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Ground-Up Multifamily Construction With Michael Zaransky

November 2, 2022

chrisseveney

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CWS 224 | Multifamily Construction   Ground-up multifamily construction is not just something anyone going into real estate can do. You need to find the land or market, build the right team, raise equity, and build community. It’s a lot of work if you want to build something from the ground up. Join Chris Seveney as he talks to ground-up construction expert and Founder and Managing Principal of MZ Capital PartnersMichael Zaransky. Learn how to find the right markets so you can get passed negative leveraged deals. Find out why you can’t go cheap on your architects. Discover how to find great land opportunities. And understand how to build a great multifamily community where people can go in and never want to leave.

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Ground-Up Multifamily Construction With Michael Zaransky

I do have a special guest. I have Michael Zaransky from MZ Capital Partners. Michael specializes in ground-up construction and has spent decades in multifamily housing. He is also an author, has written many books, and is a part of many industry trade associations, including the National Apartment Association, the National Multifamily Housing Council, and ULI. In this episode, we will be talking about some pivots that Michael did from competitive bidding on existing multifamily into ground-up construction, which many people know that’s where I cut my teeth. We’ll talk about raising equity for real estate deals and doing good while doing well, the whole giving back to the community, and other features. Michael, how are you? I’m wonderful. Thank you for having me. I look forward to speaking. Let’s roll right into things and let’s talk about where you are and then we’ll work backward to how you got there. What is your primary focus at MZ Capital? Our primary focus is ground-up new construction development of apartment buildings and multifamily communities focused on suburban garden-style construction, lumber stick-built products with surface parking lots in high-growth suburban areas where we believe there’s a shortage of available housing and an imbalance between supply and demand, based upon high levels of occupancy and rent growth that we track. What are a few areas right now where you’ve got projects going on across the country? We have a project in a Suburb of Knoxville and Oak Ridge, Tennessee, which is a very stable and rapidly growing area, as well as in Illinois, which is our home state, in Lake County Illinois, a city called Mundelein, as well as Buffalo Grove, Illinois in various stages of construction and planning. For people who are newer readers, ground-up is where I cut my teeth for 25-plus years. I was more on the high-rise construction component versus the garden style. I’ve done some garden-style projects. By the end of this episode, I’ll probably be chomping at the bit again to get back into construction. One of the questions I had is prior to that you were looking at the acquisition of multifamily property, correct? Yes, for many years, I built a nice portfolio of both student housing assets, existing ones on seven major college campuses, as well as buying the type of product we’re building, suburban garden-style communities in the Houston, Texas area, Tennessee, and throughout Illinois. We made lots of acquisitions. We still own several in the portfolio, but we were a value-add player and added value to the apartments by making cosmetic improvements, capturing the rent growth that resulted from that, and in many cases, exiting and selling those properties at a pretty substantial gain as a result. What caused you to make that shift? From a business decision, that’s a major shift to go from an acquisition strategy to acting ground-up developer-type strategy. It probably didn’t happen overnight, but what were some of the reasons, thought processes, and hurdles in making that transition? Over the length of our company’s career, we have done some development over time. Initially, as a joint venture partner with more experience ground-up developers, we learn the business and got comfortable with it like you had some experience in that area. I was noticing a combination of two things in those years. The sale prices that we were getting for some of the existing assets that we were selling into the market were off the chart what I would consider crazy pricing and prices that I would not pay to own those properties. The