Paulson Bets on Real Estate With CB Richard Ellis

John Paulson's hedge fund firm Paulson & Co has made another bet. And, this time around, the firm is focusing again on the real estate recovery theme. After recently announcing its real estate recovery fund, Paulson has now announced that it will buy $100 million worth of CB Richard Ellis Group (CBG) stock. The company is raising $550 million ($400 million in 10 year notes & $150 million in equity) and Paulson looks to fill the bulk of the equity offering.

Paulson's purchase equates to buying 13.4 million shares of CBG. For a multi-billion dollar firm like Paulson, this investment is just a drip in the overall bucket. But, it fits right along with his current theme of slowly dipping into real estate as he wagers it will eventually recover. The water may not be warm, but the payoffs could be huge for jumping in early. So, while he may not have made a huge splash quite yet, Paulson has definitely started to get constructive (even if he still remains bearish on the economy near-term). And, as we all know, picking the exact bottom is damn near impossible.

So far though, Paulson has had a good year. Through the end of May, Paulson's main fund was up 8.75% for the year as noted in our May 2009 hedge fund performance numbers post. Besides his real estate entrance, Paulson has also made a large entrance into Gold, buying $4.3 billion worth of gold related entities. Paulson's massive success through this crisis has made him a 'must-follow' and as such we'll continue to keep an eye on his movements. In the mean time, you can check out the rest of his portfolio here.

Comments

[Clarence th...:]

Hedge fund managers open funds because that is how they get paid. No fund = No 2 & 20. What else are they going to do? Sell real estate?

Scared boomers don't read income statements - they are too old and spent. They think they understand real estate because they live in a house. They are easy marks for these funds. In the gentlemanly parlance of professional salesmen, they are known as "lay-downs".

Real Estate Brokerages make money when property changes hands. REO / underwater / short sale - makes no difference. Add that to the fact that your local bankers are scared for their jobs as well. (What else are they going to do? Sell real estate?)

Imagine you are in the REO department of the bank, and word comes down from HQ to list your inventory ASAP. Do you list with a regional mom and pop broker? All Real Estate is local, right? But Bankers - under pressure - will reflexively default in favor of national brokerage chains. Every. Damn. Time. If you wanted to keep your job (and had no marketable skills outside of regional banking) you would do the same.

In summary, John Paulson:
A) Designs a fund that embraces the Flight to Value Remnant, and
B) Invests in the marketing machine that will benefit - win or lose - from the transaction.
I fail to see a "bet" on the "real estate recovery theme".
Paulson is betting that he can raise money from shell-shocked investors, and that real estate brokers will be involved in the inevitable transactions.

Hey Paulson, am I right? Am I right? CAN I HAVE A JOB? Paulson? ... Paulson?
Pffft, He hung up.

Jun 13 09:29 PM

[Jeff Nielson:]

"Market Folly", that should be the title of this article.

Paulson is going to lose so much on this investment it will more than wipe out the gains he makes in gold.

Barring a sudden, multi-trillion dollar bail-out of this market by the government, there is no possibility of this market hitting bottom for at least 5 years. (see www.bullionbullscanada...)

Jun 14 05:01 PM

[yellowhoard:]

Guess who the chairman of CBRE is married to?

None other than Senator Diane Fienstein.

She's bringing home the bacon for daddy.

Maybe CBRE isn't such a bad bet.

Jun 14 05:19 PM

[Market Sniper:]

Paulson will lose the proverbial back side of his lap on this play. Buddy, stick to what you KNOW. Looks like he has caught a case of Buffetitis.

Jun 14 05:23 PM

[dcb:]

this play would be consistent with an inflation play (gold).

Jun 14 07:56 PM

[dragonpaw:]

Financial marketeers in bed with politicos; how wonderfully and marvelously incestuous! A "must-make" for a new Hollywood reality show! Please keep me informed ; I'm so all-a-twitter!!!!

Jun 14 08:54 PM

[CBTeas:]

Paulson should carefully analyze how CBG is making their #s right now. Very good senior people are taking severance packages and walking out the door. CBG gets to report this as "one time earnings hits" and a positive to future expensive savings. I think a lot of the past goodwill has just walked out the door while Paulson walks in. Oh well. Good luck.

Jun 15 06:12 PM