Ackerman & Co. Investment Letter

April 2024

Investment Thesis

Interest rates have risen, debt spreads have widened, cap rates have risen, and inflation seems persistent. This environment provides an opportune time for investors to acquire assets whose values are temporarily impaired by uncertainty as the consequent hesitancy of investors. We believe that at least some of this uncertainty is temporary and that when uncertainty falls, cap rates will decrease. If interest rates fall as well, cap rates will fall further. Even if the recovery is slower, cap rates for industrial properties are unlikely to increase further since all-equity buyers have created a ceiling for core product around 6.00%. Therefore, we have the possibility of asset value improvement with limited risk of decline.

This cycle, the differentiator between successful and below average CRE investments will be leasing. We can see leasing trends before other investors because Ackerman is well established in our markets. Product types with low vacancy and strong absorption will recover fastest. Ackerman is focusing on these product types including industrial, storage, RV parks and retail for investment.

Industrial real estate continues to have solid fundamentals. Vacancy rates continue at the lowest rates in decades. Vacant space is being absorbed and very little is under construction which pushes these vacancy rates even lower. As leases expire in tight markets with little vacancy, tenants will have no choice but to renew at higher rates. Fortunately, because occupancy cost is a small percentage of the total cost for industrial tenants, they can afford to pay more. This creates a rare opportunity where prices of great assets are falling even though the rents they generate are rising.

The Economy

Early in 2024, both inflation and 10-year treasury rates dropped from 2023 highs. Job growth has remained positive. The stock market has reached historic highs in the Dow and S & P 500 with solid year end corporate earnings as well as gains in the technology sector. GDP remains positive and so far, we have avoided a recession. The Fed is planning interest rate reductions as inflation slows, reversing the rapid interest rate hikes seen in 2023. A soft landing may occur. Uncertainty in the economy has lessened although many remain hesitant as the 2024 presidential election draws near.

How does this impact Ackerman’s investment thesis and execution? If the Fed lowers rates and the economy stays strong – the soft-landing scenario – demand and leasing activity in our Texas and Southeastern markets will improve, increasing occupancy and further improving markets and pushing rental rates. Uncertainty in debt and equity markets will dissipate. Refinancing and new loans will become easier. This should generate improved investment sales activity, increased competition for acquisitions and improved pricing. Our plan is to take advantage of this coming recovery by selling the assets we have acquired and developed now.

If the soft-landing scenario proves illusive and the Fed reacts too slowly, we may have a mild recession. Interest rates would drop faster. Commodity and construction prices would drop as construction slows further. High growth markets like ours in Texas and the Southeast may continue to see reduction in vacancy rates as new deliveries come to a halt and space absorption continues. Those with buildings ready to deliver first into an improving market and economy will benefit.


The current market landscape was shaped by rising interest rates that have now plateaued and are expected to fall; debt spreads have widened, but are stabilized with downward pressure; cap rates have increased and inflation has moved downward. This environment has led to decreased investment activity, with many equity investors avoiding uncertainty and being selective with their deals. Our investment thesis has taken a more optimistic view, seeing this as an opportune time to acquire assets on bad news.


Kris Miller