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New York City commercial real estate is among the most prestigious of in the CRE universe. That said, certain sectors in New York City’s CRE market are experiencing a decline in prices, reaching levels last observed in the Great Financial Crisis.
Chris Okada, CEO at Okada & Company, joins Andy Hagans to discuss what may be a generational opportunity for investors in the NYC real estate market.
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- An overview of Okada & Company, the and the services it provides to NYC real estate buyers and sellers, and to investors.
- Data on the historical performance of the NYC real estate market, from trough to peak over a century of market cycles.
- How family offices tend to view the NYC real estate market.
- Why liquidity has frozen in the NYC market, and the opportunities that this has created for family offices and private investors.
- The unique dynamics of the private credit market, where it can be a challenge for family offices to directly participate as lenders.
Today’s Guest: Chris Okada, Okada & Company
About The Alternative Investment Podcast
The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.
Andy: Welcome to the show. I’m Andy Hagans and today we’re talking about New York City real-estate and a generational opportunity that we may be looking at this year. And joining me today is Chris Okada who is CEO at Okada & Company. Chris, welcome to the show.
Chris: Hey, Andy. Thanks for having me. I’m ready to jump right in and let your viewers know about, you know, New York City and other metro areas that I think are very discounted right now.
Andy: Yeah, and, you know, I’ve heard through the grapevine that New York City real-estate is fairly desirable and has been a pretty good investment over the long run. I read your recent report on commercial real-estate in New York City and obviously it’s a very unique situation right now where, you know, from your point of view, there are opportunities that might not normally be available for investors, you know, who are willing to take a little bit of risk. But before we dive into the report, could you give us a brief introduction to your firm?
Chris: Yeah, sure. Okada & Company, we are a commercial real-estate company here in New York City. We do third-party brokerage and advisory work as well as invest and develop properties, mostly in midtown and Lower Manhattan. And this has been our sandbox. My family, we are a family office. It’s been 54 years started by my father in 1969 and really rode all the waves of globalization and doing highly technical commercial leasing deals and sales and capital markets transactions. This is my 21st year. And I started shortly after 9/11. And through 9/11, the financial crisis and this sort of regional bank crisis and post-pandemic monetary tightening environment, this would be my third sort of down cycle in real-estate.
Yeah, so 21 years. Our firm, we oversee three million square feet of third-party lease and properties owned. And yeah. We represent a lot of Fortune 500 companies that are in the retail and office world as well as a lot of private wealthy families and high net worth individuals that have needs as far as acquisition and/or, in this market, really our clientele is looking, figuring out how to fill vacancy. And we’ve had a lot, a lot of success as well as a lot of challenges. And that would include up and down the tenant stack and up and down the capital stack.
But whenever there’s a real need for answers, that’s really the market where you can make a lot of money.
Andy: Yeah, no. Chris, the bull market and the stock market, they say the bull market climbs a wall of worry, right. So, in real-estate, if every challenge is answered and everything looks perfect and everything is sunny, where’s there gonna be opportunity, right? That’s when cap rates would compress to almost…it’s interesting. I know you’re a true-blue family office real-estate guy, that you measure time in cycles. I mean, you mentioned years too but, you know, you mentioned you’ve been through three cycles. And to me, that’s really important. You know, and especially thinking about family offices and that long-term, you know, patient capital mindset because I do think that’s what we’re talking about now. But, you know, we wanna dive into the report because as you’ve already alluded to, there are opportunities available right now. There’s challenges right now which creates those opportunities. But how about New York City commercial real-estate historically?
Andy: Has it been a good place to invest? And maybe that’s an obvious question. I guess how good of a place has it been to invest historically over the decades?
Chris: New York City, especially Manhattan, has had a 100% rebound rate every cycle for the last century. And that includes many, many different asset classes. I like to say the 2010s were the absolute peak in retail. And I believe we’re probably at the end of the retail apocalypse cycle. And that really was born from just, you know, very cheap debt and also transition from brick and mortar to online shopping in the last 10 years. That really had a profound effect on 5th Avenue and on Broadway and this wasn’t only a New York City thing. It was really a macroeconomic trend. But here in the city, prices have rebounded every single cycle forever.
