In a previous article, How JLAM Manages Risk in Turbulent Markets we discussed the levers that we use to de-risk our investments. These include Contract Structuring, Capital Structuring, and Partner Selection. In the article The Aha Moment - How and Why Differentiated Real Estate Matters we delved into how differentiating assets to maximize living and working experiences in real estate can deliver outsized risk-adjusted investment returns. In What is JLAM's Agile Investing and How Can It Help Me? we reviewed the agility that’s built into our investing model and our ability to pivot in near real-time to take advantage of market movements.
You might think of these as one axis of a portfolio investment strategy.
Now we discuss the other dimension of our investment strategy, time.
Most investment vehicles have a defined timeline from the outset. When you invest in a fund, you’re locked in for up to 10 years or whatever the fund prospectus identifies - but the underlying fund’s investment horizon is typically based on 3 to 5 years. A challenge with this is that all markets are fluid and, depending upon the starting point and horizon in question, returns may be limited from the get-go (although you may not realize this until you’re well into the investment and market conditions change).
Our investment model is more flexible. We aren’t forced to work within an arbitrary time horizon. We custom-tailor each investment duration to the specific opportunity. This gives us a different perspective on where opportunities for outsized returns may lie and provides us with the ability to realize value and capture opportunities that aren’t available to others.
For example, take a property that requires a 7-year business plan (e.g. an office building with a tenant that has 6 years left on its lease, followed by a 10 yr renewal option). In year 5, that property would thus have a tenant with minimal remaining lease term, resulting in a low sale price or the inability to sell the property at all. Most funds working within a 5-year business plan mandate would quickly pass on this deal. Meanwhile, we can structure our capital over a longer term, enabling us to evaluate a property on a horizon that aligns with the property’s circumstances, see value in carrying the property through the lease renewal, and be able to sell it in year 7 at its peak value with a new 10-year lease term in place.
This is a simple example but illustrates how capital structuring can drive what deals are in the potential investment set.
Capital structuring is a critical component in the success of any investment. We maintain a flexible view of how we capitalize on each deal, which enables us to customize the amount of leverage used (or avoided) and plan the investment horizon to align with the business plan.
This flexible capital view positions us to have a different perspective from many of our competitors, access a broader deal flow, and capture opportunities that others cannot. The ability to consider longer time horizons enables us to assess a wider range of business plans and approaches to adding value to each property.
By having additional ways of extracting value from our investments, our investment criteria can fit more opportunities. This gives us more deal flow, less competition for those opportunities, and better buying opportunities.
Time as an investment dimension also enables us to deliver investment solutions that meet your investment objectives. Because each of our investment strategies offers a different duration and return profile - ranging from providing a quick return of capital, to immediate quarterly distributions that act more like an annuity, or leaving your money working for you in a long-term value creation program - we can work with you to select the right combination of investments for your portfolio.
While our investment criteria and hurdle rates fluctuate based on a variety of factors, including market conditions, the graphic below illustrates some of the performance and profile differences across our real estate strategies.
Reach out to us to learn more about how we can put time on your side as you diversify your investment portfolio.
All investments involve the risk of potential investment losses as well as the potential for investment gains. Prior performance is no guarantee of future results, and there can be no assurance, and clients should not assume, that future performance will be comparable to past performance. Metrics updated as of June 30, 2023. JLAM does not provide tax, legal, investment, or accounting advice. This website has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, investment, or accounting advice. You should consult your own tax, legal, investment, and accounting advisors before engaging in any transaction. Any third-party information contained herein is from sources believed to be reliable, but which we have not independently verified.
