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Where are the accounts of the great real estate investors?


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Real estate has probably created more wealth than any other asset class on earth but where are the accounts of the great real estate investors?  I know of two RE investors (Sam Zell, Bruce Flatt) but many good equity investors.  If you know of any and/or their writings that would be appreciated.  TIA.

 

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Guest MarkS

Hi Packer,

I'm not sure if this fits what you're looking for but I enjoyed "The Reichmans," by Anthony Bianco.

Thanks

Mark

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True - here is Munger's friend John Arrilaga who is a real estate billionaire.

 

https://en.wikipedia.org/wiki/John_Arrillaga

 

Microsoft co-founder Paul Allen has also made money in real estate  (vulcan ventures).

 

There must be many real estate moguls in Europe/Asia - many countries here have higher population density per unit land compared to the U.S

 

e.g: Property prices in South Korea

https://en.wikipedia.org/wiki/Gangnam_District

 

 

Real estate has probably created more wealth than any other asset class on earth but where are the accounts of the great real estate investors?  I know of two RE investors (Sam Zell, Bruce Flatt) but many good equity investors.  If you know of any and/or their writings that would be appreciated.  TIA.

 

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I think part of it is the private nature in general of real estate investing compared to investing in publicly traded companies. There are of course publicly traded real estate instruments.

 

There are a number of real estate investors on this board; DTEJD1997, ragnarisapirate, myself, and probably a few others, but mostly we're fairly small operators. Probably all under $10m in real estate assets. I may be wrong on the size part. The real estate investors who are huge probably don't have time to or desire to post here. Again, I may be wrong on that too.

 

All that being said there are a number of great books on real estate:

- All of William J. Poorvu's books are good

- King of Capital by David Carey

- Other People's Money by y Charles V. Bagli

- The Reichmans by Anthony Bianco looks pretty good, but I haven't read it

 

There are probably other good ones, but I haven't read them.

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Microsoft co-founder Paul Allen has also made money in real estate  (vulcan ventures).

 

Ehhh I think Paul Allen's recent massive profits from Vulcan RE has more to do with luck than anything else. About 20 years ago, Paul Allen began buying up large areas of land in a industrial zoned area by Seattle called South Lake Union, a gorgeous place between downtown and a lake, with to goal to create a massive urban park (similar to central park). It went to a vote and was denied by voters.

 

Maybe about 10 years ago, Amazon was expanding like crazy and began looking for a new headquarter. They worked with Paul Allen to rezone and redevelop the area he owned. Once Amazon moved there, literally every single tech company in Seattle wanted to move to the neighborhood (FB, Google, Expedia, Alibaba etc.). As a result, land value there has increased astronomically, with Vulcan making a killing.

 

EDIT: I'll also add in the Irvine Co. https://en.wikipedia.org/wiki/Irvine_Company

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I highly recommend The Reichmans. I picked it up in a Library one day and haven't left until I finished reading it. Of course the Reichman empire famously imploded in 1990.

 

In the search for real estate billionaires on this board I'm surprised no one has mentioned Hong Kong where the great real estate fortunes were made. People like Li Ka-shing. I know that hutchison whampoa has a lot of moving parts but real estate is a big part of it. There's quite a few real estate billionaires in HK. Among value investors Seth Klarman at Baupost tends to dabble in real estate and has done quite well with it.

 

Now all that being said, I think that the reason that there's not so much talk or advertising of real estate billionaires is because long term real estate is an inferior asset class to business and equity. You also don't hear a lot about Treasury or muni bonds billionaires either (though they exist). Real estate is not a good way to get rich, but it's a great way to stay rich. People love a good rags to riches story, but don't get so animated about an inherited wealth whose recipients haven't blown it story.

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In the search for real estate billionaires on this board I'm surprised no one has mentioned Hong Kong where the great real estate fortunes were made. People like Li Ka-shing. I know that hutchison whampoa has a lot of moving parts but real estate is a big part of it. There's quite a few real estate billionaires in HK. Among value investors Seth Klarman at Baupost tends to dabble in real estate and has done quite well with it.

