Boost returns by adding value
To make profitable deals, we first need to find the right properties.
Our broad industry network helps clue us into potential deals, and our deep expertise in valuation helps us figure out which ones are worth pursuing.
Valuation is tricky and it’s important to not judge a book, or in this case a building, by its cover. Some are tempted by the newest and prettiest properties because people think new construction attracts higher rents and has fewer problems.
These points are debatable, and a building’s attractiveness from an investor perspective actually lies elsewhere.
The success or failure of a real estate investment lies first, always and forever, with supply and demand. Supply and demand are constantly evolving, so making a great deal requires that we successfully anticipate how they will change over time.
The second factor is value add. Alliance’s stellar returns aren’t just a matter of the right properties and tenants. We also invest strategically in capital improvements. A well chosen property improvement can pay for itself many times over in valuation, and adding value helps alter the supply and demand equation.
One way that Alliance adds value to our properties is through lease renewals, extensions, and renegotiations. We want great, creditworthy tenants to lock in long term deals. That certainty about future rental income boosts a property’s value.
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Our triple net lease agreements usually leave our tenants responsible for a large portion of operating expenses such as utilities, insurance, and maintenance. Tenants have a lot to gain from property upgrades, but naturally they prefer not to put their own capital into a rental property.
This is where strategic investment comes in. We can offer our tenants significant value by putting in our cash to take care of problems and make upgrades right now. They get a better property that meets their needs and keeps them happy. In exchange, they agree to higher rents and annual rent escalators. It’s win-win.
Those higher rents and escalators are key. The added income can repay our capital expenditures while also encouraging our tenants to stay put for the long term. Why look for new offices or contemplate a painful location change when your current landlord gives you what you need to thrive?
The key is knowing what tenants really value. When quality tenants have their needs met, they’re happy to stay in place and even to pay rent escalators.
A building doesn’t need to be shiny or new to meet tenants’ needs. And spending on capital improvements can make a lot of sense for investors. Alliance delivers returns by choosing wisely and adding value. Simple, but not easy.
POSTED BY
Ben Reinberg
Founder & CEO | Alliance Group Companies
Ben Reinberg is Alliance Group Companies' founder and CEO.
Since 1995, Alliance Consolidated Group has acquired and invested in medical properties with net leases between $3 and $25 million across the United States. With decades of commercial real estate experience, we take pride in committing to meeting the goals of our Sellers, as we consistently and seamlessly adhere to successful closings.
