Also, it seems that the whole world looks at that cap rate plot and concludes that listed REITs are undervalued. To my mind the correct argument runs the other way. It is PE that needs to correct. Plus, if you look at the 75 year record, you can make a good case that the listed REITs are still overvalued.
RE: PE bought those companies (software, healthcare, fintech) saddled their balance sheets with acquisition debt.
This is what PE did with retail chains through the Great Recession. That worked out for a few years, but by the late 2010s those debts pushed many of them into Ch. 11 or worse. The incorrect media narrative was that retail was devastated by e-commerce. That was never correct. Retail was devastated by PE.
Every new investor in a BDC or publicly traded private credit or private equity fund is buying a portfolio filled with old assets that can’t be sold. That’s the ugly reality of these investments & why their managers are so reluctant to mark down their assets & keep allowing borrowers to defer defaults w PIKs and maturity extensions. But in the end they can run but they can’t hide.
The problem now is that redemption requests are mounting. Maybe some of them will be withdrawn but is they aren’t and they keep piling up the portfolios will come under greater pressure as managers sell the best assets and are left with the worst ones. New investors will be investing in lower quality less liquid portfolios. That would justify much steeper discounts.
Also, it seems that the whole world looks at that cap rate plot and concludes that listed REITs are undervalued. To my mind the correct argument runs the other way. It is PE that needs to correct. Plus, if you look at the 75 year record, you can make a good case that the listed REITs are still overvalued.
Agreed, listed REITs aren’t necessarily undervalued. It’s private real estate that’s really overvalued on that chart
(again, important to note the proxy is core CRE in non-traded vehicles, which only represents a portion of the market)
RE: PE bought those companies (software, healthcare, fintech) saddled their balance sheets with acquisition debt.
This is what PE did with retail chains through the Great Recession. That worked out for a few years, but by the late 2010s those debts pushed many of them into Ch. 11 or worse. The incorrect media narrative was that retail was devastated by e-commerce. That was never correct. Retail was devastated by PE.
Every new investor in a BDC or publicly traded private credit or private equity fund is buying a portfolio filled with old assets that can’t be sold. That’s the ugly reality of these investments & why their managers are so reluctant to mark down their assets & keep allowing borrowers to defer defaults w PIKs and maturity extensions. But in the end they can run but they can’t hide.
The problem now is that redemption requests are mounting. Maybe some of them will be withdrawn but is they aren’t and they keep piling up the portfolios will come under greater pressure as managers sell the best assets and are left with the worst ones. New investors will be investing in lower quality less liquid portfolios. That would justify much steeper discounts.
Yes, the key here is to dig through to find ones with less exposure than others..
A 20% discount may or may not be sufficient for the risk.