Is Real Estate Dead Money? This Investor Says Absolutely Not

Amber Kanwar (0:04)

Does that make real estate dead money?

Jeff Olin (0:06)

No, certainly not. Some of the cliches, if you will, we think are somewhere between nonsense and ridiculous.

Amber Kanwar (0:12)

Rates are rising, but Jeff Olin, a Vision Capital isn't scared off real estate stocks. He reveals how he's outperforming the market.

Jeff Olin (0:19)

For the last 40 years, we've never found a period of time where we couldn't buy real estate cheaper in the stock market than the property market. Yeah, we've had 25 takeovers in 18 years, an average 29% premium.

Amber Kanwar (0:30)

And he doesn't hold back about what he's staying away from.

Jeff Olin (0:33)

And we're not here to be bulls for real estate.

Amber Kanwar (0:34)

You think they'll cut the dividend again?

Jeff Olin (0:36)

I think they're going to be reluctant to do it.

Amber Kanwar (0:38)

I imagine I'm pretty pissed. I imagine this deal came together before they cut the distribution. They didn't just work on it in the last three days.

Jeff Olin (0:47)

Highly unusual. Let me say that.

Amber Kanwar (0:49)

This seems like a situation crying out for an activist investor.

Jeff Olin (0:52)

I would share that view.

Amber Kanwar (0:54)

Why don't you do it?

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The content provided in this podcast is for informational purposes only, and does not constitute financial investment or professional advice. The views expressed by the host and the guest are their own, and do not necessarily reflect the opinions of any organization or company. The host and guest may maintain positions in any securities discussed on the podcast. Always consult with a qualified financial advisor or professional before making any investment decisions. In this episode, we discuss GO Residential and Granite REIT, which are both stocks that I owned. Hey everyone, welcome to a brand new episode of In the Money with Amber Kanwar. On this episode, we are talking real estate stocks, and there is so much going on. Obviously, interest rates are a dark cloud over the sector, and we've seen a pretty healthy pullback. But on this episode, we've got Jeff Olin of Vision Capital. He is a veteran real estate investor, and even though the index is down, his fund is up. He is going to lay out exactly how he manages to outperform the benchmark. And some of the answers might surprise you. And yes, we tackle the major deals that we have seen in the space. A lot of them have made investors angry. We talk about the H&R GO deal, we talk about the Slate Grocery REIT deal, and we talk about potentially positive M&A at big premiums as well, and who he thinks the next candidates are. It is a stock picker's dream, so let's get into it.

Jeff Olin, thank you so much for joining me on the podcast again.

Jeff Olin (3:15)

Thank you for having me.

Amber Kanwar (3:16)

So much has happened in the last year since we spoke. We've had a crazy spate of M&A, and we will get to all of that. But I guess the first thing we have to address right now is the fact that the sector's got this big cloud over it, and that's rising interest rates. And so I wonder from your perspective as a real estate investor, does that make real estate dead money?

Jeff Olin (3:40)

No, certainly not. I mean, interest rates are an important factor, but we believe, we've demonstrated that some of the cliches, if you will, that you're here in real estate, we think are somewhere between nonsense and ridiculous. The first is location, location, location. I mean, you could have the best located office building in Calgary or San Francisco. How's that going for you? Not so good. Interest rates, interest rates are important. They're always exceeded in importance where the rates are going up or down by supply and demand, like any business, like any industry.

In fact, Chief Strategist at BMO, if you know him at the time, Brian Belsky was on CNBC last summer, and he demonstrated that the correlation between the yield on the 10 US bond and REIT prices was de minimis. That was not a surprise to us. But what he also showed is REITs have performed their best historically when the yield on the 10 US bond was between 4 percent and 5 percent. We would have predicted a little bit lower, but it makes sense for the same reason, supply and demand. Because of the yield on the 10 US bond is between 4 and 5 percent, unless it's a credit crisis, which is a brutal for real estate, is typically because US economy is reasonably strong and employment growth is reasonably solid. And that's the demand side for real estate. You got a job, you can buy a house or rent an apartment, working in a factory and office building, etc.