Fear vs. frameworks...
Negative leverage? Maturity walls and distress? Bank failures? Doom loops?
Two years after fear-mongering commandeered the CRE narratives, one of the largest multifamily owners (EQR) announced yesterday that they were buying $535 million worth of A to B+ multifamily assets at a sub 5% going-in yield.
A 50 bps cap rate spread over the 10 year Treasury? How?!
Explanation A: EQR is stupid.
Explanation B: This time is different.
Explanation C: This time is different + EQR has an edge.
As we've written about almost daily for the last 2-3 years, the doomsday prepping narratives were overblown.
Will there be more painful incidents? No question.
Systemic shocks? Not likely.
EQR's big Atlanta is another affirmation of this. Even as EQR trades 15% or so below NAV, generating 8% UIRRs could create meaningful shareholder value. How do you get to an 8% UIRR? 5% going in + 3% cash flow growth.
Are these acquisitions wildly accretive? Not at all. They're barely accretive at all.
Then who cares? Everyone should.
REITs are, for the first time in decades, uniquely situated to turn dry powder into acquisitions, setting a pricing floor for other players.
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