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.
