Using Leverage In Opportunity Zone Deals, With Louis Dubin | #cybersecurity | #conferences


Debt is commonly used to amplify returns on real estate investments, and Opportunity Zone deals are no exception. But what is the proper amount of debt to appropriately leverage any given investment, and why might that target change for an OZ deal?

Louis Dubin, principal and managing partner at Redbrick LMD, joins the show to discuss how he determines the optimal amount of debt to use in Opportunity Zone deals.

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Episode Highlights

  • Why using less leverage to de-risk an investment may be better on Opportunity Zone deals, given the substantial improvement or original use requirement.
  • Why lower leverage leads to faster return of capital to investors, leading to a higher IRR, during the construction phase of an investment.
  • Why higher leverage makes sense once an asset is stabilized and cash flowing.
  • Some of the impacts of inflation and supply chain risks on Redbrick LMD’s operations, and how rent rate increases have helped to soften the blow of increased costs.
  • The importance of developing net carbon zero buildings, and how staying ahead of the curve on carbon neutrality trends may have a positive impact on long-term investment returns.
  • The unique aspects of the real estate market in metro Washington, DC, given the limited supply of available land and the presence and unique needs of government.
  • The transformation of southeast Washington DC over the last 15 years, and how the Opportunity Zone overlay may be important for further development in the area.
  • Redbrick LMD’s Opportunity Zone pipeline of multifamily and office deals in Washington, DC.
  • Investing trends among institutional investors, and why core and value-add multifamily are still very popular.
  • When it makes sense to develop office buildings in Opportunity Zones.

Today’s Guest: Louis Dubin, Redbrick LMD

About The Opportunity Zones Podcast

Hosted by OpportunityDb.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in opportunity zones.

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Show Transcript

Jimmy Atkinson: Welcome to the Opportunity Zones Podcast. I’m Jimmy Atkinson.

Joining me on the show today is Louis Dubin, principal and managing partner at Redbrick LMD. They are a real estate developer, with a pipeline of Opportunity Zone projects in metro Washington DC. Louis, welcome to the show.

Louis Dubin: Thank you so much, thanks for having me.

Jimmy Atkinson: Absolutely Louis. Pleasure to be here with you today. You and I met at the IMN family office real estate conference in Dana Point, California back in June. You were on the Opportunity Zones panel with me. It was great meeting you there you know afterward after our panel.

We got to talking at the cocktail hour later that afternoon about optimal leverage on Opportunity Zone deals. You had some really interesting thoughts there so…

How are you guys utilizing leverage on your deals at Redbrick, and what, in your mind is the optimal amount of leverage to do an OZ deal, and how do Opportunity Zone compliance issues kind of play into that?

Louis Dubin: Sure, great question. Well, first and foremost, typically, we believe, less leverage is always better. It de-risks a deal. Let’s remember: you have to substantially improve to qualify under the OZ rules.

When you’re dealing with real estate and with that substantial improvement test usually it’s 50% or more, I won’t go into all the specifics, but you’re constructing things, and very often you’re constructing new buildings. In theory, you could take an old building and if the ratios work, you could potentially improve an old building qualify but, most people build new buildings and there’s always substantial risk and building something new, so we like lower leverage, as opposed to higher leverage, especially in times like today.

Where your guess is as good as mine, where inflation is going to fall out, you know there’s been huge construction cost inflation and get a little leverage, we think is like a really proven fair. So we’re typically 35 to 40% leveraged in the construction phase, which means 60 to 65% cash that would be old fashioned, not preferred equity, not mez. 60 to 65% is Opportunity Zones capital, the 35 to 40% being debt.

And it’s interesting, and it’s not intuitive, but because of the OZ rules where you typically have to have your capital in for 10 years and the day, proceeds of refinance if you’ve held for at least two years come out tax free up to 100% of your original investment. So if you have a lot of cash a lot of equity in the deal.

When you go to refinance if you finished your building, most of the capital in that refinance is going to go to pay back the equity and not the debt. And in a higher leverage situation, you’ll be lucky to get 10 to 20% of the equity out if you were leveraged in 75, 80%. So by going very with very large amounts of equity into our deals, most of the capital should come back once we refinance in year three or four once we’ve completed and least up the buildings, as opposed to waiting until your tend to get most your top of all your capital.

