The goal of Brass Enterprises is to maximize value by strategically acquiring multi-residential properties in key geographic areas. Brass Enterprises takes a focused and conservative approach to acquiring existing multi-residential properties and to a lesser extent development opportunities in key geographies. The objective is to create investment opportunities and nurture them throughout the life of the venture. The aim is to generate solid cash flows on a monthly basis, while carefully maintaining and upgrading the properties, thus accelerating their appreciation.
Brass Enterprises targets an IRR in the range of 15-20%, with a proven track record of exceeding those expectations.
INVESTMENT STRATEGY: Brass Enterprises continues to capitalize on the stabilization and growth of the U.S. residential real estate market, with a specific focus on multi-residential real estate. Brass Enterprises also seeks out investments in the Canadian residential real estate market where it identifies market dislocation or value add potential.
Overall, Brass Enterprises intends to create a portfolio that is diversified by geography within the multi-residential real estate market in the United States and in Canada. Brass Enterprises endeavors to acquire both performing and underperforming properties by partnering with various financial groups in the United States and in Canada.
Brass Enterprises’ Investment Strategy in acquiring these assets is three-fold:
1) Identifying and capitalizing on market trends
2) Capitalizing on market trends while relying on stable cash flow
3) Maximizing value of assets under management
1) Identifying and capitalizing on market trends
Brass Enterprises seeks to identify regions where industrial or commercial growth is occurring and further growth is anticipated.
In pursuit of the expansion of its portfolio, Brass Enterprises has identified three geographies as focal points:
The U.S. Sunbelt is the region in the United States that stretches across the southern and southwestern portions of the country from Florida to California. It typically includes the states of Florida, Georgia, South Carolina, Alabama, Mississippi, Louisiana, Texas, New Mexico, Arizona, Nevada, and California. Major U.S. cities located within the Sunbelt region include Atlanta, Austin, Dallas, Houston, Las Vegas, Los Angeles, Miami, New Orleans, Orlando and Phoenix. Some extend the definition of Sunbelt to include cities such as Denver, Raleigh-Durham, Memphis, Salt Lake City, and San Francisco.
These larger Sunbelt cities remain as some of the fastest growing in the U.S. Austin, Texas for example, ranks second amongst the country’s 52 fastest growing metropolitan areas, with over 1 million residents, due to domestic migration trends as well as high rates of foreign immigration. Between 2000 and 2013, Austin’s population expanded more than 40%. It is also worth noting that each of the top 10 fastest growing metro areas in the United States are located on the U.S. Sunbelt. The list of cities includes Raleigh, Las Vegas, Orlando, and Phoenix.
Gateway Cities are defined as Tier-1 urban centers that anchor regional economies around the state. These cities generally boast airports and seaports that serve as some of the main entry points into the country. The following metropolitan areas constitute Tier-1 Gateway markets: Chicago, New York, San Francisco Bay area, L.A./Orange County, and Miami.
Metropolitan Canadian cities – i.e. Toronto, Montreal, Vancouver, Halifax, and Calgary – have gone through a significant level of real estate market appreciation. Further value, however, can still be created in distressed properties or in underdeveloped areas. When the right opportunity presents itself, Brass Enterprises plans to acquire multi-residential housing in the major metropolitans in Canada where a significant value-creation strategy can be employed.
Brass Enterprises is focused on those cities where a supply and demand imbalance exists. On a national level, there is a current shortage of multi-residential housing to meet the current demand, marked by low vacancy rates throughout the country. Going forward, the level of new construction starts of multi-residential rental housing is insufficient to meet the current and growing demand, largely due to the rising costs of construction. Freddie Mac estimates that the United States is currently 1.5 million apartments short of satisfying the demand for rental housing, and they believe that this will hold true for years to come. New construction – at an expected annualized rate of 330,000 units – won’t fill the gap on its own.
Nearly 60 percent of U.S. rental properties with 20 or more units were built before 1980, with many, not surprisingly showing their age. Six percent of all units are retired each year. As the current housing inventory ages and deteriorates, there is an opportunity for adding value to existing apartment projects. Since tenants demand more amenities and at the same time shun the higher costs of renting at newly constructed apartment complexes, there is a need for an injection of fresh investment capital in these existing units to keep them in active inventory and to increase their desirability.
The construction sector has historically been one of the strongest foundations of the United States economy. Notwithstanding the major setback that occurred in the 2008 recession, construction has since accelerated and is now approaching pre-recession levels. Urban sprawl and the accelerating growth of urban metropolitan areas will likely lead to higher rental rates. As construction approaches historical norms, the resulting job growth is expected to drive further demand and absorb new supply. Boosting overall multi-residential rental-housing inventory – through more emphasis on rejuvenating existing units in addition to new construction – would help close the supply gap and offer more housing options.
2) Capitalizing on Market Trends while Relying on Stable Cash Flow
After identifying suitable areas where growth in the targeted market is occurring and is anticipated to continue, Brass Enterprises employs its long-standing and well-developed approach of purchasing stable income-producing property. In this manner, Brass Enterprises is able to capitalize on the potential future gain from the market trends while benefiting from a return on investment via a stabilized cash flow from the inception of the project.
