Opportunities over next 12-24 months
Piggybacking off the other various threads regarding the current market and deals not penciling unless you're lying to yourself, where does everyone see the opportunities over the next 12-24 months? I realize a lot of folks work for firms that specialize in one asset type and strategy, but curious if firms are evaluating venturing into different asset classes and/or strategies, as well as everyone's personal opinion of where they'd be investing their money or their LPs money.
The easiest and safest answer is to hold tight and let price discovery work itself out, but let's assume we have to place capital.
TLDR: prioritizing strong cash flow (10 year outlook to smooth price flux) while holding some equity for opportunistic plays (1-2 years)
What our firm is doing right now is buying core cash flowing assets, prioritizing flexibility from debt on prepayment. Valuations may fluctuate a lot over the next few years, but cash flow won’t lie. In our opinion, this is the best way to insulate yourselves from a lot of the mess that may be happening. Diverting distributions to a fund to build equity to look for opportunistic plays to capitalize on market uncertainty over the shorter term.
Agreed on prioritizing debt prepay terms. It sounds like your firm is concentrating on stabilized assets then? With the current rise in interest rates, are you able to buy stabilized product with a cap rate higher than your loan constant (assuming you're using debt)? Or is the firm accepting the negative leverage on cash yield to get into great assets and banking on rent growth to drive value/better cash flow once leases turn?
Accepting the negative leverage. It’s a family shop that isn’t incumbered by any LP mandates or time windows. If pricing isn’t where we’d like it by disposition, and we like the asset/cash flow, we’ll just refi. We definitely take a more qualitative approach, buying into assets and markets backed by long term population, cultural and demographic shifts. We make our decisions to maximize current outlook, and flexibility, willing to forgo a bit of short term gains for the security of consistent long term value and cash flow.
While moving forward with our existing residential and mixed-use development pipeline, we're starting to see some opportunities pop up on the value-add retail side of things.
That could be interesting. What kind of retail and what's the value add piece? High vacancy strip centers that are well located and just need a refresh? Fully occupied power centers with below market rent? Properties with additional land for development?
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