Monday, December 18, 2006

Even The Big Boys Admit "Broken" Properties Provide Most Opportunity

If the big boys are doing it, so can anyone with some common sense and a good management plan.

TMG Ventures chairman and CEO Michael Covarrubias recently characterized his firm's approach to development. Interviewed by Real Estate Media Group during the inaugural RealShare San Francisco gathering to chat about the things that set his Oregon-based investment firm from the others, Covarrubias kept repeating his organization's penchant for "taking looser assets and converting them to winners." That is key to TMG, which has acquired or built a respectable 18 million square feet of commercial space--totaling $3 billion--since Covarrubias took control. Here is what he said about finding properties that need better management and some fixes, and how they are the real money makers...

"There is so much money chasing real estate and it's looking for different ways to arbitrage. Our arbitrage is to find broken assets or assets that need significant fixing, let's say an office that needs a seismic upgrade. For us the niche is value-add. That's why we'll always be different."

Covarrubias also talked of how they plan to jump into multi-family investment and the opportunities it such properties present..... "We've done condo projects, but we just got a $100-million equity investment from CalPers with which we'll be able to do $400 million of residential projects. We'll keep looking for broken deals. But with the money from CalPers, we now have a housing strategy with a long vista. I'd love to find some broken residential deals."

Like I said, if the big boys are doing it, so can anyone with some common sense. And it does not take a $100 million investment to get cash-on-cash returns of eight, 10 or even 12 percent.

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