For this Field Note, we wanted to share some perspective on a situation that comes up in almost every real estate cycle — holding an asset longer than originally planned.
When a project begins, we typically underwrite a general hold period based on the market conditions at the time, expected lease-up, financing terms, and the transaction environment we believe will exist once the property is stabilized. In practice, those assumptions rarely play out exactly as expected. Markets change, interest rates move, leasing takes longer in some periods and faster in others, and the timing of a sale that looks ideal on paper may not be ideal when the time actually arrives.
Over the years, we have learned that the ability to hold longer than planned is often one of the most important advantages a partnership can have. Real estate does not operate on a fixed schedule, and forcing a sale simply because a projected hold period has ended can leave value on the table, particularly in slower markets.
We have seen this most clearly during periods when transaction activity slows or financing becomes more expensive. In those environments, buyers tend to be more selective and pricing can soften, even for well-performing properties. When that happens, continuing to operate the asset, allow rents to grow, and wait for better market conditions is often a better outcome than selling into a thin market.
Holding longer can also create opportunities that were not part of the original plan. As markets mature, we may be able to add expansions, adjust rental rates, pursue ancillary income, or benefit from surrounding development that increases demand. In many cases, these additional years of ownership produce incremental value that more than offsets the delay in a sale.
Of course, holding longer only works when the asset was structured with that flexibility in mind. Reasonable leverage, manageable loan maturities, and a strong location all make it easier to give a project the time it needs to reach its full potential. One of our consistent goals when developing a property is to avoid putting the partnership in a position where timing alone forces a decision.
We have had several projects over the years where the original plan called for a shorter hold, but market conditions suggested patience. In most of those cases, the additional time allowed the asset to stabilize more fully and ultimately resulted in a better outcome for the partnership.
Real estate cycles will always move at their own pace, and rarely on the schedule we expect at the beginning of a deal. Our approach has been to stay disciplined, keep the balance sheet conservative, and maintain enough flexibility so that we can make decisions based on market conditions rather than deadlines.
