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Every Friday, join us as we dive into the latest in real estate multifamily with David Moghavem, Head of East Coast Acquisitions at Trion Properties. David invites top experts who know the ins, outs, and trends shaping the real estate multifamily market across the nation!
Whether you’re a seasoned investor or just curious about where the next big opportunity might be, Deal Flow Friday brings you the weekly inside scoop on what’s hot, what’s not, and what to watch for in today’s ever-evolving real estate scene.
Douglas J. Elsbeck (00:17)
Maybe just to start off, we'll take a few minutes to introduce ourselves and give you a little context about our opinions. I'll quickly start. I'm Doug Ellsbeck. I'm a partner in the real estate and funds team at King and Spaulding. I work with real estate sponsors and investment managers in forming private funds, JVs, and other investment vehicles, as well as assisting with corporate advisory work, sponsor MA, and other strategic transformations.
Uma Moriarty (00:41)
I'm Uma Moriarty. I'm the senior investment strategist and global head of sustainability at Center Square Investment Management. About a $15 billion investment manager, primarily based in rural estate, but doing that across both public and private, as well as debt and equity platforms. And so really looking at rural estate really across that entire spectrum and being able to glean a lot of the information similar to kind of what Emmy was showing in terms of what the different markets are telling us in terms of valuation and things like that. So bringing all that together, so excited to share some insights on that.
Mm-hmm.
Stephany Chen (01:12)
Hi, I'm Stephanie Chen. I lead our investor relations team at Trinity Investments. ⁓ Trinity Investments is a hospitality specialist investing in hotels globally. We have an AUM of just under $8 billion. Strategy is really focused on value add, destination type markets. we're really a GP operating partner to a lot of institutional investors. happy to be here today.
David Moghavem (01:39)
Hey everyone, David Mogavum, Chief Investment Officer of Trion Properties. We're a owner operator, vertically integrated and value add multifamily. We own about 6,000 units. We also third party manage as well, a few thousand more that we just rolled out this year. And ⁓ we are national. We have office in LA, office in Miami, and we cover throughout the nation.
Douglas J. Elsbeck (02:05)
Great, thanks all. How capital is underwritten and deployed when returns can no longer lean on falling rates or cap rate compression. ⁓ we'll start talking about a bit of the macro picture and then kind of work down toward the ground. ⁓
But with that, maybe I'll start with you, Uma. With inflation reaccelerating and monetary policy turning hawkish, where are rates and inflation heading and how do you think that shapes outlooks across those sectors you just mentioned?
Uma Moriarty (02:38)
Yeah, so I it's interesting, right? We talk a lot about what the Fed's doing, the hawkishness of the Fed and how that's impacting interest rates. That only really is impacting the short end of the yield curve. We still have to really contend with the long end of the yield curve, which is being impacted by a completely different host of factors, inflation being one of them, right? But if I think about that 10-year treasury yield, I tend to break it down in terms of real growth, inflation, and then a term premium. And we're really seeing upward pressure on all three of those factors, right?
I think over the last month or so, the oil markets and the rate markets have really diverged in terms of where they're headed. And I think that's a that's a function of the fact that investors are continuing to realize that there are multiple factors that are impacting inflation. So two of the big ones I would think about will be kind of the flow-through impact of tariffs, as well as the spillover from all of the AI build-out that we're seeing. And then the AI build-out also has an impact on real growth, right? Over the last several decades, we haven't really seen.
Through productivity growth in the economy, we're really seeing that ramp up. And then as we think about just the mounting geopolitical risks and we're thinking about the continued fiscal spending and that deficit that we continue to grow, that term premium is also increasing. So investors are demanding a higher return for having their capital locked in for longer and longer periods of time. All of that means that you have to reflect that in real estate prices. And we saw a little bit of the data from Emmy, but what I think is really interesting.
Is looking at, given the fact that we're looking at both the public and private markets, you can think about the real estate markets in the public side of.
