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Best Long-Term Holdings in Real Estate?


mcliu
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Who do you think are the best long-term investor/value-creator/owner-operator companies in real estate?

Which companies would you invest in for the next 15 years?

 

I think David Simon (SPG) has a good track record despite facing e-commerce headwinds. Sam Zell? Brookfield? (They're more of an asset manager now.)

Anyone else?

Edited by mcliu
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FRP Holdings for the next 15 years, Howard Hughes Corp as well. But many on this board are not very friendly towards that second choice.  INDT is interesting to follow and track for the next 5 years.  I have avoided SRG and will continue to.  Digital Bridge (formerly Colony) is interesting mostly due to new CEO.  There are a bunch of people on ReTwit that are interesting. Although I tend to find some of them a bit overwhelming with their non-stop postings. But you can try curating a list there. 

 

Bobby Fijian for understanding apartment lay outs

Moses Kagan for SoCal apartments 

Nick Huber for B and C self storage (his posts are a bit much for my taste) 

Strip Mall Guy is pretty good (but buys into strip malls a bit too much) 

 

There are a bit too much 'hustle" for my taste which is what you need on the private side IMO 

 

@thepupil and @Gregmal on this board are great with different strength.  Gregmal has a nose for what's going to work in the near term.  Pupil just has a wild range of knowledge.  

 

The funniest contrast between public RE and private RE is that all the guys on ReTwit congratulate each other when they buy a piece.  Pupil and I joke that that is when "the suffering starts" on the public side as FRPH still trades at around 50-55% of 2023 YE NAV by my estimates 

 

People on this board complain a lot about G&A and I'll bet that the ReTwit probably charges a lot more in acquisition fees, mgt fees, performance fees etc.  Some of them joke about how private RE guys can milk fees even if they aren't that great 

 

@Packer16 has invested in some private RE deals and he can probably share some thoughts 

 

Blackstone and Brookfield have great long term track records.  But their business today is generating 8-10% net returns for their pension/endowment clients at scale with billions of capital deployed.  it is a different game than pupil, Gregmal, and me aiming for 20+% IRRs.  We are investing peanuts, they are investing hundreds of billions.  If you want an example, look at what Blackstone has done by focusing on warehouses since the GFC.  Having that insight and seemingly paying up for warehouses has been a homerun for them. 

 

Zell has largely sat on the side line which may prove wise in hindsight.  But a lot of his public vehicles has lagged.  Equity Common Wealth and his trailer park business 

 

Simon is obviously smart - But I have avoided retail and malls.  I will continue to do so as I see what is happening on the e-commerce side.  Those warehouses keep getting closer and closer to that last mile.  For the trophy retail assets that are truly unique, I am open minded.  

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Thanks Bg2000! Good suggestions and lots of great leads I’ll start digging into.

It does seem like there’s a lot of digging into individual properties or portfolios to invest successfully in this area, especially in private RE.

Ideally I would love to just find a few good public owner-operators that I can just passively invest with for years.

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7 minutes ago, mcliu said:

Thanks Bg2000! Good suggestions and lots of great leads I’ll start digging into.

It does seem like there’s a lot of digging into individual properties or portfolios to invest successfully in this area, especially in private RE.

Ideally I would love to just find a few good public owner-operators that I can just passively invest with for years.

 

I think this is true if you want to invest in the more "idiosyncratic" smaller stuff and try to buy at discounts to NAV and sell at NAV and rinse repeat. Unless one is inclined to enjoy doing this, I wouldn't recommend it. It's time consuming, boring, and not efficient from a tax perspective (I happen to love it though, tis an affliction)

 

I'd recommend investing in with @BG2008 and just have him do it for you,  investing in the REIT index, or maybe Brad Johnson's firm (I know nothing about him other than website/twitter DYODD) https://www.evergreencap.com/company/our-process

 

You could also find an RIA that sells  BREIT to get Blackstone's giant portfolio<--Do I think this is much better than the REIT index? Not really, but just a thought.  

https://www.breit.com/

 

There are numerous passive options to own high quality real estate. The US is blessed to have democratized ownership of property at relatively low cost (setting aside some more greedy products/structures out there)

 

What are you trying to solve for? Do you need/want liquidity? What returns are you trying to make? how much do you want to do? Are you open to tax complications (K-1's, etc?). Will this investment be in a tax advantaged account or taxable or both? What is your desired level of diversification/volatility? 

