Serious question here for real estate GPs and LPs: Should long term hold GPs stop modeling out 10+ years and just focus instead on the quality of the asset and the Un-levered yield on cost?
I had a conversation with @moseskagan several months back in Austin and he told me that they model the first year only and it’s stuck with me. Honestly I thought he was crazy at first, but I think he might be on to something.
We all know that the likelihood that your model is correct is near zero. And the further out it goes the less accurate it gets.
I’m seriously considering changing Harbor Capital’s model structure to focus only on year one and the UYOC the deal will produce in an effort to better align with our LPs and to be more clear about our strategy.
We are a (almost) never sell shop. We believe in the future of Texas industrial and want to own more and more of it over time. Asset trading costs are enormous and not part of our strategy.
Any other GPs out there who use this model? Any LPs have thoughts about seeing a deal without a long term model attached?
Another thing I don’t like about our current model is that we’re talking about IRR numbers that include a “sale” in year 10 even though we aren’t planning to sell. We need to capture the equity created by rent increases and that’s the best way to do it that I’ve found.
@fortworthchris @moseskagan @adamblake @seandsweeney @RohunJauhar @BoulderJake @Keith_Wasserman @Camp4 would appreciate feedback from anyone out there who has thought through this one. Thank you!!
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