Little did Alon Kasha know at the time, but the move that he and his wife Betsy made to France nearly 20 years ago led to what is today a thriving real estate development and interior design firm called Kasha Paris. In this episode, Alon sits down with Kyle in the kitchen of one of his recently renovated apartments to describe the creation of this business, as well as how it has evolved over the years. As you will hear, this couple’s background in finance and public relations has served them well throughout 100 real estate projects in the tony Saint-Germain-des-Prés neighborhood of Paris. After such prolonged exposure to the local residential market, Alon and his wife have an uncanny ability to gauge the complexity, profitability, and marketability of any prospective apartment purchase. Further, they routinely employ innovative architectural and engineering techniques to produce gems that command millions of Euros from French, American, and other international buyers.
Alon is a dual US/French citizen who graduated from the University of Michigan with degrees in Economics and French. Betsy graduated from Wellesley College with a dual degree in History and Art History.
0:42 – Episode Overview
Kyle provides an overview of Paris, Kasha Paris, and its founders, Alon and Betsy Kasha.
3:24 – CAREER FOUNDATIONS: The Ascent of a Dealmaker
Kyle kicks off the conversation with Alon in the kitchen of his most recent project, Verneuil.
4:24 – Finance and Luxury PR Lead to Paris
After living in both New York City and London for roles in finance, luxury public relations, and architecture, Alon and Betsy started evaluating the Paris residential market for a pied-à-terre. The apartments that they found were surprisingly dilapidated, causing them to begin an initial project to create the look of a classic, upscale apartment that had never been renovated. It was an instant hit!
9:39 – Opportunities with Classic Design
The architecture in Parisian apartments is much different than what is found on Park Avenue in NYC. Further, the French typically do not move frequently and tend to own their residences over a long period, which can lead to a decline in maintenance standards.
10:53 – French vs. American Home Entertaining
The French rarely show guests their entire home, whereas Americans commonly take guests on a tour of each room. The former custom leads living rooms & dining rooms to remain in good condition, but the rest of the French home to deteriorate.
11:30 – Business Model Gains Momentum
Upon completion of Alon and Betsy’s first Paris apartment renovation, friends would say, “where did you find this wonderful classic apartment…if you ever sell it, please let us know.” This reaction caused the couple to embark upon what would become Kasha Paris, turning to a longtime friend for equity to scale the business.
13:10 – Investor Relationship
Alon did not need to give his investor a formal presentation based on the latter’s fondness for Paris and the pair’s 20+ year relationship.
13:45 – Move from London to Paris
On the eve of Betsy’s 40th birthday, they moved to Paris and settled in Saint-Germain-des-Prés, which was of the city’s trendier areas. Alon indicated other neighborhoods with cachet include the 8th arrondissment and Marais. From a business perspective, Alon did not see a limit on the resale value in Saint-Germain-des-Prés.
15:38 – Early Days in Paris Real Estate
Initially the couple purchased smaller, 1-bedroom apartments in the €300k-500k range and sold them for ~ €700k. While real estate agents at the time may have viewed them as deep-pocketed, yet uneducated buyers, Alon astutely realized that certain apartments with little appeal to French buyers would be excellent candidates for US clients.
17:57 – Appeal of Apartment Features
The French do not typically like 1st floor (2nd floor in US), ground floor, and north-facing apartments. However, US buyers have little objection to these types of units.
19:10 – Creation of a Good Reputation
Alon and Betsy have distinguished themselves by acting as reliable, decisive investors who pay market price.
19:38 – Growth in Operations
Before long Alon and Betsy hired an office assistant and architect, which helped them complete ~3 projects/year and complete 6-8 renovations/year of clients’ existing apartments. While it is not easy to find attractive apartments for sale, they can quickly identify whether a particular property is worthwhile pursuing.
22:08 – Concierge Services
Alon decided to create a concierge component for anyone in the “Kasha Family.” Members of his team are available around the clock to address technical or engineering problems, which includes weekly apartment visits when owners are out of town to look for issues. This service does not include procurement of tickets, restaurant reservations, etc., nor does it assist with apartment rentals.
26:39 – Buyer Pool
Buyer pool for Kasha’s Paris apartments is “thin and deep.” Existing clients use Alon and Betsy to help evaluate additional apartments on the market.
27:53 – Typical Sales Timeline
Although very uncommon, the longest period that it took one of Alon’s apartments to sell was two years. When the Kashas purchase an apartment, clients will sometimes contact them within days to make a forward commitment to buy. During COVID, clients purchased four apartments sight unseen or after remote video tours.
29:39 – MAKING THE MARKET: A Research Perspective
30:00 – COVID Real Estate Experiences
Alon and Betsy sequestered with their daughter at a country house in Giverny during the French lockdown. However, Alon returned to Paris to conduct an iPhone tour of a completed apartment, which the client subsequently purchased. Surprisingly, this was not a one-off experience over the past 18 months. Residential prices have maintained pre-pandemic levels, though raw purchase prices have increased for the Kashas. COVID has also caused a slowdown in appliance deliveries.
