How to get the most out of your investments.

I have already chronicled the diluted value of an MBA, here and here. I also mentioned that one option for those looking for a job is to get into sales (at least for a short period). With a sales background, you will always be in demand since businesses always need people to boost their revenues. And, with a sales background, it will be much easier for you to land a job in some other career path, since you will have the sales background to sell yourself.

Another option, instead of an MBA,  is to buy a business. Notice I didn't say start a business. It is much more difficult to start a business than most imagine. Unless you have family that are in business where you sopped up a lot of knowledge while you were growing up, you really have the odds against you, but if you buy a business the right way that is already in existence, things could be different.

Let me tell you about the morning I earned my MBA, many years ago.

At the time I was living in New York City and with a friend we headed out to Long Island on a Friday night. The night turned into a long one and we decided to stay over my friend's parent's house on Long Island and head back into the city the next day.

That morning I woke up before my friend did and I headed down to the kitchen. My friend's mother started to make me some breakfast when a neighbor walked in and sat down at the kitchen table I was at. He was an elderly gentleman with a cane.

He started telling me that he was looking at a parking garage that he might buy in the city. I remarked that I thought parking garages were a great investment because as inflation heated up the value of the property would climb and in the mean time you were getting paid to hold the land. He half acknowledged me and continued with his story/analysis.

He told me he could move the parking lines closer together at the garage and increase the number of cars parked by 12%. I thought, Wow, what a clever idea.

He then told me the garage had too many valets on and he could cut back by them by about 50%.

He then told me that there were too many trash receptacles and the trash was picked up daily. He said he could cut the receptacles in half and only have trash pick up every other day.

I thought to myself, again, Wow this man is going to cut costs by about 50% at this parking garage and increase revenues as soon as he buys the place. Boy, did light bulbs go off in my head. He knew what the garage was generating in revenues. He sure wasn't going to pay more than it was worth based on current revenues, but the worth would increase by 50% once he implemented his plans. Now, that's an entrepreneur. His risks were limited because of the history of the business, but his upside (to him) was obvious.

He left soon after giving me my MBA. My friend had woken up by this time and when the gentleman left I asked my friend, with sort of  "Who was that masked man" awe, who that was. It turns how he was one of the top real estate holders in NYC and held among many prize properties the Chrysler Building.

Ever since then I have always been on the look out for such opportunities and have noticed them when others implement them. There used to be a pizza parlor on the corner of 59th Street and Third Ave. The owner of the building who owned the pizza parlor sold the building.

The new owner immediately moved the tables together in the pizza parlor and put up two walls and rented out the space to two other merchants. I doubt he had any decline in pizza sales, and now he was collecting rent from two merchants who were paying him to be across the street from Bloomingdale's.

In Los Angeles there is a hotel downtown called the Figueroa Hotel. I am sure that when the current owner bought the place he probably paid less than a million dollars. It was pretty run down. He fixed it up a tiny bit and decided to give it a Middle East theme. This consisted of hanging colorful drapes (kinda Middle Eastern looking) throughout the hotel. In the big convention areas on the lower floors, instead of chairs and couches he threw Middle Eastern looking pillows. It worked for him and the hotel appears to have a fairly steady flow of customers. But, here is the real kicker. One wall of the building faces the major highway that brings traffic downtown. He put that side of the building up for rent as a huge billboard. Last I heard he was getting $500,000 a month for billboards at his hotel. Go that? That's $6 million per year of free cash flow for a building he probably paid less than a million for. Since then Staples Center (where the Lakers play) has moved next door and an entertainment complex. Who knows how much he is getting now?

The point of these stories is that you really shouldn't try to reinvent the wheel by starting a new business. You should, instead, buy a business where you can see immediate ways to significantly increase revenues and lower costs. By increasing revenues, I don't mean a great new marketing campaign you have in mind, I mean non-cost ways of increasing revenue, moving parking lines together, selling billboard space, or however you can generate additional revenue in your particular business.

If you have never bought a business before, find a sharp accountant and ask him to look at books of the business for you. And try to negotiate a purchase where payments are made over time to the owner, an owner isn't going to do that unless he is comfortable that the business is solid.

What I have described above is what LBO operators and Private Equity operators do on a grander scale. If you do it right, the rewards can be significant, but the key is to be patient and wait for the opportunity where there are very obvious ways to increase revenue and cut costs. For many, it's likely to be a much more solid path to success than an MBA.