 

You don't have to worry about moving parts anymore. As part of the recent restructuring, Cheung Kong Holdings and Hutchison Whampoa merged and the property holdings from each were spun off into Cheung Kong Property (CKP). Li family continues to own 30% of CKP. Victor Li, Li Ka-shing's son, oversees everday operations and currently CKP trades at 0.7x book value. CKP has practically no debt and if the market weakens, they will have the balance sheet to buy land on the cheap.

 

Another HK billionaire that is worth listening to Ronnie Chan at Hang Lung Group. His letters are very informative. Hang Lung Group trades at 0.4x  book value with a very clean balance sheet and a large portion of income is recurring from high quality retail malls / office buildings in mainland China.

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Thanks for the update on Hutchinson. I wasn't aware of the reorg. Now since Victor is looking after it I definitely wouldn't be touching it with a stick. I know several people who were at CIBC at the same time he was there and they're all unanimous in the opinion that he was a gigantic moron. So best of luck to his partners.

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I highly recommend The Reichmans. I picked it up in a Library one day and haven't left until I finished reading it. Of course the Reichman empire famously imploded in 1990.

 

In the search for real estate billionaires on this board I'm surprised no one has mentioned Hong Kong where the great real estate fortunes were made. People like Li Ka-shing. I know that hutchison whampoa has a lot of moving parts but real estate is a big part of it. There's quite a few real estate billionaires in HK. Among value investors Seth Klarman at Baupost tends to dabble in real estate and has done quite well with it.

 

Now all that being said, I think that the reason that there's not so much talk or advertising of real estate billionaires is because long term real estate is an inferior asset class to business and equity. You also don't hear a lot about Treasury or muni bonds billionaires either (though they exist). Real estate is not a good way to get rich, but it's a great way to stay rich. People love a good rags to riches story, but don't get so animated about an inherited wealth whose recipients haven't blown it story.

 

If you don't think that real estate is a good way to get rich, then I don't think you've witnessed what happened in the NYC area in the last 20-30 years.  The act of simply buying and holding onto real estate, not necessarily the development of them, is the way to riches.  This does not apply to Long Island and the surrounding suburban areas.  If you look at the ROE of holding onto real estate in the last 20-30 years in any neighborhood in NYC that is serviceable by subway, the ROE is likely in the 150x range.  This applies to buying a 20 unit multi-family in NYC that was considered too dangerous, Lower East Side, Hells Kitchen, etc for $300k back in the 90s.  Now those are worth $10mm for roughly $0.5mm per unit.  What happened?  The boroughs are equally impressive with 15 year holding returns of 12-20X ROE.  Namely, you bought a 3 unit walk up for $500-600k, financed it with 80% LTV, now it is worth $1.5mm.  So your $100k equity becomes $1.5mm because it's been amortized down to zero in the last 15 years.  Rent increases results in positive cashflow each month net of mortgage payment.   

 

Cap Rates went from teens to 3.5-5% - 3-5X in value

Area went from "too dangerous" and "too ethnic" to sorted out by white collar middle/upper class resulting in 5-10x in rent -5-10x increase in value

Initial LTV was 80%  - 5x in value as the debt is amortized

Rental Income Along the way

 

That's how you get to a 150X ROE.  The crazy thing is that any idiot who saved and was able to ride out dealing with shady tenants for enough years participated in this.  You do not need to be a Buffet genius.  It equals the since inception return of David Tepper which I believe is 150x.  You bought the assets and just sat on it.  You didn't have to do much.

 

I do have to warn that starting in 2005/2006, the returns has not be as robust as before.  This is mostly due to the fact that cap rates were already low and rent increases weren't as fast. 

