EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Wen Shiau, Founder and Managing Partner, Cypress Capital Group.
What is your outlook for alternative investments?
Same as always. There are far greater inefficiencies in the private markets than public. Therefore, we are always bullish on finding unique, special situations in private equity real estate. Higher interest rates will shake out the “weak hands.’” It’s always more fun to buy in distress than bull markets.
What are the greatest opportunities you see and why?
We focus on residential properties (single and multi-family) in tech-centered cities of New York, Silicon Valley and Austin. Economic and wealth creation have been centered in tech cities of the U.S. The race toward artificial intelligence is a game changer. Supply is extremely constrained due to regulations and favorable tax codes such as Proposition 13 in California. Demand is there for the past 75 years and the narrow strip of land in both Manhattan and Silicon Valley present its own physical limitations on supply. And who doesn’t like Austin?
What are the greatest challenges you face and why?
Higher input prices — whether it be financing costs due to higher rates, higher lumber prices and/or higher acquisition prices — create higher volatility in any business. Therefore, we look forward to a more normalized market. We actually prefer stable markets and especially love economic distress as we’re able to buy assets in Tier 1 cities at a significant discount.
What keeps you up at night?
Our investments are deliberately less volatile while generating 20%+ internal rate of return (IRR). Therefore, we sleep well at night. If one invests in the right asset (residential versus office) and in Tier 1 cities (Palo Alto versus Las Vegas), it’s very difficult to generate negative returns. Leverage is what kills. We are careful in creating sufficient margins of safety in our exits so that we have the holding power to ride out economic downturns. Safety is created through lower volatility asset of residential, Tier 1 cities and dynamic leverage. We would leverage more in an economic bottom than at the economic top.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.