Exclusive Q&A: Cypress Equity CEO Michael Sorochinsky On The Future Of Multifamily Development
Jan. 28, 2016,
By: Karen Jordan, Bisnow, LA
Through his career in law, Cypress Equity Investments CEO Michael Sorochinsky developed a great understanding of real estate. And now, he's turned that into a career in the industry, with a partnership list that's a who's who of commercial real estate. We chatted this week with Michael, who's among the all-star panelists at Bisnow's LA Multifamily and Mixed-Use Forum, Feb. 24, at the Montage Beverly Hills.
Bisnow: Why did you stop practicing law?
Michael Sorochinsky: In my legal practice, I learned a lot about real estate, representing both lenders and borrowers in distressed real estate situations from the savings & loan crisis in the early '90s through a recovering real estate market in the late '90s. While the practice of law was intellectually rewarding, it did not fulfill my entrepreneurial goals. Running Cypress Equity Investments allows me to use my dealmaking and legal skills in a vibrant entrepreneurial setting. Toward the end of my legal career, I was just bored—going through the motions. Now, I wake up every morning and can’t wait for the day to start.
Bisnow: What has been the strategy for your company?
Michael Sorochinsky: Cypress prides itself on making opportunistic investments in prime locations around the country (primarily the top 10 MSAs) in quality product, with the focus on Class-A multifamily developments. Locally, we develop and acquire our own deals. In other cities, we partner with best-in-class developers and operators.
Bisnow: Tell us about some of your other partnerships.
Michael Sorochinsky: When the right opportunity presents itself, we partner with best-in-class developers in their local markets. Some of our strategic partnerships include: Century West Partners (LA), the Calida Group (Las Vegas), the Fifield Cos (Chicago), Magellan (Chicago), UAA (Portland), New Equities (LA), and other strategic partners in key cities around the country.
Bisnow: Tell us about Gibson Santa Monica.
Michael Sorochinsky: The Gibson was Cypress’s first ground-up development site purchase in this cycle back in 2010 when few groups were considering ground-up development as a viable business plan. It has been a tremendous success, representing a prime example of modern luxury living in a relaxed Santa Monica environment—close to work, shopping, restaurants and public transportation. We’re very proud to say that nearly three-quarters of our residents either walk, bike or take public transportation to work.
Bisnow: There's a lot of talk right now about the next recession and when it may come. What do you think the future of our industry looks like?
Michael Sorochinsky: In our industry, we always need to adapt to the changes in the markets and adjust to the realities of the cycles. In the near-term, as we complete this mature cycle, we (and others) are focusing more and more on quality assets in core urban markets. We are also being more careful about our capital structures, gravitating toward longer-term hold strategies, as opposed to merchant-build capitalizations.
Bisnow: To what do you attribute your success?
Michael Sorochinsky: A lot of hard work and focusing on the process. If you are good at what you do, and thoughtful about your overall business plans, you will generally get good results. Our track record and reputation in the real estate community has allowed us to expand relationships with our existing co-development and equity partners, as well as our lenders.
Bisnow: Outside of work, what kinds of things do you like to do in your personal life?
Michael Sorochinsky: I have a passion for travel, particularly with family and friends. Whether skiing in Colorado or Utah, lounging on the beaches of Bali, Australia or Hawaii, boating in southern Italy and France, or navigating the density of China, our family is always on the move. I love flying small airplanes (honing my piloting skills), sailing boats, driving cars—fast…pretty much any machine that allows me to travel. I’m a basketball fan—and yes (painfully) still a Lakers fan. But most importantly, I really get a kick out of spending quality time with my family and friends.
You can hear more from Michael and the rest of LA's commercial real estate luminaries at Bisnow’s LA Multifamily and Mixed-Use Forum, Feb. 24, at the Montage Beverly Hills, starting at 7:30 am. Sign up here!
Top Five Predictions for 2016
Jan. 28, 2016,
By: Michael Sorochinsky, Multi-Housing News
What can we expect to see in the capital markets crystal ball?
