The Six Things We Learned at Our Capital Markets Summit

The carry trade is dead, and capital is moving to whoever can manufacture cash flow. Takeaways from a day with more than 250 investors and operators in emerging real estate.

Buy it at a six, finance it at a four, wait for cap rates to compress, and pocket the spread. For fifteen years that was the real estate business, and it worked well enough that plenty of people never had to get good at anything else. 

“It was very much a carry trade, but that’s gone,” said Bruce Cohen of Temerity Strategic Partners in the Summit’s morning fireside chat. One theme ran through the whole day: finding returns in today’s market takes creativity. Niche asset classes, new financing models, and a tolerance for operational complexity.

This past Tuesday, Thesis Driven and Bisnow filled Convene in Manhattan with more than 250 investors and operators. We explored these trends across thirteen panels running from an opening on New Capitalization Models down through the private credit stack. Nuveen, ICONIQ, Jamestown, and Slow Ventures took the stage; Rialto and Genesis walked the debt markets.

Six themes came up again and again throughout the day:

1. The tailwind is not coming back

Nobody on stage was waiting for rates to save them anymore. James Maher of Sopris Capital said that the market was “thawing,” though he was referring to seller fatigue more than buyer optimism; sponsors and LPs have stopped pricing deals around a cut that keeps not coming. Chris Keber of Two Sigma Real Estate did the math on the hangover: Fifteen years of free money ended in 2022. In an industry as slow as real estate, four years is nowhere near enough to reset flows built over fifteen.

Bruce Cohen of Temerity Strategic Partners in the Summit's morning fireside chat.

Real estate operators had spent a decade and a half winning from cap rate compression even if operating numbers missed. But as Cohen emphasized in the fireside chat, those days are not coming back any time soon.

What replaces riding the cap rate compression wave is harder and less glamorous: manufacturing cash flow, deal by deal. “In every other industry,” Cohen said, “capitalism migrates to people who can move EBITDA.” Michael Hess of Genesis put the operating version of the same idea into a single rule his debt fund lives by: underwrite to spot value, what an asset is worth today, with no cap rate compression penciled in and no rescue buyer at the exit.

2. Capital wants operators, not funds

“Asset owners are done being fee’d to death.” Pratik Patel of Walden Oaks said it on the panel that opened the day, and the rest of the day kept circling back to it. When the value comes from running the asset, capital wants to own the operator rather than rent exposure through a fund.

The mechanics are unforgiving. Promote is not recycling in this market, so the GP dollars an operator would normally redeploy sit trapped in deals that will not clear, and outside capital moves in to fill the hole. Mike Happel of Jordan Park Group described it from the allocator’s side; Mo Saraiya of Madison International sees it in the cap tables, where a fund’s old 99/1 split and a JV’s 90/10 are giving way to structures that incentivize investors with stakes in the operating company itself.

But those deals don’t look like conventional real estate funds. Darin Turner spent twenty years at Invesco before leaving to start Signal Line and chase underserved segments of the real estate financing market. His firm is now an investor in Roll Tree, a timber company built from the ground up on the bet that the timber industry — left largely untouched for fifty years — is ripe to be rebuilt.

What ties these models together is a fixation on alignment. “We own what you own” is how Lightrail’s Asher Werthan puts it.

David Wolfson left Lubert Adler to build Modillion Partners on the same instinct, cutting the two layers of fees and promote that LPs once paid just to reach an operator they could have backed directly.

3. The alpha is in the niches; the food groups are beta

Ryan Freedman of Alpaca put it bluntly: the big real estate food groups (multifamily, industrial, office, retail) are “commodity product” now, priced to the basis point and picked over. Worse, the machinery of the industry punishes anyone who tries to make something new out of them. Cut a building into a novel tenant mix, Freedman said, and “you made a hundred basis points on your creativity, but you lost a hundred on the sale,” because the market will not yet credit the tenant.

Stoney Cox of Nomos, who raises capital for the genuinely strange (EV charging, truck parking, Amazon van lots across Europe), sees a market running at two speeds: dead for commodity product, wide open for anyone willing to build something new. Niches that haven’t yet seen institutional pricing — but have strong macro tailwinds — are the one place cap rate compression will be found in the coming years.

The rest of the day was a tour of niches at every stage of the climb to institutionalization.

