Seek, Select, Sit Back…

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

October 2005

And Relax. This is what an ideal real estate investment fund, or for that matter any investment fund, should do. Nonetheless, due to a variety of reasons, this is not always the case. Sometimes this is understandable as actual circumstances may be quite different from what are anticipated thus requiring constant strategic and tactical changes, yet sometimes this is not overly excusable due to poor investment insight, planning, and / or execution. Here what we mean by seek, select, and sit back (and relax): 

A)     Seek = this refers to seeking desired / intended / targeted / suitable real estate properties which in turn implies prior vigorous researches into potential real estate markets and sectors and honest assessments of one’s return requirements, risk tolerances, and resource capacities. Sometimes there should be no seeking at all IF one’s return, risk, and resource parameters are unrealistic or not quite matching what are available or demanded.

B)     Select = assuming one’s investment criteria and parameters make sense, there could be more than enough potential real estate opportunities from which to choose. While ones that are subsequently revealed to be not quite matching one’s investment criteria could be discarded with relative ease, others that satisfy the investment criteria and appear to be on similar par with one another may present a challenge to the investment executives. A well thought out investment analysis and evaluation process may help toward making the best possible investment decisions in an efficient manner.  

C)    Sit back (and relax) = assuming one’s seek and select stages are well carried out, and that there are no immense and unforeseen circumstances which drastically alter the investment parameters, this stage will start to bring in the anticipated investment benefits (rental revenues, sales proceeds etc) requiring perhaps just the basic property management and portfolio monitoring.

Generally, much effort and hard work are involved in seek and select stages, while the sit back stage (as its term indicates) is (or should be) relatively uneventful. Say if an investment fund is based on a 5 year horizon, then 1 year may be spent on seeking (researching various markets, building up the required professional teams and logistics etc), another year on selecting (properties being constantly acquired and transactions completed etc), and the remaining 3 years in a sit back mode (revenues starting to roll in and dividends paid out to investors etc).  

Naturally, investment managers may deem the above too simplistic a picture. Admittedly it is (and it has to be given the limited space allowed for each article), yet simple plans and operations generally have a higher chance of success than overly (and sometimes unnecessarily) complicated ones given all things being equal. Also, investors are not interested in the managers’ demonstration of high intellect and sophistication, but in the investment results instead. For starters, your humble author is wary of investment managers who seem to have to work too hard ALL the time scrambling from one investment type to another and being all over the place apparently without any coherent investment plan or even a concept.  

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

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