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Thanks for the update on Hutchinson. I wasn't aware of the reorg. Now since Victor is looking after it I definitely wouldn't be touching it with a stick. I know several people who were at CIBC at the same time he was there and they're all unanimous in the opinion that he was a gigantic moron. So best of luck to his partners.

 

Hmm, having heard the Cheung Kong calls for a few years now, he seems pretty sane on the calls. Is it possible that he has learnt a few things over the decade and a half he has been working at CKH?

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If you don't think that real estate is a good way to get rich, then I don't think you've witnessed what happened in the NYC area in the last 20-30 years.  The act of simply buying and holding onto real estate, not necessarily the development of them, is the way to riches.  This does not apply to Long Island and the surrounding suburban areas.  If you look at the ROE of holding onto real estate in the last 20-30 years in any neighborhood in NYC that is serviceable by subway, the ROE is likely in the 150x range.  This applies to buying a 20 unit multi-family in NYC that was considered too dangerous, Lower East Side, Hells Kitchen, etc for $300k back in the 90s.  Now those are worth $10mm for roughly $0.5mm per unit.  What happened?  The boroughs are equally impressive with 15 year holding returns of 12-20X ROE.  Namely, you bought a 3 unit walk up for $500-600k, financed it with 80% LTV, now it is worth $1.5mm.  So your $100k equity becomes $1.5mm because it's been amortized down to zero in the last 15 years.  Rent increases results in positive cashflow each month net of mortgage payment.   

 

Cap Rates went from teens to 3.5-5% - 3-5X in value

Area went from "too dangerous" and "too ethnic" to sorted out by white collar middle/upper class resulting in 5-10x in rent -5-10x increase in value

Initial LTV was 80%  - 5x in value as the debt is amortized

Rental Income Along the way

 

That's how you get to a 150X ROE.  The crazy thing is that any idiot who saved and was able to ride out dealing with shady tenants for enough years participated in this.  You do not need to be a Buffet genius.  It equals the since inception return of David Tepper which I believe is 150x.  You bought the assets and just sat on it.  You didn't have to do much.

 

I do have to warn that starting in 2005/2006, the returns has not be as robust as before.  This is mostly due to the fact that cap rates were already low and rent increases weren't as fast.

 

 

While I do agree that it is certainly possible to get quite wealthy/rich from real estate, it is much less common (it seems) to become a real estate billionaire than other industries. Most of the billionaires are builders and there don't seem to be many who get it from inflation alone. There may be some who have bought and held who have become billionaires.

 

There are a large number of Hong Kong and China real estate billionaires. They mostly have come from the same generation and are now 65-80 years old or so. This type of thing isn't likely to happen in the US as far as I can tell. Perhaps on a very small scale in the shale oil rush areas. That's a big maybe.

 

The NYC and HK/China massive return scenarios will happen again, but the question is where? I would guess parts of India, Africa and Brazil. Africa (and that is a broad generalization)  is probably at the lowest point of this relative the other places and India seems like the safest place in terms of stability, government and growth. There is opportunity in many, many places for real estate, you just gotta go out and do it!

 

 

I highly recommend The Reichmans. I picked it up in a Library one day and haven't left until I finished reading it. Of course the Reichman empire famously imploded in 1990.

 

Great! I just ordered it and am looking forward to reading it.

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Here's a great essay about an Italian investor in real estate post-WWII: http://www.privateinvestmentbrief.com/blog/alpha-in-real-estate/

 

I quite enjoyed that. Thanks!

 

I enjoyed it too.

But to dissect the lessons:

1. Buy when things are in ruins.

2. It's great if you have money when nobody else does.

3. Location, location, location

4. Price, price, ... not as important as #3, but still.

 

The most recent no brainer was Florida after the 2008 bust. I almost bought. I hate dealing with physical business though, so I did not.

 

OTOH, usually if there is RE no brainer, there is also stocks no brainer. See 2008 bust. I think investing in stocks in 1949 Italy would have worked too. Maybe not as great as the prime RE, since RE gets levered returns, but still.