The equation really being forward-looking and and reflecting what valuations should be, they do that much faster, right? So if I think about the REAT market today in the US trading at a 5-4 cap rate, if I take out Well Tower, which is the largest senior housing operator, trading at a sub-three percent cap rate, that turns into a five-seven percent cap rate. And so that's where real estate in the public markets is generally trading. When I take a look at where kind of core markets are trading and think about the Odyssey index, those appraisals.
Are still kind of in the 4.5% cap rate range. And that ranges anywhere from kind of a sub-4% number for industrial all the way up to kind of like a five and a half for a retail office. And so that in the context of a 10-year treasury yield, which I, you know, as of this morning was called like a 4-4, doesn't quite make sense the spread in terms of that pricing. If I am an institutional investor allocating capital, why would I deploy capital today in core?
Or multifamily as an equity provider, where you have so much more risk from a fundamental perspective as supplies coming through, versus just being able to put capital into the 10-year treasury, you'll take significantly less risk and essentially earn the same return, right? So I think there's broad understanding of the fact that we need to figure out how to really unlock this valuation disconnect that exists in the private markets. You've seen it in transaction markets, right? Those are adjusting a bit more rationally.
I still think there is a bit of irrationality in some of the property types in terms of where valuations are. But broadly speaking, you're seeing the transaction market move, but you're not seeing appraisals really move in tandem, which is creating this issue of the bid-ask spread, which persists in so many parts of the market. So you have all this capital stuck. And so that's a that's a whole other conversation, which I think we'll get into. But that's as I think about some of the big drivers, I think about the fact that we're in this higher-for-longer interest rate environment, valuations have to adjust.
Adjust, and then from a return perspective, you're not getting that cap rate compression to really drive returns over a long period of time. You're having to really deliver that at the asset level from an asset management perspective. And that's really where we're seeing a lot of focus, both from the perspective of how we're deploying capital, but also the perspective of how allocators are thinking about the investors that they want to be deploying capital with. Do you have the ability to really roll up your sleeves and squeeze as much juice?
out of your asset as you can during your whole period is is really, really critical.
Douglas J. Elsbeck (06:46)
Maybe taking a different look at the same type of information. David is a multifamily operator. How are inflation and shelter costs showing up ⁓ vis a vis your tenants? and maybe where is the published data kind of getting it wrong or sort of showing something different?
David Moghavem (07:01)
Yeah, so great perspectives all around. Yuma, I think you had also a great perspective of where markets are trading on the real estate side versus where the REITs are trading or where the treasuries are at and the disconnect behind it. I think one of the other disconnects kind of boots on the ground is you're seeing the print and you're seeing how shelter is showing north of three percent, but the reality is the data can be skewed with the owner's equivalent, which I'm sure people in this room know about and
The surveys that you know they're not actually tracking where rents are and where rents are moving, but rather a survey of owners of hey, where do you think shelter costs would be if you were to rent this out? And so it's also trailing, it's a lagging figure. what we're seeing boosts on the ground is not much rent growth with a specific with in a caveat of a few specific markets, maybe the Bay Area, or supply-constrained markets, but the supply really has.
Has made rent growth even negative, especially in the workforce B class, C class spaces, and softening in the A-class space where there's a lot of supply. but with that said, I think you're seeing again with boots on the ground, a lot of renters starting to feel the pinch, starting to feel a little stretched. You're seeing delinquency starting to tick up. Maybe some markets worse than others, but I think bad debt used to be a little bit more of a rounding error
During when interest rates were at zero, now everyone's hyper focused on it. So I think that's the boots of the gun perspective here with some of these global economic impacts. What does this mean for renters? I think there's a shift now from the cap stack distress that we've been seeing for these past two, three plus years to now a shift towards a potential operational distress or cracks in the performance in multifamily.
Douglas J. Elsbeck (08:58)
Stephanie, maybe turning to you on the hospitality front. you know, with these inputs and also just general geopolitical hotspots around the globe, how are you viewing that and how is it affecting hospitality performance?
