The MDC's investment process makes MIT admissions look slapdash.
The company provides fantastic service to cash-strapped retailers. Retailers know it closes big, complex deals in a hurry. No one else can handle these deals.
Everyday, the MDC receives dozens of offers from retailers looking to enter sale-leaseback transactions. Like MIT applications, most of them get turned away.
The MDC has a fully staffed research team. It trawls the country looking for properties that meet the company's strict investment criteria. When it makes a match, it will grill the management team, tear apart the audited financial statements, and study its competitors. Then it studies the industry's history and outlook. Finally, the team will visit every location in the chain, shooting film clips of the property and preparing the key statistics to take back to the MDC's investment committee in California.
The MDC's CEO, president, CFO, and general council sit on the investment committee. These four executives spend every Friday watching hundreds and hundreds and hundreds of videos of the properties under consideration.
During 2006, the committee reviewed more than $5 billion worth of potential transactions, but acquired only $770 million in new properties. In other words, it bought about 15% of the properties presented by the research team. (MIT accepted 16% of its 2007 applications.)More Competitive Advantage
Let's pretend you have $200 million to invest in property and two weeks to close a deal. You could buy an office building. You could buy a warehouse. You could buy a stadium. You could buy a hospital. Or you could buy a portfolio of 100 small retail locations.
I don't know which one you would choose, but I'm pretty sure you wouldn't choose the retail portfolio. For one thing, you'd need to deal with 100 different tenants and administer 100 different properties. The deal would be more complicated. Your investment appraisal would be more costly, and your return would be less certain. That's why big institutional property investors steer clear of this niche. It's a hassle.
But they're the reasons this space offers higher rental yields than most other sectors. You could say that the MDC's ability to manage a large portfolio of small companies is its true competitive advantage.
So how does it pull off this tricky business so well?
Firstly, the MDC can close large deals quickly. It has the staff to analyze opportunities, advanced IT systems to deal with the sudden influx of new properties, and immediate access to a large pool of capital.
Second, the MDC has strong control over its portfolio. Sometimes an attractive deal contains a few undesirable properties, or the MDC portfolio may become overly concentrated on one industry. The company owns a specialist resale business that sells the properties the MDC doesn't want, using tax-deferred (IRS form 1031) exchanges.
Third, the MDC uses triple-net leases. Under a triple-net lease, the tenant pays the utility bills, insurance costs, maintenance, and property taxes. The MDC owns 1,929 properties in 48 states. That's a lot to manage. Triple-net leases make it easier to be a landlord. The majority, 98.4%, of the company's leases are triple net.
The company provides fantastic service to cash-strapped retailers. Retailers know it closes big, complex deals in a hurry. No one else can handle these deals.
Everyday, the MDC receives dozens of offers from retailers looking to enter sale-leaseback transactions. Like MIT applications, most of them get turned away.
The MDC has a fully staffed research team. It trawls the country looking for properties that meet the company's strict investment criteria. When it makes a match, it will grill the management team, tear apart the audited financial statements, and study its competitors. Then it studies the industry's history and outlook. Finally, the team will visit every location in the chain, shooting film clips of the property and preparing the key statistics to take back to the MDC's investment committee in California.
The MDC's CEO, president, CFO, and general council sit on the investment committee. These four executives spend every Friday watching hundreds and hundreds and hundreds of videos of the properties under consideration.
During 2006, the committee reviewed more than $5 billion worth of potential transactions, but acquired only $770 million in new properties. In other words, it bought about 15% of the properties presented by the research team. (MIT accepted 16% of its 2007 applications.)More Competitive Advantage
Let's pretend you have $200 million to invest in property and two weeks to close a deal. You could buy an office building. You could buy a warehouse. You could buy a stadium. You could buy a hospital. Or you could buy a portfolio of 100 small retail locations.
I don't know which one you would choose, but I'm pretty sure you wouldn't choose the retail portfolio. For one thing, you'd need to deal with 100 different tenants and administer 100 different properties. The deal would be more complicated. Your investment appraisal would be more costly, and your return would be less certain. That's why big institutional property investors steer clear of this niche. It's a hassle.
But they're the reasons this space offers higher rental yields than most other sectors. You could say that the MDC's ability to manage a large portfolio of small companies is its true competitive advantage.
So how does it pull off this tricky business so well?
Firstly, the MDC can close large deals quickly. It has the staff to analyze opportunities, advanced IT systems to deal with the sudden influx of new properties, and immediate access to a large pool of capital.
Second, the MDC has strong control over its portfolio. Sometimes an attractive deal contains a few undesirable properties, or the MDC portfolio may become overly concentrated on one industry. The company owns a specialist resale business that sells the properties the MDC doesn't want, using tax-deferred (IRS form 1031) exchanges.
Third, the MDC uses triple-net leases. Under a triple-net lease, the tenant pays the utility bills, insurance costs, maintenance, and property taxes. The MDC owns 1,929 properties in 48 states. That's a lot to manage. Triple-net leases make it easier to be a landlord. The majority, 98.4%, of the company's leases are triple net.
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