The Orion Approach
We run all deals through these key filters
Attractive Financials
Orion Equity sponsors real estate projects that meet four financial criteria
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This is particularly important in new development and essential to project diligence.
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Whether building a house or apartment complex, or renovating existing buildings, it must be clear how additions or renovations will add value to result in the exit price.
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Cap rate is a widely used real estate financial metric. It is the property’s net operating income divided by price.
In other words, for a given property with a given annual income, a higher price means a lower cap rate.
For Orion Equity to sponsor a deal, the financials must be attractive while assuming a similar cap rate at purchasing and exit.
Orion Equity does not sponsor deals that rely on hopes or expectations about the market’s willingness to buy at a lower cap rate (i.e., high price) in the future.
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Real estate is just one potential investment. Investors could also put their money into the stock market, bonds, or other alternative investments.
Real estate is less liquid than stock or bond investments and is also subject to unique risks.
With some exceptions, to justify a real estate investment, the prospective returns should be higher than prospective stock or bond market returns.
Orion Equity sponsors projects with prospective returns in the 15% IRR range or higher. This level of return doubles investor money in ~5 years.
Trustworthy Partners
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Orion Equity vets all project partners thoroughly. This is an essential part of deal diligence.
Partner vetting includes gaining a deep understanding of partner background, experience, and historical performance.
Orion vets prospective partners by reviewing their past work, discussing the partner with their past business contacts, and spending time with them to ensure they meet Orion’s qualifications for culture, trust, commitment, and integrity.
Risk Mitigation
Once a project has passed the requisite financial criteria and all partners have passed Orion’s vetting process, I perform a risk assessment. Market risk and execution risk are the most common risks that arise with Orion Equity projects.
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A rising tide lifts all boats. It is much more likely for a real estate project to be financially successful in a market with a strong demand for real estate.
Some markets have demand that is driven and stabilized by factors like educational institutions, medical facilities and federal employment (i.e., “eds, meds, and feds” - see Madison, WI).
Other strong markets have unique and intrinsic value that drives real estate demand (see skiing in Park City, UT).
If the market’s overall strength cannot be clearly articulated, the investment is too speculative.
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Even with the most trustworthy partners, there is always a chance that something can go wrong.
Orion Equity analyzes potential real estate projects with downside sensitivity analysis: how much of a buffer is there in the case of unexpected problems or challenges? How bad would things have to go for the project not to return investor capital?
Orion Equity targets projects with cost to equity ratio of at least 70% to ensure this buffer is present.
Part of the diligence process includes evaluation of past operator challenges and how they overcame them.
