The venture capital industry likes to talk about the importance of investing in ideas that are and turn out to be both non-consensus and successful. The idea here is that if an idea or opportunity is already consensus, then there's too much money flooding into that space and it becomes too difficult to make money. This is particularly true in venture capital where a select few companies usually end up generating most of the returns. This is a high risk business. Supposedly, even the best VCs end up having to write off a big portion of their deals.
But I don't think that this logic need only apply to venture capital. In real estate development, you are often faced with similar situations. For example, if an area is already consensus -- that is, it is already considered to be highly desirable -- then capital is going to naturally flow into it and land prices will be relatively high. These high land prices might be justified by the revenue side of your pro forma, or they might not be. I know many developers who avoid "core" locations simply because the land is too much and the margins are too little.
On the other hand, if an area is non-consensus -- that is, you're not sure people will want to rent or buy new space in the area -- then the land prices should reflect this. But here's the thing. What you're doing is trading, among other things, a lower land price for greater market risk. Because the non-consensus bet could turn out to be either successful or unsuccessful. People will either want to occupy space here or they won't. And remember, by definition, it being non-consensus means that most people believe they won't -- or at least not at the prices you might need in order to make the math work.
The venture capital industry likes to talk about the importance of investing in ideas that are and turn out to be both non-consensus and successful. The idea here is that if an idea or opportunity is already consensus, then there's too much money flooding into that space and it becomes too difficult to make money. This is particularly true in venture capital where a select few companies usually end up generating most of the returns. This is a high risk business. Supposedly, even the best VCs end up having to write off a big portion of their deals.
But I don't think that this logic need only apply to venture capital. In real estate development, you are often faced with similar situations. For example, if an area is already consensus -- that is, it is already considered to be highly desirable -- then capital is going to naturally flow into it and land prices will be relatively high. These high land prices might be justified by the revenue side of your pro forma, or they might not be. I know many developers who avoid "core" locations simply because the land is too much and the margins are too little.
On the other hand, if an area is non-consensus -- that is, you're not sure people will want to rent or buy new space in the area -- then the land prices should reflect this. But here's the thing. What you're doing is trading, among other things, a lower land price for greater market risk. Because the non-consensus bet could turn out to be either successful or unsuccessful. People will either want to occupy space here or they won't. And remember, by definition, it being non-consensus means that most people believe they won't -- or at least not at the prices you might need in order to make the math work.
What all of this means is that if you're right about something that most people think is wrong, then you have the opportunity to do quite well. (Though I am not suggesting that you need to follow this framework in all situations.) This is on my mind right now because it feels to me that there are certain consensus opinions emerging as a result of this pandemic. For example, opinions around the demise of office space and the demise of downtown living. If you're a regular reader of this blog, you'll know that I think these death-of-the-city predictions are largely bullshit.
I am sure many of you are getting tired of the news. I know I am. But it turns out that when you're in a global pandemic and you spend the entirety of your day looking at Zoom -- while fidgeting your leg, I might add -- there's only so much else you can talk and write about.
One of the more interesting things you could read is Howard Marks' memos. Howard is the co-founder of Oaktree Capital Management and, from what I can tell, he's been writing since 1990. Some years it's an annual memo and some years -- like this year -- he writes a bunch more. His most recent is regarding, "Knowledge of the Future."
If I had to summarize it: The future is unknowable and none of us can say with any certainty what the next quarter or the next year is going to look like. In Howard's words: "These days everyone has the same data regarding the present and the same ignorance regarding the future."
Most of the time, he explains, we simply extrapolate from the past and then apply our own biases to come up with a prediction. Howard describes himself as more of a worrier, whereas I would describe myself as more of an optimist. I believe, to a certain extent, in creating self-fulfilling prophecies.
Notwithstanding our inability to predict the future (which isn't a new phenomenon), I think it's important to have opinions and take positions. Any decision is better than no decision, right?
For a full archive of Howard Marks' memos, click here.
What all of this means is that if you're right about something that most people think is wrong, then you have the opportunity to do quite well. (Though I am not suggesting that you need to follow this framework in all situations.) This is on my mind right now because it feels to me that there are certain consensus opinions emerging as a result of this pandemic. For example, opinions around the demise of office space and the demise of downtown living. If you're a regular reader of this blog, you'll know that I think these death-of-the-city predictions are largely bullshit.
I am sure many of you are getting tired of the news. I know I am. But it turns out that when you're in a global pandemic and you spend the entirety of your day looking at Zoom -- while fidgeting your leg, I might add -- there's only so much else you can talk and write about.
One of the more interesting things you could read is Howard Marks' memos. Howard is the co-founder of Oaktree Capital Management and, from what I can tell, he's been writing since 1990. Some years it's an annual memo and some years -- like this year -- he writes a bunch more. His most recent is regarding, "Knowledge of the Future."
