Nobody Gets Rich Buying
a Bond With a Lobby

What Cousins bought on South Tryon, what they didn’t, and the three questions that separate the two.

Cousins Properties paid $317.5 million this year for 300 South Tryon in Charlotte, the 25-story tower where Barings keeps its headquarters, according to the Charlotte Business Journal. Two weeks ago the air rights over the hotel on the same block sold to a Texas buyer for another $72.9 million. Roughly two hundred vertical feet of nothing, starting 765 feet up.

My instincts tell me that the “nothing” Crescent bought may have been a better deal. Not because the Barings building is necessarily a bad deal, but notice what Cousins bought, because it isn’t what most people think.

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A bond with a lobby

They bought income. A trophy address, an anchor tenant with a global name, a lease roll you can model to the dollar. The upside is in the coupon. The risk is managed by scale, by cheap capital, and by a public balance sheet that can wait out a soft leasing market.

That’s a “core” acquisition, and a perfectly rational one. It’s a bond with a lobby.

And there is more money hunting for exactly that than ever. Pension funds around the world have the same problem: retirees living longer, benefits promised in a different era, and a decade of bond yields too low to carry the load. Their answer has been real estate. A Harvard study of nearly 2,000 pension funds found U.S. pensions nearly tripled their allocation to alternatives between 2008 and 2017. That money needs 300 South Tryon. Not airrights.

Which is the point. Almost nobody gets rich buying a bond with a lobby. The return on a trophy tower is priced to the penny by every bidder running the same spreadsheet. By the time you’re competing for one, the money has already been made, by whoever built it or whoever bought it when nobody else wanted to.

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Where the money actually gets made

Thirty-five years of watching people get rich in this business has taught me they were rarely the ones with the biggest checkbook. They were hands-on operators with grit who did three things most buyers skip.

They found value in the seller’s circumstances. I once bought a large farm from a family three years into settling their father’s estate. By the time I showed up they weren’t negotiating price. They were negotiating an end to the arguing. Another time we bought a portfolio of small-bay warehouses from a group of doctors who had inherited control of a partnership after the general partner went to prison for fraud. They were physicians, not landlords, and they wanted out.

Cycles hand you these sellers in bunches. After the 2008 crash I sold office buildings at Forest Park that the developer had handed back to the bank, and the bank was no more interested in being a landlord than the doctors were. Since the Fed started raising in 2022 it’s been the owner with a floating-rate loan and an expiring cap, or a refinance at twice the old coupon. The building didn’t change. The owner’s circumstances did.

They structured the offer around the seller’s problem. The doctors wanted certainty, so we waived financing. The estate wanted it over, so we closed in thirty days. Nobody else offered either, because nobody else asked.

And they knew the property type cold. Not real estate in general. One kind of building, in a few submarkets, well enough to know what the vacancy would cost to fill and who would pay to fill it.

That combination is rare. It’s also learnable.

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Charleston

I know, because I’ve been that buyer, and I wasn’t a rookie when it happened.

I was Senior Vice President of Acquisitions for what is today the second-largest private owner of industrial real estate in the country. I bought warehouses for a living. I knew what a good one looked like.

So when I found a half-empty warehouse in Charleston, I loved it. The port, the growth, the empty square footage I could already see leased. I’d spent months on it. I built the model and had the story down cold. What I didn’t have was a single good answer about why the owner was selling, how fast they needed to close, or why we’d win it against every other buyer who liked Charleston as much as I did.

I never got the deal. A local operator bought it, leased up the balance, and sold it to an institutional owner of infill industrial. Exactly the plan I’d pitched.

He was right about the building. So was I. He was also the right buyer, and I wasn’t, and that had nothing to do with the building. It had to do with who the seller was and what his offer solved for them. I’d skipped both questions.

A side note for Charlotte readers: Charleston commercial real estate routinely trades at prices that would make you spit out your coffee. My unscientific theory is that asset managers pay a premium for an excuse to expense a trip to Charleston. Call it the shrimp-and-grits premium.

“I run a company. I’m not going to be a hands-on operator.”

Fair. Most people reading this are CFOs, presidents, and family office managers, not warehouse operators. You’re not spending Saturdays walking a roof.

You don’t have to. You have to buy like one, or hire one. Either way the first job is the same: know which kind of deal is in front of you before you spend a dollar on it. A bond with a lobby and a seller-circumstance deal look alike in the offering memorandum. They’re priced completely differently, and they reward completely different buyers. Confusing them is how smart people over pay.

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The Smell Test™

Avoiding that mistake is what The Smell Test™ is for. Thirty factors, three gates, each scored one to five. (i) Seller: how fast they need out, whether they’re whispering or running an auction, how long they’ve owned it, how attached they are to their number. (ii) Transaction: time to close, time to kick the tires, all cash or not, how many signatures, what the sale does to their tax bill. (iii) Property: occupancy, class, age, location, tenant credit, rents against market, what’s hiding in the roof. Each gate totals to a number, each number has a reading, and the output is a one-page Go / Hold / Pass brief before any due diligence expense. Scored honestly, my Charleston deal comes up Hold. I’d been treating it like a Go.

I’ve partnered with SF AI Labs, an AI consulting firm in San Francisco, to build The Smell Test™ into software: feed it a stack of offering memorandums and it scores each one against the thirty factors, so an acquisitions team spends its underwriting hours on the three deals worth the pain instead of the thirty that aren’t. The tool is in development. The judgment behind it is available now, which is what the offer at the bottom of this piece is about.

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The takeaway

Great real estate investors fall in love last. Before you ask what a building is worth, ask why it’s available to you, what it will take to close, and only then what it can become. Cousins can afford to pay full price for the answer. You have to earn it.

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Got a deal that smells right, but you can’t say why?

Send me the one-paragraph version. I’ll run it through The Smell Test™ and send back a Go / Hold / Pass brief with the three questions you should ask next. Give us a call or shoot us an email.

Cardinal Real Estate Partners | 704-900-0900 | www.Cardinal-Partners.com

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