Narrative vs. reality: Dry powder
Narrative: "Private Equity Funds, Flush With $300 Billion, Stand Ready To Pounce as Recession Fears Fade" (CoStar, Dec 2023)
Reality: All of that dry powder was raised with big return expectations. Most of it needs returns 20%+ above what is currently achievable.
There are only four potential paths to more balanced capital markets...
Category A: More cash for owners
1. Operating cash flow growth
2. Higher reversion values (lower exit cap rates)
3. Reduced borrowing coupons
Or Category B:
4. Further price declines
Commercial real estate markets will unquestionably find a new balance at some point in the future. But via what path?
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