St. Pete apartment investment firm moves into development

Stoneweg US, a St. Petersburg-based firm that traditionally has invested in multifamily properties, now is starting to build its own apartment communities.

The company has completed its initial development project, Tuscan Reserve Apartments on the east coast of Florida in Palm Coast, and is planning additional new builds, including in the Tampa-St. Petersburg area, said Patrick Richard, CEO.

While it’s too early to discuss details of the local project, it is expected to be workforce housing with attainable rents and a sustainable development, Richard said.

Stoneweg last month announced it had hired Mark Rios as development manager.

Mark Rios

Rios, former vice president of real estate development at Metropolitan Ministries in Tampa,  will oversee an internal team of five or six people focused on development, Richard said.

“We have a robust pipeline of five deals today, three of which are moving forward and we are doing entitlement work. We should be ready to start construction at end of this year or beginning of next year,” Richard said.

All of the development projects are in Florida, and there are currently no plans for building new projects outside of the state.

“We like to oversee what we do and be involved in construction development,” Richard said. “Secondly, Florida is a very strong market and there’s no need to go anywhere else for now. There are great opportunities here So let’s start here.”

Swiss values

The development strategy is relatively new at Stoneweg, the U.S. investment manager for Varia US Properties AG, a Swiss publicly traded multifamily real estate fund.

Stoneweg, which launched in 2016, is headquartered in downtown St. Petersburg in part because Richard’s wife fell in love with the city long-distance. After their family visited a friend who moved to Fort Myers in 2009, his wife did an extensive internet search for a potential home for their own family in Florida.

“We arrived on July 4, 2011 and the city was deserted … It was not what it is today,” Richard said. “We came here, we visited and we loved it. We bought our house and started to commute between here and Switzerland and when the question came about where to put the U.S. office, it was St. Pete.”

The company started with a seed investment in a U.S. portfolio that had 3,500 apartment units. It now has a portfolio of over 12,000 units valued over $1 billion, including its first St. Petersburg investment and one of its newest purchases, Trellis at the Lakes, a 688-unit apartment complex in north St. Petersburg. Stoneweg bought the property at 11401 Dr. Martin Luther King Jr. St. N. in November for $114 million.

Stoneweg’s founders all have deep backgrounds in real estate, including Richard, who formerly was an asset manager in Switzerland. That allowed the firm to develop a strong network of investors.

The company primarily has invested in workforce housing that it can hold long-term, adding value along the way.

Last year, Stoneweg unveiled a second investment strategy, when it raised $26 million for SW Fund I Real Estate Fund, targeting Class A and B multifamily assets in emerging U.S. markets. Stoneweg is the exclusive general partner for the fund.

“The addition of SW Fund I allows us to broaden our acquisition strategy,” Ryan Reyes, chief investment officer for Stoneweg, said in a news release. “While value-add will continue to play a key part in our acquisition, SW Fund I will focus on institutional grade assets in high-growth markets experiencing positive net migration at a rapid pace.”

Richard said the strategy to buy, fix and sell properties in three to five years is more familiar to many U.S. investors than the more traditional Swiss strategy of holding properties long-term. Still, the investment philosophy prevails.

“There are values and benchmarking we imported from Switzerland that we apply every day in our work,” he said. “We are not here to take enormous risk. Our first mission is to protect our investors and the money that they trust us with. You want to make sure that you are good stewards of this money. We also co-invest with our investors in everything we do so we can take care of our money the same way we take care of their money and that’s important.”

Diversity

Stoneweg added development as a third strategy in the past year, prompted in part by the Covid-19 pandemic.

“One thing we learned from the Covid time is the diversity of our portfolio was key to be successful in those challenging times. The fact that we had properties in 19 different states allowed us to see what was going on in the states initially impacted, learn from that and then implement it in the other states. The fact that we had different property management companies allowed us to take the best of each approach and implement those best practices in our other properties. The fact that we had different types of properties — some are more B properties, some are more C properties, for middle or lower-income people — also protected us in those challenging times.”

Tuscan Reserve Apartments (Photo courtesy of Rangewater Real Estate)

The company had an opportunity in 2019 to buy land for what is now the Tuscan Reserve Apartments in Palm Coast. It built the 123-unit complex last year, on time and at or below budget, and because it is a good product fit with the market, it leased quickly and at higher rents than initially anticipated, Richard said.

Development is more challenging than buying established properties.

“The price of land is expensive. The price of construction is expensive. It’s not easy to buy a piece of land, build on it and offer rent to residents at a price they can afford. In some ways it’s almost easier to do that tower,” Richard said, pointing out of Stoneweg’s conference room window to a planned luxury condominium under construction downtown, “because there are people who can pay that level of rent and you can finance the tower. When you do workforce housing, you have to find other ways to reduce the cost.”

Richard said there is less risk in Class B properties than in Class A properties.

“When I started to work in Switzerland as an asset manager we also focused on low-cost real estate. I was more involved in industrial and warehouses. We wanted to be able to offer a place where people who work could build up their activity at a price that makes sense. Here, we want to offer safe, sustainable and attainable rent for the workforce of America,” he said, adding, “I’ve done a lot in my life. I’ve been successful. I was lucky. If you can give something back that way, it makes a lot of sense for me.”

Focus on sustainability

For the past three years, Stoneweg has been growing its environmental, social and governance strategy, or ESG.

Initially, the company focused on water conservation, uploading all its utility invoices to an electronic platform managed by Schneider Electric, a global specialist in energy management.

“We can follow every meter in every property to see the impact of our initiatives,” Richard said..

Additionally, Stoneweg is working with Green Building Initiative, a nonprofit organization focused on ESG concerns. Stoneweg is preparing its first Global Real Estate Sustainability Benchmark, or GRESB, report. That report will be a key driver as the company focuses on inclusivity as well as sustainability and reducing its overall carbon footprint, Richard said.

Because the majority of Stoneweg’s properties are older buildings, improvements will be gradual.

“ESG journey will take time but we are all right with that. We will not be able to change everything in one day. We will take our time,” Richard said.