joseph d. wallace abcn… the missing piece. joseph d. wallace new center expansion: growing right...
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Joseph D. Wallace
ABCN… the missing piece
Joseph D. Wallace
New Center Expansion:Growing Right from Wrong
How to Think About, Structure and Achieve Your Plan
Joseph D. Wallace
Discussion Framework
Growth: what a concept!Growth Approach: A framework
– Right Time– Right Place– Right Structure
Guiding Principles
Joseph D. Wallace
Growth
Q. What is the one thing that defines the most successful businesses?
Q. What is the one thing that destroys most successful businesses?
Q. What do mountain climbing and business centers have in common?
Joseph D. Wallace
Growth
A. Growth
A. Growth (ill-timed, ill-financed, poorly executed)
A. Practiced by fierce individualists with an intriguing fatality pattern
Joseph D. Wallace
Growth Assessment
Grown in last 12 months?– At all?– > 10%?– > 20%?– >30%?
Joseph D. Wallace
Growth Assessment
Plan to grow more in the next 12 months than they have in the last 12?
– More– Less– About the same
Joseph D. Wallace
Growth Assessment
If the market is a like being at a traffic light, the color of the light is:
– Green! (Step on it)– Red! (hard stop!)– Yellow
Joseph D. Wallace
Characteristics of Successful Growth
Extraordinarily well-timedProgrammatic not sporadicLong term in nature, not short term Incrementally expands marketWithin financial reachWithin operational reachNever important enough to jeopardize existing
strengthsBy design, not by accident
Joseph D. Wallace
Characteristics of Successful Growth
“It ain’t the deals I lost that caused the problem…was the deals I won”
Joseph D. Wallace
A conceptual framework…
Money management decision hierarchy
Cycle =
Industry =
Company =
Right Time
Right Place
Right Deal & Structure
Joseph D. Wallace
Right Time
Use your existing information
Have an opinion about where you are in the cycle
What is happening to real supply?
Know your leading indicators
Joseph D. Wallace
Right Time
Understand your tolerance for risk
Recognize that the greatest returns are the reward for taking the greatest risks
Be prepared to invest when you are least comfortable
Joseph D. Wallace
Right Time—Rule of Thumb
The market is a lot like driving in rush hour—the periods of significant acceleration and deceleration are short but critical.
Look for rapid acceleration immediately after rapid deceleration and vice versa; most of the time traffic just coasts slowly.
Joseph D. Wallace
Right Place
Understand the place of place
It’s the one decision you are stuck with
Never let the right deal supercede the right place
Never let the right place supercede the right time
Joseph D. Wallace
Right Place—Rule of Thumb
Poor center managers can make great locations money losers
Great center managers can make poor locations money winners
The top 10% centers have both
Investment in a top 10% location still isn’t worth it if you invest in front of the cliff
Joseph D. Wallace
Right Deal & Structure
Hundreds of deal considerationsMore options about basic deal structureIndustry structure and past experiences
are changing the menu of options and core business model
Eighteen years out of 20, price is not the most important term
Joseph D. Wallace
Right Deal & Structure
Price
Competitive
Protection
Operational
Compatibility
Contraction
Flexibility
Expansion
Flexibility
DEAL
Joseph D. Wallace
Right Deal and Structure
Traditional leases (long term, fixed rent, options to extend) are still widely used
Lease hybrids are becoming increasingly popular
Hosted models are increasingly available and attractive
Joseph D. Wallace
Right Deal—Traditional
Pro’s
Widely available
Little description required
More upside in good times
Con’s
Operating leverage leads to financial volatility
Volatility can be hazardous
Capital requirements are usually significant
More downside in bad times
Description: typical long-term fixed rate contracts; guarantees often required;
Joseph D. Wallace
Right Deal—Hybrid
Pro’sCan significantly shift risk
Creates a ‘partnership’ with LL that can deliver other benefits
Lower volatilityImproves downside performance
Con’s
Limited availability
Structural issues in the R/E markets
Less upside in good times
Sometimes hard to obtain concessions up front
Description: sets a fixed rate lower than market level; in exchange operator shares upside with owner.
(retail lease structure)
Joseph D. Wallace
Right Deal—Hosted
Pro’s
Changes risks
Creates sales options based on cycle
Least volatility
Con’s
Market acceptance in US
Structural issues in the R/E markets
Capital requirements
Limitations re: product type
Timing to build
Description: owned buildings in partnership with LL or owned by center operator; no “rent”; just opportunity cost of funds
Joseph D. Wallace
Growth: Guiding Principles
Don’t be afraid
Joseph D. Wallace
Growth: Guiding Principles
Don’t be reckless
Joseph D. Wallace
Growth: Guiding Principles
Don’t bet more than you can afford to lose
Joseph D. Wallace
Growth: Guiding Principles
Great investor-operators run toward burning buildings
Joseph D. Wallace
Guiding Principles
If your timing is right and you feel good about the location decision, be creative with deal structure to mitigate your risk
Joseph D. Wallace
Thank YouQ & A
How to Think About, Structure and Achieve Your Plan
Joseph D. Wallace
ABCN… the missing piece