Posted by Robert Wenzel 

economicpolicyjournal.com

Meridiana in London

August 2009 – Meridiana in London

During the last week of July, company director Albert Castro and a small team from Meridiana made a trip to one of its core investment markets, London, UK.

The trip was organized so that the four person team could meet with a number of its UK based clients, business associates, investors and banks.

Each member took the time to meet with managers at international financiers such as Barclays Bank, DEKA Bank, Calyon Bank, and Deutsche Postbank. They also met with fund managers at Alpha Real Capital, LSI Management, Strategic Capital Solutions and WP Carey.

The trip allowed the Meridiana to obtain a deeper understanding of the economic environment within one of the world’s finance and real estate capitals. In additon, the team also wanted to achieve the following objectives:

1. To understand the investment appetite of its investor and bank contacts.

1. To re-inform its contacts of the Meridiana’s commercialisation capabilities, it’s competitive advantage and how the company may be useful during the start of the economic recovery.

The meetings also provided a platform to present some of the company’s portfolio and current investment opportunities.

The time is the city was informative and the the team was able to gain fresh insight and knowledge about current investment activity, speculative investments, and future markets.

The information obtained largely concurred with general economic news and items which may be obtained from the press and financial publications.

Investors are choosing to invest in mature markets, that are transparent and have good historic investment practice. London represents such a market with the focus here being on property revaluations and the profitablitity opportunities that this now presents. Prime locations and Class-A assets remain in demand and yield sizes of 7,5% or higher provide the optimal investment conditions. Long term investments with good clients are very important, they will be clients who have foreseeable trading and long term sustainability. The focus is on investor - client relationship.

In terms, of  new business opportunities, there are fund managers who may be studying up to 50 deals per week. They are attempting to locate opportunities that will add considerable value to their portfolios. But, even though they maybe actively studying such deals, their positive liquidity position allows them to pick and choose the only best opportunities. Therefore, if investors are not desperate to invest, they will only do so if the opportunity will bring value to the company.

Banks have since returned their traditional lending practices. For Calyon Bank, balance sheet lending has been a full comeback. Understanding the client, its business and its operations is paramount when they are considering a financing opportunity.  LTVs of 50 – 60% remain the safest ratio, in addition to lending at 6 – 7 ½ times the EBITDA . Some institutions may be even more conservative and consider lending at 8, 9, 10, or 11 times the EBITDA.

During the meeting with DEKA Bank, Director of Acquisitions, Mr Mark Titcomb, took time to explain the bank’s current appetite and its intentions for the remainder of 2009.

Although the economical outlook from DEKA was bleak they still have the appetite to lend and they continue to look for opportunities that will add value to their current portfolio.   

The bank is primarily involved in large property transactions within the office, industrial, logistic and possibly the commercial centers sectors.

Their investment focus, corroborates with the sector sentiment as both industrial and logistics, are areas which offer investors the advantages of a high yet stable income return. There is obviously less dependence on the a prospect of variable increase in the portfolio performance.

It was reported that earlier this year, Deka purchased the Sainsbury’s distribution warehouse at Enfield, London from Aviva from €73m (let on an 18.5 year lease).

In addition to this, CB Richard Ellis reported that there were also a number of large logistics transactions in the second half of last year, including the €28.5m acquisition of a logistics investment in Milton Keynes, UK let to a subsidiary of food manufacturers Cadbury until 2017.

Viewed in a longer term context, investment in industrial and logistics property in Europe is changing markedley. The sector shared in the rapid growth in turnover that took place in the period 2003-07. Over these five years, investment turnover in the sector rose by 170% from just under €7bn to nearly €19bn before declining in 2008. Despite this contractio, it still accounted for 10% of European real estate investment last year, up from around 7% in the three years 2005 – 07.

CB Richard Ellis also noted the following value changes and drivers within the industrial and logistics sectors:

• A number of major markets including Madrid, Vienna, Milan and Stockholm have seen increases of 125 basis points or more.

• The main German markets have so far seen relatively  little change.

• On some of the larger larger and more mature marktes such as London, Paris and Barcelona yield have increased by 200 basis points or more.

These movements have left yields in a number of key markets at or close to their highest levels in the post 2000 period. Munich, Vienna, Amsterdam and Stockholm are within 50 basis points of their previous highs while yields in London and Barcelona area as high as they have been at any point in this decade.

