My, How Time Flies!!: Considering debt and interest in the context of present day Greece, the EU, our beloved “Fed, along with our historic low mortgage rates we all know and love, I thought that getting a bit of perspective on why and how the whole money lending biz came into existence was timely and relevant. Who knew that interest on debt and investment (ROI) started in the Garden of Eden. No surprise that economic historians have from time immemorial been theorizing on the genesis of interest. It appears that the cost of capital surfaced very early, Bronze Age, around 3300 BC and ran through the Greek and Roman Empires 400 AD, described by some as the period of “Ancient History”. On an annualized basis, the rate for each period was lower than that of its predecessor: 20%, 10% and 8% respectively (I have no idea how anyone came up with these percentages). Nonetheless, the decline in rates over time, theoretically reflected increased productivity, profit and risk; simple but sophisticated. One of the earliest forms of interest was rice. This amazing grain could feed and nourish more folks over a longer period of time than any other. Since rice could multiply 100X in one season, farmers could repay their loan and cost quite efficiently. And, since only a finite amount could be planted, (barriers to entry), natural limits set the market price. Evidently, throughout most of ancient history, earning interest was fine so long as the lender was at risk; like famine, earthquakes, plagues, volcanoes, locust, floods, weather and war‐just to name a few; this principle holds true today.

 

It’s All Greek to Me: Leave it up to Aristotle around 350 BC to try and kill the buzz and preach the immorality of interest; “The most hated sort of wealth is that which makes a gain out of money itself…for money was intended to be used in exchange but not to increase at interest.” Fast forward and what do we have today, besides the Greeks getting in trouble, again, with debt?  Maybe he was right? Generally speaking, the banking system is global, essentially transparent and highly efficient, with debt costing practically zero to the low single digits. Human nature hasn’t changed, interest rates certainly have. Maybe back then the economist “got it” when it came to risk and understood it as well as we do today. Nonetheless, demand for capital today remains insatiable, with trillions available depending on the level of risk; Hmmm, have we gone back to the future? Was the world less risky, or risqué, throughout ancient history? Ask the Mesopotamians?  Certain “risk metrics” have changed a bit over the past 3,000 years, (or have they), but I think that today most investors view risk, at least those invested in the US capital markets and economy, as minimal. Not so sure about Europe, China and Brazil. On a granular level, DJM’s portfolio-wide debt averages around 4.5%. Fortunately, DJM’s risk exposure doesn’t keep me up at night. I’m more concerned about locust descending and devouring all the organics at Bella Terra’s Whole Foods or the fish tacos at Pacific City!! Not really…

 

Is Food the New Fashion?: We’ve come a long way from hide‐clad Neanderthal pit‐masters, foraging but conscious of the primal and communal nature of food, eons before anyone could verbalize a thought or buy a Rolex. Not to get to far down the slippery slope of history, but food was a big deal thousands of years ago as it is today for slightly different reasons; “Survival v. Experience”; Kind of a crazy comparison. Regardless of circumstance or era, food brings people together, creating a shared experience, passing on customs, just simple socializing. Today, food and experience have been placed upon the altar of style. According to research from The Nielsen Company, celebrity chefs are as celebrated as fashion designers, while eating and entertaining have become haute couture.

 

Food and cooking websites like Bravo’s Top Chef, which took the Project Runway concept into the professional kitchen, and gourmet food trucks with huge social media following. Maybe it was prison food, communal dining and the orange jumpsuits that convinced Martha Stewart that mixing food with fashion was the future. According to the fashion magazine “Racked”, “Orange is the new Black”! DJM’s Chief Marketing Officer, Linda Berman, stresses that after all, we are not merely buying things these days, we are collecting memories and experiences, and dining affords us the opportunity to meet with friends, share a meal, a laugh and a memory that looks a lot better to today’s consumer than a new shirt or a pair of shoes. Developers and landlords are making sizeable investments in restaurants, bidding against each other for the latest celebrity chef or hot food concept.  Tenant improvement dollars are merely the cost of entry, as landlords are actually “buying” restaurant tenants as a way to attract fashion retailers. Co‐tenancy is undergoing a basic sea‐change as tenants gauge a project’s appeal by the inventiveness of its food and restaurant line‐up. DJM’s Pacific City and Lido Marina Village are no exception, with an extraordinary tenant list of exceptional chefs, concepts and food experiences. Clearly, DJM is expending exponentially greater dollars on restaurants and celebrity chefs than fashion and apparel. So much for “Caveman Chic”!

 

Classic and Timeless: Food may be the new fashion, but something that never goes out of style is success. As we pursue new relationships with investors for the Net Lease Fund and new acquisitions, we are repeatedly asked about DJM’s track record. Recently, Ken Lee and Oleg Sivryuk prepared a summary of the financial performance of all properties owned and managed by DJM from 2002‐2014; Including all refinancing proceeds, investor distributions, return and/or loss of capital, and a “mark to market” portfolio valuation as of December 2014; combining West Covina and One Pacific Plaza (big losers) with Bella Terra, Montalvo, La Habra, Ellinwood, Del Amo and Lakewood (big winners). The summary, excluding Pacific City and Lido Marina Village, is as follows; Total DJM partner investment is roughly $86.5 million; Return of Equity plus Dividends to date is approximately $119 million; Actual Property Sales Proceeds plus Hypothetical Sale Proceeds is nearly $125million; Total Combined Dividend and Sale Proceeds of approximately $243 million, representing an 18.1% annual return and a 2.81 multiple on investment. By comparison, the S&P 500, adjusted for inflation, generated a 3.41% return during the same period. DJM’s overall investment history to date—short and sweet! As time flies, enjoy the rest of your summer. Please pass the Sake…

 

Take care,

DJM Capital Partners, Inc.
Asset Manager

D John Miller, Founder and CEO of DJM Capital

 

By:
D. John Miller, Founder & CEO