market was telling us that that was the market for those properties. We made the right decision and captured those values. When I look back, many of those properties are worth even more nowadays. It made the real estate business, I’m sure. However, that, and then combined with another factor, as we were bidding on acquisitions of existing properties which had we done in many years and established some great relationships in the brokerage community. As we reached the best and final offer stage amongst 2 or 3 other bidders, we were often told by the brokers what they thought it would take to win this deal. In many cases, they wanted to see us win the deal because they knew we had the ability to close and execute. We developed a reputation of being closers on time at the contract price without retrades. When I ran those numbers, I found that it was crazy numbers that made no sense to us. I didn’t see any cash flow or the upside. As a result, we passed on those deals, they did sell to others, and as I started looking at what it would cost us to build and construct a newer product with better amenities for nowadays market in those same markets and take on the risk of leasing them up which is the nature and stabilization, we were all in at a better yield to cost cap rate than if we were to buy the same property that was maybe 10 or 15 years older. There are a few things that popped into my head during that process. One is that you hit an important factor for people who were looking to get into multifamily or this type of development. The lease-up rate or absorption rate of your units can make or break early on some of the financials of how quickly you are renting. You want to make sure that you’re probably conservative on that absorption rate. I’ve seen absorption rates off the charts that don’t match what the market analysis says. That can create a lot of havoc down the line. The few key points that you mentioned that I thought were intriguing is that you started by joint venturing with people who are more experienced. Anybody feels like they can make money in real estate for the last few years. I see people who have no real estate experience get into wanting to do a ground-up multifamily project right off the bat. I’m curious what you would say to somebody if they came to you and said, “I’ve never done a deal, but I want to go do a new construction ground-up 60 units over 15 buildings or something?” Stop. Don’t. Find a partner that knows what they’re doing and whom you trust. Put an equity with them, look over their shoulder, learn it, and/or do some acquisitions and value add that involves some remodeling or heavy construction. I’ve done gut rehab type of things over the years, which is a little bit less of a lift, and learned the process before you leap in. Learn the process before you leap into real estate. Click To Tweet In the last couple of years, things were good in terms of interest rates and predictability of construction costs. Nowadays on our projects, we’re dealing with escalating construction costs and interest rates that we figured increases in the deal, but we didn’t figure this level. The good news is that we also are dealing with rent increases that we didn’t project, which offset those costs, but it’s a bumpy ride. It’s not for those that don’t want to take on some risk. The question I had on interest rates on the multifamily side is because rates are depending between 6% and 7%, but if cap rates are down to 5% when you look at it previously when interest rates were lower than cap rates, it made sense. Now with interest rates above cap rates, how do sponsors deal with that? It’s called negative leverage, which is the situation we’re in on most deals in acquisitions. It’s not quite yet on development deals because we’re building a return that’s still higher than the market borrowing costs, which is another reason to develop, but more equity and fewer debt costs you a little bit on return to investors, but it’s worth limiting the risks so that the actual dollar paid out to the lender is similar to what it would’ve been under a higher loan amount loan value and getting it right on rent growth. When you go into a deal with negative leverage where the cap rate is lower than the borrowing rate, you got to be sure you’re in the market where you have enough confidence that you’ll be able to grow rents so that in 2 or 3 years, you’ll be at the point where the NOI that’s produced at the property is producing a cap rate based on what you pay that’s positive. That’s going to be higher than the borrowing cost.
CWS 224 | Multifamily Construction

