Category: Velocis News

Partner Paul Smith offers a full picture of the company’s recent decision to enter new territory.

As online shopping transitioned from “an option” to “first choice” for many end clients in the past few years, demand for space has skyrocketed. An increasing number of companies continue to enter the booming industrial sector and developers are barely keeping pace.

According to CommercialEdge data, almost 500 million square feet of industrial space was under development across the country as of July, with the Dallas-Fort Worth market leading the way, with 32.6 million square feet under construction.

Last month, Velocis kicked off its entry into the industrial sector with the acquisition of two development sites in the Dallas area. The company teamed up with Sumitomo Corp. of Americas to develop 850,000 square feet of Class A industrial space in the South Dallas and the Great Southwest submarkets of Texas. Partner Paul Smith offered Commercial Property Executive an in-depth view on the strategy behind this move.

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For its first Nashville project, a Dallas-based real estate company bought an office building in the heart of downtown Nashville, with plans for significant renovations.

In a joint venture with Lincoln Property Co., Velocis bought the 232,194-square-foot complex at 211 Commerce Street. The purchase price wasn’t disclosed, but sources with knowledge of the deal said the figure was around $50 million.

Velocis is also putting $13 million into refurbishing the structure, which ranks among the largest downtown office buildings, according to Nashville Business Journal research. Construction is expected to start within 90 days and wrap up by year’s end, said Jim Yoder, a founding partner at Velocis.

“We think Nashville has become a haven for technology and financial services and maybe somebody who’s looking for a little more hip environment, and so we’re going to try to create that,” Yoder said.

This is Velocis’ first buy in Nashville. But the Texas-based firm has a significant stake in Austin, another popular tourist destination, and has been scouting Music City for a year or so trying to find the right project, Yoder said. He lists similarities between the two cities’ dynamics and energy, along with Nashville’s strong entertainment business, as attractions.

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The company acquired a 240-unit community in Austin, Texas from Stratus Properties.

Velocis has completed the acquisition of The Saint Mary, a 240-unit Class A community in Austin, Texas. Stratus Properties sold the asset, which had an occupancy rate of 85 percent at the time of the deal.

Wildhorn Capital assisted the buyer in sourcing the purchase and will oversee management operations. Berkadia marketed the community on behalf of the seller. In June 2018, the developer financed the project with a $26 million loan from Texas Capital Bank, according to Yardi Matrix data.

Located on 14 acres at 7500 W. Slaughter Lane, the garden-style property encompasses 18 three-story buildings completed in 2019. The unit mix has one- and two-bedroom floorplans with sizes between 884 and 1,432 square feet. The amenity package includes a gym, a swimming pool, business center and open-air kitchen.

The current transaction marks Velocis’ second multifamily acquisition. Towards 2020’s end, the company acquired its first residential asset: the 201-unit Beverley community in Charlotte, N.C. Proffitt Dixon Partners sold the property for $53 million, Yardi Matrix data shows. Velocis received a $35.2 million acquisition loan from Prime Finance Partners for that purchase.

In December, Wildhorn Capital acquired Bradford Pointe, a 264-unit community in Austin, Texas. The company secured a $24.4 million Freddie Mac loan originated by CBRE.

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More suburban apartments have sold in Charlotte, this time to an investor that recently entered the apartments acquisition space.

Dallas, Texas-based Velocis, a private equity real estate manager, has acquired the Beverley apartment property in the Ballantyne area, at 11926 N. Community House Road. Velocis paid $53 million for the 201-unit property, or a little more than $260,000 per unit.

This is the first apartment acquisition for Velocis, the company said. Much of its portfolio includes office buildings, although it also owns retail and mixed-use properties. In Charlotte, it also owns a data center in uptown.

As a few commercial asset classes have become more uncertain through the Covid-19 pandemic, some investors have begun buying, for the first time, apartment properties, as JLL and others have noted. Charlotte has seen a buying spree of apartments in the second half of 2020, especially in the suburbs. The sector has been widely viewed as more stable and resilient through the pandemic.

Beverley, which was developed by Charlotte-based Proffitt Dixon Partners, finished construction this year. The property was 71% leased at the time of sale. Beverley includes amenities like coworking spaces, a rooftop deck, saltwater pool, dog park, spa, fitness center and upscale interior finishes.

Jim Yoder, partner at Velocis, said in a statement the firm sees immense opportunity in the U.S. multifamily market but remains incredibly prudent in how it deploys capital.

“In fact, we looked at nearly 100 multifamily assets before finding the right fit with Beverley,” Yoder said. “As a new, high quality, top-of-market asset in the late lease-up stage, the fundamentals we found in Beverley will allow us to continue the property’s leasing momentum toward stabilization without renovation costs and the associated risk.”

JLL marketed the Beverley property.

