We’ve been working (yes, “we”— more on this in an upcoming post) on underwriting deals based on our investment thesis and actively pursuing three of them.
Two deals are in or close to that weird, squishy world of ‘distress’ that has recently captured so many people’s attention.
The conversation around distress is often focused on the 'discount' buildings are going for at auction or the moments before that happens.
But it takes deals some time to get to that point.
What happens in those years/months before a deal is totally lost?
Few people talk about that.
For the last few years, we've inadvertently worked on several projects that, in retrospect, were at that stage.
Deals that we pieced together before they totally fell apart.
Deals that we moved forward without hesitating to avoid missing the market.
Deals that we kept in one piece until they were recapped or refinanced.
Deals that we reorganized and brought back to life after removing most or all of the team.
All of that work relied on:
-The quality of our reporting
-Our technical skills in development management, including a keen understanding of the legal, design and construction requirements
-Strategic development planning in order to preserve cash when needed
-Our ability to make deals with diverse team members in order to move the work forward
Not losing a building doesn't win you an award and doesn't get you a headline, but it sure teaches you a lot-- and I'm finding those lessons extremely useful as we venture into development.
The 'pre-distress' period is long and full of opportunity.
Recognizing a moment of opportunity where you don't have to 'zero' the current owner, who is on the verge of distress, takes some skill and restraint.
Leaving nothing on the table isn’t the mark of a good deal, and it is rarely the best approach if longevity in the industry is the goal.
Putting the deal back together while getting the current owner or investors to agree to new terms that will make the deal happen is no small task-- especially when everyone is emotional about the impending possibilities.
Dealing with 'near distress' is hard, and I'm thankful for the experience my team has gained in the last few years.
Not many people are willing to do the work it takes or invest in hairy deals.
We are, and we seem to be finding an interesting niche.
We are working on a couple of deals that fit this profile and our investment thesis for condos in Manhattan.
The plan is to deliver condos in the $2-5mm range in supply-constrained locations. Within this price range, there is a void in the market that very few projects have successfully filled. Unsurprisingly, the buildings that have addressed that void have accomplished high sellout prices at a moderate pace.
The key is “getting it right,” and while that may not sound scientific, several factors have contributed to the success of some of those projects.
-A unit mix that responds to market demand
-Efficient layouts that address the needs of the intended buyers
-Adequate amenities based on expected use
-Timeless materials used thoughtfully
-Meticulous execution
These factors undoubtedly contribute to the quality of the delivered product, which, in turn, contributes to the speed and quality of sales. Incidentally, these factors can also serve as a guide to controlling project costs.
Most notably, properly sizing the units is the underlying tactic that helps avoid too-high unit price points and holding inventory for longer than is typical in the market, addressing one of the most significant risks in development.
We are looking for long-term capital partners interested in a 5 to 10-year hold and looking for investment opportunities in the $10-$50mm range.
Most importantly, we want to meet and begin building relationships with people who are interested in what we are doing and who believe in how we approach the work, regardless of interest in our current deals.
We’ll be in LA at the end of this month to attend REConvene. Let me know if you’ll be around and want to meet!
You can also let us know if you’re interested in investing with us here.
In addition to our development work in NY, MADDPROJECT provides fee development and professional project management services across the US.
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Have a specific subject you want to see us tackle in a future Newsletter?
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