PERFORMING IN ALL MARKET CONDITIONS
Oct 17, 2022
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It’s no secret that higher interest rates mean a more challenging environment for investors. But market-beating returns are still possible.
Alliance delivers those returns by combining some of the best elements of other investment types, like fixed income and equity.
When we buy our favorite properties, Medical Office Buildings (MOB), the rent streams fund our preferred returns, which are usually in the 7-9% range. These preferred returns are predictable like fixed income, but aren’t necessarily that attractive when interest rates are high. Fortunately, our properties also have the significant upside potential of equity.
We always look well beyond the rent income a property will produce. Alliance’s deep expertise in our MOB niche gives us a discerning eye for great deals.
After we buy, we intelligently add value. For example, we often add rent escalators to our leases. Even if we need to offer something to the tenant in exchange, these escalators pay off for us in resale value.
Rent escalators also protect our investment against inflation. Even when prices are rising and interest rates are high, escalators ensure that our commercial real estate investments will hold their value.
There are also key tax benefits to real estate investing that drive higher returns: 1031 exchanges allow us to defer capital gains taxes when we sell a property by exchanging it for a different property. This provision in the tax code lets us roll one investment into the next, without paying taxes too early. This helps us compound our investors’ capital faster.
These days, when cash can yield nearly 5% in very safe investments like government bonds or money market accounts, we need to deliver returns well above this threshold to deliver value for our investors. We’re doing that with our highly successful formula.
First, buy the right properties at the right prices. Second, add value intelligently, so the property goes up in market value. Third, make a strategic exit.
By combining predictable cash flows, rent escalators, capital appreciation, and tax advantages, Alliance is able to produce 24% IRR for our investors. Even with high interest rates, that’s a very compelling investment.
