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Counter-cyclical Parallel

Since its original foray into Seattle in the early 1970s, when Boeing was just beginning to emerge from its troubles, Maxwell Drever established Concierge’s now time-proven, counter‐cyclical investment strategy.

This profitable strategy has been further augmented over the years with an additional profit-generating, “earn your returns” approach via the honing of Concierge’s property management and redevelopment expertise to cost- effectively increase property NOI.

Parallel Price Aberrations

Historically, purchasing assets at a low cost basis in relation to normal intrinsic values has been the foundation of most profitable real estate investments. With today’s under-pressure lenders, coupled with frozen investors, Concierge again expects to see apartment NPL price aberrations that will likely parallel those in Seattle in the early 1970s.

Seattle / Boeing Cycle History

While it appeared in the early 1970s that the 60,000 employees laid off by Boeing would leave town, many stayed and either started or worked for small start-up companies. This included a 2.5 multiple of employees in related businesses.

As many did then and are doing now to save on living expenses, they doubled up with friends or family, and vacancies in Boeing-related submarkets jumped (30% in Auburn and 25% in South Everett).

Thereafter, since no new housing was being built, when the economy started to improve (depending on the submarket), available housing filled up in three years or less.

Historical Performance Perspective

In 1974, when Concierge resold the 17 properties it had acquired and redeveloped in Seattle, investors received a +30% average annual return.

Today's employment declines without dislocations, coupled with apartment price aberrations in Concierge’s targeted, long-term desirable markets, seem to parallel those in Seattle during the early 1970s. Also, perhaps further enabling them to have uncommon upside potential, they have two additional advantages:

First: Most of Concierge’s targeted submarkets are not suffering from the massive overbuilding that characterized the Seattle cycle as well as subsequent ones in which Concierge counter-cyclically invested. With the current contraction in new residential construction, it appears that pent-up demand will again cause available housing to fill up as the economy improves.

Second: Just by bringing the occupancy of underperforming apartment communities to the same level as their submarkets, Concierge can, with the favorable financing available in this cycle, possibly thereafter generate immediate, strong ±10% annual cash flows.

Future

Post 2000

Since 2000, Concierge has been primarily making selective “spot” buys (maximum holdings: 5,500 units) and otherwise patiently waiting for and building up its team to take advantage of the currently evolving market.

Past and Current REIT Plays

In addition, as part of its counter-cyclical strategy, Concierge also takes advantage of opportunities in the REIT market. For example, in 2001, Concierge felt the best real estate buys were not properties, but their targeted REITs. After Concierge completed its on-site property inspections, these REITs were culled down to a handful with stock prices that had been hammered down below the net asset value (NAV) of their properties.

Results

When Concierge sold its REIT portfolio after an average 18-month hold, it generated an overall 68% profit, including dividends. Currently, a small REIT fund run by Concierge’s Executive Director for REIT Business Development is up 19.14% for the year through the first week of June vs. the NAREIT Equity Index, which is down 3.74%, for a positive 2,288 basis point swing.