Market Approach
Everything starts with and depends on price. There are times when certain types of investments are “hot” and other times when they are not. The key with any investment is to evaluate its true intrinsic price and buy below it.
As Warren Buffet famously says, “it’s hard to go wrong when you buy a dollar for less than a dollar”.
So the mission becomes how to sort out those components which allow for a sober assessment of an asset. In fashionable sectors and frothy markets such a disciplined analysis is first slowly and then quickly abandoned in favor of optimistic projections. These tend more and more to rely on “capital appreciation” with no basis other than an expectation that a buyer will come along with even more optimistic assumptions. Some refer to this as “the greater fool theory”. Everybody can repeat the “buy low and sell high” mantra, but when it comes to execution most will “buy high” and hope to “sell higher”. This is a certain formula for capital demolition which we have seen played out over and over again, sector after sector, from tech to debt to real estate to everything in between.
For almost three decades our area of expertise has been real estate. Our rules for purchasing are detailed under Investment Principles. Suffice to say that our philosophy is not to join crowds nor conversely to claim to be geniuses by merely going against them. Our philosophy is to find and follow the facts which sometimes lead us far from exuberant crowds into lonely and unloved places.
Close to thirty years ago, the Savings and Loans crisis led to a collapse of real estate felt acutely through the U.S. Southeast and in particular in Texas. So that is where we went. We accumulated a portfolio of residential real estate and ten years later sold it to a large U.S. REIT. Similarly, after a period of instability in Quebec during the late 90’s and early 2000’s due to fears of separation, we built up a portfolio of properties, some of which we sold to a local REIT at prices we felt were impossible to resist.
Then came what is being referred to as “The Great Recession”. The world became negative on parts of the U.S., particularly the Midwest, where common knowledge declared it a “dead place”. We specialize in “dead places”. Sellers are often all too eager to get rid of assets at fire sale prices believing the dire tone of the current apocalypse du jour narrative. In June 2011 we closed on our first U.S. purchase in twenty five years, a portfolio of three commercial properties compromising 175,000 SF in Fort Wayne, Indiana (yes, far from Silicon Valley and New York City and other such “gateway markets” where so many currently love to be). The seller was GE Capital who let the asset go for a third of the mortgage it held on it and for a quarter of what was built twenty years before.
At our purchase price we positioned ourselves to undercut the competition, comfortably pay full commissions to leasing brokers on both ends (thus incentivizing traffic our way), pay for TI’s and fill up our space – doubling our NOI and the portfolios unlevered value. It is first and foremost about price and not about the popularity of an asset class, its location, etc.