$67,000 per unit is comically low for a CCRC. The communities that BKD owns are far supierior to anything that could be built for that little. Quite frankly, I'm not sure how you did it with the land included at that price and no entry fees.
Replacement Costs for an ILF/ALF in California, Chicago, etc, the locations BKD is in, are far in excess of $300,000 per unit.
FYI, BKD doesn't own entry fee deals- nearly all rental. Their acquisitions have been pricey, but remember, this isn't a real estate company, it is a management company, so it's all good as long as the communities are well located.
Anyime someone buys a property by winning an auction, the rest of the people involved will think the price was too high. Well, nearly all real estate is sold through auctions. Does that mean everyone buying is stupid? Maybe at some point, and maybe we're getting near that point, but a lot of smart people are being stupid right now, if that is the case. Of course, that wouldn't be the first time for that!! But, this is more of a real estate debate, than a BKD debate.
Yes, I still think BKD recent purchases are overvalued. At the end of the day, BKD has yet to turn its purchases into a profit. Again, I'm sure these guys are a lot smarter then me... but its difficult for me to imagine making a profit when the purchase price per unit is north of $200,000. Maybe BKD could care less about profit and simply want to "appear" as a growth company, get Wall Street excited, and then have Fortress dump the shares...
>Your point, that this analysis is not exactly salient for valuing BKD, is correct.<
But he's the one who brought up the subject of the acquisitions being overvalued as part of the reason to short the stock. This last reply of his (the one which you replied to) appears to be skirting the issue by pointing to comparisons to other stocks.
rj, does this mean that you no longer feel that the acquisitions are overvalued? (possibly based on oppfund's analysis).
Yeah I think he said they were out in the sticks. Can you supply a link to back up the $300k/unit?
I do recall the early articles on the IPO saying it was mostly rental - good point.
I'm under the assumption that commercial real estate won't be affected significantly in the event of a housing slowdown that WS is concerned about; I read an article saying that it would present a good opp to buy into commercial REITs and the like (i.e. misconstrued perception driving them down).
Can't supply a link but do the math yourself- a 2-20 acre site in most of these markets will cost anywhere between $500,000 and $1,000,000 (if not more) per acre. If you can build 250 units, for example, on a 10-acre site, then your land alone is $20,000 to $40,000 per unit. Construction costs are +/- $200 psf in most of these markets (much higher in areas like SF and NYC), so if your building will have 300,000 gross sf, then your gross cost would be $60 million, or $240,000 per unit. Thus you are up now to between $260,000 and $280,000 per unit before financing fees, legal bills, etc, and carrying costs until stabilization. These can easily total $10,000 per unit or more. Plus- what is the developer's profit? His investors will want a return, which will have been ticking away since he took down the land.
Anyway, there are of course exceptions, and these examples don't fit all projects in all markets. In the Bay Area, your construction costs will be nearly $300 psf. In Chicago, they will be less than $200 psf. The point is, the communities that Brookdale owns or manages, are first-class communities in high-quality markets.
When they buy deals through auction processes, they are of course willing to pay more than anyone else, so it can't be argued that they are paying top dollar. But are they reasonable, and are there a lot of other smart people bidding on these deals too? Of course.