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Arixa Capital 2019 Summer Newsletter

Arixa Capital 2019 Summer Newsletter

We’re pleased to announce the publication of our Summer 2019 Newsletter. Inside you’ll find our annual portfolio manager’s letter about our top accomplishments in the past 10 years, the market risks ahead and how we’re preparing for them, as well as company updates on activities, publications, and events.

3 Minutes with Brandon Hance, Avenue Homes

Arixa Capital interviews Brandon Hance, Founder and CEO of Avenue Homes. Avenue Homes s a vertically integrated real estate investment and brokerage firm committed to reconnecting the fractured and inefficient process of buying and selling real estate by streamlining the process to optimizing the client experience.

What does Avenue Homes do?
We think of ourselves as a modern-day home builder. All new construction focused, flat lot, City of Los Angeles. Mostly focused on $2 to $4 million dollar resale values.

Where do you find opportunity in today’s market?
We were focused on the distressed market, we saw that began to dry up and the real opportunity was around new product. $2 to $4 million dollars was where we felt was the most opportunistic strata. Lots of demand, lots of liquidity, and very small supply.

What is your ideal property?
We like to find a neighborhood that has a beautiful home right next door to a small outdated and outmoded home and really trying to bring that to the highest and best use.

What kind of returns are you trying to achieve for your equity investors?
Ideally, we’re targeting north of 20% and there are certainly projects where we’re able to achieve returns at that level. I would say over the last year or so, we’ve seen margins continue to compress. [In] 2013, 14, 15, they were probably higher, it’s becoming a more efficient market. And the only way to compete in this market is to be a really strong operator. It’s very challenging to find deals below market, it just doesn’t happen unless you’re finding off market opportunities. So the only real way to compete, we believe, is at scale and to be performing at a best in class level.

What makes your projects different?
We have pre-defined and essentially pre-approved floor plans with the city of LA, and rather than finding a home, and deciding what to do with it, we have built model homes and we’re looking for lots to build them on. So we know exactly what our costing is, how long it takes, what the design package will be ahead of time. That allows us to dramatically accelerate the process.

What is your differentiator?
We’ve built a proprietary database that has essentially every piece of information you’d ever want on every lot in LA County. MLS, county, topography, max allowable square footages, etc. We overlay our cost structure on that, to determine which opportunities are best for us and we literally have a maximum offer price for every home, in every neighborhood, we focus on.

Arixa Academy - Paul Schon, Schon Tepler, Part One

Arixa Capital interviews Paul Schon, Managing Partner at Schon Tepler, a fully integrated real estate development and investment company based in Los Angeles, California. Their focus is on creating and preserving value for our equity investors using their specialized knowledge of the multi-family and residential real-estate business.

In part one, Paul Schon discusses their niche of new construction and the key to success of their business.

I started at Marcus and Millichap brokering apartment buildings. I bet my business partner, Artem Tepler, and we partnered up in 2009 and we started the business. We build boutique apartment buildings throughout Los Angeles. We’re vertically integrated so we do [the] construction and then we also do the property management, as well as the development.

How did Schon Tepler come into the niche of new construction apartment buildings in LA?

We started off flipping homes and after we did over 50 homes or so, we build some of the homes ground up, we just figured we needed to move up a level and just graduate to development. We both wanted to develop, we just needed experience and expertise and relationships, and capital.  We did our first apartment building in 2012 and now we’re on our 24th building that we’re developing.

We found a great niche, we’re building just in LA, west of downtown, south of the 101, north of the 10 freeway, and west of the beach. We stick to the city of LA, we know that zoning, our professionals know how to get around the city.

What’s the key to success in the niche Schon Tepler is in?

One of our biggest competitive advantages is we source most of our deals off market. So we have great relationships with a bunch of brokers, so before they put it on the market, they come to us, they bring us the deal because they know we perform, they know we execute on these deals. We also have big lists of properties that we sourced ourselves. We’re constantly targeting this list of properties that work for us and what those properties are, is actually quite simple. They’re zoned multifamily and it’s a small property on a big lot. And that’s what we target.

Schon Tepler - Facebook / Instagram

Arixa Academy - Paul Schon, Schon Tepler, Part Two

Arixa Capital interviews Paul Schon, Managing Partner at Schon Tepler, a fully integrated real estate development and investment company based in Los Angeles, California. Their focus is on creating and preserving value for our equity investors using their specialized knowledge of the multi-family and residential real-estate business.

In part two, Paul Schon discusses the metrics and product types their business builds to as well as long term investment opportunities they offer to their investors.

What metrics does SCHON TEPLER build to?

