Alongside Market Dislocations, another form of dislocation we like to invest in are Property Dislocations. This is when we can identify risk mis-pricing or uncover hidden value at the property level that is not apparent to the market, competing buyers and the seller. We also look for dislocations by unlocking embedded value through repositioning, repurposing spaces, adding square footage and land re-entitlement.
For example, a cash flowing apartment property with a vacant ground-floor commercial space can lead to an attractive price after factoring the added risk (or discount). How do we get comfortable with the additional commercial risk for this opportunity to be attractive? First, we evaluate the commercial space, as-is, to determine how we can release it with the least amount of cost and risk. This involves looking at any necessary renovation costs, tenant improvements/concessions, leasing commissions and downtime to lease it as retail, office or both. We can then look at both the design and permitting feasibility of repurposing the space to alternative uses such as live-work housing, medical office etc should they yield higher income yield in relation to the additional cost and risk.
The more ways you can feasibly reposition a space, the less risk there is associated with it, assuming the cost is factored into the price. If we can do so feasibly at an acceptable price to the seller, then we have found value potential invisible to others, which is our mantra at BrandView.