Mixed used developments offer unique benefits for their residents, as well as opportunities for investors. Focusing these types of developments in high growth markets poses even greater return potential.
On this episode, Lawrence Jatsek, Managing Partner at CRE Development Capital, joins to discuss mixed use developments.
Click the play button above to listen to the conversation.
- What makes mixed use properties so attractive from an investment standpoint.
- The story behind CRE Development Capital, and some of their notable projects.
- Which key differences investors should be aware of when considering multifamily exclusive versus mixed use properties.
- Lawrence’s thoughts on intriguing current trends in multifamily.
- Why sports stadiums, and their surrounding areas, are attractive from a real estate perspective.
- How living in a mixed use building can be an attractive lifestyle for many.
- What’s next for CRE Development Capital.
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Featured On This Episode
CRE Development Capital is a real estate development and investment firm focused on mixed use and multi-family development opportunities in the U.S., including opportunity zones. They have the experience that allows them to source A/A+ investment deals. This experience combined with their network allows them to assemble top local teams and talent to develop each deal/investment.
- Visit CRE Development Capital’s Website
- CRE Development Capital on LinkedIn
- CRE Development Capital on Twitter
- Lawrence Jatsek on LinkedIn
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses attractive offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello, and welcome to another episode of “The Multifamily Investor Podcast.” Scott with you once again. Another great show on tap for you today. We’re going to be talking multifamily, of course, and specifically mixed-use as well. And joining me on the show to offer his insights is Lawrence Jatsek, who is the managing partner at CRE Development Capital.
Lawrence, welcome to the show, and thanks for being here.
Lawrence: Great to be here, Scott. I’m really excited to provide some insights here and share my opinions on what’s happening in the multifamily world.
Scott: Absolutely, absolutely. Yeah. I’m excited to dive in here. So, to kick things off, CRE Development Capital, you have a wide range of property types in your portfolio. I wanted to start off, though, by dialing in on mixed-use properties. What makes mixed-use properties attractive, especially from an investment standpoint?
Lawrence: Well, you have more than one component, right, that you can derive revenue from. And, you know, like, for example, we have our mixed-use project in downtown Phoenix, Arizona, which is for-sale condos and a hotel along with some retail.
And so we have three specific areas or general areas if you want to call them that we can generate revenue from on top of parking and everything else that goes along with that. And, you know, as people come to visit the hotel, there’s parking revenues that are generated that way.
And that’s just specific to our project. When you get into a mixed-use project like we have a multifamily project in Las Vegas and that has a small retail component to it. And again, you know, these retail components, you can… Okay. I think of them as added amenities to the building within which people are living in. And, you know, you almost can kind of pick and choose what you want to have in these spaces and really enhance your amenities, right?
We can have a coffee shop in there, but the coffee shop is paying us revenues and those revenues go right to the bottom lines, and, obviously, benefit not only us, but our investors. And rather than just, you know, it’s us owning a coffee shop. We don’t want to own a coffee shop. You might have a yoga studio in there as well, you know, depending on how much retail space you have.
And then some of these mixed-use projects you may have some office components into it. And, you know, I’ve seen a lot of, you know, kind of the WeWork model where they have shared office space and it’s very convenient for people who are living in an apartment and, you know, they don’t want to have a home office. They can go right downstairs or, you know, floor X and they have a shared workspace.
So, that’s really attractive to create different revenue streams within one project.
Scott: Absolutely. And I love that you’re pointing out the office space aspect of it too because as we know, over the last few years, many people have gotten used to shorter and shorter commutes from the bedroom to the office or to the living room. And so, kind of, I would think that for a mixed-use property if you have those residential units and then you have, you know, some office space, well, it’s not that much of a stretch for someone who was thinking, “Oh, I kind of liked working from home,” right?
Lawrence: Right. Yeah, yeah. It definitely makes the commute easy and, you know, gets them out there. You may have to get out of your pajamas to go downstairs and work.
Scott: Right. You may have to put some pants on.
Lawrence: It’s something maybe a lot of us aren’t used to anymore. But yeah. So, it’s a… And it’s a great place to meet new people too. You never know who you’re going to meet in these areas. And you create some collaborations, potentially some lifelong relationships, maybe some business relationships that you find where there’s some commonality. So, you know, they are great areas that, you know, have off-the-cuff incubator sessions, you know, because they’re really fun to do.
