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Sam Zell's painful reminder to today's core funds:
“Anytime you don’t sell, you buy.”
Core funds received a lot of attention over the last few years. Their defining themes...
Valuations:
Do prices really fall if you never sell and keep your marks high?
Redemption queues:
Valuation doubts lead investors to crowd the exit.
Sheds and beds:
Betting on industrial and housing felt foolproof… until it wasn’t.
Income-oriented vehicles are, at their core, allocation machines. When you buy assets already priced to perfection, there’s very little value left to create through operations. So the only real lever left is allocating capital better than your peers.
We’ve reviewed hundreds of core fund updates and pitches to pension funds. In these decks, "allocation” always means splitting capital across sectors and geographies.
No one talks about the most important allocation decision of all: selling.
This chart summarizes one of these funds. One of the largest, oldest core funds in the country.
As apartment and industrial values surged, this fund expanded its exposure. They sold some assets, but acquisitions far outpaced dispositions using 2020 as the baseline.
Like many others, they were fixated on fundamentals (rents, occupancy, absorption).
How was pricing not a filter? How were asset managers not screaming to "sell" at their portfolio managers?
A few possible explanations:
…they didn’t see the spike in valuations.
…they undervalued their own assets.
…they feared selling themselves out of a job.
This miss was generational, and their inability to fight those instincts is now defining performance (and their persistent redemption queue).
But the next chapter is different. Regardless of how much you sold (or didn’t sell), the only way up from here is to grow NOI.
PS -- this dynamic highlights why valuation is the most critical skill in real estate. If you want to build your valuation muscles, DM us to explore joining our upcoming FastTrack cohort.
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