Matthew Gorelik is the Founder, Chairman and CEO of Township Capital, a Los Angeles-based real estate investment manager focused of making programmatic equity investments alongside best-in-class sponsors and institutional equity investors nationwide. He & his team are unique in their ability to identify and invest in opportunities throughout the commercial real estate capital stack and across various market conditions.
In this episode of Power Your Advice, Doug Heikkinen and Matthew discuss what is going on across the different sectors of commercial real estate
- How investing in commercial real estate has changed over the past two decades
- Trends Matthew sees in commercial real estate today
- The opportunity presented by student housing
- What is going on with multifamily housing and post-pandemic migration patterns
- Is senior living making a comeback after the pandemic
- What Matthew and Township Capital are excited about in the near future
Resources: Township Capital
Matthew Gorelik, Douglas Heikkinen
Douglas Heikkinen 00:01
Hello and welcome to the power your advice podcast. The power advice podcast is designed to bring financial advisors new ideas, why those ideas should be considered and how to implement them into your businesses. This podcast is brought to you by advisor pedia the best place for advisors to grow their minds and businesses. This is your host, Doug Heikkinen. . .
Matthew Gorelik 01:02
Thank you. Thank you for having me.
Douglas Heikkinen 01:04
You built this thing out of thin air five years ago. Tell me about it. And what do you guys do?
Matthew Gorelik 01:11
So thank you were having me. So township capital was was already manically founded by by me about seven years ago. And and what it really was based on was doing working in at an investment bank and doing a great deal of commercial real estate financing for best in class developers and owners of commercial real estate. And what we found was there was sort of this dislocation or archaic business model in which when you get to be as good as the top developers and student or senior industrial or whatever asset class, it may be, that generally these are capitalized, with an investment bank, in a 9010. Joint ventures, what that means is the investment bank, let's use like JP Morgan, or Goldman Sachs, or Pacific life, or big pension funds, they put up 90% of the equity, and the developers put up 10% of the equity. And that was fine, maybe, you know, 30 years ago, when, when real estate just wasn't as as expensive as, as it is now. And so what we found was, there was a sort of a hidden secret that this 10% was sort of syndicated out by the GPS, starting with friends and family, and, and going and going from there. And so what township capital does is we institutionalize these institutions, by bringing one one investment vehicle to them, which is a township capital vehicle, and we provide a portion of that 10% in order to capitalize that deal. And what that does for them is, in turn, allows them to do a lot more deals, it allows them to do have better cash flow, run their company better. And so we're there really to help that sponsor, build their business. And so that that idea that we started really investing in about four years ago, has turned into we've done 81 deals with all across the United States, in the students sector, the senior sector industrial multifamily, some select hospitality, and, and we've been very successful doing it so far.
Douglas Heikkinen 03:29
So there's a lot, you know, the world's completely different than it was a year and a quarter ago. And with the with the commercial real estate industry, kind of in flux, what's going on with it?
Matthew Gorelik 03:41
Um, I mean, it's, it's a pretty broad, you know, you know, question, but but but really, what we see is every one of these different sectors, everybody's obviously, you know, it's been very uncertain, and it's been very scary. What we found from our business is when you are investing in this type of commercial real estate, which is extremely large commercial real estate, when you're using very low leverage, meaning low debt, so our The, the amount of debt we go through really capped out around 65%. And because of these institutions, then there's so much equity, those banks, especially especially now, when you're seeing that the the interest rates are so low, they're able to to get very low interest rates. And very low leverage means even in the worst of times, you can sustain a dislocation in the market because you don't have 80% debt with with layers on top of layers of preferred equity or mezzanine financing, which makes things more complicated. This is this is generally speaking, the large companies that have low debt have gone through this this period, relatively unscathed. And what we've seen is For example, you know, I'm can go off on a tangent a little bit for student housing as one example, where is it sort of has been getting a bad rap. On the tier one universities, which is what we have primarily invested in, we have found that kids do not want to live their parents anymore and being quarantined, they just they just can't do it. So most of our students is 95 to 100%, leased and occupied. These are universities like UT Austin, Florida State, Florida, to California to all over the country. What we're finding is that if the student if there's campus life, University of Michigan, if there's campus life, then the kids want to be there, regardless of whether they're learning online, they're still in fraternities, they're still on campus. They're still there. They're still student housing. That's amazing. And really for Sorry, go ahead.
Douglas Heikkinen 06:00
No, so kids just want to go to school want to get away from their parents, and then when they graduate, they're moving back in with their parents correct.
Matthew Gorelik 06:06
And even more. So if you're a freshman coming into these campuses, and they close the dorms down, they really still want to be there. So what do they do? They go to just off campus housing. And so the demand for for for this type of a product has been extraordinary over this period of time.
Douglas Heikkinen 06:26
You also deal with multifamily housing, and there's been an enormous shortage of it. What does this mean for you guys and investors.
