INVESTMENT DISCIPLINE
Targeted Assets The Firm seeks to purchase R&D and industrial assets at acquisition
costs of between $10,000,000 and $40,000,000.
Opportunistic Acquisitions We view ourselves as an "opportunistic purchaser."
Properties are acquired when there is a "value added" component available
through repositioning, re-leasing, re-configuring and/or refinancing. The typical holding
period is long for good assets. Some of our assets, i.e, the U.S. Postal Service Building
and the Pinnacle Building, have been owned for over twenty years.
Cash Flow Distributions We make quarterly cash flow distributions ranging
from 6% to 18% on our Capital Partners investment annually. Our investment target, when
reviewing an acquisition candidate, is to acquire properties that will generate distributions
to our Capital Partners of at least 7% in the early years of the investment, increasing to
11% to 12% in years three or four, and in excess of 12% as the investment matures. Generally,
in years five to seven, an opportunity arises to refinance a property, retrieving capital for
distribution to our Capital Partners.
Selling We are not motivated sellers with most of our assets unless selling is
the discipline of our Capital Partners. Our basic belief is that top quality investment real
estate assets are difficult to find and more difficult to replace. That being said, when a
high offer is available it must be considered. As Ben Swig said, when a high-paying buyer
approaches, "If you don't sell it, you bought it."
Acquisition Considerations The best assets in the right location consistently
attract the best tenants, get the highest rent, maintain higher occupancy levels and
generate the best prices on sale. It is important that we acquire our properties at below
replacement costs.
Supply Constrained Good quality assets have specific supply and demand
characteristics in common. On the supply side we concentrate on supply-constrained
markets with significant barriers to entry (why we do not acquire industrial in Sacramento).
Barriers include lack of land for future development, restrictive zoning, or a political
climate where growth and development are discouraged.
High Demand Locations On the demand side, our target assets are located
in large, dynamic markets with transportation advantages (such as freeway access, an airport
or port).
Refinancing Usually after five to seven years or after a "value-added" event,
an opportunity is available to refinance an asset and generate cash to return to our Capital
Partners. Yield then increases.
Conflicts of Interest We have no related businesses that either cause a conflict
with our investment business or prevent us from being exposed to opportunities. We
are not in the brokerage business, as the lifeblood of our business is seeing acquisition
opportunities first. We go out of our way to assure the real estate brokerage community
that in dealing with Stephens as a purchaser, their interests will be protected. The leading
Bay Area brokers know that, when exposed to a quality asset, we have the capital
available and are more likely than others to complete the transaction and will do
so in a manner that the brokers' interests are protected.