So that’s something important to take note of. Now, if you have the staying power, that’s the question. That becomes the ultimate question. And the debt cycles of mortgages are five to seven years traditionally. I really wish they should have…they should really extend that to 10 to…they have 10 years as mostly life insurance companies but, like, a 30-year fixed commercial mortgage…I wish there was that product because that would really enhance the values and appreciation of commercial real-estate. But yeah. So, it’s been a 100% rebound rate. And that is when I say recovery…
Andy: So, you’re saying every…I’m sorry. So, every cycle then…you know, there’s the bear market or the downswing. New York real-estate recovers to its previous level and then essentially doubles before it enters…before it, you know, starts in a down cycle again. And so, it’s…
Chris: Correct. Correct.
Andy: Keeps…every, like, leg up is essentially a 100% gain and there’s been…since 1900 or, you know, a century or however long back we go, there have been countless of these cycles, you know. So, it’s interesting. You know, you mentioned Okada & Company and you’re a family office. That’s that patient capital, you know. Making money over those cycles. You have to have time in the market, right.
Chris: You really do. And I think…and also to be clear, that is the average on the price per square foot of all asset classes on Manhattan Island. That’s, you know…if you went very heavy into retail or went heavy into office, it takes a long time for that to recover but the market, just like every evolving asset class and every new asset class that emerges, it does take time. But as a whole, as property and land values in Manhattan, it has recovered 100%. And that’s why it’s important to think about your traditional investment theses which is diversification, long-term hold, try not to be too heavy in assets and liabilities only in the bricks. You have to have X percent in cash. And you shouldn’t be overweight in any one asset class, even though that may be your go-to.
So, all the traditional investment sort of theories and theses really hold true in your real-estate portfolio as well. And people tend to say, “You should also diversify in location.” So, to be overweight in Manhattan and to be a 100% Manhattan centric or New York City centric investor is also a potential weakness to other threats like global warning or 9/11 or black swan events that specifically hit any specific region. It’s also important to think about other locations throughout the world and throughout the country and different states.
But, you know, I am a New York City maxi, if you will, and I am a Manhattan specialist. That’s the value that I bring to the world. I know every capital stack, I know every building in Manhattan and I…and we watch…we’re trying to watch all the transactions and the deal in our sandbox. And… yeah.
Andy: Well, your recent report…you know, so you’re a Manhattan guy through and through, which I respect. And I mean, to me, what I think…this is just my impression, right. I’m not a New York real-estate expert by any means but I know a lot of fortunes have been made or have been grown in New York City real-estate. And also in my mind, it’s very much prestige real-estate, you know. Really anywhere in New York, especially Manhattan. So, you know, my impression would be we tend to trade at more of a premium, probably at lower cap rates. Of course, it all depends on particular sectors. But, you know, so maybe a little more expensive but at the same time over the long run, huge opportunity, huge historical returns. Your report mentioned generational opportunity. So, I guess what’s the thesis there? Is it just that, you know, interest rates are high enough, market activity is low enough that there might be buying opportunities that you wouldn’t otherwise see or what is creating the opportunity right now in 2023 that wouldn’t have been there, you know, X number of years ago?
Chris: So, I love Warren Buffett. He’s one of my sort of virtual heroes and a lot of investors’. And he essentially said in real-estate, he doesn’t have a sort of competitive advantage than someone else and he’s a C Corp so it’s difficult for him corporate structurally. But he believes that the best time to acquire real-estate is when all liquidity has been removed from the market. And that’s essentially what has happened. Due to the fastest monetary tightening in history with the 5% Fed funds rate over a 12-month period coupled with the regional banking crisis and all the biggest…the top players were…First Republic here in New York and Signature Bank. Signature Bank was way more aggressive on the lending and it took them decades to get that title. Unfortunately, you know, due to run on banks and due to sort of the monetary tightening and other sort of risk management things happening, they went out of favor. And they went under.
So, liquidity is gone. There is monetary tightening. Those two alone are huge. However, that coupled with the office work from home phenomenon and everyone sort of doing remote work and only 50% of office spaces being utilized, rents have plummeted because of that supply and demand. And because of that, asset classes like office which represent a huge portion of New York City real-estate has declined in price. There’s no competition for that asset class. And, you know, so office is a perfect storm.
Other asset classes like residential multifamily real-estate is a lot stronger but it’s having its…anyone that had any renovation debt or bridge debt or variable debt really have felt the pain. And so, there’s that. And then finally…I mean, I can go in each asset class. They all have different sorta struggles but office is certainly the weakest and the most challenging at this present moment.
Andy: Well, I mean, Chris, I can see for sure in office.
