Making the Leap to Long-Term Holding

The greatest real estate fortunes are made by holding assets for decades. How can developers make the leap from merchant building to long-term ownership?

This letter leans heavily on real estate finance. Those looking to dive deeper into these dynamics should consider Thesis Driven’s Fundamentals of Commercial Real Estate course. We offer it every few months in New York City; the next one is August 7-8th.

For many upstart real estate developers, getting into the development business means selling assets upon stabilization. This is particularly true in the current rate environment as higher rates make it harder for developers to cash out investor equity through refinancing.

But historically, great real estate fortunes have not been made by flipping assets. Instead, the most successful real estate entrepreneurs made good long-term bets on specific sectors and markets and then held individual assets for decades or even across generations.

Today’s letter will tackle how real estate developers can make the transition from flipping to long-term holding. We’ll talk through the problem from several angles, including:

• The structural forces pushing GPs to build and flip;

• The problems flipping creates for GPs;

• Operational considerations of long-term holding;

• Financial and capital markets considerations of long-term holding;

• Thinking like a generational real estate owner.

Thanks to Moses Kagan of Adaptive Realty and ReSeed Partners for his help with this letter!