So for all those financial people out there, do the math. If you’re getting most your capital back in year three or four, versus waiting until year 10, 11, 12, it actually generates a higher IRR by putting in more equity capital.

Now there’s a limitation to it. you can’t receive back more tax free than 100% of the initial investment.

So the magic number we’ve had our finance people run in a number of times, in theory, you could really go as low as 20 22% debt to equity at some point. You can’t use all the proceeds that you’d get out, for instance, if you want 100% equity, not all those dollars will qualify the way that I’m describing. So the magic point is 20 to 22%.

And we’ve chosen around a 35% target. You know, sometimes it’ll be 36, 37, 38. Could be a little less than 35, but it’s a accretive, and accretive to yield.

Jimmy Atkinson: Yeah, I’m sure it kind of depends on the economics from deal the deal, how much leverage that you, you want to put in, but that’s, I mean, even at 30%, 35% or so is fairly low leverage. Do you see other developers or other asset management firms who are providing financing for deals coming in with that low amount of leverage? Or are you unique in that regard?

Louis Dubin: I think we’re pretty unique, I think we are lower leverage than most, but we also have a unique circumstance. All of the land that we develop on, we already know. So it comes into the new basis and sometimes it comes in the city so ground lease. And certainly a lot of stuff was coming and vis a vis ground lease before the new clarifications came out last last fall winter.

Now we’re going to a few simple structure, but some of your viewers may recall that once upon a time, with you earlier rules, it was uncertain on whether a fee simple deal would really work if you were a previous land owner and the ground, the structure was preferable for many law firms accountants.

Today, with the new clarifications we’re confident in going fee simple, so it does depend on whether you’re you’re you’re putting the land in such a to ground lease or fee simple in terms of leverage rates as well, a lot of different factors.

Jimmy Atkinson: Hmm, interesting. Well you know, the one thing I really like about your model there Louis as well, on top of the fact that it bumps up the IRR, on top of the fact that it increases the yield in the long run, is that you’re getting more liquidity back to your equity investors right before that crucial time when they have to recognize that initial capital gain that they rolled over into your investment fund right they have a tax liability that comes due in spring of 2027.

Recognizing their capital gain in ’26 and now they’ve got the the liquidity to actually be able to pay it off, I think, which is, which is pretty thoughtful, right?

Louis Dubin: Yeah I think it’s I think it’s really thought I just think it makes sense. It makes sense, my partners and I tend to be you know major investors of what we own, and you know makes sense for us and we think it makes less sense we’ll go to higher leverage points 65, 60, to 60 to 70% once we have a stabilized asset.

There’s no reason not to use, if leverage is accretive, not to use leverage 60, 70% if you already have stabilized cash flow in place. You know, most of what we’re building are multifamily apartment buildings where we’ve only seen rents increasing in our market, and we also build office buildings, if we have a substantial pre-lease for the building with the tenant that we’re comfortable with have a long term duration.

And one of the buildings were just finishing, is to a health care system that took 100% of the building, which gave us the confidence of building an office building actually starting during the pandemic into office building, how do you like that.

But it was for healthcare system and clinic which just leads to do research and see people so made a lot of sense but typically what we’re doing this, an awful lot of multifamily. DC is unique, with the Defense intel, security and cyber and we’re seeing a lot of growth there so we’re also in the midst of putting together the new National Cybersecurity Leadership Center, which we’re working with a number of different institutions to put together with academic, government, quasi government, and private sector but around the site, and you know read the cybersecurity research and workforce development space, so we will do office buildings but we but, but we, but they must be substantially released for us to do, or the default is in our portfolio is multifamily unless we have an office, sure.

Jimmy Atkinson: Well, that makes a lot of sense that makes a lot of sense these days right, I want to talk more about the property types that you’re developing why you like multifamily went office makes sense let’s let’s let’s get back to that point in a few minutes here.

But you mentioned a high level of inflation a minute ago. We’re recording this episode in the middle of July, so we actually just got the CPI print from, I think it was yesterday or the day before. 9.1% is what inflation hit from the same month last year. Just incredible. Highest level of inflation in the last 40 years I think. I’ve been saying that for the last couple of months now, but it seems to be getting worse and worse, obviously. On top of that, there’s supply chain issues; interest rates are going up.

