Tower Capital's Adam Finkel On How His Firm Will 'Survive Through '25'

The California-to-Arizona migration of investors was all the rage in the pandemic’s wake as many residents moved to less expensive Sun Belt pastures. But the Arizona real estate capital advisory firm Tower Capital decided early last year to reverse the trend and open an office in Los Angeles. 

The expansion is an opportunity to explore deals in retail, which Tower Capital Managing Partner Adam Finkel sees as a growing market as some investors slim down their more “operationally intensive” portfolios in favor of retail properties that are more hands-off. 

Tower Capital’s bread and butter was multifamily transactions, but as that market shifted and transaction velocity slowed for acquisitions and refinances, the firm kept busy connecting single-family rental projects with construction loans. These projects were often in the Sun Belt, especially Arizona. 

“We've really garnered a niche in the single-family build-to-rent, ground-up construction space,” Finkel said, though the company works across asset classes, including industrial and self-storage. 

Tower Capital ended 2024 with nearly $120M in financing activity in the month of December alone, according to a January press release. Of that, roughly $100M was for two build-to-rent deals, including $70M of construction financing for a Phoenix project and a $29.5M construction loan for a Dallas development. 

Phoenix is the top metro in the nation for build-to-rent projects, with more than 13,000 units in the pipeline, according to Point2Homes, a sister company of Yardi Matrix. 

But migration trends that saw a huge influx of new residents to the Sun Belt have slowed in Phoenix and other pandemic hot spots such as Atlanta and Houston, with the expectation that those peak days are over. 

Finkel said that in Phoenix, new housing starts have slowed due to a convergence of high construction costs and cap rates, plus softening rents. 

“It's just making it hard to get those deals done,” Finkel said. “A lot of the construction that we're underwriting today really isn't penciling because we're not able to hit the higher yield on cost that the equity groups are looking for.” 

Though there are some build-to-rent projects in the Los Angeles metro area, including a Bain Capital and Cherry Tree Capital Partners joint venture planning to build rental townhomes around Southern California, Finkel said high land costs and density are incompatible with SFR projects.

There is clearly a need for housing in the region, especially in the wake of the devastating Palisades and Eaton fires. Experts anticipate that the housing affordability crisis will only be exacerbated by the fallout from the blazes, which destroyed more than 16,000 structures, including single-family homes and apartment buildings. 

Finkel anticipates that, rather than be hesitant to put money into an area that burned so completely, investors will be eager to meet the demand. 

“The fires have wiped out a bunch of housing stock, which was already undersupplied,” Finkel said. “I imagine investors will see this as an opportunity to build more housing, whether that’s single-family or multifamily.”

But the real opportunity the Arizona firm sees in California is retail.  

The LA office is a base for Tower Capital’s new retail-focused capital markets group, which will line up capital for clients across the country, including California, Texas and the Sun Belt.

Finkel said diversification is key to ensuring that his firm can continue to do deals and make revenue through specific sectors' ups and downs. He sees an opportunity in certain kinds of retail to help keep deal volume up as multifamily slows. 

The Los Angeles office is stocked with new hires who are industry veterans with retail experience.

“When you saw the transactional velocity start to dissipate with multifamily, single-tenant retail is sort of more steady Eddie,” Finkel said. 

He has seen demand over the last few years for these properties as baby boomers, many of whom have built up large portfolios of multifamily properties that no one in their family has the desire to take over, have altered their investment strategies.

“Now they're aging out,” Finkel said. “And for estate planning purposes, they're rolling out of these more complex, operationally intensive properties and 1031-ing into these single-tenant assets where they can basically clip a coupon and throw it into the family trust.” 

As examples of the types of retail properties that are especially in demand in these scenarios, he cited standalone Starbucks stores, banks, and certain car washes and restaurants. 

Finkel is steeling himself and his firm for what he anticipates will be another bumpy year. 

“It almost feels like this year is going to be another wonky year — like a repeat of last year, which was a repeat of the year before,” Finkel said, citing lingering uncertainty holding the markets back.

Instead of uncertainty about the election and its outcome, as there was last year, there is now uncertainty about which policies the Trump administration will put into effect and what impact those policies will have on the markets. 

“You know the old saying was ‘Survive till ‘25’? Now it's ‘Survive through ‘25,’” Finkel said.