Think partners are starting to just ngaf. Despite plenty of data indicating the contrary, I’m to believe the “market will turn” and the current discounts to replacement cost are substantial enough to go in +/- 75bps of negative leverage.
We’ve not yet even had the recession we’re already “recovering” from, incomes are flat and delinquency continues to permeate the portfolio/put a ceiling on rent growth, population growth is anemic in many of the markets I’m being told to get more aggressive in, and more firms in those same markets are laying folks off than hiring.
The only thing bailing us out would be rate cuts. There’s no fundamental recovery coming like there was for 01 or 08. The market will turn, yes, but there has been too much supply added in both the sfh and Multifamily markets for there to be this Herculean turnaround the old guard is used to.
Anyone else having or beginning to have this issue? Call me a fkn square but the math is what it is.
Partners want that sweet, sweet fee money even if they never sniff the promote.
I was told we were like the patient, Warren Buffet-esque income driven value investors.
Surely we would never let incentive comp corrupt our decision making. Surely.
I mean, that isn't exactly fair. You get paid a salary. The office rent needs to get paid. Where do you think that comes from?
Moreover, never underestimate the stupidity and greed of the average LP. They may be sitting around asking why they've got capital tied up in commitments to the firm which isn't deploying it. That money is doing nothing for them, so they may be pushing your principals to invest. And if they don't, they won't be able to tap or raise that capital down the roads when conditions are different. On top of that, people in the office are probably demanding more deal flow - no one wants to sit on their hands for years and years, and your firm will lose talented people and the aggregated years of experience and training if people start decamping for more active shops.
I agree a little discipline goes a long way, but acting as though the only pressures here revolve around the desire of the partners to get paid is a little naive.
Careful, I know about a dozen unemployed deal guys who would gladly take your job right now.
Lesson for the younger investors: If you have the green light from the bosses, take it without complaining.
Yes, juniors are paid to be thoughtful and provide a layer of qualify control, but killing too many deals can kill your employment, especially in a bad market.
Guys, we’re not gonna go under because we haven’t done a deal. We’ve done enough the past two years. And there’s no committed capital burning a hole in our pocket. How do I know? We’re a small shop and I definitely don’t sit in the analyst chair anymore.
We have opportunities right in front of us that traditionally make way more sense - I.e. not stretching the model like medieval rack torture to make it work.
Glad we’re all handling other people’s money with such good character, though.
Well that would have been helpful context to provide upfront!
Why do you care? You don't have committed capital, so you're either investing the partners' equity or raising it on a deal by deal basis, which means an LP has the opportunity to review a pitch and make a decision according to their risk tolerances.
Your principals want to do deals, which is no surprise. They can take whatever line of aggression they want with assumptions - as long as they aren't misrepresenting any facts, then I don't see the problem. Some LPs will balk and not invest. Others will be more willing to roll the dice.
But if the choice for your boss is to either do nothing and have the company slowly die over the next few years, versus make some aggressive assumptions and hope to find someone willing to take a risk on them, then the choice seems pretty obvious to me.
I can somewhat understand this sentiment if you're taking retail money or friends & family capital that are investing in the firm simply because of the relationship. But if you're soliciting family offices/institutional LPs, like Ozymandia said they have plenty of people on their side to vet the GP deck and assumptions and arrive at their own conclusion. That's not your job.
While I agree buying mutli deals right now is the equivalent of trying to catch a falling knife, there are still deals getting done that look like they could be winners in five years if they're sitting in submarkets that will run into supply constraints in 12-24 months.
As an acquisitions guy sitting here unemployed for 4+ months, I'd walk over hot coals to be in your position.
There's a reason there's such a focus on becoming an "investment manager" rather than a joint venture shop. Much better to collect fees irrespective of performance.
Always has been
Curious how is the LP equity structured? Is it family offices? UHNW? Funds? Their may be pressure from the equity side for them to deploy.
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