1/ In this brief thread, I will explain how we invest in real estate.
We mainly focus on three strategies:
1) Developments
2) Distressed
3) Value Add
And since quite a lot of people always messaging me about it, I will also give some examples.
We mainly focus on three strategies:
1) Developments
2) Distressed
3) Value Add
And since quite a lot of people always messaging me about it, I will also give some examples.
2/ Residental Developments Deals
This is a strategy commonly known as "opportunistic" in the RE circles. Investors can gain exposure via JVA, senior, or mezzanine debt.
Senior debt strategies are to be used during late stages of the cycle, equity & mezz during the boom stage.
This is a strategy commonly known as "opportunistic" in the RE circles. Investors can gain exposure via JVA, senior, or mezzanine debt.
Senior debt strategies are to be used during late stages of the cycle, equity & mezz during the boom stage.
3/ Here is an example of a recent development opportunity we are looking at.
Location: London, UK
Sponsor: 35 years of experience
GDV/GDC: £25.7m vs £21.5m
Senior: £16.2m (62% LTV)
Mezz: £1.7m (74% LTV)
Duration: 24 months
Interest: 10% pa on Senior, 17% pa on Mezz
Location: London, UK
Sponsor: 35 years of experience
GDV/GDC: £25.7m vs £21.5m
Senior: £16.2m (62% LTV)
Mezz: £1.7m (74% LTV)
Duration: 24 months
Interest: 10% pa on Senior, 17% pa on Mezz
4/ Notes.
• JVAs: some project control, preferred return 10% pa & 50% profit share; target return 18-25%+ pa
• Mezz: 2nd charge, developers personal guarantee; LTV 70-80%; target returns 15%+ pa
• Senior: 1st charge, developers p.g.; LTV 50-65%; target returns 8%+ pa
• JVAs: some project control, preferred return 10% pa & 50% profit share; target return 18-25%+ pa
• Mezz: 2nd charge, developers personal guarantee; LTV 70-80%; target returns 15%+ pa
• Senior: 1st charge, developers p.g.; LTV 50-65%; target returns 8%+ pa
5/ Residental Distressed Deals
Investors focus on buying distressed completed deals via direct equity exposure or buying distressed debt from a previous lender.
This strategy is usually done during an economic recession. Rarely do distressed deals pop up during a boom phase.
Investors focus on buying distressed completed deals via direct equity exposure or buying distressed debt from a previous lender.
This strategy is usually done during an economic recession. Rarely do distressed deals pop up during a boom phase.
6/ Recent distressed deal we are looking at.
Location: London, UK
Notes: 8 units, total area 665m2, completed 2018, current annual rent £120k (£155k potential), separate ‘rear land’ title for construction
2019 Valuation: £5.1m
Current Debt: £3.5m
Potential Purchase: £2.5m
Location: London, UK
Notes: 8 units, total area 665m2, completed 2018, current annual rent £120k (£155k potential), separate ‘rear land’ title for construction
2019 Valuation: £5.1m
Current Debt: £3.5m
Potential Purchase: £2.5m
7/ Notes on Distressed Deals.
• Opportunity to purchase at 25% to 50% discount
• Reposition asset & improve income
• Re-apprise the asset & refinance w/ 50% gearing
• Hold for 5+ years & manage price recovery
• Returns inc appreciation, debt paydown, positive cash flow
• Opportunity to purchase at 25% to 50% discount
• Reposition asset & improve income
• Re-apprise the asset & refinance w/ 50% gearing
• Hold for 5+ years & manage price recovery
• Returns inc appreciation, debt paydown, positive cash flow
8/ Typical Residential Deals
We gain exposure to prime grade A luxury single-family assets, which means direct equity with a need for rehab.
Or JVA on multi-family value add in the US. This strategy is usually done during the early+middle cycle & via equity for maximum upside.
We gain exposure to prime grade A luxury single-family assets, which means direct equity with a need for rehab.
