Morning,
Last week’s newsletter focused on what many investors lived through over the last three years and why so many now evaluate sponsors through a far more skeptical, experience-driven lens. The short version: investors aren’t fleeing real estate. They’re fleeing weak operators. The capital is still there, but the tolerance for undisciplined underwriting, thin communication, and amateur behavior has evaporated.
This week, I shift to the other side of that equation - what strong operators are actually doing today to capture the opportunity ahead. Because while investors are sorting sponsors more aggressively than at any time since 2009, best-in-class operators are already positioning themselves for both the next upturn and the downturn that inevitably follows.
This is where the real money is made in commercial real estate: before the headlines, before the recovery is obvious, before the competition wakes up.
And nearly all of it comes down to operational discipline - and a deep respect for patience as a strategic asset. Some of the most successful operators in the country have gone years without buying a single property because the pricing made no sense. That mindset, patience and precision, has proven to be one of the most powerful differentiators this cycle.
1. Real Returns Come From Operations, Not Optimism
One of the most revealing patterns of the last cycle was how many sponsors attributed their performance to “strategy” when it was really just cheap debt, rising rents, and compressing cap rates doing most of the work.
During the last decade, you could acquire almost any multifamily asset, underwrite double-digit rent growth, layer floating-rate leverage on top, and generate returns that looked sophisticated.
But when the easy money stopped doing the heavy lifting, the difference between genuine operational skill and borrowed performance became obvious.
The operators who are outperforming today - and who will continue to outperform in the next expansion - share one core belief:
Operational alpha compounds. Market beta does not.
They don’t chase the market. They manage the fundamentals:
• unit-level data
• disciplined staffing
• sequencing of capex
• real rent management
• proactive maintenance
• relentless attention to costs
• focus on tenant satisfaction
• absolute control over all processes
And beneath all that is a second principle: patience protects performance. Many of the operators now in the strongest position spent the last few years doing nothing - by design. While others strained to deploy capital simply to stay active or, worse yet, to earn fees, the disciplined waited. They were willing to sit on their hands until the numbers made sense again.
There is nothing glamorous about this. That’s why it separates the durable from the fragile.
Everyone claims to be “value-add.” Few actually add it.
2. The Operators Who Will Lead the Upturn Are Taking Their Pain Now
Every cycle creates a split between operators who confront reality early and those who delay the inevitable.
The worst thing an operator can do in a downcycle is pretend it isn’t happening. The best operators know this, which is why they compress the pain into the early period of a correction. They face the issues - delinquencies, softening rents, operational drift, expense inflation - directly and decisively.
The mediocre operator waits.
The disciplined operator acts.
The ones taking their pain now:
• reset rents faster
• rewrite budgets earlier
• renegotiate contracts immediately
• address underperformance ruthlessly
• re-evaluate staffing models proactively
• communicate problems before they metastasize
And here’s the part most people never learn:
Those early decisions become the advantage in the upturn.
Because when the market begins its gradual recovery, these operators aren’t still healing or reorganizing or apologizing to investors. They’re ready. Their assets are clean, their teams are tight, and their balance sheets aren’t distorted by denial.
They can now take advantage of the early-cycle opportunities precisely because they didn’t drag the late-cycle baggage into the next period.
3. The Smartest Operators Prepare for the Downturn During the Upturn
This pattern repeats every cycle:
The worst operating decisions are made when things feel easy again.
The professionals never forget this.
Even as conditions improve - leasing stabilizes, rents tick up, lenders loosen - the best operators keep their posture conservative:
Capital structure
They don’t re-lever just because the credit markets reopen. They stay hedged, ladder maturities, build cash buffers, and avoid dependence on optimistic refinance scenarios.
Operating procedures
They do not soften standards. If anything, they raise them. Because they know the seeds of the next downturn are sown during the complacency of the upturn.
Investor communication
Their communication stays sober, not celebratory. They treat every quarterly update as a trust-building exercise, not a marketing opportunity.
Asset management discipline
They don’t treat improved occupancy as a victory lap. They treat it as a data point - and interrogate the drivers behind it.
Low leverage
They treat low debt as a strategic advantage, not a constraint. High leverage can make you look smart in the upcycle, but it destroys your freedom of action in the downcycle. Disciplined operators would rather take fewer deals than take on debt that compromises control.
For these operators, patience isn’t just a defensive posture. It’s the operating system. They will pass on 100 deals without blinking, knowing that the 101st - when priced rationally - will outperform the previous 100 combined.
They understand that the real work of protecting returns in the next downturn begins during the recovery, not after it.
4. The Best Deals in the Next Cycle Won’t Come From Market Distress – They’ll Come From Operator Distress
There is a misconception that the next big buying opportunity will be about “distress.”
Historically, that’s only partially true.
Distress gives you volume, not necessarily quality.
The best opportunities - the ones that produce multi-cycle returns - come from competence gaps, not market dislocations.
Every downturn leaves behind a long trail of assets held by sponsors who:
• over-levered
• under-managed
• under-capitalized
• misjudged rent growth
• failed to control expenses
• sequenced renovations poorly
• lacked basic operating discipline
These are not “bad” properties.
They are properties that never reached their potential because the prior operator was incapable of extracting it.
Disciplined operators build their next cycle on these assets.
They aren’t looking for fire sales.
They’re looking for buildings where the previous owner left money on the table - and they wait for those moments with the same patience they brought to selling near the top and refusing to overpay for years.
5. What Operators Should Be Doing Right Now
Here is the quiet playbook the best operators are running today:
1. Build liquidity while acquisition volume is slow.
Dry powder is not just capital; it’s conviction.
2. Standardize processes across the entire portfolio.
Consistency compounds.
3. Identify inefficiencies at the micro level.
Most NOI lift is found in the unglamorous details.
4. Run conservative underwriting as the base case.
If your deal only works in the upside scenario, it doesn’t work.
5. Prepare the investor-communications framework for problems now.
If you can explain an issue clearly, you can navigate it.
6. Strengthen lender relationships in quiet times.
When the market turns busy, lenders favor those who built equity in the relationship.
7. Build a watchlist of operator-driven acquisition targets.
You don’t need a market crisis.
You just need a weak counterparty - and the patience to wait for them.
Closing Thought: Outperformance Is Built Now, Not Later
The operators who will lead the next expansion aren’t waiting for the market to improve. They are engineering their advantage now - quietly, methodically, and without theatrics.
In commercial real estate, resilience isn’t something you acquire.
It’s something you build through discipline.
And discipline begins with patience: the patience to sell when others are euphoric, to wait when others are restless, and to act only when the numbers demand action.
The upturn will reward those who already learned that lesson.
The downturn that follows will punish those who didn’t.
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If your platform is preparing to raise capital as the market turns and you want to do it with discretion and the discipline investors now expect, I work with a limited number of sponsors to build, manage, and actively run capital-formation programs.
Contact me if you'd like to discuss.
Adam