Sponsored Content: REVA’s Steve Sadler Talks Real Estate Investing

Steve Sadler created Real Estate Value Advisors (REVA) after spending decades of experience in real estate finance and real estate asset acquisition. The company is one of a handful of sponsors to survive the historic downturn of 2008.

“You don’t come through a trial like that without a few scars and some lessons learned. As we approach 2018, REVA is keenly aware of the risks in the marketplace and we began adjusting our posture a couple years ago,” said Sadler. “We certainly don’t have any inside track or way of knowing when the next correction will occur, but we are working hard to minimize risks for our clients.”

With decades of experience and billions of closed transactions to look back on, including acquisitions and dispositions of office properties, retail, multifamily and industrial assets valued at more than $1.5 billion, Sadler has been involved in a wide range of real estate advisory, structured finance, mezzanine debt and financing structures.

“I have to say this is a very interesting time in the real estate business. If I had any hair left, I am pretty sure it would all be gray!”

With the benefit of hindsight, Sadler says a number of the risks in real estate today seem clearer. “We think the biggest one relates to the debt markets. While underwriting standards are rather loose, rates are currently quite low and leverage can improve returns on your investment,” he said. “This also creates big risks that many folks ignore.”

Sadler encourages investors to diversify into debt free real estate whenever and wherever they can. “We have seen far too many solid properties with decent cash flow get into a pinch and be taken down by lenders such that investors lost most or all of their equity—not to mention 1031 tax consequences.”

REVA provides investors with a lower risk investment option by eliminating leverage. “In the 2008 downturn cycle many investors ran into trouble driven by loan terms, covenants, and maturities,” says Sadler. If fact, our research indicates that more than 80% of equity losses realized in that time period were the direct result of lender actions against property owners.”

REVA has always specialized in office properties and focused on market and real estate fundamentals. “We continue to dig deep into market fundamentals looking for balanced economies with exposure to education, medical, government, services and technology, where the population is growing and getting younger. Those are the markets that hold up best when the road gets bumpy.”

Once REVA has selected their market in locations like Richmond, VA, Raleigh, NC, Charleston, SC and Tampa, FL, it looks for larger, more stable tenants with better credit and longer leases. “Once we find all of that…once our needle in the haystack is located, we push hard to buy at the best possible price,” says Sadler.

“In our recent offerings we have provided investors options with current cash flows in the 6.0 percent – 7.5 percent range. For many investors, the ability to lock in a 6 percent or better cash flow that increases over the lease term (5-10 years) and has no lender/debt related risk becomes a very attractive alternative.”

Interestingly, in addition to the usual 1031 exchange driven clients, REVA is seeing an increasing number of investors deploying idle cash into real estate to improve their income picture. “Along with that we are seeing an increased level of interest in very simple solutions that provide income,” says Sadler. REVA has recently expanded its debt offerings to give investors a real estate backed alternative with a fixed term, stated coupon and multiple layers of protection.

“We heard clients asking to benefit from the strong market without taking long term real estate risk, so we cut out the private equity middle-man and created REVA Funding to issue notes backed by our syndicated deals,” says Sadler.

“We pay a client 9 percent for a three-year note, instead of paying Wall Street 12 percent for short-term funding. Everybody wins! Reps have a new product to sell from a sponsor that has repaid 100 percent of all their Notes for over a decade—even through the worst real estate downturn in living memory—and earn a competitive commission, while the client gets far better returns than those readily available elsewhere. REVA gets funding to keep producing syndications for our investors.”

Sadler says it is a very good time to assess the risk in your real estate portfolio along with the rest of your investments. “The stock market is touching historic highs and commercial real estate has more than recovered its value since 2008 bottom. Interest rates remain low, but we are in a time of national and global political turmoil. Institutions we once were proud of, like the FBI, have been called into question and rancor seems to be growing.”

“At REVA we think now is an excellent time to build a secure base of income-producing, low risk assets. As the Sergeant said on Hill Street Blues, ‘Be careful out there!’”

REVA is a sponsor of The DI Wire, and the Q&A was conducted as part of their standard directory sponsorship package.