Opportunistic Real Estate and Hard Asset Credit at Mavik – Vik Uppal (EP.525)

Vik Uppal · Mavik Capital Management

CRE restructurings and recapitalizations offer an extremely compelling opportunity after six tough years.

CRE has been very tough for six years, with COVID, rising rates, regional bank pullback, tariffs and Middle East war creating a lot of stress, though not a traditional distress wave. Fundraising for the asset class is hard, but he argues that is the best time to invest because the two move inversely. Regional banks pulled back from lending after 2023 and have not returned to pre-2023 lending levels, so middle-market lenders need creative, solution-based capital. Credit availability in parts of the market is scarce, rates have stayed extremely elevated, and CRE is capital intensive and rate sensitive, with many deals from the last five to six years facing headwinds. Together these make the restructuring and recapitalization set one of the best he has seen in a long time.

“There's a lot of opportunity, let's say, in restructurings, recapitalizations, in commercial real estate and hard assets. We think that the environment today is extremely compelling.”at 30:09

Vik Uppal · Mavik Capital Management

Public REITs trade at a discount to private valuations, and Mavik has bought undervalued REITs.

Over the last six years Mavik has been very active in public markets, and has been a big investor in REITs that were privatized as well as REITs it believes are undervalued. The reasoning is that periodically there is a huge discount between public valuations and private valuations of the same real estate, which creates opportunity for an investor able to buy in the public market and capture that gap.

“We've been big investors in REITs that have been privatized and ones that we think are undervalued. You'll have these periods where there'll be a huge discount between public valuations and private valuations.”at 30:33

Vik Uppal · Mavik Capital Management

Sunbelt multifamily overbuilt after the 2021 capital rush; rents and occupancy are now falling.

A 2021 idea to focus only on Sunbelt multifamily looked smart on population trends, demand drivers and employment, but everyone reached the same conclusion. Tremendous capital poured into the space, causing heavy overbuilding and valuations that rent high. Five years later the reversal is visible: net effective rents have fallen significantly and occupancy has come down. He uses this as an example of why flexibility to pivot matters, since crowded consensus themes can turn quickly.

“You had a lot of overbuilding, you had valuations that [were] really high. And now you start to see the reversal of that when you see net effective rents have come down so significantly, occupancy has come down”at 34:00

Vik Uppal · Mavik Capital Management

Mavik passes on nearly all AI data center deals; AI infrastructure is a capital-driven mania.

Mavik has not found any niche in data center and infrastructure opportunities that fits its strategy, so it passes on almost every one. He sees a mania: AI and infrastructure are talked about by every business and investor, and capital is raised 'not necessarily when it, where it makes sense, but because they can', so any deal with an AI or infrastructure flavor sounds great. He compares it to the internet, where everyone bet that demand and utilization would grow, and demand and utilization even outperformed expectations; he thinks AI will 'probably' play out similarly. He also says capital is almost unlimited for anything AI, space or robotics, while private equity and parts of private credit are anemic. The bearish element is about where capital is flowing and the price of entry, not a denial that AI demand will grow.

“We've not found any niche that makes sense for us. So we pass in almost every data center and infrastructure opportunity that we've seen.”at 36:36

Vik Uppal · Mavik Capital Management

Mavik has done no data center AI deals; long-term value of AI infrastructure is too uncertain to underwrite.

Uppal argues that AI data center demand and utilization are being assumed to grow, as they were with the internet, but nobody knows the medium- and long-term value of these centers and infrastructure. He expects the technology to become much more efficient, which could reduce the value of current facilities. He cites the fiber buildout of the internet era, when companies with complex capital structures had their fiber assets sold for pennies on the dollar. He says he is not predicting that outcome, but as a value investor he must be willing to miss trends. That is why Mavik has not done a single data center AI infrastructure deal: it cannot say with high confidence what the long-term fundamental value will be, so it cannot be sure its capital is well protected.

“There's a reason why we've not done a single deal in a data center AI infrastructure, because it's very difficult for us to say with high confidence that what the long term fundamental value is gonna be.”at 38:29

Vik Uppal · Mavik Capital Management

Private equity is anemic: distributions and realizations have been very limited for years.

He contrasts the abundant capital flowing to AI, space and robotics with private equity, which he describes as anemic. The evidence he cites is that the private equity environment has been characterized by very anemic distributions to investors, and realizations (exits) have been relatively limited. He notes this makes it hard for institutional investors to commit more money, and that middle-market capital is relatively limited, which is part of why capital-scarce niches look attractive to him.

“A lot of it has been, especially in private equity, where you have an environment that's been characterized by very anemic distributions and realizations have been relatively limited.”at 29:28