In this Millionacres Spotlight we focus on Cincinnati, Ohio. Our guest is Stas Grinberg, who is the co-founder and managing principal of Vision & Beyond Capital Investments based in Cincinnati. In 2020, Vision & Beyond completed 38 real estate deals, making for a total investment of $84 million and 1.1 million SF of multifamily assets acquired since the firm’s inception. Its properties comprise more than 1200 multifamily units in neighborhoods including Downtown Cincinnati, Clifton, Avondale, and Mt. Auburn. In this video, he discusses what makes Cincinnati such a great real estate market.
Deidre Woollard: Hello, Real estate investing Fools. I'm excited to bring you another global spotlight. This time, we're looking at Cincinnati, Ohio. My guest is Stas Grinberg, who is the Co-Founder and Managing Principal of Vision & Beyond Capital Investments, which is based in Cincinnati. Since 2018, Vision & Beyond has expanded rapidly into five profitable companies with corporate offices in both Ohio and Tel-Aviv, Israel. They've got close to 60 employees and investors worldwide. In 2020 alone, they completed 38 real estate deals for a total investment of 84 million and 1.1 million square feet of multifamily assets acquired since the firm's inception. They've got properties in neighborhoods including Downtown Cincinnati, Clifton, Avondale, and Mount Auburn. Stas, I'm excited to chat with you and I'm curious, what led you to Cincinnati?
Stas Grinberg: Cincinnati, we were analyzing where do we want to start? We started from a very, very bottom of real estate, from single-families and fourplexes and triplexes and we really looked at the markets across the US and we could start anywhere because we came from outside. We were looking at our analysis, we wanted to focus on Tier B markets. We didn't want to focus on the markets that we felt are already overpriced, already overdeveloped. The competition is institutional competition and by our analysis, the risk was high and the tier B markets, like Cincinnati, carry great opportunities. The prices are more affordable to start from and I personally still, even now that we have the resources and the backups, still prefer those Tier B markets. I feel like it's a very attractive market and Cincinnati specifically is growing phenomenally and I'm very happy that we chose right.
Deidre Woollard: When you started in Cincinnati, you were looking for single-family rentals or what were you looking for?
Stas Grinberg: We were looking for a single-family student houses in Clifton around the University of Cincinnati and we were looking for smaller type multi families; four units, 12 units, 22 units, and the lower-income, Type C, those were the main two focuses.
Deidre Woollard: Interesting, what is the affordable housing situation like in Cincinnati? Is their housing affordability problem?
Stas Grinberg: There's a big shortage. Not only in Cincinnati across the nation, but especially, in the Midwest, there is a very understandable shortage because the prices of materials are just on the rise, and some materials they tripled themselves since the beginning of COVID, like lumber and to build new complexes, it would cost $200,000 a unit. By the average construction costs of $175, $200 per square foot, so it doesn't make sense to build that and then to rent out housing for $700 a unit. It just doesn't make sense so there is no new production. If someone is already doing new development is trying to target the Type A tenants and there's no new product and the lower class is the most growing population. Some because of middle-class people going down and some because immigration and natural growth. Therefore, there's a shortage and it's not going to get better, it's just going to get worse. Here in Cincinnati, companies like Amazon are coming to the area; to the Midwest. The Amazon just built here the international airports, the first one. It's building it in Kentucky but in the wider circle of Cincinnati, and they're hiring 55,000 people and people will immigrate to get those jobs. They're having troubles even to hire that amount of people and that's just Stage 1 in the hiring process, they're going to hire more in the future and there's really no housing for that.
Deidre Woollard: I didn't realize that about Amazon, that's a huge problem. Are you looking at more value-add types of properties that you can acquire and renovate?
Stas Grinberg: Absolutely. We are very, very aggressively buying in the area, not only in Cincinnati, but the wider range of Cincinnati, in Lexington, in Daytona, in Columbus and it's all the circle that Amazon now is influencing and it's just one of the companies that is moving in here. The quality of life here is fairly cheap, is from the cheapest in the country, so if people are making $50,000, $60,000 a year, that's probably the best place for them to leave in America. Amazon can pay the Amazon salaries and people can afford leaving rather than in California, they wouldn't be able to live with those salaries and therefore, the area's expanding this type of product is as we said, in more and more in shortage so we will try to buy every multi-family in the area and add value to it.
Deidre Woollard: What struggles did Cincinnati have during the pandemic, aside from the housing problem?
