Investor Appetite & Sentiment

  • Eager to invest in quality opportunities / The “right” investor will act very quickly
  • Challenged by lack of quality deal flow and scarcity-premium pricing
  • Anticipate multi-year recalibration of property balance sheets yielding significant volume of distressed opportunities
  • Prices “bottoming” while view of recovery varies among investors
  • Purchase debt and/or property in distress / limited interest in development
  • Purchase property at discount to intrinsic value (low relative cost basis)
  • Highly selective / flight to quality (location, asset, sponsorship)

Investor Total Return Target

Total Return Targets:
– Value-Add: 15-19% IRR / Multiple Focused
– Opportunistic: 20%+ IRR / Multiple Focused

  • 10-15% sponsor co-investment capital required
  • Cash-on-cash yield more important component of total return
  • Some investors are more willing than others to recognize capital accounts and provide favorable promote structures

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
  • None to limited value attributed to vacancy
  • Capitalization rates mean reverting upward within the mid- to long-term horizon
  • Limited to more reliance on leverage as debt capital market is recovering

Equity Capital Availability

  • Trending to higher availability of equity capital
  • Fund raising for new funds remains challenging but superior advisors achieving more success
  • Fund legacy issues and LP liquidity issues still crippling some investors
  • Newer capital sources and investors without legacy issues – first to invest

Source: The Ackman-Ziff Real Estate Group.