While the stock market has been abysmal in 2022, billionaires are quietly pumping money into the real estate sector. It’s no secret that the housing market has cooled following repeated interest rate hikes by the Federal Reserve, so why are the ultra-rich so keen on real estate right now? moment ?
The truth is that they are not buying residential properties, but rather two specific types of real estate: resorts and farmland.
Billionaires are snatching up rare assets
In the wise words of Will Rogers, land is an attractive investment because “they don’t do more things”.
This is especially true for resort properties and farmland. Urban sprawl continually puts pressure on our country’s arable land, and the resort industry is often built around natural beauties such as pristine coastlines and majestic mountains, which you can’t manufacture.
This is probably the driving force behind the money that is pouring into these areas of the real estate market.
Investments in resorts could indicate smart money optimism
Oracle founder Larry Ellison recently spent more than $400 million on two separate resort properties in California’s Lake Tahoe region.
And billionaire Houston Rockets owner Tilman Fertitta is reportedly closing a deal to buy a luxury resort in Laguna Beach, Calif., for nearly $650 million, which will set a record for resort sales. highest per room in the state. Fertitta also acquired a 6% stake in Wynn Resorts (WYNN 0.11%) in October.
These resort investments by billionaires were initially a headache for me, as they seem awfully risky given the current macro conditions.
But these bold investments could indicate some optimism on the part of the country’s wealthiest individuals.
Despite pessimistic comments from market experts, the Bureau of Labor Statistics released an overwhelmingly positive Consumer Price Index report last week indicating an 8-year drop in inflation, 2% to 7.7%.
Thus, high-level investment in resort space could signal an economic upturn.
Individual investors interested in exposure to this industry might consider Vail Resorts (MTN -2.04%). The company has 40 mountain resorts in three countries and has become a household name for alpine adventure in the United States.
Although the stock struggled in 2022, it currently trades at a fairly reasonable rate of 26 times earnings and offers an attractive dividend yield of 3.32%.
Billionaires’ investments in farmland are anything but cryptic
While investing in luxury resorts is a bit confusing, the wealthy elite buying farmland is anything but.
There are plenty of conspiracy theories floating around the internet about why Bill Gates and Jeff Bezos are scooping up hundreds of thousands of acres of US farmland, but I tend to think the explanation is much simpler. Consider the value of US farmland dating back to the 1970s:
There are few asset classes that have a better appreciation chart to the right. Even in the worst economies in recent history, farmland values have declined only nominally. This is because agricultural land is both scarce and necessary. Even in a recession, people still need to eat.
Gates is now the largest private owner of farmland in the United States with more than 240,000 acres. Other notable wealthy individuals such as Ted Turner, founder of CNN, and Taylor Sheridan, producer of hit shows such as Sons of Anarchy and Yellowstone, have picked up hundreds of thousands of agrarian acres in recent years.
If you are interested in exposure to this lucrative asset class but are less enthusiastic about owning and operating an actual farm, you might consider Agricultural partners (REITs -0.51%).
This real estate investment trust (REIT) owns nearly 200,000 acres of farmland which it leases to more than 100 tenants who grow 26 different crops. Talk about diversification. Farmland Partners also generates revenue from renewable energies such as wind and solar.
In a year when the stock market was beaten, this REIT is up 15% and generating a dividend yield of 1.71%.
Is it worth it
It is important to note that these jaw-dropping real estate investments are often a drop in the ocean for billionaires. That being said, I really like the sparseness and relative simplicity of land investments, and I think it’s worth exposure, especially to agricultural properties.