Pretty turbulent economic period that we find ourselves living in these days in the middle of 2022 here.

Louis has have any of these factors — high inflation, supply chain issues, interest rates going up, looming recession possibly — what impact has that had on your operations at Redbrick? And have you noticed any delays or any modifications or projects needing more funding now? What can you tell us about the impact of our current macro economic climate on what you guys are doing?

Louis Dubin: Excellent questions, let me start with the list of projects needing more funding or low leverage strategy really works well in this kind of environment. So we’re pretty well suited with the low leverage extending banks are getting more and more rest reticent to go further up the capital stack and how much they’ll engine, so there were there were good. I think that there are lots of challenges to develop today. There’ll be lots of people that won’t be able to deal with those challenges and won’t build their buildings, which is sort of you know it’d be less supply out there and we believe and in Washington DC we’re very fortunate to have a high growth market terms of job it’s all about jobs, people are working.

People need places to live, we can debate how much space they need to work, most of our buildings today are substantially designed for people that will be spending time working from home. 80% of our units today have substantial balconies at least six feet deep system certain mitigates of what’s going on today, and one of them is is designing buildings that are appropriate for today but going going back to inflation and the rest of it sure the cost of borrowing is more.

But at the same time, the rent trade else we have a few thousand apartment units that we own and the rate trade else are as much as 10% these days so we’re seeing huge price inflation on rents that shouldn’t be new news to most of your viewers or reading about that I don’t care for where you are in this country if you’re in a vibrant market that has you know job growth you’re going to see these crazy wacky rental inflation numbers, so we feel pretty pretty good about that that we’re seeing higher rents without those higher rents you couldn’t build buildings at today’s higher cost.

And those higher rents are tracking so that’s good thing. In DC particular we’re absorbing all of the tremendous amount of new units in Washington. Primarily around the Navy Yard, they’re sort of that sort of the capital river funds are the dominant place but you know, inflation is a very real thing low leverage teams are really know what they’re doing.

You need a high job growth markets, you know for lenders to feel good supply chain is very, very, very good question I don’t know we certainly aren’t sourcing materials from Ukraine today. And maybe not Latvia and i’m not saying that facetiously but we’re really taking a good hard look on where the materials and where our finishes are being sourced from, and you know, making real time decisions on is it worth the supply chain risk if it’s coming from a far distance.

So these are very real things that you’re dealing with when you’re building buildings that are hundreds of millions of dollars each so you can also afford to put in professional time to go through that. And costs have risen, and in some cases costs have risen, you know extremely, we think that that’s temporary with a lot of the commodity pricing, because most of the major commodity pricing, as you may know, has come down substantially.

And we think the market is still lagging on today is contractor price versus where that price may be in a few months, so the last 20 30% of what we’re buying in a building like finishes, for instance, cabinetry work, maybe even appliances not switch gear, but stuff that you could put them at the end.

We’re going to hold off on buying some of that because we think those prices are going to come down significantly because of inflation, higher cost of borrowing less projects are going to get the green light the contractors won’t be as busy.

And you know that’s that’s sort of our strategy there so we’re going full speed ahead investors continue to like the multifamily space, whether it’s cozy or otherwise cozy they love the tax benefits, we all know how unbelievable this this four to 500 basis point you know benefit is, because the sovereigns decided to put a program together to give you that benefit.

So we’re you know we’re we’re feeling good but we’re working much harder we’re working much harder to finalize our budgets on our buildings on our structures today.

But we think they’ll also be less competition.

Jimmy Atkinson: yeah fair enough, and it seems like you see light at the end of the tunnel to write with regard to rising prices, maybe some.

Some prices are starting to stabilize in terms of the rising costs that you’re encountering.

Is it is it mostly materials costs that have gone up that have impacted you or is it the cost of Labor you mentioned contractors, or is it a little bit of both and what what what’s really more more responsible for the rising cost for you guys, at least.

Louis Dubin: I wish the contractors would be more transparent we’re trying very hard to get that exact transparency.