Andy: That, to me…whoever figures that out, whoever has the foresight, the vision to put together deals in this environment, I believe they’re gonna, you know, make a fortune, you know. But so certainly I see the generational opportunity there. But you mentioned, like, a 50% vacancy rate. Like, of course that’s gonna be huge price reductions, I would think. You know, market…are there generational opportunities in New York City outside of office or is it mainly…
Chris: I believe that land, just development, being…if you have this ambition to create a 40-story glass tower that’s gorgeous and 5 star, whether hotel, whether apartment building, I think that land prices are down significantly. And that really is one in one with the interest rate environment and cost of construction. I think that if…so if you have a desire and you say, “You know, I want to execute on this business plan. I’ve always wanted to have a 50-story tower or 60, 70 story tower, I think that land prices are…have…are half or 40% less than they were just a few years ago. And, you know, the story of New York City really…as far as price point and then as far as total sales, aggregate sales in New York…there are two different sort of functions and the peak of the New York City market as far as volume was concerned was around 2016. Some say 2015, some say 2016 but that 2015, 2016 era, people were…if you were a seller, you made…you sold land at $900, $800, even, for large parcels, $600 a foot. Today those are significantly cheaper.
So, land. If you wanted to do something, that is a 40% discount. And I think that, you know, they’re not building any more land so…
Andy: And well, that’s interesting, Chris, too because land, you know, it doesn’t necessarily need to be office, right. I mean, depending on how it’s zoned, if you are patient, you could almost…I mean, you could either have a use for it right away or potentially, if you’re patient, you could say, “Well, there might be multiple uses and we’ll see, you know, 24, 36, 48 months down the road, you know. So, are there family offices? Are there…you know, you mentioned that liquidity has dried up. I guess that…to me, the question is…there still seems like there’s a lot of equity cash on the sidelines, right, whether it’s family office money or maybe institutional money.
Andy: Is that still dry powder? I mean, or is that stepping in and providing liquidity where debt financing has really slowed down?
Chris: So that’s a great question. As far as all institutional capital, we tracked something like $300 billion that was raised. And this was really towards the end of Q1. But all of 2022 and part of ’21, there was $300 billion raised that was earmarked for North American real-estate. And that is somewhat…I believe it’s, like, a 3X or 4X compared to 2008 and 2009. There’s a lot, a lot of liquidity. But land is one of the…it’s just a straight appreciation play. So, unless you improve the land, it becomes very challenging. So, but what…the risk profile of a lot of these funds…they may not be equipped or they may not feel that it’s a great time to jump into development and they, you know, could find existing properties that have a value-added investment strategy instead of opportunistic or instead of ground up where they could just buy a 300-unit existing apartment building that’s just slightly mispriced and then just renovate and value add on that.
I’m seeing that that feels more like what they’re looking for. I haven’t found any ground up people because of the…there’s other potential available deals that, you know, that they can put their capital towards that may have a slightly less return or it may be even better return like distress debt on an existing hotel or distressed debt on an existing office property that they feel there’s meat on the bone or cracked condominiums or…you know, so there’s definitely…when you look at our private equity fund like Blackstone…and they just raised $30 billion. They really are looking at every potential asset class and in a lot of the different markets. So, they look at 50 states and 50 asset potentials and then they pinpoint, you know, strategies around that.
So, I mean, there’s so many…whether it’s life sciences, whether it’s warehouse, storage, self-storage. And then each one of these have, like, sub asset classes. Fine art, wine in the storage space. And then to try to create, you know, that 200 to 400 basis point spread that they look for which I don’t know if it’s achievable. I mean, you know, they promised their investors, you know, a 2X in five years and that’s everyone’s sort of investment sort of goal. It’s hard to really…when you model out land, it’s hard to do that versus let’s just say…let’s just buy this apartment building and we’ll achieve a 1.8X. You know, and then it’s…but it’s a safer bet.