And then on top of it off, you have some amenities, like I said, a coffee shop or a yoga studio or a gym or something, you know, that is part of the building and it just makes life a lot simpler in terms of people who want to walk and ride. I always tell my wife, “If we get to a spot where all I have to do is ride my scooter or my bike or walk and everything I want to do is within that distance, that would be a great life.”
Scott: Right. Right. I love it.
Scott: So, there’s a lot more that I want to cover today. But before going forward, could you share a bit about the story behind CRE Development Capital and really where you guys fit, especially in the multifamily world?
Lawrence: Yeah, that’s great. CRE came about… My business partner and I, we’ve known each other for roughly 28 years plus. And, you know, his strengths have been in the investment banking and finance world, particularly in real estate, public works projects, and whatnot.
And I’ve had a ton of practical hands-on experience in development, construction, and also finance. And so, you know, we’ve done a lot apart from each other and we’ve done a lot together. And, you know, when we were putting together some projects most recently some larger projects that we started to get into, we decided, you know, we need to form a company around this where we can raise capital and our funds, particularly with opportunity zone funds.
And so we created this company to raise capital, to manage our funds, and also as an advisory firm to some other projects that are out there that we’re not the principal developer on, but we will end up being a part of through this whole thing.
So, you know, it’s kind of, you know, three levels, right, where we’re raising money and funds, not only for our projects, but other projects. We’re locating capital for our projects, we’re locating financing for our projects as well as other projects.
So, you know, this is… We got a few verticals that were implemented into this. And then we have separate development companies outside of this that will actually develop our own projects and also participate in other developers’ projects. So, we’d love to JV with a few people as well. And we’re developing a lot of relationships along those lines.
So, CRE has been a great place to kind of put everything together, you know, kind of the point on everything, and then we branch it out from there. So, that’s… Yeah. Hopefully, that wasn’t too long-winded for you.
Scott: No, I think that’s great. And really, it’s so powerful how many, you know, different baskets you all have and what you’re doing with that. Kind of speaking of projects you were touching on a few a bit earlier. Are there any projects that you can speak to current or recent that you’re particularly excited about that you’d want to highlight?
Lawrence: Yeah. I mentioned earlier that we have a mixed-use project in downtown Phoenix, Arizona. And it’s a 25-story 700,000 square foot hotel-condo building much like you would see like a four seasons branded condominium project with hotel component to it and some retail. And so I’m not quite allowed to announce the flag on this yet, but it is…
Lawrence: …of a high caliber flag. And that announcement, and everybody should, you know, keep an eye out for that, but that announcement will be made sometime within the next 30 to 60 days. We’re very excited that we’re going to be one of the only, if not the only category six-plus in downtown Phoenix, Arizona. And we’re going to be located right across the street from where the Phoenix Suns play basketball.
About two blocks to the east is where the Diamondbacks play their baseball, and two blocks to the north is where one of the largest convention centers in the country is located. So, downtown Phoenix is growing up. It’s not just an area of parking lots and warehouses anymore. There’s apartment towers down there. There’s more apartment projects going up. And we’re going to be one of the only components down there that has, you know, actual ownership component to property down there.
Most of it is rental right now, and if not all of it. So, you know, downtown Phoenix is very excited about what we’re bringing to downtown. And there’s a lot of other great components about it. One thing that’s very exciting for us about this is that we’re using this project. It actually happened to end up being in an opportunity zone.
And it’s really how we started to get educated in opportunity zones and the components and, you know, what they’re all about. And so before opportunity zones for opportunity zones, one of the reasons we took this project on is because there’s a nonprofit that’s located on the property that we own right now. And that nonprofit has been there since I believe 1967 and it is called the Opportunities Industrialization Center of Arizona, OIC AZ for short.
And what they’ve been doing is educating people in the hospitality industry, the construction industry, and some of the other blue-collar areas that, you know, provide jobs in Phoenix, Arizona.
Their whole motto is to help others to be able to help themselves. And they’ve run 65,000 people through their program up to date. And one of the reasons they came to us and particularly, my business partner, they were looking for ways to, you know, boost their fundraising so that they can continue to operate seamlessly because, you know, it was kind of getting a little tired and they were having trouble raising capital.
And so, you know, my partner said, “Hey, let’s develop your property.” And they said, “You can do that?” And then we said, “Yes, of course.” And so the idea was we would develop this property and put a hotel on it and put a building there where they could employ people. And so that component… And this is… Again, remind you, this is before opportunity zones. And so the whole idea behind opportunity zones was to lift an area, create jobs, permanent jobs, even temporary jobs.
