Barry Sternlicht & Michael Sacks' Talk at Invest For Kids Chicago

We're posting up notes from the Invest For Kids Chicago conference 2015.  Next up is a conversation between Barry Sternlicht (Starwood Capital) and Michael Sacks (GCM Grosvenor).


Barry Sternlicht & Michael Sacks at Invest For Kids Chicago 2015

•    Barry started off at JMB working with the Bluhm family and Malkin.
 •    Left JMB in 91 and started Starwood with $21MM.  Today $51B real estate management firm.
•    Chicago as a real estate market? Great place dynamic city, lots to do. Started two hotel – (one hotel which is green), Baccarat hotel chain – sold for the highest price ever for a hotel to a Chinese buyer.
•    Mall management business based out of Chicago.
•    Pretty strong market. Don’t really play as it’s hard to understand and the supply factors.
•    Have been buying in the tax free states.
•    Agnostic to where he invests – looks for best returns but spends most of his time in real estate.
•    Wants to add value no financial engineering.
•    Buy malls and re-tenants them, redesign, etc.
•    Favorite markets/asset classes in real estate? Thinks high rise residential in midtown will be in a free fall, Arabs and Russians are gone, Chinese are fickle. Wants to short it.
•    Thinks the apartments he bought from Zell are good, a single not a home run, double digit cash flow yields.
•    Slow growth is good for them, doesn’t induce new supply and move interest rates.
•    NYC hotels overbuilt.
•    Canadians bigger tourists versus Chinese. CAD decimated.
•    LT NYC great but short term is hard.
•    REITs aren’t trading well due to flow of funds.
•    Rates up, REITs get killed due to dividend chasers.
•    Credit guys tend to be smarter, focused on cash flow versus equity guys focused on the multiple to put on cash flow which is subjective.
•    Thinks Japan is a big Ponzi scheme. ETF volume in Japan driven by government.
•    Real risk in world is central banks printing money. Printing money and buying real assets doesn’t seem kosher to him.
•    Correlations in stock market picking up.
•    Likes natural gas. Will displace coal.
•    Thinks you’ll see incredible crashes in HY market.
•    All bad actors in the world need higher oil prices.
•    Double digit cash yield on the box, bet on the demographics half of it was south Florida. Miami is the Singapore of the USA.
•    Denver as well, young people like Denver and bought Seattle. Americans not buying houses. Ppl marrying later.
•    Trillion dollars of student debt can’t afford houses.
•    Don’t intend to own those apartments purchased from Sam for 30 years just 5. Highest quality apartments in the class.


Check out the rest of the presentations from Invest For Kids Chicago 2015.

Delivering Alpha Real Estate Panel: Ackman, Sternlicht & Gray

Continuing coverage of CNBC & Institutional Investor's Delivering Alpha Conference, we're now shifting to the real estate panel featuring Pershing Square's Bill Ackman, Starwood Capital Group's Barry Sternlicht and Blackstone Group's Johnathan Gray.

If you missed it, we've also posted up notes from the other panels at the conference.

Bill Ackman (Pershing Square):  Ackman's been in the news recently regarding a new stake in Proctor & Gamble (PG) so naturally he addressed that first saying, "We think it's a great company ... it's a cheap stock, but it's cheap for a reason.  We own the stock, we like the company, we own about $1.8 billion in equity in options."

That's a lot when you frame it in the context of a $10 billion dollar fund.  Recently, Ackman was also saying his PG bet is the largest initial bet on a company he's ever made.  Many have postured that he'll look to shake-up management and examine splitting the business up.

Ackman also touched on his stake in J.C. Penney (JCP), whose shares have been in steady decline.  He argued that it's the only company that can make 15-20x return (seems awful high), attributing the sell-off to a PR problem versus fundamentals.

On the subject of real estate, he advocated buying single family homes, arguing that it's a good business and an "asset class where institutions are underrepresented."  For more from this investor, we just posted up Ackman's recommended reading list.


Barry Sternlicht (Starwood Capital):  He noted that there's enough debt financing and that spreads are tight.  He also pointed out that you don't really see foreign banks here.

Echoing Ackman, Sternlicht says they've been buying houses and thinks the market could even possibly be overbought.  On Europe, he thinks it's still the first inning there so if you get involved, you've got to buy and hold.  We've highlighted thoughts from Sternlicht before in investing lessons learned from Richard Rainwater.


Johnathan Gray (Blackstone):  They bought a lot of commercial real estate near the top of the market but said it's not painful because rents are improving (due to lack of new construction).  He believes there's some opportunity out there to buy things that others aren't interested in.  The caveat, is that financing is harder to obtain than in the past.

Blackstone obviously likes Ackman's notion of buying homes as that's what they've been doing.  Two thousand for $300 million, saying execution is key.  He especially seems to like European deals and thinks the continent is not going into an abyss.  In summary, he wants to buy hard assets at a discount to replacement cost.


Be sure to check out more insights from top investors from the conference:

- Best ideas panel

- Global opportunities panel

- Chase for yield panel

Barry Sternlicht Likes Lowe's, Toll Brothers, NVR ~ Invest For Kids Chicago Notes

At Invest For Kids Chicago yesterday, Barry Sternlicht of Starwood Capital Group gave a presentation on going long.

Be sure to check out all notes from Invest For Kids Chicago where numerous high profile hedge fund managers shared their latest investment ideas.


Likes Lowe's, Toll Brothers, NVR

Sternlicht is a successful real estate and hotel investor who founded Starwood Capital Group in 1991 and has structured 40 transactions. He says themes to invest behind right now are residential land as it's a contrarian bet and return of the US residential market is a question of when, not if. During 2007 to 2009, household formation fell well below the historical trend.

He says the problem is appraisals because of distressed sales when bank dump properties. Housing affordability is a good thing and we're building 3800-400k new homes when the real need is around 1-1.2 million. When people finally start to move there will be "pent up demand."

He likes certain homebuilders such as : Toll Brothers (TOL), Lennar, DR Horton, and NVR (NVR). TOL is his favorite along with NVR, which has limited inventory and turns its inventory better (Ryan Homes).

He says to avoid Beazer (BZH) and Hovnanian (HOV) because they could go bankrupt depending on how long the turnaround takes. This is interesting because Avenue Capital's Marc Lasry said he was long Hovnanian bonds at the same conference.


Lowe's (LOW): Sternlicht also likes LOW because the company owns 90% of its stores and benefits from housing demand. It has a diverse revenue stream and the internet can't replace things like home remodels because you need to see in-person what you're purchasing.

He notes that management is willing to repurchase 70% of share buybacks in 4 years (reminds him of Teledyne). The company is free cashflow positive and has a 2.5% dividend yield and trades at 6.5x EV/EBITDA. Pershing Square's Bill Ackman also likes LOW he revealed at a different conference yesterday.

You can view full notes from Invest For Kids Chicago here.