Vella Group has asked for a public handout to build a 420-unit urban retail village in Downtown Los Angeles.

The West Hollywood-based developer seeks a financial incentive from the city to build a residential, hotel, office and retail complex at 670 Mesquit Street in the Arts District, Urbanize Los Angeles reported.

The request was made through a motion by Councilman Kevin de Leon, who shuttled it to a trade, travel and tourism committee for consideration.

According to the motion, Vella Group has “indicated that the proposed hotel development requires financial assistance in order to be completed and has requested development incentives consistent with those extended to other large hotel projects.” 

Los Angeles has provided financial incentives for past hotel projects in the form of a rebate on transient occupancy tax revenue that would normally help pay for city services. 

Lightstone Group, which received such incentives for its Fig + Pico development near the Convention Center, is expected to get an additional $100 million in revenue through the first 25 years of hotel operations.

Such incentives, however, have raised eyebrows. In 2018, then City Controller Ron Galperin argued the city lacked any way to determine the need, or success, of public incentives for hotel projects.

Vella Group would pony up $150,000 to cover the cost of an economic feasibility study regarding its proposed hotel, which could justify the requested incentives. The amount of financial help was not disclosed.

The proposed project, in the works since 2016, would include four buildings between 6th and 7th Streets containing 420 homes, more than 800,000 square feet of offices, unspecified ground-floor shops and restaurants and a 236-room hotel. 

The cascading complex, designed by Copenhagen-based Bjarke Ingels and Carthay-based Gruen Associates, would be sheathed in floor-to-ceiling windows encased in a concrete Hollywood Squares-like frame. 

It would soar up to 378 feet along the Los Angeles River, near the new 6th Street Ribbon of Light Bridge.

It’s billed as a key connector to a proposed Metro station for the B and D subway lines, with an outdoor deck over the tracks that could hold farmers markets and movie nights.

— Dana Bartholomew

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Shakti C’Ganti didn’t get into real estate to sweep water out of apartment buildings with busted pipes, but when the Texas power grid failed in 2021, pipes burst in 10 percent of the apartments in his 1,200-unit portfolio. He pulled out a broom and started sweeping. 

The past few years have been a rollercoaster for Sun Belt multifamily investors, and C’Ganti’s firm, Ashland Greene, has been one of the fastest-growing shops in the space in that time. After buying its first Dallas Fort-Worth deal in 2018, the company has bought a spate of older, value-add multifamily projects in the Metroplex. This month, it landed on the Inc. 5000 list of the  fastest-growing private companies in America. 

TRD spoke with C’Ganti about his journey from Brooklyn brownstones to Texas donuts, where he finds deals in today’s tumultuous multifamily environment, and whether sellers still want yesterday’s price in today’s market.

After your time at Lehman Brothers and in private equity, you floated around for a while. How did you ultimately make the switch from finance to real estate?

I was just like, “I think I’m gonna get my real estate license and be a broker, and see if I can eventually buy a place.” So that’s what I did — hustling around New York, brokering deals. In 2010, I had my first opportunity to buy a piece of real estate on the corner of Ashland Place in a neighborhood in Brooklyn called Fort Greene. That’s why the company is called Ashland Greene. 

It was a distressed condo sale. The developer went out of business, and the bank basically took the offering plan and slashed the prices in half, so I bought a 1,000-square-foot condo on the 26th floor of this building for $543,000, when the prior price was close to $1.2 million.

Fast forward, my wife and I built a small portfolio of brownstones in Crown Heights that we were renovating and renting out. I was brokering deals, and she was working at Citigroup and at JPMorgan on their algorithmic trading desks. 2017 was almost my 10-year anniversary of doing this, and I had a choice: Did I want to continue down the path of being a broker and investing in my spare time? Or did I want to spend the next chapter of my career full time investing, taking all the skills that I had learned in finance and brokerage. I had a kid, and a second one was coming, so I decided to try buying larger properties. 

In New York City, once you go to a five-unit property or greater, you start getting into rent control and rent stabilized properties. I looked in the Bronx, Brooklyn, all over, but I couldn’t really find a 20-unit building that wasn’t rent-stabilized or rent-controlled. I visited California, where my parents live and I grew up, but the same thing happened there. They have a lot of rent control and rent stabilization. So I started looking into the Sun Belt. I spent about a week in Atlanta and made a bunch of offers, but couldn’t get anything. Then I stumbled upon Dallas. My first offer was accepted in 2017, and we closed our first deal in 2018.

