With equity markets swinging back and forth from fear to irrational exuberance this week -- perhaps marking in a cosmic way the passing of former Federal Reserve Chairman Alan Greenspan, who coined the phrase 30 years ago -- the bond market has its own demons. True, the 10-year and two-year Treasury bills are safely un-inverted now, but corporate bond spreads relative to Treasuries are tight, offering investors scant upside for additional risk. Meanwhile, hyperscalers and artificial-intelligence giants are flooding the bond market with hundreds of billions of dollars of new debt, offerings with which the market is less than familiar.
But the real bugaboos in fixed income are volatility, stubborn inflation, and higher interest rates. Don't look now, but to some, the 10-year Treasury's climb to 5%, a yield seen only occasionally this century, seems inevitable. The good folks at Fidelity gently sum things up: "The second half of the year may continue to present a complicated picture for bond investors," suggesting "a more limited opportunity set right now."
To be honest, though, since the 40-year bond rally terminated in 2020, investors who ply their trade on the fixed-income side of the ledger have become accustomed to driving under a yellow flag. With a declining-rates tailwind turned into a rising-rates headwind, the trick now is finding what Fidelity calls "unique yield opportunities," which it has been finding in "less glamorous, and less easily understood, corners of the fixed-income market," including real estate lending.
Henry Cabot Lodge III, founding partner of Lodge Quai (pronounced KWAY), an alternative-asset real estate manager based in London that specializes in European triple-net sale-leasebacks, would heartily concur, though he might ask what took you so long.
"Higher for longer doesn't really affect us," says Lodge. "I've been doing this business for many years, in high interest-rate environments and low interest-rate environments. With all cycles the objective is to buy low, sell high, but I think the benefit of the types of deals we do is you can hold on to them and collect that income."
Lodge, 71, a veteran practitioner in this rather arcane field, is a man who's both exactly what you'd expect him to be and perhaps not what you anticipated. Yes, he is the scion of one of America's most patrician dynasties, which he carries graciously, but unlike other prominent members of his family over the past century, he has eschewed politics and is a gimlet-eyed man of finance instead.
"The last person who had any money in my family died about 200 years ago, " Lodge tells me in a recent At Barron's interview. "My father once ran for the Senate against Teddy Kennedy when his brother went to be president. Then my father decided he wanted to teach. I had to get to work. So no, I never really considered politics as a career."
Instead, Lodge, who goes by Cabot, picked up an HP-12C financial calculator and never looked back, perhaps with an eye to resurrecting the family's business bona fides.
Lodge got the real estate bug early on, working with William E. Simon, former Secretary of the Treasury and a legendary pioneer in leveraged buyouts at Wesray Capital in the early 1980s, though Lodge's foray with Simon was in real estate. Lodge did time with other real estate notables like Ray Wirta, who was instrumental in the creation and growth of commercial real-estate giant CBRE Group (originally Coldwell Banker Richard Ellis). Later Lodge went to Europe as president of W.P. Carey, an innovator in sale-leasebacks including early transactions with Wesray in its groundbreaking Gibson Greeting Card LBO.
Here's how Lodge Quai's model works: A German manufacturer wants to free up capital. To do so, it sells a factory to Lodge Quai, which then leases it back to the German company on triple-net lease terms, meaning the manufacturer, not the landlord, pays the property taxes, insurance, and maintenance. This frees Lodge Quai from having to fix a leaky factory roof in, say, Düsseldorf, and it allows the local company not only to optimize its expenses, but more importantly redeploy its locked-up capital.
Lodge says he prefers companies to use the capital to either pay down debt or do an M&A deal. "We don't like them to use the proceeds to pay dividends," he says. "It has to go back into the business."
Why Europe, Cabot? "There was a point in European history, the era of the PIGS [Portugal, Italy, Greece, and Spain], where it was uncertain whether U.S. investors wanted to invest dollars in Europe, and so I said, 'This is the exact time where we ought to be investing.'" Lodge is referring to 2009-12, when those countries came under tremendous financial pressure after austerity measures were imposed upon them by the European Union. (For a cinematic take, see Piigs , a European film starring, among others, rabble-rouser Noam Chomsky.)
Lodge's idea clicked, which prompted him and his Australian co-founding partner, Daniel Quai, who had worked for a joint venture backed by Soros Real Estate Partners, to start the firm in 2012. Today Lodge Quai runs some $600 million, sold to institutional investors in real estate investment trust-like structures.
