Here's what we learned from our real estate deal that just returned us $50 million cash profit on our $2 million cash investment over an 11 month holding period. A primer on the (i) capped downside & (ii) asymmetric upside profile of "covered land"...

We vetted 100s of deals during 2021 to find properties that fit within a Venn diagram of (i) 10x+ return potential and (ii) stable downside protection. We found a 60K square foot underperforming shopping center in Durham, NC...

The retail tenants generated a cash yield that provided a "floor" on the property's value - even during recessionary scenarios. However, we looked beyond the 60K sf shopping center and saw potential for a 2M sf life science and residential development site across its 10-acres...

By reimagining the "story" of the site - from a dilapidated shopping center to a mega development site - the valuation framework could change from (i) a multiple on the low existing retail rents to (ii) the land value of the largest urban development site in Raleigh Durham...

A few execution steps were needed - e.g., terminating the leases of the retail tenants, engaging the City for development planning, etc. - but none required deep technical expertise, or even a team to execute. We were able to execute from our office 500 miles away.

Even better, the existing retail cash flow could secure us non-recourse debt, which enabled us to acquire the property with less than $2 million of cash. And this eliminated the need for us to dilute our ownership by syndicating equity. We were able to hold 100% of the equity.

The heart of the strategy was (i) buying from an inefficient channel where our competition was looking at the property as a Class C shopping center and (ii) selling/monetizing into a deeply competitive channel of best in class global mixed-use developers.

The part of the value chain that we owned was monopolistic - i.e., we owned the largest urban development site in one of the hottest markets in the US (i.e., there were no substitutes). But we then sold to a very competitive part of the value chain that competed on price alone.

Our exit generated a 25x equity multiple, and required no development - or even entitlement - risk...

DMs are open. Happy to share more of our learnings, successes, and failures to help others in their journeys. investcanvas.com

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