"We're both part of the same hypocrisy."
Were you around when cap rates weren't falling?
Don't feel bad; you're not alone.
70%+ of the current workforce started their careers since the 1980s.
Those who started in the 1980s and 1990s rightfully lecture younger professionals about their lack of experience with mortgage defaults and workouts.
But, when considering experience more broadly, those younger professionals could borrow a response from Michael Corleone: "we're both part of the same hypocrisy."
1986 and 2007 were the worst years over the last 100 years for commercial real estate. Gains were harvested in both of these years, but the seeds of systemic shock were planted during these two peaks. Those who lived through the aftermath of these two periods vividly remember working through the value destruction.
But what about more systemic challenges?
Or more specifically, what about a time when careers weren't defined by systemic tailwinds?
You have to go back a long time to find that situation.
Despite the radical interest rate shocks of the early 1980s (Volcker), the 1980s and after were largely defined by falling rates.
By conservative estimates, only about 1 in 4 professionals were in the workforce before the 1980s, and most of them will hang it up soon (if they haven't already).
---- Working hypothesis ----
Structural real estate tailwinds are dead, which may not be bad.
It just won't be good for everyone.
Applying judgment that was honed during a time defined by structural tailwinds with the occasional typhoon may not yield strong results in an era with less of a tailwind and fewer catastrophes.
But believing that structural tailwinds are the norm may be the most painful bias. i.e., experience matters. It is impossible to overstate the potential influence of this ignorance.
---- Takeaways ----
Going forward...
Being able to spot the bombs in a model will matter much more than building the model.
Skills and judgement will be more valuable than speed.
Thinking > processing
PS -- we designed our FastTrack bootcamp to build skills around the industry's timeless/critical frameworks. If you want to level up, DM us to explore joining our Summer cohort.
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