Protecting Investor Wealth During This Market Downturn

Topic:  • By Michael Episcope • March 25, 2020 Views

Investment Risk in Today’s Uncertain Times
Excerpted from a recent letter from Michael Episcope and David Scherer, to our investors.

In the matter of a few weeks, the COVID-19 pandemic has upended the entire global economy and Origin, like so many other companies, is operating remotely at full capacity. We truly appreciate the outreach we’ve received from many of our investors over the last few weeks and we understand what’s at stake for everyone’s health and finances.

We’ve made many of the choices we have over the last ten years because we have significant personal wealth invested alongside of our investment partners and we’ve managed risk our entire careers. We don’t take outsized risk or use non-recourse debt, and we buy high-quality properties, capitalize them with moderate leverage, and employ a team with experience investing and managing assets across all market cycles. These decisions will help us weather this downturn far better than most.

We don’t yet have enough information to begin speculating on how this will unfold or impact our investments. Operationally, nothing has changed at our properties since March 1. All our tenants paid their March rent and our properties have the same occupancy today as they did in the beginning of the month. However, we know that April and May will be a different story as the market has fundamentally changed.

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The public real estate markets are a great forward-looking indicator as to which direction the market is going but they are awful at forecasting the magnitude because they often overshoot. We know we will be marking our assets down in the upcoming quarters to reflect this new reality but, at this point, we are not able to provide our investors with any realistic estimates because we simply don’t have enough information. The capital markets have completely shut down as every real estate buyer, including us, has stepped to the sideline. We will know more as time goes on and are committed to keeping our investors updated.

Right now, we are focused on the things we can control and preparing for the worst while hoping for the best. Below are some of the proactive steps we are taking and have taken to help protect the investment dollars entrusted to us.

Company-Level Strategies

Company-level risk is something that very few people think about until times like this and we are in a healthy financial position. Origin has recurring revenue and cash on hand to last into the foreseeable future. We have no debt at the company level, are not owned by outside stakeholders, and we don’t have investors in our funds who can force our hand to liquidate assets.

We have significantly cut company costs without letting go of a single team member. In fact, we welcomed four new team members last month in technology and investor relations. These were commitments we made in February and wanted to honor them even in this current environment. We will continue to maintain full employment at Origin and practice what we call shared sacrifice where everyone takes a little less. Maintaining our team is one of our top priorities and will enable us to continue to serve our investors in this environment and prepare us for growth when the time is right.

Fund and Asset-Level Strategies

In today’s environment, cash and cash flow are king and we have both. Every Fund has a cash reserve or cash flow large enough to meet our obligations for a minimum of one year. Most of the assets in our Funds are stabilized cash flowing assets, except for our Qualified Opportunity Zone (QOZ) Fund, where we have two ground up developments in progress. The two other QOZ projects have been funded but no money has or will be spent on construction until we have visibility about the future. We are maintaining compliance with QOZ law, but this is secondary to making money. We will also be paying the IncomePlus Fund’s dividend this quarter and will soon announce a dividend payment for next quarter.

We have also reallocated internal resources and doubled the size of our investment management team. Since all our acquisition activity has been halted, we moved our acquisitions team over to the investment management department. Every one of our acquisitions team members has worked in asset management at some point in their career and our regional footprint enables us to be hands on even in an environment where travel is limited. The asset management team is proactively reaching out to tenants and our property management teams to put a strategy in place to handle tenants requiring rent relief and to maximize cash flow.

We understand that our investors are craving information during this time and we want to get information to our investors as soon as possible. In April, we’re going to begin monthly investor webinars where investors can ask us questions directly.We are also using this time to improve our investor relations operations so we can bring our investors the best service possible. We are focused on provid ing content that we believe will truly be useful to individuals in times like this on our website and through our e-newsletter, Origin Insights.

Looking Ahead

We want to acknowledge that there are some very positive events on the horizon. Washington is in the process of passing a monumental aid package and there are some incredibly smart people in the medical field working on a vaccine and trying to find drugs to alleviate the symptoms of the virus. We are hopeful that the help from Washington and the medical field will ease the pain and destruction of this virus and that we will get beyond this quickly. Our investors can be sure we are doing everything in our power to protect their wealth. Lastly, we know that many of our investors are also health care workers and we thank them for their dedication to their work and putting themselves in harm’s way to save others. This is as much of a human issue as it is a financial issue and we will not forget that.

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Posted By

Michael Episcope
Principal

Michael is principal of Origin, co-chairs the Investment Committee and oversees investor relations, marketing and company operations. Michael brings 25 years of investment and risk management experience to the company and believes that calculated risk-taking in inefficient markets is the key to building wealth.