The news obtained from DEKA echoed alot of the recent interest, current activity and future investment strategy of many players within the industrial and logistics sector.

For the Meridiana team, it was good to learn that the market is showing some signs of life. The team met with banks and investors who are not only actively looking for opportunities but also have the liquidity to invest now. Whereas 12-24 months ago such investors would have been priced out of entering certain locations, the dramatic decreases in property values now present the opportunity to penetrate market locations and sectors. This is present the opportunity to acquire prime assets at discounted prices or adding a trophy asset to ones portfolio.

Like DEKA’s long term investment in Sainsbury’s distribution warehouse. The market is now presenting some interesting distressed opportunties.

Meridiana’s next trip to London will take place in October 2009.  

Real Estate Market Europe July 2009

Real Estate Market Europe July 2009

I. Situation in Germany - Juli 2009:

1. Investment volume in Germany went down from 57,5 bn € (2007) to 19,9 bn € (2008) to reach 3,3 bn € (1. + 2. q. 2009)
2. No (few) transactions - at least no package transaction and only few single transactions
3. There are no buyers, no finance and no sellers - the market is death and there is spooky quietness among the market players.
4. Investors wait until they have accumalted enough equity
5. Banks are still administrating their (doubtful) loans
6. And the pressure to sell the distressed porperties is not yet high enoguh.
7. The market is in a position of waiting. When do the banks start to sell its distressed properties.
8. The market is blocked like a clogged pipe which will burst, for sure. The question is when?
9. Potential active buyers: Private Investors, insurance companies, capital investment companies / investment trusts

II. On the other hand Deka Bank reports ON EUROPE that:

1. The window for anti-cyclical investment is opening at the moment
2. It stays open until 2011. So investors do not have to hurry up with their investment decisions
3. The average European prime yield for offices will go up from 5.9 to 6.4% until the end of 2009
4. It will decrease again to 5.8 % until 2013
5. London yield has increased from 5.3 - 7 % in this year
6. Madrid yield has increased from 4.1 - 5.9 % in this year
7. Due to the notable increae of yields in these core markets Deka sees huge potential to realize benefits in these markets until 2013

Source: faz.net

SIMA 2009

SIMA09 reaches record sales

Above all, SIMA09 will be recalled due to the significant growth in sales operations registered during this edition. Metrovacesa -81 transactions completed, Hercesa -72 operations, Vallehermoso -60 units sold, Reyal Urbis -40 sales, and Promohogar -23 units, lead SIMA09 ranking of sales (among the firms surveyed by the organization). Moreover, most of the participants agreed each other and have described this SIMA edition as the most profitable of those held to date.

More than 63,000 people visited SIMA09

A total of 63,487 people -6131 professionals-, attended the eleventh edition of the International Madrid Real Estate Exhibition [SIMA09], closed on May 30th. Exhibitors have highlighted the quality and the quantity of visitors who participated in the fair, their knowledge about the kind of product they were looking for, and their undisputable interest in buying a property.

A dose of optimism

After the end of SIMA09, a general sense of satisfaction was the prevailing opinion expressed by exhibitors since their prior business expectations turned into better results than they had expected to. “I hope this edition becomes a turning point and helps to mark shift in market trends. Over recent years, SIMA has been a barometer of the sector, so I hope the dynamism we have witnessed during the four days of the event would finally translate into an upturn in sales in the coming months", said Eloy Bohua, director of SIMA.

Foreign participants: mission accomplished

Once again, SIMA international participants have met their goals. “Our assessment of SIMA09 is very positive; we have managed to close many appointments, and we truly appreciate the opportunity of being able to make contacts with politicians and Government representatives ", said Andres Arraiza, developer at BrasilIfe. Nelson Blanco, from Alejandro Perazzo Real Estate, from Punta del Este, considered that "visits have been positive, there is no doubt that this event helped us to strengthen our brand image". For Agustin Diaz, from García Santos Marketing Inmobiliario, also from Punta del Este, “we have made significant and good professional contacts with groups of investors and consultants. Participating in SIMA is a must”. Maite Atela, from Danube Homes, said "SIMA09 experience has been positive. So far, we have found we made many quality contacts during this edition”. For Joshue Cabral, from Realty Bavalote, "this trade fair has worked out much better than we expected". Christopher Hall, Vice President Global FIABCI, summarizes SIMA09 experience, convincingly: "the queues to buy property where staggering – you had to see to believe!”.

