Welcome to the week of short posts

We got a deal that I think I really like over the weekend.

However, the diligence period is only three days.

There’s an unbelievable amount to cover in these three days:

  • Physical inspections
  • Reviewing leases, estoppels, rent roll, etc.
  • Reviewing the permit records
  • Compiling a construction budget for the rehab
  • Confirming our pro forma rents and expenses

Once the above is done, I need to write a short investment memo setting out our forecast for the building.

(Incidentally, we also just closed on another building and have yet another closing scheduled for Friday.)

So, this is going to be a week of short posts.

Thinking through the environmental consequences of what we do

On this Earth Day, no one would confuse me with an environmentalist.

I generally take the view that environmental problems are best solved by pricing in the externalities of our industry / consumption, rather than restricting activities by law. So, for example, I’m fine with people using a bunch of water to grow almonds in the desert; I just want them to pay the actual cost of the water they use.

But even though I’m not a tree-hugger, I do take a bit of pride in the fact that our business model is relatively sustainable. Among other things, we:

  • Re-use old buildings, rather than destroy them;
  • Add insulation to almost every building we renovate;
  • Replace old, inefficient lighting and electrical appliances with newer, more efficient ones;
  • Replace inefficient water heaters with newer, more effficient ones;
  • Replace old windows with new ones that insulate better;
  • Replace thirsty grass with gravel and drought-tolerant plants; and
  • Depending on the deal, add rain water capture devices that capture run-off

I’m not Captain Planet and we don’t do this stuff to make ourselves feel better… after all, our investors hire us to make them money, first and foremost. But I like the fact that, as a biproduct of making money, we’re systematically enhancing the sustainability of the neighborhoods in which we operate.

More on getting our hands dirty

In case you’re still having trouble believing we’re not traditional money managers:

I just got a phone call from my assistant, who is attempting to drop off a relocation payment to a tenant and get his keys.

Turns out he is in jail for, among other things, threatening neighbors with a machete.

So now I have to figure out what to do: Wait until he’s out and figure it out then? Move his stuff into storage? Give the money to a relative of his?

They definitely, 100% did not teach you the answers to these kind of questions at Princeton.

We still get our hands dirty

Sometimes I have this image in my mind of Adaptive as a sophisticated real estate private equity shop.

After all, we raise discretionary investment funds, deploy them, and then (hopefully) harvest the returns for our investors.

But nights like Tuesday snap me back to reality.

Jon and I spent a big chunk of the that evening in the dining room of a man who lives behind a property we own.

We went there to convince this man to let us chop off 2-3 feet of his garage so that we can fit parking for a project we’re doing.

We went back and forth in broken Spanish and eventually made a deal.

Because we did so, we’ll be able to save some cost on our project, improving the returns.

Now, you wouldn’t catch your typical suited real estate money guy anywhere near a negotiation like that.

But that, I think, is what separates us from most people who do what we do: We’re willing to get our hands dirty to wring excess returns out of projects.

And it’s those excess returns that convince people to trust us with their precious capital.

Note: This blog post is not a solicitation of invest or an offer to sell any security.

A few new deals

Just removed contingencies on two more deals.

One is a fee for service deal with a long-term partner.

The other is the first deal with the new pot of money we’re putting out.

Both are pretty classic deals for us:

  • 10 and 8 units, respectively
  • Interesting bones
  • Tons of deferred maintenance
  • Improving areas near to the kinds of amenities tenants tend to enjoy (bars, restaurants, music venues, etc.)

Pretty excited to add these fresh ones to the pipeline as we complete some of the deals we’ve been working on for months.