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Featuring Gerry Guterman
The real estate market cycle appears to have come full circle again. This is one of those moments in which many will go broke, while others achieve substantial leaps in their wealth and incomes. It’s all about knowing how to take advantage of the market and the negligent moves of others.
While there are plenty of real estate investors still blindly and bullishly thrashing away in the market, and many uneasily eyeing where things are headed from the sidelines, the truly experienced are stepping in with predictable investment strategies. They see the same careless blunders being made by many of the same characters. They know where the market is going. They see the big opportunities to buy smart and convert assets into cash.
Where We Are in the Real Estate Cycle Now
It’s not rocket science. It’s no longer a closely guarded secret that only a few have the data on. All real estate professionals really need to do is look back at what was happening in 2005 to 2010. Then compare that to what’s happening around them today. You’ll see the same glaring mistakes.
Interest rates are going up, lending is tightening, oversupply is becoming an epidemic and too many people are paying too much for units that aren’t really a good fit for the market.
There are really only one of three choices to make in this phase of the market:
- Keep blindly investing and hold on as the sinking ships go down
- Do nothing and miss out on the best asset prices
- Replicate the successes of the biggest winners in similar historical cycles
Gerald (Gerry) Guterman and his firm sold out all of their real estate assets in 2006. They did it again in 2016. Since 1978 they’ve delivered 58.3% returns to their investors. Now Guterman Partners is in acquisition mode again.
Experience is Everything
Guterman Partners has managed almost 100M rentable square feet of real estate since 1969.
Among the buildings and locations they’ve been involved in that you may recognize are:
- Galt Towers, Fort Lauderdale
- Gramercy House, New York
- Sutton Tower, New York
- Ibis Club Apartment, Naples
- Memorial Building, Houston
- The Stanhope, New York
Gerry who is Senior Principal Partner and Chief Investment Officer at Guterman Partners has what is probably one of the strongest resumes in the business when it comes to being a sought out industry expert as well.
This includes being a guest lecturer at Cornell University. Being the founding benefactor of several charitable organizations and medical research facilities. Plus trusteeships and directorships with the Metropolitan Museum of Art in New York, New York City Opera and Dallas Opera, as well as The Rent Stabilization Association of New York.
On an international level Gerry has been Chairman of the Committee on Banking and Finance at the United States Center for Strategic and International Studies in Washington, DC. He has been an advisor to the governments of Romania and Austria.
So, if anyone has the depth and breadth of experience to really understand what’s going on in the market, and the track record of knowing how to manage real estate assets during these times, Gerry is definitely up there at the top of the list. We were hugely blessed with the opportunity to catch up with him for an exclusive interview and his take on what’s happening now.
Once Again, Generational Real Estate Opportunities
Gerry recently published the latest of his white papers covering the state of the market, and where he sees the opportunities now.
Among the current challenges he tackles in his report are:
- The increasing number of rental to condo conversions
- Reducing value of condominium units
- Cash flow problems due to rising costs and rates
- Difficulty in refinance for developers
- Over-leverage by builders
- Lack of product to market fit
- Reluctance of lenders to provide more debt
- Oversupply of luxury condo units
What this all leads to is that many of these developers are sitting on a huge amount of inventory. Inventory on which they can’t really reduce retail prices on themselves. While they are facing more cash flow crunches and challenges in restructuring debt. In some cases individual developers in NYC are sitting on 1,000 or more unsold units. They need out.
It’s a repeat of 2004 to 2008 all over again.
Though when the same problems show up, the same opportunities for creating great cash and leaps in wealth arise too.
Strategies for Taking Advantage of the Current Market
Gerry told us his firm currently sees opportunities in:
- Medical offices
- Retail strip plazas
- Family sized apartments
This is of course restricted to certain states and markets. Most notably outside of some of those facing some of the most fierce political and regulatory uncertainty at the moment.
Among Gerry’s favorite strategies in this phase of the market is bulk buying of condo units. For example, 80 or so units at a time. Those units are converted or resold. Typically within 19 months.
3 Big Differentiators
Three things that Gerry tells us have really helped the firm continue to excel include:
- Making your money on the day you buy
- Focus on demographics and market fit
- Focus on the wife as the decision maker
Gerry says you don’t make a dollar on the day you sell. It’s all about what you are buying at. Guterman Partners targets prices of 45 to 55 cents on the dollar. That gives them plenty of room to absorb market fluctuations and to move units fast at a discount from the original list price, while still enjoying hefty profit margins.
However, not any product will do. It has to be desirable to the consumer. He says many speculators, converters and developers have had no interest in doing any homework on what consumers really want. They may put up stylish buildings. Yet, there aren’t many families who are really trying to move into micro-apartments in some of the better neighborhoods of Manhattan. He adds that you also have to consider who the real decision maker will be and what is most important for them. That often includes size of the unit and security features.
Guterman Partners is now raising capital for its 47th year. The current fund is a 506c offering for accredited investors, which pays out a cumulative preferred return of 7% to 12% and 50/50 split of profits.
Find out more about the new fund, the firm’s track record and Gerry’s white papers on the outrageous pricing of real estate, the tricks funds are using to try to get investors to accept lower returns, and the rules to successfully investing in real estate at GutermanPartners.com.
