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Commercial Real Estate
Business Observer Friday, Sep. 27, 2019 10 months ago

A Question of Risk

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St. Petersburg-based Stoneweg focuses on workforce apartments while applying European sensibilities in its ownership.
by: Kevin McQuaid Commercial Real Estate Editor

While many an apartment investor or developer focuses — and not incorrectly — on buying Class A multifamily rental towers in urban centers, ROI figures and ways to hike yield, a Geneva, Switzerland-based asset manager based in St. Petersburg is taking a decidedly different tact.

Stoneweg, which manages apartment investments in the U.S. for Swiss-based Varia US Properties under a revolving contract, has gravitated toward workforce-oriented, Class B projects in tertiary or secondary markets experiencing significant growth.

“We focus on secondary markets because, frankly, we consider many of the so-called primary markets to be too expensive and too risky,” says Stoneweg CEO Patrick Richard.

“With Class B properties, the way we analyze it, it comes down to a question of risk,” he says. “We believe the risk in such properties is actually lower, because we think we can always find tenants in the $1,000 to $1,500 a month range, people who have steady jobs and are financially stable. We’re not interested in properties that have to charge $2,500 a month in rent. There’s nothing wrong with those projects, it’s just not us.”

Today, Stoneweg’s portfolio contains 59 apartment communities with roughly 11,000 units, clustered primarily in the Midwest, Southwest and Southeast and often priced as much as $800 per month less than much of its competition.

In August, the company added a pair of new complexes to its portfolio, in Memphis and Kansas City. Stoneweg plans to invest a total of $8 million into the Lynnfield Place Apartments and Maple Hills Apartments to add amenities such as dog parks and clubhouses and improve landscaping.

Throughout Florida, Stoneweg owns 15 apartment properties.

But the company hasn’t focused on low-cost at the expense of quality or sacrificed profit.

At the same time that it has become a provider of attainable housing for many, the company also has committed to making its projects environmentally sustainable through water conservation, by installing more energy efficient lighting and other initiatives.

“There’s a growing importance to environmental sustainability,” Richard says. “And in Switzerland, we were raised with that mindset. It’s just in us, and we do things along those lines because we believe them to be right.

“And honestly, it doesn’t cost us that much to install new toilets that don’t use as much water, and there’s a return for us and for the tenant. Over a three-month period earlier this year, we saved $150,000 in water costs.”

Most recently, Stoneweg has begun a pair of development projects in Palm Coast and in its own backyard.

In St. Petersburg, the company plans next summer to begin building Lake Maggiore, a 275-unit complex on 10 acres along Sixth Street South. When completed in 2021, the project will contain a community garden, a retail market, a coffee shop, community room and co-working space.

Stoneweg’s Richard says the idea is to develop more than just housing.

“We aim to develop a true community project, with various elements that make a community beyond just a place to live,” says Richard, an attorney by training who transitioned into working at a commercial real estate fund 15 years ago after an introduction by a client.

“There’s such demand for this type of affordable housing and not enough supply,” says Richard, who chose to locate Stoneweg’s headquarters in St. Petersburg after buying a vacation home there eight years ago.

To make Lake Maggiore financially feasible, Stoneweg has worked with City of St. Petersburg officials, Regions Bank and domestic family office and private equity investors together with Varia US, which is publicly traded on the Zurick stock exchange.

The company also has applied for a special U.S. Housing and Urban Development loan to build Lake Maggiore.

Units in the Place Architecture-designed project are slated to rent for $900 per month to $1,700 monthly, Richard says.

In keeping with the company’s environmental bent, Stoneweg also intends to install electric vehicle charging stations and solar panels in the complex.

“There’s an investment there, but for us there’s also a return on investment,” he says.

COURTESY PHOTO — Stoneweg has chosen to focus exclusively on workforce apartment investments in growing markets that are more affordable than many properties today.

Russell Phillips, the Tampa-based director of real estate capital markets and originations with Regions Bank, which is partially financing Lake Maggiore, says Stoneweg’s unique approach is admirable from both a business and societal perspective.

“We like the fact that they are focused on affordability within multifamily rental projects and on including green initiatives into them,” Phillips says.

“They bring a unique outlook to commercial real estate, specifically multifamily properties, that’s much different from a typical U.S. company.”

Indeed, Richard uses the word “responsibility” frequently when discussing the company’s role in the larger economy.

“We feel a responsibility to do something to help the community at large, and that’s what’s primarily driving Lake Maggiore,” he says.

But while Stoneweg seems content to own older, perhaps less amenitized properties and relinquish some profit in the name of the environment, it also maintains an entrepreneurial spirit equal to almost any American landlord.

Over the next two years, for instance, Stoneweg hopes to double the number of units in its portfolio, to about 20,000.

By 2024, it expects to triple in size, Richard says, and develop roughly 500 ground-up units annually.

“We also have a bit of an ambitious streak,” he says. “We have investors, like everyone, and we want and need to hit certain benchmarks for them.”

 

 

 

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