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Diversifying Your Portfolio for Long-Term Success
The economic benefits of ownership versus leasing
Keeping a long-term perspective and diversification are two key principles entrenched in the Scheu family history. Four generations ago the family business was in manufacturing. Today the family business is wide ranging and involves farming, ranching, steel distribution, manufacturing and real estate. Given our long history we think in terms of decades rather than years. Keeping a long-term perspective, while maintaining a broad diversification of asset classes, has been the driving force in all of our decision-making. We find decisions become much clearer when we plan for the long-term . Goals become more realistic and over time we have been better prepared for changes in the markets and economy as a whole. Diversification is equally as important but a little tougher to come by. Generally, we focus on what we do well, but our strength has been our ability to tap new opportunities. Real estate has been a good outlet for us to diversify. We found over time that the real estate we owned for the various businesses appreciated along with the business itself. As a result we began to focus more on real estate by building for our own portfolio. Even within our real estate holdings we pride ourselves on diversification. It’s also the long-term perspective that allows us to build during the down times taking advantage of construction costs and reduced interest rates.
It’s this philosophy that I feel benchmarks our latest development currently in the marketing stage. The Ridge, an office/medical condo development in Agoura Hills CA, was developed to allow opportunities for individual professionals to diversify their portfolio, while simultaneously providing for an improved image for their business. The project www. ridgeoffice.com is unique in its quality and timing. The Ridge was designed for a savvy buyer who has an office requirement between 1,000 to 15,000 square feet. The development is unique in that it themes a Frank Lloyd Wright architecture style, unbelievable views overlooking the Conejo Valley and is surrounded by open space, which we donated to the Open Space Conservancy along with other key players within the community. The timing is such that a buyer can properly take advantage of the interest rate environment by locking in long term low rates, in essence locking in long-term costs. Also with the Small Business Administration providing 90 percent financing, the capital requirements are low.\
We found another opportunity within a few months of releasing The Ridge. We learned of a major oversight in our marketing. We learned that our buyer is a busy individual and doesn’t have the time or specific knowledge of the design, permitting and construction of the tenant improvements. We also learned that although most are very savvy in finance, many had limited knowledge of the economic benefits in ownership over a traditional lease. The opportunity presented itself for us to capitalize on our expertise by providing a full-service approach by facilitating the individual design and handling the entire permit and construction process and coordinating the financing. The intent wasn’t to increase revenues, but to facilitate sales and to improve upon the experience by the individual buyer, highlighting the long-term goals of Scheu Development Company. Although on an individual cost analysis the short term cost to us to provide the customized staff, construct a showroom and build out several model units doesn’t make sense. But on a long-term analysis we believe it does. We believe there will be far more benefits and opportunities presented to us in the future as a result of our commitment to these buyers. These are opportunities to build future relationships that in turn provide personal and transactional relationships.
Not everyone is always in a position to take advantages of opportunities within their business, or to diversify their portfolio. Not everyone is also always in a position to make the right long term decision, but I would recommend that they at least explore the possibilities, so that at a minimum
they are more educated to react in the future. I’ve always said activity creates activity and knowledge creates opportunity.