Comments (8)

Sep 12, 2019

I would Invest in Real Estate.

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Sep 13, 2019

Username checks out.

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Sep 12, 2019

If i had $100M of my own money to invest (and obviously for the purposes of this discussion as it relates to real estate investing), I would be putting it into core plus investments in stable markets. Investments that are at (or near) a stabilized occupancy containing tenants with good credit. Investments that might have a little meat left on the bone (minor lease-up, revenue enhancing opportunities to explore at the right time, etc.).

There's an over saturation of value add investors chasing a story. In my market, I'm seeing vacant buildings trade at a higher price PSF than that of more stabilized investments containing strong yields, literally a block down the street with the same deal profile, with the exception of occupancy and a re positioning story. Especially when you take a step back and understand where we are at in this cycle, it really makes you question how these groups are making these deals pencil.

When you couple this with the historically low debt capital markets environment... This is why I would be placing my $100M into core plus deals in core markets.

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Sep 13, 2019
Gentleman and Scholar:

I would be putting it into core plus investments in stable markets.

Completely agree

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Sep 13, 2019

This is an interesting argument, which type of investment will perform better in a downturn, core or value-add.

Argument for Value Add: You can eat more of a cap rate increase because ideally you have a decent spread between your yield on cost and exit cap. A cap rate increase will crush core assets as there is limited ability to increase NOI and you'll never be able to get out for what you paid. If your compelled to sell before the market recovers (fund life, liquidity crisis, etc) you're going to take a bath.

Argument for Core: Trophy assets will be the first to rebound in a recovery, and are inherently more valuable due to barriers to entry. The thesis of value add investments are unlikely to be realized in a recession. If you can hold through the downturn they will bounce back.

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Sep 16, 2019

It's beyond that. You need to be asking yourself what kind of risk are you willing to take knowing the current state of the RE market (aka late innings of the RE investment cycle). Not just a basic question like: is value add or core real estate better to pursue (which is a bias question that doesn't factor in the current state of the RE market).

In my market and understanding where we are at within the current RE cycle, for value add, I would say that the biggest risk is lease-up risk, and second (depending on how large of a renovation) being construction risk. Risk of construction cost increases, esp. when factoring in the unknown factors that you just don't know until you are already within the renovation (change orders).

If you have a fund that only allows for one area within the risk spectrum (opportunistic fund, or core fund), you don't really have much optionally with where you place your money. You just need to make sure you are disciplined and have a team that is fully on board for the potential that downside scenarios may turn into the true pursued business plan.

Sep 16, 2019

I probably could of phrased it better than "in a downturn" but by saying that I was trying to account for where we are at in the cycle (the top) and that a recession is likely in the next few years. Agree on your points.

Sep 13, 2019
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