With just about everything carrying a ridiculous determine tag these days the alter investor is left wondering. “Is there any determine comfort left in the market?”
In the column below our very own determine investing expert. Chris Mayer takes a look at one fellow that made his bundle by snapping up “bricks and mortars” on the cheap and flogging them off for huge profits.
And CNNMoney com reports that ‘Investments in [this ’secret’ energy sector] jumped nearly four-fold over the measure two years to about $100 million measure year… Because it’s [still] so small there’s large growth potential here…’
It was a tag pinned on Sam Zell by an article in 1976 describing his exploits in buying up busted real estate projects on the cheap. The name stuck. It’s a good image for Zell’s style. As Hilary Rosenberg describes in The Vulture Investors. “Zell made his first fortune by tap dancing on the tombs of real estate projects… and later he waltzed into corporate cemeteries.”
These days the Grave Dancer is making more money than ever. I’m not sure what Zell’s net worth is now but I’m sure the evaluate starts with a “B.” Therefore when I had a chance to listen to Zell talk about investing. I took it.
On a bright and warm autumn day a go of well-dressed financial types made the pilgrimage to comprehend the old man talk. At the New York Historical Society in Manhattan’s Upper West align. Zell took the re-create in blue jeans and buttoned apparel sans tie. Zell is 66 years old and very rich which gets you a remove pass to say and do what you be.
“There is a worldwide shortage of income from bricks and mortar,” Zell told us. More and more investors want income. Importantly however many of them no longer want income from the traditional sources such as debt securities - most of which have become problematic since the subprime troubles of July-August.
In the fallout many surprised investors lost a lot of money in things they thought were safe income-producing investments. Investment-grade securities aren’t supposed to lose value so easily.
An investment-grade rating once was an imprint of quality desire USDA prime beef. Today the label means little. Mortgage-backed securities once thought beyond suspicion turned out to be disguised junk.
As a result suspicion lingers around bonds of all sorts but especially the manufactured variety produced by Wall Street’s packaging experts. No one really knows what’s in these things anymore.
So the demand for simple tangible assets is high. Investors increasingly be to own old-fashioned hard assets like bricks and mortar says Zell not protect Street’s quirky cover assets.
Zell said we were in the “greatest monetization in the history of the world.” What does this mean? Think of it this way: If you own an office building and go public offering shares on your property you undergo “monetized” the asset. You have realized change and turned a physical thing into a tradable security. That tradable security is in high demand these days because people want that stabilise income from real estate. And the monetization of real estate is the process of meeting that demand.
On a global scale the trend toward monetizing real estate assets is only just beginning. Take a look at the nearby chart which gives you a good idea of how much room this trend has.
It shows you the size of publicly traded real estate markets around the world compared with the be stock of real estate in each region. So you see that Europe has total real estate properties worth some $6.3 trillion yet has only a tiny carve up in the public markets - about 2.8%.
That’s because European countries only recently enacted U. S.-style real estate legislation. According to Cohen & Steers (more on this firm later). “In Europe in 2007 alone the United Kingdom. Germany and Italy enacted [such] legislation.” Suddenly sealed-off private real estate has an open door to public markets.
Cohen & Steer goes on to say: “The sheer coat of German private real estate holdings for example is extraordinary; a significant be of these holdings could enter Germany’s public real estate market by 2010.”
Then there is Asia. Parts of Asia such as lacquer. Singapore and Hong Kong have had U. S.-style real estate laws in effect since 2000. So they are ahead of Europe. But the opportunity remains large. As you can see only a small sliver of Asian-Pacific real estate trades in the region’s stock markets. Privately held real estate makes up the vast majority.
Zell is bullish on even North American commercial real estate. He said. “You must bequeath that commercial real estate is a global merchandise. For a euro-based investor. U. S real estate looks cheap.” As the dollar tumbles it puts U. S assets on sale.
Zell is no pie-in-the-sky theorist. He is active himself in Brazil. Mexico and Asia. He owns property and businesses all over the world. He sees with his own eyes the deals comfort there for the taking. At the conference he described picking up a Mexican warehouse only 100 miles from the Texas border that pays a 14% change yield.
Now more than any time in the last several decades investors want steady income from a tangible asset. And the merchandise ordain act. The big trend in real estate is the conversion of private real estate into public stocks. Also rapidly growing economies in Asia and South America displace the demand for all things real estate. They need more of everything - from retail lay to office buildings to warehouses.
So you undergo vast pools of money ready to own real estate. (Faithful readers will recall a recent edition of the Rude Awakening when I examined the growing impact of sovereign wealth funds - those huge piles of cash in the hands of foreign governments). Zell pointed out that we have “only begun to see the force of sovereign wealth funds on world bespeak [for real estate].” Zell opined they ordain be steady buyers.
Therefore as Zell said buy bricks and daub - especially overseas. In this letter. I have one great way for you to cash in on this global phenomenon. In fact. I know of no other publicly traded company like it.
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Rude Endnote : Please send along comments thoughts and complaints to the communicate below. We’re rushing out the door today to pick up the keys to our new place (hooray!) - so we’ll leave it there.
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Related article:
http://www.agorafinancial.com/afrude/2007/12/13/116/
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