Multifamily Construction: When you go into a deal with negative leverage, where the cap rate is lower than the borrowing rate, you got to be sure you’re in a market where you can grow rents.

  I read that as investing in locations out of either A or B type of locations. You’re C class and D class rentals that typically don’t appreciate or have very low rental growth, if you’re in that type of situation, it’s probably not going to get better in those types of areas. I’d be cautious of that. I’d also be cautious of small markets that either aren’t experiencing population growth or don’t have a lot of renters in the pool. I’m not talking about the major markets even a modest-size MSA. The bigger population areas are going to have a rental pool to absorb the supply. We are shifting gears a little bit going from acquiring to ground up and stuff to the financing side of things. Did you raise money from investors? How did you fund these deals? What did that structure look like? Those of us that are in multifamily were all very fortunate. The debt side of the multifamily business is pretty good. It’s held up through a number of cycles. It’s proven to be fairly recession-proof. Local and regional banks on the death side are still readily available. We also have the agencies, Freddie Mac and Fannie Mae, which are dedicated to making sure there’s rental housing available and they’re a great place for debt liquidity. On the equity side, we raise money from individual qualified investors, very high net-worth investors, and family offices. Over the years, we’ve been fortunate to have developed a strong investor base and a number of family offices that both trust us based on our track record and have the financial ability to place substantial dollars and deals. What I have learned and what I have the ability to do, fortunately, because I’ve been added a long time at a time and built up equity, investors love when the sponsor puts significant dollars of their own in the deal. Fortunately, I have the ability to do that. It’s a very strong selling point on raising money for a deal when I lead with the amount I’m putting in, which is usually a fair amount of the equity stack. Investors love when the sponsor puts a significant amount of dollars of their own in the deal. Click To Tweet We raise money as well. One of the first questions that always get asked is, “How much skin do you get in a game?” In every syndication we’ve done, I’ve always put skin in that game. If you didn’t, to me, that sets off a few red flags either you don’t have the experience that you’ve gotten to a point where you are where you can make enough money to put even some money in the deal, or it could be a high-risk deal. I wouldn’t expect somebody to put all their money in the deal because you want to be smart, diversify and not put all your eggs in one basket, but you got to put some skin in-game. Did you do it through a Reg D 506(c) type of offering? We do a full private placement memorandum. We file with the SEC on our offerings and utilize that exemption. We’re careful to furnish the PPM and an investor qualification questionnaire to all of our investors as well. For people that don’t know Regulation D, there are 506(c) and 506(b), which are exemptions from having to get qualified through the SEC. My company completed a Regulation A+ offering, which did have to go through the SEC. For Michael’s point, he’s been at this for a long time. He’s been able to build nice stable investors that are all high net worth and accredited. If you have the ability to go that route through the 506(c), that’s a beneficial way to go. Let’s go back to that transition from the multifamily to the ground-up side of things. You had some experience in the past. Are you acting as the developer and development manager when you’re hiring the GC or are you hiring a local or partnering with a local firm to manage or have someone manage the local GC? How’s that process working? We have the experience and bandwidth of our staff. We’ve developed it to act as the developer and overseer of the project. We use a reputable architect that we trust to be part of the construction management team and sign off on all requests for payment. In the multifamily business, fortunately, I’ve been able to identify and use, on multiple occasions, GCs that specialize in the type of product we build for multifamily, have a good track record, and we’re able to get all in price with a guaranteed max to produce the contract. We pay probably a little bit of a premium because they’ve got to add some protection in there for themselves. We’re more comfortable and I sleep better at night with a guaranteed max price contract from a GC. That’s something when I was on the GC side and on the developer side, the GC prefers from a risk perspective it’s like, “I’ll do the lump sum,” and so forth. A guaranteed maximum price is more protection from the developer because it’s a guaranteed maximum price based on the drawings, but a scope. I’m not going to get into all the details. Two things that people should recognize and realize is that as a developer, it’s like you can have the greatest team in the world, but first that architect and your design team, you do not go cheap on them because you will have a lot of significant overruns, but schedule impacts as well. The biggest thing on construction jobs a lot of times isn’t some of the change orders of, “You miss this. It’s a time for all the RFIs and everything.” That’s where the money gets burned because you’re also leveraging that money. It’s burning a hole in your pocket from the bank. A lot of people know the fact, “You don’t go the cheapest on the general contractor. You want somebody experienced.” A lot of people sometimes forget about the architect. An architect is used as well as the interior designer, as well as the civil engineer when you’re doing ground-up construction for site work and to make sure they got the underground right and the site plan right for the drainage. We don’t go cheap on our professionals. You’ve got to do that. Another thing that came to my mind when you mentioned the timing that contributes to professionals that didn’t do their right job, is supply chain issues now on materials. Forget about the cost, which is fortunate enough to be able to lock it in and not be at risk. There are certain materials where the lag times are unbelievable. You need a good experienced construction team and GC that knows how to order those things in advance, perhaps arrange, store, and warehouse them if they come in before they are needed in the project, It’s a new part of the timeline of planning a project.
CWS 224 | Multifamily Construction

Multifamily Construction: You need a well-experienced construction team and general contractor that knows how to order supplies in advance. These things must be stored even before they are needed in a project.

