Hardest time I have ever seen to be a GP
Just here to vent. I run a small investment shop as a GP and normally bring on a sole LP, usually smaller/mid market funds or a HNW family office, etc. This is by far the hardest time in my 15+ years of being in this business to do deals.
The returns these LP's promised to their investors is too high, and LP's still expect off market deals with insane returns and zero risk. Along with that, they'll hem and haw on fees/promote even though you haven't done a deal in a year because it's impossible to find anything that checks the right box. And God forbid you bring an on market deal that you can execute on. Half the time I can't even get an answer/feedback after there's initial interest, i've spent weeks putting together comps, a business plan and a way to get the deal done.
How are GP's expected to keep the lights on? Oh, and also sign on guarantees, and pay for DD costs, put down a deposit, etc.
SUCH a tough time.
Bull market from March 2009 till early 2020.. some 11 years incl. QE / free money.. then covid madness with stimulus and other catalysts subject to sector (2y), then another bull market from October 22 till .. what.. SaaSpocalypse perhaps.. rounds to ~17 years with some disruptions, doesn’t it? Guess that a lot of GPs share this fate. But indeed a lot more challenging to get stuff done these days…
This needs to get moved back to the RE forum not PE
"Hey friend listen, I know the world is scary right now but it's gonna get way worse"
You messed up not being born into generational wealth and to a real estate father with deep market connections.
(Also, bump, now that this is back in RE where it belongs.)
“We need a 20% net IRR with full downside protection and asymmetric upside” - every LP right now
can you blame them?
In my opinion, LP return requirements are not the bottleneck on the market. Its seller expectations combined with the abundance of very very stupid capital out there.
Also GPs continuing to tie deals up at pricing the LPs don't want it at instead of just letting the bottom fall out
Not in my market. I've seen a number of deals that range from mid to solid that have zero chance of going forward because there is just zero equity putting money out there. Check sizes range from $2-12m, it a tough position to be in since you can't cobble together that kind of money with friends and family (already tapped them for the GP) and it's too small for the big players who can take a flyer.
Are any of your LPs trying to buy you out ?
Outside of specific asset classes and specific locations, there are not a lot of good deals out there hence why its hard to raise money. Also better more liquid alternatives for people
We GP's had it too easy for too many years and this is the pain we are feeling due to that
Its just how cycles work and why so many do not have the stomach or patience for this industry
Would be so interested to know if any sole GPs on the forum are having any luck. I’m stuck in a developer with no deals happening and desperate to go out on my own but can’t find any deals that make sense. For context I’m looking at smaller resi / logistics plays but even purchasing income producing assets doesn’t make sense
Had a partner for about a year and been on my own for about a year. Very little pencils and economic conditions change too fast on those that do.
It’s incredibly difficult right now to make money in anything related to real estate outside of senior living, data centers, affordable housing, retail or San Fran or NYC real estate
Even then data centers are getting brutal to get entitlements on and the rest are impacted by rates
I think it’s a while before real estate looks like a great asset class to invest in
Curious what do you consider a small logistics play? I would love to buy logistics / industrial but have always found that sub $5M it’s usually owner user product. What area of the market do you chase for logistics?
That’s it - I’m looking at tiny urban sites where owner wants to cash in basically. Not super competitive at that scale but the challenge is the owner is winding down and the spaces require cap ex + relying on super thin cap rates
I know I'm in the minority, but I actually kind of like this market. It's finally a buyer's market and there are so many options. Since I started in RE, i've only ever seen a seller's market where there would be 10 offers and bidding wars. It's nice negotiating with a seller knowing that I am the only offer. As for entitlement, building permits are down 50%+ so the city is handing variances to anyone willing to build.
I agree. It’s certainly an opportunity to get value however my issue is nothing stacks up - build costs make any project unviable and rates going up don’t help. What kind of deals are you looking at / any quirks in your market that mean you can get value plays? Im based in UK&I
100% couldn’t agree more. I’m very excited about this market and the foreseeable months as bad deals unravel. Fundamentals are sound capital dislocated. Seeing price resets comparable to GFC era with this backdrop is perfect entry point
Why are you better at what you do than everyone else?
Being a GP is supposed to be hard. We had 15 years where it was honestly pretty damn easy. That's not normal.
It's tough but the good news is that if you can crack it now, you will have an easier time going forward.
I am not in REPE, but I do invest in it as an LP and I run a small PE op.
I think, if you're laser focused on something...you need to get good at changing your core product to better match what the market wants in a way that you can still deliver alpha. Easier said than done of course, but just something to think about.
For example, we did a lot of weird credit in 2020/2021 and we are going back to that because it makes sense right now for our specific area we focus on and our underwriting mechanism is basically the same.
Not sure if there's a way for you to pivot your core product? You really need to think about what your LP base wants and what they are ok with. The bar is definitely higher right now ofc which complicates things...
I think the ability to change your product to match what the market wants, and feel that out properly too is really what makes a durable manager...durable.
As you get older, you're also ok being a bit more patient. I guess it's also easier to be more patient if you're already rich tho lol.
Guys whenever the AI trade implodes (who knows when I don't have a crystal ball), and drags equities into hades realm for years, capital will come rushing back to us. Right now we're competing with one of the most bullish equity markets in history. We've been constantly fundraising for years with endowments and fam offices mostly and they all say the same thing - hard for me to allocate to a challenged asset class right now when I'm making money hand over fist in the liquid markets. People forget equity markets can suck wind for a decade or longer when shit really hits the fan. Yes it sucks and been brutal - I'm tired too boss. Everything is cyclical, nothing more so than our industry. The tides will turn, patience is required. But we will feast again (not like the zirp era though, gg to those older folks that pulled some promote from the easiest money era of all time). Things will be harder than before but good operators will print again whenever the capital inevitably returns. To all the complainers rage quitting and switching industries good luck and don't let the door hit your ass on the way out.
I generally agree, but RE will continue to be challenged if market fundamentals don't point to stronger returns in the future. Granted, opportunistic sharpshooting shops will continue to find yield in tough markets, but core buyers will have a tougher time fundraising if USTs are yielding similar returns.
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