Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM Monday, March 21, 2005: A
real estate firm invited me to an all-day seminar Friday. I was invited as investor,
not press. Hence I have to be deliberately vague. The firm and its partners buy
commercial properties, typically large office buildings. They occasionally develop
large projects, sometimes residential. The clear message: Prices and valuations
have risen strongly in recent years and are, apparently continuing to rise. It's
much harder to buy now. Everybody and their uncle is buying -- from institutions
raising their real estate allocation to overseas buyers eyeing the cheapness of
the U.S. dollar.
The big price growth in recent years has been in land. For large development
projects this has been great. As the project progresses, the land value rises,
allowing increasing borrowing -- necessary and useful to complete the project.
Two themes emerged:
+ "Buy it right. It's the only chance you'll get."
+ "There are opportunities, regardless of market characteristics."
Macro-trends happening in real estate:
+ Cities are going 24-hours. People are moving back to the CBD (central business
district) and developing it. The suburbs have sprawled too far for many.
+ Microcities are exploding. They're 50,000 population areas, often on the outskirts
of major cities. Residents live, work and play in these small, compact, clean,
+ In Florida, overseas buyers are buying one house for themselves for vacation
and one for investment.
+ Turning rentals into condominiums is exploding in every area -- offices and
residential. In Florida, they're even selling "racko-miniums" -- places
to store your boat. As condo-izations take rental property off the market, eventually
lease rates will rise. But right now, rentals are cheap. Often if the real estate
doesn't work as rental, it's converted to a condominium.
+ There is large commercial development of houses in the suburbs. Big builders
+ Everyone and their uncle is moving out of adjustable mortgages, locking in fixed
rate mortgages. Eventually long-term interest rates will rise.
+ Construction costs have exploded, as the price of buildings materials has gone
through the roof. Some contractors are guaranteeing prices for only two weeks.
Predicted one speaker, "At some time, the music has to stop here."
+ Many investors are mining for real estate in the stock market. They're buying
companies with lots of real estate on their books, e.g. K-Mart.
+ European investors in U.S. real estate investment have lost significantly as
a result of the drop in value of the dollar.
+ In sharp contrast to the U.S., Canada is running a budget surplus and a trade
surplus. Speakers were bullish on the Canadian dollar.
The five fastest-growing
sectors of interest to real estate were:
1. Medicine and healthcare, which is now the largest industry in the country.
There'll be a huge need for all sorts of specialty buildings -- from community
medical centers to full-care retirement homes, etc.
2. Education. Schools are moving into normal buildings.
3. Government and nonprofits -- especially as they work together.
4. Facilities management. Outsourced companies are managing the real estate
that big firms own, but usually manage poorly.
5. Recycling and rehabilitating major areas. Special rehabilitation subcodes
are now coming into several communities, which reduce by 20% to 30% the cost
of rehabbing older buildings.
Said one speaker,
"There's nothing wrong with sitting a little on the sidelines. When things
change, they will change fast. At present, there's too much throwing real estate
partnerships together, with no real interest or experience in real estate. The
partnerships often have no reserves. When something goes wrong, the partnerships
will be in trouble. They could be our next turnarounds."
Here was a group
of ultra-successful real estate professionals and entrepreneurs. None are predicting
an early bust in real estate prices or a strong continuation. All have lived
through many cycles -- from the ultra depressed times of the late 1980s-early
1990s to today's booming times. Their feeling: The industry changes; their strategies
will change to accommodate the changing times. Said one speaker, "We
don't have a crystal ball. We focus less on macro trends and more on running
our own business." Today, they seem to be:
+ Selling properties
and developments others can easily duplicate.
+ Holding real estate that can't be duplicated -- like prime, gorgeous waterfront
+ Locking in low, long-term rates.
+ Looking for opportunities in places others are not looking in -- especially
difficult turnarounds or workouts.
+ Working harder.
A most impressive
bunch of successful, gracious, wonderful, charitable people. They all talk about
what they can, and do to "give back to their communities."
do to when your industry dies: A friend called. He consulted for
telecommunications. But it's collapsed. He was having trouble making a living.
Could I find him some business in my old telecom field? My advice: "Get
out. Go find an industry that can use your skills." He listened, agreed
with me and then told me of a neat new telecom company he liked. I advised,
"Give it up. Stop thinking your old love. You can't afford to starve in
paradise." Hard advice. He won't listen.
new meaning to gardening.
Remember this photo? A California friend is having
his new garden planted. I
learned the tree costs between $2,000 and $3,000. And it will survive.
The nursery guarantees it. If it dies, they bring their crane and replace it.
Imagine what God could do, if only He had the money!
was St. Patrick's Day last Thursday.
His wife had been killed in an accident and the police were questioning
"Did she say anything before she died?" asked the sergeant.
"She spoke without interruption for about forty years," said the Irishman.
The Doctor was
puzzled "I'm very sorry but I can't diagnose your trouble, Mahoney. I think
it must be drink. "
"Don't worry about it Dr. Kelley, I'll come back when you're sober."
do I hear you spitting in the vase on the mantelpiece ?"
"No, Nora, but I'm getting closer all the time !"
Murphy told Quinn
that his wife was driving him to drink.
Quinn thinks he's very lucky because his own wife makes him walk.
Mike lay dying
on his bed when his wife Brigid came in to him and asked if there was anything
Mike said "Brigid, what is that delicious smell coming from the kitchen?"
And Brigid replied "Oh Mike that is a ham I am baking ."
Mike thought, and said "Brigid, as my dying wish I would love to have some
of that ham you're cooking."
Brigid said "Oh Mike, I can't give you any. I'm saving it for the wake."
An IRA man shows
up at the pearly gates and St. Peter comes out to greet him. St. Peter takes
one look and says "I don't think you can get in here.
The IRA man says "Who wants in? You've twenty minutes to get the *#!@ out!"
you understand French?"
" I do if it's spoken in Irish."
Paddy was walking
through a graveyard when de came across a headstone with the inscription "Here
lies a politician and an honest man."
"Faith now," exclaimed Paddy, "I wonder how they got the two
of them in one grave."
Seamus was getting
irate and shouted upstairs to his wife," Hurry up or we'll be late."
"Oh, be quiet," replied his wife. "Haven't I been telling you
for the last hour that I'll be ready in a minute?"
Two lawyers standing
before an Irish judge got into a fierce argument.
At last one lawyer lost his temper and shouted, "Sir you are the biggest
fool that I have set eyes on."
"Order, order," said the Irish judge. "You seem to forget that
I am in the room."
the last coach of the train on a normal route kept getting smashed up by vandals.
A porter came up with an idea.
"Why don't we leave the last coach off!"
Why does it take
five Irishmen to change a lightbulb?
One to change the bulb. Four to remark about how grand the old bulb was.
"I hear Murphy
died, " said Pat. "Was he in ill long?"
"No," said Mick. "He died in the best of health."
This column is about my personal search for the perfect investment. I don't
give investment advice. For that you have to be registered with regulatory authorities,
which I am not. I am a reporter and an investor. I make my daily column -- Monday
through Friday -- freely available for three reasons: Writing is good for sorting
things out in my brain. Second, the column is research for a book I'm writing
called "In Search of the Perfect Investment." Third, I encourage
my readers to send me their ideas, concerns and experiences. That way we can
all learn together. My email address is .
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