Is CRE Investment Commoditized?
Curious to hear everyone’s thoughts. I’ve worked at a few mid-large sized investment and development companies and have noticed that at each of these firms the research and data being used is often from the same source.
Perhaps its just the types of companies I’ve worked for, but if the industry is becoming more institutionalized (and as a result these larger companies are less limited by geography), how do these firms differentiate from one another and actually add value?
For example, data on the demand side - pretty widespread knowledge of what cities/states are seeing positive or negative net migration, where incomes are growing, where are businesses relocating/expanding, etc.
On the supply side - data on construction pipelines, net absorption, supply per capita, vacancy rates, etc is also readily available through most of the main research providers (that everyone seems to use).
For these firms that look at opportunities nationwide, wouldn’t this result in them all allocating capital to the same geographies and asset classes (resulting in the same returns)?
I imagine there is still value to be added within alternative asset classes due to the lack of widespread information, but am I missing something on multifamily/industrial/office/retail?
Generally, I think you're correct, but it's like an efficient market in any other asset class - it just gets harder. The research is now just table stakes, and alpha still comes from allocation and operation. Also, the more capital you deploy, the closer you get to just indexing the market. As firms grow, they get more limited in their ability to make concentrated bets ($10b is harder to concentrate than $1b).
Allocation:
Overweighting the areas a firm believes in to the extent they can. For a real estate-wide example: BX getting almost entirely out of office in the 2010s because they didn't like the capital drag. This wouldn't show up in the data you listed but they looked at the sector critically and took a pretty unique bet at the time. For an example within a sector: deciding to buy/build small bay industrial because they think big box is too overbuilt in SoCal. This sounds easy, but people have different ideas of what rent growth is reasonable, what level of supply under construction is acceptable, etc.
Operation:
Good operations and planning still make all the difference. Anything and everything from securing long-term fixed-rate cheap debt when it was available, to renewing leases defensively before supply hits, to developing with a preleased tenant. People say you make your money with the buy in real estate but you can sure lose it with bad operation.
I guess the devil really is in the details.
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