How to Build - Or Find - A Real Estate Compounder.

You’ll need the following:

(thread below)
A Niche Business Model Where:

• Demand is outpacing supply (constrained market)
• Tenants are “pot committed” (sticky customers)
• Organic income grows regardless of economic cycle
Low Ongoing Capital Requirements:

• Great cash flow visibility = easier to price deals
• Avoids black swan expenses that derail investments
• Capital spent to grow income, not just maintain
Partially Self-funding:

• Function of the prior two categories
• Less reliant on capital markets
• Issue less and less new equity (%) per deal
Committed to External Growth:

• Acquisition culture – entire team drives new deals
• Enables team to keep and incentivize All-Stars
• Leverages existing portfolio & data to expand
Improving Cost of Capital (WACC):

• Fanatical about lowering interest costs
• Used as a weapon against the competition
• Compounds as scale can drive interest costs lower
Operational Excellence:

• COO is a killer that loves systems (engineering mindset)
• Asset managers are celebrated & compensated for performance
• Heartbeat of firm: drives confidence within every division; empowers acquisition team to win more deals
Efficient Capital Allocator:

• Occasionally recycle capital via opportunistic sales
• Issue or buyback equity when market gets irrational
• Use everything in the tool kit – lines of credit, fixed non-recourse, bonds, preferred equity, OP units
Below Average Leverage:

• Counterintuitive, but less leverage leads to higher returns over long term
• Avoids blow-up risk and need to raise capital at inopportune times
• Allows firm to go on offense when overleveraged competitors struggle in a recession or credit crisis
Investment / Reinvestment Opportunities:

• Long runway of expansion, acquisition or portfolio targets
• Development pipeline or – better yet - developer partners that take entitlement and construction risk (option land)
• Critical to high returns over long-term
Net Result = Real Estate Compounder

Flywheel where acquisitions are accretive ($$$) vs. cost of capital. This reduces G&A costs, which further reduces WACC, which drives more acquisitions.

Bonus: Virtuous circle reduces risk via improved deal / market quality at same returns

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Brad Johnson

Brad Johnson Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @bradleyjohnson2

2 Oct 20
This week the largest mobile home park owner decided to become the largest marina owner...

…because, why not?

Sun Communities ($SUI) announced a $2.1 Billion acquisition of Safe Harbor Marinas.

Quick research thread below:
Too early to tell how accretive this will over the long-term, but our initial take is positive.

- Sun running out of large mhp portfolios to buy
- PE firms are pushing park cap rates to sub 4%
- Should return high 6% yield year one

(Sun’s dividend is only 2%)
Marina real estate has similar characteristics to existing mhp business:

1.high barriers (shrinking supply)
2.fragmented industry
3. low capital expenses
4.sticky tenants

(like land, water is pretty cheap to maintain)
Read 7 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!