Over the past few days, I have been in San Francisco, and have had the privilege of meeting with four real estate executives whom I am trying to interest in participating with the Lusk Center in one way or another. They are all doing remarkably well, all things considered, and some of the things they said to me explain why. Two things stand out:
(1) When investing in real estate, underwrite the real estate without consideration for financing. Unless the deal earns an acceptable unlevered internal rate of return, don't do the deal.
(2) If a deal depends on a going-out (i.e. exit) cap rate that is lower than the going-in (i.e., purchase) cap rate, don't do the deal.
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