  I had a call weeks ago. Someone reached out to me and they want to do a ground-up job. They hadn’t done one before this topic came up. I started riding off. I scared him enough not to do it because I’m like, “You got to stay on the GC because you want to make sure you buy out the trades early on because you got to get the submittals in and make sure the architects geared up to review those mills up-front because you need to get those approved ASAP because you need to get all this shit ordered.” Going through that process and he said, “Submittals, what are those?” I’m like, “It’s something else?” “Don’t do this.” It’s going back to find someone like you or somebody else that you can put some money with or do JV on and that’s how you should do your first ground out. How have you found the land? Has it been through your broker relationships? Has it been through reaching out or how have you been able to define the land? structuring the land is important because a lot of times you want to get it under the agreement but you also want to see what it can get permitted for before you pull the final trigger. Do you want to talk a little bit about that? We found success in utilizing the land brokerage community, identifying the top land brokers in each of the markets that we want to be active in, and having them present deals and concepts. Some of them sometimes in the land business are off the market, but the brokers know about them and some are listed. We have found the best way to find opportunities. If you want land opportunities, you need to contact the top land brokers in each market in which you want to be active. Click To Tweet When we find an opportunity in a seller when it comes to contract time, it’s a very different process than buying an existing asset. When you have a rent role in place, you’ve got an operating business, you set a closing date, do your due diligence, get your loan and you close. There are unknowns in the land development business. The most major of which is the entitlement process. That varies by community. It’s very rare to find a good piece of land and a good community that’s either undeveloped or developed with another user that would make a good multifamily project that is zoned for multifamily. You have to go into the local municipality, which we do first and formally after we tie up the property. We tie it up for a period of time in due diligence that is longer than typical than a regular purchase of the property explain usually sellers of land understand it’s a process. We put up earnest money and we have a period of time usually that’s 4 or 5 months for initial entitlements. We get a feel from the municipality we’re dealing with on it, get familiar with the process, go through the public hearing process, and know where we stand. We try and negotiate extensions because sometimes that’s not enough, 4 to5 months. We generally are able to negotiate them in the contract and sometimes agree to go hard on a portion of our earnest money in order to get those extensions. We may not be final on entitlements, but we have a pretty good idea at that point where it is in the process and whether it’s going to happen or not. Our personal policy in our company is that we won’t close on the land until it’s fully entitled. There are developers that will roll the bones. Over the years, I’ve seen lots of deals with somebody stuck with a piece of land that they can’t develop because they didn’t get the zoning and are unsellable. After ten years of working for a GC, I got burnt out and had an opportunity to go work for a multifamily developer who did exactly garden-style suburban multifamily. They were based out of Texas and did a lot of work on the East Coast. I was up in New England. I started with them at the beginning of 2008. That was a bad year. I wasn’t there long because one of the things they did was they bought the land before they had it entitled. When the economy tanked, they had debt on all this that went under. Later on, I worked for another developer and they did exactly what you did. They would not buy the land. They would have it agreed upon and would strike deals too because they did more like townhouse style for sale products and price off of how many units they could get. It was, “If we can do 100 units versus 110 or whatever we get entitled more for the seller.” A few things though popped into my head when you’re mentioning this so people also understand this. When you’re going through that entitlement phase, you have engineers, civil, and staff looking at things, all that cost pretty much out of your pocket. That’s totally at risk. We call it the chase costs. The fancy name for it is pre-development costs. We phase it so that at each step we have a good feeling that it’s happening, but in order to get the entitlements, you need full engineering plans, a site plan, and a lot of architectural plan that gets coordinated with the civil engineer. All the while, we’re talking to the GC about rough non-binding ballparks of where we think this thing will come in. We also add in our soft costs at that time, but it’s pretty substantial. We don’t pull the trigger on those until we’ve had a good meeting with the local municipality that we see a path to entitlements. We’ve had somewhere we’ve had to pull the plugin. It hurts. It’s at-risk money over and above earnest money that we get back. If you ever hear the phrase NIMBY or Not In My Backyard, that is one of the big risks going from, “You’re buying an existing apartment building or existing property.” That is what it is as ground-up construction depending on the type of area that you’re going to be building in anywhere from, “I built a property next to a dog park.” Those people from the dog park were ferocious, no pun intended, from blocking the sun, views, the height of the building, and anything that was typically brought up during those components. We make a conscious effort before the formal notice and formal hearings. We reach out informally to all the surrounding property owners that by law are going to get notice of it or see a sign go up that there’s a zoning hearing. We arrange a meeting at a local library or community center for them. We come with all of our professionals with our site plans. We pay for pretty expensive fancy-color-looking renderings, and we do a presentation, take their feedback, and try and accommodate them. On almost every project we’ve ever done, as a result of those meetings, we’ve committed to neighbors and promised to do certain modifications like extra trees and fencing between our property and theirs, changing the entrance or the exit, the headlights don’t shine in their windows, the comments that they come up with. Frequently, a lot of communities show up adherence. Some people are very vocal in an ignorant way about what they think a profile of a renter is and why they don’t want them as neighbors. We do a good job in advance of educating the village and as well as bring data that shows the quality of the renter and the type of product we build, which is pretty high-end and luxurious. We show what income levels are required, at least that type of property, as well as our screening process, for criminal and credit checks before someone can sign a lease. We alleviate the fear factor that the NIMBYs show up with. I was on your website MZCapitalPartners.com. I’m looking at some of the products you build. It’s high-end and a lot of amenities driven, as well. Over the last few years from a competitive standpoint, what has been the factor? There was a shift whether it was a 2 or 3-bedroom down to studios and ones depending on the jurisdiction. Up in our region, which is again the Washington DC Capital Region or the DMV for DC, Maryland, and Virginia the focus has been prized on the amenities. That’s what was getting people in the door and into your units where you’ve built your communities. What has been your factor? What gives you that competitive advantage? Amenities are driving rentals for prospects both in terms of the presentation at those neighborhood meetings and at planning commissions, but also once the project is built, they convert prospects into tenants. The amenities people are looking for nowadays are modern 9-foot ceilings in apartments rather than the lower standard 8-foot kitchens with granite or quartz countertops, nice cabinetry, and stainless steel appliances. In terms of the common areas, green space in the suburban type of venue, not urban is very important. Places to walk a dog and dog parks and dog-friendly buildings are very important nowadays.
CWS 224 | Multifamily Construction

