Strategy

Traditional real estate investment entities such as pension funds, REITs, investment banks, and most opportunity funds, must typically deploy large amounts of capital.  Yet, relatively few real estate assets are large enough to meet their criteria.  The result is a competitive and efficient market.  The "winners" are the ones with the lowest cost of capital who can pay the highest price in a bidding process.  Furthermore, as the majority of investors in such entities are non-taxable, the investment strategies are not usually optimized for tax efficiency.

HG Capital's strategy is designed specifically to avoid competing with traditional funds for large real estate assets.  Instead, HG Capital invests in small and mid-sized assets which comprise the vast majority of all real estate assets in the U.S. There is relatively little organized, professionally managed capital available to invest in such properties, and the market is inefficient.

By leveraging our relationships with experienced, entrepreneurial operating partners and their local market expertise, HG Capital frequently acquires “off-market” assets that can be actively managed and improved in order to generate attractive risk adjusted and highly tax efficient returns.

HG Capital's depth of experience in multiple real estate sectors has also enabled the firm to implement a dynamic diversification strategy.  Specifically, the firm's portfolio strategy is constructed to take advantage of economic and real estate cycles while being diversified across product types, time, and geography.

Case Studies

E-Commerce Distribution Facility: San Diego, California

HG Capital, through a joint venture with an experienced local operating partner, acquired an 89,120 sq. ft. industrial building in central San Diego at a significant discount to the outstanding debt on the property. Previously occupied by an owner-user since 1979, the property presented a unique opportunity as the only available building of its size in a submarket with less than 5% vacancy.

The property is strategically located near the intersection of Interstate 5 and 8, in close proximity to the San Diego Airport, Point Loma, and downtown San Diego.  Following its renovation, the property was leased to Amazon, Inc. as a last-mile logistics and distribution facility.

The leased asset was purchased by an institutional investor, producing an IRR in excess of 50% in under three years to HG Capital.

HG Capital’s well-established relationship with the local operating partner proved critical in sourcing this investment, emphasizing HG Capital’s role as a flexible, reliable, and consistent capital partner.

Logistics Facility: Vernon, California

HG Capital and its operating partner acquired the property from a corporate seller in need of short term liquidity. While in escrow, the operating partner successfully negotiated a long term lease renewal with the existing tenant, producing a 14% initial unlevered return on the investment.

HG Capital was able to quickly underwrite the project, form a joint venture, and fund the acquisition. Less than two years later, the property was sold to an institutional investor for a sub-7% cap rate.

HG Capital's speed of execution, brand name amongst local “sharp shooter” operating partners, and familiarity with the underlying real estate fundamentals made this successful investment possible.

Self Storage: Tempe, Arizona

HG Capital and its partner acquired a well-located, but undermanaged self-storage facility in Tempe, Arizona. The investment provided an initial yield on equity in excess of 10%.

Following acquisition, the property was actively managed, resulting in increased occupancy and revenue. Property upgrades included LED lighting, new signage, and improvements to the office and parking lot.

The property was sold in Q2, 2015, producing a 40% IRR in just under three years to HG Capital.

This was HG Capital's first investment with the local operating partner after cultivating a relationship with the firm over several years. HG Capital's established trust and long term relationship with the operating partner along with HG Capital's familiarity with this specialty real estate sector made this successful investment possible.

Industrial R&D: Sorrento Mesa, California

HG Capital and its operating partner acquired the property from a family trust at a 45% discount to replacement cost due to a high probability that the building would need to be refurbished and re-leased within a year of the initial purchase.

Upon acquisition, the joint venture improved the property with a new roof, HVAC system, lighting, paint, concrete, and various fixtures. Within eighteen months, the property was sold to an owner/occupier at a significant premium to the purchase price.

HG Capital's efficient team structure and familiarity with both the underlying real estate sector and local market made this successful investment possible.