Where do Millennials (born between the 1980s and 2000) think they want to move? To Denver, of course, says Darell Schmidt of Allante Properties. In recent surveys, Denver even beats out perpetually hip towns like Portland and Austin on the coolness scale, based on a dozen factors that Generation Y wants: We’re ‘healthiest’ and ‘fittest’ city, best city for transportation, among the West’s best wage-paying towns, hottest place to start a business, and 3rd most ‘socially-networked.’ A Brookings study a year ago placed us as Number-1 city preferred by ‘young, cool, hip people’ – adding up to more demand for new apartments in Mile High neighborhoods that happen to be close to the coolest, hippest places.
If you’re a real estate investor wanting to cash in on that demand for apartments, builder-developer Darell Schmidt wants to talk to you. “The apartment market has come roaring back in urban Denver”, says Schmidt, managing partner of Greenwood Village-based Allanté Properties, spearheading projects around downtown, including one that’s a short walk from Tennyson Street’s restaurant row at the southwest corner of 39th and Tennyson.
Schmidt says that Denver’s population growth among Millennials (it was surpassed only by Washington D.C.’s in the newest Census data) is a trend that’s unlikely to change even if the most recent projections of job growth – pretty favorable – are off the mark.
“Apartment demand shows lots of momentum near the city core, spurred by the favorable demographics of ages 20-35,” Schmidt says. Generation Y, he notes, is nearly the size of the Baby Boom generation, and has an affinity for urban living. “It’s creating huge demand for apartments close to shops, restaurants and offices with public transportation nearby,” adds Schmidt. “They prefer a walkable area; and are far less likely than older groups to buy their own homes, favoring to rent apartments instead.”
Tennyson Place, W. 39th and Tennyson near all of the retail and restaurants on Tennyson Street, is designed to capture that demand. Oz Architects created a 5-story mixed-use plan that offers 73 class-A apartments. Contractor Vertix Construction plans to Launch construction on Tennyson Place in September 2015. Allanté has hired Darren Everett with BLDG Management to manage the property including the initial lease up.
Meanwhile, Allanté is seeking real estate investors who like the potential for cash flow and future asset value that Tennyson Place could generate. “It creates an opportunity for investors who would normally find no opportunities in the apartment market,” he says. Positions in Tennyson Place start at $100,000. Schmidt says those investors benefit from a rising tide: “Supply of rentable apartments is in balance with demand in Denver. “Denver’s amazing job growth say Everett, is filling up urban apartments quickly at ever increasing rents, which create high returns for investors.”
Meanwhile, he expects demand to stay strong for newer projects Allanté has on the drawing board: “Demand for stabilized apartment assets among secondary purchasers has risen steadily here since 2009 and is now at a near frenzy,” he adds. “Fewer properties come to market now because owners are holding on to their properties, enabling them to enjoy the increasing cash flow and rising values.”
Allanté has a limited number of investment positions available for Tennyson Place – now rapidly taking shape on Tennyson Street, across from a newly opened Sprouts Market and the soon to be opened Natural Grocers, who has bought the Elitch bowling center at 38th and Tennyson, walking distance to Tennyson Place. Vertix Construction is expected to complete construction in November of 2016.
For information about investing, call Darell Schmidt at 303-359-1210 or email Darell@AllanteProperties.com. Artist’s conception of Highland Place mixed-use project in Highlands. Mark Samuelson writes on real estate and business; you can email him at firstname.lastname@example.org.You can see all of Mark Samuelson’s columns at DenverPost.com/ RealEstate. Follow Mark Samuelson on Twitter: @marksamuelson
By Darell Schmidt, Allante Properties, LLC Denver, Colorado
Small investors have once again discovered the ability to join a larger group of investors with a smaller investment, and achieve the economies of scale a larger investment pool can generate. Investors are now pooling their resources to act on opportunities in the current market. Sponsors, also known as Syndicators, are creating these pools and managing them on behalf of the investor group and sharing in the profits with the investors.
Combining the resources of several investors and a sponsor produces numerous benefits for commercial real estate investments. Investment groups may be able to acquire larger properties than individuals acting alone, and obtain financing more easily without direct recourse to the lender. One investor’s lack of ability to borrow larger sums of money can be offset by the syndicated group led by the sponsor who can. And investors with small or large financial resources who lack deal-making expertise can rely on an experienced sponsor to facilitate the transaction and be a passive investor without the duty and obligation of managing the day to day activities of the investment.
While many investors are capable of buying their own properties, hour for hour and dollar for dollar, it may be more profitable for them to use the services of a highly talented sponsor. It takes an experienced sponsor with unique skills to properly manage an investor group through a long-term commitment to a real estate project. The sponsor’s value to the investors may rest with his management skills as well as his ability to locate, negotiate and acquire suitable investment properties with upside for the group. Investors who are busy with their current profession need an expert sponsor to help them locate and negotiate an acquisition and manage the intricacies of such an investment, allowing the investor to focus on their present business.
Typical group investments have ranged from equity investments of $500,000 to $3,000,000 in equity that can be leveraged into $2 Million to $10 Million of property. The average dollar investment by the typical investor ranges between $50,000 to $100,000, but can include smaller or larger amounts on smaller or larger transactions. High net worth investors may even want to become the sole investor in a particular transaction and utilize tax deferred exchange techniques to build value without long-term capital gains taxes.
