"Regrets, I’ve had a few…"
An early (uncomfortable) post mortem on CBRE's flagship value-add investment vehicle.
---- Rewind ----
Remember pre-Covid, when "what inning are we in" defined nearly every real estate discussion?
CBRE was launching its ninth US Value fund.
Risk profile: value-add repositionings.
Target raise: $2B
Fees: 1.5% + 20% over 8%
Target net IRR: 11-13%
---- Key strategies ----
40% in value-add office...
If the market goes south, target "opportunistic high quality core-like properties in a credit distress situations" with a preference on Chicago, Denver, NYC, San Fran, San Jose, and DC.
Another 40% in value-add apartments...
Targeting Dallas, California, Portland, Orlando and potentially NYC.
i.e., < 4% cap rates + floating rate debt.
---- Special sauce? ----
First big selling point...
Wholly owned subsidiary of the largest real estate intermediary in the world.
Consultant: "Given its resources, the Sponsor adopts the business model of a direct operator and owner. The Manager’s control over asset management and property level business plan execution is direct, and this enhanced control is important to a fund deriving the majority of its return from value-add strategies. This model additionally saves LPs from paying a double promote, which, at the Fund’s targeted returns is estimated to eliminate over 150 basis points of leakage. The Manager has a long history of managing the potential conflicts with use of affiliated businesses, providing industry accepted transparency and pricing."
[Honest question: is this a real advantage or fluff?]
Second big selling point...
A "cycle-aware" approach.
Consultant: "It is reasonable to assume the Manager’s 'cycle-aware' approach to this vintage, if executed consistently, should provide relative outperformance to higher risk same vintage peers if there is a cyclical down market during the eight to nine year life of this closed-end vehicle."
---- Update ----
CBRE has delivered a -4% net IRR per pension fund reporting.
...compared to its target 11-13% IRR target.
---- Turmoil or normal attrition ----
More than 60% of the leadership team outlined in this packet have left CBRE over the last few years. Some departures were anticipated, but most weren't. How does this turnover fit with the big fundraising targets discussed on earnings calls last year?
Check out the full study here!
PS -- The chart on page 6 is like a time capsule. It's only six years old but might as well be 60. We're in a radically different environment now. Want to go deeper on return metrics, capital flows, and how incentives compound? DM us about the upcoming FastTrack cohort. Last week to enroll.
PPS -- One related topic that has come up in our 'after hours' discussions after class meetings is the potential inaccuracy of the core/core plus/value add/opportunistic framework. Rough consensus: value-add is riskier than opportunistic. Agree?
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