JackChat December/January 2025

I love the idea of Thematic Investing; to me Thematic Investing follows a theme that comes from a  previously and thoughtfully researched and written White Paper. My friends at Alpaca Real Estate excel at this process (which is why I invested in their fund). I absolutely encourage all to consider sharing your themes and to actually write a white paper (or three) on these themes. You can then share them internally, externally, or keep it to yourself (and then hold yourself accountable).

I confess, while I cut my financing teeth on one-story industrial buildings; I have always enjoyed and benefited from investing in this asset class. While I have done way more financing of other asset types, I do enjoy a good multifamily investment. This all said, I could not consider myself a Thematic Investor. Rather, I am opportunistic (and admit being overly reactive to that which comes across my desk). I love that, to date, I am opportunistic, and there’s nothing wrong with this.

One more disclaimer – while tangible investment in a singular asset is fun and interesting, I confess that I believe  its suboptimal. What I have learned in FinTech investing is that I did WAY better when I gave my money to Grand Ventures, and West Loop Ventures, where the team on staff is focused on looking at hundreds or even a thousand on-going investment opportunities from which to select on my behalf (and others). So, why wouldn’t investing in real estate be the same? YES, I have done well investing in Alpaca’s fund and in ArrowMark Real Estate’s fund. In the end, I spend 100% of my time on platforms that serve others; I don’t spend my time daily looking for hard assets to buy. Even so, what am I looking for?

I believe:

• Smart investors don’t chase yield, they chase excess return on a risk adjusted basis. This to me means we that can find a good deal anywhere on the risk and return spectrum. As such, our job is to simply identify, assess, mitigate, and price risk.
• Adding something that I have learned from the team at ArrowMark is that the art of risk mitigation is finding the ‘hook’ for our investment.
• There are many differences between debt and equity; equity risk is higher and broader, thus is where our focus needs to be. Getting the money back! PLUS, an acceptable return.
• One needs to have an opinion, be willing to change it, accept and learn from mistakes and when they are wrong (as an investor).
• I believe that our industry sits where it sits today because:
  • It backed faux sponsors – they never had a plan. OUR JOB is to assess a sponsor’s business plan, AS WELL AS his capacity, capability, and willingness (under pressure) to execute.
  • They say the asset class is a trader’s asset. IMHO no one can create value in a CRE asset in less than 36 months. CRE SHOULD BE UNDERWRITTEN TO BE HELD 7-12 YRS. Then and only then, we have the option to shorten our ownership position (on our terms).
  • Interest only. When the good lord created the asset class, he was smart enough to introduce the concept of principal amortization. Simply imagine what the office landscape would have looked like with 20-year amortization and TIs at a nominal $10 per square foot (if at all).
  • People with money burning a hole in their pockets confused VALUE with PRICE (as in the price they should pay). They did this because their cost of capital was cheap enough to pay more than an opinion on intrinsic value spoke to.
• I confess to a bias where I like the deal and/or the sponsor and/or the intermediary that sent me the deal. (Doesn’t everyone have ‘a guy’ that brings them business? “hey, buddy, you wanna buy a watch?”)
• Spending 35 years as a mortgage banker, acting as a financial intermediary, I feel strongly that one should be able to respect and trust the skill set of the broker. For additional points, have a relationship with them.
• Many of you have heard me say that I am often wrong, never in doubt. I feel strongly that we should be opinionated about our investing.
• We should be willing to be wrong AND trust our team, the system that our colleagues collectively will keep us from driving a deal off the bridge.
• Trust but verify.
• Build a portfolio that is a mosaic of assets and their risks and their returns.

So many others that I respect in this industry are WAY better investors than I am. My aspiration is to buy a deal a year for the next 25 years! My dad, who passed away back in 2023, was all about investing in order to create monthly cashflow. Sure, the assets created wealth when sold, but his motivation was to build a portfolio of investments, within risk tolerances, that generated cash flow for him to live on and reinvest with. By they way, he was not an IRR investor; but he did enjoy a love affair with positive leverage.

The K.I.S.S. theory – Keep It Simple Silly!

Wishing everyone a happy, healthy and prosperous new year ahead.