Stephany Chen (09:11)
Yeah, so obviously hospitality is a little bit different relative to a lot of these other asset classes. ⁓ it's very nuanced as it relates to the operational intensity of it, right? I think ⁓ the inflation inflationary environment is actually a benefit from a h hospitality perspective because it is an inflation hedge, right? We from a h hotels perspective change our rates on a nightly basis. And so what we can do from that perspective is really yield manage our revenue and really kind of, you know, adjust our rate.
As appropriate on a daily basis. I think with what's going on around the world, there's definitely hot spots as it relates to regionally and globally markets that are seeing a bit more of some headwinds and others that have a bit more tailwinds. I think overall, from a hospitality perspective, I think on a transaction standpoint, cap rates have definitely widened relative to kind of where we were pre-COVID levels, and I think a lot of that is due.
To travel demand and how kind of the tourism industry is rebounding. You know, obviously with COVID, the Pent-up demand and Pen-Up want to travel created a different perspective for a lot of individuals. And now what you're seeing is for discretionary spending, the allocation of that, a big chunk, about 70%, is really being allocated to
Experiences, right? And so what does that mean? That translates directly into tourism and travel, and for the hotel industry, has done extremely well. So I think from a manager's perspective and an operating partner's perspective, it's really our job to find kind of the hot spots from that. And really the upper-up scale and luxury segment of hospitality is where we're seeing a lot of that rebound and recovery. CoStar just kind of released.
Their forecasts for 26 and for 27. And really those two segments are the ones that are continuing to outperform kind of that upscale, mid-scale, and and kind of select service segments. Obviously, the lower tier segments are a bit more cautious and impacting from just overall cost, right? So I think that's really important. And obviously, from an operational perspective, expenses and being able to
to to yield manage that is is also very critical.
Douglas J. Elsbeck (11:28)
But maybe I'll come back to you, kind of turning toward kind of what we're seeing from investors, but also what we're seeing from an underwriting perspective. could you talk a little bit about Center Square and how your underwriting assumptions have tra changed maybe over the last eighteen to twenty four months?
Uma Moriarty (11:45)
Yeah, I think ⁓ we were maybe early in terms of pounding the table and saying we were going to be in a higher for longer interest rate environment. We've been saying that for I don't know, four four plus years at this point, which which meant that over call it the last twelve to twenty four months where a lot of excitement was building around the fact that Fed was going to be decreasing rates and we were going to see the interest rate environment shift in favor of a lot of real estate underwriting.
maybe mistakes that that had been made during kind of a zero interest rate environment, that still wasn't really what we believed, right? And so we were kind of maintaining that discipline throughout from an underwriting perspective, which was helping us continue to really refine the subsectors, as as Emmy was mentioning, where we really believe the best opportunity to be to deploy capital. So that being said, the places that we've been really excited
Cited from, let's say, from an industrial perspective, we were doing more broader industrial investments, kind of across the spectrum, where we had everything from kind of last mile industrial to coal storage and some more traditional kind of regional warehouses to the focus that's really shifted towards infill, small bay, multi-tenant industrial, where kind of to the point also that Stephanie mentioned, a lot of the spending.
continues to be in the services side of the economy. And so the tenants that we're really looking for are those service-based providers, right? So it's your HVAC repair person, it's maybe the the the the car mechanic, it's maybe a CrossFit gym, things like that. Those are the types of tenants that we're really focused on that are serving the rooftops within their trade area and really focusing on finding irreplaceable assets. I like to say that these are maybe
Very n not the prettiest assets, but really beautiful economics. And so those are the types of things that we're looking for that are yielding cash first and foremost. We like the cash flow aspect of a lot of the assets that we're looking at, but really focusing within the niches where we have found there A isn't a ton of capital chasing after these particular assets in the areas that we're looking. So you don't have the same kind of cap rate compression that you're dealing with that had been happening over the last couple of years, but then also focusing on places.
Where we find the fundamentals to be really, really strong and durable based on what we're seeing, where A, you have no new supply coming in, right? These tend to be assets that are in highly dense info locations where the highest and best use of that land is actually really going to be probably multifamily. So the net supply of these particular assets is actually going down in many different markets. So you have a negative supply momentum and demand that has been really, really resilient and robust because you continue to see.