Because these group investments are considered securities to the Securities and Exchange Commission, the watchdog for investors in the US, the securities must be registered with the SEC unless exempt from registration. Exemption from registration is available in Regulation D, Sections 504, 505 and 506 and Regulation A of the Securities Act of 1933, which details the amount that can be raised in a particular time period and the types and numbers of investors that can invest. The SEC has strict requirements and the definition of different types of investors falls into three categories: Unaccredited Investors, Sophisticated Investors, and Accredited Investors. These defined terms generally provide for the financial well being of the investor and his level of knowledge about such investments. Because limitations exist, sponsors must interview each investor and confirm which type of investor he or she is through a detailed investor questionnaire and create a relationship with that particular investor prior to making an offer for a particular investment, to avoid the strict rules for Section 504 and 505 and 506 (b) investments prohibiting “Advertising and Solicitation”, promulgated by the Securities Act of 1933. Section 506 (c) offers an exemption as well and allows advertising and solicitation provided all accredited show proof that they are accredited. The Act was developed to help protect innocent investors from unscrupulous promoters who were quite devious and dishonest back in the 1920’s and early 1930’s. Even today, the rules and the Act are ignored by a relatively small number of promoters who put their interests ahead of their investor’s interest and forget their fiduciary responsibilities to the investors.
The number of investors in a group can vary from only a few to an unlimited number, depending on the type of investor and the exemption used in a Regulation D offering. The net worth of the investor and the associated knowledge of investing typically increases as the amount raised increases in any calendar year. Additionally, there are suitability standards that should also be followed to comply with the regulations and common sense by the sponsor.
In summary, Group Investments is an ideal way to pool money for the benefit of the investors and the sponsor, provided that the guidelines, definitions of particular terms, and rules of the Act are strictly followed and are SEC compliant.
Pick your sponsor wisely and enjoy the benefits of group investing!
By Darell Schmidt, Allante Properties, LLC Denver, Colorado
Because it’s the smart thing to do! Apartment investing is expected to generate strong cash flows and increasing values in the years ahead. Investing in apartments can yield significant cash flows and appreciation in value if done properly. Very simply, the forces of supply and demand are driving apartment rents and values higher and higher. These forces are well aligned and include:
1. Apartment supply of rentable units is in short supply and vacancy rates have fallen to decade lows.
2. The continually increasing demand for rental apartments is creating an unprecedented opportunity. As vacancy continues to fall, the lack of supply with increasing demand causes rents to rise and as rents rise, cash value increases and so does the value. These conditions are generating strong cash flows and long-term capital appreciation.
3. Low interest rates are extremely low and locking in permanent financing at low rates will enhance cash flows as monthly mortgage payments become less and less relative to the income being produced. Plus the principal retirement that occurs with every payment is increased over the same payment at a higher interest rate, so the equity in the property builds faster. Alternatively, interest only financing can produce higher cash flows.
4. The Echo Boomers, Generation Y, children of the Baby Boomers, are larger in numbers than the Baby Boom Generation and the impact on housing demand as they mature will be significant in years ahead. A constant supply of households is being fed in to the market place with rental housing getting a significant share as the home ownership rate continues to decline as more and more people become renters.
5. Home buyer lending standards have increased significantly in the wake of the subprime crisis and now income ratios, credit scores and higher down payments is preventing some buyers from buying a home, leading them to rent apartments. With inventory levels at their lowest levels in decades, the new home sale market is experiencing significant price increases because of supply is being restrained. Recovery in the home building market and resale market is occurring rapidly but there seems to be an endless supply of renter households.
6. Demand from immigration in the years ahead is also expected to be a source for all housing types, including apartments, for sale condos, town homes and single family homes.
The bottom line is that US apartments will be dramatically more valuable in 2016 and beyond than they are currently. The principles of supply and demand are ever present in the apartment market allowing “increasing cash flows and appreciation” to apartment investors.
By Darell Schmidt, Allante Properties, LLC Denver, Colorado
In a real estate syndication, a “Sponsor” or “Syndicator” will typically identify a real estate asset, such as an existing multifamily property that will yield a sufficient return to pay themselves and their investors from cash flow during operations and or net sales proceeds on resale.
The Sponsor may obtain bank financing for a portion of the purchase price or development costs and then pool funds from private investors to finance the down payment, closing costs, and other costs associated with implementing the business plan including any renovation expenses. The Sponsor’s job will consist of finding a suitable property, putting the group of investors together, and managing the asset on their behalf. For its efforts, the Sponsor will receive fees and a percentage of the Distributable Cash and net sales proceeds left after all expenses and loan obligations have been paid.
Prior to accepting any investor funds, the Sponsor is required by securities laws to confirm investors are accredited and then will provide a set of offering documents that explain the terms and discloses the risks of the Offering to prospective investors. Further, Sponsors typically answer to their investors by means of periodic newsletters, financial reports, and/or teleconferences. Unlike a stock investment, investors should realize that the investment shares couldn’t be freely sold on the open market as it may violate Security And Exchange Commission laws.
Before investing in a real estate syndication, you should carefully review the entire offering documents provided by the Sponsor and ask questions regarding the following items:
1. The Sponsor’s background, education and experience with similar investments
2. The team members involved in acquisition and the operation of the property, including all Sponsors, the property management company, the lender, the title company, surveyor, and affiliates that may receive fees and what those fees are.
3. Cash distributions to investors during the acquisition, operation, and disposition of the property including the proposed timing and anticipated percentage returns.
4. Proposed Sponsor fees and cash distributions.
5. Proposed duration of the investment.
6. Property information, including the asset type and the investment objectives of the investment. Withdrawal options for investors, if any.
7. Appraisal “AS IS” and AS RENOVATED OR STABILIZED”.
8. Sponsor’s intention on Investor Communication with periodic financial reports and timely tax reports for Investors Tax Returns.
9. Operating Agreement Terms.
10. Bank name and Location where funds will be safeguarded.
In addition to satisfying yourself with respect to all of the items listed above, you should seek advice of your own attorney, financial advisor or accountant regarding the investment.