SAN FRANCISCO—Mixed-use multi-family and retail investor Veritas Investments is one of the most active in the San Francisco Bay Area market, and recently concluded one of the largest refinancings in that city’s history. GlobeSt.com recently caught up with Veritas CEO Yat-Pang Au to talk about current trends and opportunities amid a fast maturing investment cycle.
GlobeSt.com: Observers of the current real estate cycle say the nation’s top-ten investment markets are getting overheated. With San Francisco apartments topping most everyone’s list in recent years, what’s the situation there?
Yat-Pang Au: As a global city and West Coast gateway to Asia, San Francisco is always a top 10 investment target, and the rebound from the recession has expanded the pool of investors. Prices have gone up significantly of course, but that just makes things more interesting for an experienced local firm like us in finding the right opportunities. The first round of investors post-recession grabbed incredible discounts; now, as the months pass by, you’ve seen investors with different objectives buying along the yield curve, such as large pensions and sovereign wealth funds with lower, longer-term return targets. On the other hand, opportunistic buyers with double-digit yield objectives have pretty much left San Francisco and are moving to secondary and tertiary markets.
GlobeSt.Com: How is Veritas able to perform amid the competition?
Yat-Pang Au: Gone are the days of just buying discounted properties that rely on cap rate compression. It’s getting back to fundamentals of operating the real estate, and knowing what to do with these classic, older San Francisco apartments over ground floor retail, to meet our investment objectives. We’re finding a good reception to our business model, which tailors to the idiosyncrasies of San Francisco and responds to the market. As we expanded our portfolio coming out of the recession, we scaled our organization to match our growth, both in investment expertise and management capabilities. Our focus remains on acquiring smaller and mid-sized rental properties and creating value that we deliver to all our partners. We have equal focus on the retail in our properties, to custom curate ground floor shops and cafes that speak to the unique nature of the building and potentially transform the neighborhood. Retail contributes to the special character and amenities within walking distance of our properties, and that in turn adds synergistic value to the apartments.
GlobeSt.Com: So what’s next on the horizon for investing in the Bay Area?
Yat-Pang Au: San Francisco Mayor Ed Lee is working hard to increase the supply with his target of 30,000 new units, especially in workforce housing for teachers, police, fire fighters, and mid-level workers–in-between luxury and subsidized affordable housing. I’m sometimes asked if we’re worried about a coming oversupply, and we’re not. We actually see additional housing as an opportunity to perpetuate the virtuous cycle of housing the world’s best and brightest in San Francisco, which in turn draws employers like Salesforce, Zendesk, Twitter and others who have all located themselves in San Francisco to access this brain trust. Coupling these demand drivers with the Mayor’s housing initiative, we see a future rich in housing demand and job creation. We’re also expanding our sights beyond the classic San Francisco neighborhoods that we’ve been operating and are considering investing in neighborhoods around San Francisco that offer similar opportunities within our model and strategy.