Phil Wharton brings an extensive track record of real estate development and investment, at some of the top firms in the industry. He was on the forefront of development and investment in Long Island City and Downtown Brooklyn while at AvalonBay Communities, and he helped reshape the downtown of New Rochelle, New York through the innovative public/private partnership between RXR Realty and the City of New Rochelle.
Q.1. What is your life story? How did you go from studying History at Harvard to being the CIO at Twining Properties?
What inspired me to go into real estate development was seeing the transformation of the Faneuil Hall/Quincy Market neighborhood in Boston from a historic but run-down area into a thriving new community.
Q.2. Tell us more about Twining Properties and how they help investors?
We allow pref equity investors to achieve development-level returns within a more defensive capital structure.
We also offer hands-on oversight of development because of our long track record as developers ourselves.
Q.3. What mistakes do first-time real estate investors usually make?
Backing someone based on the projected returns, not the proven capabilities of the developer.
Q.4. How significant is impact investing in real estate?
There has always been a component of impact investing in terms of financing affordable housing. The Opportunity Fund legislation has gotten a lot of attention in specific markets. However, it is hard to quantify whether investors are paying a premium for the tax break or whether sites have attracted capital that otherwise would not have. At this point, I believe that the barriers to affordable housing are less about the availability of capital and more about the process of building new supply. Housing is most difficult to build in the area where it is needed the most – high growth regions and the metropolitan regions.
Q.5. How has COVID 19 impacted the real estate market and your investment thesis?
Most of our markets have bounced back in terms of rents. What was unusual was that in the COVID 19 pandemic, the highest rental apartments were the most affected because those tenants had options to escape to less dense areas and were the most likely to work remotely. That exposed a new vulnerability in that asset class that market participants will remember.
I think speculative urban office development will be less prevalent, but the suburban office is seeing new demand that will continue after COVID 19 is mostly eradicated.
Future apartments, including those we build, will be larger and designed with one or two remote working areas.
Q.6. What is your outlook on the real estate market over the next decade?
Bullish. For better or worse, local government has made it difficult to get development approvals in many markets, so supply will naturally be limited for the foreseeable future for the benefit of the holders of assets. Of course, there will be cycles over the upcoming decade, and specialists by property type will know best when is the time to get in and get out. And specialists by geography – the local players – will always have an edge in real estate, despite the globalization of most other industries. Similarly, real estate is a complex and subjective asset, and no amount of automation can tell you whether it’s better to own on Madison Avenue than Lexington Avenue.
Q.7. Which real estate asset classes are you bullish on?
We are most comfortable with office and residential. Retail and hotels require more expertise to execute well in the current environment.
Q.8. How would you allocate your hypothetical personal $100M portfolio?
I would invest preferred equity of an average of $10 million each in a diversified pipeline of fully entitled multifamily development in apartment markets that haven’t fully recovered from the Covid pandemic.
Q.9. If you had to give one quote as advice to your former self, which would it be and why?
Things are never as bad as they seem, and they’re never as good as they seem either!
Q.10. Which real estate friend (or mentor) would you like to give a shoutout to?
Fred Harris, who was the leader of the New York office of Avalon Bay Communities for ten years.
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