Matthew Gorelik 06:34
So we we actually just closed a co investment with a company called epic investments. So they're about $20 billion of assets under management. And the the the large limited partnership is aimco, the Alberta Investment Management Company, which is $120 billion pension fund, and these are to acquire multifamily assets across the United States, in sunbelt states, so Nevada, Las Vegas, Phoenix, Orlando, Tampa, Texas. And, and what we've found is that already, before the pandemic, there was a huge shortage of multifamily. So when you stop any type of building or sales velocity over the course of a year and a half, then you really, really lose a lot. So right now, the demand for multifamily housing is, is is enormous, as people upgrade where they're living, because if people are working at home, and they're spending a ton of time at home, they're there, they're going to want to live in a nicer area show, these are sort of 80s, early 90s, vintage that need full upgrades, because the wireless doesn't work properly, there are no amenities. And so and so So for us, we're really looking at the these developers that are going into areas that were where people have been moving to in masses. And and really, really, there's nothing for them to live it right now. And so as as when you acquire that as leases come do, people move out, you upgrade the unit, and people move there and you bump up the rents, and then all of a sudden you make that that's more of an institutional size portfolio. And those that's when the big, big investors like the Blackstone's Apollo's come in and buy and buy those units. So we see a huge opportunity for investors investing directly into large commercial value add multi families across United States,
Douglas Heikkinen 08:31
Do you find that people are moving to the same areas that's been reported widely around the country?
Matthew Gorelik 08:38
No, I really, I mean, there's talked about a mass exodus out of California. And we just I mean, statistically, you just don't see it. There's been some that have come out of Los Angeles, because it's really expensive to live there, across the United States, across California. But, you know, in my opinion, and this is just me personally, I think that the people that have moved out of New York City and gone to Florida, I don't believe we're gonna stay in Florida. Because I think that they, they're, and now that that New York is opening up, and you know, the kids want to go back to their schools, and they want to go back to their country houses or whatever, wherever that may be. You know, I think that we won't see a huge displacement in any specific state. Because New York has so much to offer for so many people that people love to live there. And when they haven't lived there for a while, I believe they're going to want to go back. But at the same time, when you look at an opportunity, Nevada, like the Las Vegas You know, they're they're constantly building and hiring. And so there are people that are in different age categories that are going to want to move there. And I think for the multifamily, you know, if when I was young the dream was that you would want to buy a house and people wanted to buy a house. But if you look, look at the younger generation now there's much less of an appetite for people to own it. And a much bigger appetite for them to read. And so I think the multifamily in certain areas, independent of where they are, will will be they'll there'll be a big demand and it'll be for years to come.
Douglas Heikkinen 10:12
I'm of the view that many people who left where they lived and move someplace where they thought was going to be great are going to wake up a year of non OMG, what did I do?
Matthew Gorelik 10:19
I agree, I agree. And I happen to just be in Miami. And there were everybody that I was talking to that had been there during quarantine, all enjoyed it. But as as you know, as the the you go into the summer months, where might you know, Florida gets really hot, you got to go somewhere. And these are the people that you know, left New York City for the summer to, they're going to want to go back to those places there. If they have kids, those kids want to go back to their friends and their schools, and Broadway and museums and everything else things that Miami doesn't have to offer or Florida doesn't have to offer. And and that type of lifestyle. Same goes with people that were just going into Texas, people are going into, you know, it's one thing to live there for a year when you're under quarantine. But when things do get back to normal, there is something about being home. And I think that people will come back.
Douglas Heikkinen 11:12
Yeah, have fun driving around Austin, right? Senior Living, Senior Living took a big PR hit during the pandemic, but demand has seemed to have held up. Is this a segment that you guys focus on at all? And if so, what what trends should investors keep their eyes on?
Matthew Gorelik 11:30
So that's a great question. And we we we do own a considerable amount of senior living in a sort of senior living isn't just Hey, it's all senior living, Senior Living is categorized, it can be active adult is what they call it, you can say age restricted, and that's really multifamily for 55 or 60 years and older. Again, a huge demand for that. If you are older, and you have been in living in a multifamily with other age groups, you know, that could be not like minded and they're up late, or music playing or whatever is going on, you're going to want to move into a place that is more like minded and how you live. And that lifestyle. That's one to the large, senior living, independent living and and those types of have like closed environments. If you're, you know, people, older people that haven't been able to see their kids and grandkids, it's depressing. I mean, they're depressed, they're sad. You know, we've seen that all across the country, and people understand what that is. And so for those, those types of individuals, they're going to want to move in. As soon as things opened up in Florida, our senior living the lease ups went crazy, because so many people are flocking to these areas where they know if this does happen again. And there is another pandemic of some kind, and they're shut down, their their life doesn't really change, the doors get locked. They don't get this either fam late, but they have their friends. And listen, they're still like exercise classes, and there's a swimming pool. And there's tennis courts, to me, it's a it's a it's a full lifestyle. And it's a way of life, that's not going to keep you alone in an apartment depressed. And so I think for that way of living, and everybody can think differently about it, but we have just seen it. Statistically, the amount of people coming in to going into Senior Living true Senior Living housing has been extraordinary over the past 60 days, even. And we continue we will we will continue to see that build and build, as you know, people sort of think about what's happened to them over the year, how can they change, change? And how can they and and these are places that are all across the United States, like they have to move to Florida, it's not like that. They're all over. So so they can still live in the area that they're living in, but in with other people, so they're not alone. If this ever happens again,
Douglas Heikkinen 13:55
This is great, because you guys touch on almost everything. So let's move in moose, let's move to industrial space. You're working on a project at JFK, let me know give me a give me overview of industrial space and about that project.