Because if we know, for instance, copper and electrical wire and lumber, for instance that’s come down on a commodity pricing and we’re we’re being quoted commodity pricing numbers, based on a few months ago where that price may have fallen out.

Then we’re basically putting it to contractors today proved to a show us that you’re paying labor that much more.

And I don’t think that’s the case, I think, for a little while the contractors were allowed to take this supply chain hysteria and charge, whatever the heck they want it. So we’re we are flushing that out, as we speak, we are demanding line by line item transparency on the Labor component and the commodity component.

Jimmy Atkinson: Yeah why makes a lot of sense that’s interesting so it’s no longer case where you’re just seeing one bottom line number that you have to write a check for you actually want to see what goes into that number.

Louis Dubin: If I took you through what we do, we have a whole construction team internally.

In our head of construction, one of the greatest construction executives in the country he started life, thankfully, as an estimator once upon a time. And they are literally going through, because we just don’t believe it just we’re rational people just doesn’t make sense, all these commodity prices are coming down.

Then prove to us that now labor is making double the wage they were making a year ago I don’t believe it we don’t believe that we don’t see that. Sure we’ll see we’ll see the buildings still pencil they still make sense, again, because the rents have caught up with all of this and I think there’ll be less deliveries of buildings that we were that we were forecasting a year and two years ago.

Jimmy Atkinson: Because it’s more costly to put them up and…

Louis Dubin: If you’re if you’re leveraged if you have 20, 25% equity and you’re going with the super lab and she’ll doesn’t work to it.

Jimmy Atkinson: Right right, and if you have you had to adjust your fundraising numbers, if you had to raise more equity for some of your projects, then maybe you would have thought, a year or two ago.

Louis Dubin: It took a fundraising, but I can talk about is construction budgets, and construction budgets absolutely on a number of projects have gone up. But at the sam, so are expected rents, so it really hasn’t diminished or or hurt the…

Jimmy Atkinson: The projects still pencil out.

Louis Dubin: Yeah, the project still pencil.

Jimmy Atkinson: Yeah Any other challenges that you’re facing these days we haven’t covered yet?

Louis Dubin: There’s always challenges, you know the supply chain figuring out where you want to buy you know your big component parts from.

The other big challenges we have gone to a net carbon zero from operations cornerstone and all of our new buildings.

Really important because, not a lot of people are doing everyone’s talking about it they’re really in conferences okay we’re getting educated on it. We’ve been getting ourselves educated on it over the last few years there’s a lot of competing standards what’s the right outcome, how do you measure yourself.

It’s a whole new brave world this this carbon neutrality well it’s dead real.

And that is a big challenge and understanding what the right metric sort of apply, like, for instance, years ago, for many years ago, used the LEED standard… LEED Gold, LEED Platinum, you know I don’t think LEED Silver even existed in the US, but you know that was the standard for many years about a more environmentally responsible build it right, we all sort of knew that there was a lead standard.

We don’t know what that new standard is what that standard is there’s a number of standards… IFLI, number of competing standards for that carbon zero from operations, what does it mean have they exactly they’re going to score and all subject to visit so we’re learning new finance we’re learning a new way of building buildings that are more carbon that our carbon neutral and part more carbon friendly big challenge conferences learnings readings.

Technology. Different HVAC systems, different mechanical, electrical, even the plumbing, the water usage.

So it’s cool stuff so i’m really feel like a kid again learning a lot of new stuff I think next week, our whole team is going and learning about wastewater and sewage and how to tap that energy from the warmth that that effluent creates and how you harness that.

And all these things, adding up goes into a more energy friendly and in carbon neutral building so that’s been a challenge and our one of our other big challenges is we are designing right now.

What we believe will be the first carbon neutral building, not from operations carbon neutral building in the building of the building, which will be 130 foot tall apartment building made out of wood cross laminated timber, CLT to your readers, read about it, you heard it from me if you had diverted before you see a lot of this in the future.

And to go 130 feet is not permitted in most codes and most cities in the US today, so you literally have to have a progressive city that’s willing to use an international standard into the future, to give you the waivers and the abilities to build these buildings that are.

Jimmy Atkinson: You’re not allowed to go that high with timber in most places now; is that what you’re saying?

Louis Dubin: Yes, sir.

