Interview with Wen Shiau, Founder and Managing Partner of Cypress Capital Group.
Founded in 2011, Cypress Capital Group (“CCG”) is the GP of PE Real
Estate funds, leveraging the combined 90 years and $101B of Institutional Investment
experiences of its Partners. CCG, its affliates and Partners have invested across USA
and Hong Kong since 1970s institutionally and is focused exclusively on the real
estate markets of Silicon Valley and New York.
“Tech’s impact on the labor force
affects the types of real estate in
demand and their location.
As AI + Automation displaces the labor
market, Tier 1 cities focused on the Tech
industry will dominate”
– Wen Shiau
How do you apply your macro trading skills and expertise in your real estate macro investment thesis?
Wen: Most real estate investments utilize only bottom-up analysis. A developer an expert in specific geography indicate that the acquisition and development cost is X and can sell for Y. Macro-economic analysis asks should we invest in this geography. Should we even invest we’re in the late stages of an economic cycle? What is the right strategy in a bull or bear market? What is the impact of a strong US$ and political stability? Will we see international buyers such as the Chinese who only a few years ago were a large buyer pool for US CRE We believe that our macroeconomic investment experience trained at the top bulge bracket firms for over 20 years brings a more holistic investment process.
SV & NYC Market Share of VC Investments increased 70% in 20 Yrs. How is this meteoric tech growth affecting its real estate markets?
Wen: In SV, the rise in the Trillion $ Tech economy has created historically high demand for housing. Only two weeks ago, the Bay Area Council predicted that we will require double the housing supply for the next 7 years of 2023-2030 vs the prior period of 2016-2023. At the same time,California Prop 13 Tax Code the supply of new homeshistoric lows.
In NY, the US HUD predicted in 2015 that NY would see an oversupply of housing units through 2019 and Covid-19 has only exacerbated the situation with a flight from cities to suburbs (short term in our view). Therefore, NY is currently a distressed investment opportunity that will play out over the next 6-18 months. But at the right clearing price, NY will always be attractive to domestic and international investors. NY is the premier global city.
What are the major advantages of investing in real estate of established first-tier markets vs. secondary markets?
Wen: Despite the alarm of naysayers who say cities NY and SV are too expensive, the data does not support this conclusion. Over the past 20 years, the net migration in California has been zero, despite the growth of alternatives such as Austin. If price w the sole determinant of the desirability of , then Hong Kong, NY and London would not have thrived as their prices have dramatically increased. The data show that tier 1 cities outperform in an upmarket but its reala downturn that tier 1 cities preservation of capital and fast recove. niversally over time and countr have dominated because they have the talent, financial capital and jobs.
Your family office has invested over multiple economic cycles and expanded more aggressively during economic downturns. Please share with us more about your down-market investing perspective.
Wen: Our family office started in NY when our parents began to buy buildings in the 1970s. Investments are best when they are counter-cyclical and opportunistic. We expanded our balance sheet in NY (1970s), Hong Kong (1997), Silicon Valley (2003), and NY (2012). Psychologically it’s to pay top dollar compet with multiple offers in a bull market; it’s a lot more fun buying distressed assets we’re the only buyer in the room. Nevertheless, we’re not afraid to ride a bull market with more conservative leverage. The entry price is only expensive if the market goes down, but this is where our macroeconomic analysis gives us great confidence and an edge on our competition.
Please tell us more about your Cypress Capital Group Fund III. What types of assets is the fund allocating capital to?
Wen: We are an opportunistic fund which invests across the entire CRE space. Our investment decision on the type of CRE and leverage is dictated by our investment outlook. In a bull market, we are conservative with leverage and invest in low volatility assets such as residential and multi-family. In a bear market, we invest in distressed assets which typically come from over-leveraged sellers in higher volatility assets such as office and hotels.
How is it different from other real estate private equity firms?
Wen: Our opportunistic and dynamic strategy is completely different from the traditional institutional approach of investing in narrow verticals. Eg. Institutional funds may invest only in grocery chains in strip malls, etc. Furthermore, unlike institutional funds who are often less than 2% of the AUM, we are a family office where we are 10% of the AUM. We eat our own cooking. We management fees. Lastly, we give 10% of our profits to the charity of our investors’ designation. We want to be aligned not only with our investors but with our community.
What is the long term goal and vision of CCG?
Wen: Our long term multi-generational goal is to own all the land in NY and Silicon Valley with our fellow investors. Our grandchildren will do business with our investors’ grandchildren.