Stas Grinberg: It was several problems. One is their restaurants and the tourist places and some cultural places and all the public places struggled a lot and still are in some ways because even though things are reopening, because of some restrictions and sitting restrictions and stuff like that, there still cannot make the same income they would make before it. They don't get too much support for that and so businesses are struggling. Commercial offices have a problem. In Cincinnati specifically, there is the area of Blue Ash, where they built millions and millions of office spaces no millions of square feet office spaces, I'm sorry. It created the little bubble already. People were worried before COVID of how will they be able to occupy it all and now, with COVID when companies are more hesitant of making long-term leases there more hesitant on getting commitments like that and some companies are actually working more from home and there is a global transition on potentially working from home. I think on this area of real estate, there is stronger struggle, and I would not recommend outside investors to come into Cincinnati and invest in more commercial real estate unless they know exactly what they're doing and for this specific client and they already have it all part of the plan then it maybe could make sense. But if people are trying to develop new products for that or redevelop and buy vacant building and hope to occupy it. I think that would be potentially a mistake.
Deidre Woollard: What are you thinking about the central business district in Cincinnati? Because one of the things that I'm watching around the country is that a problem with central business districts you just talked about office, is that a concern that you're seeing as well?
Stas Grinberg: I think it is still more place-specific question even though it could seem like there's one answer to the right or to the left but in some areas in the downturn of Cincinnati, it's booming. The downtown is growing. It's very strong. There is a lot of interest and Cincinnati's growing, and financially, it's attractive and the regulation is friendly and businesses are moving in. But towards the further areas from the downtown in Cincinnati, it would be more tricky and I would be more hesitant. In the downtown, we just bought two buildings that are combining commercial and residential, and we're very confident about the commercial parts of those. One of it is near the new stadium, which is a very high-level stadium and it's just freshly built and the second one is on the business district. There's a new court plaza, it's cold. There is a new area which is in a funny way, it's the Times Square of Cincinnati, but it is very promising there.
Deidre Woollard: You just mentioned regulation, which is interesting. Do you find that Cincinnati is a business-friendly city?
Stas Grinberg: Absolutely. I think it's one of the biggest advantages that it doesn't matter politically which side you are on when you are investing. It's very clear that you want better ownership rights because you're on this side of the fence. On the aspect of ownership, it's a very friendly city. It is very welcoming to new businesses to come. Bureaucracy is fairly simple. The tenant's rights are not extreme like there on other places. It's an eviction-friendly place and not that eviction is necessarily positive, but from an investor perspective, to be able to force ownership on your property, it's important. On those aspects, it's absolutely phenomenal.
Deidre Woollard: Excellent. What other challenges do you see that Cincinnati is grappling with now as it comes out of COVID? Obviously, it sounds like it's expanding rapidly. Are there any growing pains there?
Stas Grinberg: There are the common pains, not necessarily from COVID, but some areas as they develop, there is the gentrification conflict. But on the one hand, like the over the [inaudible 00:11:28] and now, one of the areas is Evendale. It's an area behind all the hospitals near the Cincinnati University. It's a neighborhood with a lot of crime and it's a challenging neighborhood but in the process of shifting the question is, if the politics can stop the development. Because on the one hand, it's very attractive to invest in those areas, on the other hand, it could meet some resistance and political issues and against gentrification movements and challenges like that. Besides that, there are challenges of bringing the businesses back to the same operational level. The small businesses, the street businesses, the tourist businesses. How do you attract people back in and how do you fill up the restaurants. The question is whether the world is going to be as it was before COVID. The answer is not necessarily as certain when you're a business owner and you're trying to take loans and you're trying to make your business calculation, there's still a level of uncertainty and it's always a challenge.
Deidre Woollard: Absolutely. You just mentioned tourism. I saw Cincinnati recently launched this, Get Your Cinci On tourism campaign. Do you think that tourism is going to come back this summer? I've been calling it this summer of the road trip. Of course, it was at last summer too, but I think even more so this summer. Do you think that Cincinnati is going to have a good summer?
Stas Grinberg: I feel like, yes. I'm being optimistic about it. Every week that's going by, we see the businesses are a little more full and more people coming by and we see some tourism and we see some relieving process. No one can really predict the future but it seems like it's getting better. Even the Cincinnati casino was bought recently by Hard Rock cafe for $250 million. As they bought it, they bought it in the beginning of COVID so they were closed for several months, but now, it's reopened and it's full again and it's a very large casino. Businesses are re-opening and restaurants are full again. If you don't make a reservation, I already found myself a couple of times having a challenge to get into a place. It seems like it's in the positive direction.
Deidre Woollard: That is a good sign. Let's talk a little bit about housing because I noticed that Cincinnati, you've got a median home price lower than the median average. It's around 215,000 but I also saw prices are rising by double-digit percentage points. Any end in sight? I mean, obviously, inventory, which we already talked about, is still really low.