See the need for service-based vendors and providers across these economies that continue to grow. And so that demand supply imbalance is kind of the key focus that we've been thinking about and really helping to shape the particular subsectors within industrial retail and rental housing where we're deploying capital. So I think that's been one of the changes, maybe, in terms of the focus within the sectors. And then the other thing that I would also say is because of our ability to deploy capital across the capital stack.
The other thing that we've been doing much more of, especially in rental housing, where we haven't seen valuations really correct to where we think they should be based on the fundamentals on the ground across all these different markets, is instead of taking equity risk, we're moving down the capital stack and really deploying capital from a kind of a Mesda pref equity perspective. And so making sure that the risk return profile as we're deploying capital in the capital stack makes sense for what we believe to be the most optimal opportunity within that particular.
asset class and then also within a broader sector finding the niches where we believe the fundamentals to be most protected as we look forward from a supply and demand perspective.
Douglas J. Elsbeck (15:51)
Maybe building on that, Stephanie, as you're finding your, you know, in investor investors for your product, are you seeing any trends in kind of preferred investment strategies that they are seeking out or things that they're shying away from?
Stephany Chen (16:06)
Yeah, I think from a hospitality perspective, you know, on behalf of our investors, we really focus on ⁓ assets that have diversified demand bases. So ones where there's not only kind of that transient leisure perspective, but there's also a group base. a lot of that comes down to what I was talking about earlier is yield managing the business, right? As everyone knows, ⁓ for hospitality it's a very cyclical life cycle, whether that be within the year or within
In kind of that hold period. And so what's ever important from a hospitality is per hospitality perspective, because from an asset management standpoint, you do have so much more capacity to drive performance to really kind of yield manage that. And so with the group and kind of transient perspective, being able to have that group base during times of kind of slower leisure or slower transient periods is really important.
⁓ and so what you'll see in our portfolio is our assets are a bit larger in scale, right? So to accommodate a lot of the group ⁓ and leisure component, you have to have the meeting space similar to this asset here to really kind of drive that group demand. ⁓ so we're seeing ⁓ a lot of that from a trend and and just overall investment perspective. and then really kind of the destination markets, right? Not not only just kind of the resort markets, but really kind of the urban.
Urban resort concepts where a lot of the demand is flocking to. Just because of again the demand perspective of wanting to yield manage this business and have kind of that strong demand base, that's really where the markets are seeing the biggest head tailwinds. so sunbelt markets, some of the urban markets, etc. but going back to what I said earlier, expense the expense side of our business is definitely
A huge consideration because of the operationally intensive nature. So labor, as an example, is a key piece of how investors are viewing some of these markets, right? Some of these very urban core markets, unfortunately, labor costs are exceeding kind of the revenue growth. So that's definitely one an area where investors are being a bit more critical and a bit more cautious on. But going back to kind of this whole theme of demand and supply.
⁓ especially in these assets where you have kind of that group and leisure business, there's a huge lack of supply, right? I think if you look across the s spectrum from a new supply perspective, it's it's quite minimal if you look at kind of that ten year historical trend. so I think, you know, overall, ⁓ I think the demand supply fundamentals have been very attractive from the
Douglas J. Elsbeck (18:48)
David, kind of moving to you, ⁓ you mentioned kind of the credit risk and how it's a little different now than in in prior years. You know, how have c collection issues for tenants or tenant inflation affected how you're viewing underwriting for ⁓ renovations? Talked a little about rent growth and also just general operation.
David Moghavem (19:07)
Yeah, I mean pre-rate hike, the North Star that we would be looking at is pro forma untrended yield on cost, what the property's gonna become when you do renovations, when you you know, everyone the the ta the key term was trade outs when you would tour property. Now we're looking at day one yield net of deferred maintenance, net of gain to lease, net of the rent rule deterioration on when a tenant
It moves out, and you're probably leasing it lower than what the previous tenant was leasing at. So that's kind of our North Star. looking at where bad debt is, looking at an AR report and really analyzing how many tenants are in eviction, how many of those tenants that are in eviction are probably ⁓ gonna pay late versus not pay at all, what what comparable properties are operating at, just being hyper-focused on the true in-plays and not just what.
