HOW WE UNDERWRITE
We do not rely on financial engineering to create the mirage of high financial returns. Instead, we acquire properties using a conservative capital stack. We’re surprised that the industry fails to acknowledge how investment risk can quickly accelerate with leverage. Low leverage is a hedge to generate consistent cash flow and endure eventual setbacks like a sudden market reversal, tenant failures, or unexpected large-ticket capital projects.
OUR FAVORITE MARKETS
We focus mostly on secondary markets near larger metropolitan areas where families can work, live, and play without a high cost of living. We prefer markets that combine affordable housing, environmental quality, higher education, hospital facilities, good infrastructure, regional or national transportation hubs, lower crime rates, and a variety of entertainment options.
THE OPPORTUNITIES
We like properties that have some operating issues. We perform amazing transformations by leveraging moderate investment with a lot of creativity and know-how.
CAREFUL DILIGENCE
Senior management spends much time at a target property to understand the local community, attending property inspections and meeting personally with tenants.
FLEXIBLE DESIGN
We study a project’s site plan, floorplates, and architecture to ensure there is a comfortable flow, favoring flexible architecture that is more easily adapted to a variety of uses.
CONSERVATIVE LEVERAGE
We don’t maximize leverage. We stress-test cash flow, net of planned expenditures, to size a loan that provides robust debt service coverage, leaving room for the unexpected. The objective is to make purchases that provide sustainable cash flow, without material new leasing, to pay operating expenses, deferred maintenance, and moderate improvements, for at least the first few years of our ownership.