There's no consultants. There's no investment committee in a lot of ways. It's much more: Does this make sense for what we want to do? Can we do it?... they don't have to follow what the rest of the institutions are doing. There's no career risk to them for making these decisions that might seem out of whack.
I met Adam Cohen three years ago. We were the only two “real estate guys” at an investment conference and, as a result, were summarily ignored. Adam has the polish and presentation that befits his institutional background but speaks with clarity and simplicity about real estate. We shared the low-level cynicism that comes with spending most of our careers primarily as allocators.
Adam brings 25 years of real estate investment experience, having spent 13 years at BlackRock managing separate account portfolios for institutional investors before founding Complement Real Estate Advisors. His firm delivers independent real estate investment expertise to private investors, family offices, and traditional investment advisors.
I wanted to have a conversation with Adam about our seemingly never-ending real estate cycle, as the post-GFC environment has offered few, if any, opportunities to “grave dance.” Most legendary real estate investors built the foundation of their careers in the depths of widespread turmoil. Today, most people active in real estate investing have only known an up-and-to-the-right market. We also discuss game selection in real estate and how long-term capital has a different opportunity set than more IRR-driven strategies. We cover the nuance and importance of capitalization and the opportunities available today and conclude with a fascinating comparison between institutional real estate investing and allocating permanent or family capital.
📝My full Armada Hoffler AHH 0.00%↑ will be out soon for paid subcribers. AHH is a small-cap, diversified REIT currently in the penalty box after a series of equity raises and dividend cuts. Today, it looks like management has “taken their medicine” and, at the current valuations, has a variety of paths to value creation for shareholder.
Game Selection
For investors with permanent capital, Adam advocates a different approach than the IRR-maximizing strategies dominating the market: "What I've landed on as a sort of investment philosophy is buy good assets. Most of the time or a lot of the times, it won't feel like a good time to buy... But if you can buy and hold, time cures a lot of ills in real estate."
This philosophy requires accepting lower initial returns in exchange for long-term stability. As Adam explains, "It's like buying in New York City. Every time you buy, it probably feels like it's a horrible – you're paying too much. It's super expensive. And then five years later, you're like, man, I should have bought that."
The Capitalization Advantage
The key to making this strategy work lies in thoughtful capitalization. Adam advocates for "lower leverage, longer term debt. Really, you want to match your debt to your holding period." This approach provides crucial flexibility when markets inevitably shift.
He draws a clear distinction between strategies: "On the sponsor side, or if you're trying to sort of get rich versus stay rich... the leverage and the financial engineering makes a ton of impact." For permanent capital, the goal is wealth preservation and steady growth, not maximum returns.
Current Opportunities
Despite the challenging environment, Adam sees compelling opportunities in small bay industrial properties.
"You get a diversified income stream that might be similar to an apartment income stream where you're not overly beholden to any one tenant. And you can capture some of that inflationary growth because you have shorter lease terms."
The supply-demand dynamics are particularly attractive:
"A lot of these things especially infill are getting... booted out of where they were before [for higher and better use]. And so you have decreasing supply as opposed to increasing supply of this type of product type."
The Reality Check on Office
While acknowledging potential fortunes to be made in distressed office, Adam remains pragmatic:
"I think there will be people who make billions of dollars buying office now, and especially at these discounted prices... [but] that's not my sort of strategy to go in and buy these deep value add things that are particularly capital intensive with an uncertain exit strategy."
Family Capital vs. Institutions
Adam compares working with family offices versus institutions: "There's no consultants. There's no investment committee in a lot of ways. It's much more, does this make sense for what we want to do? Can we do it?... There's no career risk to them for making these decisions that might seem out of whack."
This freedom from institutional constraints allows for more contrarian thinking and longer-term perspectives—crucial advantages in a market where everyone seems to be following the same playbook.
Find more insights from Adam Cohen at complementre.com
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