Why did you bring property management in-house?

When Covid hit, we were using third-party management. We had about 1,200 apartments in Dallas-Fort Worth, and we would get on these biweekly calls to speak with the property management company. We would see the performance, and we would say “Can you fix this?” but we’d come back two weeks later and nothing had happened. 

I picked up a book called “The ABCs of Property Management” by a guy named Ken McElroy. It’s a 300-page book about why never to do property management. I read about 150 pages and said “There’s no way I can do this — this is going to fundamentally alter the course of my life.” 

I like doing deals. I give them to the management company and then focus on doing deals. Property management companies make 3 percent, so they don’t care if they collect $150,000 or $155,000 — 3 percent of each dollar is not enough of an incentive to move them. Then, switching property management companies every time is pretty challenging, because you have to reset. So when you switch a management company, you go back three months, and then the new management company learns how to operate the property, and then you find out they’re not good. 

You just get into this cycle, and the only thing you can do at that point is take over the property management. So that’s what we did. And it’s not advisable, it’s actually a money-losing situation with 1,200 units. It gets us around breakeven, but the control that it gives us over the asset and the ability to make changes quickly is worth its weight in gold. That’s ultimately how you protect your asset and how you protect your investors. 

The last couple of years have been a wild time in Sun Belt multifamily, between slowing rent growth, frozen capital markets and rising rates. How have you managed the choppiness?

We thought we had it all figured out in 2021, and then 2022 came around. The Fed pivots from the concept of transitory inflation, saying “We’re never going to hike,” to hiking. We were trying to exit six deals, and we were able to navigate those waters in 2022 and get close to a 30 percent return for our investors. But I feel like I’ve gotten a few gray hairs in the last couple years that I didn’t have before.

The thing with growth is that you want to go fast, but you also have investor money. You can’t go so fast that you can’t control it, so we’ve been really thoughtful about where we buy and the types of assets we buy. We only buy in DFW, so all of our assets are within a 45 minute drive of our office here in Uptown. 

Everyone looks good when you have 15 percent rent growth. Everyone’s being a syndicator, and everyone’s piling into the market, and money’s flowing freely. Warren Buffett says you don’t see who’s swimming with their pants down until the tide goes down, and the tide has now gone down. Capital markets are frozen to a certain extent, but these are the times that are fun for me. These are the times where people make great buys, and you learn more as an organization. When things are moving fast and everything’s easy, you don’t learn anything. It’s times like this where you’re just like a sponge.

Where are you finding deals now?

Texas is a hyperlocal market, and now there’s a lot of outside capital. The market and the players here have changed, but it’s much more local. Generally speaking, we try to just stick with off-market deals we can underwrite quickly. We’re sourcing deals with brokers — we don’t go directly to sellers. It’s just too hard to compete with the brokers — they have these armies of young analysts, and their job is to make 50 to 100 calls a day. There are only so many multifamily properties that are in this sphere that we would buy, so if you have two analysts at each firm, there’s 10 firms, they’re gonna get through all the inventory way quicker than I will.

Are some of the groups that got out over their skis now creating opportunities for you?

The groups that bought a lot of deals are now having to manage many different things at once. If you have a 50- or 75-property portfolio, and all those properties were purchased in the last 18 months with bridge loans that are coming due with rate caps, it’s really, really challenging. 

If you’re an upstart, even if you have a team, if you’re trying to manage 50 different assets that have expiring rate caps, you are stretched extremely thin. I think human nature is to freeze, so we are seeing opportunities from groups that bought aggressively in 2021 and 2022, for sure.

Have sellers begun to adjust to the new dynamic, or are they still seeking 2021 prices?

That’s probably been another one of the reasons why the first half of this year had 80 percent less transaction volume than last year. If you’re borrowing at 6 or 6.5 percent, you’re getting a deal with a cap rate of 5 to 5.5 percent. That’s what we call negative leverage. Now, we have the benefit of being a value-add specialist, so we can force appreciation and grow income by investing the dollars, but that takes time. Even if you’re buying a 5 or 5.5-cap, and you’re borrowing at 6.5 percent, it takes six to 12 months of getting through your business plan before you can raise rents enough to get cash neutral with your debt.

