Understanding Real Estate Markets: Capitalize on Down Commercial Real Estate Markets

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2:42What steps would you have them take to make sure that they are buying in the right area, and that that building will actually be a success and they won't go into debt by trying to acquire a property while the commercial real estate market is now? Well, I think they got to look at what the other uses are. So for example, in a office building market, vacancy rates at 10 % or below mean that's a healthy office market. There are very few markets in the country where that's the case. Miami is probably one of them. Miami Beach is the second one. I think there are very few like that. So then you look at what are, what's the apartment vacancy rates and the apartment vacancy rates, what are they running?

3:21And if they're running, you know, vacancy rates on the apartment side, that is, you know, maybe somewhere in the neighborhood of, you know, 5 % vacancies. And that's a healthy market. And in places like New York and D.C. and even Miami, to a degree, these vacancy rates are even less. So New York's vacancy rate is less than, you know, 2%. So that would mean it's very conducive to having new apartments. And then once you look at vacancy rates and you look at rental rates and if the rental rates, you know, can support the acquisition and the conversion of a new building, then it makes sense to do because you've got strong rental rates that are supported financially and vacancy rates are low, which are showing a significant demand.

4:09And same thing with hotels. I mean, you can look at converting office buildings in the hotels as well. And so but it's these conversions are not for inexperienced people. So they've got to make sure that they get a contractor that understands conversions, an architect that understands conversions. And then if they're going to do something to scale themselves as a group, then they want to hire a seasoned construction project manager that works for the owner or the investment group and who has experience in conversions as well. So to build the skyscraper in New York estimate, how much would that cost?

4:47About three billion dollars. OK, so how do you how do you go about securing financing for these large scale projects? Well, it's interesting. So the way you do this is you go to a group of banks, normal, you know, the traditional banks of J.P. Morgan Chase's, Bank of America's, you know, the Wells banks and so forth. And you go to those banks to get senior financing. And that's a senior loan. And normally you're going to borrow between 60 and 70 percent. So let's use just for simple math that, you know, you're going to borrow 70 percent. So 30 percent is going to be equity. And so 30 percent is nine hundred million dollars.

5:27So by Formation Tower. So then you're going to go to a large global institutional, you know, private equity fund. And you're going to go to maybe a couple of them. And they are going to put in somewhere between 80 percent or so of that, you know, not nine hundred million dollars. So that would mean that the developer, our team would have to put in 10%, which would be 90 million to 20, which is$180 million. And so our group would put that up. Most likely, we would bring in a institutional general partner. They would come in and they would put in half of that or a little more. And so the developers, you know, generally going to put in between 50 and 100 million dollars between our groups.

6:23So when you're approaching, obviously, Affirmation Tower is a huge project, but I know hospitality is something that you're well versed in as well. Last time we spoke with the UILU, you were talking about developing hospitality throughout maybe the Caribbean. What's the approach there? Because it's is it completely different when when you're trying to develop in that space? Not really. In fact, Affirmation Tower is going to be residential. We get to build it. It will be the Civil Rights Museum. And then it'll be two. It'll be residential rentals with affordable housing of 40 percent. then it will have two hotels um um you know both a boutique hotel and an ultra luxury hotel and then above that on the top floors it'll have uh luxury condos and then an observation deck on the roof so there's a big mixture of uses because the building's a very big building you know a few million square feet and so mixing up the uses it's like consider a building being like a neighborhood almost um building of that size is you know like a neighborhood you know so you're going to have a mixture of uses in that building and that you know helps drive the economics here if you're going to do a one-off hotel then there the process is different because the first thing you're going to need to do is determine who's going to operate the hotel who's going to brand who's going to operate it and i wouldn't recommend building a hotel of any type from either a three-star to a five-star hotel.

7:55I wouldn't do it without a brand. And then given that normally it's a real estate entrepreneur who is building it, then you want the brand to be able to manage the hotel too or to hire a third-party hotel manager that specializes in managing hotels. So you get a company that does that. And then after that, the exercise is pretty much the same as building a apartment building or an office building. The only difference is, is that you have to furnish the hotel. So you add another level of complexity because you're hiring an interior designer and, you know, a furniture purchasing agent and the like and the assembling of the furniture and the delivery of the furniture.

8:39And all of that has to meet the brand standards of your hotel brand and operator.

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