Grow your investment by multiples.
Our core strategy for doing that is fairly straightforward. It involves:
That's a common-sense business plan if there ever was one.
But the magic isn't in the plan, the magic is in the ability to execute. Executing involves serious hands-on work from very talented people. Hands on as in “get in house and get third party analysts involved, hold each other accountable, triple check your work, make progress every day, and review every building’s status on a weekly basis.” Our team's talent is measurable in the performance of our investments, which speak for themselves.
Of course, a property has to have a lot more than potential for us to seriously look at buying it. In fact, commercial real estate buying opportunities are endless but we only choose properties where we can have impact.
That's because we insist on sound fundamentals, on all the numbers working, AND on strong potential for creating additional value in the building after we buy.
So what do we mean by potential? We mean buying a property that...
In fact, we pride ourselves on the thoroughness of our due diligence evaluations.
That's one reason we have achieved an average of 6% of value identification on purchase price when buying our buildings. Because during acquisition, every line item is identified and verified to ensure complete accuracy to find every additional dollar we can.
Also, we're serious about risk management. We're happy to miss out on a great deal if it means avoiding a poor one.
Since 2009 Nightingale has only acquired properties large enough to support on-site management because we don't believe in management by proxy. And we ensure that all of our property managers receive the financial training to move beyond merely running a property to managing an asset for maximum financial performance.
Our property managers set the building's budget, manage and report on variances, and ensure we are meeting our targets for financial performance and operational efficiency.
While we're training that manager, we're overhauling the building with an eye towards two things:
1. Increasing operational efficiency, and 2. Improving the marketability of the building.
Operational efficiency covers everything from service contracts to lighting to HVAC to elevators to automation of staffing functions. On average, we increase our properties' operating efficiencies by 11%.
When you know you’re going to hold onto an income-producing property for 5 or 10 years, you think differently about capital improvements. Those improvements make the building more marketable and valuable when we do sell.
Adding prestige and Glamour stops being "window dressing" when occupancy rates soar.
Combine added visual appeal, better marketing, and hard work and we get an average increase in occupancy of 16% within 15 months of acquisition.
This is where Elie really works his magic through perfecting lobby design, lighting, technology upgrades, unique signage, landscaping, improved décor and more.
This may sound like mere fluff, but adding the right kinds of flash and visual appeal works when you know what you're doing.
It works because businesses don't make decisions, people do – and people like meticulously maintained buildings, responsive management, fast elevators, great lighting, and modern lobbies. They like having their business in properties that gives them a level of prestige.
This is a key reason why we invest exclusively in cash flowing buildings: the cash flow on day one alleviates the burden of capital investment and allows us to focus on increasing marketability and occupancy.
This may not sound like rocket science, but renovating correctly to increase marketability takes talent. You need to have a feel for what will move a prospective tenant to choose your property over another.
Once a building is renovated, filling it full of quality tenants means doing the work to fully partner with the right leasing broker. Leasing brokers always give their best effort to their most engaged clients.
At Nightingale, besides each property manager’s open dialogue with the leasing broker, we have a dedicated leasing team in the corporate office engaging with our leasing brokers daily and ensuring our buildings increase their occupancy quickly.
When the building is fully stabilized, cash-flowing properly, and worth a premium on the market, we start timing our exit.
We don't hold on to the properties forever because we're in the money making business, not just the real estate business.
We sell when the market value is through the roof and the particular property is filled with stable, high-paying tenants. That's why we like to say, “sell when it feels wrong.”
Once a property is at peak tenancy and is performing financially, we wait for the balance between maximum building value and maximum market value. Then we sell.
Buying and creating value is largely Elie's domain, and he knows how to do that brilliantly. Selling is Simon’s domain. Simon’s question when he sees a profitable, income-producing property isn’t: is it making us money? Simon ’s question is: could the money it brings from a sale make us more money at less risk somewhere else?
This is how we achieve a 30.73% IRR over the last 10 years.