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About Us » Investment Philosophy
Change is one of the few constants in real
estate. At Cresset, we view the cyclical nature of our industry
as an opportunity, and believe that excellent risk-adjusted
returns are achievable, regardless of market ups and downs.
Real estate, like politics, is locally focused; we maintain a
narrow geographic focus with diversification by asset type
and risk profile.
The varying supply and demand cycles of the five major property types, office, residential, hotel, retail and industrial, are often out of sync with each other. One product type may be in balance at a particular time in the market, but significantly out of balance at another. This ebb and flow reinforces the value of our local knowledge.
Capital also plays a significant role, with its own cycles and preferences for certain product types at various points. When the herd that drives capital preferences overreacts to real or perceived changes in the risk/return profile of a particular product type, a pricing aberration results, that is, price does not reflect true long-term values or underlying risk. One needs only to look back to the early 1990s to see the effects of under-pricing as the market over-corrected and provided excessive returns to opportunity funds. Likewise, the current exuberance driving prices in excess of replacement cost in many markets creates a similar kind of aberration. In contrast, we believe replacement cost is one of the best barometers of the underlying long-term value of any product.
These pricing dislocations, in our view, provide excellent real estate investment opportunities, especially when coordinated with local knowledge and the skill to execute. Having the capital and conviction to invest at the bottom of a cycle creates tremendous wealth. As the cycles mature, opportunities continue though they
The combined experience, creativity and diverse skills of our team enables us to regularly uncover such opportunities and create superior risk-adjusted returns.
require
more skill and expertise to find, structure and execute. In
addition, capital expectations need to adjust to reflect the
"relative" return to investment alternatives when holding
periods are extended and alternative strategies
adopted. As the shape of risks or returns change
throughout the cycles, the "allocating" market participant
often overreacts or reacts too slowly to take advantage of
these changes.
Cresset is designed to take advantage of these conditions and either position an asset for long-term hold at a "safe" basis (relative to replacement costs) or sell into an overheated market, depending on our investment strategy. The combined experience, creativity and diverse skills of our team enables us to regularly uncover such opportunities and create superior risk-adjusted returns.
