From Architecture to Real Estate: Inside Mortar Group’s NYC Developments

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In this episode of the Real Estate Pros podcast, Anthony Morena, founder of Mortar Group, shares his journey from architecture to real estate development. He discusses the evolution of his firm, the importance of investor relationships, and current trends in the New York real estate market. Anthony emphasizes the need for adaptability in investment strategies and the realities of running a development business, including the necessity of patience and thorough planning. He also highlights the diverse profiles of investors he works with and the lessons learned throughout his career.

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Anthony Morena (00:00)
I think patience, really. Sometimes you get so excited and even you fall in love with certain deals and sometimes they’re not meant to be, you have to be patient, vet something thoroughly. Because if you don’t and you don’t plan for something…

it’s probably going to pop up on your project and you want to, you, you can’t go to investors and be like, Hey, I wasn’t ready for that. Oops. I’m sorry. No, you have to, you have to have a contingency plan.

Kristen (01:58)
Welcome back to the Real Estate Pros podcast. I’m Kristen and I’m here with Anthony Morena, who is the founder and principal of Mortar Group, a New York based real estate development and investment firm. I’m excited to get into everything surrounding, you know, the development world in New York. So thanks for being here, Anthony. ⁓

Anthony Morena (02:14)
No, thank

you. I appreciate it. Thanks for having me.

Kristen (02:16)
So you have a pretty interesting background. You started as an architect. Tell us about kind of your background and how you got to this point.

Anthony Morena (02:22)
Sure, it’s been a long road. I started back in 2001 in development. I graduated architecture school in the late 90s, started working for a couple of architecture firms and very quickly kind of realized that the…

the long-term path in architecture wasn’t for me. ⁓ I wanted more control over projects. know, the architects tend to get beat up a little bit by everyone else in the development world. I was like, okay, I want to have more control over it. So I started kind of this slow path of kind of shifting into development those first early years. Went to go work for other architects who were developers to learn a little bit how the business works and get a sense of how to build a business model that can be sustainable kind of over time. And that was kind of the key piece.

And did a project kind of ⁓ on weekends and at night while I was still at one of these firms. That was kind of my first development project that took a very long time to kind of finish just because I didn’t know what I was doing. I thought I did, but I had no idea. And that was the first one. It finished. It went well. ⁓ And kind of it worked from there. You start one, then you do two, and then you do four. And it’s kind of this slow kind of process.

Kristen (03:23)
you

Anthony Morena (03:35)
But the original idea was just try to have control of a deal and find something that could be a business model that can be sustainable for decades. So that’s been the course. You refine it over the years to make it a little bit better, but it’s worked out well.

Kristen (03:44)
Yeah.

And I think you highlighted something interesting where you had mentors or people you were working under and you learned a lot, but it really does take doing it to really understand the business. I would love for you to talk a little bit more about that.

Anthony Morena (04:04)
Sure.

Yeah, you know, it’s, you know, back then, you know, there wasn’t as much information as there is now.

But you can read everything you want under the sun and read all the textbooks and all the articles in the post, but ultimately you gotta do it and try it out and figure out how to take the concepts to reality and execute it. ⁓ I learned a lot working under these other developers how an architect can use his skills to really provide a different perspective in development in real estate. How to use a technical background to be more efficient.

bring value to a project in comparison to your traditional development firm. So I tried to find a niche that I can build out of and create value that way for investors. And it’s been refined over the years, but that was ultimately the goal. ⁓ And just try to build more of what, and ultimately have control and do more of what you want to do. Architecturally, you want to have them do stuff that’s interesting. ⁓

that kind of guides a lot of our work as well. And I think some investors appreciate it and the people we have in our buildings as tenants or as residents that buy condominiums, think they appreciate it a little more.

Kristen (06:03)
Yeah, absolutely. And as you kind of got more into the development world, when did you start thinking about doing mortar group and bringing other investors in?

Anthony Morena (06:13)
⁓ it started, you know, so the first deal was kind of friends and family, couple of people that ⁓ had some faith in me. you know, I put all my money every last dime I had into that first project. And then I did a few more kind of like that smaller ones. And then we were like, okay, let’s see if there’s other people that are interested. But at the time there was no online presence for anyone really. So you’re kind of going friends and family expanding in New York, you know, locally.

