Real Estate Investments for Everyone: Citadel Holdings
Citadel Holdings is a real estate investment firm formed to help people of all means build a diversified real estate investment portfolio, with quality assets and designed to match their needs and goals.
We asked founder Dovid Preil what motivated him to start this firm and for advice from his vast experience with real estate investment.
What unique need does Citadel Holdings address?
After working for several years as a mortgage broker, I met a lot of people who either had equity in their apartment and didn’t know how to use it, or who had a significant sum of money, but not enough for a down payment, and were forced to sit on their savings as the cost of buying a home kept rising. After researching many investment options, I settled on real estate investments. These provide strong downside protection and excellent opportunities for growth and income generation. However, after reviewing many companies and investments, it was clear that the quality investments were, typically, reserved for HNWI (high net worth individuals) and the deals being made available to the average investor were unacceptably risky and all too often poorly structured, which only served to exacerbate the risk profile. Citadel Holdings was created to fill this need.
Can you tell us about your background and your team?
As I mentioned, my professional background is in Israeli real estate. Additionally, I have been active in the US equity markets since 2009. Most of my investment philosophy comes from the world of stocks and bonds. Therefore, we focus on working with a range of local partners (ten of them, to date) rather than running just a few deals a year entirely on our own. This way we can bring a range of options and help people build a strong portfolio with broad diversification in a relatively short time frame. I have two active partners in the company. Amit Fix is a twenty-year veteran of real estate investments and has been active in the US, Israel and Germany. Yaakov Lehrfeld is the Senior Analyst for David Garfunkel and Associates, with close to fifteen years of experience. Collectively, we have closed over $150,000,000 in real estate transactions.
What are the advantages of investing in real estate over other forms of investment?
In the words of Andrew Carnegie: “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.” Or, as Mark Twain quipped: “Buy land, they’re not making it anymore.” Real estate markets, while cyclical, provide a downside cushion, because the investor owns something real. Additionally, the returns, historically, have been excellent. This is not to say that someone cannot lose money in real estate. One needs to have the right partners, diversify carefully and not overleverage.
Another reason I like real estate investments is that they are easy to understand. All too often, people invest in stocks or other options without fully understanding the business structure of the underlying company and the market in which they compete. Real estate is, mostly, very simple. We bought a retail center with three tenants who pay rent every month and have leases in place for the next eight to ten years. We purchased a house in Brooklyn with the intention of adding two floors, converting it to condos and selling them off. The expertise is in the selection and execution, but the basic business plan is simple enough for anyone to understand. As I mentioned, the tricky part is picking the right property, understanding the risks and executing properly. To this end, we only partner with highly experienced local operators who are experts in their local markets and sectors. For example, I mentioned that we work with David Garfunkel and Assoc., who have been operating in the retail market for over 100 years. We have a partner who has been doing small to medium development in the NY and NJ area for over twenty years. We have a partner who, in the last four years, has purchased over 2 million sq. feet of commercial space and always has unique deals with excellent returns.
What pitfalls should potential investors look out for?
It’s really all about the people. You need to find someone honest who you trust to do the job right. Just the other day, I gave a ride to a neighbor. He mentioned that his brother’s father-in-law invested in twelve units in the US. As it turned out, he owned none of them, and lost his entire investment. I have a friend who is a US attorney who lives here, and he told me of a fellow who was buying a house in Philadelphia (free advice: don’t do this!) and had him review the contract. In the contract, they listed this Israeli fellow as residing in some US address. If he had gone through with the purchase, the title inconsistency would have made it very difficult to sell the property. Unfortunately, situations like these are quite common. Almost everyone knows someone who lost money because they trusted honest people who didn’t know what they were doing. We work with a US Securities Lawyer, an Israeli Securities Lawyer, a US CPA and an Israeli accountant to ensure that our deals provide actual ownership of the purchased properties and proper tax compliance. Additionally, one should be extra cautious of people who only do single resident deals. These are the easiest deals to do, because anyone can buy a house. Someone who can place a commercial property, particularly a large one, under contract is in a different league than someone who can only purchase single residences.
Is it better to invest when the market is high or low?
Obviously it is better to buy low and sell high, but, interestingly enough, most people are hard-wired to buy high and sell low. Chasing the crowd is a common investing fallacy which results in entering a trend as it is cresting. A great recent example is the multifamily (apartment buildings) market. We have felt for quite a while that there has been a strong investor bias in favor of this market. Our research has confirmed that in most major markets the multifamily sector is reaching, or has reached, a point where the supply of available units coming to market is outstripping demand. This does not bode well for the valuations. Because of this, we currently favor office, retail and industrial properties for purchase and rental. Office and industrial properties have been playing catch up and haven’t covered as much ground as multifamily has since the crash. Retail is very much behind the curve, as a general fear of the entire sector being eliminated by Amazon and Alibaba has held valuations low. Every market has its ups and downs. With the right guidance, these fluctuations can be navigated, and with patience (and proper structuring) most deals can be winners.
How much capital is needed to make a serious investment?
As I mentioned, our mission is to bring quality investment opportunities to all investors. To that end, we have brought as little as $20,000 into deals and try to bring smaller investments into as many deals as is reasonable while properly funding the deal and maintaining compliance with Israeli and US regulations. However, for someone to build a full portfolio with access to all deals, he or she will likely need a minimum of $150,000 to $200,000.
How do you define a “minimum risk” investment?
When we use the phrase “minimum risk” we are referring to the overall portfolio profile and not any single investment. No one can know exactly what is going to happen in the markets, and any given investment, no matter how good it looks on paper, may fail. The simplest and time-proven method to balance one’s risk is to diversify one’s capital into a range of properties. That way, even if some underperform or fail, there is still income from the other properties. We encourage our investors to diversify both by type of deal (industrial, retail, multifamily, office, development) as well as by geography (we currently have properties in New York, New Jersey, Oklahoma, Florida and South Carolina). Additionally, we are very selective. We have declined more partnership opportunities than we have accepted and our deal acceptance rate is below 33%.
To whom do you offer strong yields compared to capital appreciation?
When meeting a new couple or individual, we usually spend a good portion of the conversation discussing their income, spending and future needs. This allows us to offer investments that best suit them. For example, a young couple with a few kids who are bringing in more than they need would be better served to invest in a few growth deals, which offer higher overall returns but no monthly payout. If this young couple is looking to work less, we would offer deals that yield a nice quarterly return and will lighten their income burden. This is just a simple example, but due to our model of working with many local partners we are usually able to find the right deals for people that are consistent with their financial goals.
Why did you choose to provide financial solutions for people of limited income and savings instead of the lucrative market servicing the “rich and famous”?
First of all, we service everyone. Our client base includes a family office and a growing base of HNWI. That said, when the deal permits it, we keep our minimum investment low (usually $50,000) and allow a limited number of individuals to invest even less. One of the defining character traits of Jews is that we are “Gomlei Chasadim,” doers of lovingkindness (Yevamot 79a). I spent years reviewing personal finances with enough families to have lost patience with the financial difficulties that so many Jews, particularly in Israel, suffer. Even those that get by and can put aside for the future, face a daunting task in helping their married children purchase a home. This is no longer only a Chareidi problem. Fewer young couples of all denominations are able to come up with 30% for a down payment on a simple apartment, which can equal years of salary. Some people just need another income stream (particularly pensioners from abroad who have watched the USD and GBP lose value against the NIS in recent years). Citadel Holdings is, in part, our solution to this problem. By either helping parents build their nest egg for the next generation, providing young families an alternative to sitting on their savings, or setting people up with a new diversified income stream, we offer a solution to these challenges.
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