Brass Enterprises is well positioned in its abilities to purchase multi-family residential property. The Principals have been immersed in the multi-family residential real estate market for generations, as detailed above under “Principals.” They have weathered a number of real estate cycles and have learned how to adapt in accord.
Brass Enterprises has developed long-standing working relationships, sophisticated underwriting procedures, and substantial real estate management experience by participating in both the development and acquisition of multi-residential projects in the United States and Canada for more than 45 years. Brass Enterprises has spent the better part of the last five years acquiring multi-residential real estate in the United States and Canada and in the process has become an experienced and respected real estate market participant. It has developed a reputation in the industry as a credible source of capital with a strong track record of performance. The quality of this investment team and its ability to forge long-lasting relationships with brokers, industry experts and other real estate operators has earned Brass Enterprises a reputation as a reliable “capital source of choice” amongst its targets.
With the intent on targeting investments that yield upwards of 5% cash-on-cash (and often much higher during a five-year hold period, as cash flow increases based on increased revenue and reduced expenses),Brass Enterprises provides a firm foundation for the investment in conjunction with the anticipated capital appreciation.
3) Maximizing value of assets under management
Throughout the life of an investment, Brass Enterprises seeks to increase property value by tightening occupancy, improving energy efficiency, boosting ancillary revenues, upgrading units, creating economies of scale with its expenses and employing an effective capital structure. This is all with a strong focus of maximizing the net income of the property over the long term.
Brass Enterprises aims to maximize the value of real estate by applying its vertically integrated expertise across all disciplines – from sourcing, acquiring, maximizing value, and monetizing – all with its well-integrated, hands-on asset management team.
The following is a brief description of Brass Enterprises’ investment cycle and an outline of the steps involved in the investment process.
Deal Sourcing: Brass Enterprises’ real estate properties are typically sourced through: real estate brokers on a national and local level whom we have dealt with repeatedly and proven Brass Enterprises’ ability to execute; real estate lawyers with a broad client base; owners of buildings with whom Brass Enterprises has developed relationships; mortgage brokers and conduit lenders; consultants; and through a continuous follow up on successful and unsuccessful deals.
Due Diligence: Brass Enterprises’ due diligence process is multifaceted and deals with a broad range of factors on both a macro and microeconomic level, which includes analyses of urban economics specific to the region; supply and demand factors affecting multi-residential housing and new construction starts; absorption of current rental supply and predicted supply; regional employment patterns of growth; family formations and income levels; general demographics; zip code evaluations; the civic development pipeline as set out and approved by local council; and market surveys discussing trends in the surrounding areas.
Specific to the subject property under evaluation, Brass Enterprises relies on: rental and sales comparables; commissioned reports from a reputable, and often national, engineering firm; environmental assessments; appraisals; insurance underwriting, including flood and catastrophe insurance underwriting; and tax forecasting as set out by a tax consultant. Brass Enterprises puts strong emphasis on ensuring that the property has adequate insurance, including flood and catastrophe insurance, where applicable. Finally, Brass Enterprises will complete a property tax analysis and forecast, employing a consultant to review pending tax changes when necessary.
Structure Analysis: The structure analysis is key in understanding the quality and integrity of a property. Brass Enterprises thoroughly examines engineering reports, architectural drawings, structural reports, zoning, and land surveys. Brass Enterprises, along with a team that specializes in this field, conduct a property inspection, including a walkthrough of each individual unit. Finally, Brass Enterprises reviews and audits each individual lease and compliance letters.
Operational Analysis: Brass Enterprises conducts an evaluation of the operational infrastructure of the property/development from both a qualitative and quantitative basis to determine financial feasibility and to examine where operating efficiencies can be achieved. This process includes a review of the management team and key management personnel; a review of the historical financials and current of costs operations, payroll expenses, service contracts, forecasting future operations and utilities costs.
Acquisition: The acquisition process in arguably the most important stage. This includes underwriting the property itself, negotiating the most favorable price and terms, structuring appropriate partnership and corporate agreements, coordinating with local legal teams and in-house legal teams, negotiating insurance, financing, title insurance and finally closing.
Asset Management: Once the property is acquired, Brass Enterprises works to ensure that the property is managed in the most efficient, productive manner. Brass Enterprises’ asset management includes performing accounting reviews, adequate reporting, tax appeals, consistent budgeting, capital renovations, human resource management, and financial distributions.
Exit Strategies: Brass Enterprises carefully scrutinizes opportunities to exit from each investment. A map of potential exit strategies is considered as part of the acquisition process. While Brass Enterprises assumes a hold period of 5 years, Brass Enterprises, regularly, throughout the life of the investment, evaluates the relative merit of each strategy in order to determine if and when to exit an investment or to capitalize on its appreciation through a refinancing or partial sale.
During the refinancing cycle of individual properties, Brass Enterprises will determine if it is appropriate to lock in further financing or sell the property. These decisions will be based on both qualitative and quantitative analysis. If Brass Enterprises receives a favorable market bid for the property or believes that there is favorable risk reward for selling an individual property, a sale will be considered.