By Anthony E.
Malkin

Today's market distortions, credit contraction, and transactions slowdown should not surprise any of those who work or invest with our family, who have read this newsletter for the many years we have been printing it, or who read our quarterly investment updates. I have often said that we hold firm to and operate under the belief that market cycles are not dead, and we expected and positioned ourselves for a correction. An important corollary to our belief in cycles is that they are not necessarily bad, rather that we base our investing on models to survive and grow through them.

Maintaining investment discipline is a hallmark of Wien & Malkin. You must have a good compass based on what you know and what you do. While we will always have an occasional challenge, we avoid levels of debt that would put our equity investment at risk. We keep our powder dry for opportunity. We always proactively review and shape the capital structure of our portfolios to make sure they make sense to long-term ownership. And, sometimes we sell.

We choose not to pursue the acquisition of properties for short-term hold. When debt is inexpensive and readily available, that is when we look to adjust our debt levels prudently and reinvest in our portfolios with inexpensive financing upon which we can lever our capital. When the return on acquisitions did not make sense to us, we created Strategic Capital to invest under terms that produce risk-adjusted, above-average current yields for our investors. Our Industrial Partners program focuses on a segment of a property sector that offers an overlooked value-added acquisition potential.

Ahead of the Curve: 10 Union Square
East, a 58,000-square-foot retail
condo in the heart of sizzling Union
Square, was purchased in 1997, just
before the district began its meteoric
rise.

Today, many market players face challenges and have uncertain outcomes. I believe now is even more the time to know what you do, and to do what you know. There is no opportunity for high-leverage acquisitions, and very little opportunity for leverage at all. As a result, transactions have slowed to a rate not seen for many years, market data are hard to come by, and there is increasing confusion and inefficiency.

This suggests to me that opportunities are in the making. Benefiting from such opportunities requires knowing what to look for in a property and how to create additional value. This plays to our strengths: identify quality, well-located property that is not realizing its full potential and invest with modest leverage at a price that affords good competitive position.

In all cases, we are focused on any investment's competitive position within its market, and its market's position within the changing economy. We like assets that are misunderstood, under-managed, or under-capitalized. We like to fix them, and maximize the results of that process through management, recapitalization and, sometimes, sale.

Opportunivore's Delight: W&M Properties'
thriving MerrittView, in Norwalk, CT, is
a trophy office center acquired at a time when
it was under-funded and under-managed.

Wien & Malkin investors know of what I am speaking. They take part in investments, or have participated in investments now sold, that demonstrate our execution ability. Cash flow initially for distributions may be low or non-existent but eventually grows. Over time, market values driven by performance and capital markets cycles generally create liquidity opportunities. And when we sell, we often create a result so good for our investors that it's subsequently unsupportable in the marketplace: the two apartment properties we sold to condo converters in the last cycle have both been foreclosed upon by the acquirers' lenders.

The partnership structures we employ offer benefits that extend beyond cash flow and capital appreciation. As a tax planning tool, our direct-acquisition investment structures have the potential to reduce the current valuations for gift and estate tax purposes. Moreover, these structures provide for a modest amount of tax shelter on current distributions.

1. Maintain a balanced investment portfolio of well capitalized partnership interests in real estate with strong sponsorship that has side-by-side investment at risk. In real estate, you may see performance fluctuation from time to time, but you remain in the game so long as you have the right operator, capital structure, and property.

2. Diversify your Wien & Malkin portfolio. Historically, an equal amount invested in all of our offerings has produced an outstanding result, but at the extremes there have been investments that have outperformed or underperformed. Only by investing across our offerings rather than concentrating resources in one or two and hoping for winners can you be confident in long term success.

3. Follow our example in terms of patience and discipline. Successful real estate investment requires careful due diligence, a focus on the long term, and a willingness to invest when others are afraid to. We don't acquire properties for the sake of doing deals, but rather for doing the right deals, with the best potential for long-term value creation.

That's why we've been around for 75 years, offering performance for today and perspective for tomorrow, and why we look forward to this next cycle with anticipation and excitement.

Onward and upward.