What's Not Going To Change

Plus: Soaring Apartment Rents | Mega Industrial Deals

We investors spend a lot of time obsessing about the future.

That can be valuable time spent if you play asymmetric games and make a lot of little bets. There your ‘batting average’ doesn’t matter, it’s all about ‘slugging percentage’: the returns from a few exponential winners overwhelm the losers.

But educated guessing is a sub-optimal strategy when you’re going all-in.

Yet new real estate investors and entrepreneurs do this every day. They put their life savings into one investment or dedicate years working on a new idea not anchored to timeless human behavior.

Don’t get me wrong, I like to speculate with the best of them and look for big sector and company changes. But I don’t pretend to know the outcome and I don’t bet the house.

I think - for most people - the superior strategy is to focus the majority of their time and capital not on the theoretical future, but on things they know will never change.

Legendary Investors Use This Framework

Sam Zell’s billions are based on the most basic real estate truth: low supply is time to buy, high supply is time to sell. That’s it folks; that’s the majority of his investing genius. I’ve listened to countless Zell interviews so I’ll save you the time: he’s extremely entertaining, but he mostly just beats the supply and demand drum over and over again.

Jeff Bezos also built his empire on a simple truth: People will always want stuff faster and cheaper. Despite a sea of doubters, he knew decades and billions spent catering to that truth would pay off in the long-term. That freed him up to focus without doubt.

Truths + Real Estate

Okay, so what are some core human behaviors that are never going to change (at least for 100 years) and are impacting real estate today. There are many, here are just a few I believe in:

  1. People want affordable shelter - this has been and will always be.

  2. People want to socialize publicly - Zuckerberg’s Metaverse aside, most people want to congregate and engage in the physical world. If this was ever in doubt, the virus has demonstrated the power of this truth.

  3. We need more infrastructure - excluding perhaps the Netherlands, every growing population needs new and improved infrastructure (airports, roads, bridges, cell towers, fiber-optic lines, energy projects etc.) Biden’s recently passed $3.5 Trillion plan is a timely example here.

  4. Cash Flow is King - interest rates, cap rates and market values fluctuate, sometimes randomly. But as long as your investments generate high income, it’s easy to stay invested and it’s hard to lose money over the long term.

  5. Data consumption grows exponentially - short of some sort of Amish-esque revolution back to our analog roots, data consumption is going one direction: WAY UP.

  6. We’re all getting older and we all want to live longer and be in good health.

Now take anyone of these simple truths and filter it through a real estate lens. It should give you a sightline into future tenant demand for varying sectors and strategies.

Or do it in reverse and search for truth when evaluating a particular investment. For example, am I 100% positive there will ALWAYS be high demand for student housing in this small town with a mid-tier, $60K / year private college??

Who knows, so move on or bet small.

Obviously, the above is not a comprehensive list. There are a lot of singular truths out there that can inform your investing strategy. Therefore, I’d encourage you to go through this exercise yourself.

Reason being: This truth framework dramatically improves your payoff profile and will lead to better outcomes on average. You can get a lot of things wrong about an investment if tenant demand never waivers.

Evergreen Real Income Fund

The fund’s purpose is to deliver world-class income yields and we’re off to a great start.

If you’d like to come along for the ride, you can learn more about the Evergreen Real Income Fund by clicking on the link below.


Market Highlights

  • Mega Industrial Deals - Blackstone just announced it’s taking Canadian Industrial REIT WPT private for $3 Billion at a 4.4% cap rate. Black Greek Group announced its own $1.4 Billion purchase of Nuveen’s industrial portfolio at a reported 4% cap rate. Both were non-costal market portfolios of varying asset quality. The appetite for large industrial portfolios remains insatiable. These are great comps for our smaller cap industrial holdings.

  • Apartment rents are soaring again - Rents are rising at the fastest rate on record. The median apartment rent has risen more than 10% over the past year to $1,2441 as the recent boom in household formations (including 1.6 million new renters) is running into one of the tightest housing markets on record. This has lead to EVERY major apartment REIT raising its guidance on their Q2 earnings calls.

  • Single Family Rental Housing is also booming - the major players are is achieving record new lease rental growth (high double digits), while maintaining occupancy north of 97%. Phoenix tops the chart at 14% rent growth, while San Francisco was one of the few down markets at -5%.

Brad Johnson


Wall St. Journal - “Apartment Rents Increase as Young Workers Head Back to Cities”. 8/3/21.