Right but the fire waiting on many of these buildings is a higher than steel and concrete.

Jimmy Atkinson: Okay, because.

Because it’s CLT, not just regular would timber.

Louis Dubin: Yes, there is a technology, it’s sort of a cross laminated… it’s like a glulam, for those that know construction. It’s like an inter woven beam, if you’ve been in some old mill buildings that were built out of wood, years ago, and you can sort of picture that this is a technology and a coating That gives you a very because of the density in the structural propensity of the materials are very high, fire rated.

Jimmy Atkinson: So, then, the construction, not just the operations of the building, once it’s in service, but the actual construction of the building is carbon neutral or net carbon zero.

Louis Dubin: Yes, exactly.

Jimmy Atkinson: Interesting. And why is that important to you guys at Redbrick LMD? Why are you undergoing the development of these net carbon zero buildings?

Louis Dubin: We think it’s the right thing to do. And we think it enhances long term yield.

There will be, we believe, there will be carbon taxes on buildings that don’t have this, we think that this the we will be dinosaurs and obsolete the buildings that are doing this 10, 15, 20 years from now, and since we’re long term holders.

We think this is the entire direction that that.

The urban larger buildings are going in or will go in, I think we’re a little ahead of the curve, but if we have a you know 10, 12, 15 years view.

We think it’s the responsible thing to do to be asking ourselves what are investors going to want to buy in 10 to 15 years and we think they will all pay a premium if you’ve delivered a building that is net carbon zero.

Jimmy Atkinson: Interesting yeah so to avoid possible future carbon taxation are you are you getting any net zero carbon tax credits for what you’re doing these days of those even exist or is that are you a little bit of that.

Louis Dubin: None of that is a meaningful component of the finance of this, although there is some there’s some energy financing for see pace for some energy programs for you know smarter greener more efficient energy.

But that really isn’t part of the equation it’s it’s really quite simple. When we go to sell our buildings and say 12 years, we believe that if we aren’t carbon net carbon zero from operations, we don’t know if it’s 50 basis points, 75 basis points, 100 basis points. But there’s going to be we’re going to trade it a much higher cap rate than someone that built purpose or from operations, and you know anything over 50 bips in terms of difference in value to justify spending the extra dollars today to do what i’m describing.

We also believe that if we’re building buildings that are net carbon zero those will trade for even more of an enhanced premium than just Carpentier from operations so yeah we think it’s smart business and a lot of people agree with us.

And there’s a whole impact side of the world and investing, that wildly agrees with us, both for economic and for their own sort of environmental and social work.

Jimmy Atkinson: Sure, no that makes perfect sense, and you know think what you want, about.

The importance of of being carbon neutral and impact investing it’s those are those are politically charged topics, but the fact of the matter is there is a business case. For what you’re doing and you’ve got a long term vision there, so I think that makes a lot of sense.

Louis, I wanted to shift gears and talk more about Opportunity Zones.

Specifically, in your backyard, where you guys are doing all of your development in Washington DC… and I’m just, I’m pulling up on my other screen over here right now OpportunityDb we’ve got a page about Washington DC’s Opportunity Zones. I’ll make sure I link to it in the show notes for today’s episode.

But it looks like there’s there’s 25 Opportunity Zones in Washington DC, mostly concentrated east of the mall on the east side and a little bit in the southeast as well. What can you tell us about Washington DC metro Opportunity Zones, Louis? Where are they looking at exactly what’s the market like what what kind of buildings you’re doing ozone there tell us everything you can about Washington DC and the state of OZ development in Washington DC.

Louis Dubin: So I would say, the vast majority of the Opportunity Zones in DC are in southeast DC, as you said.

And DC is a little bit different as a city, because of the height limitations for the most part you’re limited to 130 feet to pipe in Washington DC. So, once the city which is really current is is built out or is being occupied by residential very hard to move people in Washington, all the rest of it.

You really don’t have any more terra firma for growth don’t plant, the last remaining land for growth, for the most part wasn’t se and that’s why the Fed starting about 15 years ago ,10, 15 years ago and with the privatization of St Elizabeth’s, which was an old federally owned hospital half went to the Federal Government, the other half, with the district of Columbia to redevelop Homeland Security built an open, just before the pandemic their new headquarters in southeast.