Matthew Gorelik 14:08
So this this is with Triangle equities, which is a partner of ours. The LP is the Michigan State Teachers pension fund, and we were thrilled to be able to invest in this project. It's the first multi level industrial build on the east coast. And the demand for industrial right now. Because of how big Amazon Lowe's, Kohl's, a Walmart God, there have to be areas in which there is last mile distribution. So we're How did they get you the product? They need the demand. So we had for sales and for industrial sales with our partner Crg clico out of Chicago, where we're the underwriting was we beat the underwriting by by a lot because the Amazons and Walmart's in Those big big boxes really need space. And so they'll pay anything for it. And they'll say anything, you know, but they will pay up for it. So this particular one is at JFK. And we it's actually, you know, it's not built yet. But, you know, it's probably six to eight months away from being built. But there's already an offer for a large tenant that we can't disclose but to large tenant that's coming in. And and, and it'll be a very lucrative investment for us, because of the amount of money people are willing to pay for that product right now, because there's simply, it's just a massive demand or there just isn't enough industrial out there to meet the supply
Douglas Heikkinen 15:45
Ss multi level industrial, unique, or just unique to this, this space, it's unique,
Matthew Gorelik 15:49
because because you can do more than usually industrial, just one large, you know, box. This has, you know, you can have offices you can have, you can sort of like one stop shopping, or you can put offices, and you can put even some retail, and you know, there's a lot that you could do with a multifamily, industrial, and you can have multiple tenants. So it's just a little bit different, because there's gonna be a lot larger, for more of a dense area at JFK than it would be for you know, when you're out in some, you know, industrial park, you know that in the suburbs?
Douglas Heikkinen 16:25
Yeah. Where's township capital going in the new future near future? What do you What are you really excited about?
Matthew Gorelik 16:31
So we're really excited about continuing to find partners, to expand our relationships with our partners, you know, one of the things that we were unsure about was, if there was a dislocation in the market, how would we do, because when we started this, you know, the real estate market and the stock market, everything's been fine. You know, you don't think something could could happen to this degree on, which has happened with a global pandemic and a shutdown. And so we, out of all of the assets that we've invested in, which is a lot, we had no debt issues, we had no equity issues, we have just, you know, it's a timing issue. So what we thought might have sold last year, or even the beginning of this year, that hasn't has been pushed back maybe a year. But when you have low leverage low debt, you can survive that. And so for, for us with a proven business model. You know, we've had 10 round trips, so full, you know, investing, build, lease up, sell, we've had 10 of those are our IRR, is extremely solid. And so now that we've had a proven business model, we're excited to now continue to build that bridge to connect individual investors and family offices into direct commercial real estate. And and to continue to grow the multifamily business is, is a great business where individuals can invest directly into these deals and get singled out the high, high single digit cash flow with a really nice return with very low risk, that's a great opportunity for people to do as yields and bonds continue to just stay low. And also, we think the students face there's a ton of student that's, that's, that's out there for these big universities that are either needing to be upgraded, or they need to be built. And and as well as see, I mean, there's an asset class that we see in real estate that we that we generally don't like other than hospitality, which we're really not an investor in. And we really don't have any retail. So the two assets that we really not necessarily, we don't necessarily want to own them. We just haven't seen any deals that come that, that that fit our business model. But But for us, I think that, you know, as the stock market continues to go up, and, you know, I'm not sure what the stock market does. One thing I do know is that when interest rates are low, and people start looking at transitioning, maybe some assets out of the stock market has done so well. It will go into commercial real estate, and and we're going to be taking advantage of it.
Douglas Heikkinen 19:11
Yeah, that's a good segue for our next question is What advice you have for advisors who are considering this asset class for their clients,
Matthew Gorelik 19:19
I would say with the stock market at 34,000. With the 10 year Treasury, the dividend on the 10 year Treasury is higher than the s&p index dividend, you're going to see what's called a flight to quality so people transitioning out of that into more stable return profiles. I think our what we have to offer will will outperform the those dividends and the stock market over the next five years for sure. And and you know, real estate's the, really the oldest investment that's ever been around and it's and you tried and true it you know, make Ensure that you are invested with really good people with a ton of corporate oversight with these large LPs and and using very low leverage, you're going to be able to get yourself cash flow depreciation with an opportunistic return. Matthew,
Douglas Heikkinen 20:15
We really appreciate you joining us today. Thank you so much for your time.
Matthew Gorelik 20:18
Thank you so much.
Douglas Heikkinen 20:20
To find out more about township capital, go to township inc.com that's town ship inc.com. Please follow us for all the latest updates on Twitter, LinkedIn and Facebook all at advisorpedia. For everybody at advisor pedia our producer jakie beard and the power your advice podcast team. This is Doug Heikkinen
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