In a Bloomberg Story, Heebner sounds bearish on NYC high end real estate. This is a tough call, because I agree that there are going to be some job losses but I believe most will be in the middle end... and in NYC I guess middle end means guys making $150-$300K. Most of the top end guys who really move the upper end of the market might see smaller bonuses but somehow I think they'll survive. Also areas with nowhere to build ala San Francisco or New York City have a unique supply/demand dynamic but perhaps if there are less guys making $300K, this means only so many people could actually bid on multi million dollar apartments.
Some interesting points:
- Sept. 25 (Bloomberg) -- Kenneth Heebner, manager of the top-ranked U.S. real-estate mutual fund, sold stakes in New York property owners because prices will decline as banks, hedge funds and buyout firms fire workers.
- The $1.7 billion CGM Realty Fund divested SL Green Realty Corp., Manhattan's biggest office landlord, since the end of June
- ``You're seeing a retrenchment in the private-equity, hedge-fund and brokerage businesses, and there could be a lot of layoffs,'' Heebner, 66, said. ``That could have a devastating impact on high-end residential real estate in New York. Appetite for office space will also decline.''
- The fund unloaded shares of apartment REITs Archstone-Smith Trust and AvalonBay Communities Inc. this year. Archstone-Smith, owner of apartments in cities including New York, Washington and San Francisco, is being bought by a group led by Tishman Speyer Properties LP in New York. Alexandria, Virginia-based AvalonBay Communities' biggest apartment rental markets include New York, Seattle, Washington and San Francisco.
- He said he shifted more than half of the fund into global mining companies earlier this year. The fund's investment policy allows him to purchase shares of companies with ``significant'' real- estate holdings including those in the hotel, mining, lumber and paper industries.
- The manager's top stocks in the real-estate fund are Rio de Janeiro-based Cia Vale do Rio Doce, the world's largest exporter of iron ore, and Potash Corp. of Saskatchewan Inc. in Saskatoon, Saskatchewan, the world's biggest maker of fertilizer.
- At the $3.5 billion CGM Focus Fund, Heebner sold his 15 percent stake in investment banks including Merrill Lynch and Morgan Stanley during the second quarter. He said they will be hardest hit by the subprime rout.
- Heebner said he started selling shares in real estate investment trusts late last year after Blackstone Group LP agreed to acquire Equity Office Properties Trust. The New York- based buyout firm paid $39 billion, including debt, to purchase the office landlord in February after first agreeing to pay $36 billion in November. ``We were predominantly invested in REITS at that time and we sold most of them because we felt the valuations got excessive,'' Heebner said.
- Heebner, who had two-thirds of the real-estate fund in homebuilder stocks at the beginning of 2005, sold his entire stake by the end of that year. Homebuilder shares peaked in July 2005 and have since tumbled an average of 67 percent.
Takeaway: Interesting stuff. Right now the market (stock), does not seem to view any job losses in financials as impactful, judging by the response post Fed but let's see how it plays out. I also was curious to see his top holdings in his 'real estate' fund, including one of my favorites Potash (POT) - I am just wondering if the folks owning this 'real estate' fund really know what they own. I guess with those type of returns, most people are blissfully ignorant and content ;)
Long Potash in fund; no personal positions
