By Brennen Degner
The past few years have been a humbling reminder of how quickly markets can shift. In 2021 and 2022, when rents were climbing and capital was easy, it was tempting to believe we had it all figured out. But as the cycle turned, we saw how fragile some of those wins really were. At PCC, we don’t view this downturn as a setback. We see it as a chance to get sharper—on our diligence, our risk management, and our conviction in markets where capital is scarce. If we stay focused, we believe we can turn today’s challenges into tomorrow’s returns.
Digging Deeper in Diligence
The most important shift we’ve made is in how we approach due diligence. Our reviews were always thorough, but we’ve taken the process several layers deeper. We now incorporate a full-spectrum review that covers the local supply pipeline, zoning regulations, demographic and migration trends, and even shifts in the political landscape. We break down intrinsic value assumptions, capital stack risks, construction exposure, operational volatility, and both micro and macro market dynamics. We then tie those elements together in a comprehensive view of how they impact our investors—and PCC as an operator.
We treat seller financials with the same skepticism we apply to physical inspections. We assume building systems are worse than they appear and expect our inspectors to be detailed, not generic, in their assessments. This detailed process feeds into an internal investment committee memo that scores each transaction’s risk profile across multiple dimensions. In short, the challenges we’ve encountered in recent years have pushed us to build a far more robust and disciplined internal framework for risk assessment and mitigation.
Following the Flow of Capital
This cycle also reminded us: capital flows drive pricing. As interest rates climbed and liquidity dried up, many institutional investors stepped back. Rather than seeing that as a red flag, we saw an opening. When fear and complexity scare others off, good assets can be bought at compelling prices.
That’s why we’re focusing on deals priced at levels we haven’t seen in close to a decade, in markets and vintages the herd is overlooking. We agree with the value investors who say the best opportunities often come when information and competition are scarce. We plan our exits as deliberately as our entries: buying when capital is scarce, and selling when it returns.
Risk First, Always
To capitalize on these openings, we have to protect the downside. For us, margin of safety isn’t a slogan—it’s a daily discipline. We stick to buying well below intrinsic value, capping leverage at around 65% of total cost. That gives us the cushion to absorb surprises.
We’re conservative in how we model income growth, exits, and financing—and we stress-test every deal against higher rates, longer holds, and economic shocks. We also choose partners carefully. We prefer working with well-capitalized vehicles that have the resources and flexibility to solve problems if they arise. We’ve learned that simple structures, conservative underwriting, and strong alignment give us the best shot at managing risk while staying opportunistic.
A Philosophy Grounded in Humility
What ties all of this together is a mindset. We believe the payoff to deep analysis goes up when markets are tough. And we try to remember that when everyone else is fearful, it’s usually the right time to lean in. Still, we’re aware of our own blind spots. We build our process around learning—owning mistakes, seeking out outside expertise, and walking away from deals we don’t fully understand.
This blend of humility and conviction helps us stay grounded in uncertain markets. We don’t pretend to have perfect foresight, but we aim to be better students of risk with each deal.
Looking Ahead
The road ahead will likely stay bumpy. Interest rates, inflation, and macro policy remain hard to predict. But we’re not waiting on a clear signal. We’re positioning the portfolio to perform whether the recovery comes sooner or later.
By going deeper in diligence, managing risk with discipline, and leaning into capital-scarce markets, we’re aiming to turn hard lessons into lasting advantages. Our goal remains the same: deliver strong risk-adjusted returns while staying grounded in the humility this market demands.