Real Estate Observer

@realEstateTrent I think also easier to raise capital in your home market - LPs like the story. Which encourages sponsors to stretch for these deals.

The local market competitive advantage thing is wildly overrated. In fact, many people overpay for deals in their own back yard because they have a false sense of comfort. Know a niche well, do deals anywhere you see them.

@jayparsons I’ve been surprised at some of the suburban / secondary markets where condos have worked. Lot of wealthy boomers want to downsize into a managed building near their kids.

Condos are great in theory, but in practice tough to make work at scale (outside a few major cities).

@CoyDavidsonCRE It’s extremely fun you should try it

@PinkPoloShorts “But what if I get a 25% IRR on a really big institutional deal” - every sponsor ever

If you’re a sponsor it’s fancy and prestigious to have an institutional capital partner, but do the math on your promote on a 15 IRR. Can make a lot more owning more equity in smaller deals that shoot the lights out. *this is 100% cope

@ChadGriffiths If this come to pass it won’t be the owner’s problem (developer + PE). It also won’t be the lender’s problem (debt fund). But it will be a huge problem for whoever is lending to that debt fund (regional bank).

Here's a typical data center. Let's say it costs $800 / sq ft to build (due to remarkably complex electrical and cooling systems). If this is no longer used as a data center can it be repurposed to other industrial uses? One big issue is there aren't any loading doors. And worse even if a few dozen doors and levellers could be added (at a sizeable cost) there isn't enough loading area to access the doors anyways. So the owner would have to hope there is enough manufacturing demand to take down these very large facilities. Oh, and it's now worth $200 / sq ft (at most).

@realEstateTrent Corporate attorney partners (and associates) are always tending to their clients. Vacation or not. No different than entrepreneurs

My wife's a corporate attorney, and she’s taking next week off. Yesterday she turned on her out-of-office reply, and won't have to think about work at all until July 28th. I can’t even begin to imagine what that feels like.

@patefortworth Yup middle tier is in trouble. Megafunds are investing in other funds more and more through secondary businesses, which are growing fast. But none are really making primary commitments - even they can’t raise $ for that

@patefortworth This is dated thinking. The mega funds (BX, Brookfield) are buying entire vertically integrated REITs and platforms, becoming vertically integrated themselves. But the next tier of funds ($1-2B) are too small for that and still have double promote - and cant raise $ because of it

Things start to make more sense when you realize that huge asset managers (Blackstone et al) have perfected capital raising to the point that they can’t possibly operate their own deals with all that money, are now really just allocators (FOF), w/two layers of fees in most cases.

@TheRealEstateG6 Looking at it on an NOI basis in scenario 1 but on a value (ie capped NOI) basis in scenario 2 is misleading. You can make your point without contorting the math Mr. God

Basically, your time and your efforts as an employee are worth 25x less than they are as an entrepreneur That’s no way to live. Not only is it an inefficient use of energy, but it also makes it impossible to keep pace with entrepreneurs What’re you going to do as an employee - Work 25x as hard as entrepreneurs? Work 25x as much as them? It’s quite literally impossible to recover from And being an entrepreneur is nowhere close to 25x as risky as being an employee. Maybe it’s 5x as risky. Maybe So the question you should be asking yourself is not “is being an entrepreneur too risky?”, it’s “Can I afford to live my life with my time and energy being 25x less valuable than my peers?” It’s time to rethink how you think about risk If you’d like to learn how to do this yourself and buy your own deals, Apply in the next tweet for the Acquisitions Bootcamp to work 1-on-1 with me If you don’t have a deal within 2 months, I will work for free until you do

Most people don’t understand risk There are two choices: employee or entrepreneur Employees are, by definition, underpaid for the profit they bring in Entrepreneurs, on the other hand, get paid a multiple on the profit they bring in Let’s break it down:

@HighyieldHarry Some will survive as specialists with stagnant AUM, some will be acquired by bigger firms with more capital than deals, some will die. Happened to hedge funds over last 10 years and now happening to privates

i truly dont know whats going to happen to these MM PE firms -theres too many of them. slow bleed?

Was debating with a friend whether it’s even feasible to “roll up” private equity firms. Obviously there’s stake sales, and I think Dyal wanted to mash a bunch of shops together into one, but curious what you guys think here.

@BarryRoland19 Control over leverage and exit. And some private owners can create real operational value in certain property types. But vast majority can’t.

“I buy private real estate because I have control over the asset!” lol control over what? the plumber? replacing electrical outlets? Insurance? begging city council not to bend u over? chasing down tenants? what control do you have & why do you even want control? control sucks

@bobbyfijan Population inflows / favorable demographics + housing shortage pushed rents up…it wasn’t the unit changes. Everyone has a story of “getting underwritten rents without putting the $ in” - that’s proof imo

I’ve become much more skeptical of the central thesis of value-add: Why would someone place 8% greater value for HOUSING bc the appliances & cabinets are a different color … and countertops are “stone” instead of plastic It does not make sense, other than signaling

@resetbasis PE still being picky so have to have something unique. And class C distress is not unique right now…at all. Not supporting it just how it is.

