Peter Brosens of Stolar Capital Building | Chatham on Main in Chatham | What is Workforce Housing
Transcript
Announcer 00:02
Welcome to American Building, a weekly recorded show whose mission is to share an alternative perspective of what we build in America, and why. Together we discover how the work of the real estate industry connects to every American. In season two, we focused on how buildings changed as a result of the pandemic. In this season, we're revisiting conversations from previous seasons, to see where Americans put their heads down at night. Together, we will discover the many definitions of home across the New York City metropolitan area, which includes over 23 million Americans. Each week, we'll visit a new building and explore complex and confusing issues related to housing access to see what they can teach us about ourselves, and our country will meet those who work to develop in thoughtful and impactful ways, who build neighborhoods to be more sustainable, affordable, accessible, or inclusive, who labor to create thriving communities, and transform the lives of generations to come. Through their stories, we will humanize often polarizing topics. Profound, surprising, and hilarious. This show is for developers and builders with boots on the ground for innovators trying to find ways to improve our industry, for the policymakers and public employees. And for any person who has walked by a building and wondered why. And now your host award winning architect turned developer and startup founder Atif Qadir, AIA.
Atif Qadir 01:53
This is American Building. And I'm your host, Atif Qadir. I'm the founder of Commonplace. Join me as it take a drive by the skylines and strip malls, crosswalks, and rail crossings, balconies, buildings and boroughs to discover a new generation of housing. Let's build common ground.
Atif Qadir 02:16
In this episode, you will learn about the term workforce housing and how it is used. Also, you'll join me in hearing about Shaddam on Main, a garden style multifamily complex in Chatham New Jersey. Workforce Housing is a type of unregulated affordable housing that typically serves middle income workers, like teachers, healthcare providers, and retail clerks. These are folks who usually are not eligible for regulated affordable housing, either through voucher programs like section eight, or through units subsidized by the Low Income Housing Tax Credit Program. As real income growth has flatlined since the 1980s. For this category of people, housing has become relatively more expensive for them.
Atif Qadir 03:15
The global financial crisis and the pandemic exacerbated the issue of housing affordability because of rapid inflation combined with tanking housing production across the nation. The percentage of middle income workers who could afford market rate housing has declined, creating the need for unregulated affordable housing like workforce housing. For example, in San Diego in 2021, 19 workforce housing units were created with city subsidies at the same time that 10,163 market rate units were built.
Atif Qadir 03:53
In a great article for the Brookings Institution, researchers Tiffany Ford and Jenny chutes provide a primer on workforce housing. I want to highlight a few points from their article.
Atif Qadir 04:08
In well functioning housing markets, middle income families shouldn't need subsidies. The term workforce housing is not only imprecise, it is controversial. Many poor households who receive federal housing subsidies are employed. So why are those subsidies not considered workforce housing? The link to the article is in the show notes.
Atif Qadir 04:36
In this episode of American building, I am sharing an edited version of the conversation I had in November 2021 With developer and investor Peter Rosen's. Peter is a founding partner at Stoller capital, a New Jersey based firm focusing on developing in the greater New York City area and providing preferred equity nationally. Prior to Stoller capital, he worked at JBG companies in Washington DC. He is a graduate of Columbia University just like me. Enjoy the conversation. And if you are interested in more stories related to housing, and impact visit the commonplace website. common place is the company I founded to make it easier to finance impactful Real Estate projects. Thank you so much for being here with us. Pete.
Peter Brosens 05:33
Thanks so much for having me on Atif. It's great to be here.
Atif Qadir 05:36
Absolutely. Who all are the team members at Stoller capital and how did you meet them? Or how did you come to them if they weren't your siblings?
Peter Brosens 05:45
Yeah, no, I only one of them is my sibling. So Kyle Petrelli, who started still with me as my best friend growing up in high school in college. He was actually my best man at my wedding.
Atif Qadir 05:55
He Are you from Maryland? Or where are you from?