And you you go from two investors to 10. You finish a project, it goes well, people are happy, then it kind of goes to like 20. And it’s like this slow period over, know, one to two years every cycle when you’re finishing projects. ⁓ And then now over the last, you know, five years as you know,

there’s so much information online with real estate or investing or alternative investments in general, it’s kind of taken off. So we started with two, three investors, and now we’re up to 500 active investors in our stuff. And it’s nice, the way it’s kind of grown over the years, because we deal with individual investors, it’s a much more personable relationship. So you get to know people, what they’re looking for, and we can…

because we’re kind of a boutique firm, can kind of shift and do different deals depending on what ⁓ investors are actually looking for. ⁓

Yeah, it’s kind of been a slow growth over the years. You have to take it piece by piece. You throw some market declines in the course of 25 years, it slows you down, but you learn from those parts as well. 2008 with Lehman and everything else was a nice slap in the back of the head of you learn quick and you figure out what not to do or what to plan for for the next round. And then you have COVID and all this kind of thing. So it’s all good.

Kristen (07:51)
Right? ⁓

Yeah. what, I mean, you said you kind of shift or you’re a little agile based on what your investors are looking for. What are you finding right now? What are people really looking to invest in?

Anthony Morena (08:09)
So, you know, I think, you know, for New York, but I think across the country in general, know, commercial real estate has had a four year, three year recession. A lot of the markets have been hit pretty bad for variety of different reasons, rates being predominant, you know, the predominant cause, but then you also have this kind of post COVID thing. And I think now a lot of investors are looking, they’re looking for shorter term investments where, you know, people are less.

apt to want to commit to a five or 10 year fund and all the fees that are associated with that and the unknowns of what’s going to, where will politics markets be in that amount of time? So we’ve kind of geared our stuff towards, you know, 30, 36 month projects where from the moment someone invests in a project or we start, money is returned, projects are completed within, less than three years. So that gives you kind of a little bit more stability to you know what’s happening in the market.

And you can do some estimates, but it’s only for the short term. You don’t have to project out five to 10 years. ⁓ I think a lot of investors like that. I think they like the tax advantages of that with depreciating assets ⁓ and all the elements that come along with that. ⁓

But in New York, I think it works well, and especially when you have a of pent up demand ⁓ that’s been building, you know, in basically the last couple of years, which I think is starting to crack and you’re starting to see some interest, you know, in the markets where they’ve been really quiet for a while. ⁓ So yeah, no, I think we’re excited to kind of really kind of jump in and kind of see where 26 and 27 go.

Kristen (09:42)
Yeah, you talking about the New York market in general, I mean you kind of touched on where it’s at right now, but yeah, what are you seeing and where do you think it’s going to go?

Anthony Morena (10:27)
⁓ You know, think, you know, rental market is really strong. ⁓ It’s been strong for the last couple of years, and that’s continuing to move upwards and to the right. It’s not at the same level of speed, it’s a steady growth. ⁓ The sales market on the condo side has been quiet for a couple of years, especially after rates shot up in 22.

But with that, not a lot of new product has come to market. ⁓ We do work predominantly in Manhattan, Brooklyn, and Queens in New York. So those areas have pretty low inventory because no one’s been doing much building because rates are so high and the land prices were out of alignment. So I think now as rates start to come down, you’re going to start to see more active ⁓ buyers come to market. And with the lack of inventory, it sends prices up, but it also increases interest, which

makes it easier to sell out a project faster. ⁓ So it’s more kind of that velocity. ⁓ The flip side of it is that because there was low inventory on the condo side, it also strengthened the rental side. The rental market kind of went up even faster initially because people weren’t buying. They were just renting and holding for a couple of years to wait for rates to kind of settle down a bit before they can make their purchase. So they’ve kind of worked hand in hand. I think that we’re doing a lot of kind

condo development and we try to shoot for neighborhoods that are really established, that people are moving to where there’s jobs, there’s transportation in the New York market. So I think there’s a lot of kind tentative demand that is starting to kind of come around. And I think as rates begin to decline, if we have to guess over the next six to nine months, I think once you hit under a 6 % mortgage rate and you kind of head into the fives, I don’t think we’re going to go back to where we were.

Five years ago, but if once they start to delve below six I think you’re gonna see a lot of activity in New York and probably across the country

Kristen (12:28)
Yeah, I mean, there’s just so much always going on and changing and shifting. So it really helps to have someone like you who’s been in this for 25 years and seen the ups and downs and can really gauge the market. So maybe other people don’t.

Anthony Morena (12:42)
Yeah.

