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The Time Is Now

The Time Is Now

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Brookfield Asset Management has announced that it anticipates raising $150,000,000,000 this year. (Count the zeros!) That’s right. One hundred and fifty BILLION dollars. That’s beyond comprehension. How do you find $150B of deals in a two-to-three-year investment period?

According to the Wall Street Journal, the firm’s CEO recently said,

“[The current market] will lead to the best environment we’ve seen since 2009 to execute on our longstanding investment strategy for real estate.” 

I completely agree. When I look back to 2010 when we were investing exclusively in multifamily value-add, I think we acquired about one deal in every 100 that we underwrote. In hindsight, I was way too conservative. We lost many good deals by not recognizing just how good the opportunity was.  But hindsight is 20/20 – and a good teacher.

Today, the opportunity is senior housing. The rising interest rates are putting stress on good properties. That creates acquisition opportunities. I see a repeat of 2010. Senior housing will lead the way, followed by multifamily and hotels. Most office and retail will have a difficult time. Some projects can be redeveloped, but most will have to be scraped. Of course, there will be smaller niches, like medical office and research labs, but the favored asset class will be senior housing.

Now the question is “Who among the big guys is going to be the first to start the wave?” Most of those we’ve talked to are waiting until they are convinced that we have hit bottom and the recovery has started.

I disagree with that strategy. While there’s a distinct chance prices will still go lower, now is the time to capture great deals. There’s no time to delay. The great deals I’m seeing now will go fast when all that pent-up capital starts flowing. And prices will soar, just as they did with multifamily. So now is the time to act. Of course, that’s easier said than done. Only the institutions have the cash. So, the rest of us have to accept putting in more equity and bearing higher-priced debt to get some of these extraordinary deals. Smaller, private investors can partner with an experienced sponsor who has access to institutional capital.

We don’t have Brookfield’s $150 billion, but we recognize an opportunity. And it is here now.

Chris Finlay
Lloyd Jones LLC

Disclaimer: The thoughts offered by the author reflect solely his personal opinions and observations and not necessarily those of Lloyd Jones LLC. They are for entertainment purposes only. Nothing should be construed as investment advice. All investments involve risk.

As many of you know, I love to read, so as part of this newsletter, I will share with you suggestions and reviews on my favorites. Today, it’s Beyond the Building: How To Use Innovation To Create and Grow Your Commercial Real Estate Portfolio.

I’m very proud to start with a book written by my son Rob. He was a hell-raiser as a kid but worked for me during school breaks. After college he started at Lehman Brothers in their CMBS shop in New York just as CMBS was exploding. What a great opportunity. Then on to Credit Suisse and ultimately Deutsche Bank in Charlotte.

Shortly after his move, he and his brother, Chris, (founder and managing partner of Middleburg Real Estate Partners) were playing golf with a top CMBS attorney. The big question in the industry at the time was how to get out of a CMBS loan. What was “defeasance”? Rob latched onto that idea and after consulting with the top legal and CMBS minds in the country, he founded Commercial Defeasance or “Defease with Ease.” That was almost 25 years ago. Since then, he’s founded several software companies, all real-estate related. And now he has authored his first book: Beyond the Building. How To Use Innovation To Create and Grow Your Commercial Real Estate Portfolio.

Rob’s a “data guy” and was always ahead of the pack in the value of good data to make good decisions. I think you will enjoy the book. You can find it on Amazon. By the way, it just made the WSJ best seller list.

Thank you for reading our newsletter. We hope to grow it into a very useful, helpful tool for you on your real estate journey. If you have thoughts you’d like to share, ideas you’d like to discuss, please let me know.  chrisfinlay@lloydjonesllc.com or visit http://www.lloydjonesllc.com.  I look forward to hearing from you.

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