If the apartment trough is real, is the liquid version of it good enough?

Question

I spend most of my time on land, so this is outside my lane. What got my attention is that the pipeline for new apartments is contracting sharply and vacancy looks like it topped out, which is the sort of setup I'd normally want exposure to.

The two ways in that I can see for someone my size are pretty different animals. Public apartment REITs trade every day, I can size the position however I want, and I can be wrong and out by Friday. What I give up is the value-add execution, since those companies mostly own stabilized institutional product and the share price will do things that have nothing to do with the buildings.

A private closed-end value-add fund gets me the actual thesis in the chapter, buying below replacement cost and pushing NOI. It also gets me a seven to ten year lockup, capital calls on someone else's schedule, and a fee load I'd have to squint at. If the recovery arrives in 2027 as expected, the private version probably captures more of it. If I'm early by three years, the public version lets me survive being early.

Where do people here come down on this, and why?

devon_pierce · Answer

REITs, and I'd say the liquidity isn't the main reason. You can see what you own. Quarterly supplementals give you same-store revenue, occupancy by market, and the actual capital spend per unit, all published. In a private fund you find out in a quarterly letter written by the person who wants your next commitment.

The pushback on my own vote is that REIT prices already move on the recovery story before the rents show up, so by the time the vacancy data confirms anything you may have paid for it twice. Private funds buy buildings at whatever the building costs that month, which is a slower and duller mechanism and sometimes that's the point.

ehernandez74 · Answer

I picked wait, which I realize is the boring box.

@arbor, the part of your post I'd sit with longer is "if I'm early by three years." In a closed-end fund being early isn't a mistake you make once, it's a mistake that compounds, because they'll keep calling capital during the flat years and charging on committed amounts while doing it. I read one of those documents last year and the fee base alone took me a week to understand. In a REIT being early costs you a drawdown and some patience.

But I'd separate the two questions you've blended. One is whether the trough is real. The other is whether you personally can hold something illiquid for a decade without needing the money. If the answer to the second one is no, the first one doesn't matter and the poll only has one option for you.

If the apartment trough is real, is the liquid version of it good enough?

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