Peter Brosens 05:57
No, I'm from Washington County. So about an hour from New York. Okay. Yep. And so he went the investment banking route, JP Morgan, then he went to business school actually in Maryland. We started July 2012. And the other team members came naturally you know, Joe Carroll very, very good friend of mine, same analyst class a jpg with me. So So we worked alongside each other for four years. He went to Wharton Business School after jpg then worked related for a couple of years. And then I twisted his arm to come join us as a partner. And he's been fantastic. Kyle land. And Joe is more of a CIO, and spearheads the acquisitions for this profit mess fund that I'm sure we'll talk more about later on the podcast. Kyle land was an intern. And he's now a partner of the firm. You know, we had about 20, interns a lot of really smart guys and gals from Columbia, NYU. And Kyle was just a really, really hard working really trustworthy guy that kind of earned my respect very early on. And he essentially now runs Asset Management and construction management. And then John, my youngest brother, very, very sharp, underwriting all of our deals. So he's a very, very strong financial analyst. That's been with us for five, six years now. So it's a team of five of us, you know, we're lean, I think as we grow these two platforms that we're currently working on that, again, we'll talk about more later on, the team will naturally have to grow more trying to keep it as lean as possible right now.
Atif Qadir 07:34
Excellent. So I think that might be a good point to transition to the project that we are discussing today, which is Chatham on Main. So talk to us about the city of Chatham, and this specific site.
Peter Brosens 07:48
So just to back up, maybe a little bit, one of the routes that we just talked about is buying value at mixed use or multifamily properties, and repositioning them through either asset management to construction management, or property management. And asset management really encompasses both of those. And we bought a couple of smaller properties in shadow we own about five properties in Chatham.
Atif Qadir 08:10
And Javin is basically a city in northern New
Peter Brosens 08:13
Jersey, affluent town about 45 minutes west of Manhattan, phenomenal schools, train lines, train 50 minutes into, you know, into Manhattan, but there's also just a lot of employment in and around Chatham. And the goal of this business is to find institutional size assets, and enter into a typical GP LP relationship with one institution, because so much of our previous business, has been raising money from, you know, started very early on with friends and family, and then it became and then expanded fairly quickly. So now we have about 100, high net worth investors that are fantastic, and they become family. But when you're raising money for an asset, as you know,
Atif Qadir 08:53
you can take $1 from this one and $1 from that one.
Peter Brosens 08:55
And certainty of clothes, it's just really important. And so when you go to them, so as you approach them with investment one month, and they're on vacation, or they're busy, and the next month, they want to give you a lot of money. And so certainty of clothes becomes a real problem. So let's go to this asset a little bit. And then we can we can talk about, you know, kind of how this asset came to fruition and kind of how we arrived at this thing. It's a half mile from the train, kind of in between Chatham and Madison. It's 118 apartments, 72 bedrooms at 4841 bedrooms, and it was completely mismanaged. I don't even too many of the details, but the previous owner just wasn't taking care of the property.
Peter Brosens 09:39
That may be an understatement. And so we kind of used a lot of our construction expertise to upgrade upgrade the apartments. We brought in greystar. And we actually manage the asset alongside greystar to kind of provide best in class property management to all the tenants because the tenants, your tenants are your clients. I mean, it's one of the Most importantly,
Peter Brosens 10:00
you gotta treat your tenants like gold, both for referrals, but it's also just I think the way to do business. And, you know, the, you know, the goal is, you know, we bought the property for 35 and a quarter million dollars, we are investing about $7 million in the, into the asset. I mean, so our renovations are, you know, we kind of pride ourselves in doing top top notch renovations to kind of again, give that tenant a best in class living experience. We're putting in about between, depending on the, if the previous seller actually put any money into the apartment, we're putting in between 15 and $35,000 into the unit. And we invested about $3 million in the exterior 29 new roofs, beautiful landscaping, exterior facade, we repainted the building, to completely rebrand, rebrand the asset. I mean, it's previously labeled Chatham village, and China bill and Chad, you know, develop developed a bad connotation just because of how the previous ownership treated tenants and so we rebranded Chatham on Main, because we're on Main Street, and it's been a fantastic success.
Peter Brosens 11:06
The goal is to through construction to increase rents in a way where kind of unlevered yields approach kind of a 6%, which, which I think is in line with value at multi.
