Before We Buy, We Identify Multiple Levers to Unlock Value

As a true value investor and fund manager, we at Midloch Investment Partners look for real estate investment opportunities with multiple ways to unlock value. In other words, multiple levers we can pull with the goal of increasing cash flow and appreciation. One path to success is not enough … nor is hoping, praying or wishful thinking!

That’s a big part of our focus during due diligence, when we evaluate and underwrite properties for possible acquisition. Of course, as value investors at our core, we are price conscious first and foremost and seek to buy at prices that are discounted relative to the market at the time.

But even buying at a discount typically isn’t reason enough to justify an acquisition. We want to know going in that there are at least two or three levers we can pull — immediately or over time — with the potential to generate additional cash flow for distribution to investors, or lead to heightened appreciation, or both.

Here are some of the ways we typically seek to unlock value in an investment as part of implementing the business plan:

• Buy property in an off-market transaction, which generally avoids a bidding war and often results in lower commissions and other fees paid.

• Buy property that’s in some level of distress.

• Buy property and spin off (sell off) excess land.

• Buy property in areas with high barriers to entry or where the supply-demand balance is tight or likely to tighten in the short and medium term.

• Increase rents to market rates.

• Renovate the property to achieve a rent increase or a renovation premium.

• Grow other income or miscellaneous income by charging for parking or other services.

• Lease up previously vacant space.

• Work with a local operating partner, who often brings scale to bear for the benefit of our joint investments, to improve property performance.

• Streamline property operations to reduce expenses.

• Invest in green-energy infrastructure to minimize a property’s carbon footprint and reduce ongoing utility costs.

• Refinance property on more favorable terms, potentially using green-energy financing, incentives or rebates for energy efficiency improvements.

You get the idea. Before we invest even a dime, our goal is to identify multiple ways to improve cash flow and appreciation in order to generate an average annual IRR for investors of 14% to 18% (or more).

We’re also conservative in our underwriting relative to projected rent growth, expenses, income and future values including the prices we’re projecting to realize at the time of property sales. This is essentially another lever we can pull.

Being able to identify multiple levers like the ones described above has proven a successful approach since we launched Midloch Investment Partners, and is at the heart of our acquisition and investment strategy.