Today, if we ask,

“What’s the projected IRR?”
we might be missing the boat.

A more important question right now is:

“How is this team managing expenses when income is under pressure?”

Because here’s the reality I’m seeing across T12s:

In many assets, 50–70% of gross income is going toward operating expenses.
That’s not a one-off.
That’s a pattern.

Over the last five years, operating costs have steadily climbed — and in some cases, spiked.

The biggest contributors:

• Insurance premiums
• Property management payroll
• Utilities — water, electricity, trash
• Property taxes (some up 40–50% after the post-COVID valuation run-up)

We don’t control insurance markets.
We don’t control tax assessors.
We don’t control macro trends.

But we do control execution.
And in today’s environment, execution is everything.

Strong operators are:

• Scrutinizing payroll structures
• Renegotiating vendor contracts
• Monitoring utility usage line-by-line
• Challenging every recurring admin expense
• Tracking marketing dollars against actual leasing ROI
• Holding weekly asset management calls focused on variance reports

When rent growth is flat, the margin is protected on the expense side.

For passive investors, that’s where risk management lives.

IRR projections are easy to print on paper.

Expense discipline is what determines whether those projections survive real life.

“In this cycle, boring operational excellence may be the most attractive strategy of all.”