Assuming you had unlimited capital, what investment strategy would you pursue and why?
Multi has gotten so competitive, and there is a shift away from sun belt with the oversupply, but MF always be a popular investment. Office could be somewhat interesting but you would likely have to buy the best, class A types and need plenty of capital for TI/LC to remain competitive. Industrial somewhat similar story to multi; which markets / types of industrial assets would you invest in? I am not up to date with hospitality tbh.
I would love to hear what you guys think the best investment strategy is in today's market
Long power vol with AI and data centers
Investing in land suitable for nuclear energy would be interesting
If I had unlimited capital, like you said, I would overpay for iconic buildings and not give a shit about the underwriting. Hah, that’s a different theoretical from “what’s the best thing to invest in right now?”
Premium Select Service Hotels.
Why?
Strong fundamentals, lean operations, limited capex, still strong demand in many markets with corporate travel not fully back.
Ill have to disagree with you here a little bit. So we specialize in limited/select service hotels.
The ADR and OCC spikes after Covid were phenomenal but have proven to be short-lived. Most of our portfolio is down this as revenge travel has died down. Moving onto capex, I am not sure if its as low as you think. Sure its lower than full service, but at this point PIPs are becoming increasingly expensive. We're spending $25-$30K per key every decade. We just did a Residence Inn that was $40K per key. Our recent Hampton was done at $30K a key, pre-Covid, we were doing these for $20k max.
I'd also say on the contrary travel is fully back in most markets and hence why we are seeing the decline. I probably would not have wrote this post in 2022 or 2023 given ADR significantly outpaced cost increases, but sad to say 2024 is doing fairly bad. If you look at the STR reports for the top 25 MSAs, its not good.
In 70% of the markets we're in, our labor costs have spiked 15% annually. Where as ADR was single digits. Our NOI margins for our Hilton/Marriott limited service hotels in 2019 were around 38-40%. Now we're at 25-28%. Our extended stay hotels which are typically cash cows were always above 40%, but now those are in the low 30s.
The other issue is consolidation within brands. Marriott and Hilton constantly fighting with each other so more amenities we have offer. Not to mention theyve released new brands so more internal competition within our markets where we have to compete for the same loyalty members.
Private Credit - >10% returns top of stack
Buying and lending on Class A office in strong office markets like Dallas and Miami. IMO the pricing of these assets isn’t reflective of the actual risk profile. Also liquidity is a bitch for office which drives down pricing. You have quality stabilized office assets trading at 9%+ cap rates and if you could hold these assets for 10+ years I really do feel like you could see positive trends in leading and cap rate compression.
Also not to mention that from an NPV perspective some of the office assets that are trading are selling at discounts compared to contractual rents that are already signed up. Even if you didn’t sign any new leases on some buildings you’re still buying positive cash flows.
The main downsides I see with office is that it’s going to take years to remove the stigma of office. Also office space evolves every couple of years and trends change. This’ll decrease as new office supply also dries up but still provides a risk that 5-7 years into you owning the asset, it’s not the nicest building in town anymore.
Overall just feel that office isn’t nearly as risky as it’s been priced out to be and there’s loads of opportunity if you can track down which assets are worth it.
I would not touch Downtown Dallas with a 10 foot pole. The buildings are all old, need a lot of work, and business is shifting to Uptown where there are multiple offices under construction or in the works. It is also very dirty downtown and you can literally smell the air improve as you walk from downtown to Klyde Warren park (bridge between downtown and uptown).
I would not touch Downtown Dallas with a 10 foot pole. The buildings are all old, need a lot of work, and business is shifting to Uptown where there are multiple offices under construction or in the works. It is also very dirty downtown and you can literally smell the air improve as you walk from downtown to Klyde Warren park (bridge between downtown and uptown).
100% agree with you Uptown or Knox is where it’s at. Design district doesn’t seem too bad but still technically downtown. I’ve seen some projects that are trying to revitalize parts of downtown but largely it’s a lost cause in my opinion.
Uptown/Victory Park will see a massive boost once 23 Springs and the Goldman Campus are up and running while Michael Dells stuff in Knox is likely going to be the nicest office space in Dallas.
selective office, covered land /entitlement plays, retail
Gaming/casino if possible lol
Honestly, I would do pref / mezz on anything class A. 12-15 over SOFR with a great sponsor seems like a goldmine.
12-15 over SOFR on mezz?
Not even close to market. Pref is pricing around 13-14% fixed at the moment
I think value-add/core retail is a great place to be in. E-commerce has changed the game but retail (anything that's not a big-box store, I should add) has been growing significantly since Covid ended. People want to do stuff in person again, so all the "experiential" types of retail are booming. It's definitely going to be hard on the lease-up side but there is strong value there. I just lost a bid on a stabilized strip mall in an A+ location, we were going in all-cash and fairly aggressive, but lost to someone who figured they could grow rents even more, their going in cap must have been sub 4%. Just a crazy anecdote.
Retail RE always close to my heart.. niche space, but always had a good time underwriting it
Would add that supply / demand dynamics are clearly priced in (hence why cap rates have tightened significantly since post-GFC levels…). But there is a real supply constraint in this space (the opportunity cost of building retail post GFC was way too high vs. ID and MF..), but these retailers (the good ones at least) still need to grow and open stores. Leasing absorption in many primary and 2ndary markets have gone insane (having had exposure to the leasing side of the biz too)
All that said - I think retail may have better risk-adjusted unlevered yields vs other asset classes given supply dynamics… but only if you know how to operate and lease up these centers. V operationally intensive and the return on brain damage might not be worth it for many generalist shops
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