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Inside the Housing Market Recovery: An Interview With Andrew Chaban, CEO of Princeton Properties

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Exhuming Al Czervik: One of the foremost industry experts in multi-family housing on what investors need to know about the market turnaround, Fannie, Freddie, and the homebuilders.

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There's the famed walk up the 18th on the final day at Augusta. Then there's the walk down the first fairway at Bushwood CC in 1980. On this walk, we meet the bombastic buffoon, Al Czervik, who opines, "Country clubs and cemeteries are the biggest wastes of prime real estate! Dead people? They do not need to be buried nowadays! Ecology, right? Ask Wang. He'll tell you. We just bought property behind the Great Wall. On the good side!...I'll put a mall there, condos here."

At the risk of sounding trite, this scene from Caddyshack is -- in this humble writer's opinion -- timeless. Al Czervik (and by extension, producers of this oft-quoted comedy) also proved to be a bit prescient; there is a good chance Al and Wang were at the forefront of property development in China, and at the same time, may have gone toe-to-toe with the condo glut of the '80s, and the subsequent S&L crisis.

I've gotten a lot of questions lately regarding housing, construction, and commercial real estate. I've seen shorts/sellers of the homebuilders, as well as existing holders, sell to pare back positions, given the year-over-year move with the group. I have also seen buyers of REITs as investors, both individual and institutional, remain starved for yield. So I set out on a quest, to talk to people in the trenches, so to speak -- sources (one in particular for the purposes of this piece) that I wanted to give readers access to, who play out the battle behind the indicators every day.

The Chabes

The first leg on my Jean-Claude Van Damme quest led me to the Pike School in Andover, Massachusetts, for a conversation with Andrew Chaban, CEO of Princeton Properties, and Chairman of the Federal Government Affairs Committee, and Executive Board Member of the NAHB. To better put Andrew in context, visit Princeton Properties website. But suffice to say, he's regarded as one of the foremost industry experts in multi-family housing.

Princeton Properties was founded in 1973 by James Herscot, a Lowell, Massachusetts, native. It was named after…well, Princeton Boulevard in Lowell. For Mr. Herscot, the original idea was merely for Princeton to be a tax shelter, a side venture. But before he knew it, he woke up one day with 400 units and had an epiphany. In the vernacular, the company morphed (much under Andrew's leadership in combination with Jim's) into what it is now one of New England's largest and best-in-class purveyors of suburban, garden-style multi-family homes. Princeton currently owns and manages more than 6,000 apartment homes, spanning Massachusetts, New Hampshire, Maine, and Georgia, and it is growing and continuing to innovate.

I do not want to get off track here, but at the least, I want to set the table. Andrew summed up Princeton's ethos by saying, "We raise funds; buy and/or build to create value; then typically HOLD." Stay with me, people -- we're getting to some nuts and bolts here. When seeking financing, there are several routes Princeton takes. What has been most appealing to lenders and investors is Princeton's low leverage, or 65%-35% equity-to-debt ratio for a deal. For the small raise, say $3 million to $6 million, the funds come from family and friends after a couple martinis and perhaps a bowl of deep fried chick peas at Andolini's. For traditional larger ventures, Princeton seeks any appropriate combination of institutions, bank loans, and mezzanine financing. It was at this point that Andrew dropped, in Randy Jackson's words, "the hot lava bomb!" He said, "For our model, thank goodness for Fannie Mae (OTC:FNMA) and Freddie Mac (OTC:FMCC). They have been terrific for us."
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