[Podcast] How to Survive the Coming Real Estate Storm
What Sean Kelly-Rand Learned at Lehman Brothers
For the prudent real estate investor or sponsor, today's episode is a masterclass in what really matters.
When Lehman Brothers unraveled in 2008, it exposed a truth that many in the real estate world still prefer to ignore: even the most sophisticated capital structures can implode when the cost of capital and access to liquidity are misunderstood – or worse, taken for granted.
My podcast/YouTube show guest today, Sean Kelly-Rand, didn’t just watch that collapse unfold; he lived through it from inside and the playbook he uses today as the managing partner of RD Advisors is shaped, in part, by that early, formative experience.
Listen/watch the full podcast conversation here >>
Kelly-Rand's approach offers a deeply pragmatic framework for anyone navigating real estate in today’s uncertain climate. In an era of overpromised alpha and fragile capital stacks, his investment thesis is a study in restraint, structure, and staying power.
From the Heart of Lehman to the Edges of Risk
Kelly-Rand joined Lehman Brothers in 2006, just before the implosion, drawn by its dominance in the bond markets which he saw, even then, as the true engine behind real estate. While most looked to equity investment banks for leadership, he understood that the debt markets were where real decisions were made. His work centered on real estate financing and syndication, with a front-row view of a business model that was, in hindsight, structurally doomed.
Lehman’s capital stack had been stretched too far – built on short-term funding to support long-term positions. As the firm accumulated assets, expanding its real estate exposure from $5 billion to over $36 billion, it did so with virtually no cushion. Liquidity was cheap and ubiquitous, but inherently unstable. When securitization markets seized up, those long-term assets could not be offloaded without catastrophic discounts to book value. And because any sale would have forced a full repricing of the entire book, no sale could be tolerated. Lehman was stuck – and the system broke.
That lesson remains central to Kelly-Rand’s thinking today. The real issue wasn’t the quality of the assets; it was the fragility of the structure behind them. Risk wasn’t in the deal. It was in the funding.
Rebuilding from the Ground Up
In the years that followed, Kelly-Rand transitioned from the institutional capital markets to operating in the private lending space. He co-founded RD Advisors not just to chase yield, but also to build a firm capable of weathering downside scenarios – starting with a clean-sheet design of its capital strategy.
The fund today focuses exclusively on senior secured debt, kept short in duration and conservatively underwritten. The business emphasizes cash-paying borrowers and short-term duration to preserve optionality and liquidity. Leverage is kept modest by design, with loan-to-value ratios structured around exit values that tolerate declining markets.
Crucially, every deal is evaluated with a focus on capital preservation. Underwriting is done not with optimism, but with contingency: would the fund be comfortable owning the asset if they had to should a borrower walk? If the answer is anything but a clear yes, the deal doesn’t proceed.
This mentality isn’t just prudent, it’s essential. The goal is to never rely on someone else’s execution for one’s own capital security. And that institutional memory from the GFC sits the core of the process.
Avoiding the Illusion of Alpha
Much of what passes for outperformance in today’s real estate environment is simply leverage in disguise. Sponsors show high IRRs, but beneath them is a capital structure dependent on favorable refis or asset appreciation that may no longer be achievable. That’s not skill, it’s exposure.
Kelly-Rand’s fund’s returns, by contrast, are deliberately boring. They are stable, predictable, and quarterly. It’s a feature, not a bug. In fact, Kelly-Rand views volatility as a symptom of poor underwriting or misaligned structure, not a badge of aggressive performance.
He’s wary, too, of the growing interest in ‘loan-to-own’ strategies, particularly among opportunistic capital looking to buy defaulted notes in the hopes of acquiring assets at a discount. While technically accurate – private credit can convert into equity when things go wrong – he emphasizes that building a business around that premise introduces operational complexity, execution risk, and volatility that neither he nor his investors are seeking.
Today’s Market Echoes the Last Crisis
What concerns Kelly-Rand most now is how little has changed in institutional behavior since the last crisis – and how closely today’s market echoes that of 2007.
There is the same creeping complacency in the banking system. Institutions are holding loans at par that would clear far below face value if sold today. Marking one loan down would trigger write-downs across the portfolio, and many banks simply can’t handle that. Instead, they hold and wait, even as rates rise and deposits become more expensive than the loans on their books.
This, too, is unsustainable and, like last time, it's a question not of credit risk but of duration mismatch and funding fragility. Depositors have not yet realized en masse that their money could be earning 4.5% elsewhere. But when they do, the cost of capital for banks could spike rapidly and the system isn’t ready.
Worse still, foreign capital, the marginal buyer that has helped sustain U.S. real estate valuations for decades, may be losing interest. If geopolitical or currency instability weakens demand for U.S. treasuries or assets, long-term rates could drift higher, even if the Fed cuts short-term rates. That shift would have a profound impact on real estate pricing, permanently resetting cap-rate expectations – and values.
A Framework for the Informed Investor
The takeaway for sponsors and investors is stark but empowering: you don’t need to predict the next crash, but you must be structurally prepared for it.
Kelly-Rand’s fund is an expression of that principle. It’s structured to be resilient, not just profitable. Its margins are modest but consistent. Its leverage is low by design. And its underwriting focuses on the downside – not because of fear, but because of discipline.
His experience at Lehman Brothers gave him a visceral understanding of how quickly capital evaporates when confidence is lost. What makes his insights so valuable today is not just that he’s survived a cycle but that he’s operationalized that survival into a repeatable, durable framework.
In a world where risk is increasingly hidden behind optimism and spreadsheets, Sean Kelly-Rand offers a different kind of edge: memory.
Best,
Adam
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