Market conditions drive nearly everything in commercial real estate, as does knowing when to buy and at what price. Having a feel for market conditions is akin to knowing when to hold ‘em and when to fold ‘em, to quote singer-songwriter Kenny Rogers. Here’s a closer look at what we offer and what guides our thought process.
When taking on a new assignment, we study the history of the asset to understand what drove the original development. We explore what has happened since development and what liability exposures exist, and devise ways to mitigate liabilities while evaluating probabilities to add value. We underwrite the cost to restore the property to be market competitive and rent ready and then back into a bid from a conservative sales pricing assumption, all the while keeping in mind the element of surprise. With distressed asset acquisitions, there will come surprises. We stay on script and do not stray.
What is the quality of earnings: past, present and future? This is the rhetorical question that marked the beginning of Geoffrey Curme's professional career. It was October 1974, and the question was posed by Robert Gardella, a dyed-in-the-wool secured debt credit officer with the then-Bank of New York, now known as BNYMellon. Quality of net operating income drives the plausibility of the underwriting, the acquisition, and the future sale.
We know that the buy-side and sell-side pricing have to be plausible and provide for a margin of safety. On the buy side, leave room for the unexpected once you own the real estate. On the sell side, don’t be piggy, especially if you want a clean and timely sale. The market can move in a heartbeat, just as the debt market did in the days and weeks following the outcome of the November 2016 election. The market did not anticipate Mr. Trump to win the presidency, which was viewed as a positive economic indicator. Equity moved up; debt moved down.
There are no performance guarantees save one: Pro formas are wrong, falling either on the high side or the low side of what become actual results. Our aim is to first understand the asset, the market, any vagaries, and liabilities. Then we underwrite and mitigate liabilities.
Treating with respect
We believe in treating everyone with respect and putting ourselves in the other’s shoes. As such, we invite our service professionals to punch holes in our value-add game plan. We find the bottom-up view is generally clear sighted.
Real estate professionals enjoy working with us. There are no head games or tilting at windmills, such as unsubstantiated underwriting. We’re about straight talk, stand-up bids, and game-plan execution. We do what we say and provide running commentary on “how we are doing” (transparency all the way). As a result, vendors, professional service providers, investors, lenders, and equity investors like to do repeat business with us.