by work-from-home trends that we’ve experienced during the pandemic. And in addition to that, you know, you had a lot of people that were essentially shifting the demand curve and disrupting supply chains in the process, but investing in improving their existing homes and really what the pandemic is. It just made people evaluate and just say, “Hey, look, if I’m gonna wind up having this on a go-forward basis and I’m gonna have a hybrid work from home and, you know, maybe partial in the office, I’m gonna wanna be in a nicer place and I’m gonna upgrade that.” So we saw a lot of that.
And then the other part of your question was about how the current economic environment is impacting the housing market as well. And what I would say is, you know, you’re seeing a lot of slight quality. These are a bit uncertain times. I mean, obviously, we’ve got inflationary pressure, we’ve got, you know, various other policy decisions that are being made that are both at the state and at the federal level that are gonna have material impacts here. And there’s just a lot of unknowns. During times of certainty like this, real estate generally is a good safe haven. And particularly, you know, multifamily real estate has generally been pretty resilient throughout various economic cycles. So, again, it’s a good place to be given the uncertainty, both post-pandemic environment and, you know, current we’ll call it policy modification environment.
Jimmy: And given the fact that even prior to the pandemic and prior to the economic uncertainty that we’re facing now, there has already been a baseline of an enormous housing shortage in this country and particularly in California, and I’m sure that impacts the benefits that multifamily offers investors as well. Am I right?
Neil: Absolutely. You hit the nail on the head, I think. You know, at the outset here, you asked me about California and I think we talked briefly, you know, on multifamily as well. And it’s a good safe haven, I think, for the time being.
Jimmy: All right. So, one of the things that Starpoint Properties offers, and correct me if I’m wrong, is it allows high net worth accredited investors the opportunity to gain exposure to what you refer to as an institutional-quality real estate. Can you talk a little bit more about that and discuss what makes Starpoint unique in that regard?
Neil: Sure. The company has been around for 25-plus years at this point. We’ve done, you know, over a billion five of real estate transaction volume over that time and, you know, have been incredibly successful achieving weighted average returns to investors about 25% per annum. And that’s based on an internal rate of return and that’s two LPs. We’ve worked with institutional investors, and then, you know, we’ve worked with our four base of LPs over the years, which is our retail base. And, you know, both have been repeat investors over the years as well. And really, what I think we offer that, you know, is unique, we offer investors, you know, a fully integrated real estate acquisition, management development platform with entrepreneurial vision, but also with institutional discipline.
Jimmy: Oh, that’s great, Neil. Entrepreneurial vision with institutional discipline. I love that. I love that term there. So, tell me a little bit more about the history of Starpoint, if you wouldn’t mind, and some of the team behind your asset management and development team.
Neil: Sure. It started 25 years ago, really at the outset of the company, the focus was on multifamily value add. Over the years, we grew tremendously. These days, we have exposure to multifamily, you know, office and, you know, we’re talking generational office, like our buildings that are both located in downtown Beverly Hills and the Golden Triangle. We have retail properties, we have industrial real estate properties as well. We’ve really just expanded. And I think that’s really just a testament to what, you know, I had mentioned before is that, you know, we do have this entrepreneurial approach and we continue to evolve and, you know, we’re led by a very strong management team. That management team has been here since the outset and they continue to make really solid strategic hires. I like to think of myself as one of those. But in addition to that, we’ve really bolstered up the operations. And it’s funny to say because I don’t think there are a lot of companies that have been around for 25-plus years that are really in full-growth mode like we are today.
Jimmy: Yeah. That’s interesting. Twenty-five years and you’re still in growth mode. What about your investment thesis overall as a company? What property types do you like? And I know we’ve been talking specifically about Los Angeles metro area and California, but what other geographic locations do you like?
Neil: Sure. We’ve done deals all across the United States. I’d say the vast majority of them are basically call it Texas West. So I think if you were to draw, you know, a line between Dallas, and Denver, and Los Angeles, that’s essentially…or actually San Francisco, we’ll go up to Northern California there. But I think that’s gonna capture the vast majority of the types of deals that we do. I mentioned that we started with the multifamily, but obviously we’ve branched out. We’ve done a lot of the office retail, industrial deals. And as of right now, our, you know, current portfolio is comprised of about 30 properties and it has about slightly over north of a billion dollars in total market value as of today.
Jimmy: So, you know, what’s interesting is this is the “Opportunity Zones” podcast, we actually haven’t talked about Opportunity Zones at all yet, which I think is interesting because you aren’t purely an Opportunity Zone play. You guys are doing great deals, you’ve been doing great deals for 25 years, but now you happen to be getting into Opportunity Zones and putting the qualified opportunity fund wrapper around a lot of what you’re doing. So tell me about how you guys got into OZ investing?
