CiTYR recommends that clients invest in multi-family rental complexes in the United States – after the Company has invested in them first. Michal Paran, our Managing Director explains, “You invest in the same properties we’ve already invested in, which means we have a shared interest.”
By Shirley Sheetrit
Recent years have witnesses a boom in property investment abroad, and U.S. companies specializing in this market offer a wide range of investment options to interested investors. One sector of the property market in particular, multi-family rental complexes, has earned a solid repututation of stability and even withstood the U.S. subprime mortgage crisis in 2008.
The UK based American company CiTYR has chosen multi-family rental complexes as their investement target in order to enable private investors to invest in an area that until now was reserved exclusively for major investment companies. “We deal only in multi-family complexes in the U.S.,” relates Michal Paran, Managing Director at CiTYR. “All large investment companies, including major insurance companies invest in this kind of property. But this is only true if you buy the right property and manage it prudently.”
Multi-Family Complexes: Attractive ROI
The multi-family complex concept emerged in the 1950s as a solution to the great waves of immigration from Europe after World War II. May of these immigrants were working class and required housing but lacked substantial resources. High demand led to the construction of multi-family buildings and huge apartment complexes with affordable rental prices, and today, one in five families in the U.S. lives in one of these rental apartments. According to Paran, “These residential properties exist solely for rental purposes, with the entire complex regarded by local authorities as one building, regardless of how many units it includes.”
Why do you view multi-family complexes as an interesting investment opportunity?
“A multi-family property can consist of one building or a whole complex of between 150 and 700 apartments which are officially registered as one complex consisting of rental apartments. We only purchase buildings with a 90% minimum occupancy rate. These properties include numerous small double storey houses, with a fenced-off green park in the middle, and are run by a management company which provides superb customer service to clients and their tenants. Services from the management company include a full-time staff, maintenance of the complex, a reception desk, screening of potential tenants and rent collection. If a property is located in an employment hub with a wide variety of employment options, occupancy will always be full – and it will consistently provide excellent returns.”
CiTYR is owned by Roy Marciano, Uri Frisch and company Chairman Michael Sebo, all three of whom have amassed vast international business experience, having been involved for many years in the commercial and residential real estate industries in Israel and the U.S. In 2015, the company acquired new properties together with investors from London and Israel. These properties, located in Chicago,Illinois, Tulsa,Oklahoma, Houston,Texas and Manhattan, consist of 1,780 housing units worth $120 million. These join the Company’s existing property portfolio which today stands at approximately 3,700 units with a total value of close to $260 million.
What considerations guide CiTYR in selecting a location for investment?
“Unemployment is currently at 5%, which essentially means that very few are unemployed, and it’s important to focus on developing areas. We generally don’t invest in areas on the East or West Coasts, since real property in coastal cities like New York, Boston, Los Angeles and Miami are on the increase while their yields remain low. Better returns can be obtained in the central U.S. We do invest in Manhattan, even though it is on the East Coast, but its low yield has forced us to find a solution in the form of hybrid transactions that combine profitable real estate with smart entrepreneurship.
We take occupied multi-family buildings that are in a state of poor maintenance and implement a rapid urban renewal program. As soon as a rental contract ends and the tenants have vacated the apartment, we immediately renovate it, which enables us to put it back onto the rental market for double the original rent. Within only two years, we have already experienced a surge in the value of the property. This is how we create substantial profitability in an area where immediate profitability is 3-4% and there is infinite demand for apartment rentals.”
Generating Passive Income
In the past year, hundreds of investors have joined CiTYR. According to Paran, “Our clients are not necessarily the crème de la crème of British society but are actually ordinary families, who have pension funds that are ready to mature or who have received a small inheritance. In the face of today’s limited investment options, when banks are hestitant to offer loans, local real estate is no longer as profitable as it once was, and these families find the capital market too complex. Everyone is searching for alternatives, and this has led to enormous growth in the market.”
What is CiTYR’s investment model?
“After CiTYR has located an interesting property, the company itself makes a 5-10% investment in it and then invites the public to follow suit. While most companies dealing with property abroad are essentially real estate investment agents, CiTYR itself invests in these properties and maintains the investment throughout, so that we and our investors have an equal interest in the property. This approach is basically sending a message that ‘I’m recommending that you invest in something I’ve personally invested in. I’m managing my investment and will be involved in managing it for as long as I have it.’ Our commitment as a company are committed to investing our own capital in the transactions we recommend to our investors significantly differentiates us in the field.
To understand the difference, just imagine if I put you in a car and drove it by remote control or if I put you in a car and drive the car myself. If the remote-controlled car crashes, I apologize and say that I did my best. But if I’m the driver, there’s probably more of a chance that I’ll be careful not to crash. We put ourselves in the driver’s seat of every one of our investments in U.S. property.”
CiTYR’s U.S. team manages everything, including submitting reports to U.S. tax authorities. In essence, people come to us because they are looking for an option that will generate significant income without great effort, and we show them that it’s possible. They don’t have to lift a finger, and the risks are quite reasonable.”
What are the risks in this kind of profit-generating real estate investment?
“No investment is completely risk-free, but we need to recognize the risks which investing in them more reasonable in relation to its yield. First, real estate rentals always entail a risk of flighty tenants, with a corresponding decline in returns. For this reason, we choose locations where there is economic growth, an increase in the number of jobs each year, and a wide range of employment options. Everyone knows the story of the legendary car city Detroit, which emptied out when the U.S. car industry crashed. Second, in a major economic crisis, property prices can drop significantly. In the event that the market moves to property sales only, we continue to maintain our property and enjoy its regular cashflow yield until the market recovers.”
As one of the worst-hit victims of the 2008 financial crisis, has the U.S. real estate market managed to recover?
“The crisis catapulted the U.S. real estate market ten years back in time, but the price of rents is still climbing because many people whose homes were foreclosed on by banks at the time chose to rent instead of buy. After all, people have to live somewhere, and if investors had been able to be patient and held on to their properties, they’d now be enjoying the fruits of their investment.”