The prices that sellers are getting are far below broker guidance, and the sellers are approaching a wall of maturities. We’re in that zone, starting in like October or November, all the way through next year. So I think sellers are going to hold out for as long as humanly possible. 

The less sophisticated, non-institutional, less well-capitalized borrowers that don’t have operational control and own older deals with lots of deferred maintenance own the properties that you’re going to see come up first. 

A year ago, you had Class A, Class B and Class C properties all trading for 3.5 to 4 caps — there was no distinguishing in pricing. Now you’ve got the Class C deals at almost 7 percent. The Class B’s are in the mid-fives, and then you go down from there to the Class A’s. We’re starting to see a differentiation in pricing, which is what a down market does.

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The East End has become a death trap for affordable housing projects, but another developer is giving it a go in Cutchogue.

Hampton Bays-based Cruz Brothers Construction presented a preliminary proposal for 29475 Main Road to the Town Board, the Suffolk Times reported. The firm hasn’t done any ground-up affordable housing developments before, but does have experience in property management of such properties.

The proposal for North Fork Villas calls for 36 affordable rental units across the three-acre parcel. There would be six two-story buildings in the complex, each having two one-bedroom units and four two-bedroom units.

All of the properties would include a small outdoor patio or deck. There would also be two 1,100-square-foot storage buildings, a small office building and 75 parking spaces.

It’s early days yet for the developer, which heard potential concerns from the town’s housing review committee. Among the changes Cruz may need to make are considerations of wastewater treatment and the incorporation of some three-bedroom units.

The board is set to keep considering the preliminary proposal. Town Supervisor Scott Russell expressed optimism that the early introduction of the 36-unit project could help the process move along more seamlessly for everyone involved.

“It’s a bit more thorough vetting process before it gets too far down the pike,” Russell said of the committee.

There are plenty of developers who may have benefited from a more deliberate approach to affordable housing in the area. Adam Potter recently revived an affordable housing development in Sag Harbor, but cut the number of units proposed in half after strong community pushback and a lawsuit.

Rona Smith tried to bring the Cutchogue Woods affordable housing project to the eponymous hamlet, but the 24-unit development faced resistance at every turn, leading the Southold Planning Board to spike it.

— Holden Walter-Warner

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An application has been filed to turn a South Slope linen supply factory into hundreds of apartments.

Arrow Linen Supply Company is seeking new zoning to develop a nine-story, 247,000-square-foot residential project at 441 and 467 Prospect Avenue.

The proposal will test the appetite for new housing of rookie City Council member Shahana Hanif, who controversially shrunk a much smaller project last year in her district.

Park Slope has one of the tightest and priciest housing markets in Brooklyn. Although the Arrow site is on the southern edge of the neighborhood, it borders Windsor Terrace, where real estate is almost as expensive.

A spokesperson for Hanif said Arrow, which owns the lot and its several low-scale buildings, is working with an architect but does not yet have a developer. The formal review process, which would culminate with a City Council vote no sooner than next year, has not begun.

The project presents another opportunity for the local Council member to prove her progressive bona fides after opponents of a 48-unit, mixed-income development at 153 Ninth Street in Gowanus persuaded her to reduce it to 13 to 23 units, potentially all market-rate. Hanif said she was protecting industrial jobs across the street.

The Prospect Avenue lots are zoned RB5, which is typically used for three-story row houses. But records show laundry services at the large Prospect Avenue site date back to at least the 1940s. Arrow Linen’s variance allowing for industrial use was last extended in May 2022.

Arrow on Thursday filed an environmental assessment statement, which determines if a more expensive environmental impact statement is needed. After the Department of City Planning certifies the application, Brooklyn Community Board 7 and Borough President Antonio Reynoso will render opinions, followed by binding votes by the City Planning Commission and the City Council.

The process takes four and half to seven months. Under the Council’s custom of member deference, the outcome hinges on the say of the local member, Hanif.

Rezoning would subject future development to the city’s Mandatory Inclusionary Housing law, which requires at least 25 percent affordability. It is unclear if a rental project on Prospect Avenue would pencil out without the property tax break 421a being restored in some form by the state legislature.

Arrow Linen has owned 441 and 467 Prospect Avenue since buying them in 1978 from General Linen Supply and Laundry Company, which provided Arrow a $150,000 mortgage. The debt was paid off in 2013 when Arrow took out a $5.4 million loan from Citibank on the same properties.

