Student Housing (Private/Public and Large/Small)

In my view, institutional players have ruined investment real estate as an asset class. Their ability to raise enormous sums of money from domestic and foreign sources, coupled with obscenely low interest rates, have made virtually all investment real estate complete garbage from an investment standpoint.

My contacts and I have rare access to the ability to raise substantial private, non-institutional capital (up to $50 million or so) and the risk-adjusted returns are non-existent. This phenomenon has occurred in just the last 20-25 years or so with the rise of institutional capital's complete and utter dominance of the marketplace. I think most future real estate millionaires will make their fortunes through fees charged to the PE investors.

Except when you sell an investment at a 5 cap you either repurchase a similar investment at a 5 cap, throw the money into the bank at nearly no interest, or disburse the cash.

We have 50-year-old properties that we could sell at 4-4.5 cap, but why? We'd just have to replace those investments with something else. As far as I can see, it doesn't make sense to sell at a 4.5 cap and, say, develop at a 6% return on cost. The risk-adjusted return is simply not worth it.

Because we're going to be bored afterwards? How in the heck did you get that out of what I said? Geesh.

The CFA Institute has an ethical policy that investments must match the needs of an investor based on liquidity needs, risk tolerance, and cash flow needs. Putting all investors into the same box with a "saying" is, in my view, not the best method to conduct business. Obviously, our industry doesn't operate under the ethics of the CFA Institute, but it's certainly a really decent perspective that they bring to investing.

My company exists to service the lifestyles of about a dozen family members. Their properties are cash cows because they are in phenomenal locations and have very little debt. It would not serve the purposes of the family to sell at a 4.5% cap and try to find a similar replacement at a 4.5% cap in the same market. They need low-risk cash flow to service their lifestyles--they don't care about asset appreciation, ROI, IRR, etc. They care about hard, raw, low-risk cash flow. They are already worth a billion dollars and don't need or want excess leverage. These guys--who are way smarter than me--are selling. They're selling their raw land at great prices. They aren't selling their cash cows.

I should have been more specific that institutional real estate has ruined the classic business model, although it's drastically improved efficiency and liquidity, which is good. Real estate used to be dominated by individual investment groups and families who could generate generational wealth. It's now dominated by institutional investors who raise money from pension funds, wealthy foreigners, etc.; they've pushed asset prices, lowered returns, and vastly changed the business model. So it's ruined the business model for the small-ish guys who would have otherwise utilized investment real estate as an asset class for generational wealth creation. I no longer see investment real estate (excluding SFH/condos) as a wealth creation engine for "normal" people. It's now a specialized, sophisticated investment for foreign and institutional money. It's almost impossible to compete with real estate giants when their required risk-adjusted returns are so much smaller than what would be required for others.

So my point is, the old model of generational wealth creation is dead. The new model, which is probably superior in almost every other facet, simply doesn't generate generational wealth anymore. Although, the Federal Reserve has certainly played a role in this.

They are doing 3 and 4 cap deals, actually. But they're already rich and can afford to operate in wealth preservation. My point is about wealth generation, not wealth preservation. It's almost not possible anymore for the small-ish guys to produce real wealth given that they require higher returns on a risk-adjusted basis than their institutional counterparts. Sure, our guys can throw in on a 4 cap deal, and we do routinely, but that doesn't produce wealth, just preservation of wealth with a small return above inflation.

Nailed it. Why are we talking sky scrapers and 3 caps? Look at the topic of this thread. If you don't think there is non-institutional opportunity in this asset class alone, then you're not looking hard enough. In fact, I'm working in one right now.