34:54 – Desirable Apartment Layouts
Based on client preferences for socializing in second homes, the Kashas decided to flip apartment layouts by creating large, gating kitchens in former bedroom/bathroom spaces and bedroom & bathroom suites in former kitchen & dining spaces. Alon started to create offices in his apartments during COVID, which has resonated with buyers.
36:35 – Distressed Deals
Alon stated that he has found “zero” distressed deals on the market as a result of COVID.
37:01 – French Real Estate Financing
The buyers for Kasha Paris’ apartments pay all cash. While the French, in general, carry little residential debt, financing is cheap now. For example, a 20-year amortizing loan would have an interest rate of 1.0-1.2%. To secure a loan, borrowers must take out PMI that adds 25-30 bps and requires a medical exam. French credit is very tight, as evidenced by consumers use of debit vs. credit cards and little secondary market financing.
39:53 – POLITICIANS AND ATTORNEYS: Bureaucracy and Red Tape
40:09 – Permits and Approvals
As the 7th arrondissement is protected due to its historic, famous buildings, there are considerable hurdles to clear in the apartment renovation process. In contrast to the US “black and white” legal environment, France operates primarily in the grey. Many landlords complete work without seeking proper approvals, but Alon and Betsy do not risk such an approach. If the City does not approve a certain aspect of their renovation plan, they engineer and/or design a way around the impediment.
45:29 – Homeowners Associations (“Conseil Syndical”)
Kasha’s apartments are in a condo structure where a management company runs the building for a fee. The annual dues that owners pay to the association is low compared to the values of their apartments. For example, a €4.5 million residence might incur €6k/year. In a building, the owners pick three people for a “conseil syndical,” which is the intermediary with the management company and the party that deals with major issues. Building board meetings typically occur once per year. In general, common area capital projects move at a slow pace.
50:08 – French Property Taxes
There are three taxes a non-resident will encounter. 1) Taxe foncière (property tax) – low amount of €1,500 for a €4.5 million apartment. 2) Taxe d’habitation (resident tax) – slightly more than taxe foncière…€2,500 for same apartment. 3) Wealth tax – based on property value and scales between 0.0-1.0%. It starts to apply at €1.3 million in value and then increases based on each incremental €800k of value. This tax can be offset with debt, but not often done because blended rate would only be ~75 bps. Americans are not bothered by the combination of these taxes, as their residential tax burden is upwards of 2-4% of value. If the French government sees that an owner is under-claiming taxes upon sale, retroactive payment may be necessary.
55:30 – Unique Ways to Offset Taxes
If an owner has a brokerage account (stocks/bonds) at an investment bank, he or she can borrow against it at a very low rate while the account continues to accrue an attractive return. In this instance, the “loan” could reduce the needed equity below €1.3 million, enabling an owner to avoid the wealth tax.
56:40 – FINANCE AND FORMULAS – The Economics Behind the Deal
56:55 – Challenging Part of Renovation
“A good renovation is a sum of its parts….it’s all in the details,” said Alon. The primary challenge at Verneuil was in the demolition, as Kasha’s team took nearly 3 months to pull apart the apartment when this part usually lasts 2-3 weeks.
58:20 – A “Home Run” Deal
Alon and Betsy are very selective in their completion of 3 apartments per year. They prefer to engage in 3 “home run” deals than 10 mediocre ones. Verneuil offers a sweet spot for cost, resale, and margin.
59:24 – Investor Communication
As their investor has been the same individual from the beginning, it is a fun process to interact with him. With this said, Alon does compile an economic projection for review.
1:00:11 – INVESTMENT COMMITTEE Q&A – Vente en Viager
Kyle describes the premise of the viager in which an older person sells apartment to a third party, yet continues to live there until he or she passes. In exchange, the Seller receives an initial cash payment and monthly rent payments. Should the Seller pass at an early stage, the Buyer will acquire the apartment at a much lower price than otherwise possible.
Alon continues by explaining that if one has a €1 million apartment, he or she could receive an initial payment of €500k and then €5k/month for the remainder of life. It is more common that private companies buy viager’s for a diversified portfolio than individuals, however. None of Alon’s buyers have taken advantage of this structure, as one of the conditions for participation is French residency (foreigners do not quality).
1:03:56 – TOURIST IN YOUR OWN TOWN – How to Spend Three Perfect Days
1:04:08 – Cafes and Restaurants
Incredible restaurants and cafes abound in the Saint-Germain-des-Prés neighborhood. The Rue du Bac is an especially appealing street for retail options. It’s hard to get a bad meal!
1:05:21 – Visitor Tip
Alon advises visitors to walk wherever they can. Paris is much smaller than one thinks, a lot of ground can be covered in 45 minutes.
Additional Links:
Kasha Paris – https://kasha.paris/
Instagram – https://www.instagram.com/abkasha/?hl=en
Facebook – https://www.facebook.com/abkasha/videos/