Atif Qadir 11:19
And when you say unlevered yield, could you explain it? That means like, return on costs, right.
Peter Brosens 11:24
Yeah, I mean, you know, noi, over kind of your all in basis to date, so I think in a couple of years, our noi over that total basis will be around a 6%.
Atif Qadir 11:35
Okay. And then it sounds like an interesting operational challenge in terms of repositioning it, how did you find this deal? And what was the process of closing it? Like?
Peter Brosens 11:46
Yeah, it's great question. So so how we found this deal is, you know, I think one of, you know, I think real estate is all about relationships. And so a previous colleague and a guy who used to work at Stoller instead, Desai, who now works at advance, you know, it's one of those things where, you know, he left Stoller, but we remain very good friends, and we still talk frequently. And I think that's really important. And he introduced me to Stephen Feinberg, and ever West. And Stephen just joined ever West. And we naturally caught up and I was talking about kind of some of the opportunities that we're looking at, he immediately jumped to this property. And we were in the process of acquiring it, and about to go look for an LP. And now he's our LP, and they've been a fantastic partner for us. I mean, we had about 3x Blackrock folks, and it ever was, I think there's two or 3x block for folks as well. And so when I spoke to my my existing investor base, they said, Peter, you couldn't be partnering with with a better company.
Peter Brosens 12:43
And it's proven to be true, you know, we got very lucky because at the time, we really didn't have money behind us, we would lock up these deals, and then we'd go run around and try to find a partner, which puts you at an immediate disadvantage, when you're competing against gives you some extra
Atif Qadir 12:59
heartburn every week.
Peter Brosens 13:01
Yeah, it's also just, it puts you at a really strong disadvantage when you're competing against guys that have discretionary capital and have the ability to close quickly and put down hard money fairly quickly.
Atif Qadir 13:10
So could you explain what GP and LP means and what those rules are in a deal structure?
Peter Brosens 13:16
Yeah, GP referred to as kind of general partner and LP is limited partner. And, you know, typically, you'll enter into the structure of the GP will put in kind of five to 15% of the equity, and the LP, will put in the remainder, whether it's kind of 8595 or 880, to 95%. And the LP typically plays a more passive role. And their capital is where they provide most of the value. And the GP is the owner and operator that's responsible for kind of the day to day, I would say day to day management day to day decision making. I mean, obviously, when a LP puts in the majority of the capital, they have all major decisions because they've got to protect our capital and the ability to do all sorts of bad things to us if we don't do right to them but but knock on wood, it's gone incredibly well.
Atif Qadir 14:06
And and then so you had mentioned that there's a significant amount of capital expenditures that you're putting in to upgrade the unit's the exteriors the site as well. What listeners through what they would see if they were going from say, the the train station downtown to this site, what they would be seeing what that experience would be and now it's some of the renovation is still in progress or it's fully complete.
Peter Brosens 14:27
It's fully complete. So if you walk in the transition to our site, you would see predominantly older red brick garden style complexes that some of them have been have been well kept and some of them haven't. And then we completely painted the exterior brick white. Well, it's not technically white, but you know, they look white, and by redoing by putting on 29 new roofs, new shutters, having all the extra doors, this Cougar blue So we've got recessed lighting, all the exteriors now match is three buildings. And two of them on one side, a straight one and one is another side. And it used to just be discombobulated. And now everything is uniform, it just looks really, really professional. It's really clean. The landscaping was great. It's really well lit. And it looks like a community that that URI would be proud to live in. And do
Atif Qadir 15:25
you find that all of those those elements that you're talking about the visual appearance? How does that translate to rent and retention of your customers of your renters?
Peter Brosens 15:34
Yeah, I mean, it's been that I can't speak to the actual numbers, as if we you know, because it'd be hard to compare it to if we didn't do because we always do it. But the retention is great, the feedbacks, great, the reviews have been really positive. And the rents are really strong, we're earning some two bedroom rents are around $2,600, which I think is a very, very strong rent for an eight foot garden style, complex and shadow. And I think we've got room to kind of continue to push fronts, and it's become a very coveted property to live in.
