Approach

Business Model

Taurean Global Properties follows a three-phase model for creating value in the multi-family asset class: Acquisition, improvement, and harvest.

This is a fairly short and simple explanation of how we do what we do. A more detailed explanation of how we conduct our business can be found under the Strategies tab above.

Acquisition

We first seek out cities that aren't so much up-and-coming as about to be up-and-coming, areas where buildings are cheap and no one is buying...yet. We familiarize ourselves with the city. We educate ourselves on the main industries, population migration, job creation, future economic indicators, etc. We then focus on the average rent levels and vacancy rates throughout the city and then do a broad sweep to look for buildings that fall outside of these parameters, and gather initial numbers on those properties.

From these figures, we perform a basic level of analysis to determine if a building warrants a further look, asking ourselves this the entire way: Can we get strong positive cash flow on this building right away?

With a careful eye, the question is often yes. Mortgage payments are the biggest expense a building owner has, and mortgages are obviously very, very cheap right now. So if we can lock our payment in for ten years, rents will rise through inflation, and by year five we are looking at fairly serious returns. More on that later.

The buildings we seek out often show a high degree of owner neglect, often requiring major repairs and upgrades. These buildings often have a high vacancy rate and/or rents that are well under the prevailing market level. Our focus rests on properties with 15 to 100 units, depending on the market. They must be large enough to get adequate economies of scale (purchasing, repair, and management) and not so large that they are in the sights of the institutional investors.

In other words, we look for properties in an area that can support a higher quality of building than the one we purchase, with the intent of upgrading the property to match the area - a Class C building in a Class B area, or a Class B building in a Class A area.

Now, it is generally accepted that approximately 80% of the value is created during this acquisition process. What makes this is even more critical is the fact that the one thing that you can't change about a property is the amount of money you spend to buy it.

So we invest a great deal of time ensuring that we negotiate the best purchase price on our properties as possible. We have very experienced and talented negotiators that work together with our real estate agents and the owners to get the property for undervalue where possible, but always at the best possible price. We are picky. Even if a great building comes along that has a lot of potential, we'll pass if we don't get a price that's going to work. The Palms, a building that we had under contact last fall, is a good example of this.

Improvement

Our ability to increase the value in a property often comes from poor property management of the previous owner. During our walk-through we get to see the areas where we can affect change that will ultimately affect the value. This is where we get our hands dirty, and where we nurture the asset. We do this in two phases.

Phase 1 is putting in the necessary money and the proper management into the property so that tenants are willing to pay more to rent the unit, and more people are interested in renting the unit, thereby increasing occupancy and building value.

This would include taking action like cleaning up graffiti, installing a new boiler, renovating plumbing, and is sometimes as simple as patching leaks and hiring an on-site manager who is able to show up sober and pick up the phone when a tenant calls. By the same coin, this also includes cracking down on bad tenants so good tenants are not scared off (Drug dealers may pay their rent on time, but nobody rents in the buildings they live in).

Tenant issues are extremely important to us, they are valued as customers just as you are valued as investors. Simply put, there is no better way to stabilize a property, reduce vacancies, and increase value then by making tenants happy. By focusing on tenant issues and addressing concerns in a timely and professional manner, we create loyal tenants that will pay more for a better building, and will cut down on advertising costs simply through word of mouth (see below).

When it comes down to it, it's not too difficult to increase an apartment building's value: Just make it a place people want to live in!

Phase 2 consists of streamlining the expenses and focusing on cost effective solutions that improve the property's bottom line. Some examples:

Taxes - Few people take the time to appeal them, and often when we have appealed taxes we have reduced them by as much as 10%. In Ontario especially that is huge, as their property taxes are about 300% higher than Alberta.

Utilities - Many owners don't monitor their heat levels, which are often way too high, at which point tenants just open up their windows at 30 below to compensate. Everybody loses. Simple monitoring of boiler output levels can drastically reduce these costs (as well as repairs, as the boiler is not being strained).

Repairs and Maintenance - This has a lot of cross-over with the "Good tenants" part of Phase I. Many property owners are crippled with repairs and maintenance cleaning up after rowdy or violent tenants. By insuring a good interdependence with our tenants, we can reduce these costs.

Advertising - Again from Phase I, this can go down to zero through tenant word of mouth. Thanks to the Internet, more and more renters are making living decisions by checking out property managers' credentials through current and past tenants and holding landlords' feet to the fire. Tenants will have good things to say about our buildings, and people will come to rent from us.

Harvest

We look to sell our buildings a few years after acquisition, depending on the market. The combination of our improvements to the building as well as the uptick in the market area results in extremely attractive returns. Check out our track record for past successes we've had.

To provide a grounding of all the information above, here's an example of how we might deal with a building. Let's say we are looking at buying a building for $1M. Most buildings with neglect will operate around $70k net (that's after expenses, but before mortgage debt). Now, we can get mortgages for about $800k at 4%. That means our debt expense is around $32k/year. That leaves us with $38k/year income after debt.

Since we have an $800k mortgage, we will have to invest $200k of investor equity to cover the $1M purchase price. With $38k income, we are getting a 16% return right off the bat!

However, let's keep in mind that these properties are distressed, and we're looking to change that. So instead of paying that cash out, we will re-invest it back into the property in the first couple years. A qualified property would allow us to get that net income from $70k to $100k in a couple years through the improvements talked about above. That gives us $68k income, or a 34% return on the $200k invested!

The best part about this model is that after about three or four years, we can go to the bank, show the increased cash flow, and up our mortgage from $800k to the full 1M, allowing us to give our investors their money back. From here on out, we are paying investors cash flow with no money in the deal.

This is why we dont care too much about upside, and why our investment is so low-risk. If upside is there and we want to sell, we can. If it isn't, who cares. We are paid handsomely to wait.