Ramser Development Company Q1 Newsletter
"The waiting is the hardest part
Every day you see one more card
You take it on faith, you take it to the heart
The waiting is the hardest part"
- Tom Petty, "The Waiting"
Tom Petty obviously wasn’t talking about the 2023 commercial real estate market when he wrote the classic song "The Waiting" in 1981. However, he inadvertently summed it up well.
By and large, commercial assets are still not attractively priced. For us to invest, prices need to adjust to the new cost of capital reality. However, they are notoriously slow to do so on the way down. As an illustration, Ramser Development Company pursued 70 marketed properties over the past three quarters, but only nine have transacted to date. This is largely due to a lack of discretionary sellers and buyers, with sellers anchoring to recent market highs and buyers waiting for prices to fall to more attractive levels. In other words, few in this environment are selling or buying out of their own free will.
We are seeing some signs of this trend beginning to thaw, but it’s not happening overnight. For example, we recently went under letter of intent (LOI) on a site in Sacramento that had been dropped three times in the past year before the seller came around to transacting at a price and terms that were attractive to us.
One notable difference in Q1 2023 versus the second half of 2022 is that market sentiment seems to finally have shifted away from the idea that higher interest rates are just a temporary blip. This is a welcome sentiment change and gives us hope that persistence will be rewarded and that the market will eventually shift in our favor.
As we noted in our previous letter, the banking sector has been under pressure largely due to the Federal Reserve's aggressive hiking cycle. While there is quite a bit of noise elsewhere, the ultimate problem for many banks is that their assets are not yielding enough to pay market depositor rates without incurring negative net interest margins. This puts pressure on balance sheets and has the potential to cause widespread issues in the banking sector. While we've seen some cooling off in recent weeks, we believe that this is a warning sign for investors to remain cautious.
Our big news for the quarter comes from Altamonte Springs, where Ramser Development Company leased approximately 23 acres of the 55-acre ATS site to two commercial tenants. Net operating income (NOI) on the project is now over 50% above our underwritten stabilized projections and we are still working towards stabilization. RDC would like to give a huge shoutout to Monica Wonus and David Murphy at CBRE as well as to our operations team for getting these deals across the finish line.
As we move forward, we remain mindful of Seth Klarman's advice about buying in a challenging market:
“In investing, nothing is certain. The best investments we have ever made, that in retrospect seem like free money, seemed not at all that way when we made them. When the markets are dropping hard and an investment you believe is attractive, even compelling, keeps falling in price, you aren’t human if you aren’t scared that you have made a gigantic mistake.
The challenge is to perform the fundamental analysis, understand the downside as well as the upside, remain rational when others become emotional, and don’t take advice from Mr. Market, who again and again is a wonderful creator of opportunities but whose advice should never, ever be followed.”
RDC remains focused on its primary goals of purchasing RV & Boat Storage, Industrial Outdoor Storage, and Self-Storage assets at an attractive basis and operating them to their fullest potential.
Thank you for reading our first quarter newsletter. If you would like to be added to our distribution list for future investment opportunities, please visit RDC's Investor Portal.
Chief Investment Officer
Ramser Development Company