Atif Qadir 16:04
So I want to dig into that first iteration of stellar capital that you mentioned, which was single family homes, central to northern New Jersey, what went well, and perhaps more interestingly, what did not go well?
Peter Brosens 16:18
Yeah, I mean, what went? Well, that's a good question.
Atif Qadir 16:24
We're able to different way of saying, Okay, I got it,
Peter Brosens 16:26
I think we're doing was interesting, and ambitious. And we're able to attract a lot of talent. And so, you know, again, Kyle land, you know, came on as an intern is now a partner and a very, very close friend of mine. And so developed some strong relationships. And the overall investment went fine, just because we were kind of saved by a tailwind so to speak, because the whole premise was fall, you know, trying to really scale this business, following kind of waypoint homes, colony, amor securities, the timeline 1000s of homes, Blackstone, and it was never really done before. And it really no one was doing it in New Jersey. And we came across some really, really strong headwinds, and some really, really strong challenges. You know, one of the biggest challenges was just management, you know, we were spread out between the Monmouth County and Bergen County.
Peter Brosens 17:20
And just like anything else, without speaking ill of anybody, I think, if you're good at something, you typically gravitate towards, where the more money is, and bigger, right, so if you're a really good property manager, not the managing smaller homes, if you're really good at construction, you're only working on, you know, 70 $220,000 homes. And by the way, some gentle countries are very good at that stuff. But I think, from our perspective, we had three people at a time, where their background was strictly in, in finance. And in you know, as you mentioned, being an Excel monkey. And it was much less of micromate, you know, you need to be you really need to micromanage and have a strong, strong focus on management. And we just didn't, we know, we didn't, there's, you know, a big firm, you know, you buy a property, you hand it off, and things just happen, and you don't know how they happen, but things just happen. And that's not the case, that's not the case, at a small company.
Peter Brosens 18:23
And when things fall through the cracks, things really fall through the cracks. And we also were a little bit naive, you know, you mentioned I was 26, a little bit young to start something. And so, you know, we're a little naive, and, you know, one of our first ideas that we had was to kind of go into some of these rougher neighborhoods, and really try to distinguish ourselves from the rest of landlords by being incredibly tenant friendly, put some more money into these projects. And in return, they would, they would treat us really well. That didn't really happen. But again, it's hard enough to find really good talent to work on these homes without somebody watching you without really any oversight. And then it was even harder to find good talent to go into some of the rougher areas New Jersey to do this stuff.
Peter Brosens 19:09
Because, you know, our general economy, you know, they would constantly be assaulted, their tools would be stolen frequently. There'd be break ins from two, three times a week at our properties. You know, people would steal copper, and we have to go in and deal with police. And it was one problem after another. That just took up an enormous amount of my time, where we said, you know, we took a step back and said kind of, what are we really good at? What is our skill set kind of cater us or, you know, lead us to do it or you know, to some success, and it was larger multifamily assets and being more of an investment professional than a micromanager.
Atif Qadir 19:50
So, to give people a frame of reference, the counties that that Peter mentioned in terms like Monmouth County to Bergen County, New Jersey is a relatively small city. But that distance could be anywhere from one hour to maybe four hours depending on traffic. So the ability to be able to go across the Garden State is one thing that requires a lot of planning and preparation. That's why they they function as relatively different markets, the different parts of New Jersey. And you mentioned this idea of looking for houses into the rougher neighborhoods that made me think of when my family emigrated to the United States. The golden rule that my parents always had is they wanted to buy the worst house in the best neighborhood. That way, they didn't have to deal with any of that agita that you're just talking about.
Peter Brosens 20:36
Yeah, no, I mean, it's I mean, you're spot on. I mean, you know, I remember, you know, we talked briefly before this podcast, but one of my previous colleagues was held up at gunpoint, and they stole my car in New York. And by the way, I think Newark is a fantastic city. And there's a lot going for it, and I think doors will do quite well, in the next five to 10 years. But there are still parts of Newark, you know, maybe close to Irvington, or on the southwest side that that still can remain very rough. And this was at 1pm and was 70 degrees, and it was sunny outside. It's not like we were hanging out there at eight o'clock at night. But no, we took a step back and really focus on a larger value add multi, we developed a couple of larger buildings. One in particular in Morristown. That
Atif Qadir 21:21
to more sounds another large town city. Historic, nice downtown northern jersey, that's basically the idea, right?
