There is a point where someone forces the lenders to wake up and become more active. The remaining NAV is based on the ability to forestall a compelled liquidation for benefit of creditors, in which case the equity value could approach zero. This is a textbook stress test for the semi-liquid, leveraged model that seems to exist mostly for the purpose of accommodating enormous fees.
For Note #1. In 2021 actual rent growth was 20% in some locations. That was another retrospective lesson for me. When you see unreal rent growths, run away, it's too late for new money.
Most of the time it's not just about getting you equity back its about the return, especially for institutional investors (pension especially with actuarial return targets). Retail mostly will not accept returns below alternatives......they will most assuredly bail at first opportunity. These products were sold to the advantage of the creator and into the arms of stupid investors
The opportunity cost of being in this fund is sizable, esp if this drags on for a few years (which I think it will). And yes, retail investors behave in a predictable way: when returns go down, they bail. Expecting them to be "patient capital" when the offering was sold as "semi-liquid" is recipe for disaster -- which we are now seeing unfold.
So how do you see all of this shaking out? In the past lenders were forced by regulators to foreclose and the assets were sold and the market cleared. Isn’t happening now. I call the past couple of years the Great Pause. What makes the market cleared?
Another good one. Since you have experience in this area I think readers would benefit from your analysis of the REITS current cap rates, leverage, DCR, stability of debt (is it long term), debt to cap spread, dividend coverage from cash flow, not earnings.
There is a point where someone forces the lenders to wake up and become more active. The remaining NAV is based on the ability to forestall a compelled liquidation for benefit of creditors, in which case the equity value could approach zero. This is a textbook stress test for the semi-liquid, leveraged model that seems to exist mostly for the purpose of accommodating enormous fees.
For Note #1. In 2021 actual rent growth was 20% in some locations. That was another retrospective lesson for me. When you see unreal rent growths, run away, it's too late for new money.
Great point: high rent growth spurs new development (and interest rates were low!)
We are now seeing what effect massive new supply has on existing properties.
Most of the time it's not just about getting you equity back its about the return, especially for institutional investors (pension especially with actuarial return targets). Retail mostly will not accept returns below alternatives......they will most assuredly bail at first opportunity. These products were sold to the advantage of the creator and into the arms of stupid investors
The opportunity cost of being in this fund is sizable, esp if this drags on for a few years (which I think it will). And yes, retail investors behave in a predictable way: when returns go down, they bail. Expecting them to be "patient capital" when the offering was sold as "semi-liquid" is recipe for disaster -- which we are now seeing unfold.
So how do you see all of this shaking out? In the past lenders were forced by regulators to foreclose and the assets were sold and the market cleared. Isn’t happening now. I call the past couple of years the Great Pause. What makes the market cleared?
Another good one. Since you have experience in this area I think readers would benefit from your analysis of the REITS current cap rates, leverage, DCR, stability of debt (is it long term), debt to cap spread, dividend coverage from cash flow, not earnings.
This might help (even if it’s not from Leyla lol)
https://thealtview.substack.com/p/an-altview-on-private-real-estate
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