How does Oak Street make 25%+ IRRs on Investment-Grade NNNs?
Oak Street investor deck here: https://sers.pa.gov/pdf/Investments/Investment%20Materials/09-22-2022-Oak%20Street%20Real%20Estate%20Capital%20Fund-Presentation.pdf

Oak Street show a 25% IRR on their closed end funds and 35% on open end. 

How is that possible if they’re buying investment-grade NNN assets? Can you really achieve those type of returns with off-market sale-leasebacks? 

Are they using excessive leverage? Or did they just buy right in the depths of 2010-2012?

Appreciate any insight! Thanks!
[{"id": "j2e3uoh", "text": "I'd need to see more information on the numbers. Seems hard to believe.", "replies": [{"id": "j2e4t5k", "text": "Ha I agree. Hence the post", "replies": [], "depth": 2}], "depth": 1}, {"id": "j2ejax4", "text": "Editing my comment bru see I didn\u2019t look at the pitch deck prior. It says 8% annual return minus fees which is doable for sure.", "replies": [], "depth": 1}, {"id": "j2elid7", "text": "Maybe they're buying well located assets with short amount of term, and then re leasing or doing blend and extends", "replies": [{"id": "j2emep2", "text": "They show 0 vacancy so it\u2019s possible but they must be very good at it", "replies": [{"id": "j2es5an", "text": "Sale leasebacks can be very profitable if you have a stable of tenants at the ready", "replies": [{"id": "j2f05h2", "text": "Ok so you\u2019re saying the reason for the high irrs is that they\u2019re taking re-leasing risk?", "replies": [{"id": "j2f1pi1", "text": "Yes, one possibility is that they are having strong institutional credit tenants in tow and are offering to buy their property and take it off these institutional tenants books and lease back the space to them for long terms and good rates. I am not sure if this is what they are doing but this play can get superior NNN rents and returns if executed well.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "j2ewpu6", "text": "Internal rate if return, as you probably know, is very different than a cap rate. \n\nThey are taking into account all debt being paid down, increase in property value is also in there. So with low rates while the market and rents are increasing, it's not hard to get those numbers. It doesnt last forever though. Rates will go up, values will go down or stay flat, and same with rents. IRR will also not be as strong with those conditions.", "replies": [{"id": "j2f0exp", "text": "Yeah I figured ZIRP was a key part of it. I\u2019m still just surprised they\u2019re able to achieve opportunistic type returns (25%+ IRR) on investment grade NNN, which is about as low-risk as you can find in RE.", "replies": [{"id": "j2f1jg8", "text": "Are these projections or historical numbers? Often you will see projections, but are assuming certain appreciation over so many years. No way to know if it will appreciate that quickly or not. Often these investments will be very optimistic in their projections to attract investors.", "replies": [{"id": "j2f1nhh", "text": "The presentation says it\u2019s realized", "replies": [{"id": "j2fk1e6", "text": "Ok, but even then the market the last 5-10 years as been up a lot. That has helped them. It's not insane numbers but ya very good. It's not uncommon to see around 15-20% on the IRR number, at least on stuff I have looked at.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]