What's on trailing financials, but forward looking how it could deteriorate. And if it can still stand on its own two feet, if it could still be cash flowing, positive leverage, back to the basics, right? how the the OGs in real estate would look at deals. Like that's I think we're going back to the basics. I think it's pretty healthy that we're going through this reset. And I think for us, there's some opportunities. I think Yuma gave a good point how there's
a lack of there's there's some properties now or some parts that have a lack of capital flows and that's where I guess center square is starting to play in. And for us we're starting to play in that space too in the call it sub-institutional space. Doesn't have to be a 1970s or older property that has a ton of deferred maintenance, but somewhere where the REITs may not be playing in as much because you know those are sub five caps, somewhere in the in between where
you can get good yield in great markets with good fundamentals and net of deferred maintenance, net of gain to lease, net of some of the headwinds still be positive leverage, I think that's a great opportunity right now at multi.
Douglas J. Elsbeck (21:17)
⁓ maybe shifting to kind of the investor sentiment and kind of capital flows. Uma, how are how are you seeing investors preferring to access real estate today? I know you guys are kind of across the spectrum in in what you invest in, but also product, you know, how are you viewing commingled funds versus other types of alternative vehicles that they can invest through?
Uma Moriarty (21:40)
Yeah, I think and it's this is mentioned in the last panel, over the last five call it five years or so, a lot of investors that were invested in real estate commingled funds where they had less agency in terms of really pushing the gas and the brake in terms of capital deployment, et cetera, have found that
They have been disappointed with the the distributions that they've received, the liquidity that's been available. So there's a lot of capital that just remains kind of stuck in the system, right? And it's kind of this virtuous cycle where a lot of investors can't deploy new capital because they can't raise new capital. The capital that they're trying to raise hasn't received the capital back because the transaction market is too slow and it hasn't quite unlocked yet. And so it's this virtual cycle that kind of keeps on going. So we're still waiting for that forcing function to kind of really, really accelerate that transition.
Action market in a way that can really give investors a lot of that liquidity and that kind of stuck capital back in their pockets. But I think what that has really meant is that investors have shifted towards just wanting more agency in the way in which they're deploying capital into real estate. And so the wrapper with which they're trying to do it has really shifted from being this co-mingled fund where maybe they don't have as many rights as it relates to the way in which that capital is being deployed.
To more of like a joint venture, separate account type of a structure where they have more agency. That being said, not every single investor out there can do that, right? So we primarily are investing on behalf of institutional investors. You still have a lot of institutional investors out there that have very large pools of capital and very, very small teams. And so they simply don't have the capacity to be able to work with us on a joint venture basis and say yes or no to every single deal that we're putting in front of them. That's just not part of what they're.
Their team was built to be able to do. And so for a lot of those investors, you still need to have the commingled funds out there. That way they can use the resources that they have to be able to kind of deploy capital in that way. But I would say the more the bigger shift that we've seen has really been from the perspective of a lot of sophisticated institutional investors seeking more agency in the way in which they're deploying capital into real estate. That being said, I think the wrapper with which institutions look to invest capital into real estate.
Is also very cyclical in nature, right? So the pendulum has swung kind of towards one direction today. But I think as investors start to understand the resources required to actually have that discretion on the capital deployment side of the equation, they're going to start to get a little bit inundated. And you'll see this pendulum kind of swing back. But at least for now, we're seeing it shift more towards joint ventures, separate accounts, club deals, things, ways in which they have just more direct.
investments and more agency in the which the way in which they're deploying capital.
