Friday, June 11, 2010

Do you remember when?

In looking at some recently published manager search results, the vast majority of those completed are for 'core' investment strategies with established managers.  As the pendulum swings, and as we've all read in various publications and reports from data providers, core is in right now.  But while these latest searches lean to the side of core, at the same time, there are always investors who want more bang for their buck and are allocating money to opportunistic strategies in debt, secondaries and recapitalizations.  Given the instability of underlying real estate principles, one can understand why value-add strategies seem to be taking a backseat today.  But if the economy does really improve, as opposed to the propaganda of it improving, value-add will become a viable strategy as well. 

Here's an interesting comment from an OTR reader who has been through a number of cycles in response to something I wrote recently (Thanks Bob):
I don’t think what we learned in the last few cycles will impact future opportunities; At least as it relates to commercial office buildings.  I believe commercial real estate has gone through a fundamental change that will make profits on any grand scale very hard to achieve. The idea of being able to assemble thirty properties that produce returns in excess of 15% on a levered basis over a 7 year period and deliver a 2 multiple are near term history.  The business is too efficient (there is too much money chasing product) and there is too much data is available.  Owner returns always decline when an industry goes from a private market model (with limited information and transparency) to a public model (with transparency).  Capital generally  moves rather efficiently. There will always be the unique, one-off transaction that requires a skill (or luck) to execute and achieve an extraordinary return, those are really few and far between.  If you look closely, the majority of the money made during the last cycle was really cap rate compression and low interest rates.  Very little came from operations.  This time around, we are paying too much on the buy side because there is too much money. Maybe after the private equity investing declines by 75%, pricing inefficiency will return.  Until there are far less of us, returns will be tempered.  

So...what do you think?

Do you remember when your grandpa taught you to swim in the Atlantic Ocean?  Do you remember when you cried on your first day in first grade because you were the only boy wearing short pants and your mother took you home to change?  Do you remember when you used to climb over the fence at the schoolyard to play stickball?  Do you remember when you and your friends used to go to Yankee Stadium and sit in the right field stands when the Yankees played the Tigers just so you could watch Al Kaline close-up?  Do you remember when your Aunt Florence died and you looked at her in the casket because you wanted to see what a dead person looked like?  Do you remember how you felt when your first goldfish died and your mother flushed it down the toilet?  Do you remember when you and your friends rode your bikes all the way to JFK and then had to call your father to pick you up because you were too tired (and frightened) to ride all the way home?  Do you remember riding your bikes to LaGuardia Airport and sneaking through the fence so you could watch the planes take off and land?  Do you remember when that kid hit a hard single to left and you threw him out at first base during a playoff game at the Fleet Street fields in Forest Hills?  Do you remember how it felt when your family moved from New York to New Jersey when you were in the middle of high school?  Do you remember your first year at Camp Walden when you were a jerk and some of the guys beat you up just to put you in your place?  Do you remember when you and your friends used to play "Spin the Bottle" and "Post Office" and how advanced the girls were compared to the boys?  Do you remember bowling at Foxey's Lanes where when you got a strike if the red pin was the head pin you'd get a free game?  Do you remember when you met the love of your life and it took almost two years to ask her out on a date?  Do you remember all the crazy things you did and that you actually survived them?  Do you remember when had your first article published, wrote your first song and played your first gig at the CYO in Livingston, NJ?  Do you remember when you decided that you needed to start documenting things about your life, for future generations, before you forget them?  Do you remember when you realized what was really important in life......and started to do something about it?

Photo:  My son Brian and his son (my grandson) yesterday on Sean's first birthday.

These are my views and not that of my employer.

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