"Are Cap Rates Relevant in Today’s Real Estate Market?"
The cap rate is the rate of return on a real estate investment based on the income that it is expected to generate. Typically, the first question a buyer asks is, “what is the cap rate?” implying that the higher the cap rate, the better the buy.
“Cap rates to establish value are subjective, says Nathan Bierbrier, President and CEO of Shelborne CAPITAL, and somewhat irrelevant when deciding on an opportunity. I do analyze the cap rate as part of my due diligence, however, it is definitely not my first or even my second benchmark. It is worthwhile to consider this information for financing purposes; however, I truly believe the cap rate should NOT be the deciding factor”.
“When considering an acquisition, we always assess what the existing income is today and what can be achieved in the future. We also consider the price per door vs. the replacement cost. They are not making more land and ground up development is a costly and difficult process” he explains.
Shelborne CAPITAL, is a privately-held real estate investment company that focuses on acquiring and investing in high-quality real estate throughout the GTA and its surrounding areas. Nathan’s goal is to maximize value and long-term cash flow. The company has earned a reputation as being risk adverse, conservative but also innovative.
In addition to being an investor, Shelborne CAPITAL actively manages and operates its various properties. Shelborne CAPITAL is a relatively young company (founded in 2016) and it has already established a footprint in the GTA real estate industry.
Through its various partnerships, Shelborne has acquired real estate valued at over $100 Million and has provided exceptional returns to its investors. The company currently owns and operates over 500 residential units and is poised to grow even further.
Nathan believes that the GTA market still has room to grow. “I believe that the Toronto market is undervalued and that rental rates in the GTA will continue to grow. More families want to save commuting time, to reduce their environmental footprint, and to live maintenance free, while gaining access to a host of established cultural, social and recreational amenities. The GTA is a magnet for these reasons. Even with market corrections, I feel that there is a tremendous, long-term upside,” Nathan explains.
Shelborne CAPITAL’s principles and processes:
• Undertaking the necessary due diligence to identify high-quality opportunities. “We walk the building. We get to know it, from the inside out. We study the current cash flow and look for opportunities to create value”.
• Delivering and closely managing a plan that monitors leasing, collections and expenditures in order to maintain a healthy bottom line. Strategies include growing revenue, identifying and implementing cost efficiencies and investing in cost-effective capital improvements.
• Obtaining conservative financing and interest rates for a balanced leverage profile. Shelborne CAPITAL has proven working relationships with a variety of bankers and lenders.
“I do not believe in over leveraging. I would rather focus on raising more equity which reduces risk for everyone,” Nathan adds.
• Reviewing tax considerations for tax deferral on distributions made to investors.
• Maintaining transparent relationships with investors, through communication and reporting. Shelborne CAPITAL strives to build trustworthy long-term relationships with its investors. Its staff challenge themselves to under-promise and over-deliver. “We set our own expectations and push ourselves to achieve enhanced value for our investors. We treat our investors like partners which is why we have so many repeat clients - most of our investors come back after the first deal. All of our partners have my personal contact information and can reach me at any time,” Nathan adds.
• "Most important, we treat our clients’ capital the same as our own. We believe in backing up our claims with our own funds and we invest in each and every deal.” Shelborne CAPITAL is committed to acting like a true partner, to establish trust and to demonstrate integrity."
Shelborne CAPITAL’s small but nimble team has been involved in the real estate industry for over 25 years. Their experience includes finance and accounting, tax planning, budgeting and forecasting. Additionally, the due diligence during a property’s acquisition, including lease reviews and CAM and tax recovery reviews are all done in house. This allows Shelborne CAPITAL to stay on top of the details.
Nathan leads Shelborne’s executive team and is responsible for the strategic direction of the company. He has been involved in the real estate industry throughout his professional career. As a realtor with Kalles Commercial, he specialized in investment properties and learned the skill of underwriting. He still holds his OREA license which he received in 2012. Prior to working as a realtor, Nathan was responsible for the property management of over 1,000 residential units in downtown Toronto for Medallion Corp.
His enthusiasm is infectious and his personality, focus and drive will undoubtedly lead him to further success. He enjoys making money for his investors and his goal is to ensure their satisfaction. Working hard is his career and hobby too. Having said that, he still manages to take the time to have a good family life – Nathan and his wife, Cookie, have two healthy and happy children, Sophia (18 months) and Joseph (9 months).
Last but not least, giving back to the community is a key value for Nathan. The couple runs a family foundation that helps families in the GTA with education, healthcare, and other living expenses. Their generosity and kindness always includes a smile.
Suzen Fromstein is the author of Suits and Ladders, Ten Proven Ways to Keep Your Job Safe - with a few jokes thrown in. Suits and Ladders was an Amazon Best Selling Book in the Career Guides Category.
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