New York-based Cypress Capital Group believes rising interest rates and higher inflation will create the perfect storm for investment, with founder Wen Shiau telling Real Estate Capital USA the firm sees distressed opportunities arising.
To this end, the manager has brought on Perry Boyle, a veteran fundraiser, in a move the team believes will drastically help boost the firm’s capital raising capabilities as it seeks investors for its fourth real estate private equity fund. The firm is targeting $100 million for Cypress Capital Partners 2022, which will invest in single- and multifamily residential properties in tech-centered cities, which includes Silicon Valley, New York and Austin. Cypress hopes to have a first close of $20 million in December.
“To quote Warren Buffett, when the tide recedes, you’re going to know who is swimming naked and now we’re seeing who is over-leveraged,” Shiau said. “There will be opportunities to buy and invest and those are wonderful opportunities. We love cloudy days.”
As a macro investor, Shiau has been watching the current rise in interest rates closely and believes there will be more stability soon. “I have my doubts about how far interest rates can go up. I have my doubts that 10-year yields can go much higher than 3.5 percent,” he added.
Expanding fundraising team
Bringing on Boyle will be a major boost to the firm’s fundraising. Boyle recently retired from a 15-year career at Point72 and SAC Capital where he was the head of equities, head of discretionary investing and led an investment management staff of over 200 in New York, London, Hong Kong, Tokyo and Singapore. During his career, Boyle has raised more than $8 billion from sovereign wealth, institutional and family office investors at Point72.
“Someone of Perry Boyle’s investment acumen is a huge validation for us,” Shiau said. “[Boyle] liked the profile of our team and the profile of our returns, both on the upside and most importantly, on the downside.”
Currently, Perry is the Chairman of The BOMA Project, which empowers women entrepreneurs in Eastern Africa impacted by climate change.
“As part of CCG’s mission statement to donate 10 percent of our profits to charity, we look forward to partnering with Mr Boyle in this worthwhile effort.”
Cypress Capital Group is anticipating a normalization of markets within its target regions and sectors.
“We like that the market is normalizing, lumber prices are coming down, we don’t need the market to go to the moon to make returns,” said Shiau. “If the market just stays level, we will make our 20 to 30 percent IRR because we build at $500 per square foot and we sell for well north of $1,200 a square foot. Depending on the city, it goes from $1,200 to $2,000 a square foot.”
Cypress believes that creating the perfect strategy is all about the right combination of ingredients.
“Investing in us is like investing in a pizza shop. At the end of the day, it’s just dough, tomatoes and cheese, which doesn’t seem so complex, but why is it that some pizza tastes terrible and some pizza tastes like it is heaven on earth. What we do is the same thing; we all work with the same ingredients, but we ‘make better pizza‘ because we have superior proprietary data and local knowledge: where to buy, laser sharp acquisition price and building beautiful products. These are our ingredients.
“The great thing about residential properties is that they are an asset that people must use and are the last to sell in an economic downturn. And if in fact, we are about to enter stagflationary times of the 1970s, residential properties appreciated greatly while stocks treaded water for a decade.
“What happens is that instead of the rising tide lifting all boats, the market is moving where poor products languish but good products still sell at a premium. [The main impact is that] investors and buyers can afford to be more selective.”