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Daren Hornig on Investing in the NY Real Estate Market (Audio) · Bloomberg Intelligence

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  Speaker 1: Taking Stock with Pim Box and Kathleen Hayes on Bloombird Radio.
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  Speaker 1: Taking Stock Today, we're broadcasting live from the midtown Manhattan
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  Speaker 1: offices the Eisner Amper. They're getting ready to their and
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  Speaker 1: a real estate private equity summit this Wednesday. The peers
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  Speaker 1: sixty down at Chelsea Piers. But we're not waiting to
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  Speaker 1: start this conversation because it's so big and important. We've
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  Speaker 1: got to start today, and that's why we're happy to
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  Speaker 1: welcome to the show Darren Horneck. He's managing partner at
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  Speaker 1: Horneck Capital here in New York City, to talk in
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  Speaker 1: particular about the New York commercial real estate market and
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  Speaker 1: more broadly about what he sees as the factors driving it. Now,
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  Speaker 1: welcome Darren. Thank you. You've been in real estate it
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  Speaker 1: for twenty five years. I just have to ask you
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  Speaker 1: what you've got got into the business. Well, got me
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  Speaker 1: into the business was my father sitting me down and
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  Speaker 1: telling me how to sell something big. And he pointed
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  Speaker 1: to the sky and said, go sell air plans, Go
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  Speaker 1: sell buildings, and I thought New York City was the
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  Speaker 1: right place to start selling buildings, so I quickly jumped
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  Speaker 1: into the brokerage business and got my start that way.
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  Speaker 1: Let's talk about some buildings and trying to get the
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  Speaker 1: right tenants for the right buildings, because I was noting
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  Speaker 1: that you do a lot of work in Queens for
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  Speaker 1: example of Borough of Queens in New York, and a
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  Speaker 1: lot of these follow a kind of a program where
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  Speaker 1: you've got big loft spaces or old warehouses and then
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  Speaker 1: you've got that whole transition period. Speak about that process
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  Speaker 1: and maybe give a couple examples about how you know
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  Speaker 1: a tenant might want to move in, but the developers saying, yeah,
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  Speaker 1: you don't necessarily fit the criteria. You're not going to
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  Speaker 1: be someone I want watching looking at a crushed bus
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  Speaker 1: sculpture in the in the lobby when you come to
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  Speaker 1: work every day. R. So the market is definitely an
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  Speaker 1: interesting and dynamic market these days. UM, A lot of
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  Speaker 1: the trend is following where the tenants want to go. UM,
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  Speaker 1: that's something I'm very keen on. I used to have
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  Speaker 1: a big technology business years back, and I had over
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  Speaker 1: two hundred feet around the country, so when I looked
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  Speaker 1: at space, I looked at it from the consumer standpoint,
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  Speaker 1: and I have that ability now that when I go
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  Speaker 1: look at office buildings, you know, mostly around the region.
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  Speaker 1: I tried to think of myself as that tenant and consumer.
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  Speaker 1: What they want is nothing new. They want the old school,
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  Speaker 1: they want the cool stuff. They want my ceilings, wood floors,
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  Speaker 1: They like a lot of concrete, you know, a lot
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  Speaker 1: of the retro feel is what people are looking for.
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  Speaker 1: And I've been lucky enough to buy three buildings in
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  Speaker 1: the last two years and they really fit that match.
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  Speaker 1: We bought Evergreen, which is the old Schlitz brewery UM
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  Speaker 1: in the middle of Bushwick, UH. It's the biggest building
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  Speaker 1: in the neighborhood, about a hundred seventy thousand square feet.
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  Speaker 1: I bought it with my on our Savannah, who is
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  Speaker 1: a large private equity firm, and we went in there
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  Speaker 1: with the mindset of how can we make this a
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  Speaker 1: cool building. UM and has fifteen foot floor to ceiling
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  Speaker 1: um floors, windows throughout, and the coolest floors where they
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  Speaker 1: did the beer production back in the day. They have
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  Speaker 1: thirty foot high ceilings where the executives oversaw the vet
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  Speaker 1: production of the beer. So we took that building and
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  Speaker 1: we bought it for about thirty three million dollars, invested
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  Speaker 1: in another thirty million, and we're catering towards the high
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  Speaker 1: tech community. Who wants this cool vibe? Just have to
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  Speaker 1: ask you dropped that one on the Little Bomb Show.
