Avigilon to Buy $42 Million Building

By John Honovich, Published Mar 02, 2015, 12:00am EST

Avigilon's spending spree continues.

After using nearly $100 million in cash buying OV's patents and 4 other companies' patents, Avigilon is spending another $42 million on a building.

In this note, we break down the purchase and its potential impact on the company.

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Comments (8)

Undisclosed Integrator #1

03/02/15 09:09pm
I need to stop installing kit and start making kit..

Undisclosed Manufacturer #2

03/02/15 11:09pm

If the company does not have liquidity issue, investing on real estate is a good move...

Undisclosed #3

03/03/15 01:38am

There is risk regardless. For a company that size, the ability to control rent reduces risk. If the company must reduce resources, it can rent out the space. If the economy goes south, it can sell off some of the real estate for cash.

John Honovich

IPVM | In reply to Undisclosed #3 | 03/03/15 01:42am

"If the economy goes south, it can sell off some of the real estate for cash."

But if the economy goes south, wouldn't the real estate market go south? And wouldn't vacancy rates rise, increasing the risk of not being able to rent out unused space?

Undisclosed #3

In reply to John Honovich | 03/03/15 02:02am

If their own revenue stream weakens, it doesn't necessarily mean the rest of the economy is weak.

Plus real estate prices do not always track the economy. Further, you can sell real estate for a small one-time loss and still reduce your ongoing cash burn during tough times.

I may be biased, as here in California, once a company reaches a critical size, they tend to buy the buildings they reside in, as it's cheaper (as Avigilon stated was the case for them).

I read that here in CA (can't speak for the world) the real estate downturn is leading to a landlord's market . Rent is expected to continue to increase significantly.

As for the employee source scarcity, well, that had to be a separate business decision for them - but perhaps they were faced with the decision to renew a longer term lease anyway.

There is no risk-free solution. You just place your bets based on your own predictions. But if I were running a large business, and had the choice, I would buy the real estate if it was less than my rent, to save money and protect the upside for that expense.

BTW I'm completely against their whole patent acquisition, other than if they were spending it for cold-war protection vs revenue collection (ie 'innovation vs litigation'. ) That's another matter, it's just not like I'm simply 'pro Avigilon'.

John Honovich

IPVM | In reply to Undisclosed #3 | 03/03/15 02:20am

"Plus real estate prices do not always track the economy."

It's worse. They tend to swing more than the economy. When the economy is growing, real estate tends to rise even faster. When the economy slumps, real estate prices tend to fall even faster.

"Further, you can sell real estate for a small one-time loss"

Real estate is the definition of an illiquid asset. You can't sell a 9 story building with the snap of your fingers, especially if the economy goes south.

"I read that here in CA (can't speak for the world) the real estate downturn is leading to a landlord's market ."

What real estate downturn? Real estate prices across CA are surging.

"Rent is expected to continue to increase significantly."

So long as the expansion / bubble continues. Avigilon is now betting on that.

Undisclosed #3

03/03/15 02:33am

>>What real estate downturn? Real estate prices across CA are surging.

To clarify, I meant with the foreclosures from real estate downturn in *2008-2013* created a landlord's market now. Yes prices are way up now also.

>>So long as the expansion / bubble continues. Avigilon is now betting on that.

Yes, exactly. It all comes down to what you are betting on.

FWIW, I've personally been betting against this expansion/bubble continuing for years now, and have missed many opportunities in the stock market as a result. The only thing I did right was to stay in real estate (again, my bias, since it was either that or rent), but nor was I super leveraged.

Interesting discussion John, thanks!

Matt Ion

03/03/15 02:58am

I don't think anyone around here would consider real estate in downtown Vancouver to be a bad investment even at the worst of times. There's certainly something to be said for owning vs. leasing, including the ability to rent out retail space for a nice supplemental cash flow (Telus and Black's Photography currently have storefronts there).

Note that this is only a few blocks from their current offices in the downtown core at 828 Beatty... just more central to the main business district. Maybe a little more convenient to SkyTrain (rapid transit) but if "being downtown" is a selling point for talent, it's (literally) a sideways move.

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