With More Problems Should Come More Opportunity

Bret Bobo (pictured) is the CEO of Outlook Capital, a newly launched real estate investment firm based in Miami. The company has raised funds from foreign investors to acquire distressed condominium projects in South Florida and hold onto them for future disposition when markets recover. Prior to joining Outlook Capital, Bobo was involved in various large real estate development and sales projects in the Miami market. He was formerly COO at YOO, USA Inc., where he was responsible for securing design contracts and overseeing co-marketing efforts on behalf of multi-million dollar condominium projects in South Florida such as the $260 million sell-out of the Icon South Beach in 2005 and the $1.2 billion Icon Brickell in 2006 and 2007.He talks to MHN Online News Editor Anuradha Kher, about how his company plans to buy distressed properties and make 100 percent returns for the investors, the effect of the Wall Street crisis on foreign buyers and more.MHN: The fund that will be used to buy these properties consists of debt or equity capital? Bobo: Equity Capital is primary source for now. We plan to buy all cash now and complement with some debt when the credit markets stabilize and debt is available for reasonable terms and rates.MHN: What are you looking for in these distressed properties? Location, quality, cost etc? Bobo: Condos in larger stabilized healthy populated buildings, which have no outstanding construction debt and are populated with owners and renters, and where management fees are being paid and the building is being properly maintained. We are looking for B+ property in B+ locations, and we are buying studios, one-bedroom units and small two-bedroom units that are more easily rented during the carry period. We are looking to buy well below replacement cost and at or near hard cost of construction.MHN: Are the foreign investors interested in buying these properties individuals or companies?Bobo: They are individuals from Russia, Italy, United Kingdom, Dubai and Belgium. MHN: What happens to these properties once they are bought? Bobo: They will be rented during the hold period and maintained properly and positioned for future sale when the returns look good and the value has returned, estimating four to six years.MHN: How long do you estimate it will be until the investors make any kind of profit on these properties? Bobo: Returns most likely will be flat for the first three years and could increase within the four-to-six-year period. This is a value proposition and the real value creation is in the future, not in short term annual IRRs. MHN: What do you expect the profit to be? Bobo: It will be 100 percent and up over five years. The first three years, the return curve will be flat and then with increases in value and refinancing, the returns look very good if the market comes back to its previous peak within five years.MHN: Will the company focus on South Florida?  Bobo: Yes, the focus is on South FloridaMHN: How do you anticipate the dissolution of so many financial institutions in the last few weeks to affect your company? Bobo: We will wait a bit longer to start increasing the rate of acquisition, until we know what the real effect of these dramatic changes will be on the market, and what the government intends to do. I believe there will be more problems to come. I want to see where the election is going and look at year-end accounting. So we have postponed our timing for at least three months due to what happened recently on Wall Street.MHN: Do you think this will make foreign investors less likely to want to invest in the U.S.? Bobo: No, the euro and pound may be at or near peak value and property in many parts of the U.S. is already greatly discounted. With more problems, should come more opportunity and foreign investors are likely to move earlier with more powerful currency and hard money. However, if things get much worse in Europe, which they most likely will, we could see a slowdown in the rate of foreign investment as they pay attention to their own problems.