News from Redev Properties

Today's blog looks at the question "What goes through management's mind when we are deciding to buy a new commercial property opportunity."

One of the things we are looking for is potential for cash flow and value added. In other words, we look to see if there is any upside on the cash returns from a piece of property such as, is there going to be a big leasing risk down the road?

We look at what other risks may be involved with that piece of property, and owning it.

What we do is we look at its location of course, the city that it is in, and the ability for the building to appreciate.

Inflation

We're concerned about inflation these days, so one of the things I look at is whether or not the leases would protect us in case of inflation and we are always shooting for a fifteen percent increase in the middle of the next five years as a hedge.

If there's inflation, one of the great things we look at is, even though we are getting in addition to cash flow, we still have and an appreciating asset, a hard asset backing those cash flows.

A lot of times when we are buying stocks or when we are buying bonds, we don't have a solid, something solid to fall back on in terms of share prices or bond prices. But what we do have, in this case, is we have a building we can fall back on so we know we can do something safe leasing on the project.

We also look if for potentially there's a potential spot for us to build for extra or half mixed land, and whether or not we can further build upon or we can expand the shopping center, because what you are effectively getting is free land.

Increasing Value

We had a project that we did called Sturgeon II and Sturgeon II right now where we were looking at building, and adding another building on site to increase the cash flow and by doing that, we are increasing value on that project.

The main things are the safety of the cash flow, the appreciating value in the leases and the appreciating value in the building as well. Those are the main three keys or ingredients, but however, those factors just don't preclude us from not buying just because the leases may not seem as good.

Lease Upgrades

We know we can go in and work all the leases, because we see sometimes there if there is a potential upside of buying a very well located property with low rents.

We can increase those rents and therefore increase our value, our cash flow and our future appreciation with higher incomes generated by our hard work!

Thank you for reading.

Richard Crenian
www.redevgroup.com