In one ways than one, East Rutherford, N.J.-based Hudson Capital Properties is a family affair. The family-owned firm invests in multifamily properties, mostly in the Southeast.
Founded in 2009 by James Cohen and his son Robert, Hudson Capital Properties owns 24 apartment complexes with more than 6,500 units in the Southeast, Midwest and West, with two more complexes (380 units) under contract. Last year, the firm spent $179 million on acquisitions. In 2018, it’s shooting for more than $300 million in deals.
You might not recognize the Cohen name, but you’re almost certainly familiar with the family’s brand. James Cohen is president and CEO of East Rutherford, N.J.-based Hudson Media, whose well-known businesses include Hudson News Distributors, one of the country’s largest distributors of magazines and books, and Hudson News, the country’s largest operator of airport newsstands.
As executive vice president of Hudson Capital Properties, Robert Cohen oversees acquisitions and asset management. The firm teams up with high-net-worth investors, family offices and smaller institutions on its deals. Its investment strategy is simple: The firm concentrates on the multifamily sector, and it seeks value-add opportunities in only a handful of top-tier markets.
Robert Cohen says he’s got an “extremely positive” outlook on the multifamily sector.
“I think multifamily has seen a great cycle, and I think it’ll continue to see great cycles for the foreseeable future,” he says.
In a Q&A with NREI, Robert Cohen discussed his firm’s emphasis on “older-than-brand-new assets,” its keen interest in workforce housing and its insistence on steering clear of the South Florida market.
The Q&A has been edited for length, style and clarity.
NREI: What makes multifamily an attractive asset class for family offices and high-net-worth investors?
Robert Cohen: Multifamily, especially [in] this cycle, has become viewed as the safest sector of commercial real estate that’s capable of “clipping coupons” that are many times the yield you’ll get on Treasurys. So it’s a combination of being a significantly better alternative to buying bonds, while also maintaining what’s perceived as very low risk as it relates to investment in general.
NREI: Are they tending to favor class-A apartment properties? Or are they comfortable with a lower class of property that’s got some value-add opportunities?
Robert Cohen: The answer to that question is it looks like high-net-worth investors and family offices are very comfortable in the class-B space. Recently, there’s been a lot more attention to the B-minus and C-plus space since there’s been such a depletion of workforce housing, especially in high-growth, tier-one markets where there’s been so much investment in renovating older product and pricing people out of where they live.
We’re not just a high-net-worth and family office investor. We’re also a platform. While many high-net-worth investors and family offices may simply invest passively, we’ve actually determined that we want to create a multigenerational business out of this.
That being said, I would say that the high-net-worth investor or family office is looking for 7 percent-plus, typically, on current pay. That’s pretty difficult to get on brand-new core assets. The brand-new core assets are typically for cheaper capital sources, like institutional investors and insurance companies. When we used to be a passive investor, we had absolutely no problem buying class-B product. Today, we consider ourselves class-B, value-add buyers. We look not for old assets, but older-than-brand-new assets—built between 1980 and 2005—that have the ability to be renovated to achieve higher yields.
NREI: What’s the investment potential for workforce housing?
Robert Cohen: I would argue that workforce housing is less risky than higher-quality apartments since the supply is diminishing with people upgrading properties left and right. The fact of the matter is, the rents are at such a low point that workforce housing absolutely will always be full. There’s always going to be a need for it, regardless of what time in the cycle you’re at. In addition, organic market rent growth numbers tend to be significantly higher than higher-quality product because, obviously, a $20 gain on $500 rents is a much higher percentage than a $20 gain on $800 rents.
Relative to your investment, you stand to make significantly larger gains on rent and, therefore, the asset appreciation is better, so long as you’re buying in top markets. That’s not to say that workforce housing is not a good investment in secondary and tertiary markets.
I think the greatest opportunity right now for workforce housing really is in top-tier markets like Atlanta and Dallas, where people are continuing to get priced out and having to move farther and farther away to be able to afford where they live. It’s putting significant upward pressure on rents for the remaining workforce housing properties that aren’t even doing renovations at all, but are just maintaining the status quo in terms of property improvements.
NREI: Are there any asset classes that you’re trying to focus more on now than you have in the past?
Robert Cohen: Workforce housing is absolutely an area that we are more focused on now than we used to be, but that’s not to say that we look at fewer gray-collar and white-collar complexes. It’s really not one in lieu of the other; if anything, it’s just an additional focus.
I want us to be seen as a company that’s trying to provide the best-quality housing to the full spectrum of demographics in a given market, and not just as someone that’s pricing people out of their homes. I see the value in workforce housing, both to myself and to the renter, by going in there and spending $2,000 to $3,000 a unit across the board to clean things up and improve the quality of life for that demographic; you tend to get a $50 to $75 bump for that, and you don’t price people out of where they’re living.
NREI: Which geographic areas are you paying attention to these days?
Robert Cohen: Since 2009, we’ve historically been Southeast buyers, with a few exceptions. Currently, we’re really trying to create critical mass—3,000 to 5,000 units in each of our target markets. We’ve decided that we really want to be masters of, say, half a dozen markets rather than spreading ourselves thin across many more.
The top two target markets that I have my eye on right now are Atlanta and Dallas-Fort Worth. Atlanta and Dallas-Fort Worth have a lot in common in the sense that they’re very large, high-growth markets. If you’re someone who’s trying to achieve scale in multifamily, it’s pretty difficult to do that in a shorter amount of time, even in good but smaller markets like Raleigh, because those markets probably only have 10 to 12 very good deals a year. Markets like Atlanta and Dallas-Fort Worth have tremendous volume and liquidity many times over what the rest of the Sun Belt has, for the most part.
In addition to Atlanta and Dallas-Fort Worth, we’re very hot on Charlotte and the entire Research Triangle—Raleigh-Durham-Chapel Hill—in North Carolina. Raleigh has seen a great deal of corporate relocation and expansion, and Charlotte is the second largest financial services city in the country, after New York. We also like the Florida markets of Tampa, Orlando and Jacksonville, but not South Florida.
NREI: Why not South Florida?
Robert Cohen: South Florida is a different animal. The job growth and the population growth are absolutely real there. That being said, the cap rates and pricing are not, in our opinion, justifiable in certain areas of Broward and Palm Beach counties, where you’re seeing sub-5 cap rates. We don’t quite see that as being a correctly risk-adjusted return.
NREI: One of your existing multifamily markets could be home to Amazon’s second headquarters. What do you make of that?
Robert Cohen: I’d be willing to bet that it goes to Atlanta. I feel very strongly about that. That is based on nothing other than my feeling; I don’t have inside information or anything like that.
It’s very difficult for a company like that to choose a market that doesn’t have a major international airport. (Atlanta is home to the world’s busiest airport.) And not only that, but Atlanta has major technology infrastructure that’s set up for companies like this to come in, whereas many of the other cities that are bidding for it don’t have that infrastructure laid down already. I think Atlanta has a great shot—if not the best shot—of getting it. I’m obviously rooting for that, because that certainly would help us tremendously.