Peter Brosens 21:29
That is the idea. I mean, it's about an hour west of Manhattan. That's about 15 minutes west of Chatham. You know, it's you know, people say it's Hoboken, West, it's the second people call.
Atif Qadir 21:41
People call Hoboken, Brooklyn West. Yeah.
Peter Brosens 21:44
It's got a fantastic, fantastic downtown, very vibrant. If you live in Chatham, or Madison, or any of those towns usually go into Morris town to eat, drink, socialize. There's also a lot of businesses that are in Morristown, and so it really a lot of the action circles around what's called the Morristown green. And our project is about 5060 yards from the green.
Atif Qadir 22:11
So that was one of the larger projects that you've done. And talk to us about some of the other developments that you've worked on over the past couple of years.
Peter Brosens 22:19
The other developers who've worked on a relatively small, you know, we've got one that we're trying to get off the ground and Chatham that we've got two partners on that are both fantastic partners, both vertical and carry. We had one in South Orange that we just couldn't get to work. We worked with a town for about five years, we were trying to develop student housing about three blocks from the downtown, and we're our main focus is value add large commercial properties. And Morristown was a very large property for us. I mean, Morristown, we've got 80,000 feet 54 luxury apartments over about 20,000 feet of commercial space, and took all the energy out of me to kind of continue to do random development deals in northern New Jersey.
Atif Qadir 23:01
So let me ask this. So you said to you five years to try to get through approval. So I'm a city planning commissioner in Hoboken, so I know exactly what you're talking about. But for listeners that don't what happens over five years to still get to a note, like what is happening?
Peter Brosens 23:17
Yeah, I mean, that's a great question. As you know, probably better than I do. You know, development is funny, because to a lot of folks, when they say, Oh, you're a real estate developer, they immediately think of the sexy renderings, these amazing construction projects you had before
Atif Qadir 23:33
Donald Trump, one of those three,
Peter Brosens 23:34
or Donald Trump, without getting into politics, and you being built, pull the strings and having all these guys work for you. And then you just make all this money. And it just couldn't be farther from the truth. I mean, at least in our experience, being in development, it's essentially like being in politics. So much of your time and effort is behind the scenes, working with city planners, city officials, getting your project approved. I mean, nothing in New Jersey, unlike New York City, nothing in New Jersey is as of right, even if you have the necessary zoning, you still have to go in front of the planning board, so they approve your design.
Atif Qadir 24:11
And what kind of I'll just add one thing is what makes this so complex is that there's 554 different municipalities in New Jersey, which is like the size of like this, that's how big it is. And each of them has their own planning commission, their own Zoning Commission, and their own city council or equivalent Town Council.
Peter Brosens 24:31
Know, you're absolutely right. And they've got their own agenda. And they've got developers that they like, for one reason or another. They've got some developers, they don't like foreigners and other and then they've got their own agenda besides putting developers and actually approving developments. I mean, they've got and they also run a town, which isn't easy. And, and so for that project, we ended up getting a 30 year pilot, which is, you know, a payment in lieu of taxes. So New Jersey, you know, the fiscal state of New Jersey. I don't want to do go into too much. But But But isn't the rosiest picture. And so, you know, people say that people can move and you're seeing a lot of movement to kind of some of these Sunbelt areas and some Belton and business convention surprise
Atif Qadir 25:13
this year that New Jersey didn't lose the congressional seat. Yeah, yeah. And
Peter Brosens 25:17
so, and businesses can also move as you kind of read the news, you know, these companies moving out of New York and California to tax from their states, but buildings can move. And so historically, when towns and states have gotten in trouble, you know, one of the first things they do is they look at property tax for large commercial assets. And they can go through what's called a Reval or revaluation process. And so a 30 year pilot, essentially locks our taxes in as a percentage of our effective gross revenue. And there's some step ups, but it starts at about 11, a quarter percent. And so very, very important, you know, for us, because taxes could double or even triple. And just so just knowing, having certainty, and what your cash flows look like, was worth going back and forth to the town over over this pilot for a substantial amount of time.
