In our article How JLAM Manages Risk in Turbulent Markets we describe how our investment model minimizes risk while maximizing returns.
“There are countless tools we deploy to offset, mitigate, and control risk throughout our investment and development processes. Our team has refined these tools, and how we apply them, over several decades and hundreds of situations.”
A living example of execution on these strategies is Georgetown Oaks.
In the article referenced above, we note that asset selection is a foundation of our risk management.
This project began with JLAM discovering a mothballed project owned by an out-of-town passive investor. The property was poorly marketed and JLAM was able to control the property at an attractive basis, meeting criteria one, selecting the right asset at the right entry price. Also discussed in the article above is how we believe that having deep regional knowledge creates an advantage, and that was certainly the case here.
In another article The Aha Moment - Identifying Differentiating Attributes (link), we step through our carefully refined process for real estate investment.
After Discovery is Analysis.
“This step takes a combination of creativity and imagination, coupled with hard-nosed business realism. We walk properties and begin to see what potential is revealed and what experiences might be shaped through the creative application of land planning or architectural design. We also build out a realistic view on the economics of the local market, transportation access, quality of schools, and all of the myriad things that fold into a decision to rent or buy, generated from a mosaic of data-driven analytics and qualitative input from our network. The result is a comprehensive quantitative financial analysis, a clear product positioning strategy, and thorough diligence of all physical and market related considerations.”
With Georgetown Oaks, JLAM’s research indicated a significant local market imbalance, wherein average home prices had risen to an unaffordable level for the average worker in central and southern Delaware.
Virtually no new rental supply had been created in the last two decades – leaving very few quality housing options available for the local workforce.
In the same article, we explain our goal of creating the Aha Moment.
“When people are first exposed to one of our properties, we’re looking for a psychological response, the ‘aha moment’ where they realize that what they’re experiencing is just not available elsewhere.”
JLAM created a differentiated combination of community amenities and distinct interior design features to set a new standard for apartment living in the area. Units incorporate dedicated outdoor space, 9 foot ceilings, granite countertops, upgraded appliances, and professionally-curated finishes.
When we walked the site (a part of our deep dive into an investment opportunity) we realized that we could utilize the existing natural features, including mature woods, and create new enhancements (community ponds, amenities) to provide nice views and an upscale feel that extended to the community’s landscaping and the orientation and design of the clubhouse and pool. This attention to detail and consideration for the living experience, where residents can truly be proud of where they live, is an important contributor to the immediate success of the Georgetown Oaks project.
The initial property purchase also played into our ability to be agile in our investing. The market opportunity was clear, and the property acquired was shovel-ready, meaning that we had a significant first-mover advantage in meeting a market need.
Also described in the Managing Risk in Turbulent Markets article mentioned above is managing contract and capital structuring to minimize risk while maximizing our upside. We kept leverage to a minimum during construction and converted debt to low fixed rate permanent financing once complete, enabling the return of ~40% of investor capital shortly after completion of construction. We structured contracts with our site and building contractors to provide a guaranteed maximum price to reduce our risk to our project budget.
The result is a project that delivers excellent returns because the community provided a differentiated product where people want to live - supporting market-leading rental rates and occupancy levels - while costs and risks were well-managed throughout the investment lifecycle.
For more details on this project, including key financial indicators, fill out this form to download the case study!