“Commercial Real Estate Investment has different dynamics than Residential Real Estate. Why? Because it is the first is a numbers game, while the second one is an aspirational transaction. Commercial properties are underwritten to produce regular rental income and in order to cope inflation a an yearly escalation is built into the contract. On top of it because these are large properties, there are economies of scales which reduce the operating expenses as it relates to rental commissions, property management, and bulk agreement with suppliers.”“Pre-Construction acquisitions are an excellent way of generating savings and at the same time have the ability to lock in ‘today’s’ prices for deferred deliveries, therefore retaining extra dollars that would be eroded due to inflation during multi year construction periods. Because the money is not needed upfront as a construction project is built overtime, there is an added benefit of spreading the payments optimizing the cash productivity while the cash is not needed.”“At cost is a normal practice in economies where there is little or no construction financing. Even though this requires a larger disbursement, at the same time it keeps the prices sincere, avoiding the distortion of highly leveraged investments which can end up distressed financially or even be the starting point of real estate bubbles. But most important the M Model shares the project profits, between the buyers in such a way that it lowers the risk to all participants. In an event of a market price correction this model better shifts a downward cycle, and at the same time skyrockets the returns in an upward one.”
“Once again the M Model responds to this needs by providing the lowest buying price possible, which is equal to its replacement the cost. This in turn lowers the property taxes, which is a considerable proportion of the of the gross rental income. For additional savings, having a centralized professional management helps keep in track the commission expenses, and the management fees, and therefore impacting positively the bottom line. By enlarging the pie, everyone enjoys the benefit.”
The M Model is conceived by investor for investors. The initial rules are very simple and relate to the name of the very same M Model. M synthesizes three investment criteria: Metropolitan, Multifamily for Millennials.
“Sticking to Metropolitan location is important as there is an increasing tendency of the general population to concentrate around urban cores. The time and money spent in commuting, are making people to come back to the cities, where they can also enjoy other aspects which are absent in the suburbia, as access to culture, top entertainment venues, vibrant nightlife, a diverse gastronomic offer, and an increasingly richer shopping experience.”
“Multifamily buildings are designed not for its luxury or it bells and whistles to attract aspirational occupants. Rather the focus is its functionality, convenience of location, and reasonable cost that make possible an urban lifestyles to those who may not be able to pay premiums for ultra expensive real estate.”
“The Millennial generation is not about aspiration, but about flexibility. They are not impressed by brand names, nor by exuberant amenities. In fact they are more concerned with traveling the world and do their free lance activities leveraging on mobility. The M Tower provides active useful amenities, meaning those that cannot be replaced by nearby options which tend to provide better services and facilities. In addition these amenities are profit centers that help keep the operational costs low.”
Traditionally residential developers capture most of the value by delivering lifestyle aspirational properties and shifting the risk back to the unit buyer or investor. The M Model, however, shares the value while lowering the risk simply by enlarging the pie, and sharing it.
The M Model is designed to create a power shift. A game changer that gives back control, timing and profits to those who take the risk and invest.
Pretty simple. At the M Tower investors have to buy at a minimum an entire floor. Each floor has 10 units ranging from 625 sqft to 1,050 spft. There’s only 44 floors to chose from, and they are all exactly the same except of course, for its height. Here are the Floor Plans in case you want to check them out. The cost of an entire floor is similar to the cost of a large luxury condo or penthouse unit. But the rental income is far greater, and the carrying cost way lower.
“In addition there are two key concepts behind the M Model. The power of Monopoly and the economies of scale driven by Volume.”
A building is in itself behaves as a Monopoly. By retaining control of an entire building, as opposed to holding individual units is how commercial real estate allows to maximize the asset value. In regular residential condo buildings the Monopoly is broken into single unit owners create internal competition among each other, and therefore by not being coordinated they end up giving away the locked in value in order to capture demand. Unified control keeps the value of the asset intact.
“In Volume there’s economies of scale and therefore efficiencies”By centralizing management across the overall inventory of the building, maintenance cost, management fees, and marketing expenses are reduced to a minimum, drastically improving the bottom line. Maintaining, managing, and marketing individual units drive up drastically the management costs.
In summary the M Model applied to the M Tower works like this.
Savvy real estate investors don’t necessarily focus on location, location, location as it is the common belief. There’s at least two other things as important as well. The market cycle which determines the timing and the yields. Then they price the assets accordingly, ruling out most of the speculation. In order to do that they make their homework before making any investment decision.
“Because most of the times the money in real estate is made at the time of purchase. And the difference between investing and gambling is determined by information.”
Type of investment: Commercial Real Estate
Financing: Pre-construction self financed.
Price: Equal to replacement cost.
Location: Metropolitan urban core.
Asset Class: Income producing Multifamily rental buildings.
Demographics: Targeted to Millennials.
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