So they moved from Northwest their headquarters to southeast and with that the Coast Guard headquarters move just before them as well. Customs and Border Patrol is coming to that campus as well, and the new cyber command system, cyber infrastructure security agencies built as we speak, this was one of the last places that had land to build large federal or other other projects in the District of Columbia on Metro… this was like it was DC small it’s not a big territory.

And those jobs really drove an awful lot of infrastructure needs in this area that historically really was just not given its fair share of funding and was sort of passed over and overlooked, it also happened to be historically.

For the last 50 years amongst the lowest income areas in Washington DC so you had this confluence of land being available the feds basically taking a lot of it for the Federal growth in security, as I said earlier. In cyber.

And around that there were housing housing needs shopping needs food needs health care, all kinds of needs, and so a lot of the Opportunity Zones in DC are fulfilling the needs of workers and jobs that have located before the infrastructure K truly quite interesting unique.

And that’s because it just wasn’t much land left in the District of Columbia. So it is an incredible market for investing. The Opportunity Zone overlay really was important because it took a lot of people got them very focused on hey is there an opportunity here, because if there is very tax efficient.

So people that otherwise maybe weren’t looking at se for 50 years of a sort of like a prior location and they scratch their head and said wait a second. The last 10 years is that right $30 billion was built at the Capitol riverfront or probably notice the navy yard $30 billion down there.

$30 billion in DC, in an area that when I was a kid there was no reason to go to and maybe you’d go there to buy a used tire or old warehouses, and certainly you wouldn’t go there at night. It was sort of a you know, it was not a not a place to go. So all this transformation happened it happened in southeast.

So you have the most expensive of the most expensive Rentals in neighborhoods now in DC in southeast the REPS in southeast.

Far eclipsed the rents, for instance in bethesda Maryland a lot of your viewers may know bethesda for many years that was one of our major mega you know suburban markets that people paid, you know very full some rents at capital riverfront is much higher rate is 30% or more higher than the test today, so this is this is where people want to live, work and play.

They have easy access to jobs and we’re talking about sites that are mile two miles three miles from the capital.

So very close in and it’s very exciting to be part of it there’s also multibillion dollar infrastructure program with the new bridge with new infrastructure tunnels with new highways, with new interchanges it’s one of the biggest infrastructure improvements in the history of our region.

Jimmy Atkinson: So, the area that’s just right over your shoulder there if i’m not mistaken right.

Louis Dubin: Yes. Here we go there it is. There’s the new bridge.

Yeah, so it’s exciting. It’s exciting to the buildings that we’re building are heavily tilted to multifamily we currently have about a pipeline. It’s about 4 million feet, to build that we currently own this is dirt that we own that we’ve acquired over the last 10 years. And we’re building an awful lot of multifamily rental, typically, with a 12% affordable component.

As we’re building office buildings, when we have an end user, like this healthcare system, I was describing that will be moving into their hundred and 32,000 foot, building on the campus the private side campus and send a list of this cross from Homeland Security.

I think we give them the keys for their space in November, this coming fall so we’ll build office buildings, if we have a long term tenant that commits to the building, you know all or most of all, the golden.

Jimmy Atkinson: And yeah well so so so things but let’s let’s get back to your buildings, a little bit more, I know you can’t talk about your fund or your fundraising.

But we can talk about some of the buildings and your pipeline spoke about a few minutes ago we’re getting back to it now tell us more about your pipeline, how many construction projects or potential deals, do you have in it, and then you mentioned you’re doing mostly multifamily, but I think there’s also some office in there as well, that you touched upon a few minutes ago, as well as that right.

Louis Dubin: Yeah we we currently we have over 10 sites that we own.

Will go vertical on a couple of the new sites, a year, you know, two or three that could be that could be faster if we were to say sign, for instance, a major office 10, and those sites are located in southeast right across primarily right across from.

The capital riverfront and the nationals ballpark a lot of your viewers probably know the ballpark there’s also new soccer stadium.

And the the district right before co bit about a year before koba developed and delivered the new entertainment sports arena right next to us in southeast and in Senlis of this, which is where the world champion mystics play.

