Bisnow published an insightful article that touches on the ongoing yet sensitive subject of California's affordable housing crisis, a crisis that is threatening the economic vitality of the state.
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.
On Sunday August 11, Arixa Capital's Jan Brzeski was featured in a Reuters news article about the resurgence in the luxury home fix-and-flip business. Arixa Capital is a private lender that provides financing to developers in California who are purchasing luxury homes to renovate and resell.
The following are excerpts from the article.
Brzeski said he had originally been wary of the high-end market, because of the much bigger sums involved and thus greater risk. But then in 2011 he financed the purchase of a house in West Hollywood for $1.425 million. Another $1.175 million was spent on a total refurbishment.
"When the developer put it on the market, they had multiple, all-cash offers," he said. "There was a line out the door to buy it. It sold for $3.5 million. This was an incredibly profitable project. This really opened my eyes."
Brzeski's business model is simple. Using a fund of investor money he lends 75 percent of a project's "hard costs" - that is money used for the purchase and refurbishment - and collects interest at an annual rate of approximately 10 percent.
"Almost all our homes in these A and A-plus neighborhoods have something in common. You look at the appliances in the kitchen. If they are from the 1960s or 1970s, that's the house to flip," Brzeski said.
"The market has gone through the roof. You see people buying properties one year ago and selling them at 20, 30 percent profit. Some of these are no more than paint jobs. The ones that are doing big rehabs are making huge profits."
Arixa Capital has released a new white paper focused on the U.S. housing market and single family homes as an asset class for investors to consider. The white paper is based on Arixa's concrete experience investing in this area in recent years, working with local operators who buy properties in a specific geographic area, renovate them, and either lease the homes or resell them.
The white paper explains various ways that investors can gain exposure to this asset class, which Warren Buffett recently endorsed as underpriced and attractive. The author explains the advantages and disadvantages of various investment strategies for both active and passive investors.
The white paper also explains that the activity of thousands of local operators is already helping to work through the backlog of foreclosed homes. Attracted by appealing profits, local operators will help the housing market to heal over the next several years. Policies that aim to solve the problem on a mass scale are neither needed nor advisable.
For a copy of our white paper, please click here.
To all who registered for and/or attended our event last week, thank you for coming. If you were able to attend, we hope you found it valuable. If you are interested in the photos that were taken of the event, please click here.
To read more about the event, please click here.
The unique value proposition for this event series is the high quality networking and educational opportunity combined with the very low registration fee ($15 for pre-registration or $20 at the door). The fact that beer, wine and appetizers are included in the price is also popular with participants.
For those of you who were unable to attend, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event again this year. We plan to post this video very soon, so please check back on this blog for that link.
If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Jan Brzeski at firstname.lastname@example.org.
This year's event is set for Wednesday, February 8 at 6:30 p.m. at the Anderson School. For details, including speakers and registration, please visit the conference website: http://arixacapital.com/conference. What Makes this Event Special Last year, our event drew over 220 attendees for networking, refreshments and a lively panel discussion among some of Southern California's most established and interesting real estate investors. The reason our event has succeeded while other conferences sometimes draw limited attendance include three main factors:
(1) Great Panel. The panel discussion is unusually candid, as we track a core group of investors through the full real estate market cycle. This "longitudinal study" aspect of our event is unique. We are told each year that our panel is one of the best, or the best, among all the California conferences.
(2) The Price is Right. At only $20 per person ($15 with pre-registration), including food, beer and wine, there is no better value than our conference. We thank our key sponsors including the Ziman Center at the Anderson School, and Gibson, Dunn & Crutcher, for keeping the cost to a minimum.
(3) Excellent Networking. Our event starts with a one-hour reception during which you will meet valuable contacts in a collegial atmosphere. At the reception and after the discussion, you can meet the panelists and other professionals and investors in our industry.
This podcast outlines a recent loan we originated, secured by a strip shopping center located in Ohio. This loan was compelling based on the income of the property. The attractive income outweighed the negative factor of the property being far from our office.
This article makes the argument that home prices are still overvalued relative to their 100-year trend of 3.35% price increases per year. If Federal support for the market were removed (e.g. home mortgage interest deduction and government guarantees of mortgages backed bonds from Fannie Mae), prices might drop 20%. Of course the U.S. Government is very unlikely to destabilize the market currently by removing support for the market given current conditions. That being said, investors in residential real estate need to be cautious and should not assume a return to rapidly rising prices.
Access the article on Wall Street Journal online here: Home Prices Are Still Too High
OR, if you are unable to access WSJ online, I've created a pdf of the article for you to read here: Peter Schiff_ Home Prices Are Still Too High - WSJ
Free Educational White Paper
Author: Jan B. Brzeski
The article appeared in the Daily Journal on October 27, 2010. The Daily Journal is California's leading publication for legal professionals. The article focuses on the investment niche of making loans secured by trust deeds, as opposed to the more usual type of loan secured by real property. To receive a copy, please email Kari Burns at email@example.com.
What we saw: A newly-built "Class A" apartment community was temporarily under performing due to the opening of other new apartments nearby. We provided a mezzanine loan, providing the developer with financing until the property stabilized and delivering an attractive return to our capital source.