Peter Brosens 26:12
And also, you know, you are an architect, but they like to play architects and they are not. They like to play designer, and they are not designers. And they really have with every tweak of the design, and every tweak of the actual plan costs can greatly change one way or another. And they don't really care about your costs. And so they'll change things like they made us vent everything out to the roof. And we're as opposed to if your
Atif Qadir 26:42
exterior wall, right, that's the cheaper way, are they doing everything exterior
Peter Brosens 26:45
wall with, you know, either PTAC units or magic packs, but they had a spent everything out to the roof, that this is one change among many, that just going to continue to add to our costs. And our bottom line was
Atif Qadir 26:59
that because of noise or because of perceived quality of not having heating units on through the wall, like the visual
Peter Brosens 27:07
nope, pure visual, aesthetic, visual aesthetic, but you know, they didn't want to see it. And the bill is beautiful. And, you know, I think I would agree that buildings without the small numbers do look better. But I don't think it's that big of a change. And but it was just, you know, you've got to close or to be competitive, you got to close these properties, really Yes. And take on a lot of risk. And then you're kind of at the town's mercy, so to speak on, on how they end up getting designed. And for, you know, our investors, I think will do fine. But when you're working for, you know, when you when you're working on a project for five, six years, there's only so many fees and promo you can take before investors don't do well. So you're really you know, us as a business, really not making that much money. And if you factor in all the years, and all the time that we put into it.
Peter Brosens 28:01
And so a much more scalable model for us was buy existing,fix existing is that the universe innovations or through property management, or through extra renovations, and by Build wishes with fantastic institutional partners, and kind of continue to keep moving. And we started to look at growth markets. And what we found was when we looked at these growth markets, you know, we kind of took a step back and said, Are we the best sponsor to be buying these deals in, say, Tampa, Florida. And we really came to the President's that we're not. And so we said, Okay, how do we get exposure to these markets without actually buying these properties outright. And we started this preferred equity and mezzanine loan platform, where we kind of found this nuanced space, between four to 4 million to $50 million in the capital stack, or about 65% to 80 bars in the capital stack, where you can earn value at equity like returns by partnering with fantastic local sponsors, and not taking on nearly as much risk because you obviously got all the common equity in front of you.
Peter Brosens 29:13
And so that's really where this preferred equity mess platform, how it started, because we originally wanted to invest your own money there. And you know, we just didn't, it would be the equivalent of somebody from Florida investing in Chatham, where we own six properties. And, you know, we own you know, we know almost every seller and every owner, you know, we know the town pretty well, and I just don't know how well they be able to compete with us.
Atif Qadir 29:36
So you mentioned preferred equity and mezzanine capital stack. Could you explain what those terms mean in terms of the the financing of the deal?
Peter Brosens 29:45
Yeah, so when you buy a deal, a lot of the sponsors that we partner with that we've given preferred equity mez to will buy a deal with 65% debt, and 35% of their own equity. So just call it $100 million deal they get they go to the bank, they get a 60 $5 million loan from the bank. And they put in $35 million of their own equity. And a lot of sponsors either don't want to put in $35 million own equity and want to leverage that capital or they don't have it. And so we'll come in and say, you know, on top of the 65%, Senior loan, we'll give you an additional 15 to 20%. So we're gonna make additional 15 to $20 million. And obviously, a higher rate than the senior loan because it's a much riskier place in the capital stack. And they can put in the remainder. And as long as they abide by their business plan, and they abide by our agreement, it's essentially a second loan. I mean, to simplify things, it's essentially a second loan, where we can earn, you know, 10 to 12%, on our money in deals that I don't think have a lot of downside.
Atif Qadir 30:46
And you had mentioned growth markets like Tampa, could you talk about the metric, or the criteria that you use to determine the markets that you want to invest in through this platform? And what some of those like are just across the country?
