Run by Michael Winer has reduced holdings of BAM by 371,225 as of January 31, 2008. This may or may not have been reported on the 12/31 Form 13F. (one could find this by comparing last 2 reports from the Winer and compare to 13F.)
Winer goes onto discuss his concerns with Commercial Property. He cites cap rates specifically. Also mentions availability of financing and a concern of CMBS via "conduit lenders" freezing the borrowers of the last 15 years. Talks about widening spreads.
They actually kept their position about the same. They did have $213 million in liquidations in their 1st quarter. The fund was approximately $2.4 billion with approximately 10.75% in BAM. Had they trimmed of the top with all of the liquidations they had they would have sold about $25 million in BAM vs. the approximate $12 million sold. I actually talked to somebody at Third Avenue about this.
You're exactly right. Those sales were made mostly due to fund redemptions and portfolio reasons, given their large positions in BAM. Note that they also sold a healthy portion of Henderson Land for the same reasons, despite Third Avenue as a whole being likewise very bullish on that company.
As is usual, the resident bear, paints a false and misleading picture. He notes that Winer made comments talking about the decline of commercial real estate, and higher cap rates, but neglects to mention that he went on to say that US and UK-based real estate seem to have declined to "a much more dramatic extent than the underlying properties."
Continuing: "Notwithstanding the evidence that commercial property values have declined, and may decline even further, Fund management believes that the public market for common stocks of high-quality real estate companies have over-reacted to the global credit crisis."
Winer's fund at the time of reporting had just under a 10% stake in BAM. It's their second largest stake, with Forest City being the highest at a little over 11%.
I think the higher cap rates, and reduced liquidity, is actually a positive for BAM in the long-term. Liquidity at the company is expanding, not contracting, along with the investment opportunities. The company is led by Canada's Warren Buffett, Bruce Flatt, and a group of highly successful value investors who specialize in buying assets on the cheap when others are afraid.
As Buffett always says, if you're a buyer of something, it makes sense to be happy when the price goes lower. BAM, as a buyer of high-quality real-estate in gateway cities is in just that position. Meanwhile, as of the last reporting, their buildings were anything but vacant, some were more leased out than ever, and those that are due to be reset in the near term will undoubtedly be reset at higher rates given the spread between the current rent and what the market is charging.
From Winer, again: "The fund's investments are heavily concentrated in the common stocks of high-quality real estate companies that, like British Land, are fundamentally unaffected by the near-market turmoil. On the contrary, those well-capitalized companies, in many cases, are able to use their strong financial positions to take advantage of opportunities to invest at distressed prices."
Has anyone watched the ALLCO finance disaster from down under? Allco finance was an "hard asset" manager similar to Macquarie, B&B, BAM and others. The difference appears to be that their accounting was not good. the results for stockholders are not pretty:
It appears to me that those "hard asset managers are running a risky business. Sure just running assets for others is not a high risk but the reality is not that straightforward. In order to keep growing they constantly purchase new "hard assets" on their own account, bundle them and then resell or IPO (and keep a stub). If this money recycling food chain breaks down, they will sit on those assets just like the banks sit on some of their leveraged buyout or CDO loans. If something goes wrong with a spinoff, these assets may go back to the owner just like SIV go back to the banks.
The whole game seems risky because those companies constantly run a lot of leverage. this business is dependent on cheap money, because they earn their money on the difference between the cash flow of the assets they hold and the interest on the debt they pay. If the cost of capital goes up they will be squeezed and that seems to be happening in Australia where interest rates are not going down because the economy is booming. Well, those hard assets are better than CDO^2 of course but i nevertheless suspect a vulnerability.