Feb 2023 Investor Letter

During all the chaos, we stayed heads down, doing what we know and refining what has become our primary investment principle: Underwrite What We Know.

We underwrite what is known, not what we hope.

This sounds simple — almost obvious. But it runs counter to how most real estate investment gets done, particularly in a market that spent the better part of a decade rewarding optimism. When capital is cheap and sentiment is high, underwriting hope works. When it isn’t, it doesn’t.

Our markets — the tertiary and emerging markets of the Upper Rockies and Industrial Heartland — don’t get covered by the research teams at the major brokerages. There are no quarterly market reports with neat graphs. You have to know these markets the way a local knows them: through relationships, through observation, through time spent.

That local knowledge is our edge. It’s also our discipline. When we can’t underwrite something with what we know — when the thesis depends on something we’re hoping for rather than something we can verify — we pass.

That discipline has meant passing on some deals that looked attractive on paper. It has also meant that the deals we’ve done have performed the way we expected them to perform.

In a year that tested a lot of assumptions in real estate, underwriting what we know has served us well. We expect that to continue.