Southern Waters Capital Alternative Investment Strategy

In a recent piece I shared the Southern Waters Capital (“SWC”) origin story and briefly touched on the investment strategy we employ in our portfolio. I am blessed to have the opportunity to co-manage SWC with my dear friend, mentor, and deeply experienced business partner Dean Myerow. Dean focuses his time managing SWC’s portfolio of public securities while I focus on alternative investment opportunities we find in the private markets. Together we are able to produce steady income and exposure to investments with strong probabilities of capital appreciation.

To be frank, I’m not qualified to comment on the public markets or how a portfolio of public securities should be managed like Dean happens to be. However, I am happy to share with you how we approach the private alternative investment market and the questions we ask when we are learning about an investment opportunity.

There is an abundance of great ideas and opportunity in the private markets, so deciding what to focus on as an alternative investment manager can be a daunting task. I have always been fond of the KISS Principle gifted to us by U.S Navy engineer, Kelly Johnson. KISS = Keep It Simple, Stupid. Meaning that unnecessary complexity should be avoided if at all possible. Bearing in mind the KISS Principle, it became readily apparent that focusing my time on a well understood industry and one that I have a unique skill set for would allow me to grow SWC in a more effective manner. This realization coupled with the targeted returns we have set out to provide for our LPs all but forced me to concentrate on the real estate industry. Of course, real estate encompasses a vast array of sectors and business models, which led me to my next problem: Which sector should SWC focus on, and what business models will perform best in those sectors going forward?

Dean and I were confident that affordable housing would remain a strong sector within the U.S. real estate market, plus it helps that Dean spent almost three decades underwriting and trading securities in the affordable housing space. The question quickly went from “What sector?” to “Which subsector and business model has the most potential in the affordable housing sector?” This is when we knew it was time to ask the following questions to begin to qualify potential investment opportunities in the affordable housing sector.

1.    What is the value proposition, MVP, and/or MVS?

2.    What are the industry / sector / business model pain points?

3.    What are the barriers to entry?

4.    Who are the necessary parties to make the business successful?

5.    What are the unit economics?

6.    What does the break-even analysis look like?

7.    What does the timeline look like?

It didn’t take very long to realize that manufactured housing is (and always was) a standout among other affordable housing asset classes. Here is an article from Forbes discussing the benefits of investing in manufactured housing communities (“MHC”). By the way, that Forbes article doesn’t do justice to the powerful tax benefits owning an MHC can offer investors but this Bigger Pockets article does. Not to mention, a simple Google Search regarding manufactured housing will show you that billionaires, family offices, and even institutions are pouring capital into this space. SWC looks forward to playing its part in funding MHC developments, acquiring operating MHC assets, and entering into JVs with experienced operators. It’s no surprise that cap rates will continue to compress as competition increases and supply of quality MHCs becomes constricted, which is why using our skills to facilitate MHC developments is our current primary focus.

If you would like to learn more about opportunities to invest in SWC or one of our projects please do not hesitate to reach out to me at [email protected]