Or JVA on multi-family value add in the US. This strategy is usually done during the early+middle cycle & via equity for maximum upside.
9/ We haven't focused on equity exposure deals for quite some time now. We judged the late stage of the investment cycle to be around late 2017, early 2018.
Since, we have focused more senior & mezzanine debt (defensive strategies). Now we are focused on distressed bargains.
Since, we have focused more senior & mezzanine debt (defensive strategies). Now we are focused on distressed bargains.
10/ We are now helping accredited investors, HNWIs, family offices & small funds gain access to our attractive real estate deal-flow pipeline...
And co-investment opportunities alongside our family. Get in touch by visiting our website.
theatlasinvestor.com
And co-investment opportunities alongside our family. Get in touch by visiting our website.
theatlasinvestor.com
11/ Basics on our due diligence process (much more complex then what I write here).
Alternative asset investing is all about deal quality & selection.
We have four key risk mitigation concepts and we believe if one follows them, 85-90% of all risks will be removed.
Alternative asset investing is all about deal quality & selection.
We have four key risk mitigation concepts and we believe if one follows them, 85-90% of all risks will be removed.
12/ They are:
1. Vetting of Sponsors & Developers
2. Prime Location Focus
3. Risk Mitigation Strategies
4. Conservative Capital Stack Exposure
1. Vetting of Sponsors & Developers
2. Prime Location Focus
3. Risk Mitigation Strategies
4. Conservative Capital Stack Exposure
13/ Vetting Sponsors & Developers
I've talked about this before but in essence, you have to make sure the sponsor has a clean (no default) track record and their team/company been in the real estate business at least two business cycles (forget someone who started in 2012).
I've talked about this before but in essence, you have to make sure the sponsor has a clean (no default) track record and their team/company been in the real estate business at least two business cycles (forget someone who started in 2012).
14/ Prime Locations
We prefer locations in either prime "gateway" cities (NYC, London) or 2nd tier cities experiencing a boom & increase in demographics.
A high barrier of entry for the area is a must & making sure future supply is going to be low. Stay away from cranes.
We prefer locations in either prime "gateway" cities (NYC, London) or 2nd tier cities experiencing a boom & increase in demographics.
A high barrier of entry for the area is a must & making sure future supply is going to be low. Stay away from cranes.
15/ Risk Mitigation
We don't invest in low-profit margin deals because sponsor's incentives aren't there.
Also, no high LTV deals because mezz debt will be at a high risk of default.
Finally, no sponsors which run many projects at once & have a stretched cash flow position.
We don't invest in low-profit margin deals because sponsor's incentives aren't there.
Also, no high LTV deals because mezz debt will be at a high risk of default.
Finally, no sponsors which run many projects at once & have a stretched cash flow position.
16/ Basic common sense summary when working with sponsors:
• full transparency is a must
• clean multi-cycle track record
• meaningful skin in the game
• proper alignment of interests
• business integrity or honesty is a must
• focus on the long run, relationship building
• full transparency is a must
• clean multi-cycle track record
• meaningful skin in the game
• proper alignment of interests
• business integrity or honesty is a must
• focus on the long run, relationship building
17/ Conservative Exposure
We almost always choose higher priority capital stack rank, if possible.
We are defensive which means instead of doing an equity JVA, we will take the mezz debt.
It means slightly lower returns, but also it means downside protection is much higher!
We almost always choose higher priority capital stack rank, if possible.
We are defensive which means instead of doing an equity JVA, we will take the mezz debt.
It means slightly lower returns, but also it means downside protection is much higher!
18/ There are plenty of things left out in this thread...
Including underwriting, negotiations, relationship building, legal framework and covenants focus, understanding where in the investment cycle we are, knowledge of the local market and its demand/supply and so much more.
Including underwriting, negotiations, relationship building, legal framework and covenants focus, understanding where in the investment cycle we are, knowledge of the local market and its demand/supply and so much more.
