TROPHY: Six Key Steps to Success in Real Estate
No one ever said the life of an entrepreneur was easy… But if you remain smart – highly selective – with what you approach, you increase your odds of success substantially.
However, there’s another key method to success.
When it comes to commercial real estate – for example -- we refer to it simply as TROPHY… or timing, risk averse, operating costs, paying careful attention, high occupancy rates, and yield.
These are six of the most important steps to ensuring success.
With commercial real estate, it’s never about price. It’s always been about the timing. It’s never solely about the location of the property.
For example, investors still make the argument that KSL Partners paid too much ($115 million) for the Omni Scottsdale Resort & Spa at Montelucia. But as we all know, the deal worked quite well when KSL sold the property for a 21% premium at $138.75 million.
The London Canary Wharf and the Empire State Building were expensive propositions originally. But they both turned into big moneymakers for smart, patient investors with good timing.
Timing was key to success.
Even billionaire real estate investor, Jay Paul would probably agree. The tycoon who’s created some of the most sought-after properties occupied by Microsoft and Amazon “has made a killing anticipating where the market would go,” says Garrick Brown, director at Cassidy Turley, as quoted by Bloomberg Businessweek. “He always seems to be two steps ahead. Timing is everything in commercial real estate.”
It’s better to get rich slowly by avoiding too much risk than going broke fast by taking on too much risk… Smart investors prefer lower returns with known risks, than higher returns with an unknown risk…
There are a lot of people promising double-digit returns in a single-digit world ... as I vaguely recall, Bernie Madoff did the same thing.
We look to keep operating costs as low as humanly possible, passing cost efficiency to tenants in the form of reduced costs, as well. And we’re able to do this by eliminating redundant and unnecessary expenses that weight down the bottom line.
Pay Careful Attention…
It’s crucial that we pay as much attention to tenants as we do with providing electricity and water on the properties. It’s all about being honest, engaging and friendly. It builds trust and confidence between you and the tenant.
We don’t think of our buildings just as buildings. Rather, we regard our properties the same way as the Four Seasons and the Ritz-Carlton thinks of theirs – as FIVE star assets. We treat every tenant the same way a luxury hotelier would treat their guests – with respect and courtesy.
When a tenant knows you care, they’ll pay rents on time, renew leases, and refer you. The very second you ignore your tenants trust is diminished.
Bottom line, people like do business with people they like.
High Occupancy Rates…
As you pay careful attention to your tenants, your whole commercial real estate business begins to improve significantly especially in terms of occupancy rates. Tenants stay longer if they feel cared for. Net operating income begins to move higher.
The majority of our tenants don’t think of our buildings as a cost or just a place to work. Rather, our tenants regard our fine properties as important tools they use to attract and retain quality staff, to proudly invite their clients to visit and to generate healthy profits over time.
As a result, you’ll find some of the highest occupancy rates in my portfolio. In 2010, we had a rate of 94.9%... 91.4 in 2011… 97.4% in 2012… 96.7% in 2013… 98.7% in 2014…. And 97.8% as of June 2015.
All because I deeply care and have strong business relationships with my tenants. I don’t treat them as dollar signs. I respect them… They respect me. And together, we create higher occupancy rates over time.
Once you combine the TROPH components, you’re left with Y.
A very high one with considerably lower risk…
It may sound too simplistic for some. But I’ve been perfecting this for almost 10 years. This wasn’t learned overnight. To get consistent results from TROPHY, we must also analyze and assess market cycles and trends, economics and demographics of regions, assets and sales, advantages and disadvantages of locations.
Most of all, it’s about being in the right place at the right time with essential research.