Strategy

Real Estate is a Cyclical Business!

Sandalstone Group, LLC forms its Real Estate investment strategies with a keen eye towards where the markets within which it operates is in the Real Estate cycle.  Real Estate is a cyclical business, always has been, always will be.  Sandalstone began operations in 2003 when the cycle was heading up.  We played that part of the cycle by Building and Selling - as fast as possible.  That strategy led to tremendous gains in a short period.  In 2006 the cycle turned furiously and famously.  Through judicious management of our balance sheet, we were able to turn from sellers to holders.  That enabled us to survive and turn to the next phase of the cycle - Buy and Hold.  We successfully operated in this part of the cycle from 2008 to 2012.  This has been the last 9 years.  Like a baseball game with 9 innings we have gone through the line-up once and are now back to the top of the order.  The Cycle continues again...  

How to Play the Cycles

Off the Bottom: This is the time when a premium is placed on smart value add investments.  Typically success will be found in investments where appreciation can be uncovered in the following ways:  1)  Broken assets leftover from the last cycle  2)  Land/Building sub-division 3) Assemblage  4)  Increasing density  5)  Land development.  Sandalstone successfully played this part of the cycle in 2003 to 2006 and looks forward to once again participating in this part of the cycle.  This is the time in the cycle to favor capital appreciating investments over income / yield generating opportunities.  

Bottom:  This is the time when most real estate fortunes are made.  The indicators are typically being able to purchase assets below replacement cost, when rental economics justify holding, and when other investors are fleeing.  The single family asset class is seeing these characteristics in many markets including parts of California, Nevada and Arizona where the foreclosure crisis is rampant.  Combined with the lack of credit availability the strategy is to go in all cash and then leverage appropriately later at the Company or Portfolio level.  

The presentation (written in mid 2011) below futher eloborates on the Las Vegas market - where the Company was making investments through Clarameda Fund, LLC: