Game Selection

Appraisal PropTech | NNN Industry Warning Sign

If you pick a high quality investment game, it’s hard to fail.

Pick the wrong game and you’ll work twice as hard for half the returns. Great investment games have a few things in common:

  • Low competition (target rich environment)

  • Built in demand tailwinds (to offset errors)

  • Sticky and growing cash flow (to offset unforeseen risks)

In other words, a game where you can consistently put money to work - with sufficient yield - at a high confidence interval.

Since we can’t predict outcomes, we want to push our chips in on games where path dependence is least important. While we can’t cut off the left tail (negative outcomes), we can look for games that minimize it.


The investment world is chalk full of focused, diligent, and intelligent people. If you thrive on competition, give up the search; just pick a crowded area and go to war.

In private real estate that battle might be sunbelt apartments, life science, or coastal industrial deals. Demand for these assets is nearing a fever pitch. The best in the business are capitalizing by dumping their older assets at 3.5% cap rates to rotate into newer assets and skirt deferred capital expenses on the old assets.

Tip: REITs can hold forever (unlike private equity firms) so when they want to sell you something….tread lightly.

Clearly the superior strategy is to sidestep cutthroat competition. That typically means going off the beaten path to find something messy, misunderstood and mispriced. If you’re right you’ll have a lot of runway and time before the market takes notice.

Good Games

The bright line between good and great games is the level of competition. But thankfully, many a fortune has been built on merely “good” games.

So if you can’t find all three above attributes, two (demand tailwinds + sticky cash flow) is enough to build a successful investment strategy or large RE private equity business.

Let’s say you wanted to start an industrial or apartment private equity firm in today’s elevated market. Well, despite the competition - those are still pretty good long term games. You’re not going to find cheap prices, but it’s reasonable to assume demand for industrial product will continue to rise. It’s also likely you won’t evaporate 5 years of cash flow with an large unexpected capital expense. That happens all the time with office investments (not a good game).

Couple the above with the structural benefits of real estate: accretive, fixed rate debt on (likely) growing cash flow streams and you’ve identified a pretty good game.

Now, I don’t think you’re going to shoot the lights out this cycle (return wise). But, if you hustle, avoid extreme leverage and can hold through-cycle (7-10 years) odds are high you’ll do well. You’d also be in a great position (having built a process, team, fee revenue, broker relationships) to capitalize on the next cycle. If you’re playing long term games, this is a better plan than chasing a trendy, short term investment strategy that might look compelling today (flipping NFTs), but won’t compound over time.

Is Your Game Good?

Good or great, I think I’ve chosen a high quality game. REITs are underfollowed, misunderstood and are far easier to value than other businesses.

Do you feel the same way - or better - about your game?

If not (considering where valuations are) now is great time to revisit your investments or private equity business. If you’re not playing a good or great game where you can compound efforts reliably over the long term, then considering making a switch. It might feel like its starting over, but it sure beats playing bad games at all time high prices.

Choose a game you can play indefinitely and compound knowledge, reputation, relationships and cash flow.

Pick a game where you don’t have to be heroic to win.

Evergreen Real Income Fund

The fund’s purpose is to deliver world-class income yields.

You can learn more about the Evergreen Real Income Fund by clicking on the link below.


Market Highlights

  • CVS Unhealthy – a large drug store chain with ~10k stores in the US – announced a shift in its retail strategy that would involve closing ~900 stores over the course of the next three years (representing ~10% of the chain’s overall store count). This is one reason we don’t love triple net (NNN) retail deals. As an investor you don’t want the keys back on these hard to repurpose / release stores.

  • Appraisal Relief - Appraisals need a reboot. They’re expensive, take forever and magically come in at the purchase price 95% of the time. There might be help on the horizon. Startup Aloft just raised $20M Series A to disrupt the appraisal industry. Let’s hope they add commercial appraisals in the future.

  • Industrial Heat - Sales of large industrial properties this year have shattered the record for annual volume with more than a month to spare. Year to date, an eye-popping $59.5 billion of warehouses have changed hands. That’s nearly 40% above the previous annual high-water mark of $42.7 billion, set in 2020.