Should I Stay or Should I Go: Timing Capital Deployment

Just giving the next three, four years, how do you see the market cycle playing out?

First of all, we're pretty transparent that we don't think this is gonna be a V-shaped recovery like prior cycles.

You know, i- if you're assuming 10-year annualized total returns on, on levered basis are going to be 12 to 15%, I think that's gonna be hard.

So what, what we're advising investors is capital returns are gonna be relatively muted for all the reasons Devon mentioned.

Uh, they will start to improve, but really the, the driver of this is net operating income growth.

Uh, and maybe I'll, I'll leave you with this, Spencer.

Dispersion of returns has always existed in the commercial real estate market, but investors have forgotten about it because it doesn't matter in a market where there's a broad-based expansion where everyone's making money.

It doesn't really matter in a broad-based downturn where everyone's losing money.

And the last recovery that we saw was a V-shaped recovery post the GFC where you were rewarded for taking risk.

So in fact, uh, Spencer, I think we're going back to the early 1990s where this is just blocking and tackling, picking the right property type in the right market.

And if you can do that, it leads me to be, like, really bullish about this opportunity set.

So I've been told I'm bullish, pragmatic, and bearish, um, all on the same day of meetings, and I, I'll take that as a compliment.

The one thing I'll add to that, Spencer, is one very important aspect of, of our investment process is we, we always want to look at how the asset's gonna perform in various states of the world.

So we will stress it, will it be durable in a downside scenario and, but also not leave out the upside, because the upside, that convexity matters as well.

So it's getting those base case assumptions right, but it's also stressing it, looking at how it does in various states of the world.