Now, because this has become a big entertainment area for the district as well in our soccer stadium or baseball stadium our arena, where the w nba plays it’s also one of the.

Jimmy Atkinson: That is that a different arena, from where the capitals and the wizards playing.

Louis Dubin: yeah they play downtown seven they play at Capital One Arena.

But this this ESA entertainment sports arena next to us to elicit, this is also where a lot of the major worldwide gaming competitions, the virtual gaming competitions take place, so they built it as a virtual gaming arena as well, so that’s pretty cool that’s about 100 events, a year typically and it’s an awful lot to the neighborhoods that were developed in southeast. Very busy.

Together, but this one, especially from walked him from.

Jimmy Atkinson: No, that sounds really neat. I was actually just in that part of DC a couple weeks ago with my family. We went to a Nationals game at the Nationals ballpark I know it hasn’t been there very long, but I had no idea that that part of the city was was as rundown as you were describing maybe 30 or 40 years prior.

Actually knew and 15 years 15 years really interesting.

Louis Dubin: 15 years ago yeah it’s an epic story Harvard and many universities are doing case studies on capital riverfront now and what’s happened there and.

How do we study that and all the rest of his producers, which would have dinner when you were doing share with your viewers are the ones who are particularly good.

Jimmy Atkinson: Oh, where did we go, I think we found some Italian restaurant actually up, on the other side of the mall up in the more more central part of DC I don’t think because it was a day game so.

We got out of there and and headed back up across them all the way we were staying I can’t remember the name of the restaurant now.

Louis Dubin: Unfortunately, some of our top Michelin star restaurants now in DC or in the capital ever.

Like.

Jimmy Atkinson: To go back and check that out next time i’m in town.

Louis Dubin: And the standard hotel from New York is that the capitals of the capital.

No big coolness factor.

Jimmy Atkinson: Great great part of town.

Louis Dubin: Great part of town!

Jimmy Atkinson: I’m sure you know another topic, I wanted to bring up Louis right before we hit the record button you mentioned to me that you’re on the board. of New York Common, which is one of the largest pension plans in the United States, what are some of your insights that you have with with your experience there with what large institutional quality investor wetter and you probably can’t talk about their strategy and in detail, but you know what what type of trends are you seeing from the institutional side of things.

Louis Dubin: In multifamily is still very strong and a meeting food group for institutional investors it surprised me but finally logistics you know, still quite popular, but it has lost its its shine it isn’t quite the shiny object that everyone has to pay up for right now in terms of logistics I don’t know if that’s supply chain, or what for for a long time, you know simple warehouses logistics centers were like, you know, the golden egg of real estate, so it really I think we’ve returned a lot to multifamily it’s it’s always been you know the commodity food group and real estate, you know multifamily rental I think the fact that in most markets the rent trade outs are quite high you’re seeing rental inflation that’s very real.

I think that the you know smart institutional investors have more comfort in that asset type than and other asset types today there’s lots of talk about repositioning strategies, you know retail and office.

What happy i’ll tell you another area that is quite interesting that I think the institutional world is paying some attention to is limited service hotels and some of the hospitality plays, this was a sector that got really terribly hurt during the pandemic.

And there’s some major opportunities on recapitalizing some of those companies today, as you would imagine that were seriously denuded of a lot of their of their cash so multifamily is still to go to food group, in my opinion, I expect we’ll be seeing you know more and more opportunities, whether its value add no ground up a much so sure, though.

On the institutional side there’s a lot of variables and factors like supply chain, like what’s your final GMP going to be it’s really hard to nail down exactly today.

So I think you know core multifamily value added multifamily even workforce housing are still attractive to institutional investors.

Jimmy Atkinson: Sure. That makes perfect sense, and you know it’s it’s a good market everybody always needs a roof over their head in most markets all over the country.

There’s a huge under supply of of housing of multifamily so yeah i’m a big multifamily fan myself my listeners and viewers of this podcast that should not surprise anyone there I think there’s a lot of positive trends obviously for multifamily it seems to be the most popular property type for Opportunity Zone development, like you, like you mentioned at the top of the episode, you know, mostly new construction just because of the way the Opportunity Zone statute is written. It’s tough to do tough to do substantial improvement on on multifamily in most. areas around the country, what about what about office, though, you know I office seems to have taken a step backward with the pandemic.

