Real estate investing can be very counterintuitive. Most investors outside our industry (and many in it) subscribe to the “rearview mirror” school of real estate investing – meaning they only want to invest when things look great in their rearview mirror.

Unfortunately, by then, much of the positive economic runway is already behind them. It seems like both common sense and counterintuitive that investing during the darker hours of an economy’s cycle is the least risky time to invest – but the rearview mirror investor thinks the opposite.

In our opinion, today’s climate is the riskiest of all real estate investing climates. Seems odd to say that, right? The Dow, perhaps the greatest indicator of consumer confidence, has just crossed 26,000, and jobs reports have exceeded expectations. Real estate asset pricing is hitting record levels, and property fundamentals remain solid. And you won’t find many economists who say, “I see trouble ahead.”

Yet 2017 was an extremely light investing year for the majority of value-add real estate investors, especially among those who have a decades-long track record of real estate equity investing. Many hit the brakes in ’16 and ’17, whereas those newer to the space hit the gas during that same period. Capital remains in the market, but it’s not the same “blue-chip” capital we saw just three years ago.

Why would savvy investors hit the brakes in the midst of such strong economic growth? Perhaps because they too understand that despite being surrounded by everything positive, all that

glitters is not gold. Warren Buffett once said, “Be fearful when others are greedy and greedy when others are fearful.” Hope for and an expectation of a more business-friendly economic climate has fueled the 2017 economic surge we’ve all experienced. Is hope a sustainable economic strategy? Are we now in bubble territory? We at Trinity don’t know the answer to either question.

Why would savvy investors hit the brakes in the midst of such strong economic growth? Perhaps because they too understand that . . . all that glitters is not gold.

One can invest successfully during these riskiest of times – we call it “Core Plus” or “Core” investing. Investing in this way targets lower risk, lower returns, and greater downside protection. It’s investing for the longer term where value will fluctuate less, and where cash flow (instead of appreciation) accounts for a much larger percentage of the overall return. While we’re usually most active in the Value-Add (moderate risk) investing sector, we have over the last couple of years invested in several very appealing Core Plus investments.

There is a vast amount of real estate equity sitting on the sidelines, ready to be put into the game. Many investors who have raised large private real estate funds report pressure to invest (and their recent purchases reflect this pressure), while others say, “We’re investing slowly and cautiously and are happy to have plenty of dry powder.”

We fall into the latter category. The easy money in real estate investing was made years ago, but today, it feels like it’s time for more caution than ever, despite the forecasted clear skies ahead.

Gary ChessonFounding Partner, Trinity Capital Advisorsgkc@trinitycapitaladvisors.com

J A N U A R Y 2 0 1 8

T R I N I T Y C A P I T A L A D V I S O R S . C O MC H A R L O T T E440 South Church St, Suite 800Charlotte, NC 28202

R A L E I G H3020 Carrington Mill Blvd, Suite 425Morrisville, NC 27560

Market PerspectiveThe Rearview Mirror

Acquire and develop office, industrial, and mixed-use real estate in the Southeast and Mid-Atlantic U.S. Since 2002, Trinity Capital has invested over $2.0 billion in 16M SF. Sister company Trinity Partners’ (trinity-partners.com) 135 employees in Charlotte, Raleigh, and Greenville (SC) provide sourcing, operating expertise, and accurate market data for Trinity Capital’s underwriting of its investments.

» Contrarian investing, avoiding the froth

» In-house operating platform

» Hands-on value creation

» Disciplined underwriting, moderate leverage

» Buy or develop the best assets

» Quick reactions to capital market flows

T R I N I T Y C A P I T A L A D V I S O R S . C O MC H A R L O T T E440 South Church St, Suite 800Charlotte, NC 28202

R A L E I G H3020 Carrington Mill Blvd, Suite 425Morrisville, NC 27560

Real Estate Investment Excellence

What We Do

Notable Investments

Investment Performance

Why We Win

CBD OFFICE MIXED USE

CBD OFFICE

SUBURBAN OFFICESUBURBAN OFFICE

MIXED USE

INDUSTRIAL INDUSTRIAL

FUND YEARS INVESTED GROSS IRRNET IRR TO INVESTOR

TOTAL COST % HARVESTED

Pre-Fund 2002-2005 44.24% n/a $127,548,000 87%

TCVF I 2005-2007 23.98% 18.64% $32,140,000 100%

TCVF II 2008-2011 20.17% 13.14% $254,549,000 100%

TCVF III 2012-2014 55.99% 26.00% $208,110,828 76%

Post-Fund 2015-present 37.80% 29.45% $1,378,078,484 10%

TOTALS: 31.02% 21.63% $2.0 B N/A