One of the most important ones is we try to build on a six yield on cost. So we know we’re building to a six yield on cost with realistic construction numbers, and by realistic, a lot of, sometimes, we get deals thrown at us at six, six and a half, but their construction budget is just off. So since we’re doing so many projects, we really know our costs, so with realistic numbers and realistic rents, since we’re building a lot in the same areas, we won’t do a deal unless we hit our six yield on cost. We know we can sell these between a four and a four and a half, four and a quarter is probably market right now, so that’s our spread right there. The other metric we look at – we’re all in most of our projects, between $300,000 and $350,000 a door, we just sold a 21-unit just right outside Culver City for $500,000 a door. So that’s also another metric we look at.

What long term investment opportunities does SCHON TEPLER offer?

We partner up with high net worth families to do most of our deals. Our ideal investor is someone who just wants to build good product and hold on to it. We sell some buildings but our ideal is [to] keep the portfolio long term enough because we are big believers in long term and just holding apartment buildings in LA. How it looks is we buy the land, we get the permits, we build the product with a construction loan. Once the building is stabilized, we refinance out of the construction loan, get a permanent loan – we usually get 7-10-year debt. And a lot of the equity gets returned back to the investors, so our investors are making double digit returns cash on cash. Some deals we were able to refinance 100% of the capital. Some deals, some of the capital’s left in, and they’re getting double digit returns on their cash that’s still invested, which for apartments in LA, that’s pretty good returns.

Describe the product type SCHON TEPLER is building

So a lot of the units are the same because we literally hire the same architect, same sub-contractors, and we just plug and play the same buildings. As far as construction costs, that does depend based if we’re going subterranean or if we’re building podium on grade. Also the size of the units, because a 650 square foot unit versus an 800 square foot unit, even though it’s almost identical just that extra 150 square feet, doesn’t really cost that much. So if we’re building larger units, we can build around $210 a square foot, gross. But if they’re smaller units and we’re going subterranean, we can be at $300 a square foot.

Schon Tepler - Facebook / Instagram

Arixa Academy - Paul Schon, Schon Tepler, Part Three

Arixa Capital interviews Paul Schon, Managing Partner at Schon Tepler, a fully integrated real estate development and investment company based in Los Angeles, California. Their focus is on creating and preserving value for our equity investors using their specialized knowledge of the multi-family and residential real-estate business.

In part three, Paul Schon discusses their target market, what they look most for in a lender, and projects they’re working on.

Who is your target renter?

We get a lot of millennial couples. Most of our buildings are unique, they’re townhome style units, it’s cool it gives it good separation, so we have the bedroom on the first floor with its full bath, a living room and kitchen on the second floor with a half a bath, then we have a mezzanine on top where they put their office space or just another hang out area, a private rooftop deck. Couples love our units.

What do you look for most in a lender?

We use three types of lenders. So the first lender is that we use is a construction lender to give us a construction loan, we look for rates, we look for a good amount of leverage, loan-to-cost,  so most construction lenders are giving us between 65-70% loan-to-cost now, their rates went up, they used to be 75%. And then once it’s built, we look for a perm lender, and same thing, rates, we’re rate driven, and loan proceeds driven. And then the third lender is we enjoy working with you guys, because once we find a good deal – which good deals are hard to find in this market, sometimes we have to close fast, so it’s just nice, I call Jan and Arixa Capital, and ‘hey we got this deal, we need to execute it and close fast on it,’ and we really enjoy working with you guys.

What other projects is SCHON TEPLER working on?

We’re doing our first co-living project which we’re really excited about. Which basically it makes renting in LA affordable for the college grad who’s just making 40,000, 50,000 a year and wants to live in a new building and also gets a community of similar demographics, similar people that are also living there. We’re building our first one in East Hollywood, it’s 40 beds, and basically it’s 1 unit has 5 bedrooms/5 baths and we’re going to rent it out by the beds, and they share the living room and kitchen. So it’s similar with WeWork, but instead of office it’s with residential and housing. I think there’s a big demand for them because to live in a new building, you [have] to be earning 70,000+ so this opens there’s just big opportunity there. That’s the first one we’re doing. Another project we’re doing is microunits. So similar thing, renters are looking for ‘what’s the least I can pay or what’s financially feasible for me to live in a nice new building?’ So we’re building 375 square foot units in Echo Park and I think the demand is going to be huge for those units. Lastly, we’re looking in opportunity zones, I think there’s opportunity there to invest so we’re really looking into doing some projects in opportunity zones.

Schon Tepler - Facebook / Instagram

3 Minutes with Morgan Muldrew, Interior Illusions

Arixa Capital interviews Morgan Muldrew, Director of Staging at interior illusions. interior illusions’ primary aesthetic is derived from the mixing of proper stylistic ingredients and correct proportions in order to create a uniquely storied design flavor that offers hints of modern, contemporary, regency, rococo, and even organic.

