Every once is a while, someone gets it so wrong that they end up being right. This quote by Paul Puryear, a housing analyst at Raymond James & Associates, ran in today’s Wall Street Journal. It’s about CALPers and its tanking land play outside of Los Angeles. His quirky rationale belongs with the best of Yogi Berra. I’d put it up there with “This is like deja vu all over again.” Here’s why.
Risk is an inherent element to any speculative investment. That’s why we call it speculating. It doesn’t matter if it’s land or equities or commodities, if you’re out to make a quick buck, you always go in knowing you can lose that buck as well. That’s why our mantra at the Land Report is “Invest. Improve. Enjoy.” Make sure you’re dealing with a reputable seller. Lock in a reasonable purchase price. If you’ve got a long-term perspective and purchase a piece of property you can also enjoy, you’ve capped your downside. What’s to lose?
The CalPERS deal is obviously not your typical land purchase. The giant pension fund is one of the nation’s largest land owners. It manages $244 billion with nearly $21 billion in real estate investments. According to the Journal, CalPERS has been investing in undeveloped land since 1994 and has seven partners on similar deals in 12 states. When CalPERS took a position in LandSource Communities Development, the venture had a book value of $2.6 billion. Now those assets are valued at $1.8 billion, and it’s also carrying debt of $1.24 billion. Which brings up my final question.
Why didn’t CalPERS steer clear of a risky land play and invest in timber instead? Talk about a safe bet. The land appreciates. The timber appreciates. And with every harvest it throws off a steady cash flow.
That was easy.