Multifamily Construction: Amenities are driving rentals today. People are looking for modern 9-feet ceilings, granite or quartz kitchen countertops, stainless steel appliances, green space, dog-friendly spaces, and more.

  We like to design a clubhouse in our communities, a state-of-the-art club-like fitness center. We even go to the extent now of putting in Peloton and mirror machines where we pay for the monthly subscription. It’s free to the resident. The resident looks at that as an alternative to having to pay to join a local health club. They use it as their fitness center. As a result of the pandemic, we have work-from-home private suite areas in the clubhouse if someone wants to get out of their apartment whether they’re a hybrid worker or totally remote worker, as well as co-working areas where they can meet with colleagues during the day and meet. Also, it implies that the real amenity that most people care about is the highest possible super-speed internet you could find. We do that and it’s about over time. A few things that we’ve seen in our region, our area, everything you said, the business centers or suites in our location, people were okay with smaller unit sizes, but they wanted a place more of a gathering place. When I rented many years ago, a lot of people in our communities didn’t have clubs or people didn’t go to the club rooms to gather and stuff. They’re made a focal point that one building we built had a demo kitchen area. Once or twice a month they’re bringing a chef to teach people how to cook and have wine. You get 30 or 40 people there networking and learning. It was a way to bring the community together and give that sense of community that people strive for. People look and strive for it. We’ve done kitchens as well. We usually do it in the clubhouse which demonstrates our kitchen. One of the great amenities that bring the community together, aside from the standard, is a nice billiards table and a Scrabble game mega board that gets mounted on a wall with big magnetic Scrabble pieces and hit around it with chairs. It’s popular for gathering where residents come and play together, where sometimes they even meet each other for the first time when they move in. Not only is that a great amenity to build community but to build renewals because it creates stickiness to the property, friends, and the rest of the people in the community that residents enjoy with leases expiring at different times all at once. If they decide to move somewhere else, they’re not just leaving their apartment. They’re leaving their community and friends behind. They’re reluctant to do that. Build a community where if someone decides to move, they're reluctant because they're afraid to leave it. Click To Tweet Amazon lockers. You can’t build enough. It’s crazy. That makes us nuts. Any store room for package delivery is too small by the time it gets built. We had that issue where we finished a building in 2017 and the design was in 2013. It was tied up. It was a 284-unit, 15-story building. By the time we finished, we had this storage room. This had below-grade parking, which there’s also never enough below-grade parking, but we ended up trying to transfer. It’s never-ending. We got lucky, after we started developing, Amazon decided to open up one of their Amazon Fresh stores across the street from us, which includes free delivery of packages with lockers as well as a drop-off for returns. A number of residents would use that Amazon facility, not have them shipped to the building, which helped relieve the flow a little bit. You’ve been successful in your business. There are probably 1,000 things because it’s not usually 1 or 2 things, but if you had to pick 2 or 3 things, what are some of the things you thought, either decision you made or your style, that you’ve done that might not be consistent with a lot of people or it is consistent with the success that you could leave people with? The word that’s overused, but the one thing that I’ve done throughout my career and our company’s lifetime is to pivot, watch trends, and see what’s happening. There was a time when we were doing all condominium conversions, buying buildings, gutting them, selling the condos, and then to the rentals and older buildings. As I mentioned, renovations and buying existing properties. The most recent pivot to development is watching the trends and the yields. It probably won’t last forever because we’ve always evolved into different niches and different