For staging open houses, interior illusions help customers set the “stage” for their property. They understand how important it is to maximize the home’s final sales value by providing the best look at the best value. interior illusions staging sells quicker and for more money statistically versus non staged homes. 

Learn more about interior illusions, visit interiorillusionshome.com

What does Interior Illusions do?

interior illusions started primarily as a company that sold furniture, they actually started up in Fresno and eventually made their way down to Los Angeles. From the retail side of the business, started doing full service interior design and that one day became home staging as well.

Who is your ideal client & how do you find them?

The client whose primary goal is to sell a home quickly and for the most amount of money. And what that often looks like is someone with a little bit less personal connection with the space who just wants to see look as great as possible. We get to come in and have fun and do our best work in that situation.

How have you seen staging affect a home’s listing and selling price?

Actually, very recently I saw a home be very affected by our staging. We were working down in San Diego, in Rancho Santa Fe, and this is an area where homes tend to really sit on the market. The homes in San Diego sit a little bit longer than LA, it’s just a different market. We came in, we brought a very fresh palette to a beautiful home, it’s very transitional, kind of had that little bit of traditional flare, little bit of contemporary. We brought in just a really nice clean palette of furniture, and they got an offer for both the home and all the furniture, it’s first day on the market. I think that’s everyone’s goal.

What’s your differentiator?

I would say what sets interior illusions apart is that we are also a retail company. For example, I have a $30,000 Italian sofa in my inventory, I have beautiful $10,000 dining tables because we were able to pull from our retail side. That gives us this edge of really unique, really expensive pieces that at the end of the day, just really add value to a property.

What are some of the best practices for how to stage a home?

For me, art and rugs are where people need to focus; and that being, art usually need to be a lot bigger than what people have in their own homes. I see a lot of smaller cluttered pieces often times. With art and rugs, go big or go home. Rugs are often the place where people end up maybe going a little too small, I see a lot of 5x7 rugs or things where they sit in the middle of the room and the furniture’s all around it. You know, make sure it’s bigger, make sure where all the furniture can sit on it, if nothing else, at least the front feet of the furniture. And lighten things up in color.

How can lenders help you do your job better?

Knowing how we add value, knowing how we more often than not, cut down that time frame of when a home is on the market. I would say connecting us with developers, connecting us with real estate agents to make sure they have someone doing the job of staging so that the house is selling for top dollar, that it’s selling as quickly as possible, and then everyone gets what they want.



interior illusions - Facebook / Instagram
Morgan Muldrew - Facebook / Instagram

Contact staging@interiorillusionshome.com

View interior illusions’s staging photos:

3 Minutes with Jeremy Madick, Goosehead Insurance

Arixa Capital interviews Jeremy Madick, Agency Owner at Goosehead Insurance. Goosehead Insurance is an independent insurance agency serving the continental United States providing the power of choice to their clients for all their insurance needs. Goosehead Insurance shops among insurance companies to find the best policies at the best rates - giving their clients options no ordinary agency can.

Learn more about Goosehead Insurance, visit GooseheadInsurance.com

I’m Jeremy Madick with Goosehead Insurance. I am a local Southern California agent and I represent the entire state of California.

What does Goosehead Insurance do?

We represent a variety of top-rated local and national carries to bring the best product at the best price to our clients. We offer a white glove service. We roll out the red carpet for our clients and make sure that they feel they are being well taken care of.

What products does Goosehead Insurance offer?

We offer a full range of insurance solutions for families and investors. Anything from Home/Auto/Umbrella to Builders Risk or Course of Construction. With access to so many carriers, products, and discounts, we make our clients’ experience with insurance as simple as possible.

What types of products have you recently been providing real estate developers?

Goosehead Insurance offers products to investors and developers involved in ground up construction, rehabs, and remodels. Whether it be a single-family residence, a multifamily residence, or a commercial property project, we have polices that fit and can offer a solution.

What’s your differentiator?

Our insurance partner portfolio is robust due to our dedication to quality control and service, and we have unique appointments with certain insurance carriers that many independent agents do not have. Our licensed service team also has one of the highest Net Promoter Scores in the industry. My expertise is in advising my clients to correctly understand and manage their risks while getting the most competitive rates in the market. Just like we say at Goosehead, we fly above the rest.

3 Minutes with Jerry Wise, Brad Management

Arixa Capital interviews Jerry Wise, President of BRAD Management. A firm that seeks to add value to every property under management, working closely with ownership to reach for each property’s full potential.

Learn more about BRAD Management, visit BradManagement.com

What does Brad Management do?

We mostly buy value-add multifamily properties on the West Coast. There are always deals that come from somewhere and it’s all about relationships with brokers that understand that you’ll execute and hope to at least get that first look.

A lot of times you get into a deal that other people don’t want because they think there’s a problem that they can’t solve, like an environmental problem, or a rent control issue, or they just simply run the property forever and can’t figure out how to move it from point A to point B and that’s where we come in and sometimes make it happen.

