Investment Strategy: "From Intuition to Execution"
With our first priority being capital preservation, our investment philosophy is focused on commercial property investments that offer near-term security through the prospect of stabilized income. We look for assets that can be acquired at the lowest price, thereby creating an immediate margin of safety and value for our investors, then strive to secure a prompt return of capital through sale or refinancing.
Our growth and income co-investment objectives generally prefer the purchase of “off market” projects where we can: (a) quickly maximize value; (b) generate superior cash on cash returns; (c) provide for prompt return of capital through refinance or sale; (d) create relatively short holding periods of 3 to 5 years; and (e) provide minimal development risk and quick market exit.
We seek to add value for each property we acquire which includes: (a) physical: new capital improvements to include modifying tenant mix, redevelopment of the exteriors to include modernization of building facades, new development of well-located out parcel tenants and so forth; (b) financial: value can be enhanced by new ownership, replenished capital structure, aggressive leasing and marketing, strong property management and lowering of operating costs; and (c) legal: change of property use or modification/change in zoning through entitlement. Appeals can be a lengthy and time consuming process, but also create significantly higher land values. In some cases, well-located but nearly worthless land/buildings can be rezoned to create significant value.
Our philosophy is built on the following simple concepts: (a) we always place our clients’ interests first, then operate and manage all assets as if they were our own properties; (b) since we are also co-investors in our investment properties, our goal is to not only outperform in good markets, but more importantly, we also try to protect our investors’ capital investment in down periods, by (c) acquiring risk adjusted assets where we can quickly enhance value.
On a risk-adjusted and opportunistic basis, we prefer self-storage and multi-tenant retail shopping centers.
Self-Storage: Adaptive Reuse. Rather than acquire existing storage assets, we seek to change land zoning on redevelopment assets to allow for an adaptive reuse. Our objective is to acquire well-located vacant corporate manufacturing, warehouses, historical and “big box” retail properties (i.e. Walmart or Kmart for instance), which can be acquired at a deep discount to replacement cost, then redevelop into Class “A” climate controlled self-storage “super centers” augmented by onsite business amenities and retail tenancy. Benefits include: a) superior dominant retail location with strong demographics; b) high traffic volumes, c) 180-degree street visibility; d) high profits margin because of our low-cost basis; e) defined exit strategy to institutional buyer or refinance of investor equity and hold for cash flow; f) we also seek to monetize excess land by selling or ground leasing street frontage land parcels to “pad” tenants to reduce cost basis, then sell the properties during favorable market conditions. Properties are operated under the CubeSmart (NYSE: CUBE) brand, one of the largest self-storage owners and operators in the country. CubeSmart and DealPoint Merrill enjoy a strategic alliance. DealPoint Merrill and its affiliate have extensive self-storage redevelopment/asset management expertise with a national portfolio of approximately 10,000 units, branded and managed by CubeSmart.
Multi-Tenant Retail: Value-Added Renovation and Redevelopment. We seek to acquire value-added or adaptive reuse grocery or shadow anchored multi-tenant shopping centers on major arterial locations with freeway access. Assets should on most occasions have a combination of vacancy, excess land, poor tenant mix or other value added components. Value must be quickly realized through redevelopment which may include new facades and landscaping features, new anchor and in-line tenants, and addition of investment grade tenancy on excess land, coupled with proactive leasing efforts.
Opportunistic. We look to acquire deeply discounted commercial properties, which we believe have sound physical and economic fundamentals where value can be enhanced by renovation and new capital improvements, new ownership, aggressive leasing and marketing, strong property management and lowering operating costs. These types of Projects present near term capital appreciation and income growth and can be purchased below replacement cost in supply constrained markets that exhibit barriers to entry, job and population growth and impending public and private infrastructure investment. Some examples of opportunistic investing may include adaptive reuse of older hospitals into multi-tenant medical office buildings and adding outdoor self-storage on perimeter parking areas in apartment communities.
