Our business is to invest in the acquisition of selective real estate assets to generate income and capital appreciation for their owners.
We seek properties that offer not only the opportunity to invest on favorable terms, but also the opportunity to add value to the properties by making improvements, repositioning, marketing, development, regulatory entitlement and/or financing. For example, a property may be made more valuable by improving its appearance, reducing its operating expenses or expanding its capacity; or by catering to a more upscale market segment or by more effective marketing; or, in the case of a vacant or underutilized property, by erecting an income-producing building; or by arranging a zoning change or filing a petition under rent-control; or by negotiating more favorable financing.
We seek a combination of assets producing both current cash flow and potential for capital appreciation. Not every asset will offer the same combination of these characteristics; in fact, some assets may be skewed far in the direction of either current cash flow or potential for capital appreciation. By a combination of assets with different characteristics, however, we offer both current cash flow and a potential for capital appreciation.
We will consider any type of commercial real estate. Commercial real estate can include office, retail, multi-family, industrial or special purpose property. Commercial real estate can also include vacant land, provided the land can be used for commercial development. The essential characteristic of commercial real estate is that the purpose is to generate income for the investor. Wediversify our assets, as practical, over several property types.
We focus our activities on the greater Washington metropolitan region, defined roughly as anywhere within a radius of three-hours driving time. Washington is an unusually good area for real estate investment, offering a combination of growth in population and income combined with strong business formation andformation. Household median income and education levels are among thehighest in the country. The federal government provides a stable employment base that mitigates economic downturns.
Within the metropolitan area, there are both strong and weak locations. The characteristics vary by the type of assets under consideration. Transportation in a time of high energy prices is a key variable, whether near subway stops for office and multifamily or near railroad access for warehouse and industrial. Economic and population growth are also important. The central city is a target area because of its vibrant mix of retail, business, government and residential properties. More remote areas, however, can also be attractive, if those areas operate as independent economic communities with growth characteristics and are not dependent on commuters.
We target investments of cash in the range of $1 – $5 million, although we have made investments up to $12.5 million. Our target level of cash commitment per asset is large enough to be above the range of most ‘mom & pop’ buyers and at the same time small enough to be below the range of most institutional investors. Where the array of potential competitors is limited, returns are typically greater. Assets requiring that amount of cash allow us to make multiple investments, diversifying the assets held in our portfolio.
Typically we want to exit a holding within three to five years from our initial investment. The actual time that we hold an asset will depend on many variables, including market conditions, financing availability, completion of construction or renovation, leasing progress and the like. In the event that a refinancing can return a large part of the original investment, we are willing to hold for a longer time.
We generally invest in projects with low loan-to-value or low loan-to-cost ratios, thus minimizing our exposure to financial risk.
We usually enter into joint ventures with experienced and capable real estate operators and developers. In a typical joint venture, we form a single-purpose entity to be an equity investor, contributing cash along with the operator or developer, but with limited financial obligations and a preference on distribution of cash from the property.
Each investment opportunity is offered individually. An investor may choose to participate in one project but not another.
To the extent practical, we offer our investors an array of opportunities, some with current income and others with a payoff after development.
We always invest a significant amount of our own money in any project we undertake. We will not ask investors to put their cash into a project unless we believe in it and back that belief with our own cash. In addition, we also require our real estate operator and developer partners to have a significant cash investment in the project.