Real Estate, like any market, ebbs and flows. For long-standing investors like ourselves, we go with the flow. By purchasing/ building and holding onto our assets, we provide a unique protection, as well as the ability to seize opportunities from short-term investors or when the market is low.
Most real estate transactions have a quick-turn timeline and consequently, the corresponding debt can be detrimental if the market turns south. For example, say a developer is building a property for $5m – in order to minimize upfront costs, they apply maximum financing to begin the project. They solidify a loan for $4m, thus taking on 80% of the entire budget in debt. After the building is complete, there are difficulties in leasing out units. Then the market takes a turn south and the building is appraised at $3.75m. The bank or creditor requires the developer to add cash to their loan to bring loan-to-value (LTV) back to original debt amount. In the unfortunate circumstance that the developer does not have the cash, it forces a sale of the building at a discounted rate in order for the bank to seize loan value. This creates an opportunity for AiRE to buy the valuable asset at a discounted rate, and add it to our portfolio with a long-term horizon.