Yeah,

you you try to, you know, it kind of all happened at accident by accident over the years. You just, you know, we, kind of stuck to investing in New York because I felt most comfortable here because I knew the technical side, the zoning laws. knew how to, to operate. If I have a problem, I know which contractor to call, which, you know, which consultant to call. was just, it’s, it’s a nice group that we’ve established here. And then, you know, even during COVID, we started to look, ⁓ should we invest in the South? Should we go to Florida? But I

I wasn’t comfortable looking up buildings in neighborhoods I knew nothing about. I got through Google Earth. So I stopped in New York and ultimately now it’s like we’ve done so much in the area. You kind of know each neighborhood like the back of your hand and you know the prices, the comps, what’s worked, what hasn’t. So it really kind of helped you navigate quickly.

Like a lot of the deals that we see are off market or not well advertised because usually if something’s coming to market, we’ll have a broker that’s just known us for 20 years and they know that we’ll close on a deal. They’ll share it with us before they bring it to market. So, hey, this is going to market next week, but hey, I ⁓ want you to take a look at it, if you’re interested. And usually we can decide within 24 hours if we’re gonna do it or not. So I think a lot of people kind of appreciate that and it just kind of keeps the momentum rolling for what we do.

Kristen (14:03)
Totally, and what types of investors do you work with?

Anthony Morena (14:48)
So over the years, we, you know, from after friends and family and building out this group, it’s mostly high, high net worth investors, white collar professionals ⁓ that, you know, sometimes are just new to real estate, trying it out, want to put a toe in the water, see what it’s like. And then it’s more established investors that are high income, you know, individuals that are looking to diversify, whether they’re trying to…

generate just general income or passive income, know, secondary to their, their, you know, their W-2 or whatever they’re doing full time, or they’re trying to offset gains on, you know, other assets, or they’re doing it for retirement or a longer term play. So you’ve got a lot of different people, know, with different strategies or tax strategies, but it’s mostly individuals.

We don’t work with institutional capital. tend to take smaller, you in general, we’re, we’re a small to mid cap developer, you know, the types of deals that we do are usually, I would say five to 40 units per building. The deal sizes range from, I would probably say 5 million to 30. ⁓ So that lends itself well to smaller groups ⁓ that, you know, where they can kind of see the kind of work that we’re doing. So we do also do kind of project by project ⁓

Offerings we don’t do funds especially with the speed that we’re moving where you have an investment. That’s kind of ending in three years It’s usually deal specific. So we’ll send out, you know something to our investor groups Hey, you know, we just lock this place up in contract who’s interested in in participation participating and You kind of you go from there and you kind of you know, the group has kind of grown over the years ⁓ But we found that to be interesting about you know where I think investors like Being able to look out of property, you know, know the neighborhood whether they’re from New York or not

They can just kind of see what it is, what’s going on, and then they have questions, we can walk them through it. Yeah, it’s worked well and it’s gotten a good response.

Kristen (16:46)
Yeah,

so is it, I mean, what would be the split of people living in New York and people investing in the state?

Anthony Morena (16:51)
So it used to be 100 % New York, and now New York is maybe 20%. I think over the years it’s shifted where we’ve met a lot of people across the country.

Kristen (16:57)
Wow.

Anthony Morena (17:03)
And yeah, they’ll rely on us kind of on it for our expertise in the neighborhood and especially in New York. And I think after some people do a project with us, they get a sense of how we work. It makes it a little bit more comfortable than they share it with someone else. we’ve kind of spread out across the country, which has been great because then you also start to learn about other markets. You start to see what other people are doing, what they’re investing in. Because it’s just more educational for us as far as what’s interesting out there, what’s changing.

You’re always trying to find something different, a new angle. What worked in one city? Can we do the same thing here? What didn’t work? So you’re always trying to learn a little bit here and there and get better, ultimately.

Kristen (17:46)
Definitely. I think a lot of people probably look at your business and it’s so impressive and maybe aspirational to people. Can you talk about the realities of running a business like this and kind of the role that, like having to do a bunch of different things, not necessarily ⁓ just the architecture, the development. ⁓

Anthony Morena (18:06)
Yeah,

it can be very stressful at times, but it could be exhilarating. I think in general, with real estate, and I didn’t know this when I was getting into it, you figure it out as you go, but you have to learn a lot of different aspects of just a development process.