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The office building, which was purchased half-empty in 2015, was marketed in 2019 following Velocis and Moore’s successful repositioning and lease-up

ARLINGTON, VIRGINIA, UNITED STATES, October 13, 2020 — Velocis and Moore & Associates are pleased to announce the sale of Shirlington Tower (2900 South Quincy Street), a best-in-class, 233,446 square foot office building in Arlington, VA, to Monday Properties. The asset was marketed for sale in September 2019, with the buyer and seller initially planning to transact in the first quarter of 2020. Although the emergence of the pandemic delayed the sale, Monday and the Velocis/Moore partnership remained committed to completing the transaction.

“2900 South Quincy is a hidden gem,” Dallas-based Velocis Co-Founder & Partner Mike Lewis said. “It’s the newest and highest quality building in Shirlington, which is immediately adjacent to a quarter-million square feet of destination retail, offering easy access to downtown DC, the Pentagon, and now Amazon HQ2.”

Within their first four years of ownership, Velocis and Bethesda-based Moore & Associates improved common areas and tenant spaces, delivering high-end finishes and spec suites that allowed them to reintroduce the previously overlooked building to the market and drive occupancy from 48% to 97%. “Partnering with an organization like Velocis is invaluable,” Vince Coviello, CEO & President of Moore & Associates, said. “Their market expertise, talent for identifying opportunities, and our shared passion for unlocking value continues to result in successful repositioning.”

Shirlington Tower is Velocis and Moore’s third disposition. In 2015, the partnership sold two office buildings simultaneously in Austin, Texas, for $48.8 million, less than two years after acquiring them for $29.7 million.

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Velocis Partner David Seifert says even though we don’t know with certainty how people will work in the future, we know they’ll work somewhere.

By David Seifert

The question of the decade in the early 2000s was, “Where were you on 9/11?” And after that, “What were you doing when the housing market collapsed?” Soon it will be, “How did you spend your time under lockdown? Remember when everyone thought we’d be working from home forever?”

Or maybe, “Remember when we all used to work in office buildings?!”

The work-from-home debate has been a hot topic in 2020. While no one knows for sure what (or where) the future of work will be, plenty has been written supporting both sides of the remote-work argument:But let’s set aside the pros and cons list and attempt a thought experiment from a different angle. Assume that every office lease in the U.S. is terminated. Imagine a frictionless, 100 percent work-from-home starting point. If your firm isn’t contractually tethered to a location, are the owners and executives going to move?

If no one has to report into a physical office, where would the employees choose to live?

We don’t need to play out these hypotheticals because they lead right into a real-world question that can get us to approximately the same place: Why did you choose to live where you live now?

At its core, the economy is driven by choice. Every day, businesses and individuals make decisions about how best to produce and consume a vast array of goods and services. Technically, our daily life is just resource allocation.

And since we live in a world of scarce resources and finite decisions, there is an opportunity cost to every choice we make. Adam Smith, in his magnum opus The Wealth of Nations, identifies land (along with labor and capital) as one of the primary factors of production to generate economic profit. Consequently, the decision of where to locate is an important one.

Which brings us back to our question. As a business owner or an individual, why are you in your current city and not somewhere else?

I’d argue the cost is not your primary reason. If people were motivated entirely by a desire to keep expenses to a minimum, then major cities like New York and Los Angeles (and Dallas and Austin, for that matter) would look much different.

Taking this argument to its logical extreme would mean New York and Dallas might not exist at all. If cost minimization drove all location decisions, then the population would be spread out evenly across cheap land, not concentrated in large urban areas. So, something valuable must be happening in cities.

With the advent of the personal computer and the ubiquity of the smartphone, our ability to work from anywhere has been on the rise for decades. Yet, we’ve seen the U.S. population converge, not disperse.

And it’s converging at an exponential rate.

From 1960 to 1980, the ratio of urban-to-rural population gain was about 8 to 1. Since 1980, U.S. urban areas have added 100 people for every one person lost in rural areas.

In recent years, the gig economy has substantially increased the potential mobility of labor, but freelancers, independent consultants, and start-up founders haven’t left big cities; they’ve flocked to them. Why? To paraphrase a concept from the University of Chicago economist Chang-Tai Hsieh, people move (or don’t move) from place to place to maximize their “happiness” quotient. And we can quantify that: Value (“happiness”) in a particular location equals Income multiplied by Quality of Life divided by cost, where “quality of life” is the set of amenities you enjoy as a resident, including weather, schools, restaurants, museums, sporting events, outdoor activities, public services, and proximity to friends and family. And most of these amenities become more valuable in denser networks.

Can this “happiness” quotient extend to businesses?

In a world as advanced as ours, why do tech firms convene in Silicon Valley and Austin? Do life-science companies need to be in Boston and Raleigh-Durham? Do government contractors still have to be near DC?

Why did Amazon select Northern Virginia for its HQ2? Why is Amazon even establishing a second headquarters at all? The answer lies in how much value relative to cost a business derives from planting a flag in a particular city.