Andy: Right. Well, on that note, Chris…actually, I wanna drill into this a little bit because you mentioned some of those specific sectors or, you know, subsectors even, different types of storage. You know, obviously there’s different types of retail, there’s different types of multifamily. But in the report, you know, I thought that was interesting because…talking about the generational opportunity, you know, office and we’ll talk about office but there are plenty of sectors in New York City that you classify as low risk, right. So, in the report, you had low risk, medium risk and high risk. And in low risk, you know, obviously I’m expecting to see multifamily. I’m expecting to see storage. So, I did see those as well as medical warehouses, distribution centers. So really what keeps these low risk? Is it just the fact that, you know, they’re going to…you know, they’re gonna have very low vacancy that…you know, they’re…you know, you’re basically built in. You know, 95%, 93%, 90% occupancy. And then the supply and demand dynamic just makes it a safe bet. Is that what makes them low risk or is it…
Chris: So, I’ll give you the institutional answer which is basically rate and term. Let’s just say you have Amazon and they took out a triple net 20-year lease warehouse that’s 300,000 feet and they have a corporate guarantee on that for the next 20 years. I feel that institutional capital will bid that all the way down to maybe today a five cap whereas in ’21 I think someone bought a 3.5% capitalization rate. And that is just ridiculous. But because of the increase in interest rates, I think that, you know, people may seek other sort of ROI, maybe a little bit higher. But pension fund money, teachers, you know, policemen, the pension fund world today still require…and they can buy all cash. If it’s a trillion-dollar pension fund or, you know, a $500 billion pension fund, they only require 5% return. So, they would be…it would be an ideal situation depending on if they’re overweight or underweight now because of the environment.
They would buy a 5% coupon essentially that would, you know, challenge the Treasury. And but they would be interested and that is very low risk. Let’s say a warehouse fully leased by Amazon, five year…I’m sorry. Twenty-year lease, triple net, fully guaranteed. That is what you would consider pretty low risk.
Andy: Okay. Or, like, a class A multifamily that’s already leased up and that has huge scale or something. And so, this low risk then…and I get it. It’s more that…from the institutional lens. This is…I mean, if I can be frank, this isn’t great value for my dollar as an LP as, like, a high-net-worth individual who’s making a private investment. I would think, right. I would think family offices would be looking more towards the medium risk options or the high-risk options. Is that…
Chris: Yeah, core plus or value added. I think that maybe if it is 95% lease. But, you know, the management wasn’t doing their job or was mismanaged and there could be an immediate pop or there could be some kind of interesting tax savings that they weren’t implementing and they can lower cost that way.
Andy: So, what are family offices then? So, the report, it has medium risk options, high risk options and we can drill into some of these. But, you know, the family office money, the high-net-worth investor money. Are you seeing them gravitate more towards medium risk options where, you know, the core plus is a… you know, the cap rates expanded a little bit. It represents a little more value. Or are they looking more into this, you know, opportunistic profile where, you know…is there anything available at an A cap or, you know, that is appealing?
Chris: So yes. It’s a little bit…it depends on the family office. If they’ve been operating for 30 plus years, they’re really just looking for, you know, strong opportunities with not a lot of headaches and a medium…they’re not necessarily looking for a value added 2X or opportunistic 2X over five years. They probably would be okay with a low teens sort of IRR over a five-year horizon or whatever it may be. And they’re the first movers. Family office and private capital are the first movers. And maybe it’s a second generation. Maybe it’s the son. Maybe it’s…typically we look for, as far as on the buy side or the partnership side, you know, smart family offices that have, you know, a different angle. And those guys, if they are willing to buy distress that…you know, they would look at multifamily that is just mispriced. They would look at potential small ground up opportunities because of an emerging market.
There’s a family office that just bought from a REIT a pretty substantial development of 200 apartments in the section of Queens called Rego Park. And so, they are making plays. And I would like to say it’s the family offices and the private individuals that are the ones that are able to take the risk before the herds of all other family offices, all institutional capital come back. So, Blackstone made a very valid point of we raised $30 billion for every asset class except office. The only ones in the market that would roll the dice on office, it’s not all of that institutional capital. It’s a local investor that really understands the block or the neighborhood very, very well. It’s probably a family office. And so, we do see the family offices that are scooping up class A buildings at 50 cents on a dollar. That’s the only people I see that are willing to roll the dice on the high risk or the medium risk.
Andy: So that’s where the liquidity then has truly dried up because to your point, even a prestige office property in New York is not institutional quality anymore. Not on the buy side, right, because it’s gonna have really high vacancy or presumably high vacancy whenever leases expire, turnover. So, you know, and in Blackstone, you know, to your point, they raised a huge amount of money. Some of these other alternative asset managers…I don’t really hear office much. Occasionally, I’ll hear it in the context of mixed use or for, like, a specific project, you know, like a corporate headquarters, lease or something like that but just general…you’re right. It’s totally out of fashion. Is there anything besides office? Because, you know, looking through the report, it also mentioned hotel. I think hotel and hospitality is really interesting because I guess in my experience, you know, we have work from home now. Obviously, it’s not going away. Telecommuting. But at the same time, New York City, everybody wants to visit New York City, right. Like, take a midwestern guy like me, you know. Like, for…really since I was a kid. Like, every once, you know…once every seven years or whatever, I visit, you know, or my family would visit. There’s always gonna be people that wanna go check out Times Square whether they’re Americans or from overseas.
