Member Spotlight: The Swell Fund: LIVE. WORK. PLAY

The Swell Fund: LIVE. WORK. PLAY 

Swell, known for its award-winning design, and its affiliated entities have been together for over 15 years and currently have over $75M in real estate assets. The team has completed over $500M of real estate transactions and has developed over 200 projects and 2500 units. The Fund invests in a unique niche and its advantage is the team’s historic ability (since 2006) to source undervalued assets, then incorporating award-winning design into the project. Projected IRR is 14%-22% with downside investor protection as a core principle.

As an industry leader, The Swell Fund excels at educating family offices on the latest real estate trends. Here are a few thoughts:

Surf’s up! Let’s hit the slopes! Lobster bake tonight!

Maybe you haven’t actually heard people saying these phrases of late, but the sentiment is rising among real estate Investors.  Because the coronavirus pandemic has upended daily life, the real estate market has changed for the foreseeable future and people are migrating to new locations.  High-end “Custom Spaces” in real estate are in, and “Commodity Space” is out.

Let’s unpack that a bit more.

By “Commodity Space,” Swell is referring to spaces that are in abundance and trade primarily based on price.  Whether that be the thirtieth floor of an office building in New York, an apartment in the suburbs, or industrial space, these real estate investments are not differentiated from their competitors and face uncertainty ahead.  Both the Covid-19 pandemic and surrounding economic uncertainty has clearly infiltrated this market.  People and companies are moving out of the big city, smaller companies are closing down due to economic conditions, and middle-class individuals who live in commodity apartments and homes are facing increasing economic pressure and may soon be defaulting on their payment plan.  We Swell projects weakness over the next 36-month period for these “commodity space” investments.

On the flip side, “Custom Spaces” in real estate are soaring and the firm projects that trend to continue.  This trend was occurring pre-pandemic, but Covid-19 has accelerated the trend. Not only are the majority of workers not going to their former offices on a daily basis, but many prominent companies have indicated they are reducing their real estate holdings and the future of work “in a big corporate office” will change forever.  People are working from home and will be for the foreseeable future. Their home can be anywhere as long as there is wifi. 

The net effect of these trends on the real estate market is apparent.  The desire for custom / high-end homes (those with offices, pools, and yards) is booming.  The trend is also continuing to small (expensive) boutique hotels that cater to the cultured traveler as well as small, private commercial offices (offices for 1-8 people like many of the offices you work in) with unique and high-end amenities.  Pandemic Boosts Upper End of Housing Market” (WSJ) Additionally, the “economic gap” is continuing to widen.  Those with significant financial means are increasing their wealth, while the middle class is at best maintaining their wealth position, with most seeing their net worth declining.

Let’s get back to surfing, skiing, and eating lobster.  On top of these general trends, Swell is seeing another layer in real estate Investment.  Those with economic resources are migrating to Live.Work.Play zip codes (The Hamptons, Aspen, Hilton Head, Encinitas, Lake Tahoe, etc.)  We have seen a significant number of HNW families and smaller profitable companies leave Los Ageles, San Francisco, Chicago, and New York (among other locations) for these Live.Work.Play locations.  Pandemic boosts sale of luxury homes in Resort Communities (cbsnews.com). People are choosing, by and large, to live in coastal or mountain areas with a bent toward recreation and relaxation.  

What does that mean for your Family Office? The Swell Fund recommends that all current real estate investments follow these two criteria.  

  1. Quadruple down on the time-tested adage “location, location, location.” Follow this tried and true approach but dial it up a notch. Focus on only the best streets and best plots in the best towns in the best coastal and mountain geographies.  
  2. Put an additional layer on top of “location, location, location” and then only invest in those areas on properties that are undervalued – whether that be related to the zoning, design, or current condition of the property.  

Over the next few months, you’ll read many varying opinions about the coming trends in the real estate market but in every article you will see one common thread: the real estate market for those with significant economic means has fundamentally changed.  

There simply isn’t enough inventory of high quality residential and small commercial properties in Live.Work.Play locales to meet the desired needs of those leaving America’s largest urban areas.  Therefore, it is important to get ahead of the curve and focus on this niche, while staying away from more traditional real estate investments.

For more information, visit Theswellfund.com or contact Scott Travasos at The Swell Fund*, [email protected] or 415-321-0299.

* The firm’s target assets include Mixed and Single Use Properties with a focus on residential, while also incorporating hospitality and commercial properties. Assets are purchased in the $2M – $10M range and predominantly require entitlements and construction, and/or a total redesign. Coastal San Diego and opportunities in other unique work / live / play areas such as Lake Tahoe, the Pacific Northwest, and Coastal California are priority. A 506(c) Reg D offering, the First Phase of the Fund will be $100M with the Fund’s Second Phase bringing the total raise to $250M. The minimum investment is $250K, with a target investment range of $1M to $35M. Over $250M of current project opportunities are either already acquired or specifically identified.