This episode was recorded using CallIn, which gives me the chance to take questions from and talk with listeners live on my podcast.
I got asked by a caller who is an LP and is skeptical of the deal pitches he’s seen lately, particularly with plans to sell properties at a 4.5 cap, finding them too ambitious in the current environment.
Frankly, it’s not the sponsor’s job to plan if things change drastically. Any investor needs to ask themselves if this is the right time for them to invest in real estate. The investor needs to look at the models and ask the “what if?” questions; what if interest rates rise? What if we can’t sell at a 4.5 cap? What if we can’t sell at all?
The sponsor’s job is to protect the downside and make sure things keep afloat if things turn south and there’s no deal flow. Conservative underwriters are not winning deals right now. They need to model some harshness, but not doomsday. Being overly conservative isn’t helpful when you can win a bid.
We’re finding markets where we can flex our operational muscles and we’re lowering our leverage rates. That’s what we can do right now to protect the downside. As an LP it’s never been more important to ask questions about the environment around you and if it’s the right time to invest based on your goals.
P.S. If now is the time to start your own journey, the real estate community is for you. I weigh in on almost every post, and there are a lot of people smarter and more accomplished than me.
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