Europe is still preferable to the States, Lodge says. "First of all, there's a bigger market," he explains. "There's about $8 trillion of corporate-owned real estate in Europe versus $4 trillion in the U.S. Over 4% of the [commercial] real estate market in the U.S. is in REITs. It's less than 1% in Europe. And when we compete for a deal, we're competing against maybe five to 10 other bidders, whereas in the U.S. it's 30 to 50 bidders, so there's a bigger market, less competition."
Lodge acknowledges Europe's a trickier market -- multilinguistic, with unfamiliar legal systems and a different currency, but he says you get paid for your trouble. Returns for Lodge Quai's funds have generally been in the midteens, Lodge says, about 200 to 400 basis points more than bond yields of similar maturity for similar credit quality, which is to say double B to triple B bonds. (A basis point is 1/100th of a percentage point.) "The reason for that is real estate has less liquidity,' Lodge notes, "and unlike bonds, where you're pretty sure you're going to get par, in a real estate deal you're going to get either more or less for the assets" in a sale.
Lodge Quai takes money from accredited investors, but retail investors can also check out publicly traded REITs like Lodge's old firm, W.P. Carey, which invests in properties across the U.S. and Europe, Realty Income, which does sale-leasebacks with major retailers and more, and VICI Properties, which owns casinos on the Las Vegas Strip (including Caesars Palace and MGM Grand) and other properties. These REITs yield much less than Lodge Quai, in the 5% to 6% range, but are much more liquid.
As for Lodge Quai, it invests in large, single-tenant industrial or manufacturing plants. "Office space is ubiquitous, you can always get cheaper office space, but a plant is a very sticky asset," Lodge says. For example, the firm owns a German copper plant -- one of the biggest in Europe -- and a plant in Italy that makes equipment for producing tea bags, and is eyeing a boat manufacturer in England. "In a sense, we bring U.S. technology to Europe in how we structure these deals."
Lodge Quai has also begun to build up a U.S. operation -- not in sale-leasebacks but in singular deals in real estate, such as multifamily residential properties in New York City. "There's a lot of distress, which gives an opportunity for a group like ours to buy," Lodge says.
Lodge is being a bit modest when he plays down his family's business aptitude. I recently noted that a couple of his Cabot cousins ran the Harvard endowment not that many decades ago, and a family member founded a money management firm as well. Then there's Godfrey Lowell Cabot, who founded Cabot Corp. in 1882, a specialty chemical company long known for producing carbon black, used in tires and other rubber products and as a pigment. Today the NYSE-listed company does some $3.7 billion in revenue and has a $4.7 billion market cap.
Godfrey's son, Thomas Dudley Cabot, was CEO of Cabot for a time,and worked for the U.S. State Department. He was also president of United Fruit (now Chiquita), a company that was once closely tied to anticommunist U.S. foreign policy in Latin America as well as the Central Intelligence Agency.
But yes, Lodge's family is best-known for the mark it made in the political sphere. Lodge's great-great grandfather, Henry Cabot Lodge, was a not-so-progressive Republican U.S. Senator from Massachusetts and a close friend of Theodore Roosevelt's. In 1916 Lodge defeated John F. "Honey Fitz" Fitzgerald, President John F. Kennedy's grandfather, the beginning of a longstanding rivalry with the Kennedys.
Cabot's grandfather was Henry Cabot Lodge Jr., also a U.S. senator from Massachusetts, who lost his seat to JFK in 1952. Nixon chose Jr. to be his running mate in the 1960 presidential election, where they, of course, were beaten by Kennedy. Lodge later served as ambassador to the United Nations, West Germany, and perhaps most famously to South Vietnam (first appointed by, yes, Kennedy). Grandfather Lodge's image -- a tall American in a light-colored suit -- became almost emblematic of our tragic presence there.
How could Cabot Lodge not be steeped in politics? "One of my first memories is meeting Khrushchev when he came to visit the U.S. Mrs. Khrushchev gave us these Russian dolls that fit into each other," Lodge recalls. "Grandpa had a lot of time for us. He would take us around [the world], and that gave me an understanding that maybe the U.S. isn't the center of the universe, and that there are other countries and constituents that have their own issues, problems, and economies. At the same time, I think we do it better. What encourages me now is, how can we bring what we learned in the U.S. to make it better in Europe, at least for this type of financing?"
Perhaps Lodge's career path didn't stray too far from the family tree after all.
Write to Andy Serwer at andy.serwer@barrons.com
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June 25, 2026 13:07 ET (17:07 GMT)
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