So that’s an interesting one to me because it seems like the risk level’s elevated but it’s not the same kind of structural change that we’ve seen with office.
Chris: I would say yes and no. The rate of which people have returned is somewhere around the 70% to 75%, maybe 80% of what it was pre-pandemic.
Chris: The rate is not because we’re missing the business traveler. So, New York City was huge. You wanted to be near a venture capitalist. You could be from the Midwest but if you wanted to go on a tour to meet with equity partners or VC companies or private equity firms or even large banks to bring home, you would come and meet people here and, you know…but now everyone’s on Zoom and everyone, you know…even the financial institutions, you know…they’re having challenges bringing their, you know, midlevel and lower-level people back to the office without having a huge uproar. So, because, you know, the finance industry and other, you know, tech industries, the check writers are home. So, they are also not, you know, demanding or not asking for the potential firms to meet them in person. So, business travel is a huge problem. It’s, you know, dried up pretty significantly and that’s the last 15%, 20% that all people in the hospitality need.
Now there are stories of course in Miami. Miami’s on fire. Occupancy’s up historic levels, rates up historical levels. And so there is a resurgence and a renaissance for Miami. But I would like to say if you look at LA, if you look at Atlanta…Atlanta’s doing pretty well. If you look at San Francisco, if you look at Los Angeles or New York City, really the business traveler is the last piece of the puzzle that may not come back so fast. Maybe never. Because we can…I’m having Zoom calls with people in Korea and Japan and all around the world. So, Zoom, this technology has really, really taken out the need for foreign and business travel, for business travelers, foreign or domestic.
However, done well, I think it’s really, really, really interesting. If there’s a brand behind you, something exciting and there’s desire to own a hotel, it’s the same as owning a restaurant. The five-star brands, it’s very challenging to make any real profit margin. But the Subway franchises, you know, the…you’ll make money on Subway franchises and Burger King and McDonald’s. But, you know, the five stars and that I would say is going hand in hand with hotels or the three and four stars potentially do well. I think that it is still in very much a recovery mode. Very much so.
Andy: Understood. But I mean, to your point, that’s really the opportunity, right, is the challenge and the opportunity are one and the same and… yeah, I mean, I get that it takes some time for business travel to come back and there’s a question. Does it even come back or how much does it come back? Maybe it never reaches its former peak. You know, Chris, earlier in the conversation, you mentioned family offices looking at deals and, you know, different, you know, different returns from, you know, debt, equity, you know. Is it…do you have a sense, I guess, with private capital, with family offices that are looking at New York City, CRE specifically? Are they looking more at debt or equity right now? Because I mean, my thing is with, you know, with private credit and a lot of these debt products. I see a lot of family offices looking at debt in a way like they haven’t looked at in years and sort of saying, “Well, if we can get 8%, 9% or even 10% from debt that we think is really, you know, is asset backed and is really quite attractive, why do we need to bother with equity?
Chris: Yeah. We’re seeing all up and down the capital stack whether it be debt, whether it be pref equity, whether it be equity, whether it be mezzanine. It really just depends on the person and their strategy. But the private equity or private sort of…the private equity for debt capital really ramped up, I’d like to say, over the last five years. Even pre-pandemic we were seeing a lot of family offices create debt vehicles because of the fixed income sort of approach. But once they start growing, you need the senior lender to come in and… let’s say Signature Bank and say you’re very talented at being able to define developers and properties that you feel are conservative enough. But you would always have an A tranche which is typically Signature Bank or First Republic or…and they would say, “Sure, Chris. You know, we’ll give you…the total loan is 10 million. Sure. We’ll give you 7 million out of the 10 million you put in. You gotta guarantee, though, the payments on everything but we’ll be your senior and we’ll give you a 4% loan on that and, you know…I know that you’re gonna be…you could potentially be charging 8% or whatever it is and you’ll make a spread on the entire 7 and you’ll make money.
