I recently had the pleasure of speaking with one of our liveliest clients, Billy Procida, President and CEO of Procida Funding & Advisors, manager of 100 Mile Fund. The morning was well underway for Billy, who is based out of Englewood Cliffs, NJ and just getting started for me here in Portland, OR. We spoke about transitioning to a REIT, the state of the market, and what Billy is investing in now.
Billy has been in real estate since 1980, when he started as a construction worker, followed by a successful career as a real estate developer (he was named “Developer of the Year” by the Associated Builders and Owners of Greater NY, along with a slew of other accolades). He then made another successful move to the investment side.
From 1995-2000, Billy was CEO of William Procida Inc., which financed over $1 billion of developments as an investment banker and correspondent. The firm was also advisor to several financial institutions for due diligence, asset management, sales and marketing.
In 2011, he established 100 Mile Fund, an open-ended vehicle that invests in mortgages and investments in real estate and businesses within 100 miles of the New York City area.
Using the Tax Cuts and Jobs Act (TCJA) to Raise Capital
100 Mile Fund has been operating as an LLC since 2011 and is currently transitioning to a REIT structure to take advantage of one of the provisions in the TCJA which can save their investors’ money and open the door to raise capital from new investors. Within the TCJA, there is a 20% deduction for qualified business income. Although investment income is excluded from this definition, REIT ordinary dividend income is not. This means that the Fund’s income will continue to be taxed as ordinary income, while investors could potentially go from paying a 37% tax rate to 29.6%.
This represents a savings, for those investors who look at returns on a net (of taxes) basis. According to Billy, this has been an easy transition, as the administrative work in making the change was minimal and the Fund has always operated like a REIT, in that it has over 100 investors and distributes all of the Fund’s income every year.
The party is coming to an end
Billy’s passion and expertise for real estate shone through when we delved into the current state of the market. He believes we are at the end of the longest boom in history and that all existing and new deals should be carefully re-underwritten as you put your armor on to prepare for a possible pricing correction of 20% to 50%, especially in the high-end residential space of $5M and up.
When I asked Billy how he knows the party is ending, he referred to this as the 1% crash because the assets that may be impacted are high-end projects in major cities where developers have little skin in the game, as that is where he sees the majority of permits and a corresponding oversupply.
Billy published an article last summer, A Time for Pause and Urgency with a map showing housing start cycles and concentrations from the 1970s through to today. “Although the number of housing starts has dropped considerably in recent years, says Billy, 75% of all housing starts today are for high rises in major cities all around the country.” Therefore, he believes we are under-supplied in what Billy refers to as wholesome housing, $250k-$500k homes in urban and suburban markets.
Billy’s simple rule for how to figure out if there is an oversupply: “if you see too many cranes in the sky, beware!” Billy pointed out that this is especially evident in New York City, where condos for which people previously paid $20M+, can’t be sold. Cite the source Billy gave the example of the rapper 50 Cent, who just sold his 52-bedroom house in Connecticut after 12 years on the market for $2.9M, $15.8M less than his original asking price. 
Bill believes that those who are not prepared for the impending correction may be wiped out, and the pool of Fund Managers may shrink, as it did during the last recession.
I believe, Billy is one of those people who has that real estate gene, with immense knowledge that seems innate. In fact, he reported that he was the first person on CNBC to explain to Maria Bartiromo what a subprime loan was and why it was going to ruin America. During that same time, he wrote of the coming crash and literally got hate mail.
Undeterred, he followed it up with another article called Revenge of the Asset Manager where Billy said “that if you are the CEO of a bank, then you should fire your originators and find out who your asset managers are because you probably don’t know.”
Where is the 100 Mile Fund investing in now?
So, what is 100 Mile Fund investing in now? Old, ugly and tired assets within 100 miles of NYC, but certainly not in NYC. The Fund made a recent loan to a family-owned catering hall that has been around since the 1950s, where Billy went for sports dinners when he was in grade school. For more, check out his article How the Real Estate Industry Can Save America.
Super sharp, knowledgeable, committed clients like Billy and his team are part of what makes the work that we do here at Redwood so rewarding. If you have a chance to see Billy speak (he recently gave the keynote speech at the Northeast Regional Mortgage Bankers conference) I encourage you to do so!
As the only third-party Fund Administrator specializing exclusively in real estate, Redwood can provide deep industry knowledge and expert insight to its clients. To learn more about the benefits of partnering with Redwood for your administration needs contact Lance at Lance.Pederson@redwoodrea.com.
As with any private investment, an investment in 100 Mile Fund is speculative and involves substantial risks. Consider the risks outlined in the fund’s formal offering documents before investing. Risks include, but are not limited to illiquidity, lack of diversification, and complete loss of capital.
Neither Redwood nor any of its affiliated entities offer or provide any legal, accounting, or other advice that requires a professional license. None of the materials in this post or any related materials are intended to be or should be considered legal, accounting, or similar advice. No one receiving these materials may rely on them as a substitute for appropriate professional advice. Redwood strongly encourages and advises anyone receiving these materials to consult with their own independent attorneys, CPAs, and other professionals in order to ensure that any actions taken in connection with the materials complies fully with all applicable laws, rules, and regulations.