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For me, I just try to keep it simple. The basic underpinnings of RE investing rely on scarcity and an irreplaceable or desired nature of the asset. So look for good assets. Cash flow is important but IMO overrated. You want optionality. You also should look at the type of debt, specifically term and recourse/non-recourse nature. Management is important, but IMO again overrated. The number one thing I focus on after the above is then what is the private market telling you in relation to the asset/collection of assets? If you can get in at a discount you compensate greatly for other things, specifically, Ive found, less than stellar management. You also dont want to invest where there are secular headwinds, unless, and thats a big unless, the assets are best in class and have optionality. SPG comes to mind there. Same with a lot of other retail. Good retail in a hot area is probably one of the best asset classes to own, especially when the market sentiment is penalizing great assets because of bad ones(or good companies like SPG because of bad ones like WPG). Rural housing in a sub optimal economic location won't do it. Sub par housing in an optimal economic location, IE NY/SF, is money. Or think Simon malls. Great locations, optionality. Just in the past 2 years Ive seen a local Simon mall, basically for shits, carve up several random pieces of parking lot space and turn them into restaurants or NNN lease type assets. 

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1 hour ago, Gregmal said:

For me, I just try to keep it simple. The basic underpinnings of RE investing rely on scarcity and an irreplaceable or desired nature of the asset. So look for good assets. Cash flow is important but IMO overrated. You want optionality. You also should look at the type of debt, specifically term and recourse/non-recourse nature. Management is important, but IMO again overrated. The number one thing I focus on after the above is then what is the private market telling you in relation to the asset/collection of assets? If you can get in at a discount you compensate greatly for other things, specifically, Ive found, less than stellar management. You also dont want to invest where there are secular headwinds, unless, and thats a big unless, the assets are best in class and have optionality. SPG comes to mind there. Same with a lot of other retail. Good retail in a hot area is probably one of the best asset classes to own, especially when the market sentiment is penalizing great assets because of bad ones(or good companies like SPG because of bad ones like WPG). Rural housing in a sub optimal economic location won't do it. Sub par housing in an optimal economic location, IE NY/SF, is money. Or think Simon malls. Great locations, optionality. Just in the past 2 years Ive seen a local Simon mall, basically for shits, carve up several random pieces of parking lot space and turn them into restaurants or NNN lease type assets. 

 

@Gregmal I want to shit on SPG and then I realize that you're teaching me stuff and I am too emotionally tied to my prior.  Part of what I want to work on in 2022 will be to be more open minded and avoid biases 

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3 hours ago, mcliu said:

Thanks Bg2000! Good suggestions and lots of great leads I’ll start digging into.

It does seem like there’s a lot of digging into individual properties or portfolios to invest successfully in this area, especially in private RE.

Ideally I would love to just find a few good public owner-operators that I can just passively invest with for years.

 

Start with FRPH and look over their Investor Day presentation.  From a valuation perspective, use 5% cap rate for their royalty business, 4.25% for their multi-family, and book value for projects they invest in.  If you can get to the current price, then you know you get a lot of optionality for free on their future developments in the waterfront in DC, the land sale in Fort Myers in 2028, and etc.  I think NAV is $90 currently and $110 in 2 years.  But I probably have the highest valuation of all out there.  They own some of the best assets out there and if you google FRP Holdings, you'll find some letters, presentations, and Substack writes up.  There are a range of valuations.  The RE specialist tends to have higher NAVs the generalists tend to have lower NAV, but everyone tend to agree that the Baker family is shareholder friendly and FRPH is trading at some discount to NAV.  What's important is that they are good capital allocators.  I have done some math, most of their projects earns 20-30% IRRs from writing the checks to stabilization.  I don't think they have invested in anything that earns less than 15% IRR in the last 5-6 years.  What's even more impressive is that they have allocated very well into opportunity zones following the sale of their warehouses to Blackstone.  OZ investments tend to target 6-8% due to the tax advantage nature.  