Douglas J. Elsbeck (24:37)
Just to tack onto that, I fully agree with that, especially the stratification between types of institutional capital. people with larger teams being able to be a little more hands-on and wanting to be. with that, I think part of the difference is between those comming truly commingled discretionary funds and a JV, you're s we we've been seeing a lot more sidecars and other vehicles that maybe have a a deeper pool that's discretionary or co invest vehicles alongside those.
Uma Moriarty (25:06)
Yep, and a and a race at the bottom on fees.
Douglas J. Elsbeck (25:08)
Fees don't go up on those relative to the commingled funds. I know we're getting low on time, so I'll probably ⁓ reduce a couple of these, but Stephanie on this, I guess from an investor perspective, are you seeing domestic versus international investors viewing US hospitality the same differently? Are you seeing anything that's been changing over the last you know year and a half or so?
Stephany Chen (25:32)
Yeah, I mean obviously the geopolitical environment and what's been happening over the past few months have put a bit more caution to a lot of the international investors investing into the US on the hospitality front. ⁓ what I would say though, on the flip side to that, I think there are still some opportunistic international investors that see US as a safe haven, right? And so they are allocating capital to the US ⁓ to really kind of park their capital there from a long-term perspective. ⁓
I think hotels specifically though, kind of on the contrary, I think some of the international investors stepped into the market on the hospitality front historically, thinking that you know hotels were you know these great asset types that wasn't as hands-on or didn't need as much of a hands-on approach than maybe what is actually required. so unfortunately, I think what's been ⁓ happening with the host hotel environment is
I think a lot of these international investors are recognizing that they really need local operating partners to be able to invest on a JV or a kind of fund basis to be able to kind of get that experience and that exposure. So with that being said, I think you're seeing less on the direct side without kind of a local manager in tow as a result. However, I think for a lot of these core landmark assets, right, those that are kind of in that ultra-luxury.
In the core urban or even core resort type of destinations, they're still attracting a lot of these international ultra-high net worth type of investors. A lot of that is due to the fact that obviously these trades don't happen every day. A lot of that is due to kind of those existing owners are typically ones that are longer-term holders. And so what we're seeing now in the market is some of those assets actually coming to market. And so as a result, those are still
Still attracting a lot of the international capital. So I think it's obviously a case-by-case basis on an asset level and also on a market level perspective. I think domestically, private equity is trying to maintain kind of the activity level. I think across asset classes, right, we're seeing kind of private equity have the ability to deploy capital, but maybe not finding the right type of opportunities. And so I think that's still the case in hospitality.
I think depending on what asset types and what you're trying to look for, I think is really kind of driving the activity from a private equity standpoint. But we're seeing a lot of interesting opportunities come about again from a value add perspective where these assets have not been renovated in the past, let's call it five to six years because of the capital constraints and because of COVID and what was happening kind of thereafter. And so that's where.
Where you know we're seeing the opportunity as it relates to kind of a lot of
Douglas J. Elsbeck (28:24)
I know we're about five minutes right now. can move to ⁓ QA if there's any ⁓ coming through. but maybe while we wait to see if some come through kind of with that where the opportunity is that you're seeing, maybe David, you can talk about what you're seeing and where maybe missed price opportunities are in your arena or or how you're seeing where the value is.
David Moghavem (28:48)
Sure. And actually to piggyback from what Stephanie was saying about with hospitality, there were it, you know, foreign investors didn't realize the management intensity of it. It's very similar parallels on the multifamily side. I think with all the rent growth, it was kind of saving the proformas and not really showing the cracks in operations. But anyone that's in multifamily knows it's super management intensive. And us being vertically integrated has really showed how
How we've been able to kind of manage ourselves out of some of the troubles because we don't have rent growth saving us anymore. So, how does that look like? For now, we're now seeing opportunities on the management side to get our foot in the door to talk to distressed owners and come in and help, maybe even doing some sort of GP replacement, talking to lenders who have had to take properties back and managing for them as a foot in the door to potentially buy the note or buy a property.
And REO. It's opening an incredible amount of opportunities, also scaling our third-party management platform, getting potential growth equity to come in. Because now we're actually seeing JV partners come in not to JV on one-off deals but to invest in platforms. Platforms that are vertically integrated like ours, platforms that are with operators that are getting their hands dirty. Because as Stephanie noted, now the cracks are showing throughout every asset class.