Peter Brosens 31:03
Yeah, sure, I'll keep it very high level, but high level, we look at meds and ads. And we look at where people are moving. And we look at
Atif Qadir 31:12
that means hospitals and universities. So real estate has its own like lingo thing.
Peter Brosens 31:19
And I mean, hospitals and universities, they are economic engines, huge stabilizers in value, correct. And when the economy does really well, it does really poorly on these universities and hospitals, they still are a massive employment center. We also look at where people are moving. And we also look at kind of areas in which rents have quote, unquote, room to run. And so we really like parts of Florida, whether it's Tampa, Orlando, Jacksonville, we love the Carolinas, or the Research Triangle, and we love Columbus. But I think more important, at least for us than the location is who the actual sponsor is, on campus Nashville, so much when we underwrite a deal, we underwrite the sponsor, the sponsor, the sponsor, and then it's the actual deal itself, which will, one of the facets of the deal will include location. So much of real estate, I've come to understand is about relationships. And it's about trust. And
Peter Brosens 32:17
If you can find really good sponsors, I would much rather do a deal with a really good sponsor in an awful location then vice versa. It just makes doing business so much easier. You know, we've encountered people, especially the single family and small multifamily phase of our business, we've encountered some less than honest people, I would say, and it just makes doing business much, much more complicated. You're constantly looking over your shoulder, you're constantly wondering if you're getting mistreated. And if you can find really good honest sponsors, you've got to deal with things that you should have to deal with, which is the market, and which is actually the deal itself. And you shouldn't have to worry about any sponsor risks. And so that's really our focus. And we do incredibly heavy background checks. We do incredibly heavy reference checks, we'll meet with these sponsors, we'll fly down to these locations, multiple times we'll meet with our colleagues will have interviews, and we really, really get to know these people, and we become friends with them.
Peter Brosens 33:22
An ideal scenario, these investment opportunities come from existing relationships. And a lot of them have I we're doing a deal right now, with a former partner at a firm that I was at, I don't want to say the firm but the firm that one of the partners was at Sheridan, and he's been a friend of mine for 20 years. He's a fantastic guy, he's brilliant. And I would almost almost, I would almost give him money blind, because I trust him that much. The deal happens to be a really, really attractive deal in the Carolinas, but we really have a strong focus on people. And yeah, the sponsor,
Atif Qadir 33:59
I think what you're describing in terms of the sponsor being such a critical part of these types of repositioning deals is very similar to the way that early stage venture capital investing happens, since we just came through a $2 million seed financing round for redist my technology company, and as the conversations that we had, and similarly, you talked with 200 people to get 20 people to invest. That's just the way it works. Similar to real estate, but the conversations that will always be can with the sponsors, or the founders, the firm, that you've talked about the meat, potatoes, the business, and then to really close the deal and make it happen. It always comes back to the conversation about the sponsors. And are they the right ones to be doing this startup technology company? Or are they the right ones to be doing this repositioning of a huge asset next to Duke or UNC or anywhere else in the Caroline's
Peter Brosens 34:49
100%. And for you and for us to just like they're looking at you as a sponsor and doing background checks. I mean, their partnership is really simple. Word for you, because it's very good, really good partner, you know, we have a strong preference. And I know a lot of people don't a lot of people want a blank check, and they want their partners to just never call them. And we're, we're the opposite. And I think the opposite to where we really want active partners, which means people that we can kind of use as a sounding board, people that will help grow our business, people that will go out of their way to make introductions for us if we do right by them if we do well for them. Because that's, that's how we grow in the past. And their capital is usually a little bit more expensive. To me, it's the best trade off you can possibly make. And so I think valuating a sponsor, I mean, again, it kind of goes goes both ways.