It’s unclear whether Arrow aims to relocate or shut down its business or what kind of arrangement it will seek with a developer. Numerous options are available, but typically the landowner’s compensation would depend on what sort of development the city approves.

Arrow Linen, its land-use attorney Frank St. Jacques and the Department of City Planning did not respond to requests for comment in time for publication.

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An exclusive golf entertainment center is planned within chipping distance of the PGA of America headquarters in Frisco.

The Bays at Frisco will be a four-story resort from California-based TaylorMade Golf and a local golf company, the Bays, the Dallas Morning News reported. It will have 24 suites with private hitting bays, a 25,000-square-foot putting green, bar, restaurant, rooftop pool and concierge services. Membership will be by invitation only, the outlet reported. It is expected to open in early 2025.

Dallas-based Centennial revealed designs for its redevelopment of the Shops at Willow Bend in Plano. The firm bought the property last year with local firm Cawley Partners and New York-based Waterfall Asset Management, the Dallas Morning News reported. Centennial plans to add apartments and create more open-air shopping while demolishing part of the enclosed mall, built in 2001. 

A Tennessee-based developer is seeking tax incentives to bring a Sprouts-anchored retail center to Kyle, a fast-growing suburb south of Austin. GBT Realty has asked the city for incentives of $650,000 and a 50% property and sales tax rebates for five years, the Austin Business Journal reported. The grocery store would span about 23,000 square feet, and other retail space would span about 18,000 square feet at the corner of FM 1626 and Kohlers Crossing.

The city of Austin’s Iconic Venues Fund came to the rescue of a beloved dive bar near the University of Texas. The Hole in the Wall was awarded $1.6 million, enabling the owner to sign a 10 year lease with two five-year extension options with the Weitzman Group, the Austin Monitor reported.

Tim Horton’s Texas takeover is bubbling up. The Canadian chain, comparable to Dunkin or Starbucks, opened its first location near Houston last year and has been scouting real estate in Dallas-Fort Worth. A franchisee plans to open 10 Austin-area stores in the next five years, the Austin Business Journal reported.          

A mystery buyer from Mexico picked up the original location of El Tiempo Cantina at 3130 Richmond Avenue in Houston, the Houston Business Journal reported. Houston-based EYF STNL was the previous owner of the building, where the restaurant has been a tenant for 25 years. In other restaurant news, Dallas-based Bread Zeppelin opened its second location in the Houston area, in the Summit Square shopping center at 3235 Southwest Freeway.

An icon of Texas rap will be well represented at NRG Stadium, where the Houston Texans play. Bun B’s Trill Burgers will have four locations inside the stadium this NFL season, the Houston Business Journal reported. 

San Antonio-based Whataburger is expanding its presence in Tennessee. The iconic burger chain is planning locations in Memphis, Millington and Arlington, Tennessee, the San Antonio Business Journal reported.

Texas’ cult favorite gas station, Buc-ee’s, has been expanding outside the state. Its latest location is planned in Dayton, Ohio, the San Antonio Business Journal reported.

The biggest national news in the grocery business this week was Aldi’s acquisition of 400 Winn Dixie and Harvey’s grocery stores. That doesn’t affect Texas, though, as Winn Dixie closed all 37 of its Texas stores in 2002. 

Meanwhile, the CEOs of Kroger and Albertsons took to social media in an attempt to win favor for their merger, which is now under regulatory review

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The striking 7,581-square-foot manse is owned by a former Blockbuster executive and a prominent photographer.

The Chicago Teachers’ Pension Fund has rejected Sterling Bay’s pitch to invest in the Lincoln Yards project — a financial shot in the arm it sorely needed with its megadevelopment stalled only feet off the ground.
“After careful deliberation, it became evident that the investment did not align seamlessly with the goals of our Fund,” Jeffery Blackwell, president of the CTPF Board of Trustees, said in a press release. “There were many positive aspects of the development, but ultimately it was not the right fit for CTPF, as we are overallocated in our real estate portfolio.”

The company, known for its mille crepe cake, has had multiple pop-ups in Bellevue in recent years.

Here are some of the major companies whose stocks moved on the week’s news.

The Bellevue-based startup, which makes at-home health tests, currently has about 22,000 square feet of lab space in Bothell.