2009 11
Real Estate can still be a Hedge
Published by MartinVarsavsky.net in Investments with No Comments
During my business career I have founded 7 companies. The first, and least known, is Urban Capital Corporation, a company that develops and manages real estate in Tribeca, NYC. I started that company while I was at Columbia University together with my partner Len Kahn. We developed over half a million square feet of loft buildings. We currently own 32 Varick St or 11 Beach Street, a 120,000 sq ft building that is made of office lofts and is a favorite with high tech and media businesses.
My other companies are high tech companies. 3 got to be worth over half a billion dollars, one did ok, in one I lost 45 million dollars and while the jury is still out on Fon, I believe it could be my fourth company worth over half a billion.
During my business career in High Tech however, I have alternated between investing in my own start ups, occasionally backing other start ups (the most successful being Eolia started out of my office by my dear friend Miguel Salis, ex CFO of Jazztel and now worth over a billion) and investing in real estate both in Europe and in the USA. Investing in unleveraged real estate has proven to be pretty counter cyclical to high tech. For example when everything went to hell in tech between ’01 and ’04, real estate did very well. And while my timing for real estate has been occasionally wrong (I lost money in 2 hotels in USA in the ’90s) it has been mostly very good. I buy real estate with little or no debt and simply hold on to it. I have rarely sold any.
As an example, 2 weeks ago I bought an apartment at the Continuum in Miami. I bought it at a historically low price. And currently I have my eyes on a San Francisco apartment. Also in a prime building. Why am I adding to my US portfolio of properties? Because real estate is a long term play and I see US real estate at a historical low now both in terms of a low dollar and low values in key markets. So after staying on the sidelines for a decade I am now buying for the following reasons:
My brief view of the contemporary financial world is that George W. Bush and his team did horrendous damage to the US economy, but fortunately neither he nor his mismanagement style are coming back. During his tenure, I avoided the US dollar and anything US related. When we raised US dollars at Fon for example, we immediately, and smartly changed them into euros. But for the next decade I have a different view. I see a Europe unable to make the changes it needs to adapt to a globalized economy and I see America avoiding the mistakes of the past and adapting well. I see Bush as a one of a kind idiot. The fact that Americans chose Obama shows that there is hope in a more educated generation of American voters coming up more focused on substance than myth. That even if Republicans win again during the next 11 years, they will win with somebody more like Bush senior than Bush junior. I think that future US leaders will have common sense and will not dilapidate the country´s economy by fighting useless wars and probably at least partly address the other two huge “leaks” of the American economy: the cost of health care and the costs of administering “justice”. Concretely, and in favor of buying real estate, I think that Obama´s team will reactivate the US economy but will be left with some inflation that will likely do two things: help real estate, and help the US dollar as interest rates rise to stop it. Both are pluses for US real estate.
Bottom line of all this is that I am now converting euros into dollars to buy more US real estate for the first time in close to a decade. I also was lucky enough to change euros into pounds at 1.05 at the beginning of ’09 in anticipation of buying a home in London as well. London is and will be the global financial capital of the world, and right now, with the pound depressed and the markets down, it is a good time to buy there as well. So far I put in bids for different homes in London but they sold for more to others. Will keep trying.
I end with an anecdote. An hour ago this auction ended in Hawaii. I participated in it and I was surprised to see that the home sold for over $5 million. Especially considering how high the real estate taxes, maintenance and membership fees are in Hualalai. A person who buys a home in Hualalai has to spend around $250K in the membership, and an extra $150K per year in taxes and various fees. Plus of course getting to Hawaii. I confess that I was not prepared to pay more than half of what the home sold for. Now you could say, why would people pay so much for real estate that if lucky they will use for a month a year? The answer is that there is something to real estate prices that is akin to brand value. Real estate, surprisingly enough, elicits feelings. And the property I own is in those places, places that turn people on for some reason. Places that other than serving as useful homes make people feel better, like brands, for better or worse, do.
So while I will continue focusing on building companies around my ideas in Tech, I will also continue looking for the new or rising real estate brands. Currently I see them in South Beach, downtown San Francisco, the West End of London and Tokyo.
2008 20
Robin Hood Bush?
Published by MartinVarsavsky.net in USA with No Comments
Yes, we all know that this is the administration that robbed from the poor and gave to the rich and there are countless examples of that. The most obvious one are the lucrative contracts given to friends of the Bush Administration in Iraq paid for by the US taxpayer. And this was generally true…. until the current financial bailouts. My view on what the Bush Administration is doing lately is that shock, shock, shock, they are stealing from the rich and giving to the poor.
I know most of you will think I am wrong. And I may be, as only time will tell. But allow me to make my point. My thinking here is that when confronting the property bubble, Wall Street analysts have underestimated the ability of the average US citizen to pay his/her mortgages. This has depressed the mortgage asset class beyond reason.
I believe that over the next 20 years, many of these “worthless” mortgages will turn out to be very valuable and partly or fully repaid. As a result, I think that by buying these mortgages on the cheap from Wall Street the US government will engage in a gigantic Robin Hood like effort and steal from the bankers and give to the average tax payer. Moreover, Paulson and the guys now at Treasury are bankers and they think like bankers. They are hired guns who make money for whoever they work for. And now they work for the US Treasury and they are making the deals of their lives, but, paradoxically, on behalf of the American people.
2005 3
Avian Flu and the Blogosphere
Published by MartinVarsavsky.net in General with No Comments
Avian Flu is proving that blogs may provide adequate balance to global media coverage of important issues such as the Avian Flu. Initially, when global media was not covering the Avian Flu, news were appearing in many blogs as to the dangers that the disease posed to humans. Now that the national media and Bush himself has gone overboard with the dangers of the Avian Flu, blogs are toning the whole issue down and putting it into the right perspective.