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What Does HPP Look For When Buying An Asset? (Part I)

17 Aug 2017

At Hager Pacific, people are often surprised that we own more than 100 properties across the nation. While we are proud of the size of our portfolio, we are even more pleased with our track record of returns.

We developed this track record by being doggedly persistent with acquisition criteria, carefully developed over time. Our website says that “we have been guided by a value-added investment philosophy implemented through the acquisition of under-performing, aged, or environmentally impacted real estate.” But…what exactly does that mean?!

This month, we will cover some of the acquisition criteria we rigorously adhere to, but more importantly, we will explain why these criteria have translated into the returns we have enjoyed over the last 25 years.

Low Land-to-Building Ratio

In real estate, especially here in California, we have found it is the land, and not the building, which really appreciates in value.  As such, we often buy real estate with a miserly land to building ratio that often values the entire property as close to land value as possible. Our down side is limited with multiple “exits” such as renovating the existing structures, additional development or outright new construction (this last item is done by others. We don’t do ground up construction which is too complicated for us simpletons).  Additionally, we find that low coverage is valuable for our tenants, often supply-chain players who require large turnaround areas for their newer, bigger trucks and parking and yard space for their ongoing business operations. Interestingly, several of our buildings, which are now 50 and 60 years old and very substandard in construction, continue to be quite popular. This appeal results from their infill locations, which are in supply constrained markets and uncommon functional attributes, such as heavy crane ways, high power service and, of course, abundant land.

The Seller & Its Motivation

We prioritize purchasing from corporate owner-users. They are typically motivated to move surplus property quickly off their balance sheets, they routinely need very flexible terms which our private capital can easily accommodate, and closing with the first buyer is a big priority. For all of these reasons, we are able to buy such properties at a price-point that justifies our investment. Our track record and reputation for closing deals without changing the terms in escrow is especially helpful with this audience and is a valuable tool in the selection process. To that end, we make it a practice and are honored to receive letters of recommendation from past Sellers.

 

If you found the above useful, call me, if you disagree, talk to Jason!

 

 

This blog is produced as a resource for real estate investors by the senior management of Hager Pacific, which includes David J. Hager, Adam Milstein, Robert Neal, and Jason Schirn.

About the Author: Robert Neal
Robert Neal is a managing partner with Hager Pacific Properties overseeing the firm’s acquisitions, renovations and dispositions. Over the course of his real estate career, Rob has been responsible for the acquisition and disposition of industrial and commercial properties valued in excess of $1.5 billion. Prior to his position with Hager Pacific Properties, he held senior positions with several national real estate companies.