Similar to an individual’s “quality of life” determination, a company makes a value assessment of a city’s “business ecosystem.” This ecosystem includes many of the amenities mentioned above, as well as things like regulation levels, workforce quality, proximity to customers and suppliers, and, most importantly, the innovation spillover and network effects gained from being close to peers and competitors. And the denser the network, the more valuable the ecosystem.

Now think about a company with a 100 percent remote, decentralized workforce. Are the attributes and experiences within a business ecosystem still available to that firm?

If the company’s employees indeed are scattered, then it will be challenging to benefit from the ecosystem advantages of any one city. And you can extend this argument straight into the halls and conference rooms of an office building.

If innovation, knowledge sharing, and spillover, or unscheduled strategy sessions arising from physical proximity to your colleagues are significant drivers of revenue at your firm, then I’d be hesitant to celebrate the limited cost savings coming from an office space purge. When you put revenue-generating productivity at risk, the opportunity cost is unlimited.

Other than a few outliers, most companies aren’t making drastic moves away from the traditional office. Still, many firms are starting to contemplate organizational structures that include some remote work.

One investment thesis gaining traction under a partial work-from-home future, according to an analysis from Moody’s Analytics, is that suburban offices come back into favor. The crux of the idea is a “hub-and-spoke” model, with satellite offices in the suburbs closer to where people live.

Companies could offer employees the option to work from home without entirely removing the opportunity to collaborate in person. This would check a lot of boxes on both sides of the work-from-home pros & cons list.

In a recent WSJ article, Harvard University economist Edward Glaeser, one of the most prominent voices in urban economics, described a scenario supporting this thesis in which he thinks we’ll see “more clusters of creativity in remote offices centered around consumer cities—places where people want to live.”

In the coming years, it’s possible this work-from-home trend completely fades away. But it’s also possible that it becomes the new reality. Under either scenario, work still requires real estate—a downtown skyscraper, a suburban office, a house, an apartment, or a coffee shop.

Working remotely does not eliminate the need for physical space. If you’re a real estate investor, the best advice is simple advice: follow population growth. Because even though we don’t know with certainty how people will work in the future, we know they’ll work somewhere.

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Velocis Co-Founder Jim Yoder looks to understand how the pandemic is impacting the industry in the short term and what the long-term implications might be.

By Jim Yoder

Over the past few weeks, our world has completely changed–in our communities, our homes, and our places of work. COVID-19 has had an immediate impact on all of us. In the real estate community, we’re looking to understand how the pandemic is impacting the industry in the short term and what the long-term implications might be.

Like many, our team has been working from home for a few weeks now. During that time, we’ve had multiple conversations with real estate professionals around the country to gain consensus on the current situation. Here’s what we’re hearing from them and seeing in our own transactions:

LEASING

New leasing has been spotty as some new and renewal lease transactions are closing, but others are being put on hold. Leasing activity has largely depended on the industry and use. For instance, technology tenants seem to be moving forward. Perhaps this is due to the fact that a mobile model of business is a relatively standard practice for them. Alternatively, businesses in the travel or hospitality industry are in lockdown mode.

One interesting phenomenon we keep hearing is the mutual agreement that folks can’t wait to get back to an office environment. It seems many underestimated the value of the collaboration, sociability, and efficiency an office environment offers, free from the distractions at home.

In a post-COVID-19 world, we may see a change in tenant space needs as companies work to allow for more space per square foot, per employee for personal and safety reasons. Pre-pandemic, the trend had been flowing the other way for several years, toward smaller footprints. However, the new focus on social distancing may help change this pattern. Other long-term space implications could include the modification of closed conference rooms, opening them up to create a lounge-type space that would allow employees more flexibility on how much room they choose to allow themselves between their co-workers in group meetings.

SALES

Most new sales efforts are being put on hold while owners opt instead to wait and see what implications COVID-19 has on the debt market and asset pricing. That said, those sale or purchase transactions that were already in the works are still closing or continuing their way toward closing.

FUNDRAISING

Fundraising has continued to be encouragingly active as investors look for opportunity and diversification amidst volatile markets. Real estate has a relatively low correlation with the stock market and offers a good alternative investment, making it attractive as investors look to pivot from other investments.

MANAGEMENT

Throughout our own asset portfolio across the country (office, retail, and medical office), we have been asked for some consideration from some of our tenants, with retail tenants exhibiting the most strain. Some tenants are having success utilizing the government resources available through the CARES Act, finding those loans are a viable option during this uncertain period. Specifically, the SBA Paycheck Protection Program is allowing tenants to access a loan from the Small Business Association to cover necessities, such as rent, for up to eight weeks.

Throughout the industry, we are seeing hospitality properties feel the most immediate impact, with retail and multi-family assets likely next in line.

OPPORTUNITY

Although most in the industry expected some type of correction in the markets, no one saw COVID-19 coming. That being said, market disruption – while uncomfortable and anxiety-producing – generally creates opportunity. Above all else, this has been the biggest takeaway in our conversations with real estate professionals across the country.

Jim Yoder is co-founder and principal at Velocis.

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