As an investor looking for higher risk adjusted yields, how can you find any decent returns in the market?
Industrial and MF caps are so compressed you need rental growth of 7-10% per year on a 3Y hold, in office you have to find a building where the tenants is essentially locked in. Our investors are used to us getting 10-15% CoC in pretty stable deals, now you are either risking your entire capital in renewals with office space, or incredibly aggressive in hot assets. Is the current market at an inefficient place for smart investors looking for income driven deals?
As an associate who is looking to build a pipeline of acquisitions, has anyone had any luck finding assets that have enough stability as well as yields?
For big deal sizes yes, the majority of capital in the market is investing on a relative returns basis and are benchmarking to bond yields so they're happy to take a 3-4% CoC. You're not going to find 10-15% on stable assets in this market and need to temper your investors' expectations or look to pivot to value add if those are the types of returns you're targeting (and be prepared to carry at more like a 5% for value add until you realize the value).
You can likely still find this type of return on occasion at smaller ticket prices from finding mispriced assets, but as an associate its unlikely you have the network to get those deals brought to you unless you're taking over relationships for someone more senior at your firm. They're unlikely to hit the market.
I agree with your last point, I don't have the network yet to really bring in deals that will likely net us a mispriced asset.
On your first point though, what do you consider a big deal size? We are closing a deal that I brought in at $130M with a CoC at 12%, but it's an odd deal that has higher risk than we are used to, but WALT at 10.5Y mean we are getting our equity back before any potential stress beyond default. Every other deal I see around that deal size is around 5% CoC, are investors doing solely fee deals then? No one is getting promote or carry on a deal like that.
Just because your cash on cash return is low doesn’t mean you can’t hit an IRR above your preferred return and get into a promote
Sit neque repellendus voluptas quos. Molestiae delectus vel inventore qui commodi velit. Dignissimos incidunt eligendi culpa quisquam et commodi. Amet occaecati magnam voluptate consequatur et necessitatibus. Dolores ut numquam sunt non odio nobis in. Rerum eaque doloribus accusamus temporibus exercitationem voluptatem est aut.
Quis distinctio quam sed quos et molestiae et quod. Vero laborum ullam pariatur ut et autem. Sed molestiae et et ab. Esse atque dolorem nemo placeat id necessitatibus. Voluptas dolorem adipisci qui iure eos non dolorum. Repellat non laudantium aliquid animi saepe ut provident nesciunt.
Doloremque aut voluptatem id distinctio. Nihil numquam enim sed ut a et. Quae ut iusto id possimus velit eum quo.
Enim quia debitis earum ipsum. Et hic minus temporibus quia dolorem aperiam eos. Voluptas repellat autem dolore. Quis eveniet qui maxime impedit nulla. Vitae iusto qui possimus quaerat.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...