properties. The same thing with markets, neighborhoods, and within a city submarkets that look like they’re taking off for rent growth is to be flexible and don’t always think you’re going to do exactly the same thing. The other thing in real estate is that a lot of people have different philosophies, but one of mine is on a particular asset and on a particular property. What it’s worth now is that when you wake up in the morning, if you hold it, you’re making a decision to buy that property at that price. Whether internally you know it or not, you are. You’ve got to take into consideration taxes, capital gains, loan covenants, and penalties, but once you filter through that, if you hold something, you’ve made a decision to buy at nowadays’ price. That should weigh into your decision whether to dispose of an asset or hold it frequently. The last thing is that a lot of people look at real estate investors or developers as tough cutthroat guys. It’s never been my approach. It’s not my personality, but from a selfish business standpoint, it works to be a good guy. Not to go for the jugular, the last talk, retrade a deal or guy comes in with a fair price on a contract for remodeling, give them the job. Don’t tell them you want it for less, and pay people quickly. When we get billed, we pay within a couple of weeks. We don’t wait. I hear over the years from contractors, GCs, and even banks, that makes you stand out. When you need them, they’re going to respond to you and they deserve the money if they perform the service. Many people see real estate investors or developers as cutthroat guys, but from a business standpoint, it works to be a good guy. Click To Tweet Throughout my career, one of the first questions every subcontractor asks the GC is, “How quickly do you pay?” GC asked the developer and vice versa. The developer asked the GC, “How quickly do you pay your subs?” I don’t think people understand this. An example of what we used to use early on is it’s like going to a drive-through at McDonald’s, getting your hamburger, driving away, eating it, and going back a month later and paying for it. A contractor would start putting their bill together, usually around the 20th or 25th when they work in the month. They would bill through what’s done in the month. It takes several weeks to get through. If there’s lending, the bank approves it and stuff. If they’re lucky, they’ll get paid by the end of the next month. You can streamline that to get it within a few weeks. A lot of developers want to hold that money as long as possible. Sometimes it might be 30 or 45 days. Think about that in a certain sense where a lot of people who are on the residential side, your contractor won’t get paid that day or within a week. On the commercial side, it’s normal for the work of the month to get funded mid to end of the next month. One thing that I picked up from this show as a differentiator or a piece of your success has been the team you build around you. You mentioned about you look for the architect, the GC, and you don’t nickel and dime the people you work with. I get the impression that you put the well-established team and you’re not going for the lowest price on any single asset or aspect of the project. You want to put qualified people and understand what somebody’s worth is. That is something for people to also understand. It is fundamental to success and to the type of business you want to be known as and the type of life that you want to lead. You mentioned your business and your brand. You don’t want to be known as the developer who hires some random pickup truck contractor that does the work and then it’s shoddy work than your tenants are always putting in. You pay for it one way or the other. Another example is we talked about the acquisitional land and the brokerage community side. You want to be the guy with the go-to broker in the town that you’re working on to know that you’re the guy that moves quickly, puts up real money, closes on time, and makes sure that the sellers paid and that they earn their commission and makes it an easy transaction. You don’t go nuts on contract terms and make people crazy over the stuff you don’t need in the contract. You’re easy to deal with because that’s going to lead to more deals coming your way.
CWS 224 | Multifamily Construction

Multifamily Construction: You want to be the go-to broker in the town people want to know. You want to be the guy that moves quickly, puts up real money, and closes on time.