So, they’ll wind up in the teens IRR if…you know, with that structure. Now there’s no eight. So now you have to fill out the entire debt stack from…so a lot of family offices, sure, they can do little pieces here and there depending on their size but they are definitely…there’s way more competition even though it’s a lot less because all traditional lenders are out. They are definitely competing with private equity funds and private equity firms and other debt sort of companies. But yes, I would like to say that, yeah, if you can figure out an 8% or 9% sort of coupon to create and that’s sufficient, then absolutely, there are family offices that are doing that.
And, you know, but all up and down. I mean, you can charge mid-teens on a preferred equity position. You may not even need too much on the profit. But, you know, there’s family offices that are creating preferred equity and we’re…you know, will charge you 15%. I know it’s high but that’s the market. And if it pencils out, good for you and it’ll be a two-year situation. And we may look for, you know, 10% of the profit in addition or we may not or we may ask for more depending. But yes. There are definitely family offices that are getting very knowledgeable and teaming up with other sort of companies or other family offices to syndicate debt or preferred equity or equity or mezz.
And so, I feel like because of the post financial crisis, people got really smart with financial products. Private equity firms, family offices in 2008 and…2009 and 2010, I did a billion dollars of distress mortgage sales, collateralized by commercial property. Mostly in Times Square, Herald Square and Chelsea. And really in the smack in the middle. And my job was to educate wealthy family offices that never bought distress debt on how to acquire distress debt on large properties, $100 million debt pieces, $400 million debt pieces and sort of worked with their legal team to educate them and say, “You can get to this property at a 65% discount if you purchase this $100 million mortgage, give the bank 40 million. They still owe you $100 million but they’re probably not gonna, you know, give…you know, pay you that back. So then there’s a pre-foreclosure, foreclosure, deed-in-lieu foreclosure.”
And I had to sort of walk family office patriarchs and their, you know, second generation on how to do that along with their attorney. And that was sort of how I made money in the financial crisis. By the end of 2015, 2018, there was a fund a day that launched and a family office a day that launched to, you know, do debt, you know, after that. And now everyone does that, I feel.
Andy: So, it’s basically just…Chris, what I’m hearing, it’s more…I mean, hate to say it’s more competitive because on the one hand we just said liquidity has dried up but, in a way, I think you’re spot on that, you know, there’s more…not every family office is sophisticated. But more of them are. And some of the strategies we talked about, you know, some of them are specializing in one type of asset class or one type of deal structure following that strategy. And it’s more something that they’re familiar with. And to your point, private debt is actually pretty competitive. But I guess my point is…obviously it’s competitive doing deals but from the investors’ perspective, the risk-reward profile looks pretty good, you know. From a… whether I’m a family…you know, because family offices are also LPs and funds, right. They don’t just do direct deals.
Chris: Yeah. Sure.
Andy: And so, I think some of them are looking at private credit or debt deals even when they’re a limited partner. They’re getting 8% or 9% and they’re saying, “You know what? We’re gonna wait on real-estate to fall a little bit further.” Because they like doing direct deals but they wanna see a seven cap or something very, very attractive to buy in.
Chris: I think yeah. I mean, that’s been the model. And, you know, it’s sort of interesting, though, when you hear a family office you’ve known and they’re like, “By the way, we do loans.” You know, and it’s sort of like…you know, the competitor is JPMorgan Chase or Bank of America when you go in and they have a whole deck and they…and you understand it’s a well-oiled machine and…
Chris: You know, versus a guy, a secretary that sends you your invoice that you’ve paid. You know, it’s interesting. It’s the wild west when it comes to A, not only getting the money and closing on the loan and… but also to sort of asset manage the loan and then you have questions like, “Hey, where’s my statement from June 1?” You know, like, “Oh, we’ll get that to you shortly.” You know, it’s…
Andy: Yeah. Well, you’re talking about family offices now. You know, they’re all over the map in terms of sophistication, in terms of strategy, in terms of execution.
Chris: Efficiency and reporting, you know, tax. Hey, where’s my interest payment for 2022? Where’s my tax form? Oh, we’re working on it. You know, whereas, you know, the other banks will send it out and you’ll for sure have it before February 1, you know, where it’s sort of, like…it’s a question mark when you’ll get the interest sort of…your 1099 for interest payments.
