Single-asset real estate deals surged because they seemed simple and controllable, but a 25-30% market correction exposed the illusion. Most investors miss macro risks like interest rates and supply dynamics that no deal sponsor can control. Diversified funds spread these risks across many properties.
I think some of the reason popularity really increased is partly due to the simplicity. Here's the asset, here's the location, here's the business plan, here's all things we're going to do. Do you want in? Do you want out? Right? And it's— we raise the capital just for this deal. Once we have that amount of capital, it's closed, we move on, we go and execute that plan. So I think it's very simple, which is attractive. And you also kind of couple that with the huge syndication boom that we saw in the last commercial real estate cycle, where everybody became a professional real estate investor and started raising money from their friends and family and started buying commercial real estate with low down payment loans, bridge lenders. Anybody that could fog a mirror could make money in real estate because everything just always went up for many years. And so I think with those things together, it created this huge popularity. And I think what's really interesting now on the backside of this cycle where, you know, a lot of deals are struggling, values have reset probably 25 to 30%, the illusion of investors' ability to select the deals that they think are going to outperform versus not, I think it's kind of been stripped away, right? Because the big appeal of a single asset investment is I can decide if I like this business plan or not. I get to choose if I want to put my money into this investment, this property, or not. And there's this illusion of control where you think, I get to decide which deal my money goes into. But the problem is, as LPs, most LPs are not professional investors, and you discount many times the actual real key risks, which are things you can't control, like interest rates, like market risk, like supply, and other things that are outside of just the asset itself. And so the idea of a fund actually reduces and minimizes a lot of these, what I would call idiosyncratic risks, or risks that are associated with particular asset that you can't necessarily control.
