It’s a buyer’s market in Miami, and a new startup wants to capitalize on the glut of condos on the market.
New York City-based Compound, led by CEO Janine Yorio, is under contract to purchase a unit at Brickell City Centre, and will open up a vehicle for accredited investors to buy shares. Using the same model, the investment firm hopes to buy hundreds of condos that it will lease to renters.
Yorio compared it to Blackstone’s strategy of buying over 10,000 single-family homes that it ultimately took public as Invitation Homes.
The Miami unit is Compound’s first using the investment model. Each individual unit will be owned by a real estate investment trust that Compound sets up.
Compound is under contract to pay $445,000 for a unit at Reach at Brickell City Centre, with closing expected in two months. Shares of the unit will be priced at $4.80, with a minimum investment of $4,800 or 1,000 shares – and will be capped, per investor, at 10 percent of the entire unit’s ownership. Accredited investors will be required to have a net worth of about $2 million to qualify.
Compound plans to rent the condo for 12 months, and is targeting an internal rate of return of about 17 percent. Investors would receive annual dividends from the net cash flow generated from the rental stream, but the idea is that they would make their money when Compound sells the unit, typically after a long-term hold.
Owners of newly completed condos in Miami and some other markets across the country are struggling to recoup their investments as they list units at the same time the developers are still trying to unload even newer product. That provides an opportunity for buyers.
The sellers of the Brickell City Centre unit, Harley and Nichole Hines, paid $582,900 for the condo in 2016, when Swire Properties completed Reach and Rise. Both condo towers connect to the mixed-use development in the heart of Brickell.
Unit 1805 at Reach, which Compound is under contract to buy (Credit: Redfin)
The one-bedroom, 879-square-foot unit at Reach hit the market in June for $500,000 with a price reduction in September to $475,000, according to Realtor.com.
If it closes for the purchase price of $445,000, the Hineses will have sold their unit at a 24 percent markdown compared to what they paid three years ago, a loss that does not include carrying costs like monthly maintenance fees and insurance. The HOA fees total $789 a month for that unit, according to the listing.
Yorio said her company seeks to institutionalize the behavior of investing in individual condos and make it accessible through technology. Each unit would be broken up into 100,000 shares that investors could then sell.
“We open up these offerings when we find great deals, then syndicate these deals,” Yorio said.
In Miami, Compound is also looking at deals in the South-of-Fifth neighborhood of Miami Beach, and is planning to buy units in New York City, Austin and Nashville.
In the Miami market, it’s looking to purchase units in the $500,000 to $2 million range. In New York, units would be in the $1 million to $3 million price range.
Compound would manage the unit, including finding renters, determining the length of a lease and setting aside reserves for issues like broken appliances. Jesse Stein, chief investment officer, said the bulk of the return will come from watching prices rise.
“We have the ability to sell it, but the whole point is to buy and hold,” Yorio said. “If the market turned in a way that was incredibly favorable, we would sell the unit and distribute the gains.”