The case for owning global real estate

Oct 1, 2013 @ 12:00 am

Runtime: 4:25

Many U.S. investors are shortsighted when it comes to this asset class, financial experts tell PBS' Consuelo Mack.

Video Transcript

This week on WealthTrack, a top-performing mutual fund manager and award winning financial planner explain why they are building up their global real estate holdings. Third Avenue Real Estate Value Fund's Jason Wolf and Gerstein Fisher's Gregg Fisher on the opportunities they are finding in real estate around the world are next on Consuelo Mack WealthTrack. So, what's the situation with the global real estate market? -Yeah. Well, there's just been an explosion in publically traded real estate stocks over the past decade, right. At the securitization of the real estate, a lot of private wealthy families have listed their companies on the exchanges from Malaysia, to Singapore, to Philippines. All across the globe, we've got real estate companies. And so, there's a huge opportunity set there. That also offers us opportunities as value investors because each market doesn't move in the same way. And today, you've got, for example, Germany-- a German office company that's going through massive distressing and a restructuring. -And which company is that? -And it's IVG Corporation. And so, you have opportunities there, but as a whole, Europe has been doing pretty good from a real estate perspective. And then you have Brazilian home builders and commercial companies having a hard time while U.S. real estate companies are doing well. So, it's really becoming uncorrelated, if you will, as far as the way the markets are moving. And it's very good for stock pickers. -So, what role does real estate-- real estate investments have in our portfolio? -Well, I think when you think about all the different things investors can invest in, you've got stocks, you've got bonds, you've got real estate, and you've got natural resources. There aren't that many other things. But when we look at investors on average on our experience, we find that investors tend to be underexposed to commercial real estate or even real estate in general. It's no uncommon for an investor to own their home or maybe a second home, but as a percentage of their net worth, commercial real estate tends to be tiny. It's particularly tiny, if not, even nonexistent when we ask U.S. investors particularly what exposure they have to foreign real estate markets. So, if you're just wanting to add an asset class to your portfolio that has a reasonable expected long-term return that adds adversification benefit to the portfolio, global real estate seems to be something that most investors don't already on that would, in fact, qualify in that regard. -So, Jason, let me pick up on that because you work of course for the legendary Martin Whitman at the Third Avenue Funds. And you actually-- When you joined the firm in 2004, you introduced Third Avenue to the concept of global real estate or foreign real estate. And so, from your vantage point as a deep value investor, what's the appeal of-- you know, of global commercial real estate. -Well, look, as I was underwriting the businesses, it's one thing that you-- that we look at the real estate is, is that you try to find trends, big trends that could potentially really create a lot of long-term wealth for businesses and the three are urbanization, a rising middle class, and consumer consumption. And when you put that together in some of the areas of the world, it looks like that the long-term wealth creation available to buy pubically traded securities of high quality assets that are really well financed are there. And so, that's where we went in heavy in Asian markets. -[unk] So, Hong Kong, you've got some major holdings in Hong Kong for instance-- -That's right. -at the Third Avenue Real Estate Value Fund. -Right. And, you know, we own Cheung Kong Holdings, which is the flagship conglomerate of Li Ka-shing. And this is a business that is much more than Hong Kong real estate company. It's-- Exposures are all over the world. It's the largest port operator in the world to Hutchison Whampoa. It's the largest retailer, health and beauty retailer in the world, as well as a large developer and among a number of other businesses, but, you know, trades at 10 times last time with-- last 12 months' earnings and 80 percent of book value and has a fantastic balance sheet. So, when you look at the long-term growth potential of the business, we feel really good about, you know, maybe a business that can grow 10 percent a year.

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