Manufactured housing has already made the full trip. Brian Finerty of Green Courte traced it from Sam Zell’s old “it’s not a trailer park, pencil neck” T-shirt to an asset whose rents have not fallen once in twenty-five years.

The niche becomes real the moment the debt market agrees. Nina Vascotto of ICONIQ refinanced a portfolio where forty percent of revenue came from stays under thirty days and still cleared it at multifamily rates. The line that got it done stuck with the room: this is multifamily, but better.

The newer ones are still mid-ascent. On the industrial roundtable, Alex Morrison of Portal and Joseph Ely of WareSpace described carving warehouses into units of 200 to 2,000 square feet, sized for the small businesses a packed small-bay market cannot house. Two seats down, Jake Finley of Karis was playing a different game altogether, sitting on 3,000 acres of entitled power land. Outdoor lodging is climbing too. Nightsky builds cabins in the mid-200s a key and rents them into the 400s a night, a spread a traditional hotel cannot touch.

4. Family offices are the missing middle

“There’s probably more alpha in that check size.” Billy Haddad of Partners Path on the two-to-ten-million-dollar deal, too big for a sponsor’s friends and family, too small for an institution to bother with. That gap is where family offices have made themselves indispensable to real estate operators raising capital.

Their edge is about temperament as much as capital. Family offices are often patient, they can hold assets for generations, and no two of them think alike. As Dan Cohen of Raleigh put it, if you have met one family office, you have met one family office. That independent-mindedness is the whole appeal; an asset doesn’t need an institutional stamp of approval to earn interest from a thoughtful family office.

But getting their attention is the hard part. Cold outreach barely works anymore, and the flood of AI-written decks has only made it harder. Haddad killed a deal the moment he caught one citing facts about the local market that were flat wrong — not because it was essential to the deal, but because of what else it meant that sponsor might miss. 

5. AI is the operating layer, not the alpha

“AI is an unbelievable averaging machine.” Will Quist of Slow Ventures meant it as praise and warning at once. A model returns the highest-fidelity consensus answer every time, which is exactly why the analytical grunt work that used to pass for alpha is collapsing into beta. The value shifts away from work AI can replicate and toward the two things it can’t produce: judgment, and ideas odd enough that no average of existing material would ever arrive at them. Quist is betting the gap between those two kinds of work only widens from here.

For investors, AI is just as much a tool for capturing and recording data as it is for analyzing it. Ryan Freedman’s team at Alpaca pours every memo, model, and bank tape into a data lake that once surfaced a passed-over deal by matching it to line 117 of a spreadsheet from eighteen months back, a catch most analysts miss. 

At Jamestown, Mandy Le uses it where it pays: monitoring water and energy to pull real dollars into NOI, and running enterprise Claude over merchandising plans. She still keeps a human on the desk, someone who knows when the model is wrong about a New York City tax rule.

6. The liquidity is lopsided

Debt and equity are living in different markets. On the debt side, capital is not just available, it is crowded. Joe Bachkosky of Rialto, fresh off buying the failed Signature Bank loan book, watched banks “sell exposure, not risk,” unloading their cleanest loans to shrink their real estate concentration.

The demand underneath barely moves with rates. Mike Bennett of Roc360 traces residential credit to “the four Ds, diamonds, dependents, divorce, and death,” the life events that put people in new homes no matter where the ten-year sits. Even the deals Genesis turns down tend to land somewhere, Michael Hess said. Often with a lender who once owned a hotel down the block and would happily own this one. Expertise is repricing risk, one asset at a time.

Compared to debt, the equity market is relatively frozen. A decade of funds has not returned capital. That DPI overhang, as Chris Keber put it, is what turned secondaries from the yawn of the business into the belle of the ball. But nobody expects the reckoning to come as a single maturity-wall crash. It plays out slowly instead, and the operators throwing off real cash flow can outlast the ones sitting on trapped equity.

The skills that made real estate money for fifteen years, buying well and borrowing cheap, are now table stakes. The carry trade rewarded patience, but what replaces it rewards operators, and they are not always the same people.

Thank you to Bisnow for building the day with us, and to our sponsors, Forvis Mazars, Outcome, Lev, Payscore, and Cost Segregation Guys, for making it all possible. 

Our Capital Markets Summit will be back next year. Stay tuned for more info soon.

The full agenda and speaker lineup from this year’s Capital Markets Summit are at summit.thesisdriven.com.