There’s going to be a couple of hundred construction jobs during the construction of this thing, but once it’s up and running, there’s going to be a plethora of permanent jobs. And so the other component of this is that we’re developing what we’re calling the Arizona Hospitality Academy that will be front and center and proprietary to the Arizona OIC. And they’re going to use that as the boost to their schooling and their educational processes to educate people in the hospitality industry.
And they’ll be providing that basically to every hotel and restaurant in all of Phoenix, if not all of Arizona. So, that’s what makes this project incredibly special for us.
Scott: That’s so powerful. And there’s this phrase, I know one of my colleagues, Ashley Tyson, has thrown it around, “Do well and do good.” And I think that is such a great example of how that can really work what you kind of illustrated there and why that’s so exciting.
I want to shift gears a little bit back to just multifamily specifically and when we’re talking about mixed-use as well. When you are evaluating a mixed-use property with a residential component such as multifamily versus a pure multifamily property, I guess, what are some of the factors, Lawrence, that you keep in mind?
What are some of the maybe key differences from an investment standpoint, if you could kind of tease some of those out?
Lawrence: Well, that’s a good question. It really comes down to everything that’s in the area, right? What’s currently happening? What’s the supply like for, you know, shared office space? What’s the supply like for a retail space? What’s the demand? Are people moving to the area?
Are they… Is the area in, you know, a stagnation phase of growth or are people actually leaving the area? And, you know, how long have these trends been happening? COVID accelerated so much of this in every direction, right? You look at the upper northeast and upper midwest and people started leaving there faster.
And even the West Coast, people started leaving way faster than they were pre-COVID. And so where were they going to? And then we see these massive spikes in growth in all these other areas. And so you can almost just throw a dart and start making money in areas that are growing double-digit growth, right?
And so some of the areas, for example, you know, we’re vetting a project in Baltimore right now. And, you know, so what’s Baltimore like? Well, you know, people are moving… They don’t have a net growth in Maryland or Pennsylvania or Ohio, you know, to name a few. And so that provides a little bit more of a challenge when you’re vetting these kinds of projects, particularly, you know, who’s going to fill them?
Who’s going to fill the retail component? Who’s going to…
Scott: Right. Where’s that growth going to come? Yeah.
Lawrence: Exactly. So, you really have to pay attention to that. And then, you know, look at market saturation. Kind of what I was saying before. What’s the supply like? What’s the demand like? And is the market going to get saturated?
There’s a lot of forces ahead of us and challenges with all the supply chains, cost of construction. What’s that look like? And again, can the area support it? Because growth has to continue to grow to support growing costs. And if those growth aren’t going to be as rapid or even be existing and everything else is continuing to cost more, then, you know, that becomes a real concern.
Scott: Right. Then the numbers start not making as much sense.
Lawrence: That’s right. Yeah. And I have a feeling there’s going to be a few projects that will be shelved for a while until costs come back down. So, you know, our whole thing is we want to target areas that are, you know, net migration in, growth in, you know, pro-business, you know, because at least you have a chance to get something out of it and you’re going to fill your spaces.
Scott: When you look across the multifamily landscape, what kind of, I guess, current trends are you seeing that are of interest to you?
Lawrence: You know, it’s… One of the things that came up, I’ve been having a lot of discussions around, you know, micro-units in the multifamily space. And a lot of these micro-units are coming from conversions, right, conversions of old hotels, conversions of office buildings, and historic towers.
And, you know, we’ve been looking at a number of these, particularly over the last couple of years, but, you know, recently a quite a few have come across our desk to take a look at and consider. And, you know, I don’t know if the jury is still out on the micro-unit thing because, you know, I can’t imagine myself living in a 275 square foot space or a 325 square foot space on a continual basis, but maybe… But there’s such a need for housing that, you know, it’s really become a big component of, you know, affordable housing, you know, low-income housing, and, you know, these conversions, you can actually get more out of them because you have an existing building that you’re just remodeling or building from the ground up.
And so, you know, hence the opportunity to have more reasonable rents in those. So, that’s an interesting spot that I just really, personally, I haven’t gotten my arms around. How long are people going to stay in a 275-square-foot space? How much turnover are you going to have?
What are the challenges of re-leasing that space? And, again, where is it located? Is it an area where people actually are coming into or not? So, you still have to fill the space. And supply and demand is still the same whether it’s luxury, class A, class B. It doesn’t matter.