Neil: Sure. I think it was with cautious optimism. I think the way that we looked at it is, “All right, we know what we’re doing. We’re a real estate investment company. We’ll keep our eyes on this program. We’re aware of this program. And we’ll just see whether or not there are QOZ deals that meet the criteria that are required for us that we’ve built up as far as our underwriting methodologies and analysis that we’ve created over these years.” It’s, you know, all proprietary in-house ways of evaluating real estate. You know, “If we come across one of these properties located in a QOZ, well, that’s great because if it meets our preliminary criteria for identifying attractive real estate, and then it happens to be in a QOZ, well, then obviously we’re gonna strike on that. We think that’s incredibly attractive.” So yeah, I would say we started off as really, you know, that cautious optimism. And so far with that patience, we’ve seen a lot of different deals, about $3 billion worth over the last 18 months alone. And we’ve actually…we’ve either closed or have under contract, you know, six specific properties right now in the QOZ space. And the vast majority of those are gonna be those multifamily industrial development deals.
Jimmy: So let’s talk about your current portfolio, your existing deals. What can you tell us about those six existing deals that you have in that current portfolio?
Neil: So all of our deals share very similar attributes. They’re in attractive markets, major metros, and are capitalizing on, you know, some type of tailwind. And obviously, as of right now, they’re all either industrial or multifamily deals. But as far as just addressing them one by one, the first one that we closed…and all of these are generally about $30 to $75 million total capitalization types of deals. But the first one that we acquired was an industrial development deal out of San Bernardino, California. And the vacancy rates in San Bernardino right now are essentially sub 2%. And it was an infill location. And you wanna talk about what’s driving the need for that type of industrial distribution center, right? Real estate. I mean, look no further than COVID. I mean, what happened in the last year? I mean, people were going out and buying toilet paper and, you know, selling out of stores.
I mean, it essentially kind of changed the way that I think a lot of businesses were conducting a lot of their logistics, which instead of being kind of that just-in-time delivery, it was a bit of a just-in-case. So, that was our first one. And that one, we are going and starting construction here in Q4 2021. The second one that we brought to market is actually a Mesa, Arizona multifamily. And the Phoenix metro market has just been absolutely on fire. I think it’s the fastest-growing metropolitan area in the United States. I think 24 consecutive months, you know, there was a ton of appetite for that one and that’s one that’s breaking ground in Q1 of 2022. And then right behind that is actually our current offering that we just took to market in late September, which is a multifamily development project in Long Beach, California. And we already talked about multifamily in Los Angeles metro, so we think it’s a great opportunity for people that are looking to get exposure to great real estate in a qualified Opportunity Zone at that.
Jimmy: That’s great. And how have you been rolling these out to market, and what have you found has been successful for you in doing so?
Neil: So we generally go out to market based on their construction start date. That’s how we’ve taken these out. What I can say is we were a bit in stealth mode earlier this year with our existing projects. And the first two that we took out were, you know, essentially close to new investors shortly after we took them out. You know, I expect that to continue to be the trend for both our Long Beach deal, as well as the other, you know, deals that we’ve got coming down the pipeline, which include another Mesa, Arizona deal, that one’s an industrial development deal. We really like Salt Lake City as well in Utah. There’s some really attractive opportunities in Salt Lake City and Salt Lake City adjacent. And then also right behind that, we’ve got another Denver, Colorado industrial deal. So, our pipeline continues to grow. And I would expect us to continue to roll out at least three, four, five of these deals annually, if not more.
Jimmy: And who’s your capital base typically? Is it RIAs? Is it family offices? Is it self-directed high net worth accredited investors? Who do you see coming to you, writing checks to you?
Neil: So we do have a strong appetite from the RIA market. I’ve been in contact with a lot of…you know, we’ll call them other service providers as well. I mean, a lot of attorneys that are looking for QOZs, CPAs, that are specializing in a QOZ space as well, have been reaching out to me. I mean, we get a lot of inbounds and we do a fair amount of outbounds as well. And then in addition to that, you know, we’ve got a lot of ultra high net worth individuals, both our legacy investors that we’ve got here, but then also a lot of new ones that, you know, have familiarized themselves with the name Starpoint. And you’ll understand that we very much know what we’re doing here. And we’ve been very successful in doing it for many years. And I think we offer something that not a lot of other QOZ sponsors can really bring to the table.
Jimmy: So you mentioned your Long Beach deal briefly a minute ago, that’s your newest deal, I believe. Can you go into some more detail on what that deal is exactly? Maybe you can talk about some of the numbers behind it.
