TIMING IS EVERYTHING - Part 2
In last week’s newsletter, you will recall I was writing about the importance of timing when it comes to business. I shared with you the example where a friend / client of mine, sold his entire property portfolio for over £10,000,000 a few weeks before the Global Financial Crash. He was a lucky boy as they say, whilst others might say “you make your own luck in this world”.
Balance - I have been thinking about this over the last week, and I thought it would only be fair if I brought some balance to the importance of my timing in business argument. I wanted to do this by sharing another experience I had with a different client, around the same time, who maybe wasn’t so lucky, or timing wasn’t just as good (to put it mildly).
This client, a very driven character, who came from a working-class background, was incredibly determined and driven to do well for himself. Starting out in the farming business, making a name for himself wheeling and dealing, he then entered the property industry in his late thirties. Over a ten-year period, he went onto increase his net worth to over £40,000,000. He gathered up most of that wealth by buying a commercial property asset in the late nineties for £2,000,000 and subsequently selling that same asset for over £30,000,000 around 2005.
His big issue occurred when he rolled his significant profits along with additional equity into another much bigger commercial property around 2007. When the GFC occurred just over twelve months later in 2008, and the markets started to fall apart very quickly, the recession took hold. By 2010, things started to get very challenging, the bank had enforced on his main commercial property asset, meaning he had lost all his equity. This triggered a move by all his other lenders on what he had left of his portfolio. In the space of thirty-six months, everything was gone. To say the timing of the acquisition in 2007 was quite bad is an understatement, but very relevant allowing me to make my point, that timing is everything!
WHERE ARE WE NOW IN THE CYCLE?
It really is the million-dollar question trying to determine when the best time is to buy, best time to hold, and best time to sell. Working in the real estate markets for over twenty-five years, I have always felt quite privileged as I have got to work with some of the great business minds of our time, gathering an insight into what makes these people tick and how they think about dealing with the conundrum of buying, selling and holding.
The economic cycle and where we are in that cycle, plays a huge role in trying to figure out the right answer to the timing question.
Facts - Today we are working in an environment which is quite hostile in relation to the geopolitical situation, there is a lot of anxiety across the markets, inflation is biting, and the cost of money is sticky right now, and certainly much more expensive that when borrowing in 2018 – 2023. When the cost of borrowing increases, this becomes incredibly challenging for people who may be acquired assets around 2020, when money was much cheaper. Those implicated parties are now in a situation where they are trying to refinance the same facility, but unable to do so, as the debt repayment profile is a completely different scenario, and wholly unaffordable.
I draw your attention to a trend that we have seen very close to home in the last few years, where some of our best-known shopping centres have all changed hands for this very reason. The debt became unaffordable, unable to be refinanced, the banks enforce on their security, new buyers move in (who are cash rich) and buy the asset at a very low price – timing is everything yet again for the buyer – on this occasion!
My own view being that now is a great time to buy assets for reasons set out above. In our own practice we have successfully put the funding in place for several acquisitions in the last twelve months, all for assets / businesses, which have been bought very well. The good news being there remains an appetite amongst the debt markets, and the lenders we work with, to support the right people with solid track records with these kinds of opportunities.
At GDP we have a wide range of funding solutions available today, which comprise debt and equity options, so whether its refinance or new finance you may require in the next twelve months, it would be great to hear from you again!
Until next week, look after yourself!
Best,
Conor