"NEED FOR SPEED" Model Drives Investors to Reinvest

“At our core, we are investment agnostic.  We are first and foremost investors focused on creating wealth with the lowest exposure to risk. We love certainty.”

Janet LePage and Dave Steele of Western Wealth Capital have a disciplined approach that fuels their long road of consistent returns.

There are three heartfelt words that can make any investor melt:  “Compound annual returns”.  For investors facing a volatile market, these three words resonate as deeply “I love you”.  However, no matter whether you are looking for love or compound returns, both are equally elusive.

To realize compound annual returns, you need certainty of market and strategy – a fixed outlook.  In our industry, some real estate investment trusts (REITs) can offer dividend reinvestment plans, allowing investors to reinvest dividends in additional shares of the company.  Typically, these REITs invest primarily in commercial properties, such as downtown office buildings, and pay routine dividends from rental income and capital gains.  These are long-life and predictable assets to generate compound returns.

But they’re not the only avenue.  Western Wealth Capital’s disciplined strategy, pace, and track record have created a new opportunity for reinvesting equity over time:  the acquisition, optimization and divestment of multifamily rental properties.

To date, we have executed on the full cycle of our business strategy 13 times, often over a relatively brief period of 18 to 28 months.  The average annualized return for these divestments has been 34.08%.

Our consistent performance has built certainty, and, similarly, fuelled investor retention and referral.  We estimate that 90% of our investors reinvest some or all of their equity in subsequent WWC opportunities.  Investors roll their money forward, project to project.  Some spread their equity over a number of opportunities.  We have become a dedicated slice of our investors’ overall portfolio pie.  As you see from the tables below, investors are not receiving strong performance but potentially realizing compound returns over several years.

There are three main pillars driving the ability to deliver consistent returns over an efficient timeline.

Disciplined, Precise Strategy

At our core, we are investment agnostic.  We are not real estate investors.  We are first and foremost investors focused on creating wealth with the lowest exposure to risk.  We love certainty.  Our thesis is simple:  People need a roof over their head, and in fast-growing cities, that can be hard to come by.  We look for cities where growth of GDP, population, and employment increase property and rental prices over the long term.  Specifically, we focus on markets where population growth outpaces both existing housing supply and near-term single-family and multifamily additions.  Declining or below-average rate of home ownership and affordable income-to-rent ratios are also winning determinants.

To date, we have focused on Phoenix and San Antonio because they continue to host our investment fundamentals.  We are just as precise as to where we allocate capital in these cities.  We acquire undervalued Classes B and C multifamily rental properties; carefully invest capital to accretive improvement; and optimize operations – including normalizing rents, updating kitchens, and adding washers and dryers – to increase the asset’s net operating income (NOI) and valuation.  We have never deviated from this strategy, only optimized it.

Pace and Scale

Repeatability not only creates scalability but ongoing opportunities to improve our business strategy.  In short: How can we do better?  As addressed in a previous column in this magazine, we call the end result “the need for speed.”  Our refinement has allowed us to accelerate the improvement in NOI efficiently, providing a shorter runway to achieving our investment goals. During the acquisition cycle, we consider the passing of the nonrefundable stage our triggering event.  At this point, we begin implementation of our 24-point checklist of near-term improvements and action items.  On acquisition close, we quickly execute all prearranged improvements.  Very quickly we begin our program of normalizing rents to market rates, marketing unit improvements that include upgraded kitchens and added washer and dryers, and investing in community renovations.

This modest capital investment generates materially accretive returns.  Our track record shows that the resulting increase to NOI, using a conservative capitalization rate, can increase a property’s valuation equal to investors’ original equity.  We leverage supplemental financing because our investors value certainty.  We ensure our loan terms allow for an annual appraisal to leverage improved NOI and property value.  And we increase the existing loan to return equity back to investors.

Track Record

If investors wish to roll their equity forward, they require an ongoing inventory of investment opportunities.  By remaining disciplined to a model that works, we’ve built a strong reputation with commercial property brokers, financial institutions, and property management companies.  They know what we like.  This has given us exposure to large pipeline of some of the best multifamily investment opportunities in the American Southwest.  Along with building out our bench strength prudently. this deal flow has allowed us to execute on a large number of opportunities, year over year.  From 2015 to 2017, we acquired 30 multifamily communities (for a total of 5,908 units) in the southwest United States.  This year, we are on pace to match or exceed the 12 acquisitions made in 2017.

And we are now extending our viewpoint to the rest of the United States to leverage a business strategy that builds better communities and rewards more investors.

For more information, see the article here from REIN Life – May 2018 or contact the IRR team.

 


Politics, Promises, and Pipelines

On the first few months of Prime Minister’s Trudeau’s leadership, the themes that resonate. Let’s help those in need, let’s build a better world by inclusion, not exclusion, let’s address climate change and let’s foster green, clean technology as the future of Canada. All admirable ambitions that won the votes of many Canadians with the promise of rebuilding the middle class.

While I’m not a futurist I’m a realist.  With realism comes practicalities. Although I didn’t vote for the Liberals, I’m optimistic that the Prime Minister Trudeau sensibilities will recognize the industries that have supported our country and given Canadians one of the highest standards of living in the world.  And that he will continue to foster their growth and development with policies aligned to meet realistic objectives that have Canadian’s best interests at heart.

In my opinion the recent comments by Chad Holliday, President CEO of Shell, make the most practical sense.

“Whether you’re a supporter or a detractor, hydrocarbons will remain the primary source of energy for some time. And that isn’t just our self-fulfilling prophecy. Groups ranging from the National Energy Board to the International Energy Agency forecast that energy demand will rise due to a growing global population and higher living standards. It’s important to remember that today, some 3 billion people still lack access to the modern energy many of us take for granted.

So as emerging economies climb out of poverty and up the energy ladder, the world will need to meet this demand. But how will that happen?

Often we’re presented with a false choice between renewables OR hydrocarbons. But both will be vital to meeting demand in the coming decades.

We need to put a practical plan in place to realize it.

In order to meet the projected energy demand by 2050 while controlling climate change, we will need to DOUBLE the world’s energy supply from 2000 levels while at the same time dramatically reducing the world’s CO2 emissions. This is an incredible challenge. But I believe if given the right frameworks, human ingenuity will prevail.

Investing in lower carbon energy, especially in areas where we have the skills such as natural gas production and technologies that increase energy efficiency and reduce emissions.”