Neil: Sure. Actually, our newest deal is our Long Beach, Locust OZ Fund, LLC. And that is because the project is located at Locust and 7th in downtown Long Beach in the North Pine neighborhood of the city. This, like all of our QOZ, it’s structured as a single-asset investment vehicle. And we try and keep the business plan for this very straightforward. And the plan for this asset, just like the other developments that we have is essentially utilizing a build-to-core strategy. We actually already have site plan approval for the project. And we expect to start demolition of the existing structure in late Q1 of 2022 with construction to follow shortly thereafter, which is gonna be in early Q2 of 2022. You know, as part of that build-to-core strategy, once we wrap up construction and place the asset and the service, which right now we’ve got modeled out for August of 2024, at that point, you’ll have a class, a core asset that’s generating current cash flow to investors and escalating cash flow at that.
Once we have this place in the service and after it’s, you know, stabilize the asset, we expect to refinance it and distribute out any residual proceeds after repayment of our construction loan, we expect to distribute that out to fund investors. And that is expected to be done in a tax-efficient manner in order to provide, you know, our fund investors necessary liquidity, to pay off their tax liability that’s gonna come due again in 2026. Which, by the way, I think it’s important to note here at this time too, Jimmy, that 2021 is, you know, the deadline to be able to recognize not just the deferral, but also that reduction benefit for the QOZ program as well.
Jimmy: That’s right. Well, yeah, just to clarify, it’s not the deadline for the deferral, but it is the deadline for the 10% reduction. But the deferral period gets shorter and shorter every day that goes by, obviously, because the deferral period is always until December 31, 2026, unless there’s some sort of change to the statute, which would require an Act of Congress. So, yeah. Thanks for pointing that out, Neil. Absolutely correct there. Getting back to your Long Beach, Locust qualified opportunity fund, just a few more quick questions on the numbers behind it, what type of returns are you projecting, and how much OZ equity are you raising for that deal, and what’s the minimum investment amount?
Neil: Sure. As of right now, the total capitalization for that deal is forecasted to be about $48 million in total. The way that we model it out is basically it’s a 35% equity and about 65% leverage on the project. So, in total, we anticipate raising, you know, call it up to about $18 million of total equity for the project, or for the fund, rather. And as far as how the…you know, it pencils out currently on paper from, you know, an economic’s perspective, at a project level, we’re anticipating over a 10-year hold, approximately an 18% IRR and a 3.9% multiple on equity invested. Oh, and the last thing with the minimums, we have our minimum set at about $100,000 for the funds.
Jimmy: Okay, Neil. Tell me more about Long Beach though. You’ve got the Locus project going there, as you just mentioned. What are some of the trends happening around Long Beach? Why are you bullish on that area?
Neil: Yeah. So I was actually there yesterday with another investor, Jimmy. There are cranes across the skyline and I think that’s, as you know, indicative of growth and investment. Long Beach is expected to be one of the four sports parks for the 2028 Olympics. And it also has…you know, it’s gonna be hosting events in its Convention Center, which already gets about 1.5 million visitors per year, right along the Waterfront, which is actually walking distance from our development deal. You know, in addition to that, they’re investing heavily in their transportation network, and utility upgrades, and land-use policies.
And lastly, there’s a lot of additional investment that’s being made there as well. And in particular with anchor employment opportunities, you have a lot of aerospace companies that are targeting Long Beach for their new headquarters. You had, you know, SpaceX made an announcement earlier this year that invested in 6.5 acres on the port’s Pier T. And then there’s a lot of other notable aerospace companies that are located there as well, Virgin Orbit, Rocket Lab, Relativity Space, SpinLaunch. And this is all in addition to the fact that we already have both the port of LA, and the port of Long Beach that are within two miles of our project as well. And those generate about $2 billion worth of trade…or, sorry, $200 billion worth of trade annually.
Jimmy: That’s amazing. Yeah. So quite a lot of economic activity and development happening in and around that area. Excellent. So, for anybody out there listening who’s interested in learning more, maybe the potential investors, they wanna learn more, get some more information from you, where can they go to learn more about Starpoint Properties and the different qualified opportunity funds that you offer?
Neil: You know, you can either visit our website, but probably your best course of action is just to reach out to me directly. You know, my work email is [email protected] If you prefer to call, my direct line is 310-651-2111. And I try and make myself available whenever works best for prospective investors. I make sure that we can make a time that works for both of us, so that way I’m working within your timeframe because obviously, the program does have certain deadlines. And I know the 180-day window that a lot of people generally tend to push up against and start looking, you know, last minute. So I understand the urgency of time and generally make myself available accordingly.
Jimmy: Very good. Thank you, Neil. And for our listeners out there today, I will, as always, have show notes for today’s episode on the Opportunity Zones Database website. You can find those show notes at opportunitydb.com/podcast. And there you’ll find links to all of the resources that Neil and I discussed on today’s show. And I’ll also be sure to include a link to Neil’s email address, as well as list his phone number, so you can get in touch if you’d like to contact Neil and learn more about Starpoint Properties and their current Qualified Opportunity Zone Fund offerings. Neil, thanks for joining me today. It’s been a pleasure.
Neil: Jimmy, likewise. I appreciate it.