A lot of workers not returning to the office, I was, I read an article in The Wall Street Journal think earlier this week or last week about some of the different markets in the country and how they’re returning to the office and where I am in Texas, we seem to be leading the way and in areas like Dallas and Austin.

But even still it’s only at a level about maybe 50 or 60% of where it was pre pandemic, where you are Louis in Washington DC the federal government’s one of the biggest tenants of I think actually the biggest, and correct me if I’m wrong, of office space in the DC area. You know, you guys are hovering maybe at the 20 or 30% level kind of lagging behind the national average in terms of returning to office. What are your thoughts on those trends and when does office makes sense to develop as an Opportunity Zone developer?

of office space in the DC area, you know you guys are hovering maybe at the 20 or 30% level kind of lagging behind the national average in terms of returning to office, what are your thoughts on those trends and windows office makes sense to develop as an opportunity zone developer.

Louis Dubin: We think that the people’s apartments rental apartments are are going to be the proxy for office for an awful lot of people. So we’re designing our apartment buildings for for live and work in play, so the amenities of play the apartment is live, but the way we’ve designed it the way we have fashion that the way that we’ve put Zoom rooms on floors you know and dedicated spaces and dedicated places where people can go and work like they’re like we worked or what have you, we think that that’s really important in our residential buildings.

And that’s how we’re dealing with that with that trend, which is why you’re going to see I think a lot more apartment buildings built, you know, on our dirt than office, however, let’s go back to cybersecurity intel in Defense.

DC also has a number of sectors where it’s important to be in a secured space individuals have to go check their phones, you know little cubbies. They go to work and it doesn’t matter you know whether you’ve watched you know the TV show 24, Mission Impossible, or any of these shows, but that’s very real in DC.

Or the Pentagon, or what have you there’s a lot of DC that takes place in person, not all if you’re gonna if you’re working for the Agriculture Department probably not as much. But in many other sectors you’re you’re going to work and some of those groups like there’s no there’s no surprise that we’re working on the National Cyber Leadership Center, why is that that’s because.

You know, cyber needs it’s really interesting certain physicality. There are things, called cyber ranges were in the National Cyber Leadership Center we’re going to be teaching offense and defense.

So attack you’re an attacker defender and it looks like something like out of NASA these, these cyber ranges you know people at desks and people yelling out, and you know there’s an attack and you’re trying to afford it and see what’s gonna work, how do you land the personal moon and all the rest of that kind of fit.

Those take physical spaces they’re still being designed they’re hardwired they were in a government Intranet and black fiber loop, and you can’t black fiber and dark fiber people seriously in their in their apartments.

Jimmy Atkinson: Yeah that’s a good thing for security issues has to take place at a specific location that makes perfect sense.

Louis Dubin: So you know those will be the kinds of building we’re building i’m just gonna really candid that those are the kinds of things that we do and.

And those are the kinds of office buildings or healthcare system we have a new hospital being built next also one of our sites don’t be other healthcare and other offices, where you need the physicality of you know, going somewhere and having a procedure Donner, what have you.

So that’s where I see it in the future in DC but you do have this bespoke specialized needs in Washington, which will mean will be developing you know every year to the new office building for one of these unique users understood.

Jimmy Atkinson: very interesting Louis well, it seems like we’ve we’re out of time for today, I think we’ve covered everything we wanted to Louis it was a pleasure speaking with you today again before we go where can our listeners and viewers go if they want to learn more about you and Redbrick LMD.

Louis Dubin: RedbrickLMD.com is a good place to start. And if people have specific questions go on our website or get my website you’ll get my email address and happy to send me a note.

Jimmy Atkinson: Fantastic and, as always, for our listeners and viewers out there, we will have show notes available for today’s episode at our website, opportunitydb.com/podcast … and there I’ll make sure that we have all of the links to the resources that Louis and I discussed on today’s show and.

Please be sure to also subscribe to us on YouTube or your favorite podcast listening platform to always get the latest episodes Louis again really appreciate your time today thanks so much for being with your for being with us here today.

Louis Dubin: Thank you stay healthy have a great summer.





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