Management Philosophy: The intersection of capital and opportunity
We believe our historical success has been predicated on fundamental principles to control risk, maximize opportunity and capture value in every real estate investment. Our goal is not only to outperform in good markets, but more importantly, to provide investment strategies that protect our investors during economic downturns. We accomplish these objectives by deploying a management philosophy based on some of the following strategies:
We work diligently to increase cash flow by tightly controlling operating and redevelopment expenses, aggressively using our proprietary marketing and branding platform and securing attractive financing to generate the best cash flow. Lastly, we dispose of properties when market conditions are compelling.
Our investment objectives prefer projects where we can: (a) quickly maximize value; (b) generate superior cash on cash returns; (c) provide for prompt return of capital through refinance; (d) create relatively short holding periods of three to five years; (e) provide for minimal development risk and quick market entry; and (f) where feasible, change property use or zoning through entitlement appeals, which can be lengthy and time consuming, but create significant upgrade in land values. In some cases, the following will create significant value enhancements.
- Use of leverage to enhance returns;
- Refinance when feasible to return investor capital and enjoy cash flow;
- 3 to 5-year typical holding period, but may invest for shorter or longer periods depending upon market conditions;
- Lease and market aggressively while controlling and lowering operating expenses.
We are Cautious Contrarian Investors
We are not only cautious and entrepreneurial investors focused on our market niche, but we also stay focused on what we know and understand, while maintaining the highest ethical standards in our business practices.
- Niche investors with focused experience;
- We buy direct from institutions and/or “off market” or “closely held” offerings;
- Exploit market misalignments;
- Out of favor sectors or markets;
- Poorly managed properties; and
- Distressed sellers.
We look for ways to Control Risk in Every Aspect of our Business
We believe we control risk through: (a) meticulous due diligence; (b) purchase of assets priced well below their replacement costs in sub markets that feature strong amenities, central locations and sturdy infrastructure; and (c) exploitation of market misalignments, quickly acquiring and restoring poorly managed properties in the hands of distressed, undercapitalized or time-constrained sellers to profitability.
- Acquire assets supported by neighborhood amenities and infrastructure;
- Seek to acquire off market properties from institutional sellers;
- Purchase assets below their replacement costs;
- Acquire multi-tenant properties only; and
- Deploy meticulous research and due diligence.
Deploy A Redevelopment and Adaptive Reuse Business Model
- Adaptive reuse is more conservative than development and eliminates construction and other types of discovery risks;
- Provides access to existing locations with high visibility;
- Allows us to purchase assets at deeply discounted prices, substantially below the cost of new construction;
- Provides stable cash flows upon property stabilization; and
- Focuses on proven market concepts that will provide economic stability in both strong and weak economic markets.
As the manager of our capital, we own and operate properties using our own internally-generated profits to contribute to our long-term growth. One of the key ingredients sustaining our long-term growth and consistent financial performance has been strict adherence to maintaining quality in every area of our operation, coupled with “lean operations” and staying within our area of expertise.
Founders Approach Management Team
- Entrepreneurial culture of achievement and communication;
- Highly cohesive management team tempered with disciplined lean operations; and
- Common sense application of complex solutions.
We seek to acquire properties where we can add value and implement an optimal exit strategy
Our properties are internally managed, except for cases of climate control self-storage, to maximize performance, where value is created by the continuous cycle of tenant recruitment, building renovation and tenant repositioning. Assets are sold when profitable.
- Create value by lease-up, renovation, repositioning tenancy and vigilant management;
- Strong internal “day-to-day” asset management by company principals;
- Properties are internally managed for maximum performance; and
- Disciplined to sell when we can make a profit.
We understand the financial and reporting needs of investors who have charged us with managing complex real estate assets and strive to provide the highest level of professional service and client fidelity. We provide investors with timely and transparent financial reporting within a reporting format designed to meet both entrepreneurial and institutional requirements.
We seek to create an alignment of Investor Interests
- Company principals are also investors;
- Full reporting transparency;
- Use of third party transfer agent and investor services; and
- Real time web based online financial reporting.