Among real estate property types, multifamily has been strong and the outlook is positive for 2016. Investment dollars are still flooding into the apartments sector, although investment is more focused than ever on core strategies (new construction in urban infill) and will continue to be more conservative and careful. What can we expect to see in the capital markets crystal ball? Here are my top five predictions for 2016.
1. I believe that construction lenders will likely remain conservative in their underwriting of new multifamily development deals. In this cycle, they have not over-leveraged construction projects and in 2016 are likely going to stay in the 60 to 70 percent to cost range.
2. Based on the headwinds we are experiencing from global economies and the current strength of the dollar, I don’t believe our economy will go into “overdrive” anytime soon. More likely we will see a flat domestic economy with little inflation and continuing demand to rent versus buy. Interest rates will likely stay low through the end of the year.
3. A lot of capital is being raised in the mezzanine debt and preferred equity arena. Mezzanine players are a lot more aggressive than they were a couple of years ago, and developers who may be unable to find equity in the latter stages of this cycle are turning more and more to mezzanine debt to finance their deals. Aggressive mezzanine lending is a concern. Due to HVCRE requirements, banks are asking for more equity as well. Properties will need to achieve aggressive growth over the next two to five years in order to meet interim covenants imposed by mezzanine lenders.
4. On the equity side, I am seeing the major institutional players being increasingly discerning with respect to new investments into multifamily development deals. They are raising money, but there’s a general feeling that a lot of the markets across the country are overbuilt with value-add deals too pricey and difficult to justify. So institutional capital is being selective with locations, sponsors and deals. This trend will continue.
5. There is also a growing trend toward core and core plus investments, with capital focused on strategic, high quality assets and long-term (seven- to 10-year) holds. I believe money will continue to flood into quality assets, especially in key locations including highly sought after coastal markets such as San Francisco, Seattle, Portland, San Diego, Boston, Manhattan and Washington D.C., as well as select strong job growth markets like downtown Austin and Chicago.
2016 will be another interesting year for multifamily developers and investors, but as long as we remain focused and strategic, there is still plenty of opportunity to be pursued.
Michael Sorochinsky is the CEO and founder of Cypress Equity Investments. Cypress Equity Investments makes strategic investments with local apartment developers and operators in major U.S. Core cities, such as San Francisco, Portland, Chicago and Manhattan. In 2010, Michael and Steve Fifield of the Fifield Companies formed Century West Partners to build sophisticated, best-in-class apartment communities on urban infill, transit-oriented sites in highly-sought areas of Los Angeles. The firm is currently one of the most active apartment developers in the Los Angeles metropolitan region with a core specialization in tech-friendly and amenity-rich contemporary communities. The current Century West Partners’ development pipeline includes 2300 quality apartments.
Property Tour: Century West Partners K2LA
Jan. 7, 2016,
Los Angeles—Century West Partners has announced that 350 additional new residences will be delivered in two phases at the upscale K2LA rental community in LA’s Koreatown (“Ktown”). The modern luxury apartment community boasts a highly sought rental location with immediate access to a variety of lifestyle amenities and public transit. When fully complete, K2LA will consist of three buildings housing a total of 476 thoughtfully designed units. Floorplans are designed to appeal to a variety of residents and include micro-studios, spacious studios, as well as junior one-bedroom, one-bedroom and two-bedroom luxury units. Standout apartment features include quartz countertops, ceramic tile backsplashes, stainless steel appliances, sleek plank flooring, large walk-in closets, luxury bathrooms, USB outlets and much more.
The community provides an exceptional amenity package including 24-hour concierge service, state-of-the-art fitness centers, business centers with conference rooms, heated resort style pools and spas, outdoor rooftop decks with barbecue grilling stations and expansive city views, and complimentary Wi-Fi throughout all public spaces. In addition to controlled access entry, K2LA residents also enjoy access to a bike kitchen offering a bike share program and a resident lounge equipped with 80″ televisions, video game systems and karaoke. The K2LA community hosts an active calendar of engaging events, festive gatherings and holiday celebrations throughout the year, encouraging residents to meet, mingle and enjoy the Ktown lifestyle.