The Beauty of Patient Capital in Real Estate Investing
“Buy it, fix it, sell it”…
Is the infamous slogan that private equity behemoth, Blackstone, uses to describe its real estate investment strategy. I would go as far as to say that the vast majority of private equity real estate investors also employ a similar approach. Those funds are burdened with dozens of pages of legal documents which set the standard for investment criteria and time horizon. As a result, when a traditional private equity fund approaches the end of that time horizon, they often find themselves disposing of any remaining assets, regardless if the economic cycle is favorable or not or if there is plenty of unrealized upside left in the assets.
But that’s not us…
Last week, Jeff Evans mentioned the core question we started with, “if you had a permanent capital base, with no pressure from outside clients or investors, and no required time horizon, how exactly would you choose to invest your time and money in a way unique from everyone else?” Our permanent and proprietary capital base allows us to be flexible, and take a unique and long-term approach to our asset base. Unlike most others, our strategy is more of a “buy it, fix it, then let’s see” approach. Sure, if we see market conditions are prime for an opportunistic exit of one of our assets, we certainly won’t pass up the opportunity. But not having to answer to an investment mandate gives us optionality, which we believe is a major advantage in the very competitive world of real estate investing.
For the Blackstone’s of the world a typical investment begins with the “buy it” stage. What differentiates us is our flexible, opportunistic approach and being able to analyze a deal from all angles — as the principal and even the lender. So rather than “buy it” maybe our team decides it’s best to “fund it” instead. There have been plenty of instances where we decided to take the role as bridge lender and provide short-term, high-yield financing options for various real estate projects. In most cases we do choose to “buy it” with our advantage being the ability to analyze and fund deals quickly, due in part to an efficient yet thorough investment review process. While finding great real estate investments is difficult, the process of buying them is usually the easiest part. It’s in the holding period where things are most challenging and any mishap or slight miscalculation can have a huge impact on your IRR for better or for worse.
Creating something of value and permanence
There is no denying that we live in an ultra-low interest rate environment which has private investors and large REITs lining up in droves for each listing that comes to market, creating an unrelenting demand that has further compressed cap rates across assets such as hotels and self-storage. And there is good reason for that — take Extra Space Storage for example, in the last five years alone, it has annualized 37.8% returns compared to the 15.8% annualized return of the MSCI US REIT Index. With real estate assets such as hotels and self-storage seeing increased investment activity, where does one find the value you might ask?
It’s during the “hold it” stage where the value-add component of our analysis typically comes to fruition. Our ultimate goal is to turn our investments into something that increases surrounding real estate value, not detract from it. That starts with what you see from the outside and it goes far beyond just operational inefficiencies and cosmetic improvements. We are creating a quality product for the community, and that is where our team of multi-talented finance, operations, design, digital marketing and branding experts come into play. A prime example of this is with the launch of a branded platform for our self-storage portfolio, First USA Storage. After the successful execution of our value-add component, we move on to the next part of the investment cycle.
Lastly is the evaluation period, or as we like to call it, the “let’s see” phase. This is where I feel Volta Global really stands out. To say we take a long-term view may be an understatement. By operating outside of the traditional investment fund model, we eliminate the need to exit an investment by a certain date. In fact, some of our models have forecasted holding periods beyond a single lifetime — for multiple generations. Warren Buffet said it best, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” Time is a luxury that is fortunately on our side, allowing us to be patient throughout the ups and downs of the market and ensure that our targeted returns are achieved.
Volta Global was founded on the principal of entrepreneurial spirit and intellectual curiosity, which helps fuel our unique and successful approach to investing. At this time we remain very opportunistic and open to a wide array of asset classes within real estate ranging from hotels, self-storage to industrial and even multi-family.
Please feel free to contact me regarding any prospective real estate investment opportunities.