Birgo Capital recently published Four Strategies to a Stabilized Real Estate Portfolio in which we shared recommendations on how to win with real estate investing - even in an economic downturn. In summary, we believe that with careful analysis and a sharp strategy, diversifying through real estate offers a way to not only preserve wealth but to grow it through income and appreciation.
Today, we’re sharing what Birgo Capital is doing (and has done) to maximize the performance of our private equity real estate funds in light of the coronavirus recession.
01. We are experiencing confidence in the funds’ stability and durability due to the meticulous analytical process employed for each acquisition in the portfolio. We analyze all critical data points to model cash flow and operating expenses, and leverage third parties to substantiate our own analysis. We also stress test our models to verify a compelling risk/reward profile, taking various economic climates into consideration. In short, we utilize and invest by our stringent due diligence process for such a time as this.
02. We are educating clients around the strength of Pittsburgh, as well as the power of residential workforce housing. We have strategically purchased properties in this area because of the region’s stability due to low real estate costs, cap rates that outperform comparable markets, and a diverse economic landscape. Additionally, the funds are comprised of more than ⅔ multifamily housing, because it historically outperforms other real estate investments, and exhibits less volatility than other asset classes. Multifamily also offers an enduring benefit - people will always need a place to live!
03. We are exercising control over the areas of our portfolio we can impact through everyday business operations. Specifically, this is carried out by proactively monitoring tenant occupancy rates at our residential and commercial properties, as well rental collection rates. While this is an important part of our routine operations, an increased focus is allowing us to quickly identify and circumvent any issues as they arise, rather than being caught in a reactive position. With three months of data under our belt, we can confidently share that April, May and June mid-month collection rates are even stronger than pre-COVID Q1 numbers! Thankfully our tenants do not seem to be experiencing financial distress due to COVID-19 as of now, perhaps due in part to the strong and diversified employment opportunities in the Pittsburgh area.
04. We are encouraging caution in our financial management practices by optimizing for cash preservation and engaging capital markets to develop “contingency plans for our contingency plans” as it relates to liquidity. By taking very practical measures to think critically about cash flow management, we can provide security buffers in the event that extended periods of public health concern materially impact our revenue streams. Despite the belief that each of our investment vehicles is fully viable in the downside scenario, we believe it is prudent to operate from an abundance of caution in times of uncertainty.
05. We are expecting calm to return to capital markets and investor sentiment. When reflecting on the solid fundamentals that undergirded our economy prior to the onset of coronavirus, as well as the many historical examples of how the American economic engine has overcome challenging times, we move forward in anticipation of a return to normalcy. We believe COVID-19 will have a very modest impact on the performance of our portfolios over the long-term.
If you’d like to speak with Birgo Capital’s principals about any additional questions you have on the subject, or if you’re interested in exploring Birgo Capital’s private equity real estate funds, we invite you to reach out to schedule a conversation. We look forward to hearing from you!