I was
shocked when I read yesterday the auction high bid price for lunch with Warren
Buffett had only reach $200,000, with less than 24 hours to go. Below is a
chart of previous winning prices for lunch with Warren, courtesy of CNBC:
Mr.
Buffett is on a bit of a losing streak, lately. The billionaire’s offer to buy
Residential Capital (ResCap) from Ally Financial Inc. (ALLY) before the
government-owned company put the home lender in bankruptcy was rejected, according
to a May 17th, Bloomberg
article.
The
Bloomberg article also suggests that Berkshire Hathaway Inc. (BRK/A) would have
paid little cash upfront while taking on potential liabilities. Instead, ResCap
voted to declare bankruptcy and arrange a sale to Fortress Investment Group LLC
(FIG) and Nationstar Mortgage Holdings Inc. for approximately $2.3 billion.
The
Bloomberg story concludes with “Fortress and Nationstar won’t take on the
liabilities that Berkshire had proposed assuming…” Former hedge-fund manager
Ted Weschler, assigned to negotiate the offer with Ally, happens to be last
years’ winner of Lunch with Warren, paying the $2,626,411 for a chat and chew.
I’ve
watched WB expound for the past six months about the various virtues of owning
real estate at this time. It just so happens a very attractive deal came into
my inbox the other day.
Although
this would be a light snack for you, perhaps just an appetizer, I know of a
portfolio that will become available this June 15th, through a
receivership’s auction. As a fan of yours, I would be remiss if I did not bring
this opportunity to your attention to pay $.40 cents for dollar bills. Consider
it an early Father’s Day gift.
One of
the major real estate firms in this country has sent out a marketing brochure featuring
3,701 units of multi-family housing, comprising of 14 different properties. It
is an all cash auction. The portfolio is cash flowing at $27 million, annually.
This is a meal for big boys.
Looking
at a quick and dirty calculation of these properties; the cash flows are decent,
vacancy rates are small, and in this era of yield starving investors (the
10-year T-note made historical low on June 1, of 1.45%), and you can purchase this
cash flow and turn it around within 6 to 9 months in any number of ways.
For
comparison, capturing a $27 million a year in cash flow using two-year
treasuries, with a current yield of just .26%, would require a cash outlay of greater
than $10 billion dollars. Even going out 10 years, your outlay would require
$1.7 billion for treasury notes to secure $27 million in annual cash flow.
Below is
the list of properties that will be sold to the highest bidder. Due to a
confidentiality statement I signed, I cannot get more specific about these properties
in an article (have your people call me; I have no people, it’s just me and my Apple
iPhone).
Properties
|
Locations
|
Total
Units
|
Occupancy
|
Monthly
Cash Flow
|
Annual
Cash Flow
|
1
|
Maryland
|
144
|
97
|
$164,682.72
|
$1,979,084.64
|
1
|
Virginia
|
128
|
95
|
$84,268.80
|
$1,013,901.60
|
1
|
South Carolina
|
112
|
97
|
$65,401.28
|
$787,323.36
|
1
|
Florida
|
193
|
99
|
$136,997.19
|
$1,647,470.28
|
3
|
Nevada
|
860
|
89
|
$480,462.00
|
$5,776,932.00
|
7
|
Texas
|
2,272
|
95
|
$1,322,589.61
|
$15,899,479.32
|
14
|
3,709
|
94
|
$2,254,401.60
|
$27,104,191.20
|
But you are a man with many options if you decide to make this investment. Off the top of my head, I can see you purchasing this portfolio for one of your current philanthropic organizations. Or, a private label income investment vehicle option for the Berkshire Hathaway employees’ retirement account. Or, you could package this portfolio and convert it into a publicly traded REIT along the lines of AvalonBay Communities, Inc. (AVB), Essex Property Trust, Inc. (ESS), or Mid-America Apartment Communities Inc. (MAA).
UPDATE; AP: The cost to dine with investor Warren Buffett has apparently spiked in value, with one deep-pocketed bidder forking over nearly $3.5 million during a charity auction.
The annual auction for a private lunch with the Nebraska billionaire closed following a flurry of activity in the final hours Friday night. In the end, the highest bid was a record-breaking $3,456,789.
No comments:
Post a Comment