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Frankly Speaking: Selecting the right real estate investment size

By: Frank Lonardelli

Published: April 21, 2016

Entering commercial real estate development, and more specifically, working to build my commercial investment firm, Arlington Street Investments, has to be one of my most challenging and at the same time most enjoyable things I’ve done in my professional career thus far.  I came into commercial real estate development from the residential real estate industry, and in 2000, when I moved to Calgary, I established the commercial real estate development firm, Arlington Street Investments.  I established it with the intention of executing a very specific investment goal, a goal that in fact characterizes Arlington Street’s entire investment philosophy – that is to find and purchase commercial properties that may be positioned for an increase in value and then take advantage of this opportunity through development, redevelopment and/or repositioning of that property.

This is an investment philosophy that I happily ascribe my name, Frank Lonardelli, to and I’m happy to say that my company has been able to execute this investment strategy successfully since 2000. I’d like to think that a major reason why we’ve been able to execute this strategy is because of our fundamentally sound property selection and investment process.  And one of the components in our asset selection process that I think we’ve been particularly successful with is choosing the right investment size.

Clearly, even in a mid-size city such as Calgary, there are many commercial properties for a development firm to purchase and invest in.  But, it’s equally clear that not every property will demonstrate a return on investment and even those properties with value-added potential may not be a perfect fit for a given development firm.  Besides location, besides the potential a property has for offering an increase in value, another fundamentally  important aspect that must be considered in any asset selection is the size of the property investment.
When speaking about investment size, we are not only speaking about the total cost of the investment, including any redevelopment cost, we are also speaking about the actual physical size and square footage of the property.  And based on my experience with forming and building Arlington Street Investments, both these parameters have to fall in line with the capacities of the real estate development company that is executing on the plan.

I know when Arlington Street was first formed and when we were making our first asset purchases, my project team and I wanted to make sure that our asset selections made sense with where we were as a company.  That means that, as a young commercial development firm, at that time we didn’t want to select an asset that was too large and potentially too costly for fear of overextending ourselves financially; never mind, operationally.  We also didn’t think it would be advantageous for the growth of our company to tie too many of our assets into one single project.  Many development companies fall into the trap of “over optimism” and although the idea of optimism is truly subjective, one must think rationally and practically about its ability to perform and performance. This is something I would highly encourage any developer to consider as the consequences could be dire when that over “optimism” slams up against reality.

Now that Arlington Street Investments has grown and now that we’ve achieved a fair amount of success in the Calgary market, we’re at a point where purchasing and developing larger properties is within our comfort zone and, indeed, introducing into our asset portfolio larger, more expansive commercial projects is the current focus of my project team.  However, the point is that this took time (over a decade in fact) and I really feel that if we had taken on a property asset that was out of step with our development as a firm, it could have seriously hindered our growth.  With my name, Frank Lonardelli, proudly and firmly attached to the success of Arlington Street Investments, that’s not something I would have let happen, nor would I want my very capable team members to be exposed to any potential downside that we could have mitigated.

The reality is that finding and selecting commercial properties that are congruous with the capacity and development of the real estate development company is a delicate and involved process.  But, this is one other reason why talented project teams full of capable professionals are so absolutely vital to any commercial real estate development firm.

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