Source: 10.06.2009

City of London real estate starts to offer fair value after severe slump

Source: http://www.ft.com, 08.06.2009

CEE Retail Market: Concept of Sustainability

From 22nd to 24th April 2009, Meridiana took the opportunity to show its presence at one of the biggest conferences for Retail Shopping Centres worldwide. The ISCS conference took place this time in Barcelona and presented some very interesting trends of the real estate and retail shopping markets. Event attendees were able to obtain new market knowledge, listen to the showcase about future markets trends or simply to network with potential contacts.

The overall feeling about the current market was not very optimistic. The financing of big retail shopping centres depends strongly on old established contacts, the right tenants and the right asset. Location, quality, securities (less risk) are the key elements to closing a deal during this time. The desired yield for retail properties in the UK in 2007 was around 17.5%. Now we are talking of 6.4% in 2008/2009, a percentage changes of 63%. In Germany, there was not that much change but figures decreased by 21% from 6.8% in 2007 to 5.4% in 2008/2009. The big opportunity is seen by the majority of the investors in the diversity of risk through a large number of tenants and in less saturated markets.

On the other hand, the majority of the speakers look to the future very optimistically. The main future trend for retail properties is the concept of sustainability and the comeback of lifestyle shopping centres in the city centres.

Concept of Sustainability

The biggest future trend will be the development of environmentally sensitive  buildings. Recycling, energy efficiency and proximity to public transportation are also some of the most important aspects for retail centres in the future.The future will bring energy problems, climate issues and the expansion of communication channels.

Therefore, the opportunity will be in the upgrade of the old shopping centres in regards to water use, waste disposal, lighting and climate control. The new links of public transportation are also of high importance. What is the big advantage? The upgrade of the old shopping centres can reduce operating costs and offer increased  tax incentives. There is also the prospect of a higher resale value at which time higher rents will be justified. Now it is possible to brand your shopping center as a new commodity because of its added value.

Lifestyle Shopping Center in prime locations (City Center)

The increase in the amount of online shopping, is very important when retailers are trying to attract and entertain its target audience. The objective is for the consumer to spend more time and money in the shopping centre. The idea is the creation of a fun interactive shopping centre concerning music, visualisation and individualisation. The company Apple stands out for their outstanding interactive digital entertainment stores. The Shopping Centres of the future are destinations to meet, they are community oriented places, social centres designed to be relaxing. Therefore, the integration of    non-retail elements is highly required, for example, Food courts, quality restaurants, cinemas, theatres, art galleries, nightclubs, and child friendly locations for the entertainment. Sport facilities, green parks, landscapes, water features, modern lighting and furniture designed for relaxation. There should be hotels, offices and apartments present to guarantee activity over evenings, during the week and on the weekend. Therefore, the new trend is to entice people to come back to the city centre, attracting users with its mixed use ability.  There is the belief that high street retailing will once again be booming. Prime examples, of this new type of Shopping Centre innovation and competence are the shopping centre in Liverpool, Liverpool One or the new shopping centre in Lisbon, Portugal. The idea is that the revitalisation of the city image: regeneration, modern centre, cultural places and public spaces to possibly attract increasing numbers of investors.

Potential Markets

Some of the most exciting markets for retail properties are located in Russia,   Germany, Spain and UK. By the end of 2009, 5,6 million m2 (vacancy less 1%) additional space are planned by the end of 2009. There are also some very interesting shopping outlets. Germany can offer 1.09 million m2 by the end of 2009 with Spain and UK both offering 1 million m2.But the main source of growth during the next 5 years will be found in the emerging     markets of India, Malaysia, Russia and the Ukraine.

MIPIM 2009

Despite the difficult times, the International Real Estate Fair (MIPIM) in Cannes was a success this year. There was a comfortable atmosphere to discuss the situation, negotiate projects and close deals.

This year, 20.000 visitors attended the fair. The figures were about one third lower than in 2008. The attending exhibitors had decreased from 2700 to 1700.

Interesting news coming out of MIPIM concerned the German market. Locations such as Munich, Berlin and Stuttgart were regarded as the most     promising European markets. Reasons for this can be attributed to these city's economic stability and the stable value.