Another week of LPs saying, “we’re looking for distress” and me saying “I found some, see? Look, we’re holding hands” and them saying “get the hell away from us you psycho”

@DailyREITBeat Think you’re conflating investment M&A (like the BX deal) with strategic M&A (Artemis / Bridge deals). Very different underlying drivers for these.

🏢 Is M&A Activity Back in Commercial Real Estate? 🔄 After years of subdued activity, mergers and acquisitions (M&A) in commercial real estate (CRE) are making a comeback in 2025. Here's a look at some key developments and insights: Key Deals in 2025 💥 * Blackstone completed a $4 billion acquisition of Retail Opportunity Investments Corp., adding over 90 grocery-anchored assets on the West Coast. * Apollo is acquiring Bridge Investment Group Holdings for $1.5 billion, expanding into industrial, renewable energy, and other asset classes. * Barings is buying Artemis Real Estate Partners, enhancing its value-add and opportunistic funds across the commercial property spectrum. * Pershing Square is still in talks with $HHH Howard Hughes Holdings Inc., after proposing a deal to increase its ownership by 48% for $900 million. Why Is This Happening? 🤔 * Stabilizing interest rates * A wave of ready capital flooding the market * Unspectacular stock performances leading to shift in commercial property trends Challenges Ahead 🛑 * Smaller #REITs could be targets, but entrenched management and cautious board members may slow the deal pace * The interest rate environment and economic uncertainty create a more cautious investment climate. Outlook: A Slow Burn 🔥 * James Park (CBRE) sees more M&A activity but notes that getting deals done remains difficult due to obstacles and constraints. * Nathan Florio (Deloitte) agrees, noting that while some demand is pent up, many are still waiting for clearer economic signals. What’s Different This Time? 🌟 * The atmosphere has improved compared to the last few years when interest rates spiked and killed debt markets. * Debt availability has increased, making it easier for investors to make moves. * The understanding of a "higher-for-longer" interest rate environment has prompted repricing of assets. Where Are the Opportunities? 💡 * Public companies with market caps under $5 billion and lackluster shareholder returns are prime targets. * Hyatt recently acquired Playa Hotels & Resorts for $2.6 billion in a deal that included a 40% share price premium. * The office sector might also present opportunities, especially with REITs losing billions in market cap. commercialsearch.com/news/is-ma-act…

@PaulSkallas Maybe this isn’t a bad thing. Dunks, 3s, and home runs are fun!

I have a theory that most major sports leagues have been figured out. NFL, Tennis, NHL, etc. They are optimized now. Most fans don't see it. But the game has been solved. Take the NBA for example. It is mostly played at the perimeter or up close. The same thing happened with Baseball. The game began just being all about strikeouts and home-runs. So the game spiraled into 3-4 hour play time and fans started to hate it. So they introduced a pitching clock. And it worked. the game finishes quicker. But that doesn't mean the gameplay is not optimized. If we look at the stats, it is the same game as last year or the year before with the same amount of strikeouts, home runs and hits. It's still optimized. But the game finishes faster.

@resetbasis I’d argue you could add 3-4 more Xs on here…

@LeylaKuni This math makes no sense. If you have 150 bps of positive leverage you stabilize at an 8% YoC your CoC should be in the double digits.

@bobbyfijan Case for modular is rough. Not cheaper, lenders hate it, adds risk on the build. Hard to see how it becomes widely accepted any time soon.

I'm puzzled why Ezra Klein keeps pointing to the project in SF as a good example. At best it's a slightly less bad The building cost less *per unit* (and were still $400K for 260sf studios) because they were smaller than units in other buildings. Not due to modular methods

@TheRealEstateG6 67% LTC and 1.16x DSCR w/ 6% rate…who’s your lender??

How I underwrite: 2 columns in excel, one for in-place income, one for stabilized income In-place income column just checks that the property can service its debt at a 1.25x DSCR Stabilized column makes sure that the stabilized yield will be 200bps above the market cap rate

@credealjunkie Incentives here are…terrible? If you buy for $100 and sell for $100 4 yrs later you pocket $20 (plus fee) and your LPs get $80 (20% loss). Cmon.

Of all the deal terms we tried, my favorite were: - no pref, no management fee - 2% ack fee - 20% equity for the GP, vested over 4 years Economically tracks to a standard 80/20 with pref and mgmt fee but without all the bad incentives. Unfortunately LPs hate it.