Family Office Review, a media company that serves very high net worth investors and their professional advisers, has published an interview with Arixa Capital founder Jan Brzeski. In the article, Jan describes why many established investment companies have turned their attention to investing in single family housing, and explains how Arixa became involved in this market. To access the full article, click here.
Arixa Capital has released a new white paper focused on the U.S. housing market and single family homes as an asset class for investors to consider. The white paper is based on Arixa's concrete experience investing in this area in recent years, working with local operators who buy properties in a specific geographic area, renovate them, and either lease the homes or resell them.
The white paper explains various ways that investors can gain exposure to this asset class, which Warren Buffett recently endorsed as underpriced and attractive. The author explains the advantages and disadvantages of various investment strategies for both active and passive investors.
The white paper also explains that the activity of thousands of local operators is already helping to work through the backlog of foreclosed homes. Attracted by appealing profits, local operators will help the housing market to heal over the next several years. Policies that aim to solve the problem on a mass scale are neither needed nor advisable.
For a copy of our white paper, please click here.
To all who registered for and/or attended our event last week, thank you for coming. If you were able to attend, we hope you found it valuable. If you are interested in the photos that were taken of the event, please click here.
To read more about the event, please click here.
The unique value proposition for this event series is the high quality networking and educational opportunity combined with the very low registration fee ($15 for pre-registration or $20 at the door). The fact that beer, wine and appetizers are included in the price is also popular with participants.
For those of you who were unable to attend, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event again this year. We plan to post this video very soon, so please check back on this blog for that link.
If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Jan Brzeski at firstname.lastname@example.org.
This year's event is set for Wednesday, February 8 at 6:30 p.m. at the Anderson School. For details, including speakers and registration, please visit the conference website: http://arixacapital.com/conference. What Makes this Event Special Last year, our event drew over 220 attendees for networking, refreshments and a lively panel discussion among some of Southern California's most established and interesting real estate investors. The reason our event has succeeded while other conferences sometimes draw limited attendance include three main factors:
(1) Great Panel. The panel discussion is unusually candid, as we track a core group of investors through the full real estate market cycle. This "longitudinal study" aspect of our event is unique. We are told each year that our panel is one of the best, or the best, among all the California conferences.
(2) The Price is Right. At only $20 per person ($15 with pre-registration), including food, beer and wine, there is no better value than our conference. We thank our key sponsors including the Ziman Center at the Anderson School, and Gibson, Dunn & Crutcher, for keeping the cost to a minimum.
(3) Excellent Networking. Our event starts with a one-hour reception during which you will meet valuable contacts in a collegial atmosphere. At the reception and after the discussion, you can meet the panelists and other professionals and investors in our industry.
This podcast outlines a recent loan we originated, secured by a strip shopping center located in Ohio. This loan was compelling based on the income of the property. The attractive income outweighed the negative factor of the property being far from our office.
This podcast introduces some of the issues involved when underwriting income property such as apartments or shopping centers, when considering making or investing in a loan secured by income property. The key is to understand the value of the property and value is driven by ability to generate cash flow, which in turn is driven by a variety of factors, depending on the property type.
Chimera Investment Corporation (CIM) is a $3 billion mortgage REIT with an 18% dividend yield. In an article for Seeking Alpha, Jan Brzeski analyzes Chimera the way we at Arixa Capital would analyze a real estate investment, focusing on the income it generates, the dependability of that income stream, and how the investment is financed. To read this article, please click here.
With a dividend yield of more than 14%, it is hard not to be interested in Annaly Capital (NLY), the largest mortgage REIT. At Arixa Capital we manage a portfolio of real estate loans...a miniature version of a mortgage REIT. In a two-part article for Seeking Alpha, Jan Brzeski applies his expertise as a real estate fund manager to analyzing the risks inherent in Annaly Capital's business model. To read part 1, please click here.
Jan Brzeski is a contributor to Seeking Alpha. The article below is a copy of what he posted on August 30, 2011. To access his article on Seeking Alpha, please click here. Real estate investors know that generalizations are of little value when describing the real estate investment market. Some markets see rising rents while others see the opposite. Results vary by asset class as well.
Today we are seeing an unusual divergence in values as indicated by the two charts below.
The Broad Commercial Real Estate Market: Still on the Floor The first chart is the Moody's/REAL All Properties commercial real estate index:
The index from which the chart above was made tracks repeat sales of all properties across the U.S. where the sales price was $2.5 million or above.
The Institutional-Quality Commercial Property Market: Bubbly Now let's look at the Green Street Advisors Commercial Price Property Index (CPPI). This index tracks the price at which public REITs are buying and selling real estate. This index also gives higher weight to higher dollar volume transactions, whereas the first index gives equal weight to every transaction (only repeat sales of the same property are tracked in the Moody's/REAL index; the CPPI tracks all large transactions by REITs, including those that are not repeat sales).
Mixed Signals The index of REIT-quality properties is up almost 50% since it hit bottom in early 2009. Meanwhile the broader index that includes many smaller, lower quality properties has actually gone down since 2009.
