The Ackman-Ziff Real Estate Group has graciously provided us permission to print their fourth quarter 2010 equity survey which follows. Ackman-Ziff is a real estate investment banking firm based in New York.
Investor Appetite & Sentiment
- Eager to Invest in Quality Opportunities (Distress, Restructure/Recapitalization, Off-Market, Strong Markets)
- Highly Selective / Flight to Quality (Location, Asset, Sponsorship)
- Investors are Transacting as Availability of more Viable Opportunities Increasing
- Seeking Strong Risk-Adjusted Returns
- Prefer to Get Involved in Restructure/Recapitalizations after Initial Discussion and before Final Deal Negotiated with Lender/Special Servicer
- Purchase Property at Discount to Intrinsic Value (Low Relative Cost Basis)
- Willing to Consider Development in Special Situations
Investor Total Return Target
- Total Return Targets:
- Value-Add: 15-17% IRR / Equity Multiple Focused
- Opportunistic: 18%+ IRR / Equity Multiple Focused
- 10-15% Sponsor Co-Investment Capital Required
- Investors Begrudgingly Provide Generous Promotes above their Internal IRR Hurdles
- Cash-on-Cash Yield more Important Component of Total Return
Investor Underwriting Approach
- Continued Conservative Approach for Base Case Scenario / Some Investors Attributing Higher Probability to Upside Scenario
- In-Place Durable Cash Flow is Highly Valued
- Value Creation through Maximization of NOI versus Reliance on Residual Value
- Some Value Attributed to Vacancy
- Capitalization Rates Mean Reverting Upward within the Mid- to Long-Term Horizon
Equity Capital Availability
- Trending to Higher Availability of Equity Capital
- Fund Raising for New Funds Remains Challenging but Superior Advisers Achieving More Success
- Fund Legacy Issues and LP Liquidity Issues Being Revolved