Warren Buffett’s investment vehicle Berkshire Hathaway has been steadily increasing its exposure to US real estate over the last few months. This week it was announced that the company has taken a near 10% stake in real estate investment trust Store Capital Corporation. The stake, acquired by one of the investment company’s subsidiaries, cost $377.1 million for 18.62 million shares. So, is it time to take a look at the US real estate market?
Warren Buffett is no fool
The Store Capital Corporation investment comes just four days after Berkshire Hathaway invested C$400 million for a near 40% stake in struggling lender Home Capital Corporation. Warren Buffett has also made available a C$2 billion credit line which should be enough to see the company through its current woes and a probable restructuring. It is well-known that Warren Buffett and his team like to become actively involved with companies in which they have a significant stake. There is no point investing millions of dollars into these companies without offering their expertise.
Store Capital Corporation investment began in 2014
It was also revealed, rather interestingly, that an email from the chief executive of Store Capital Corporation to Warren Buffett back in 2014 planted the seeds for this recent investment. At the time the real estate investment trust was in private hands and this was simply a means of testing the water to see if Warren Buffett might be interested in investing. It must have caught the eye of the old sage because it was passed on to his deputy within just three hours and contact was made.
Berkshire Hathaway has seemingly been monitoring the company for some time now becoming very familiar with the investment strategy and the company structure. Quite why Warren Buffett believes now is the time to invest more money in US real estate is a mystery but he rarely reads the markets wrong.
Is real estate more stable and stock markets?
In theory the price of real estate is less volatile than stock market prices but the price of property is obviously heavily dependent upon the local economy. Even though the US economy is growing again the rate of growth is a little disappointing and we await Donald Trump’s plans to increase this to around 4% from around 2.1% at the moment (a new forecast by the IMF issued today). The IMF has cited concern about White House policies which is obviously an indirect swipe at Donald Trump.
Even though it is obvious that Donald Trump has more than enough on his plate at the moment, real estate experts are anxiously waiting for him to sprinkle his magic dust on the sector. Many forget, this is a man who has been there, done it, gone bankrupt and then done it all again. If anybody knows the US and worldwide real estate markets it is Donald Trump. It will be interesting to hear about his plans for the US real estate sector because many investors have taken it for granted these plans will be successful and have an impact in the short to medium term.
In the meantime, if Warren Buffett believes that US real estate is the place to be then who are we to argue with him?