Atif Qadir 35:47
Yeah, I think that's, that's a huge, that's probably the biggest piece of advice that I would have. To anyone that is getting started as a developer who is looking for this long term in terms of building relationships, whether you're talking about in the beginning, that conversation on Shadowman main, in terms of the renters, this idea of seeing the renters, not as annoyances, but as like the the lifeblood of your business, or treating them in an honest, direct way. In terms of your contractors, the people that are doing the work for you to make sure that your beautiful building is gonna be beautiful and functional, and everything else and treating them honestly. And then in terms of your investors, finding the right partners that treat you well, but also that you make sure that you treat them exceedingly well and provide them any information, anything that they need. And I think that might end up taking a longer path to get started. But I think that's a much stronger foundation to be on when the economy takes a swing in the wrong direction, as it did say last year.
Peter Brosens 36:46
Sure, who said it really well. And I completely agree with you.
Atif Qadir 36:49
So well. What do you see the next five years of your business?
Peter Brosens 36:55
Yeah, it's a great question. So I think we're going to continue to expand on our two businesses, which is investing in preferred equity, and mez and mezzanine loans, in growth markets across the country, with experienced sponsors, we are in the process right now we're about to start the next week or two, we're about to go out and try to raise, we raise a $10 million fund initially, through co invest capital, we've ended up investing a little bit over $20 million dollars. And we're targeting on a second raise somewhere on $50 million. And so next five years, you know, our hope is go from $50 million, to potentially 100 or $150 million, and kind of continue to grow those funds, as long as we can find continue to find attractive deals that provide really strong risk adjusted returns to our investors in those funds. And then the second business is to actually be the sponsor ourselves and to own and operate large institutional size, multifamily deals.
Peter Brosens 38:00
And what we did was a couple weeks ago, we entered into a partnership with a large family office, where they would backstop debt and equity so we could close cash, and we can close with certainty which sellers really appreciate. And the idea is to have Chatham on Main, which is, you know, total capitalization on $43 million. Have that be the first of many deals that we do in northern jersey. And I think the next five years, if we're successful in owning and operating kind of three, four assets, New Jersey, I would love to expand Stoller into other markets, whether that's parts of the Carolinas, whether it's Columbus, whether that's parts of Florida. And I think the only way for me to do that, because a JBG was JBG was hyper focused on being local. And so that always resonated with me,
Atif Qadir 38:50
you're moving into him, that's what's happening.
Peter Brosens 38:53
You know, I hope my wife doesn't listen to podcasts, I don't. But we'd hire somebody to kind of be our boots on the ground in Durham. And I would fly there once a week or once every other week, and try to expand and own and operate multifamily in those areas.
Atif Qadir 39:09
There is also this great contrarian idea is that Florida, Texas, Arizona, North Carolina, Georgia, everyone in their mom is looking for deals there. I feel there is this opportunity that can exist when everyone is running this way that you look this way. And even in expensive states that say, for example, you mentioned high taxes an issue with New Jersey, losing population that New York lost a congressional seat, and other northeastern states have lost congressional seats because of declining population. I still think that those present opportunities if you're able to find and move in and around the issues that exist there, and I think that's probably the another piece of advice that I'd have for someone getting started is when people are running this way, perhaps run this way and see what see what's there. And maybe there's something
Peter Brosens 39:59
new You're absolutely right. And Don't get me wrong. I think there's a lot of potential in northern New Jersey and there's a lot of potential in New York City. But I think you've got to be local because
Atif Qadir 40:09
That is the key.
Peter Brosens 40:10
Yeah, a lot of the risks and potential potholes are really only seen by people that are kind of living and breathing in the market themselves, which is why I don't want to be the foreigner, so to speak,
Atif Qadir 40:25
in the carpet here, I think that's expression.
Peter Brosens 40:28
And if we end up investing there, I want a strong presence there. Because I think being local is just such an advantage. And these markets are so competitive, that you need to be local, I think to be able to compete, at least we do at least that's our strong feeling.
Atif Qadir 40:42
Excellent. I think you have a incredibly bright future ahead of you in terms of balancing things in your backyard here with high growth opportunities elsewhere. Thanks for joining me today on American building. If you enjoyed this episode, and want to hear more, subscribe on your favorite listening app. And don't forget to rate and review and friends. I've teamed up with writers for the New York Times and well magazine, the launch a digital media platform to tell the fascinating stories of the impact developers and capital providers I work with at commonplace. Check it out at commonplace.us