We are small fund that owns several properties in Florida. We are pleased with how our properties are performing, but also do not want to hold on too long if there is a downturn around the corner. How will we know when it is time to exit? What are common exit strategies that you are seeing so far in 2018?
Timing is everything when it comes to real estate, and from a fund perspective, the right time to exit is when you hit your IRR target returns and take into consideration your fund life. Most funds will only allocate money during a fund life once, meaning they won't sell and buy again with the same allocation of money. Florida is a growing market in residential and decentralized locations such as south of Ft. Lauderdale, whereas office growth is more flat.
All of that depends on the property type, location, original underwriting and performance to date.
Our experience for the right exit time is when the asset is stabilized, and projection are close to 100%. We know this is not always possible; however, 8 out of 10 times, we do meet our projections, which is due to the fact, we carefully analyze and conduct an in-dept due diligence and feasibility on all assets we undertake. Common exits we are seeing is through core asset PE funds and/or REIT's.
If I really knew the answer to this question, I would be trade on this and be a very wealthy man rather than a lawyer. Investors carefully study market and industry trends and usually have any number of key metrics they look at to signify upcoming changes to the market. Sometimes these metrics work and sometimes not. Some of these include global capital flows in real estate investment, availability of debt and equity capital in the capital markets, supply/demand fundamentals for various sectors in the real estate industry, trends in interest rates, trends in demographics and, perhaps most important, employment statistics, as job creation is a leading indicator for office demand and housing demand. When enough of these factors goes out of balance significantly, there is often a major turn in the real estate market that will follow.
The time to exit is in the eye of the beholder. Depending on the class and the location, owners are taking advantage of market swings to sell when they believe the markets are peaking. I admit that I have learned not to try to time the markets. My personal analysis takes into account not only where we are in the cycle (and that seems to vary from one day to the next), but the type of asset, the strength of your rent roll and whether there is room to lose a tenant. People are talking about self-storage peaking, retail repositioning, office having a lull (again, look at the market) and hospitality being yes or no.
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