Andy Hochberg Explains the Importance of L³
Q. What led you to adopt this strategy?
We’ve all heard the industry cliché “location, location, location,” and I wanted something new and more relevant to explain our strategy.
Location, Liquidity, Luck® not only reflected my observations about what leads to success, but it also offered a way for us to differentiate ourselves with investors. We’ve since secured a trademark for the phrase, which also reflects our strategy.
Q. How have you seen each of these factors, Location, Liquidity, Luck®, impact investment successes and challenges?
Location has always been important, but the challenges of the past five or six years have made location even more critical to success. The Covid pandemic, rising interest rates, and retail restructurings have separated the strong from the weak, with prime locations surviving and secondary locations faltering. When evaluating a potential investment, we individually assess the roster of tenants and the quality of a location based on defined criteria. We scout growth to evaluate whether a well-established location may have reached its peak, and the market might have shifted. In some cases, overly rapid growth in a geographic area can drive competition and result in oversaturation, which can be detrimental to leasing. Our measured approach – which prioritizes patience, agility, and diversification – balances the predictable benefits of a known and stable market with the potential growth opportunities of a burgeoning location.
Liquidity enables us to capitalize on opportunities. With adequate cash on hand, we can move quickly on potential acquisitions. We can also sleep better at night because loan challenges can be solved with liquidity. For instance, when interest rates rise, debt ratios in loan covenants may fall below required thresholds; however, with adequate liquidity, we can restructure the loan to ensure compliance.
Finally, we acknowledge the role luck can play and manage risks accordingly. We operate in a challenging and unpredictable world, and there’s some level of luck in every investment. Instead of being paralyzed by fear of the inherent risks, we prioritize diversification, rely on comprehensive diligence before investing, and focus on opportunities that enable us to minimize the downside and amplify the upside. For example, we look at growth markets, upside in rent payments, and longer-term financing options.
Q. Do you have any examples or lessons learned that highlight the importance of each factor in the equation?
Balance is essential. We can’t let any one of the three components drive decisions. For instance, our recent refinancing of Kingsbury Center is an example of all three factors coming together. The property is in a prime location. We were careful with our debt level and maintained adequate liquidity. And because we had a positive relationship with the lender, we put ourselves in a position to be lucky. As a result, we successfully closed a refinancing in a very difficult market.
Similarly, the Waterstone Center is another example of the elements of coalescing to facilitate success. The 160,000-square-foot shopping center was acquired in 2024 by a Next Realty affiliate in a joint venture with an affiliate of Midland Atlantic Properties. Located in one of the most sought-after submarkets in the Cincinnati metro area, the property is 98% leased, boasts a diverse tenant roster, and capitalizes on strong traffic from “shadow anchors” Target and Costco. We maximized liquidity options by acquiring the asset via a joint venture and created the conditions to be “lucky” by partnering with an experienced, local operator. When you have a stable capital base and run your properties aggressively, you greatly improve your odds!
Q. What can an investor do to create the right environment for each of these factors to be realized?
Stay in the game and focus on their business. Many people view “luck” with a fearful perspective and take a passive approach, but luck comes from being actively engaged in the game. You can always adjust the dial to suit the level of risk you’re willing to absorb, but you need to be involved to reap the benefits.
Q. How does diversification fit into the equation?
To us, diversification means minimizing risks and amplifying opportunities. Our Multi-Solution® strategy of diversification focuses on growth markets across U.S. geographic locations, properties in a range of asset classes, and multiple revenue streams. For instance, Next Realty Fund X, LP, which was launched in 2021, has executed this strategy by (i) investing in five properties located across the Midwest, Mid-Atlantic, and Southeastern United States; (ii) encompassing a mix of asset classes, including retail, office, and multifamily properties; and (iii) creating a broad scope of revenue streams through increased rental income. As a result, the fund has mitigated the risks associated with a single asset class or geographic region and maximized the opportunities for growth through varied and increasing revenue streams.