 

So ... who thinks Athens right now? ;) ( did anyone think I'll say "Detroit"? ;) )

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The NYC and HK/China massive return scenarios will happen again, but the question is where? I would guess parts of India, Africa and Brazil. Africa (and that is a broad generalization)  is probably at the lowest point of this relative the other places and India seems like the safest place in terms of stability, government and growth. There is opportunity in many, many places for real estate, you just gotta go out and do it!

 

 

Never mind massive returns, any decent returns would be nice. Do you see anything in the developed world that is cheap or decent?

 

Japanese real estate seems cheap but they are losing a million people a year.

 

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Not sure how much is out there on him but I believe Donald Bren is one of, if not the wealthiest real estate mogul in the United States:

 

https://en.wikipedia.org/wiki/Donald_Bren

 

His brother, Peter, has also done well and is one of the partners of KBS, a real estate advisor that manages real estate portfolios for institutional clients and non-traded REITs on the retail side. 

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Here's a great essay about an Italian investor in real estate post-WWII: http://www.privateinvestmentbrief.com/blog/alpha-in-real-estate/

 

Yeah. Thats pretty much my experience....back in mid to late 09' (post blowup) you could have bought any house in some really nice blue collar neighborhoods in Chicago(probably elsewhere in the US) and rented them back....we were renting to police officers, factory foremen  (yes there are a few here and there). Places like Homewood, Lansing Il. Chicago Heights.  Some guy had an insurance company he worked for rent one of the places for 2 years. The company signed a least for 2 years....Big insurance company too......Honest hard working Americans......even had a friend from HS we knew who was a carpenter who would fix up the places if shit broke....we threw him an equitable part of the equity..still does it...hes a great friend now.

 

 

Thats the real tragedy of the 08' blow up...these guys cuz they blew out couldn't get another loan on a property for like 10 years....the competition for homes thus the driver for out bidding was wiped out..It was like an indy car driver in first place crashed his car with no one around him on the last lap...in tennis we called these unforced errors except it wasn't their fault..tahts where the wall street hate comes from....probably still cant get a loan cuz of regulations.....we wonder why the establishment is so hated...You(not you directly but the world

) all laugh at Trump, hes dumb you say...but dont quite second order thinking on why hes so "popular"(see Howard Marks wrorks on thinking)...Trump and his suporters(the people left behind by capitalism) are much smarter than you think. sorry for the digression.....They would loose their shit and we would buy it on the cheep and basically turn around and rent it back to them(not the same individual)......im not gonna candy coat it....thats what we did....and the left behind see that.....they are fully aware..trust me. Sorry for the political rants but most of these things arnt one off things they are a lattice work of thinking...sometimes comes though random neurons just fireing.....as Trump says "I just thought of that". Either way i dont want you to get the idea that i admire him, respect definitely......often we confuse respect of something with admire.

 

I wish i could say it was ingenuity but it really was just dumb luck. Being so young we didnt get cought up in the mania and all had our jobs on Jackson so we were flush(luck 1 and 2 on top of the ovarian lottery). No kids, no school debt(i opted to go to a state school...like has and endowment of less than $100M), no car payments..shit.....we were paying rent on the north side. I lived in a place near depaul(all those kids and their fancy private education...i guess you could say i practiced value investing with my undergrad degree....to this day I love it when people aske me where i went to school...i use to be embarrassed...people still look at me with distaste....i can feel it.....) that my roommate and I were paying 900$ each....place was a shit hole....spilled beer all over the carpet and didnt clean it up.....trust me no chick was coming back to my place......always hers.....lol I lived on a series of air mattresses for a few months...i shit you not those things always pop... .. I remember the mood was so grim around the office........we couldn't wait to get out of work so we could go check out new places....started with one property....paid cash. bought 2 more within 6 months using that one as collateral......any appreciation in the price of the house was just the cherry.......then the cash flows pay for another one 20% down payment....the banks loved that....like giving a glass of water to them after they woke up hung over..who the f*uck was paying cash for anything?....i was staying up till 2-3 in the morning reading and lookng over shit....trying to figure it out...almost fell asleep at work some day....theres working 2 jobs for ya.