Consider for a moment that the broader index, which is still near its bottom, includes some large transactions where the price is presumably up 50% from where it was two years ago. This must mean that the prices of all non-large properties are down substantially since two years ago, in order for the broader index to be flat.
Imagine if the Dow Jones Industrial Average were up 50% in the past two years while the Wilshire 5000 Index was flat in the past two years. That is more or less what this data says.
Possible Explanations Let's examine some possible explanations of this dramatic divergence. Note that I am not advocating for the superiority of one or another explanation below, only trying to draw out arguments that could explain what we are seeing.
Explanation #1. The income of Class A buildings has gone up 50% in the past two years, while the income of all commercial property as a whole is flat. This explanation, if true, would be satisfying. It would suggest that the indexes are diverging for sensible reasons. However, that is not the case. On page 4 of the 2010 Annual Report of Vornado Realty Trust, "same store sales" EBITDA for Vornado's office properties rose 3.2%. And that includes more than a 5% increase from Vornado's big investment in the government bubble market of Washington D.C. which benefitted from stimulus spending during the period.
Explanation #2. Large, institutional quality assets are experiencing a bubble and are over-bought. Interest rates for both individual savers and institutional investors such as pension funds are near all-time lows. As investors look for yield, they are buying high quality REIT stocks, driving the dividend yields on those companies to very low levels. In turn, the REITs have issued huge quantities of equity on favorable term. If they only need to pay investors 2-4% dividend yields, they can afford to pay very low capitalization rates (very high prices) when they go shopping to invest the cash they raised. Of course if they are going to pay top dollar, they want to buy only the highest quality properties.
Explanation #3. Smaller properties will from now on be relegated to their appropriate place "on the wrong side of the investment railroad tracks." There has always been a gap between the value of a dollar of cash flow from a San Francisco or New York high rise and a dollar of cash flow from an Ohio shopping center or an Arizona mobile home park. The gap has now widened and will remain huge forever.
My Own Interpretation Personally, I think the rise in REIT stocks, and the related jump in values for top quality real estate assets, is part of a larger flight to safety. Investors are scared. They lost a huge amount of money on real estate in recent years. They need to get back into real estate because there is no way to fund retirement with a 1% or 2% yield from government bonds.
As Warren Buffett said, "be fearful when others are greedy, and be greedy when others are fearful." The best way to apply that advice in commercial real estate today is avoid pricy REIT shares and to embrace the healthy income that can be had from less prestigious properties. Small is beautiful in real estate today.
Disclosure: Our own strategy is to make loans to investors who are buying properties at beaten down prices. This provides healthy income with a margin of safety because the borrower's equity acts as a cushion for our investment in case values fall. I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
This podcast addresses problems that can come up when investing in real estate loans. The most common problem is a default, but other problems include natural hazards, fire and bankruptcy by the borrower, to name a few. All of these issues can be mitigated with property structuring, however many investors are afraid of having to deal with these types of issues, which helps explain why investors in real estate loans get paid well for the amount of risk they take.
For those of you who were unable to attend our February 2nd panel discussion, or would simply like to listen to the discussion again, the UCLA Ziman Center was kind enough to record the event this year. Download the file here to view on your computer's media player: The New Normal Panel Discussion, February 2nd, 2011
or watch the video online at http://www.anderson.ucla.edu/x25943.xml
If you have suggestions for making the event even better next year, or would like to reach us for any other reason, we would love to hear from you. Please email Kari Burns at email@example.com.
Please join us for an evening of networking and stimulating discussion among noted real estate investment experts in our region. Our latest co-sponsor is GlobeSt.com, a leading web-based publication serving the real estate investment industry. Both GlobeSt.com and the Daily Journal currently have senior editorial staff on our registration list in anticipation of a newsworthy back-and-forth dialogue among our panelists. The event starts at 6:30 p.m. with an hour of networking, wine, beer and hors d'oeuvres, with the panel discussion going from 7:30 p.m. to 8:30 p.m. Questions and answers and the event will conclude at 9 p.m. Pre-registration is just $15 with a major credit card.
What makes our event different and why did we attract almost 200 people last year?
I think our event has three special qualities that set it apart: (1) great panelists who are unusually candid about what is happening behind the scenes in the real estate investment market; (2) a low price and excellent value, thanks to our generous sponsors; and (3) a collegial atmosphere in which the speakers are more accessible than usual. Our event is not set up to earn a profit‚Ä¶it is designed to build community and provide a venue for all of us to become better investors by tracking a group of experienced real estate pros through the ups and downs of the real estate market cycle.
Please feel free to call me directly if you have any questions about the event, or need help registering, or if you have any special requests or ideas to make our event better. I look forward to seeing you on February 2.
Jan Brzeski has created a podcast to address 10 frequently asked questions about trust deedinvesting.
- What is trust deed investing? - What are the benefits and disadvantages? - How does trust deed investing differ from other real estate investing options? - What is Arixa Capital doing in the area of trust deed investing?
We hope you find our white paper informative. Please feel free to contact us with any questions or comments, or to get more information about Arixa's Capital's services.