Typically, the longest period
of the real estate investment lifecycle is the Cultivation phase
which, ironically, is the phase that garners the least attention
from large fund managers. Perhaps Henna’s greatest differentiator
is the special attention it pays to this phase of value creation.
Much like a farmer tends to his crops in order to produce a
more abundant harvest in the future, Henna continuously manages
its portfolio properties in order to increase their value at
disposition. Similarly, much like well watered and fertilized
crops can better withstand drought and cold weather conditions;
Henna believes the best defense against market downturns is
to ensure its portfolio properties have been well-managed in
advance.
Henna acquires, structures and manages properties to produce
long-term growth, rather than vainly trying to predict market
fluctuations, which smart stock market investors learned long
ago doesn’t work. While other managers attempt to “bulk
up” their portfolios when market prices are high and capital
is plentiful, Henna instead prioritizes investment in its current
portfolio during this period - improving energy efficiency,
upgrading property infrastructure, replacing outdated furnishings,
fixtures, and equipment, streamlining management systems, providing
remedial training for employees, reviewing consulting and vendor
contracts, refinancing above-market loans, and more. All of
these critical asset management functions, not only create value
when economic conditions are favorable, but also and perhaps
more importantly, build strong foundations and competitive advantages
when economic conditions sour. Further, having its administrative
house in order when times are good, enables Henna to focus its
efforts and capital on new acquisition and development opportunities
when good deals are plentiful, market prices are attractive,
capital is scarce, and other managers are out scrambling to
find ways to recover value from the properties they have neglected
and overpaid for when times were good.
Another benefit of maintaining
a deep, capable asset management organization is that it allows
Henna to acquire complex, special-situation properties that
other managers with acquisition-focused organizations cannot
absorb. This, in turn, allows Henna to capture the yield premiums
that accompany these kinds of deals.