LMREI Philosophy
Management’s investment philosophy and success is founded on asset level underwriting, involving “bottom up” analysis of underlying collateral fundamentals coupled with proactive, “hands-on” asset management practices.
Underwriting:
Since LMREI is granularly invested in the markets, and experienced with complex real estate structures, it is able to underwrite real estate securities and assets based upon the underlying real estate collateral. Given the breadth of LMREI’s existing real estate debt and equity portfolios, it is able to underwrite and value the real estate assets with a “bottoms up” valuation approach. This allows LMREI to identify prices for securities or assets that offer exceptional risk adjusted returns.
- Critical Underwriting Assumptions: LMREI’s underwriting philosophy is based on several key principals including, assets improving to current market levels, no reliance on market growth, rising future cap rates and financing costs, strong sponsorship and fully capitalized renovation plans.
- Submarket and Sensitivity Analysis: Submarket and sensitivity analysis includes examination of rental rate and occupancy trends, tenant credit profiles, local employment growth, future supply and absorption, LTV, DSCR and various other comparative investment metrics.
Asset Management:
LMREI’s proficient asset management methods are based on both diligent asset surveillance as well as a “hands-on,” proactive approach in dealing with distressed assets. Reemerging
- Asset Surveillance: Surveillance is performed internally by the asset management team, which is in regular communication with servicers, borrowers and property managers. For originated and distressed whole loan investments, the asset managers visit each asset regularly and work with local partners to ensure that budgets are maintained. The team monitors the progress of renovation/re-positioning, and reviews operating statements on a monthly basis in order to measure performance against the business plan. Explaining any variances from underwriting on a regular basis provides a necessary monitoring tool, and quickly reveals any performance issues that benefit from immediate attention. If a problem arises, LMREI’s dedicated team of asset management, real estate and financial professionals respond swiftly and effectively to address the issue.
- “Hands On” Approach: LMREI actively manages all of its assets and is not simply a capital allocator. The principals of LMREI have restructured, modified or foreclosed on over $2 billion in real estate loans and securities in the last downturn of the early 1990’s and have successfully restructured over $350 million of LMREI’s first mortgage and mezzanine debt portfolio in the past 9 months.
- Real Estate Equity: In addition to significant loan workout experience, LMREI’s principals manage a $300 million equity portfolio, well positioning LMREI to analyze and execute property level improvement. This “on the ground” asset management of a diverse portfolio is unique among lenders. While ownership of assets on which whole loans are made is never desired, LMREI has this tool available to it and has foreclosed upon approximately $200 million of its current debt portfolio in the past 9 months. Thus far, LMREI has successfully sold three REO assets and has improved post foreclosure operations in the balance of its REO portfolio. On average, LMREI has increased each property’s economic occupancy by 15% since the underlying asset foreclosure date.
- Reporting – Transparency to Partners: LMREI believes in providing investors with detailed and regular reporting on investment performance. LMREI strives for “best in class” detailed and transparent reporting, regular communication and accessibility. LMREI hosts an annual investors’ meeting and provides each investor with detailed quarterly reports and periodic investor communications. All investors across LMREI’s family of funds have global, 24-hour access to LMREI’s web-based portfolio management system (“RealEra”). This system allows investors to view a broad array of data, from a portfolio’s investment allocation to asset-level financial performance to loan documents to quarterly reports.