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  Speaker 1: You had a technology company along the way. What was this? Um?
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  Speaker 1: It was cold onset access. We used to wire office
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  Speaker 1: buildings with a fiber optic infrastructure and sell broadband communications
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  Speaker 1: to the tenants. Okay, you're you're getting fingers a lot
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  Speaker 1: of pies. So financing obviously very important to you. What
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  Speaker 1: is what is the what is the environment right now?
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  Speaker 1: What is it like? Is money? Is it money just
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  Speaker 1: flowing out at you you're crazy not to do deals?
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  Speaker 1: Or is it tightened up at all? It's definitely tightened up,
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  Speaker 1: and the market has become a lot more challenged. Um,
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  Speaker 1: there's a lot of equity out there. So there's tons
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  Speaker 1: of private equity out there. Um, there's sovereign wealth funds,
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  Speaker 1: there's money out there that wants to be put to work.
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  Speaker 1: All right, All these private equity firms raise their money
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  Speaker 1: and they need to put it to work. The challenges
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  Speaker 1: finding deals that underwrite to the levels that you want
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  Speaker 1: to invest in, so you know, rule of thumb, you
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  Speaker 1: want to be somewhere in a fifteen to twenty I
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  Speaker 1: R R range. Those deals are not easy to underwrite
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  Speaker 1: today based on the pricing level out there, and debt
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  Speaker 1: is becoming more and more challenging from a transitional standpoint
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  Speaker 1: and from a ground up standpoint. So while the market
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  Speaker 1: is hot still and pricing hasn't come and falling down,
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  Speaker 1: it's still challenging to find transactions that you could underwrite
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  Speaker 1: and really make sense of. You said, what three buildings
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  Speaker 1: in two years, so that you've been able to acquire,
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  Speaker 1: But we we did ten deals in the last three
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  Speaker 1: years since I started the company on my own, but
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  Speaker 1: particularly to the point of office. We've got three office buildings,
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  Speaker 1: one in Bushwick Um, one we just bought recently with Brickman,
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  Speaker 1: not a private equity firm, in a Ridgewood Um, and
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  Speaker 1: another one in the South Bronx in mont Haven Third Avenue.
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  Speaker 1: I was gonna say, if if a private equity investor
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  Speaker 1: is thinking about getting into real estate and to do
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  Speaker 1: these kinds of deals with you, what do you recommend
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  Speaker 1: they do to prepare themselves so that they understand the
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  Speaker 1: important parts of a deal. Um. The private equity firms
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  Speaker 1: that I mostly work with our real estate specific private
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  Speaker 1: equity firms, so they're very smart, very capable, professional people.
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  Speaker 1: They understand the macro side of the real estate investment
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  Speaker 1: and they look to me in a lot of cases
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  Speaker 1: for my general expertise. So I'm an operating partner general
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  Speaker 1: partner in most capacities, and I'll bring them up the
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  Speaker 1: speed and discuss the business plan. Is the person of
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  Speaker 1: real estate market cooling? Often can the FED stop worrying
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  Speaker 1: about bubbles? Um. I don't like the word bubbles because
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  Speaker 1: when you say bubbles that you just assume it's gonna
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  Speaker 1: burst at some point in time. Um. What we're seeing
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  Speaker 1: now is just a very very long cycle. UM. And
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  Speaker 1: things are definitely cooling down based on the rate of transactions.
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  Speaker 1: So two thousand fourteen two thousft were unbelievable years. Two
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  Speaker 1: thousand sixteen is gonna probably be off by about Thank
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  Speaker 1: you very much. Darren Hornick, he is managing partner Hornig Capital,
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  Speaker 1: joining us here at Eisner Amper. They are put in
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  Speaker 1: their fourth annual real Estate Private Equity Summit to take
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