From Robert Brunswick

The Fall of the Financial Alchemist and Rise of the Operator

From Financial Alchemy to Operational Craft

For much of the last three decades, commercial real estate has enjoyed a golden era of financial engineering. Like the medieval alchemist who sought to turn base metals into gold, investors could seemingly create value through leverage and structuring and ride the tailwinds of falling interest rates. As Spencer Levy, Chief Global Strategist and Senior Economic Advisor for CBRE, aptly described on our Counting Capital podcast, “about 75% of all gains in real estate were due to cap rate compression with everybody being a genius when cap rates were going down.”

That era has ended. Higher borrowing costs, muted rent growth, and tighter credit markets have changed the calculus. The “financial alchemist” can no longer count on cap rate compression to transform mediocre investments into success stories. Today, leverage magnifies risk rather than return and structuring alone cannot mask weak fundamentals. The message is clear: execution, not financial alchemy, is what separates winners from laggards in this cycle.

The Market’s New Reality

We have reached a defining moment. With inflation proving sticky and interest rates holding higher for longer, the assumption that a future refinancing or sale will be buoyed by materially lower cap rates is no longer realistic. Valuations have adjusted, refinancing pressures are mounting, and transactions are being repriced to reflect these conditions.

In this environment, the risks of thin underwriting or over-levered acquisitions are painfully evident. What once seemed a clever use of debt has, for many, become a burden. As Trevor Schuesler our Executive Vice President of Investor Relations and I noted on the most recent podcast, the era of structuring your way to returns is over. Fundamentals like cash flow, tenant health, operational execution, and valuation matter again.

This shift is not a setback but a healthy reset for the industry. It puts real estate back in its rightful place as an operating business, not merely a financial transaction.

Execution Over Alchemy

So where does true value come from now? The answer seems simple but requires operating expertise, experienced human capital and tactical execution. Examples include:

Leasing and Retention: Healthy occupancy has become the frontline of value creation. The durability of cash flow rests on the quality and stability of tenants. Every renewal retained and vacancy leased is incremental value creation, directly supporting NOI and protecting downside risk.

Operational Excellence: Taking lessons from more operationally intensive sectors like data centers, senior housing, and single-family rentals, even the traditional “big four” asset classes must adopt a hands-on, service-driven approach. Enhancing NOI requires sharper expense controls, tenant-centric improvements, and active management.

Repositioning and Reinvestment: Assets can no longer sit idly in portfolios. Repositioning to meet evolving tenant needs — whether through amenity upgrades, sustainability improvements, or adaptive reuse — is where upside is unlocked.

Spencer Levy noted that three to five years from now, the only way to achieve targeted returns will be through better operations and expanded business plans. That perspective echoes our own experiences with the recent acquisition of the 227,000 SF, 16-building, multi-tenant Spectrum Centre Business Park where value is to be created not through leverage but through the subdivision of the business park and recording of a condominium plan. This specialized execution enables the sale of individual units which we believe will capture unmet end-user demand to generate higher returns.

Buchanan’s Approach: Discipline and Craft

At Buchanan, we view this shift not as a challenge but as validation of the principles we’ve long embraced: disciplined underwriting, conservative leverage, and active asset management.

Our underwriting today stress-tests not just cap rates but operational assumptions. Rent growth projections are moderated conservatively, expense inflation is rigorously modeled, and business plans are built around what we can control rather than what we hope the market will deliver.

On leverage, we continue to believe less is more. Conservative capital structures give us flexibility with the ability to extend, refinance, or pivot when markets shift. The best financing is not the most aggressive but the most resilient.

Most importantly, our teams are doubling down on the craft of real estate. From acquisition to asset management to disposition, the focus is on execution: signing tenants, driving renewals, enhancing properties, and managing expenses with precision. This is how we create durable value for our investors.

Implications for Investors

For investors, this transition brings clarity as returns will be steadier and grounded in cash flow rather than speculative financial tailwinds. While the days of double-digit IRRs achieved through financial structuring may be less common, the trade-off is a more resilient, fundamentals-driven investment landscape.

Our investors have long partnered with us based on our stewardship and transparency of communication and reporting. As this environment rewards discipline and execution, we believe Buchanan is uniquely positioned through the combination of financial alignment, operational expertise, and its overall use of conservative financial modeling and capital structure.

Closing Message

The image of the financial alchemist turning leverage into gold is a compelling one, but it belongs to a past era. Today’s environment calls for a different skill set of craft, discipline, and execution.

We agree with Spencer Levy’s insight that, “the days of accretive financing to make a deal work is now subordinated to the operator’s stewardship of the hard asset and its ultimate value creation.”

This new lens of value creation provides a reason for confidence as it aligns with Buchanan’s core DNA strengths of operational excellence, alignment with investors, and culture of disciplined execution. We invite our investors and partners to embrace this new era with us, confident that success is no longer about alchemy but about craft.

Preview Text

For much of the last three decades, commercial real estate has enjoyed a golden era of financial engineering. Like the medieval alchemist who sought to turn base metals into gold, investors could seemingly create value through leverage and structuring and ride the tailwinds of falling interest rates. As Spencer Levy, Chief Global Strategist and Senior Economic Advisor for CBRE, aptly described on our Counting Capital podcast, “about 75% of all gains in real estate were due to cap rate compression with everybody being a genius when cap rates were going down.”