This may be controversial. Every now and then in CRE there is something we buy that is just wildly mispriced.
We look at 1000's of deals a year & sometimes these gems pop up... it's a bit like micro/small cap investing where a cheap opportunity just hits you over the head
🧵
We look at 1000's of deals a year & sometimes these gems pop up... it's a bit like micro/small cap investing where a cheap opportunity just hits you over the head
🧵
This to me is akin to a relative value or mean reversion trade & we don't underwrite cap rate compression though we're confident we'll achieve it.
Here's a sample of some deals we've done this way.
Ex 1:
Bought assets late last year as a part of a portfolio at a 7.25 cap
Here's a sample of some deals we've done this way.
Ex 1:
Bought assets late last year as a part of a portfolio at a 7.25 cap
& structured our debt so we could sell the assets individually. One of them now has a 6.25 offer (100 bps spread in 4 months).
Ex 2:
Structured SLB of credit tenant STNL whereby in year 3 we would have a UYOC of ~7.5 and ~10 years lease term remaining and have 6 cap offers (125
Ex 2:
Structured SLB of credit tenant STNL whereby in year 3 we would have a UYOC of ~7.5 and ~10 years lease term remaining and have 6 cap offers (125
bps spread in ~2.5 years)
Ex 3:
Purchased off market portfolio at going in 7.85 cap 4 years ago when all similar assets we sold around that time were trading sub <7. Portfolio had great embedded NOI growth and a going-in yield ~16% thanks to i/o financing. ~year 4 UYOC >8.25%
Ex 3:
Purchased off market portfolio at going in 7.85 cap 4 years ago when all similar assets we sold around that time were trading sub <7. Portfolio had great embedded NOI growth and a going-in yield ~16% thanks to i/o financing. ~year 4 UYOC >8.25%
Ex 4:
Bought a 7.2 cap during COVID in a killer market everyone on #cretwit loves. Strong WALT and contractual increases that was 84% leased. Thought we were 70bps+ to market cap rates. Have increased NOI >25% since purchase and BOV's peg sales cap around 6.25
I can think of
Bought a 7.2 cap during COVID in a killer market everyone on #cretwit loves. Strong WALT and contractual increases that was 84% leased. Thought we were 70bps+ to market cap rates. Have increased NOI >25% since purchase and BOV's peg sales cap around 6.25
I can think of
a few others, too. The above isn't scalable & those 4 examples only represent ~$45 million in investments over the last 3-4 years, but point is our margin of perceived safety was HUGE going in & that given info asymmetries in this industry in the lower mid market, oppty exists.
It's not scalable b/c you're relying on counter parties mispricing deals and you finding them... but it does happen.
You can only spot these arbs if you look at a ton of deals in your space(s) so when you see one of these, it hits you over the head like a ton of bricks.
PS-
You can only spot these arbs if you look at a ton of deals in your space(s) so when you see one of these, it hits you over the head like a ton of bricks.
PS-
all these were brutal transactions b/c our counter parties were highly unsophisticated, which means wild expectations and horrible documentation... comes with the arb turf.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
