Altus Insight December

The Altus Insight
Market news, commentary and relevant topics for today’s alternative asset investor
Date: December 31, 2018
FR: Forrest Jinks
RE: The Benefits of a Business Plan
 
Before getting into the meat of this month’s Altus Insight, I need to give a huge thank you to many of our extended Altus family for their generosity in helping those impacted by the Camp Fires in Butte County last month. Inclusive of the $25,000 in matching funds provided by Altus advisors and partners (special thanks to Michael Adler and Carrie Zsambok, Mark and Stacy Nelson, and Peter Simon and Felicia Strankman) we were able to provide just over $58,000 to the fire relief efforts.  Donations were made to United Way Northern California, Caring Choices, North Valley Community Foundation, Neighborhood Church, Rohr Chabad Jewish Center, Del Oro Salvation Army, and the Cloud Forest Institute (as a platform for Spirit of Christmas Dinner). Thank you, Thank You, THANK YOU!
 
It is always interesting to see which articles receive the most comments and feedback from readers. Some of my favorite articles received almost no response while others that I felt were not as well written or lacked depth have received amazing amounts of feedback. One article that surprised me in the volume of feedback was the article I wrote while in Mexico this past May (click here). Unlike most Altus Insights, that article didn’t discuss investing, psychology, or economics. Instead, it was a reflection on Altus as a business, and more importantly the realization that while we spend an incredible amount of time and effort analyzing and trying to improve the performance of each individual investment, I/we hadn’t had the necessary focus on analyzing and improving our own business.

Since May I have received numerous emails from readers inquiring as to what the plan that grew out of my time in Mexico turned out to be. I had hoped to share our discoveries well before now, but the process of reviewing the business and putting together a plan for the next steps in our journey took considerably more time and effort than originally anticipated. It also brought me to the point where I am more excited about Altus’ future than I’ve ever been. I’m delighted to now be able to share our Business Plan Overview which highlights our plans to grow to $1 Billion in Assets Under Management by 2030 and offer our qualified readers the opportunity to own a piece of Altus. Email me at fjinks@altusequity.com and I will happily send you a copy. The following are some key takeaways:

  1. The investment opportunities we offer to our investor partners are strong and our strategies and philosophies are sound. While certain strategies need to transform with changing business and economic environments, we will maintain and strengthen our guiding investing philosophies, strategies, and investor-centric mindset as we move forward.                                                                                                                                                                                      
  2. The structure of our investment offerings are unique within the marketplace. Focusing on investment performance versus being heavily fee based gives us a competitive advantage in attracting the type of investors with whom we like to work and allows us to be in alignment with one of our core business values - investment stewardship. It is easy to share opportunities with potential investors when we know that we would invest our own money in the opportunity.                                                                                                                            
  3. While acknowledging how important it is to keep true to our investment structure philosophy, we also need to ensure Altus has the financial strength to remain fully operational throughout all phases of the economic cycle. This has led us to shift our focus to cash flow producing properties whose investment structures have reduced anticipated total compensation to Altus but increased cash flow participation. Investors’ IRRs end up the same as they would have been in the previous investment structures, and while Altus makes less in total, it gains dependable cashflow to cover its overhead and make business decisions. Focusing on adding these types of investments to our portfolio is a key initiative for the next couple years. We will continue to do repositioning projects that have been so successful for our investors should they present themselves, however, searching for such opportunities won’t be a priority and the post-stabilization splits will shift to be more along the lines of the structure above.                                                                                                                                                                              
  4. Going through this exercise we spoke to many companies similar to ours regarding asset management.  Their primary focus seemed to be on portfolio growth vs. the quality of assets and how they performed within the portfolio.  The predominant mindset was one of “as long as the investors are getting some level of return, why put in the extra effort to improve property performance?”.  We believe this is likely driven by fee heavy investment structures that don’t provide financial incentive for the sponsor to put forth the effort necessary for incremental gains.  In addition, it’s easy to be average in asset management, but difficult to be even a little better than average, and it requires a huge amount of work and focus to be extraordinary at asset management.                                                                                                                                                                                                                                                                                                      While we want to grow our investment portfolio, the quality of our investments and stewardship of each invested dollar is far more important to us than portfolio growth. We aren’t content being average and we aren’t content being even a little bit better than average. This business review process has highlighted how important it is for Altus to be great at asset management. So important, that a key objective over the next 10 years is to become the best asset manager in the country in every asset class in which we invest. While we are still working on how we can benchmark our performance against others, we are very clear about how much work it will take for us to get there. Asset management, working with 3rd party property management, is a broken system with unaligned incentive structures that benefit neither the tenant nor the investor; so we are blowing things up and starting over. Our business plan is a work in progress and will result in many permutations as we continue to strive for the absolute top possible property performance, but we know it is the right thing to do for our investors. Keep your eyes open for a discussion of asset management in a future Altus Insight.                                                                                                         
  5. We currently do a good job of providing accurate financial reports to banks and investors. We don’t do a great job of delivering that information in a format that is useful. Financial data needs to quickly tell a story that is easy for the reviewer to understand. In order for us to improve in this area we need to invest in our accounting and analysis teams as well as upgrade our accounting and reporting systems. We have made efforts in this area over the past couple years but have gotten sidetracked each time as we ran into roadblocks. We now recognize that improvements in these areas are critical for our Altus’s business strength and growth going forward. We will be working diligently towards identifying and implementing solutions this year.                                                       
  6. Altus’s private money lending business has continued to grow over the past few years despite a lack of focus on the business itself. Our review process made it clear that we need to either provide this business the resources it needs, or we need to stop spending time on it all together. Private money lending, which we will be referencing as asset-based lending moving forward, is a great adjunct to our current equity business, both in how it can strengthen Altus as an operating company (i.e. current income) and in its ability to provide diversification to our investors. We already provide great value to lenders and borrowers through leveraging our creativity and deep understanding of real estate and risk. We just need to offer the benefit of that expertise more broadly. We will be investing in our asset-based lending business as heavily as is needed. We have retained the services of an executive search firm to identify someone that can come in and push the business forward; and have several candidates we will be interviewing in coming weeks.

This exercise of looking under the hood and understanding our business better has opened our eyes to the incredible amount of possibility in front of us as a company. We have so many great things going for us and so many great people behind us, and yet despite all the growth we have experienced over the past several years we still only have a tiny, tiny share of the market.                                                                                                           
After considerable internal discussion between our existing partners, advisors and key team members, we have determined that it is in the best interest of all our stakeholders for us to raise additional equity specifically to fund the growth of Altus as an operating company. It is our belief that an infusion of capital will allow us to attack areas that are slowing our growth trajectory (such as better reporting and analysis) which in turn will allow us to provide a better product to our investors, a better return to the Altus partners, and to accelerate the achievement of our goal of $1B of AUM by 2030.                                                     
Details are still being finalized but the current plan is that we will raise a minimum of $2 Million, in investments no larger than $200,000 (and no smaller than $100,000). New investment into Altus will not only purchase ownership in the operating company but will also purchase interest in Altus’s share of the existing real estate investment portfolio and all equity growth moving forward.                                                      
If you have interest in joining Altus on its journey, please contact me and I can answer any questions you might have and make sure you receive the investment information once final.                                                                     
Even a couple years ago I never would have imagined that Altus could be where it is today and it’s hard for me to grasp the reality of our current trajectory. But that’s what makes it so exciting! We look forward to providing quality investment opportunities to our investment partners for many years to come.      
 
Happy Investing.
 

Forrest Jinks
Altus Equity Group, LP
off: 707/932-5887
fax: 707/544-2972
www.altusequity.com