A friend of mine said to me recently, “There is a ton of money out there—except for the deal that I’m working on.” Isn’t that the truth. This is what we’re experiencing in the market today. Certainly, there’s a lot of capital out there from many sources, but it’s far more discriminating than it was a few years ago.

First, most of this capital is looking for security, be it debt or equity, in the form of core investments. Second, much of this capital, especially foreign, is looking for investments in the gateway coastal cities. The size of the deal is always a factor, and most of the larger institutional investors are looking to place at least $20 million-plus.

For those assets that are not in gateway cities, in order to attract the attention of capital, especially on the debt side, they generally have to be best-in-class. There are asset types that are more favored than others, such as multifamily today. And once again, if you have a product, for example office, that is not in a coastal 24/7 city, it is certainly more difficult to find debt or equity for this product.

Much of this is understandable and predictable, given what we have all experienced over the last few years. Many people and institutions have lost money or seen their investments eroded and are now quite nervous to reenter the marketplace. But they are beginning to do so.

The debt markets have come back in a much stronger way. But in order to attract capital, one needs to be more creative, flexible, and responsive. Yield is at an all-time premium, given the current interest rate environment. Risk mitigation through better due diligence, more information, more alignment between sponsors and capital, more equity in deals, and greater transparency are all the rules of the day.

Deals are starting to get done, but it’s much more difficult and if the project does not fall into a closely defined box. Value-add or opportunistic deals that require equity and debt are the most difficult ones to do, and should therefore be underwritten for the highest returns. However, there is a still a gap; in many cases, sellers are not willing to sell for prices that it takes to attract the capital these days.

This downturn has some similarities but many differences when compared to cycles we have seen in the past. It’s yet to be determined how this one will play out. Stay tuned; it’s far from over!

Cliff Booth is CEO of Westmount Realty Finance LLC. Contact him at cbooth@westmountrf.com.