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Marvin Clark
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Marvin R. Clark is the Managing Principal of Monsoon Wealth Management (MWM). Monsoon offers affluent individuals and business owners’ wealth management, economic, and market advice throughout America. Based in Scottsdale, Arizona, Monsoon’s major task is employing a macroeconomic top-down... More
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Fixed Income Daily
  • A Father's Day Gift For Warren Buffett 0 comments
    Jun 8, 2012 10:45 AM | about stocks: BRK.A, BRK.B, AVB, ESS, MAA

    I was shocked when I read yesterday the auction high bid price for lunch with Warren Buffett had only reach $200,000, with less than 24 hours to go. Below is a chart of previous winning prices for lunch with Warren, courtesy of CNBC:

    Mr. Buffett is on a bit of a losing streak, lately. The billionaire's offer to buy Residential Capital (ResCap) from Ally Financial Inc. (NYSE:ALLY) before the government-owned company put the home lender in bankruptcy was rejected, according to a May 17th, Bloomberg article.

    The Bloomberg article also suggests that Berkshire Hathaway Inc. (BRK/A) would have paid little cash upfront while taking on potential liabilities. Instead, ResCap voted to declare bankruptcy and arrange a sale to Fortress Investment Group LLC (NYSE:FIG) and Nationstar Mortgage Holdings Inc. for approximately $2.3 billion.

    The Bloomberg story concludes with "Fortress and Nationstar won't take on the liabilities that Berkshire had proposed assuming…" Former hedge-fund manager Ted Weschler, assigned to negotiate the offer with Ally, happens to be last years' winner of Lunch with Warren, paying the $2,626,411 for a chat and chew.

    I've watched WB expound for the past six months about the various virtues of owning real estate at this time. It just so happens a very attractive deal came into my inbox the other day.

    Although this would be a light snack for you, perhaps just an appetizer, I know of a portfolio that will become available this June 15th, through a receivership's auction. As a fan of yours, I would be remiss if I did not bring this opportunity to your attention to pay $.40 cents for dollar bills. Consider it an early Father's Day gift.

    One of the major real estate firms in this country has sent out a marketing brochure featuring 3,701 units of multi-family housing, comprising of 14 different properties. It is an all cash auction. The portfolio is cash flowing at $27 million, annually. This is a meal for big boys.

    Looking at a quick and dirty calculation of these properties; the cash flows are decent, vacancy rates are small, and in this era of yield starving investors (the 10-year T-note made historical low on June 1, of 1.45%), and you can purchase this cash flow and turn it around within 6 to 9 months in any number of ways.

    For comparison, capturing a $27 million a year in cash flow using two-year treasuries, with a current yield of just .26%, would require a cash outlay of greater than $10 billion dollars. Even going out 10 years, your outlay would require $1.7 billion for treasury notes to secure $27 million in annual cash flow.

    Below is the list of properties that will be sold to the highest bidder. Due to a confidentiality statement I signed, I cannot get more specific about these properties in an article (have your people call me; I have no people, it's just me and my Apple iPhone).



    Properties Locations Total Units Occupancy Monthly Cash Flow Annual Cash Flow
    1 Maryland 144 97 $164,682.72 $1,979,084.64
    1 Virginia 128 95 $84,268.80 $1,013,901.60
    1 South Carolina 112 97 $65,401.28 $787,323.36
    1 Florida 193 99 $136,997.19 $1,647,470.28
    3 Nevada 860 89 $480,462.00 $5,776,932.00
    7 Texas 2,272 95 $1,322,589.61 $15,899,479.32
    14   3,709 94 $2,254,401.60 $27,104,191.20

    According to Barron's, a company seeking to become a REIT must satisfy two main criteria: It must derive at least 75% of its revenue from rents and other direct real-estate activities, and it must pay out at least 90% of its profits to shareholders as dividends. In return, those profits are untaxed at the company level, and the hope is that yield-focused investors will flock to the shares.

    But you are a man with many options if you decide to make this investment. Off the top of my head, I can see you purchasing this portfolio for one of your current philanthropic organizations. Or, a private label income investment vehicle option for the Berkshire Hathaway employees' retirement account. Or, you could package this portfolio and convert it into a publicly traded REIT along the lines ofAvalonBay Communities, Inc. (NYSE:AVB), Essex Property Trust, Inc. (NYSE:ESS), orMid-America Apartment Communities Inc. (NYSE:MAA).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BRK.A, BRK.B, AVB, ESS, MAA
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