Taking too long? Close loading screen.
Connect with us

Business

Some Real Estate Investors Are Putting More Money in One Basket

Published

on

Peter Starrett and Sharon Arthofer are wealthy investors who come from different business backgrounds, but both are looking to put more of their money into an asset that has suffered during the pandemic: real estate.

For many investors, that would mean choosing funds that buy scores of buildings around the country. Instead, Mr. Starrett, who ran several retail companies before becoming a private equity executive, and Ms. Arthofer, an entrepreneur, are investing directly in specific buildings in just a few places.

The strategy is riskier — putting several million dollars, for instance, into one residential building versus using that same amount to invest in dozens of buildings. If the investment works out, however, it will offer greater returns and tax benefits.

That’s a big if, especially in the pandemic, when certain classes of properties, like offices, stores and restaurants, have been hit particularly hard by vacancies and tenants unable to pay their rent. But people like Mr. Starrett and Ms. Arthofer argue that they have more control when they invest in particular buildings with a group of other individuals.

“There’s no doubt this has really been an eye opener,” Ms. Arthofer, of San Marino, Calif., said. “Brick-and-mortar retail has completely changed.”

Or as Mr. Starrett, who lives in Los Angeles, put it: “I had big questions about it in March when I couldn’t do anything. But I’ve been through a few of these downturns in the past, and I’ve learned patience.”

Real estate is likely to remain a favorite of wealthy investors because it can be owned indefinitely, has predictable cash flow and usually appreciates in value. But investors are looking for different types of real estate than they were at the beginning of the year, according to a report released on Monday by Withersworldwide, an international law firm. The firm talked to people who work in property and land development as well as academics, architects and hospitality workers about what the future of real estate might look like.

#styln-briefing-block { font-family: nyt-franklin,helvetica,arial,sans-serif; background-color: #ffffff; color: #121212; box-sizing: border-box; margin: 30px auto; max-width: 510px; width: calc(100% – 40px); border-top: 5px solid #121212; border-bottom: 2px solid #121212; padding: 5px 0 10px 0; } @media only screen and (min-width: 600px) { #styln-briefing-block { margin: 40px auto; } } #styln-briefing-block a { color: #121212; } #styln-briefing-block ul { margin-left: 15px; } #styln-briefing-block a.briefing-block-link { color: #121212; border-bottom: 1px solid #cccccc; font-size: 0.9375rem; line-height: 1.375rem; } #styln-briefing-block a.briefing-block-link:hover { border-bottom: none; } #styln-briefing-block .briefing-block-bullet::before { content: ‘•’; margin-right: 7px; color: #333; font-size: 12px; margin-left: -13px; top: -2px; position: relative; } #styln-briefing-block .briefing-block-bullet:not(:last-child) { margin-bottom: 0.75em; } #styln-briefing-block .briefing-block-header-section { margin-bottom: 16px; } #styln-briefing-block .briefing-block-header { font-weight: 700; font-size: 1.125rem; line-height: 1.375rem; display: inline-block; margin-bottom: 5px; } @media only screen and (min-width: 600px) { #styln-briefing-block .briefing-block-header { font-size: 1.25rem; line-height: 1.5625rem; } } #styln-briefing-block .briefing-block-header a { text-decoration: none; color: #333; } #styln-briefing-block .briefing-block-header a::after { content: ‘›’; position: relative; font-weight: 500; margin-left: 5px; } #styln-briefing-block .briefing-block-footer { font-size: 14px; margin-top: 1.25em; /* padding-top: 1.25em; border-top: 1px solid #e2e2e2; */ } #styln-briefing-block .briefing-block-briefinglinks a { font-weight: bold; margin-right: 6px; } #styln-briefing-block .briefing-block-footer a { border-bottom: 1px solid #ccc; } #styln-briefing-block .briefing-block-footer a:hover { border-bottom: 1px solid transparent; } #styln-briefing-block .briefing-block-header { border-bottom: none; } #styln-briefing-block .briefing-block-lb-items { display: grid; grid-template-columns: auto 1fr; grid-column-gap: 20px; grid-row-gap: 15px; line-height: 1.2; } #styln-briefing-block .briefing-block-update-time a { color: #999; font-size: 12px; } #styln-briefing-block .briefing-block-update-time.active a { color: #D0021B; } #styln-briefing-block .briefing-block-footer-meta { display: none; justify-content: space-between; align-items: center; } #styln-briefing-block .briefing-block-ts { color: #D0021B; font-size: 12px; display: block; } @media only screen and (min-width: 600px) { #styln-briefing-block a.briefing-block-link { font-size: 1.0625rem; line-height: 1.5rem; } #styln-briefing-block .briefing-block-bullet::before { content: ‘•’; margin-right: 10px; color: #333; font-size: 12px; margin-left: -15px; top: -2px; position: relative; } #styln-briefing-block .briefing-block-update-time a { font-size: 13px; } } @media only screen and (min-width: 1024px) { #styln-briefing-block { width: 100%; } }

Before the pandemic, investors wanted to be in cities like New York and London, where retail and residential properties profited because people lived close together. With coronavirus flare-ups in many cities around the world, investors now are looking for the opposite, said Vasi Yiannoulis-Riva, a partner in the real estate group at Withersworldwide.

