How does your Investment Committee work?/How do you know which deal to buy?

as part of your acquisition process, how do you know that you won't find a better asset to purchase when you find an attractive deal you believe you come across? What makes you confident that the deal you are looking at will be the best acquisition in terms of a return perspective that fit your criteria? I am assuming you are you looking at dozens of deals a month that when you find a 'great deal' you do whatever you can to purchase it?


do you ever say to yourself maybe a better deal will fall in my lap very shortly? how does your investment committee and process work in your department? who has the final say of what deals that deserve a deeper dive in/underwriting and eventually pursue through PSA?

 

My approach has always been straightforward - if it meets the criteria, you should expect to do the deal. Criteria should fluctuate based on available capital and timing in the business cycle. No point in having the criteria if you won’t do a deal that meets them. There can always be a few intangibles surrounding a deal and the IC should use their experience to look at the items beyond the numbers.

There’s plenty of people who will wait for the perfect deal. You’re going to make a lot more money and get a lot more market knowledge by doing the good deals in front of you rather than waiting for a perfect deal.

I think in this current market, some people are holding out for the “perfect deal” and they forget that 2 years ago, people were overpaying for shit deals because they didn’t know when something would come to market again. Keep some perspective on that.

 

Similar thoughts as MacBuilds. Have a very strict standard for underwriting deals. Sure, some things can fluctuate over time, but I find that too many volume/deal shops will let the market drive their underwriting which gets them into trouble. If you are strict with how you look at deals, and you come across something that works, you should be comfortable pulling the trigger. 

Easy to say, much harder to do in frothy markets or when there is a lot of volatility in the market. When the market is at the peak, you feel dumb because you are being outbid on everything. Currently, some deals are starting to make sense, but you worry that you are buying into a down market. 

 
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Over the long term, you're better off hitting singles and doubles than swinging for homeruns every time. There's never going to be an absolutely perfect deal, and if there is it is going to be bid up to a point the price is no longer worth it. Doing 10 deals a year that average 12-15% returns for you is going to be a bigger factor for growth than 1 deal per year that is a 25%+ return. The more track record you have at being competent (not necessarily amazing), the easier it will be to secure capital and grow. Besides, putting out money and getting a return on it is certainly better than sitting on a stack of cash and hoarding it until the "perfect" deal comes along. 

 
crerepe21

Over the long term, you're better off hitting singles and doubles than swinging for homeruns every time. There's never going to be an absolutely perfect deal, and if there is it is going to be bid up to a point the price is no longer worth it. Doing 10 deals a year that average 12-15% returns for you is going to be a bigger factor for growth than 1 deal per year that is a 25%+ return. 

While I tend to agree with this, I think it's worth noting that there are plenty of exceptions.

I know a number of people in their late 30s through mid 60s who all made a fair amount of money, not fuck you money but enough to live in, and then opened up their own "shop."  They do a deal every year or two, really only work on one thing at a time, and have no interest or plans to expand and grow their business.  But they can self-finance predev costs, they net several hundred grand or more a year, and generally are very picky with what they do and very focused on it once they start in.  Because they don't have major overhead they can chip away at problems over time without feeling the need to churn fees, and so their deals end up looking awesome because they take the time and effort to add real value to them.

Frankly, that's a pretty cool set up if you have the wherewithal to make it work.  In a lot of ways it actually seems more attractive than trying to build a whole corporate entity in your mid 40s and essentially starting over.

 

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