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Diversification in real estate; and how Australia does it, again and again

This chart comes from the NCRREIF, which says about itself:

NCREIF serves the institutional real estate investment community as its Data Central, representing the largest, most robust and diverse database of country-specific real estate assets in the world.

Modesty is not a trait you find in real estate… Keep reading…

ncreifchart

What’s interesting to me are the substantial differences in investment return among the categories. For example, alta kaka (oldie) housing is very profitable.

The NPI is their index (like Dow Jones). They write:

The objective of the NPI is to provide a historical measurement of property-level returns to increase the understanding of, and lend credibility to, real estate as an institutional investment asset class.

The NPI is weighted by its market value, includes properties with leverage, but all returns are reported on an unleveraged basis and includes Apartment, Hotel, Industrial, Office and Retail properties, and sub-types within each type.

As I manage my real estate holdings, I look to diversification — among asset types, among geography and, most importantly, among syndicators — also called “your controlling partners.” They all have great sales skills — what’s not to love about real estate? — but they vary enormously in management ability. Hence diversification.

Yesterday I floated over to South Boston (on my way to tennis). New developments everywhere. Many gorgeous places abutting hideous parking lots and local car repair places. Here are a few photos I took to illustrate my point that this is one place brimming with investment opportunities:

Southie3 southie2 Southie1

There was one gigantic monster that I didn’t have heart to photograph. It was so ugly. But its marketing was so great:

whatyoucouldneed

There are always new wrinkles in real estate. That’s part of its joy. My friends built an apartment building in New York, featuring an Observatory, to watch the next eclipse (or a place to take your Tinder date, or whatever). My favorite part of their marketing — it’s on their web site:

Defy2,jpg

And then there’s the incredible phenomenon called WeWork:

Wired Magazine reports that WeWork has 10 million square feet of office space. WeWork, a recent startup, offers co-working spaces and — increasingly – the service of running offices they themselves do not own. The company is valued at close to $20 billion on paper, which (again, on paper) is higher than Boston Properties, the largest publicly-traded commercial real estate company.

Next time you’re in a WeWork city  — they’re all over — do yourself a favor and get a guided tour. I love the New York installations I’ve seen,.

And now for my favorite story of the week

The Economist explains
How Australia broke the record for economic growth
Twenty-six years and counting

THE last time Australia suffered a recession the web browser had just been invented and Bryan Adams topped the charts. Figures released today will show that its economy has racked up the longest stretch of growth in modern history: 104 quarters. The Netherlands, the previous title-holder, dipped into recession-defined as two consecutive quarters of contraction-after 103. In these 26 years, Australia has navigated the Asian financial crisis, the collapse of the dotcom bubble and the Great Recession, largely without scars. Its once-in-a-generation mining boom ended in 2014. Yet it has managed to avoid a bust. How did it break the record for economic growth?

Its success was built on the structural reforms of the 1980s and ’90s, when trade barriers crumbled and foreign-exchange controls were removed. A floating dollar cushioned the economy against external aches; inflation stabilised around a target band of 2-3%; and government finances greatly improved. By the time the global financial crisis hit, Australia had enjoyed over a decade of budget surpluses and net debt had been eliminated. It helped that China’s demand for commodities was fuelling a mining boom that created jobs and pushed up wages. Australia’s terms of trade soared as it churned out coal and iron ore to feed its neighbour’s factories. By 2013 household incomes were about 13% higher than they would have been without the bonanza.

History suggested that the rush would be followed by a bust. As prices and investment fell, debt and unemployment rose in resource-dependent parts of the country like Queensland and Western Australia. But the Reserve Bank responded by slashing cash rates to lows of 1.5%, where they have remained for the past year, allowing the diverse economies of Victoria and New South Wales to pick up the slack. A weaker currency boosted agricultural exports and drew students and tourists in growing numbers. Cheap loans and rapid population growth prompted an explosion in demand for housing. Last year Australia’s population swelled by 1.6%, over double the average of the OECD, a group of mostly rich countries. To accommodate its intake of foreign migrants, Australia must build a city roughly the size of Britain’s Birmingham every five years.

The luck seems set to continue. The central bank predicts that GDP growth will pick up to about 3% in the next couple of years. But families have reason to feel less optimistic. Unemployment rates have flat-lined above their equivalents in America, Britain and Japan. Underemployment (the number of people who would like more work) is close to record highs. Rising national income is not trickling down to workers: wage growth has fallen to about 1.9%, its slowest pace since the last recession. This is all the more uncomfortable because household debt has ballooned. Its ratio to GDP is close to 190%, one of the highest in the world. If the central bank raises interest rates, many families will have difficulties repaying their mortgages. For now, it is likely to do nothing-and the growth will go on.

You can get a Kindle version of this classic for $3.06.

TheIntelligentInvestor

Click here. 

The modern marriage

Dearest Dad,

I am coming home to get married soon, so get your checkbook out. I’m in love with a boy who is far away.

I am in Australia … and he lives in Scotland. We met on a dating website, became friends on Facebook , had long chats on Whatsapp. He proposed to me on Skype, and now we’ve had two months of a relationship through Viber.

My beloved and favorite Dad, I need your blessing, good wishes, and a really big wedding.

Your favorite daughter,

Lilly

My Dear Lilly,

Like Wow! Really? Cool!

Whatever … I suggest you two get married on Twitter, have fun on Tango, buy your kids on Amazon, and pay for it all through PayPal or Venmo.

And when you fed up with this new husband, sell him on eBay.

Love,

Your Dad

HarryNewton
Harry Newton, who is overwhelmed by all the congratulations wishes on my new granddaughter, Zoe. Thank you, everyone.

  • TomFromVa

    Hi Harry – I’m looking at the Australia ETF (EWA) and it sucks compared to the Dow or S&P, and it fell at least as far during the 2008 crash. So I’m not sure what is so great about the Australian market.

  • Lucky

    I have found Senior Housing to be a good investment…our condos in Sun City, AZ 55+ restricted community means no kids to tear the place up, no wild parties, very low maintenance and the rents paid automatically as soon as their Social Security check hits their bank…right into mine! Minor drawback is you can’t raise the rents sky high with people on fixed income…of course some have extra money. I feel this is offset by low maintenance costs and very low turnover…I normally run 5 year leases.