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38 minutes ago, BG2008 said:

 

@Gregmal I want to shit on SPG and then I realize that you're teaching me stuff and I am too emotionally tied to my prior.  Part of what I want to work on in 2022 will be to be more open minded and avoid biases 

Hey man it’s all just dirt. No bias against dirt 

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Thanks BG2000, thepupil, Gregmal! Appreciate the great tips & suggestions.

For me, I'm just looking to diversify the equity portfolio, but it sounds like it'll take considerable study to have an edge. At this point, it might be best to buy a REIT index. Meanwhile, I will study FRPH & HHC (I think PSH has a big position in this.) to learn more about RE.

Are there other smart RE investors/companies that you guys follow/study? Who would be the RE equivalents of BRK/MKL/CSU (long track record of making smart decisions & staying ahead of the pack)?

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4 hours ago, mcliu said:

Thanks BG2000, thepupil, Gregmal! Appreciate the great tips & suggestions.

For me, I'm just looking to diversify the equity portfolio, but it sounds like it'll take considerable study to have an edge. At this point, it might be best to buy a REIT index. Meanwhile, I will study FRPH & HHC (I think PSH has a big position in this.) to learn more about RE.

Are there other smart RE investors/companies that you guys follow/study? Who would be the RE equivalents of BRK/MKL/CSU (long track record of making smart decisions & staying ahead of the pack)?

Trump. Jk. Many folks mentioned above.

 

One good way to learn and get reps imo is to sign up for a crowdstreet account and review the deals that come through there, some are good some are bad, incentives are all over the place, either way its a good way to understand how private deals are structured and how different real estate classes work.

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Trump is actually a good one, at least in terms of the underpinning to the philosophy. Its basically also the Brookfield strategy. Use as little of your own money as possible to get on the deed of a good asset and then let time and leverage do its thing. Then cash out your equity/refi as soon as you can and snowball the thing. Feel free to ignore the names Brookfield or especially Trump if it triggers you, but those strategies if done right are pretty potent. 

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Yeah don’t disagree in theory. Using leverage properly is a must to be a successful developer, he knows how to promote, on-time / under budget and his product is high quality. On the other hand I don’t know what his track record is for investors especially given the bankruptcies. Not sure if that information has ever been made public.

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6 hours ago, mcliu said:

Thanks BG2000, thepupil, Gregmal! Appreciate the great tips & suggestions.

For me, I'm just looking to diversify the equity portfolio, but it sounds like it'll take considerable study to have an edge. At this point, it might be best to buy a REIT index. Meanwhile, I will study FRPH & HHC (I think PSH has a big position in this.) to learn more about RE.

Are there other smart RE investors/companies that you guys follow/study? Who would be the RE equivalents of BRK/MKL/CSU (long track record of making smart decisions & staying ahead of the pack)?

 

Don't bother with HHC, you'll burn your brains out.  That's advance stuff.  FRPH has complexity, but it's doable in my opinion. 

 

 

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I know it's not the best idea, but has anyone looked at Mitsubishi Real Estate $8802.T ? They do own some of the best real estate in Japan (Marounochi district) and maybe in the world 

 

Their results are pretty decent actually (we are talking about net earnings here , not FFO)  and yet the shares trade at 15x Earnings and 1.1x price/book. Decent operating numbers:

image.thumb.png.310a0769dc107a1e8ae32c5878b12908.png

 

https://www.mec.co.jp/e/investor/irlibrary/materials/pdf/2022/2/irpresentation2022_2.pdf

And yes, they do own offices, but they are mostly A+ and Asians with their tiny apartments and culture can't work from home. I don't own this. it's not a get rich stock either, maybe a stay rich. if I were a pension fund manager and had to allocate RE as part of my portfolio, I would look into this. Maybe even a good inflation hedge. Pays only  a ~2.2% dividend, but buying back some stock as well.

Edited by Spekulatius
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