Capital allocations are down massively to the sector. Nobody has cleared a pref since 2021, and leverage basically isn’t accretive on anything you’d actually want to own. Development risk feels enormous given lack of viability of costs and the environment you’ll be delivering in. The bid ask was narrowing in Q1, but the Iran conflict has totally derailed what felt like the start of a recovery. Op funds are deploying in DC/ without any real conviction on liquidity mechanisms / next buyer (feels like a bubble). Office and retail as investable sectors are a fraction as big as they were 7 yrs ago. Are we all just expected to buy sheds and price in 3% rental growth forever? It feels like it’s become a game of AUM aggregation - but the reality is, some of the largest managers are running funds that are currently marked at inside 5% / 1.1x. Where is the light at the end of the tunnel?!
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Welcome to the cycle! Could be 1 year. Could be 5. Just gotta ride it out. I wouldn’t be surprised for it to be slow until 2028-2030. Need to work thru the low cost debt of 2020-early 2022.
I think it’s going to take some LP’s to literally threaten GP’s to sell and crystallize liquidity / turn off the fee clock.
The sector needs a clearing out in terms of talent as well. Everyone hopped in ~2013 because they saw the money being made via “buy low, and sell high.”
Thematic bets don’t seem relevant anymore. You need to find situational distress - but that’s proving to be far more difficult than anyone ever imagined.
There is an entire vintage of guys 35-42, who had meaningful carry pre 22, and now are coming to terms with the fact that it’s now a legitimate zero. Gone. As those at the right age between 2012-22, couldn’t help but make money. Rents go up, and yields go down. Brain dead.
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