Commercial property deals in big urban areas have stalled, and she has been working with wealthy individuals buying estates outside cities like New York.

“I’ve done more residential deals in Connecticut in the last few months than in the past couple of years,” Ms. Yiannoulis-Riva said. “We’re seeing a lot more ultra-high-net-worth folks interested in larger properties that have offices and pools. Their belief is even when people return to work, they probably won’t commute five days a week anymore.”

As a result, she said, some of the savviest and most risk-tolerant investors have been looking at commercial buildings in the suburbs. These buildings could be part of a new model for companies that want employees to return to the office but can’t accommodate them all with social distancing at their headquarters.

Investors are also looking at residential developments that reimagine how business can use their ground floors. Instead of being anchored by restaurants or stores, as they were at the start of the year, these properties may have tenants, like a pharmacy or a doctor’s office, that will remain through future pandemics. Investors are also looking at industrial spaces that can serve as a warehouses for shippers and e-commerce companies.

For people who own retail or office space where the tenants are struggling to pay rent, Ms. Yiannoulis-Riva has blunt advice: Hold on, if you can. “Right now, it’s going to be hard to sell unless you’re selling at a discount or it’s a distressed property with a lender who’s putting pressure on you to unload it at a discount,” she said.

Image“I’m a great believer in multifamily,” Ms. Arthofer said. “People pay their rent. They don’t want to lose their homes.
Credit…Rozette Rago for The New York Times

Ms. Arthofer said she had focused on multifamily buildings ever since she helped her mother manage a real estate portfolio that her father had build up in the Washington, D.C., area. Ms. Arthofer and her husband now have 40 percent of their investments in real estate.

“I’m a great believer in multifamily,” Ms. Arthofer said. “People pay their rent. They don’t want to lose their homes. In our strip retail centers, there’s roughly 75 percent who are paying and 25 percent who are not. But in our apartment buildings, 95 percent are paying their rent.”

Ms. Arthofer and Mr. Starrett invested through a sponsor, Lion Real Estate Group, which finds the buildings. The group is betting that an emerging trend before the coronavirus — the attraction of young people to apartments in cities like Austin, Texas, and Nashville — will be a long-term winner.

That strategy has benefited from the uneven spread of the coronavirus, which has left those cities relatively spared, and from the drop in mortgage rates.

“You have to say, ‘I don’t know what is going to happen in three to five years,’” said Jeff Weller, managing principal and co-founder of Lion Real Estate Group. But if you can lock in a 2.5 percent interest rate, he added, this is the lowest your rents are going to be, so you can also say, “My cash flow in Year 6 or 7 could be phenomenal.”

Unlike investors in real estate funds, which often look to sell properties by a certain time and even unload their best-performing assets earlier to increase their rates of return, individual investors who buy buildings themselves can choose when or if they want to sell.

In group deals, though, they’re limited partners, so while they receive many of the benefits of owning a property outright, the final say on when it is going to be sold is up to the general partners who brought the investors together.

Mark Holdsworth, the founder and managing partner at Holdsworth Group, a family office, invested heavily in real estate after BlackRock bought his investment firm, Tennenbaum Capital Partners, in 2018. His focus has been on apartment buildings, and now real estate accounts for around 30 percent of his family office’s investment portfolio, an amount he said he hoped to increase.

Mr. Holdsworth has often invested through sponsors who pull together other wealthy individuals to buy a building. Some of the properties have been sold sooner than he would have liked.

“Generally, I’ve been fortunate in that sponsors have gotten good premiums on the ones they’ve sold,” Mr. Holdsworth said. “I’m always sorry to see the cash flow go. But I can put that money into another 1031 exchange.”

That number refers to a section in the Internal Revenue Code that is the basis for most commercial real estate transactions. Section 1031 allows sellers of a property to avoid paying tax on the gains by buying a new property within a set amount of time. Real estate investors have used that section to build wealth for decades. But it could come to an abrupt end. Joseph R. Biden Jr. has vowed to end the preferential tax treatment if elected president.

And that has added urgency in an uncertain time. “If you’re going to do it,” Ms. Yiannoulis-Riva said, “get it done.”

Source

Continue Reading
Advertisement
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

The Trump campaign celebrated a growth record that Democrats downplayed.

Published

on

The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

Source

Continue Reading

Business

Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

Published

on

The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

Source

Continue Reading

Business

Ant Challenged Beijing and Prospered. Now It Toes the Line.

Published

on

As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

Source

Continue Reading

Trending