I recently had the pleasure of speaking with one of our liveliest clients, Billy Procida, President and CEO of Procida Funding & Advisors, manager of 100 Mile Fund. The morning was well underway for Billy, who is based out of Englewood Cliffs, NJ and just getting started for me here in Portland, OR. We spoke about transitioning to a REIT, the state of the market, and what Billy is investing in now. Billy has been in real estate since 1980, when he started as a construction worker, followed by a successful career as a real estate developer (he was named “Developer of the Year” by the Associated Builders and Owners of Greater NY, along with a slew of other accolades). He then made another successful move to the investment side. From 1995-2000 Mr. Procida was CEO of William Procida Inc. which financed over $1 billion of developments as investment banker and correspondent. The firm was also advisor to several financial institutions for due diligence, asset management, sales and marketing. In 2011, he established 100 Mile Fund, an open-ended vehicle that invests in mortgages and investments in real estate and businesses within 100 miles of the New York City area. Using the Tax Cuts and Jobs Act (TCJA) to Raise Capital This represents a savings for those investors who look at returns on a net (of taxes) basis. According to Billy, this has been an easy transition and will continue to be, as the administrative work in making the change was minimal and their Fund has always operated like a REIT, in that they have over 100 investors to whom they distribute all of the Fund’s income every year. The party is coming to an end Billy’s passion and expertise for real estate shone through when we delved into the current state of the market. His first warning to other real estate folks was that we are at the end of the longest boom in history, so that all existing and new deals should be carefully re-underwritten as you put your armor on to prepare for a pricing correction of 20% to 50%, especially in the high-end residential space, of $5M and up. When I asked Billy how he knows the party is ending, he referred to this as the 1% crash because the assets that will be worst impacted are high end projects in major cities where developers have little skin in the game, as that is where he sees the majority of permits and a corresponding oversupply. Billy published a great article last summer, A Time for Pause and Urgency with a map showing housing start cycles and concentrations from the 1970s through today. “Although the number of housing starts has dropped considerably in recent years, says Billy, 75% of all housing starts today are for high rises in major cities all around the country.” Therefore, he believes we are under-supplied in what Billy refers to as wholesome housing, $250k-$500k homes in urban and suburban markets. Billy’s simple rule for how to figure out if there is an oversupply: “If you see too many cranes in the sky, beware!” This is especially evident in New York City, where condos for which people previously paid $20M+, can’t be sold. Billy gave the example of rapper 50 Cent, who just sold his 52-bedroom house in Connecticut after 12 years on the market for $2.9M, $15.8M less than his original asking price. Billy believes that those who are not prepared for the impending correction may be wiped out, and the pool of Fund Managers may shrink, as it did with the last recession. I believe Billy is one of those people who has that real estate gene, with immense knowledge that seems innate. In fact, he was the first person on CNBC to explain to Maria Bartiromo what a subprime loan was and why it was going to ruin America. During that same time, he wrote of the coming crash and literally got hate mail. Undeterred, he followed it up with another article called Revenge of the Asset Manager where Billy said “that if you are the CEO of a bank then you should fire your originators and find out who your asset managers are because you probably don’t know.” Where is the 100 Mile Fund investing now? So what is 100 Mile Fund investing in now? Old, ugly and tired assets within 100 miles of NYC, but certainly not in NYC. The Fund made a recent loan to a family-owned catering hall that has been around since the 1950s, where Billy went for sports dinners when he was in grade school. Places that can only go up are the safest to invest. For more, check out his article How the Real Estate Industry Can Save America. Super sharp, knowledgeable, committed clients like Billy and his team are part of what makes the work that we do here at Redwood so rewarding. If you have a chance to see Billy speak (he recently gave the keynote speech at the Northeast Regional Mortgage Bankers conference) I encourage you to do so! As with any private investment, an investment in 100 Mile Fund is speculative and involves substantial risks. Consider the risks outlined in the fund’s formal offering documents before investing. Risks include, but are not limited to illiquidity, lack of diversification, and complete loss of capital.
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