creanalyst

Hindsight may be 20/20, but this wasn’t just a bad deal.

Textbook definition of getting fleeced…

Property:
Apartments built in early 1980s

Purchase price:
$111M

Acquisition:
2022

Leverage:
75%

Syndicated equity:
$21.5M

Equity placement fee:
$1.9M

Sponsor acquisition fee:
$2.2M

Going-in cap rate:
3%

Assumed exit cap rate:
4.4%

Sponsor promote:
50% over a 10%

Underwritten investor returns:
18.5% IRR, 1.7x multiple

One-off deal? Not at all.

This syndicator put out $1.2B near the peak of the market 3-4 years ago.

Look out below.

Let’s be honest...

Like you, we’re busy real estate professionals. We are developers, investors, brokers, lenders, lawyers, and architects. We aren’t teachers by trade, but we love this business and think there’s a CRE role for nearly everyone.

The challenge? It’s an apprenticeship business at heart, and those apprenticeships have mostly disappeared. So, we built classes to fill the gap. Real-world scenarios, case studies, no grades, and a focus on skills instead of certifications.

Here’s the twist: to keep these classes affordable, we don’t pour money into marketing. Instead, we post daily on LinkedIn, sharing what’s happening in real estate through the frameworks we teach.

Our content breaks nearly every social media rule. It’s direct, opinionated, nuanced, and targeted. But somehow it clicks; our engagement rate is 8.5x our peer set average, which says more about your interest and support than anything we’re doing.

So, thank you for engaging. Your comments, likes, and shares keep this experiment alive. If you’re curious about our classes, drop into a Friday info session. Or just keep following along.

Ps - DM us anytime with confidential tips, insights, or feedback.

“Getting an entry-level job at Blackstone is 12 times harder than getting into Harvard. I doubt I’d be able to be hired today.”

Steve Schwarzman, Blackstone CEO

62,000 applicants for 169 positions.

This choke point could be a sign of what’s to come for commercial real estate investment roles.

Why?

Commercial real estate investing has traditionally been the best white collar example of an apprentice-based field.

Traditional CRE investor career path:

In your 20s, work long hours processing data in Excel/Argus, building presentation decks, reviewing estoppels, etc. …in exchange for a perch that allows you to see how decisions are made.

Typical comp: $75-150k a year.

In your 30s, become more of a decision maker while continuing to process information and increasingly recruiting/training younger associates to process information.

Typical comp: $200-500k a year.

In your 40s and 50s, get more opportunities to replace retiring decision makers as windows open for value creation. Spend significantly more time “thinking” and much less time “processing”.

Typical comp: $1m+.

Thousands of people have followed this path, defined by an entry point where ambitious 20-somethings traded their primary asset (time) for skills, which they leveraged to build wealth in the back half of their careers.

Problem…

We think we’re in the early innings of AI blowing up this path before it starts. There will almost certainly be fewer entry points.

Solution…

Focus on building real estate thinking skills instead of processing skills.

Ps - How much do you think the best Excel modeler made last year?

How much did the best real estate investor make? One indicator: Blackstone’s Jon Gray made nearly $300 million last year.

Less bid, more ask: Sobering fundraising trends

“Dry powder” gets a lot of attention, but capital’s influence on volume and pricing is nuanced.

Two subsurface realities:

1. Every dollar comes with return expectations. Closed end funds are inherently value-oriented (non core), and open end funds are much more income-oriented (core/core plus.) Higher returns = lower prices.

2. Closed end funds have defined hold periods. Investors want their money back after __ years.

Here’s the sobering part…

CRE markets experienced an epic fundraising run with non-core capital between 2015 and 2022, and most of those funds had stated lives of 7 years. Those investors want their money back. I.e., there will be sellers.

What about buyers? Closed end fundraising has fallen off a cliff. It’s also been extremely concentrated in the the big mega funds. Less capital on the buy side in the near term.

These dynamics could create stronger pressures on the sell side, putting upward pressure on sales volumes and downward volumes on pricing.

Scenario:
— You bought a $100M property with $65M debt.
— That property is now worth $78M due to higher cap rates.
— You’ve lost $22M on paper and have $13M in remaining equity.
— Lenders will only finance $51M.
— At maturity, you must come up with $14M or face foreclosure.

Your loan is about to mature, and the bank is playing hardball.

Do you come up with the $14M to save $13M?

Where do you get the additional $14M?