Andy: Absolutely. Chris, I have to say it’s always, you know, an adventure, right, working with family offices and speaking with managers, speaking with patriarchs and matriarchs. You know, they each have their own idiosyncrasies and I think to your point, you know, the report that you wrote as well as the conversation we’ve had to me it’s just interesting in this market environment. There are so many challenges and you’ve got there all these different opportunities to see the different families, to see different investors pursuing different strategies versus, you know, four years ago or whatever where it was kind of the rising tide lifts all boats. This to me, this kind of a time period is a lot more interesting and obviously at Okada & Company you have, you know, you have your fingers on the pulse. And that being said, Chris, where can our audience of high-net-worth investor and family offices go to learn more about Okada & Company and all of your services?
Chris: Yeah, sure. I’m on all social media platforms @chrisokada, O-K-A-D-A. And our website is okada.company. So, it’s very, very easy to find me there. Yeah, I will say that there…this is one of those times where I feel…that’s why I wrote this report. It’s called, “From Fear to Fortune” because, you know, liquidity is pulled out. Yes, it’s scary. Where are you on the risk profile? Where do you wanna be on the return profile? And I have not seen, you know, returns and spreads this wide as far as what people are asking. Multifamily that…I just got a flyer for a 10% capitalization rate. Yes, it’s in the Bronx. Yes, it’s a portable housing and you may have to deal with maybe maintenance issues, maybe arears or whatever. The same thing you deal with all affordable. But I’ve never seen that before. I haven’t seen a 10 cap. I haven’t seen a seven and a half cap retail cash flowing. Yes, it’s small. I saw a small deal. I was like, “Oh, this is a tiny deal, a couple million bucks.” But it’s a seven cap in a pretty good area. I’m shocked.
So, we’re seeing all kinds of really interesting things. And then for the risk maxis to kind of roll the dice on office, it’s not rolling the dice and maybe necessarily filling up the building back with office tenants but what else, what else can you do to fill up and create a rent roll? Is there a conversion play? Maybe you can believe in that. Maybe you have a tenant in pocket and you can sort of, you know, put them in a building and buy it or it’s, you know, it’s really about being creative and this is where creativity, gumption and then, you know, the downside risk…if you’re buying…if you’re an all cast purchaser, I mean, sky is the limit because, you know, this is the only time where it’s sort of like, “Wow, I found a 6.7 cap in a great location but if I take 6.5% debt, I’m really only making a 5% cash on cash. Maybe I should just buy all cash and try to, you know, beat out our competitors and get a seven cap.”
And again, it’s not easy. And the reason why it’s not easy is because a market like this, sales volume plumets because no one wants to sell. And here’s a quick New York City stat for you. In an average year, 7% of properties sell in New York City. Ninety three percent do not. In a down market, it’s something like 3% of the properties sell. Less than…or less than 3%. Because why would a seller…let’s say he’s on the property since 1995. I don’t care if he, you know, moved out, moved to Florida and… he’s not gonna sell for half the amount that he could’ve gotten four years ago. He might as well wait and see where is the market gonna be in 24 months, 18 months, 36 months. I’ll hold on. We don’t have a lot of debt.
Chris: And so, the market is probably gonna see a record low number of transactions in all assets, single family homes, apartment sales, condo and co-op sales, hotel sales, office sales, apartment building sales, warehouse sales, industrial of every kind. I think that this is a market that you only sell if you have to.
Chris: And that’s why it gets challenging, because you’re…because what people do is they…all of a sudden, they hear in the newspaper, they’re like, “Oh, you know, Chris Okada says, you know, all these buildings are half off. That’s my offer. Half off.” But then, you know, you think that every property deserves to be half off. But every property’s not the same and every seller is not the same.
Andy: And that’s…Chris, yeah. And I have to say that’s never been more true than it is this year, that, you know, every property is a little different. Every strategy is a little different. There’s just more divergence. You know, but to your point, even if that volume is low, maybe it is historic low this year, there are still generational opportunities for enterprising investors, enterprising family offices who are willing to take on some risk and to be creative. I think we’ve gotta leave it there because we’ve run out of time but I wanna remind our viewers and listeners that our show notes are always available at wealthchannel.com and I’ll be sure to link to Chris’s social media profiles as well as the Okada & Company official homepage.
Chris, thanks again for joining the show today and sharing your insights on New York City real-estate.
Chris: Thanks, Andy. And I hope, you know, your viewers learned something today, you know.
Andy: I’m sure we did. I’m sure we did. I learned a lot, yeah. Thanks again.
Chris: Okay. Take care.