Commercial Real Estateinvestment

CRE Covid-19 investing: what type of money is in play?

I find the actions of commercial real estate investors ends up defining the type of money they look to invest. The types, categories or species of money looking to be invested can be very different. Not all are aligned with the opportunities that this Covid-19 commercial real estate market presents.

This is how money lines up so far for the Covid-19 dislocation as far as I can tell.

Smart Money: (surreptitiously) active now

I don’t know about you, but I find that those who get labeled having “smart money” only earn that moniker after their bet on an investment thesis pays off. These investors rarely get that acknowledgement at the time of investment.

It is a little like the distinction Annie Duke makes about “resulting”, confusing “decision” quality with “outcome” quality. Covid-19 provides smart money with the dislocations they find, and provides their feeding ground of (contrarian) investment theses to be smart.

Easy Money, Fast Money, Hot Money: waiting anxiously to play

This money wants quick increases that are market (not necessarily performance) driven. Let the market do all the heavy lifting. It looks to time the market for the first signs of recovery. Get in, then ride the wave of improving economic times (rising tides lift all boats).

Covid-19 may not have punished market value enough for this type of money yet. The necessary market recovery to drive value increases is not in plain sight. It may be sitting impatiently on the sidelines.

Patient Money, Old Money: indifferent to temporary market setbacks

I suspect if they notice this downturn, they will look for opportunities to trade up on quality. Their investment horizon is at least decades, if not centuries. They abide the occasional and temporary market correction and watch to see which of the easy, fast and hot money participants have to sell, despite market conditions.

Passive Money: not enough data points to act on

This money has an annual meeting to establish allocation to asset class – office, industrial, retail or apartments etc. – and risk profile – core, core plus, etc. These investors need market intelligence to verify and uphold investment criteria assumptions. The market has yet to provide enough trades to allow them to act prudently. They are on the sidelines waiting for the leasing markets to settle, to better determine risk-adjusted returns.

Big Money: good to go and where are all those really big messes?

This money acts in billions. It feeds on distress. It prefers really big messes that really big firms are experiencing. It thrives on scale, as it offers a quick solution to those having a big mess to deal with. It likes that Covid-19 has provoked really big messes everywhere.

Momentum Money: waiting for the smart money to lead the way

I made the “momentum” part up to describe the herd, those investors who have waited for the others to prove that particular  investment thesis for property, asset class and geography is good to go, safe in the knowledge everyone else is doing it. They are waiting for the early movers to act and may miss out on that easy money.

Dumb Money: ever-present and always active

Usually found buying at the top and selling at the bottom of the business cycle. It does not notice the entry or exit of the smart money and even the easy/fast/hot money. A trailing subset of Momentum Money, often trades with Smart Money.

 

What other types of money are out there anyhow?

Is there other money that could be in play now?

What type of money do you aspire to be?

What is the right money for this Covid-19 market?

 

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