How Real Estate Developers Use Diversification to Outlast Challenging Markets

Written by:

Steve Marcinuk

Date:

08 Apr 2026

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The conventional real estate development model rewards focus: specialize in one asset class, build deep relationships in one region, and scale efficiently. For much of the past decade, that model held up well. Developers who committed to a single market or asset type could optimize their processes, move faster than generalists, and make a clear pitch to institutional investors seeking exposure to specific assets.

However, the pandemic exposed the limits of that model. Developers with concentrated portfolios found themselves vulnerable when demand shifted, financing tightened, and migration patterns reshuffled regional economies with little warning. Ryan Reich, founder and Chief Investment Officer of Mountain Shore Properties, responded by building flexibility into his business model, pursuing deals across asset classes, geographies, and capital structures rather than concentrating in a single area.

When Specialization Becomes a Liability

Specialization offers clear advantages: deeper local relationships, process efficiency, and a straightforward pitch to institutional investors who want exposure to a specific asset vertical. Reich acknowledges the logic. “From an investor standpoint, picking developers that approach it that way could be good for them. It ticks their little asset allocation box.”

The problem surfaces when the chosen market turns — and there is nowhere else to go. Developers with concentrated portfolios found themselves with no fallback when conditions shifted. Reich points to a Philadelphia land partner who thrived from 2010 to 2020 but nearly went bankrupt when pandemic demand collapsed. “He did way more developing, he made a lot more money, and he was basically all in building in Philadelphia,” Reich says. “Then the pandemic hit, and Philadelphia got absolutely crushed.”

The same period produced very different outcomes across markets. Cities that absorbed pandemic-era migration, such as Charleston, South Carolina, and Nashville, Tennessee, saw demand accelerate while others stalled. Developers with exposure across multiple markets were better positioned to absorb losses in one area against gains in another. “It was impossible for anybody to have predicted which markets would do great,” Reich says. “That’s why we prefer to be diversified, both on a location basis and on an asset type basis.”

The broader lesson is not that specialization is always wrong, but that concentrating entirely in one market or asset class leaves developers without options when conditions shift unexpectedly.

Hotels as a Market Entry Tool

One way developers have expanded across markets without deep local roots is by leading with an asset class that generalist developers avoid. Hotel development has long been considered too complex for businesses outside the hospitality space. That complexity, however, creates an opening for developers who have mastered it.

A hotel does not stop being a project when construction ends. It becomes an operating business. Understanding how operations inform development and design from the start requires a different skill set than residential or office work. “Most real estate developers don’t want to touch hotels unless they do them all the time,” Reich says. “After you build a hotel, you have to operate it. Understanding what operations look like — not just operating, but how operations inform your development and design — requires very different expertise.”

Boutique and lifestyle properties add another layer, drawing developers into food and beverage management and design decisions that have no equivalent in other asset classes. “You are finishing the thing to the very end,” Reich says. “There are thousands of different decisions that have to be made in developing a hotel that are completely different from doing an apartment building or office space.”

For developers who have built that expertise, the barrier becomes a point of entry. Local partners, including landowners, residential developers, and municipal authorities, who want to add a hotel to a mixed-use project or an underserved market often cannot move forward without someone who has done it before.

Reich says this dynamic shaped the company’s entry into Madison, Wis., where a local development company owned an office building it wanted to convert into a hotel but lacked the experience to do so. “Even with their extensive knowledge of residential development, they still felt it was helpful to have somebody who has done a lot of them,” Reich says. A similar pattern played out in Tallahassee, Florida, where an initial hotel project led to a second and then a third after the firm won a city request for proposals. “That first hotel has led to two separate, consecutive additional projects,” Reich says.

Capital Discipline

Market entry through specialized expertise solves one part of the diversification challenge. The other is knowing when not to move. In a financing environment where pressure to deploy capital can push developers into deals that would not otherwise meet return thresholds, the ability to wait for the right deal has become as important as market knowledge.

Interest rate volatility and tighter lending standards have made traditional bank financing difficult to secure. Private credit has filled part of the gap, but at a steep cost. “Bank financing, especially for development, has become harder to get at competitive prices,” Reich says. “This creates a shadow banking system where private credit has exploded, but that capital is expensive — 8 to 15% depending on the deal.”

The cost of private credit has also complicated equity raising. Investors can now achieve comparable returns through private credit with greater security and current income, meaning cash paid out regularly rather than compounded over time. “The sales pitch to equity right now is that the returns may not be as high, but they’re durable and longer term,” Reich says. “Versus shorter-term lending, where at the end of 18 months you’ve got to go find another one, and then you have your reinvestment risk.”

For developers not under pressure to deploy capital quickly, that environment creates room to wait for deals that meet the right criteria. “We can be picky about what we do,” Reich says. “A hotel might be $35 to $40 million to build, with $15 to $20 million in equity. It’s not that many projects over a four or five-year period.” Larger companies with more capital to deploy tend to focus on higher-volume projects in larger markets, Reich says. That focus shapes the types of deals they can pursue and limits their ability to take on smaller or more complex projects.

Local Market Knowledge

Capital discipline determines when to move. Local knowledge determines where. In a market where financing conditions, demand drivers, and supply dynamics vary sharply from one city to the next, the ability to read individual markets has become as important as the ability to pivot across asset classes.

“Real estate has gotten back to the way it used to be, which was regional in nature,” Reich says. “Having an opinion on each local market is particularly important for figuring out where to allocate capital.” That means understanding not just whether a market is growing, but why, and whether the specific demand generators support the type of project being considered.

Reich points to the contrast between the company’s active projects as an illustration. In North Charleston, South Carolina, the company identified a gap between corporate demand in the airport corridor and downtown leisure pricing, then designed a hotel to serve both. In Fayetteville, West Virginia, the demand driver is almost entirely leisure, tied to New River Gorge’s designation as a national park. Because the demand profile differed from the company’s typical markets, the project was underwritten at a lower occupancy rate. “It’s always been a beautiful area,” Reich says, “but it’s been difficult because there’s been nowhere to stay.”

The broader point, Reich says, is that national trends are a poor substitute for market-level analysis. The same period that crushed Philadelphia’s development market produced strong returns in Charleston and Nashville. “It’s very market specific,” Reich says. “They all have different demand generators.” For developers pursuing diversification across geographies, that granularity is not optional, Reich says. It is what makes the strategy viable.

About the Expert: Ryan Reich is the founder and Chief Investment Officer of Mountain Shore Properties, a real estate development firm with active projects across multiple U.S. markets. Reich and co-founder Steven Preston have focused the firm on hospitality and mixed-use development, with projects ranging from boutique hotels to office conversions.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.