We buy multifamily from $3 to $20 million, again, along the West Coast that are value-add deals. Mostly buildings that have been held by their owners for the last 20 to 30 years and need a spruce up.

What kind of returns are you looking for your investors?

We find that most investors who put money with us are not looking for their money back, they’re just looking for the return to keep coming. Instead of buying a project and selling it and pay the taxes, we usually exchange our properties into other properties and continue on that path of value add and it becomes a good long-term equity.

Our general target is an 8% current yield with a 15% overall annualized return to our investors.

What matters to you most in a lender?

There are plenty of lenders that will give you all you need upfront but they don’t execute on the backend so you have to make sure your lender is on the same page as you, and when you need something they can work with you and are flexible and that’s important.

3 Minutes with Martin Ensbury, The Ensbury Group

Arixa Capital interviews Martin Ensbury, President of The Ensbury Group. A firm that provides real estate brokerage services to buyers and sellers of residential, multi-family and commercial properties as well as landlords and tenants of commercial properties.

Learn more about The Ensbury Group, visit TheEnsburyGroup.com

What does The Ensbury Group do?

I see an amazing about of deal flow. We sell 50 to 60 apartment buildings a year. So that’s a lot of rent rolls to look at and a lot of underwriting to do.

It’s called rental income property for a reason. It’s all about the rents. We consider ourselves experts on the rents and many many owners don’t want to do what you need to do take the rents from $750 a month to $1500 for a one bedroom. So those opportunities are out there all the time.

Right now my focus is on buying B and C class apartment buildings. Mostly the South Bay and Mid-Cities being Bell Gardens, Cudahy, Huntington Park. And the South Bay of course Inglewood, Hawthorne, Gardena, and Torrance.

What’s the one thing you would like investors to know?

They should feel comfortable knowing that I’ve done it many many times. Our property management company averages 25 rehabs a month and it’s all about doing the quality rehab job without overspending. Making sure it gets done on time, so you can get the units turned and get them re-rented at the rents you need to get it done.

So most of the stuff we’re buying, the buildings are in terrible conditions the rents are half of what they’re used to be. And we’re going in and fixing the units, the exterior of the buildings and doing the rehab and getting them where they should be and putting a long-term debt on them and cash flowing.

What matters to you most in a lender?

What I like in particular is getting it done and knowing it’s going to get done quickly. The way to get the best deal as a buyer is to remove all loan contingencies, no loan contingency. So if I’m going hard on money and I don’t have my loan in hand, that’s a risky position to be in. So I want to know that I’m going to get that loan and that my lender is going to deliver exactly what they say they’re going to do; on the amount of dollars, rate, and terms.

Arixa Capital 2018 Spring Newsletter

Arixa Capital 2018 Spring Newsletter

We’re pleased to announce the publication of our Spring 2018 Newsletter. Inside you’ll find our annual portfolio managers’ letter about what we’re seeing in the market and how we’re preparing for the next phase of the market cycle, as well as lots of other news about Arixa’s activities, publications and events.

Top 15 Hard Money Loan Funds for 2017-2018 (And Honors)

Top 15 Hard Money Loan Funds for 2017-2018 (And Honors)

Hard money loan funds have numerous advantages over most of the platforms, including more conservative LTV's, higher volume, instant diversification, better transparency, easier management and early liquidation. However, finding a good fund has been very difficult for many investors. Ian Ippolito, investor and serial entrepreneur has written his top 15 hard money loan funds for 2017-2018.

Greg Hebner, Managing Director at Arixa Capital Quoted in Los Angeles Business Journal

Greg Hebner, Managing Director at Arixa Capital Quoted in Los Angeles Business Journal

Commercial development is booming in Inglewood, and residential real estate is anticipated to follow. LABJ asked Greg Hebner, Managing Director at Arixa Capital what he thinks about the residential real estate in Inglewood.

Important Concepts to Understand Before Investing in Credit, Alternative Income Funds

Important Concepts to Understand Before Investing in Credit, Alternative Income Funds

Jan Brzeski, Managing Director and CIO of Arixa Capital contributes an article for Western Real Estate Business that discusses the potential for increased yields that can seem attractive to many of today's investors. However, a certain amount of 'buyer beware' exists, which makes it incumbent upon the prospective investor to do their homework.

Addressing California’s Greatest Real Estate Need

Addressing California’s Greatest Real Estate Need

For those who invest in real estate in the Golden State, it makes sense to ask where the greatest need for investment lies. But the most pressing need is likely for additional housing close to jobs, which therefore represents the most interesting opportunity for investors. Jan Brzeski, Managing Director and Chief Investment Officer of Arixa Capital shares his insight to the growing opportunities in California.