Acquisitions

Evergreen’s value-added investment strategy is to buy underperforming assets in markets that are recovering and poised for long-term economic improvement. Weak real estate markets are disciplined markets. Excess new construction has historically been the biggest risk in the real estate investment business. Rents that are lower than those needed to justify new construction insulate the investor from new construction. We buy when rents are low; and, generally, will sell when rents are high.

Our acquisitions are at significant discounts to replacement cost and provide us the opportunity to implement our ‘value-added’ strategy.

For example, our office building strategy is to acquire poorly managed and leased institutional quality assets based on their current performance. We look for conflicts between pairs of simple facts that should not be in conflict:

• Strong tenant demand/weak investment demand.
  
  
• Strong (or recovering) absorption/weak rents.
  
  
• Low interest rates/high capitalization rates.
  
  
• Rising NOI/falling purchase prices.
  
  
• A poorly leased building in a healthy submarket.
  
  
• Highly competitive cities that are out of investment favor – not because of current prospects but because of past overbuilding.
  
  

No single factor is compelling. The relationship of rents, absorption, supply and acquisition price is key. It is this relationship that establishes the trend for a marketplace and a property.

Our belief is that the higher the capitalization rate a seller offers, the more concern a buyer should have for the future of the property. As real estate economist Claude Gruen wrote:

"Capitalizing last year's net operating income in order to value this year's real estate purchase does not avoid next year's market realities. It can be a useful negotiating strategy to obtain bargains in today's morose real estate markets. However, valuation and asset management must be done with a view to the future not the past."

Dispositions

Evergreen displays an articulated sell discipline. We sell when rents have recovered to a point where they begin to support new construction and where our perception of growth in tenant demand does not support the supply of capital available for acquisitions.

One can only make accurate decisions about the condition of the overall market by understanding the various sub-markets. This is an area where Evergreen sets itself apart. Our knowledge of each sub-market provides us with an accurate barometer with which to make investment decisions about the overall market. There is a strong tendency in the investment business to think in straight lines. If it's going up, it will go up forever. If it's going down, it will go down forever.