Each year, the IMN organization hosts a cast of more than 1,000 real estate professionals in Laguna Beach, California for its “Winter Forum on Real Estate Opportunity and Private Fund Investing”. The event is an interesting one because it spans real estate asset classes and investing disciplines and includes a wide array of investors and capital sources. Broadstone has attended for the last several years, and this year I attended with our CEO Chris Czarnecki in tow.
The real estate marketplace has been affected by myriad stimuli during this decade, including political ramifications, tax legislation with significant real estate considerations, rampant speculation about interest rate movement and inflationary impact, retail’s reactions to an increasingly disintermediated world, and a host of other topics. In aggregate, these topics manifest themselves in an obsession with the “REAL ESTATE CYCLE” and our place in it. To be sure, this was the dominant theme of this year’s conference. Even though the conference takes place in the doldrums of winter, I heard more talk about “late innings” than I have since the Red Sox and Dodgers met in the World Series!
On the flight back home to frigid Rochester, I was struck by my major takeaway from the conference. Because the real estate private equity investment community has gravitated so heavily to closed-end GP/LP fund structures and investment vehicles, it has resulted in an amplified obsession with short term real estate investments, fund vintages, and liquidity events. In the grand scheme of things, this is a fairly new treatment for this finite asset class. In the history of humankind, real estate has largely been a “generational” asset, passed down through families and communities. It was considered in terms of its utility rather than its liquidity and its physical shelter rather than its tax shelter.
None of this is meant to say that metrics like internal rate of return (IRR) and cash-on-cash return do not matter. Of course they do, because we are in the business of managing investor capital professionally and prudently, and are tasked with achieving returns. But, on that plane ride home, I was greeted with a sense of calm, because at Broadstone we are focused on sponsoring and managing investment vehicles that are ongoing, rather than closed-end. This approach allows us to deploy capital throughout real estate cycles, while helping to shield our investors from volatility and correlation to the public equity markets. We call it “real estate that acts like real estate”, but really, I like to think that we treat the asset class as it was meant to be treated.
There are some signs that the marketplace is trending toward more open-ended or continuously offered structures, and it will be interesting to measure the tone and content of the panelists and speakers in subsequent years. In the meantime, we’re keeping our eyes on the horizon, rather than the next peak or valley.