If I had to summarize it: The future is unknowable and none of us can say with any certainty what the next quarter or the next year is going to look like. In Howard's words: "These days everyone has the same data regarding the present and the same ignorance regarding the future."
Most of the time, he explains, we simply extrapolate from the past and then apply our own biases to come up with a prediction. Howard describes himself as more of a worrier, whereas I would describe myself as more of an optimist. I believe, to a certain extent, in creating self-fulfilling prophecies.
Notwithstanding our inability to predict the future (which isn't a new phenomenon), I think it's important to have opinions and take positions. Any decision is better than no decision, right?
For a full archive of Howard Marks' memos, click here.
On a related note, Slate Retail REIT also recently announced that, as of April 14th, it had already collected 80% of April rents and was outperforming the industry. At that time and based on industry feedback, the REIT estimated that a number of retail strip center landlords were seeing April rent collections in the range of 40-50%.
TORONTO and LONDON, April 23, 2020 /CNW/ -- Slate Asset Management ("Slate"), a leading alternative asset management platform with a focus on real estate, announced today the final close of its Slate European Real Estate Fund III ("Slate Europe III"). Consistent with its predecessor funds, Slate Europe III will target grocery real estate assets in Europe. The oversubscribed closed-end fund exceeded its target size of €200 million and closed at its hard-cap of €250 million.
"During this unprecedented time of market disruption, we are pleased to close Slate Europe III at its hard-cap and are thankful for the confidence investors from diverse geographies continue to place in us as Slate expands its presence across Europe," said Brady Welch, Slate's London-based Founding Partner. "We have been investing in last-mile logistics for some time and are proud to launch our third fund in the European grocery real estate space since 2016, a feat that underscores our commitment to the sector and validates the importance of last-mile solutions in the grocery real estate market."
Since December 2016, Slate has completed a total of 250 grocery property acquisitions in Europe comprising over 450,000 square meters of gross leasable space. Slate has European offices in London, Frankfurt, Dublin and Luxembourg.
About Slate Asset Management
Slate Asset Management is a leading real estate-focused alternative investment platform with over $6.5 billion in assets under management. Slate is a value-oriented manager and a significant sponsor of all of its private and publicly traded investment vehicles, which are tailored to the unique goals and objectives of its investors. The firm's careful and selective investment approach creates long-term value with an emphasis on capital preservation and outsized returns. Slate is supported by exceptional people, flexible capital and a demonstrated ability to originate and execute on a wide range of compelling investment opportunities. Visit slateam.com to learn more.
For Further Information Investor Relations +1 416 644 4264 ir@slateam.com
SOURCE Slate Asset Management L.P.
On a related note, Slate Retail REIT also recently announced that, as of April 14th, it had already collected 80% of April rents and was outperforming the industry. At that time and based on industry feedback, the REIT estimated that a number of retail strip center landlords were seeing April rent collections in the range of 40-50%.
TORONTO and LONDON, April 23, 2020 /CNW/ -- Slate Asset Management ("Slate"), a leading alternative asset management platform with a focus on real estate, announced today the final close of its Slate European Real Estate Fund III ("Slate Europe III"). Consistent with its predecessor funds, Slate Europe III will target grocery real estate assets in Europe. The oversubscribed closed-end fund exceeded its target size of €200 million and closed at its hard-cap of €250 million.
"During this unprecedented time of market disruption, we are pleased to close Slate Europe III at its hard-cap and are thankful for the confidence investors from diverse geographies continue to place in us as Slate expands its presence across Europe," said Brady Welch, Slate's London-based Founding Partner. "We have been investing in last-mile logistics for some time and are proud to launch our third fund in the European grocery real estate space since 2016, a feat that underscores our commitment to the sector and validates the importance of last-mile solutions in the grocery real estate market."
Since December 2016, Slate has completed a total of 250 grocery property acquisitions in Europe comprising over 450,000 square meters of gross leasable space. Slate has European offices in London, Frankfurt, Dublin and Luxembourg.
About Slate Asset Management
Slate Asset Management is a leading real estate-focused alternative investment platform with over $6.5 billion in assets under management. Slate is a value-oriented manager and a significant sponsor of all of its private and publicly traded investment vehicles, which are tailored to the unique goals and objectives of its investors. The firm's careful and selective investment approach creates long-term value with an emphasis on capital preservation and outsized returns. Slate is supported by exceptional people, flexible capital and a demonstrated ability to originate and execute on a wide range of compelling investment opportunities. Visit slateam.com to learn more.
For Further Information Investor Relations +1 416 644 4264 ir@slateam.com