Stas Grinberg: I feel like the answer is definitely yes, even though no one can foresee the future. Because one of the factors and why is it easier to predict the Cincinnati market, is you just need to follow Columbus. Cincinnati is secondary to Columbus, and usually, one or two steps behind. Columbus, Ohio is doing phenomenally well in the last 7-8 years. It's booming and it keeps growing, and businesses keep moving in, and 50 people immigrate every day to Columbus. Once that's happening and their prices are on the rise, whoever cannot afford Columbus with the same level of benefits, are going to Cincinnati and Cincinnati growing on the same exact pace, just one or two steps behind. That seems positive. As I mentioned before, the Amazon project, which is their first project, very ambitious and international airport of Amazon, $2 billion invested already and they keep building it and hiring so many people. It's already a place with a very low rate of unemployment. It's already around four percent and it's getting lower. Amazon is having trouble hiring those people. I just heard on the radio that they're doing $1,000 sign-up fee just for signing for the job. They're struggling and it's a good thing. For the area, it's a game-changer. With the shortage of real estate, with the lower prices, that's one thing. The second thing is that eight markets are struggling. New York and California got a strong hit and people are moving out. Those places that first of all have the opposite problem of regulation. They have a very tough regulation for owners. I have a lot of friends that are doing real estate in New York that are not getting rent for a very long time. The companies from the West and from the East are coming more and more to the mid-west so our competition is growing here. The problem it creates is that it's harder to find deals with the corporates that we want, but on the other hand, you know that it's going to shift the prices up because if the competition grows, people are buying for higher and those big REITs or companies that are coming from New York or from California to buy a deal at six percent is a good deal for them and they will buy it and they will not hesitate. I still feel like it's a good time to buy real estate.
Deidre Woollard: If you are starting over again in Cincinnati, right now, what neighborhoods do you think you would be checking out if you were starting off as a single-family rental investor?
Stas Grinberg: Single-family, it depends on the level of the character of investor. If the character is a little bit more risky but more upside potential rougher areas, I would go to Evendale. I feel like it's shifting dramatically. They are building a high-tech corridor of $2.5 billion there. This area is changing for the good. The hospitals are growing and Cincinnati Children's is expanding. It's the second best children's hospital in the US. It attracts a lot of medical tourism and it's growing and it just closed several deals with Dubai and people from other countries to bring their children to get help there. This area is blocking those hospitals from expanding. There is a competition from hospitals to buy some of the land and some of the real estate to expand. Also they are hiring more people that need to live near the area, and its hospital staff are higher gaining population so they would need better housing solutions. This area is really changing for the investors. If you want in quiet, nicer neighborhood where you don't have the risk of materials being stolen from your job site, I would go to Madeira, maybe Oakley, Mt. Lookout, Mariemont, those areas that are already the best neighborhoods in Cincinnati but they're still growing and their schools are just getting better and there are a lot of families that are actually moving up on the income side. They are moving there and there's competition and there's a lot of development.
Deidre Woollard: Excellent. What projects are you working on? You mentioned that you've got some multi-family and commercial. What ones are you most excited about right now?
Stas Grinberg: The project I'm most excited about is actually in Lexington. It is 1,300 units that we're buying, a whole neighborhood. It's called Cardinal Valley neighborhood. We are acquiring the whole neighborhood. It's in nine separate deals from nine separate owners, but we're buying the whole thing and once we are combining that, that gives us a lot of advantages because every single property by itself has a value but when you buy the whole area, the value is much higher for a potential buyer that comes from outside and can deploy $150 million at once, so you're talking to different buyers, but we're in the business of buy and hold. We will just hold it together but we can influence the neighborhood much better then we don't need to just add value to each property by itself but if we're developing the community and helping the community and making some adjustments and making mutual work with the community officer from the local police that we're making their area better and each property that we buy is getting better and the value is getting higher.
Deidre Woollard: Excellent. You're developers, so you've got that long range view. What do you see for the future of Cincinnati and surrounding areas over the next five years?
Stas Grinberg: I think that I see tremendous growth. I see more real estate companies moving to invest in areas of cheaper quality of life and friendly regulation. Cincinnati is attractive to new businesses to move over and has that growth. Cincinnati will continue growing and the downtown of Cincinnati, I don't know if you are familiar, it's really beautiful. I feel like it has the potential of being one of the nice spots to visit and I am very optimistic about the future.
Deidre Woollard: Perfect. Well, thank you so much for your time today.
Stas Grinberg: Thank you. I appreciate you having me.