There are projects and investment opportunities; however, obtaining debt finance in today's environment represents a huge challenge.

Barcelona Meeting Overcome the Crisis

Wednesday, 12 November 2008

Enrique Lacalle, Chairman of the Organizing Committee of the International Real Estate Show and Symposium Barcelona Meeting Point, organized by El Consorcio de la Zona Franca de Barcelona, considers that the twelfth edition of BMP, “has overcome the crisis, surpassing all the pessimistic expectations. We have made our city, once again, Europe’s real estate capital in Autumn, we’ve had professionals from 55 countries, we have hosted a Professional Exhibition with a 75% internationalization, we have equalled the visiting professionals’ participation to that of 2007, already a record, we have carried out a great Symposium with 131 speakers, we have brought over investors, which is what our exhibitors from all over the world demanded from us. Panama, as our guest country, has been a success in participation and business deals, just like Sâo Paulo, where we will probably carry out next 2009 our Brazil Meeting Point. We’ve had a larger than ever participation of national and international authorities and, what is more important, we have enabled that our exhibitors, from the Professional as well as from the General Attendance Exhibition, made contacts and sales (as they can confirm). Lastly, despite the moment, Barcelona Meeting Point has proved to be a very useful Show for the industry and profitable for those participating in it, and, thus, it will take place again next Autumn turning Barcelona again into the world’s real estate capital. The participation figures are impressive: SYMPOSIUM FIGURES • Symposium Participants 2,475 • Speakers 131 • Symposium Sessions 43 EXHIBITION HALL FIGURES • Professional visitors 22,010 • Professional visitors and General Attendance 130,000 • Exhibiting companies 423 • Participating companies 8,725 • National companies 60% • International companies 40% • Exhibiting countries 23 • Participating countries 55 • Registered national journalists 549 • Registered international journalists 171 Enrique Lacalle says the BMP’2008 figures confirm the exhibition, which has occupied halls number 1, 5 and 8 as the first Real Estate Exhibition in Spain, the only professional and international one and a point of reference in the European real estate industry, and confirm the slogan that says: “BMP has proved to be the meeting place for the European and Latin American real estate industry Enrique Lacalle points out that the 13th edition of BMP will take place from the 3rd to the 8th of November, 2009.. Although it is very difficult to make an exact calculation, in the duration of BMP’2008 “the estimate turnover of the real estate deals carried out by the exhibitors between the General Attendance and the Professional exhibition may exceed the 2,000 million euros, to be specified in the next months with a great growth in the international real estate transactions, specially Panama and Brazil”. Lastly, Enrique Lacalle would like to highlight several aspects of BMP’2008: • First, the overall satisfaction of exhibitors, professionals, Symposium attendees, and national and international attendance. • Second, BMP’2008 has contributed to the hotel booking in the city due to its both national and international attendance, which created business for the city of Barcelona in all industries: restaurants, commerce, leisure, etc. • Third, the high design and quality level of the stands, being the Exhibition with highest investment in stand construction. • Fourth, the great level of parallel activities and events organized around BMP 2008 (more than a 150). • Fifth, its international profile with 75% of the occupancy being international companies in the Professional Show. • Sixth, the large attendance of local, autonomic and state professionals and institutions, national and international. • Seventh, the success of the initiatives “Panama, Guest Country” and “Sâo Paulo, Guest City”.

MIPIM 2008: a complete programme dedicated to hotels and tourism

MIPIM 2008 today reports a 29% increase in the number of companies attending from the hotel industry. Reflecting the vibrancy of the tourism property sector, MIPIM is introducing a series of new initiatives and events devoted to hotel and tourism including “Hotel Chat Groups” and the "Hotel & Tourism Lounge,” as well as a full day of tailor-made conferences on Thursday, March 13.

The diversification of tourism is generating a wealth of hotel projects throughout the world. This trend is clearly illustrated at MIPIM: no less than a quarter of the investment companies (307 in total) set to attend this year’s event, declare they actively invest in the Hotel & Tourism sector. Among many others, prestigious hotel brands like Accor, Choice Hotels Europe, Hilton Hotels, Hyatt International, Intercontinental Hotels Group, Kempinski Hotels Marriott International, Movenpick Hotels and Resorts, Rezidor and Wyndham Hotel Group, will be attending this year.

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