I mean, you still have to look at the same metrics and decide if it’s going to be a worthwhile project, and that’s not…
Scott: Yeah, that’s so interesting. And, you know, sort of the backdrop of just the ongoing housing shortage and the absolute demand we’ve seen across the country and in so many different regions. And so it’s interesting to think about how that might fit in, and then there’s that piece of maybe trends and if renters are happy and comfortable with that style, that lifestyle, then maybe it works, right?
Lawrence: Mm-hmm. Yeah. Yeah. But yeah. Again, you know, rents are going up everywhere. How are we reading the headlines? Rents are going up everywhere, costs are going up everywhere, and all of a sudden, you know, you have to build smaller units for the same cost you were building the bigger units for because that’s what pencils…
And so everything starts to get squeezed and, you know, including the size of the units. And so it’d be interesting to see in the long run, you know, how that sector performs. But, you know, so far it’s been great from everything that we’ve been seeing. So, you know, again, that’s one area that definitely is of interest to me to keep an eye on.
Scott: Absolutely. Okay. I know we’re winding down our discussion here, but I was browsing through your portfolio and I couldn’t help but notice that there were several sports stadiums. And as a sports fan myself, I was really eager to learn more. So, can you speak to, I guess, just a few of them and sort of what’s so attractive about sports stadiums from an investment standpoint because I just think that’s so unique?
Lawrence: Well, the expert on that is my business partner. He was an investment banker and particularly put together a lot of real estate deals or financing deals for these professional sports arenas and stadiums across the country. And, you know, it’s really exciting to have that in the portfolio, right?
And it’s interesting because of that background, you know, we’ve been getting a lot of deals thrown to us for sports arenas, non-professional sports arenas, but also, you know, we’ve had a few conversations about some of the new sports arenas that are in consideration in different cities that are either going to try and attract professional sports teams or they’re going to redo their stadiums or, you know, whatever.
So, yeah, he’s the expert on that. But, you know, the thing I think about with these stadiums, you know, if you know a new stadium is going up into an area, you know what’s going to happen around it. That sports stadium is going to create an incredible opportunity for people to go to that area, right?
And, you know, there could be nothing around that stadium, but all of a sudden all the land becomes more valuable. And so from an investor’s standpoint, you know, if you’re not a big institutional investor investing into the stadium directly, you know, the retail investor or the high net worth investor or developers, you know, they can cherry-pick all around the areas of where these stadiums are going to go.
It’s like we hear about Oracle building a new campus in Nashville. We hear, you know, a new campus in Texas. Apple is building a campus in North Carolina. All these places where these big companies are going to be bringing in thousands of people, it creates an opportunity to build new retail, new living quarters, you know, within walking distance of these venues.
So, you know, from an investor standpoint, that’s where I’d be looking at. That would be the best investments right there just, you know, catching onto the coattails of a big infrastructure investment.
Scott: Absolutely. As you were going through that, even if they’re not even new, I think the revitalization of some of these stadiums are… I’m in Chicago here. And as Wrigley, you know, upgraded and then next thing, you know, all around it some hotels went up and there was just so much development and growth and now it’s a very different area than it was even just a few years ago.
So, I think that’s a great example of all the opportunity that sports stadiums can create whether they’re new or being improved or what have you, right?
Lawrence: That’s exactly right. I mean, I’m from Cleveland originally. And I remember when what they called Jacobs Field was being developed and, you know, it was like the greatest thing in downtown Cleveland at the time, but it spurred so much wonderful growth and regrowth and revitalization in so many areas. And you look at where, you know, the Tampa Bay Lightning Stadium is and what it did for that downtown and, you know, you’re absolutely right, it just…
It’s like a catalyst to kick off regentrification of areas.
Scott: Absolutely. Lawrence, thank you so much for joining me on the show today offering your insights. Where can our listeners go to learn more about CRE Development Capital, the things you all have going on, and really connect?
Lawrence: Yeah. You can always send us on email at [email protected] You can visit our website at, you know, credevelopmentcapital.com as well. And, you know, reach out and we’re happy to answer some questions. If you’re considering investments, you know, we’re happy to share those with you as well. We’ve got a lot going on, not just what’s on our website, but, you know, we’re always betting a lot of deals.
And so stay tuned for some more exciting things to come out. We’ll be presenting those as we get through our due diligence on those, but happy to meet with people as they would like.
Scott: Fantastic. It’s going to be exciting to see what you guys all do next. Thanks again, Lawrence.
Lawrence: You got it, Scott. Great to be here. Thank you.