I came in with an architecture background, but then I quickly had to learn finance. Back then, they didn’t teach you how to use Microsoft Excel or Google Sheets. It didn’t exist. they didn’t teach you how to use Excel at architecture school. So that was the first thing. It’s like, do you come up with a return on capital, IRR formulas, and performance? So it was that. And then you have to learn the legal side. You’ve got to learn the construction side. got to learn how to deal with investors and work with them and make them

It’s just comfortable documentation. Then it’s the accounting. It’s like…

You know, how do you structure these things well that they work for different investors depending on what they’re doing? ⁓ You know, and every development has a thousand headaches that will pop up during the process. You know, in the beginning, the performer looks great. Everyone’s really excited. And then at the end, always hope it works well and you try to meet your original marks. But there’s a lot of kind of turbulence in the middle. It’s just a matter of being able to put the right hat on at the right time to kind of to address things as they come up. You know, we do

a lot of ground up construction and ground up construction is very hard to predict what’s going to happen in certain phases of the project. So you’re always trying to…

you’re always assessing risk. You I think I’m a risk manager now more than anything. You’re trying, you know, when you’re looking at deals, it’s like, okay, does this deal make sense? Can we get this done in 30 months? What are our potential obstacles? And then you try to get all that information, those questions answered before you ever close on the asset or before you start to commit any capital to it. And now we’ve gotten to the point where we could do it pretty quickly, but ⁓ you learn the hard way sometimes, you you dig a foundation and you hit something you weren’t expecting.

planning for it and it’s like, okay, what do do with that? You know, and you’ve got to go through the process and you know, I think it just takes time, you know, to kind of figure it out. But yeah, you just, need, you need to wear a lot of different hats and you need to be ready for things. You need to be nimble and shift as, as things come up because the clock’s running, the interest meter for the bank loan is running. You gotta, you gotta, you gotta move. can’t sit and yeah, you gotta be ready.

Kristen (20:33)
Totally, I think that’s really good advice. To kind of wrap this up, what would be a piece of advice that you’ve learned throughout your career that you wish you learned earlier?

Anthony Morena (20:44)
What is a piece of advice? It’s a good question.

I think patience, really. Sometimes you get so excited and even you fall in love with certain deals and sometimes they’re not meant to be, you have to be patient, vet something thoroughly. Because if you don’t and you don’t plan for something…

it’s probably going to pop up on your project and you want to, you, you can’t go to investors and be like, Hey, I wasn’t ready for that. Oops. I’m sorry. No, you have to, you have to have a contingency plan.

⁓ you know, if you dig a hole for a foundation and you hit water, you know, what’s your plan and you have to build in project contingencies. And, know, I think even going through like Lehman and like even September 11th was kind of at early start of my career. You have to build in healthy contingencies and you have to have good margins where.

if you have to cut prices because of external events, have to test your projects. As much as you might love it and you think it’s gonna go great, stress it. And then stress it again and then stress it a different way. ⁓ You’re not gonna be able to catch all of the variables, but you can try to be as aware as you can. There’s some things you can’t forecast. You ⁓ can’t time the market, you just…

you do your best and you try to do, you put your educated kind of assumptions ⁓ together as best you can.

Kristen (22:03)
Yeah,

and developing that comfort in uncomfortable situations.

Anthony Morena (22:08)
Yeah, yeah,

and I think over the time, over the years, the more you do it, you just get more confident and you get more comfortable and you know, you know, for the most part, what are the what are you going to be your issues now? Granted, you know, five, six years ago, no one would have ⁓ predicted a pandemic. ⁓ So now, but now people plan for that, you know, the interest rates spike, you know, stuff that we started in 2020, 2021.

rates tripled on construction loans in that time. That wasn’t planned for. So you’ve got to try to adjust as best you can. And the other thing is,

I think I would tell people is that when you’re doing real estate for a long time and you’re doing a lot of work, so this year we’re kind of hitting our 40th project. ⁓ So we’ve done quite a bit in a lot of different cycles and not everything is going to go as planned. You’re going to have some that don’t go as planned and that’s just, you if you do enough, not everything’s going to go great. Most will and you can do really well, but you got to plan for the unexpected times. It’s just the nature of the business. You know, we’re shooting for high teens, low 20 % returns for investors.

So it comes with risk and investors need to, or just new real estate sponsors or developers need to understand that.

Kristen (23:17)
Absolutely. Well I think that’s a great note to end on. Tell people where to find you and how to find a mortar group and work with you.

Anthony Morena (23:26)
Sure, so you visit our website at mortargroup.com, shoot us an email at info at mortargroup.com, or any social media, we’re available. We’re small shop, so shoot us a note, myself or one of our investment relation team will be able to reach out and answer any questions you have about what we do or just the market in general. Cool, thank you, I appreciate it.

Kristen (23:47)
Amazing. Well, thank you so much for being here.

Awesome. And thank you everybody for listening. Hope you got some inspiration for your own business. Learned a lot and we will see you back next time.

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From Architecture to Real Estate: Inside Mortar Group’s NYC Developments

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