OA Development is at the forefront of a new era of commercial real estate. From our vantage point, the future shows promise and opportunity. We will maximize our investors’ returns by remaining ever mindful of creating value through recognizing and managing risk with a thorough understanding of the asset, its leases and its place in the market.
Value in today’s commercial market has taken on a new meaning. “Leveraging up a property” and borrowing as much money as possible to maximize cash flow no longer maximizes value. Rather, much more modest levels of debt are being leveraged to prepare for the sort of downside that did not exist in the decade leading up to 2008. One must be prepared for the unexpected in the new business paradigm in commercial markets.
Risk is understood and managed differently in this new era. As one of the more active buyers of commercial real estate the past 18 months, we have found that the opportunities and risk don’t always present themselves as typical value-added opportunities characterized by modestly leased assets. We are realizing opportunities we would not have seen before the Great Recession of 2008 by forging ahead when others shy away. Many of the projects we have acquired recently have leases that expire over a shorter term. The marketplace’s inability to fairly price this sort of risk creates opportunity for our investors.
Pricing anomalies abound in this uncertain market, and recognizing them offers opportunity to build value for our investors. We have acquired numerous projects that are leased to large, credit tenants that offer returns to our investors at 300 to 700 basis points higher than buying the debt of the tenant on the open market. This unique way of looking at the marketplace is affording our investors greater returns in the real estate market than in alternative investment vehicles such as corporate debt or the stock market.