Shoreham Capital, a newly established company that invests in multifamily, single-family residential and build-to-rent housing in high-growth markets on the East Coast and in the Sun-Belt, is seeing opportunities to acquire and develop properties that fit its profile despite broader economy volatility.
Despite the challenging environment, the firm is still seeing lenders which are active in the market and are willing to lend in a segment of the commercial real estate market that has strong supply-demand fundamentals.
“We’re hoping to be able to build through this soft period and deliver on the back end and into the favorable dynamics we see,” said Doug Faron, a co-founder of the firm. “Hopefully, there is also some opportunity to buy things more opportunistically in the current environment.”
Faron, an alumnus of CIM Group, co-founded the firm with Steve Figari, a former executive at Slate Property Group. Shoreham’s team also includes Nick Zoumas, partner, who is also the founder of JNS Homes. Faron and Figari noticed that there was a dearth of sponsors that could credibly build and capitalize single-family properties in the same way that it was possible to build in the multifamily sector.
“Steven spent a good deal of his career in multifamily, as had I, but the multifamily market had become incredibly competitive. We’d also observed there was tremendous white space in that area in terms of both demographic changes related to an aging population and more family formation,” Faron said. “This meant there was a greater need for housing that wasn’t owned but had backyard space, a garage and a place for kids.”
Ultimately, the duo came together with Zoumas, who had built an extensive homebuilding business in New York and Florida.
“We sat down with Nick and got to understand what sort of pipeline he was building, which at the time was for-sale housing across Florida,” Faron said. “We presented the idea of converting some of his pipeline and product to for-rent housing, and that was the impetus that really started our business. We are spending a ton of time in the build-to-rent space in order to build out a real portfolio of build-to-rent communities that operate more like traditional multifamily properties but have either townhomes or larger, detached three- and four-bedroom properties.”
Shoreham Capital specializes in value-add opportunities, ground-up rental developments and adaptive reuse opportunities.
“Over the next 12-24 months we will probably have almost 1,000 lots that we are going to be building, which will keep us busy,” Faron said. “We have another pipeline of more than 1,000 that we are negotiating or actively working on. Some of that is existing product, which we can actively lease.”
The biggest takeaway for the firm in the current environment is being conservative relative to the use of debt. “This also means looking at projects that are not just based on a return but based on where we think there is going to be continued growth and stability,” Figari said.
In a market like today, it is important to keep an open mind about the prospects for a project. The firm was working on a project in Orlando where it thought it could build, develop and stabilize a portfolio of single-family rental units. “But after looking at the business plan, we made a decision to put the project on the market to forward sell,” Figari said. “We were able to successfully put that into contract with a forward purchaser, which allowed us to lock in returns.”
The rising price of debt has changed the equation for all real estate players, with Faron noting that in-place, low-cost financing has become an asset to a deal.
“The cost of capital has moved so quickly there are some pieces of debt that owners thought was a burden at 4 percent that are now being seen as an opportunity,” Faron pointed out. “You’re seeing existing opportunities being marketed as ‘loan assumption possible’ situations because you can lock in a cost of capital at 3.5-4.5 percent rather than 6.5 or seven percent.”
The potential for tapping into distress will also be a part of the firm’s business plan.
“There might be some for-sale product that could be hitting headwinds in the current environment,” Faron said. “It could be possible to purchase, at favorable pricing, a community of homes. We are talking to folks and trying to provide a solution for some of these for-sale builders.”