Both institutional and private investors have pulled in their horns for real estate investment. They are more cautious, resulting in lengthier evaluation, broadened due diligence and conservatism. And they are focusing better, strategically on where to place their investment bets.
Most managers have less money under management than they did three to four years ago. AUM has been reduced by realized investments, and new investor commitments are more difficult or impossible to obtain. Consequently, managers have reduced staff, lowered compensation for the remaining professionals and are looking for alternative survival solutions. Financial and functional viability then comes into question. Mergers and windups of managers are steadily taking place. In retrospect, it is easy to conclude that there were too many managers, including many poor ones.
We are approached by managers who are caught in the apex of this survival conundrum. They are asking for help in raising capital. They are also attempting to reinvent themselves with alternative investment strategies, organization charts containing phantom employees who do not really work for them and stretches of the truth about track record, AUM or capabilities. Enough time has passed and enough bad news have been received for them to be well on their way through the seven stages of grief. It is not difficult to triage between confident and desperate managers.
It is not an overstatement that the real estate investment management community is undergoing a massive restructuring, just as the assets are that they are managing. Both assets and employees will graviate to stronger and more capable hands. The industry will be resized. The emerging survivors will be more capable and more financially secure. And it will be obvious why they have made it through the gauntlet.
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