  On your website, some of these projects are beautiful. If you’ve built one of those and you want to go into another community then they’re concerned about what the persona of a renter, which is misrepresented is, you show them, “This is what we build. It looks like a luxury condo.” You’ve done a lot of giving back and doing good while doing well. Can you share some stories of what you’ve done? I’d like to remain active civically in our community and with charitable organizations both in leadership positions as well as writing checks for annual campaigns. One of the things that we’ve done that we started doing a few years ago directly related to the real estate we own and the communities that we’re in is each year right around Thanksgiving, we approach the local food pantry anywhere where we have a community that we own or under development. We discuss with them the cost of feeding a family of four in their community. We might make a donation from that property to the food pantry in that local community in a dollar amount to cover the cost of feeding a family of 4 in their community for 1 year. It’s been rewarding. We think it’s the right thing to do. It’s also led to a tremendous reputation amongst our renters. We put the word out as well as in the local communities themselves as being good corporate citizens. It’s pretty impressive. I’m sure that’s greatly appreciated throughout the community. It’s not something that somebody has to do, but it’s part of giving back and taking being able to have the ability to do that. We are fortunate to have the ability and we feel it’s our obligation to do so because we have the ability. As we wrap up this episode, I do have one question. I’m going to put you on the spot because I’m curious to get your opinion. It’s not a bad question. I’m curious to see if your mindset’s in a similar place as mine. There are many different aspects of real estate investing. There are residential, multifamily, and ground-up that we talked about. Our primary focus is on distressed debt. We invest in notes. I’m curious about your opinion on short-term rentals and where that market’s headed. I’ve been watching it and I like it a lot. I’ve toyed with holding aside some of our new developments. We haven’t decided yet on holding some of the units rather than doing full leases on them for a year within the community of furnishing them and doing both short-term corporate rentals as well as possibly even Airbnbs for real short-term usage both corporate and leisure. The total gross income on a monthly basis is substantially higher than on a lease. I see a growing market for it. I think there’s something there. The pandemic helped as well. I’m surprised at how many friends I have that are not staying in hotels anymore. They do an Airbnb. It’s like, “Really, you do that?” They explain it to me. It’s growing in popularity.
CWS 224 | Multifamily Construction

Multifamily Construction: Short-term rentals are a growing market. The pandemic helped as well. It’s surprising that many people are not staying in hotels anymore.

  I was working for a developer who has about 1,500 units. They were toying with the idea of taking units offline to use them for short-term rental housing. Unfortunately, we got a lot of pushback from local jurisdictions in regard to what you can and can’t do. That’s one of the biggest challenges in the short term. I personally believe that if you’re developing 160 garden-style units and you want to leave 3% or 5% of them for short-term housing, I don’t know why they wouldn’t let you. If you’re in a cul-de-sac community and someone wants to take it and turn it into short several houses in that community, it’s a completely different animal and you can’t judge it that way. That’s where things get mixed up with some of these officials. If it’s done in a professionally managed community, there’s a filter on qualification and it’s not a party house for the local senior prom, which gets the headlines in the bandwidth. If people wanted to learn more about your company, reach out to you, what’s the best way for them to find out more information about you? The best way is through our website, MZCapitalPartners.com. There’s a Contact Us button. If you say, “Please direct it to me,” I’ll get it. They can learn much more about us online. We would like to thank you for reading this episode. As always, make sure to subscribe to get notified of new episodes and also subscribe to our YouTube channel where we provide content on all aspects of real estate, creating wealth, as well as mortgage note investing. Thank you all. Thank you.  

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About Michael Zaransky

CWS 224 | Multifamily ConstructionMichael Zaransky is the founder and managing principal of MZ Capital Partners. MZ Capital Partners has been recognized by INC Magazine as one of the fastest growing private companies in America by placement on the INC 500 list of companies. Michael has a wide range of real estate, banking, and financial experience and has been a licensed Illinois real estate broker since 1979. Michael is a member of the Young Presidents’ Organization (YPO-Gold), the National Apartment Association, the National Multifamily Housing Council, and the Urban Land Institute. He is a James Scholar graduate of the University of Illinois Urbana-Champaign and earned his J.D. at Northwestern University School of Law. Michael has published numerous articles and lectured nationally on the subject of real estate investment. His real estate investment books “Profit by Investing in Student Housing” and “Purchase Rehab, and Reposition Commercial Investment Property”, real estate category best sellers, were published by Kaplan Publishing and are sold in major bookstores and online booksellers. Active in numerous trade, civic, and professional associations, Michael is a board member of the National Multifamily Housing Council (NMHC) and serves on the Executive Committee, as the immediate past chairman of the board, of the Jewish Federation of Metropolitan Chicago/Jewish United Fund, one of the largest philanthropic organizations in the nation.

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