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DEREK WALTCHACK: SPRING OUTLOOK AND COMMENTARY

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Spring Outlook and Commentary – April 2013

I bumped into a fellow broker recently who asked me, ‘are y’all still buying everything you touch?’  To which I said, ‘no, but we are actively looking for opportunities’.

Inside I bristled for a couple reasons:

1. We are VERY selective in what we purchase, we only bought 8 assets last year and typically look at 100+ deals before one works for us and

2. Why are we sticking out in the market as one of the most active buyers of real estate vs. our peers?  Are we missing something or being reckless? 

The question caused me to think through and to discuss with peers the financial hurdles and thresholds we use to analyze deals, to question what part of the real estate cycle we think we are in and to think about the macro economy and its effect on our investments. 

Before I dive into my conclusions, I must admit that there is a part of me that feels like we are sharing our ‘secret sauce’ with the general public.  But we try to be a very open firm that shares information freely.  I’ve found that more and the better people get to know us, the more opportunities we all seem to find.  With that said…

 

How do we analyze deals?

Someone asked me the other day if you only could give one piece of advice for a real estate investor what would it be?  My answer was to buy below replacement cost.  Leases can artificially enhance the price the market is willing to pay for a given building.  Ignore the leases, look to what the underlying dirt and building is worth. 

This guiding principle kept us safe during the great recession of 2008 and its aftermath. 

As things