And management's really the key to get ourselves out of this.
Douglas J. Elsbeck (30:20)
looks like we have a couple questions. I did not plant this question. so ⁓ what's your advice to an asset manager seeking to broaden and grow their investor base? look, I think ⁓ you know the last couple years has been somewhat difficult in a commingled fund space, ⁓ particularly for fundraising. I think it goes back to I think Stephanie you mentioned or maybe Uma where people
Aren't getting their capital back from prior investments, so they have less to deploy right now, or they're at least slower to deploy that or redeploy. I think one of the things that we've seen success with some of our clients is they have a more nuanced story. they're not just in retail overall, they're not just industrial, they have a very focused view. Kind of Emmy, going back to your niche areas of industrial, for example, ⁓ and having experience.
There, but also an investment thesis that tracks one of those. So a lot of what we've seen be successful and maybe opening some doors is somebody who has that expertise who can provide that opportunity maybe in a more focused way than something that's more broadly in retail or industrial.
On the next question, to what extent are rent stabilization, housing legislation, and other regulatory changes reshaping private investors' conviction across real estate segments?
Anybody wanna take that?
Uma Moriarty (31:45)
I mean I I think especially in in rental housing broadly, right, you've it across the entire spectrum. I mean obviously BTR and SFR was pencils down for a while this year. I think as of yesterday still pencils down. ⁓ it seems like maybe from an actual impact perspective, this legislation might be a little bit of a nothing burger and and more of kind of political headlines and actual impact on the way that capital can be deployed in in the space.
But the it's interesting, one of the few kind of bipartisan areas of support seems to be around housing. And so as we think about the the the way in which we deploy capital at Center Square, we have a very kind of systematic way. We have a scorecard, we build out kind of the factors that we think are really going to drive performance, and we're really scoring assets across all of these as part of kind of a filtering mechanism. And as have
Have been kind of reassessing that scorecard, especially for rental housing, and we continue to tweak it to make sure that it's it's it demonstrates efficacy with assets actually performing in line with how we're underwriting them. One of the parts that's different for us from a rental housing perspective compared to the scorecards that we have on retail and industrial is really from a policy risk perspective. And I think that has been a very different and more kind of impactful part of an underwriting process in terms of rental housing, more.
recently because of this shifting political environment and focus on that asset class, which I think is which is which is different, right? So as we think about the risk premium that you require in some of the markets where you could be facing legislation that impacts your expectations from an underwriting perspective, different today than it was 12 to 24 months ago. I don't I don't know if you guys are viewing it differently given that's your your focus
Douglas J. Elsbeck (33:15)
That's
David Moghavem (33:36)
No,
I mean, we cut our teeth buying in California and Oregon and when COVID hit we said, ⁓ shoot, you know, we're so exposed to this political risk. We opened our office in Miami, started buying in the southeast, and now there's insurance and supply issues, right? So you gotta pick your poison. everything has its own risk. You gotta know what risk you're getting into and political risk harder to quantify, that's for sure. But there's something to be said too of some of these politically risky
type of submarkets that also might not have as much supply, right? And so it's about picking your risk, knowing what risk you're getting into, and having you know risk-adjusted returns based on that.
Douglas J. Elsbeck (34:19)
It took away the questions and I think we're done with our time.
David Moghavem (34:22)
I I like that last question.
Uma Moriarty (34:23)
Okay.
David Moghavem (34:24)
You can't eat your IRR but you get your promote from it. I think I think I th just I know we're out of time, but whoever asked that, it's a good point. And I think going into this next cycle, maybe there's we are gonna see a difference where interests and incentives for operators will be aligned with investors where you don't have to sell for an for an operator to make money. We can come up with the structure and we're doing that already, where interests are aligned between investors and operators.
Douglas J. Elsbeck (34:54)
Thank you all for the presentation and discussion. Looking forward to the rest of the day.