Prospects for Residential Real Estate in Tech Cities
EisnerAmper’s Trends Watch is a weekly entry in our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you would like to be featured, please contact Elana Margulies-Snyderman.
This week, Elana speaks with Wen Shiau, Founder and Managing Partner, Cypress Capital Group.
What are your prospects for alternative investments?
Like always. Inefficiencies are much greater in private markets than in public markets. Therefore, we are always optimistic about finding unique and special situations in private equity real estate. Higher interest rates will shake off “weak hands”. It’s always more fun to buy in distress than in bull markets.
What are the biggest opportunities you see and why?
We focus on residential properties (single and multi-family) in the technology-driven cities of New York, Silicon Valley and Austin. Economic and wealth creation has been centered in the tech cities of the United States. The race for artificial intelligence is changing the game. Supply is extremely limited due to favorable regulations and tax codes such as California Proposition 13. The demand has been there for 75 years, and the narrow strip of land in Manhattan and Silicon Valley has its own physical limits when it comes to supply. And who doesn’t love Austin?
What are the biggest challenges you face and why?
Higher input prices – whether financing costs due to higher tariffs, higher timber prices and/or higher acquisition prices – create greater volatility in any company. Therefore, we look forward to a more normalized market. In fact, we prefer stable markets and particularly like economic distress, as we are able to buy assets in Tier 1 cities at a steep discount.
What keeps you up at night?
Our investments are deliberately less volatile while generating an internal rate of return (IRR) above 20%. Therefore, we sleep well at night. If one invests in the right asset (residential versus office) and in Tier 1 cities (Palo Alto versus Las Vegas), it is very difficult to generate negative returns. Leverage is what kills. We are careful to create sufficient safety margins in our exits in order to have the power to withstand economic downturns. Security is created through a low volatility asset of Tier 1 Residential Cities and dynamic leverage. We would benefit more from an economic bottom than from an economic top.
The views and opinions expressed above are those of the interviewee only and do not/are not intended to reflect the views of EisnerAmper.