Alliance Case Study: Relationships + Research = Profit
After receiving a great response to earlier stories about real Alliance deals, I’d like to share another high level picture of one of Alliance’s great recent investments.
Background
For investors with risk tolerance, early 2009 was a buyer’s market. The stock market was down 50% from its highs just 1.5 years before. Sellers in this market often needed cash fast, and tight credit froze out many potential buyers. The Warren Buffett moment to be greedy when others are fearful had arrived and only the well-prepared could take advantage.
A banker friend tipped me off to an opportunity. Another real estate investor was over leveraged, this investor needed to sell a property in the Midwest and do the deal quickly. Given the fear in the market, we sensed this could be a great opportunity, so Alliance kicked into high gear to vet the deal.
A Great Deal
Our accelerated due diligence on the property came back positive. The tenant, a small medical group, had four years left on the lease. They had made significant investments in the property, so the tenant’s long-term commitment to stay looked good. But first, would they survive the recession? After researching their practice and the community – demographics, economic fundamentals, competing services, etc – we concluded that the property was a good bet. The tenant’s medical niche served an important need for the community and stood a good chance of growing. And if it didn’t, the property was well positioned to attract other medical practices.
Apart from buying a great property at an opportune moment, we also added significant value to our investment through wise management over the course of 8 years. For example, a design flaw in the parking lot produced improper drainage during heavy rain and lead to avoidable flooding. It was the developer’s fault and the tenant’s problem, but we volunteered to reengineer the parking lot at our own expense because helping our tenants succeed is good business.
Over the years, our tenant’s good will made the normal conflicts that arise in the course of business easy to resolve. We worked with local authorities and made additional property modifications to facilitate the tenant’s expansion into an adjacent property. Later, we negotiated a lucrative new long term deal that made a significant positive impact on the property’s valuation.
The Bottom Line
I love investing in specialty medical facilities. Property specializations make tenants reluctant to start over at a new location. And, medical outfits serve important community needs. Together, this makes them stable long term partners.
Confident in our analysis that this property would be a money-maker, our ability to quickly raise capital meant we were uniquely ready to seize the moment. Our deep network of investors and bankers sealed the deal. I’m sure they’re happy they did.
After 8 years of timely rent payments and the property sale, the return on this investment equates to 34% IRR. Our excellent asset management didn’t just deliver returns for Alliance. It also helped the tenant thrive, and we’ve been pleased to watch them grow into a major regional medical group.
