The Case for Patient Capital
in a Volatile Rate Environment

In October of 1987, I watched the Dow fall 22.6% in a single session. I had been in markets for three years at that point - long enough to have a position, not long enough to have seen anything like it. The television anchors called it a crash. They were right. But what struck me then, and has stayed with me through every dislocation since, was not the decline itself. It was how quickly the people who had to sell became indistinguishable from the people who wanted to sell. The margin calls and the panic wore the same face.

I have thought about that distinction - between those who must sell and those who choose to - ever since. It is, I have come to believe, the single most underappreciated variable in investing. More than sector selection. More than leverage ratios. More than the quality of the underlying asset. The question of whether you control your own timeline is, in most cycles, the question.

The Fund Structure as a Hidden Constraint

Institutional capital is, by design, patient in theory and impatient in practice. A private equity fund raises capital with a ten-year life. A real estate fund promises distributions on a schedule. The LPs have their own obligations - endowments meeting spending rules, pensions matching liabilities, funds-of-funds managing their own redemption windows. The pressure flows downhill. What begins as a long-term mandate often ends as a medium-term constraint wearing long-term clothing.

I watched this dynamic play out with uncomfortable clarity during the Global Financial Crisis. The institutions that had assembled exceptional real estate portfolios through the mid-2000s found themselves not asking "is this a good asset?" but "can we hold it?" They could not, in many cases - not because the underlying real estate was impaired, but because the structure was. Values were marked down, redemptions were gated, assets were sold at distressed prices to meet obligations that had nothing to do with the assets themselves. The buyers on the other side of those transactions - those with genuine permanence of capital - generated some of the most extraordinary returns of the past generation. They did not require a better view of the market. They simply required the freedom to wait.

"The investor with a permanent capital base does not need to predict the trough. They simply need to survive to it - and then own what they bought."

What Four Decades Teaches You About Cycles

I have been through enough rate cycles to be genuinely humble about predicting them. I was wrong about the pace of tightening in 1994, when the Fed raised rates seven times in twelve months and obliterated the mortgage-backed securities market in ways most participants had considered impossible. I was wrong about the timing of the credit cycle turning in 2006 - I thought it would happen sooner. I was wrong about how low rates would stay after 2008. Any investor who tells you they navigated these moments with consistent foresight is either revising history or selling something.

What I was not wrong about - what I have been consistently right about - is the eventual resolution. Not the timing. Not the path. But the direction. Every period of distortion has corrected. Every forced selling cycle has eventually exhausted itself. Every asset that was fundamentally sound but temporarily impaired by the structure around it has, given enough time, recovered its intrinsic value and then some. The question was never whether. It was always: could you hold?

This is the insight I have tried to build into Fox Capital Group from its earliest days. We do not operate with a fund clock. We do not have vintage-year return targets tied to a capital-raise narrative. When we acquire an asset, we underwrite it against our own balance sheet and our own conviction - not against a distribution waterfall that requires us to be right within a predetermined window. That structural freedom is not a luxury. In a volatile rate environment, it is a competitive weapon.

The Current Moment

The rate environment of 2022 to 2024 was, in its speed and magnitude, the most aggressive monetary tightening in forty years. The Fed raised rates 525 basis points in eighteen months. Institutional real estate - particularly the leveraged, floating-rate variety that dominated acquisitions during the zero-rate era - was caught badly positioned. Cap rates that had compressed to levels only justifiable under the assumption of permanent cheap debt suddenly required repricing. Bridge loans matured. Extension options were exercised, then exhausted. Lenders, themselves managing capital ratios under regulator scrutiny, began to push.

The result has been a slow-moving wave of distress that is still working through the system. Unlike 2008, there has been no single dramatic collapse - no Lehman moment. Instead, there is a quiet drip of transactions: recapitalizations at punitive terms, note sales at steep discounts, equity wipeouts in deals that looked perfectly reasonable at a 3.5% cap rate and a 3% cost of debt. The denominator has moved. The structure cannot hold.

For patient capital, this is not a crisis. It is a menu.

What Patience Actually Requires

I want to be careful here not to make patience sound passive. It is not. Genuine long-term ownership requires more discipline, not less, than the trading mentality. It requires the willingness to sit with unrealized losses on paper without flinching toward the exit. It requires the intellectual honesty to distinguish between a thesis that is wrong and a thesis that is early - because the market will not make that distinction for you, and neither will the people watching your results quarter to quarter.

It also requires selectivity at the point of entry. Patient capital is not an excuse to overpay and wait for vindication. Howard Marks put it better than I can: there is no asset so good that it cannot become overpriced. The structural freedom to hold through cycles only compounds your returns if the underlying asset, at the price you paid, was worth holding. This is why underwriting discipline - particularly on cost basis - is not in tension with a long-term philosophy. It is its foundation.

At Fox Capital Group, we try to buy assets we would be content to own indefinitely, at prices that do not require a specific outcome to justify the investment. If the market recovers on schedule, we benefit. If it does not, we hold. If distress creates an opportunity to acquire more at a better basis, we are positioned to act. The fund manager forced to mark to market and report to his quarterly LP call does not have this flexibility. We do.

Why Southern California, Why Now

There is one further dimension of patience worth addressing: the patience to stay in a market that others periodically write off. Los Angeles has been declared uninvestable roughly once per decade for as long as I have been operating here. The Northridge earthquake. The riots. The dot-com bust that hollowed out Westside office. The 2008 housing collapse. The pandemic exodus narrative. Each time, the eulogy was premature.

What those narratives consistently underestimate is the structural scarcity of the market. Los Angeles is not Phoenix or Dallas - cities that can grow outward and absorb demand through new supply. It is a constrained basin, bounded by geography and regulation, with a population that continues to demand proximity to the ocean, to entertainment, to capital. The best locations in this market are not going to be replicated. When you own one of them, at a reasonable basis, time is your ally in ways it simply is not in markets where supply can chase demand indefinitely.

This conviction has guided every acquisition we have made. It is why we acquired 8885 Venice Blvd before the broader market understood what Apple's campus across the street would mean for the corridor. It is why we purchased land in Pacific Palisades even as fire has temporarily cast a shadow on one of the world's most irreplaceable coastal addresses. It is not contrarianism for its own sake. It is the patient recognition that exceptional locations, held through temporary disruption, tend to reward those who had the nerve to stay.

A Final Thought

One of the early lessons I took from equity markets - before I found my way to real estate - is that the investor who is structurally compelled to sell during a downturn is the one who sets the price for everyone else. They are not selling because they want to. They are selling because they must. And in the moment of their distress, they are creating the opportunity for everyone who has the luxury of choice.

We have spent thirty years building a business that operates from the position of choice. No fund clock. No forced distribution schedule. No LP base whose own redemption pressures dictate our exit timing. Just capital, conviction, and the discipline to hold until the thesis resolves - or the intellectual honesty to recognize when it will not.

In a volatile rate environment, where a great deal of institutionally-owned real estate is quietly under stress, that structural freedom is not merely an advantage. It is, I would argue, the advantage.