JMS Capital Group Real Estate was formed in 2007 in order to provide further diversification for clients whose portfolios had historically been a mix of stocks, bonds and cash.
As the financial crisis unfolded, our CEO identified a widening spread between the cost of financing and the net operating income generated by commercial real estate properties. As such, the company developed and implemented a scrupulous investment evaluation process enabled the firm to identify potentially profitable investment opportunities within the commercial real estate market.
The addition of private real estate drastically changed the investment landscape for JMS Capital Group. Our innovative and outside-the-box thinking turned what could be a detriment to client portfolios - historically low interest rates - into an asset. Instead of allowing our client’s income to suffer, we took advantage of what the market provided. These are the type of opportunities that JMS Capital Group identifies and executes for its clients.
Today, JMS Capital Group Real Estate engages in acquiring, leasing, and managing commercial real estate properties in the United States. We currently manage over 1.6 million square feet of office, retail, flex, and multi-family space in Pennsylvania, Ohio, Illinois, Indiana, Virginia, Georgia, Minnesota and Maryland. See our portfolio for more details on each property.
When considering an investment opportunity, there are many factors for an investor to think about. Real estate provides the potential for capital appreciation while also generating current income as well as serving as a hedge against inflation. When purchased and managed properly, private real estate can also be a relatively low-risk investment option due to its cash flow generation and income-producing potential. Without this asset class serving as a ballast in client portfolios, investors would be reliant on equity markets for capital appreciation and debt markets for income, a risky proposition when considering equity valuations and the low interest rate environment brought on by central banks globally.
As a commercial real estate company, we identify and acquire commercial property throughout the United States on behalf of our investors. We manage all aspects of ownership including:
• Cash Flow
• Capital Improvements
• Client Reporting
• Dividend Distributions
• Investor Communications
We also actively serve as the property managers by hiring dedicated on-site, full-time employees to run day-to-day operations. In addition, we employ full-time engineers who are also on-site and responsible for the daily maintenance of each property. This model provides comfort to our tenants as they can be confident in our ability to quickly respond to their needs and address any building related issues in a timely manner.
There are four major real estate categories and within each one, varying strategies. At JMS Capital Group, we focus on two primary categories: office and multi-family. In addition, we prefer steady income over speculative capital appreciation. We purchase buildings with supply constraints and seek capital appreciation to offset inflation. However, the reliability and predictability of income is our main objective.
Another factor in focusing on income over potential appreciation is the fact that interest rates are as low as they have been in 60 years. The 10-year Treasury rate is below 2% and has a direct impact on mortgage rates. In our recent acquisitions, we have been able to secure financing as low as 4.25%.
In a hypothetical example, the combination of 8.75% cap rate (income ratio) and a 4.25% borrowing rate would yield well into double digit returns for investors. The 25% down payment that investors contribute would earn 8.5%, while the remaining 75% borrowed would earn 8.75% less the cost of the 4.25% mortgage. This 4.5% spread is at all-time high levels for income properties. At 3 times equity, the return on financing adds 13.5%. This cash flow generation allows us to pay dividends and set aside cash reserves at unprecedented levels.
We view this excess return as an opportunity to build up reserves in the event we have a major capital expenditure or an extended decline in occupancy. To the extent we do not need the reserves, they are paid back to the investor. The spread between cap rates and mortgage rates will eventually narrow back to a more natural state, and deals will yield much lower returns.
Lastly, our property management philosophy focuses on strong tenant relationships by placing a JMS Capital Group employee on-site. Tenant retention helps to mitigate costs thereby maximizing income. Our tax strategies and energy audits also help direct more money to our investors.