A short appreciation of America

The day after July 4th, want to take the opportunity to express my appreciation for this country.

I was born here. But many in my family were not.

In fact, a whole bunch of my family members had the misfortune of being born Jews in Eastern Europe in the early 20th Century. Most of them didn’t survive.

That some of my antecedents, including my father, made it here explains my existence (and that of my brother and my children).

That this country is generally a safe, open, free place where effort and intelligence are rewarded explains pretty much everything else about my life.

I never, ever take this country for granted and I hope you don’t either.

A nice win for Adaptive Realty Fund 3

Just completed the refinancing of the first of two properties in Adaptive Realty Fund 3, a pool of $2.41MM we raised approximately 18 months ago.

We were all in on this building for ~$2.3MM, of which $800k was a bridge loan and the rest was cash.

Because we’re good at what we do, the property is worth a heckuva lot more than $2.3MM… my guess is that it’s worth ~$3.2MM or something on the open market.

So, a bank was willing to give us a cash-out refinance loan for $2.1MM, of which $800k went to repay the bridge and the rest was cash back to the fund. Here’s the wire from Crown Escrow hitting the account:

Screen Shot 2016-07-01 at 10.29.28 AM

So, after reserving a bit for the completion of the other property in the fund, we were able to return ~$1.2MM to our investors.

That means the investors have back ~50% of their capital and the fund still owns both buildings.

We still have to complete construction and lease-up of the second building and then either refinance or sell it to complete our plan for this fund.

But phase 1 is done and it feels pretty amazing.

Why I won’t use Lawyer’s Title again

When you’re in a commodity business like supplying title insurance in Los Angeles, you have a strong incentive to provide really great customer service, because, otherwise, how can you distinguish your company from all the other companies providing exactly the same coverage at pretty much the same price?

So it’s been pretty frustrating this morning dealing with officious, bureaucratic nonsense from Lawyer’s Title, which mislabeled a loan pay-off wire to our lender, causing the wire to bounce.

You’d think, in a scenario like that, the title company would be bending over backwards to get a new wire out. And you would be wrong.

To resolve the issue, I tried calling our title officer who presumably has an interest in more business (unlike the people in the wiring office). Didn’t help.

Anyway, I usually leave the choice of title company up to the escrow officer if the prices are comparable. But, going forward, Lawyers is off my list.

Anatomy of a homerun

Thought I’d share numbers for a deal we just stabilized.

Not going to share the address, because I don’t want to tip anyone off re neighborhoods, etc.

Anyway, here goes:

  • Acquired in Spring 2015
  • Stabilized approx. 13 months later
  • All in for ~$2.37MM
  • Stabilized rent roll of $262k
  • Implied GRM of 9x (!)
  • Forecast NOI of $190k
  • Implied unlevered yield of 8% (!)

We’re about to begin the refinancing process and I expect we’ll be able to pull the vast majority of the capital back out without saddling the property with more debt than it can handle, even in a downturn.

When we did this deal, I knew it was going to be good. But the combination of Jon’s design, some good leasing, and luck with the rental market turned a good deal into a bona fide home-run.

Brexit is making Mr. Market nuts

Am not a huge stock market guy by any means. The vast majority (I mean, vast – like 98% or something) of my personal net worth is in LA real estate.

Still, I am interested in the public equity markets because they’re fascinating. And today’s Brexit-related market gyrations put me in mind of Benjamin Graham’s famous parable about Mr. Market.


Here’s Wikipedia’s paraphrase:

“Graham asks the reader to imagine that he is one of the two owners of a business, along with a partner called Mr. Market. The partner frequently offers to sell his share of the business or to buy the reader’s share. This partner is what today would be called manic-depressive, with his estimate of the business’s value going from very pessimistic to wildly optimistic. The reader is always free to decline the partner’s offer, since he will soon come back with an entirely different offer.”

Today, Mr. Market has decided he’s willing to take 3% less for his shares than he was yesterday.

So, you have to think: Does the UK leaving the EU really reduce the value of the 500 largest companies in America by 3%?

The answer is almost certainly not… the UK represent like 3% of our total trade, and that trade isn’t going away because of Brexit.

So, we basically have a “Mr. Market” type situation where the crazy guy is offering to sell his shares cheaply because, well, he’s crazy.

If you liked the stock market yesterday, you should like it more today, not less. And if you didn’t like it yesterday, maybe take another look now.