Every transaction I have seen from them this year involves them selling at a 30%-50% discount from where they initially bought the asset. It’s not just office stuff, it’s also multi too. I get that a lot of shops bought at the market high between 2016-2019 but how can this fund continue if they’re losing so much on exit? Will be tough for them to raise future capital.
Any thoughts? I could be totally wrong here so maybe someone can enlighten me.
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Most the big firms are losing money on big office deals right now and some other asset classes. Their multi deals have certainly been devalued but they tend to have low leverage.
However, those firms are massive and big institutions are going to keep investing with them.
Brookfield has been in the news the most but they are so big that the multi billion dollar losses are a small blip. There was talk that their credit rating was going to be downgraded. Did that already happen?
It will be interesting to see what happens with the lenders that foreclose on these big office deals.
I actually disagree with you the RE market has been in a bull market for quite some time and this is really the first time you’ll see who the best performers are as it typically takes many years to realize how funds do. I would expect you’ll see a reallocation from those large institutional allocators as it becomes more evident who are the real winners and losers in the space.
Anyone who is plugged into the market has noticed there are a few groups who constantly are coming up on deals that struggle.
Brookfield has shit the bed so hard with their office deals and they’re still raising a ton of money. I think once you get big enough, it just doesn’t matter. You raise a new fund, give some extra side letters, whatever.
There are smaller groups with similar business plans that may not recover
What does giving side letters do? They're like side agreements outside the main fund agreements, does it insulate certain investors from loss?
If everyone is losing money, you won’t be judged negatively for losing money. It’s about how your fund performs relative to the market.
The OP wasn’t talking about Brookfield and neither was I. He also mentioned how they were losing money in multifamily which is what I cover. Again I don’t think it matters how big you are if you don’t do well versus your peer set over time you will have a tougher time fund raising it is always about past performance with large institutional investors but it always take 7-10 years for funds to realize so there’s a lag affect and we’ve seen a very long bull market.
Important to keep the last part of this in mind - the only impact it will have is in future fundraising. And while I know nothing about Clarion, if they've got years and years of success behind them, and they're only getting slaughtered now... well, there is a story to tell there, at least. They'll still be considered "safer" than a new operator who wants to take funding share from them
Only the sad note that consistently good performance and a reputation for integrity doesn't always count for more than having one home run fund under your belt. If you (generically) absolutely crush your first few deals, even if it's due to macro factors, people don't soon forget that, even if you end up not doing well subsequently. Not hard to spot lots of instances of this, where people screw up deals, screw over their partners, and just do everything short of take ownership of mistakes and share pain with others, but still manage to raise new equity for (equally speculative) new ventures.
Yeah but aren’t their flagship funds all anchored in industrial? these guys have more industrial than BX and prologis.
They do not, in fact, have more industrial than Prologis and (probably) BX. They list having $80B in total AUM without reference to how much industrial. Prologis for context has around $200B and BX obviously dwarves them both but is more spread out across asset classes.
They do still have a ton of well-positioned industrial though and should be fine.
Wonder if that includes their European practice. Feels like all these guys do is industrial. But yeah probably fine.
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