 

 

We wernt the only ones I knew a navy corps man, who would do this shit from Afghanistan...though he only told me about one place.....I actually rented from him for a few years...$2200 for a 2 bedroom in River north.....the view was killer....could see Trump tower and the fireworks every wednesday....lol how we would describe the view out at bars to other guys..lol...lockerroom talk was fun.......we shoulda been paying him $2600 but he set the price and we scooped...i was making more money so naturally we naturally got a nicer place....still had a roommate..."doughishere, why do you have a roomate?" "doughishere, you shoud think about getting your own place"....the questions i would get...lol, go find some other dude honey........i think now the same place goes for near $3k a month....too expensive for me...lol....smart guy....not sure how hes made out though...i dont think that property was as good as down south......Theres the sign of the times....calling in rental properties from afghansatan...Thank you Al Gore for the internet......I would fix his dish washer send him the bill and wouldent hear back for 4-6 days...telling me hes out on the bush.....he just dialed it in from the bush....never quite sure how he funded it....im sure the army didnt pay that much. Someone should make him a 5 star General.

 

 

This last blowup was really worse I think in terms on impact upon people....sure you had the south see bubble or the tulip bulbs....but tulips wilt...like razors you need to make more. Property in a major urban area....thats forever. Best part about it I can always raise the prices on chocolate.....lol Buffet is a smart guy.....im still amazed some times. Theres the transfer of wealth...... or at least till you get a CNBC.

 

 

 

My friend then decided that given Italy’s predicament, its economy could not get much worse than it already was, and that therefore his rents would probably not decrease from their initial level.

 

Theres the magical quote.....when you figure that out who give a shit about the upside. Its all upside. We basically figured that the Gov't was going to do everything in its power to backstop us...shit i think Paulson got on TV and practically said that with his bazooka quote.....the guy gets in front of cameras and is telling you he wants unlimited power close the gap......not us directly but America as a whole....there was probably 18-24 months I was pouring pay checks into either stocks or this venture with some buddies. I kept maybe enough cash to last me till next pay day and to pay for drinks.

 

Edit: Last thought, I considered the downside....and the downside that i considered was basically CNBC. If America got any worse, if the economy got any worse my money probably meant shit as the skills needed would have been how to load a rifle or handgun......or been more about physical fitness in all out war. So if my money was no good on the downside, like not worth the paper it was printed on, then who cares if i lost it in the markets or property...there would have had other, much worse problems to deal with...like a draft.

 

 

 

 

Edit Edit: Paulson Speech was July 2008. Heres the S&P 500 since.....all upside. http://imgur.com/IcsYe93  Thats what Bufffett talks about when he says his bets on America. The govt will always step in(they have to...its in their interest...trust me) until the people loose faith in the govt..maybe thats happening now maybe not either way im just a fish caught in the undercurrent......hows that for moral hazard?

 

 

 

Sorry if the thoughts are tough/rough/raw/unfiltered........but i think they are true...Buffett(keynes i think says some similar things also...and Louis Brandeis gets it and thats some 1930s shit...like bill billecheck going to the old used playbook....he has better sense in keeping mum..thats for sure..) basically says the same things hes just better at sugar coating them so they go down easier. I have no filter. Not very fun at parties.

 

/rant

 

 

Final point, For those that like to hedge the dollar....its no secrete that buying property is a good way to short the dollar...once or twice a year i hear someone say it...so long as you dont over pay...but even Buffett has difficulty with that......listen to the last brk meeting if you dont believe me........I didn't think about that at the time.......i guess we got 2 cherries on our sundae.......i was a moron back then. I shoulda thought of that back then.

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