Aaron Jungreis, Founder and CEO of Rosewood Realty Group, joined us for an interview. We discussed the firm’s national expansion, New York’s 2019 rent laws, and why he’s so bullish on the multi-family sector.
Daily Beat: How have the 2019 rent laws influenced Rosewood’s strategy?
Aaron Jungreis: The rent laws were a blessing in disguise. It forced me to start selling other types of properties and expand multi-family deals to other states. The geographic constraints are no longer a barrier, especially with remote working, improved data, and technology. The amount of information and research available now is incredible.
I have some buyers who acquire properties they never visited. They’ll have one of their acquisitions guys or a trusted advisor go see it.
The severely unconstitutional legislator has led investors to bring their businesses elsewhere. Most investors are still physically in New York, but the exit capital has to be in the multiple billions.
Many New York investors are taking their capital gains and spending it in Texas and in Florida. That helps those economies by creating more jobs and hurts us here. I think it’s very misguided. The local politicians don’t realize what New York is all about.
Daily Beat: When it comes to New York, you’ve historically done a lot of off market deals. How has this translated to other states? Are buyers putting down hard contracts?
Aaron Jungreis: The off market process is definitely taking hold in these states. There are also many deals being done with hard money. Sellers are really attracted to an efficient and swift, four-week process. Other firms take three months planning the market strategy, three months marketing, and then three months signing.
Sellers love the fact that I’ll have a signed hard contract in three weeks. I think it’s the biggest reason why we’re selling so much property out of town. We’re offering them an off market process where they get the same price that they think they’re going to get anyway, but we just do it quietly. The tenants don’t have to know that it’s for sale.
We don’t need more than one or two showings to get a deal done. Our group does a very targeted marketing process. There will always be sellers who want to see a full process with 10,000 emails, 500 Confi’s signed, 40 inspections and 22 offers, but off-market deals are really taking hold in other markets too.
Daily Beat: In an ascending market – especially what we’re seeing nationally on the multi-family side – the off-market approach works very well because people don’t realize how much their properties are worth. What are you seeing in the New York rent-stabilized market?
Aaron Jungreis: In New York, we’re definitely seeing an uptick in activity, but buyers are concerned with potential good cause eviction legislation and looming interest rate hikes. Rent stabilized rents are essentially frozen. The 1% to 2% increase from the Rent Guidelines Board (RGB) will get canceled out with increased expenses. As rates go up, you can lose money on the stabilized assets.
On the free market side, properties are trading at low cap rates because everyone sees rents flying up, which allows them to be more aggressive on the pricing.
Daily Beat: Investors are buying rent-stabilized deals for cashflow now, so there’s this interesting dynamic where you have free-market deals in Florida and Texas trading at sub three caps and then regulated deals in New York trading closer to five gaps.
Aaron Jungreis: Yes. Buyers tend to feel more comfortable when they can use their entrepreneurial creativity to increase rents. The rent stabilized market shut that element down, but you still have the panache of Manhattan and the boroughs. New York is still a vibrant culture in a great city, but the rent laws have made buyers more skittish about the market.
We see some of our clients buy a couple of the stabilized deals or then buy free-market opportunities out of town. Our team has been very busy in Texas, Georgia, and the Carolinas. We’ve also done deals in Kentucky, Indiana, Ohio, and Arkansas this year.
On the flip side, the New York market presents a real opportunity because local buyers are focused elsewhere. There are a lot of new, young players who are buying and adjusting to the reality of this market and are very creative.
Daily Beat: To your point, there’s not much creativity you could really employ.
Aaron Jungreis: You could still do the “Frankenstein” and combine two vacant units, but that’s likely to be deemed illegal too. Other buyers are focused on doing upscale renovations of the free market units, replacing the retail tenants, and generating antenna rent, but this is spitballs against the battleship when you think about it. Some people are hoping that the RGB gives you a 2.5% to 3% increase in June, but the current environment definitely removes the more creative buyer from the market.
Daily Beat: The value add piece has been removed.
Aaron Jungreis: These same deals that used to attract 40 to 50 buyers are now only seeing seven or eight people vying for it. The feeding frenzy and velocity no longer exists.
Daily Beat: Outside of New York, do you think rental growth rates can keep up with looming rate hikes?
Aaron Jungreis: Everyone wants to be in red states and the sunbelt. Clients tell me “Red or Sunny.” The reality is that you can’t only buy in the red states, so we’re seeing people buy in Pennsylvania and Connecticut. It’s important to note that I’m just in the middle and am selling merchandise, so wherever people want to buy, I’ll try to find it for them.
Daily Beat: Are you doing any SFR deals or build-to-rent?
Aaron Jungreis: Yes, we’re starting to get involved in build-to-rent, as we are selling a handful of development sites in Florida. We’ve been more focused on industrial though.
We’re also getting close to a few deals in Arizona, but it’s harder as you go further west because of the travel, which is impossible to do in one day if you want to visit the property. Florida and the Carolinas are so easy.
Daily Beat: Have you seen the success or lack thereof of cold calling change in recent years?
Aaron Jungreis: No. It’s still very successful because a lot of people like that personal touch. I find that owners want to pick up when it’s someone in their field and especially when we could be offering them a deal.
I always tell my brokers that as long as when you call someone, you’re not just trying to persuade them to sell a property, it’s very effective. Offering them a property for sale is a very effective good strategy. There are definitely a lot of cold calls that go on unreturned, but when you’ve done the research and know the market rents, cap rates, and recent sales, property owners really like it.
Daily Beat: Suddenly, the call is not so cold.
Aaron Jungreis: Exactly. I just did that with a seller on a deal I brokered in Florida. The neighboring owner was very surprised at the price we were able to achieve and we then sold his too.
Daily Beat: What’s the best way for a broker to advertise? Traditional advertising doesn’t seem to help individual agents too much.
Aaron Jungreis: Closing deals is the best form of advertising. When it gets done, the buyer and seller are going to talk about you to everyone. Both attorneys will spread the word if you do a good job. There are many influential people who witnessed your talents as a broker. To me, that’s what breeds the next deals. Referrals on the referrals.
Daily Beat: If you were investing in any sector or market, where would you be putting your money?
Aaron Jungreis: Multi-family. Even in an overpriced market, there’s always a deal. Rents will continue to increase. The home is the last place of refuge. From ordering online to working, you can do everything from your house.
Out of your home, there’s no other place where you can have all those basic human needs fulfilled. Multi-family is always going to be the best investment long term. I obviously like industrial and self storage too, but multi-family is best.
Daily Beat: If you had to own one REIT for the next 10 years, which one would you be most inclined to pick?
Aaron Jungreis: Anything Blackstone.
Daily Beat: What are you watching these days?
Aaron Jungreis: Cobra Kai.
Daily Beat: Thanks for joining us.
Aaron Jungreis: I love the publication. Keep up the great work.
*The interview has been edited and condensed for clarity.