Can Turtles Fly?

The Grave Dancer is none other than contrarian investor Sam Zell. Unfortunately for him, his Tribune buyout blew up, although it should be noted that he put down very little money so he probably didn't lose much. Bloomberg reports that Sam Zell is trying to make a comeback with a distressed buyout fund : Sam Zell, undaunted by his failure to keep Chicago-based publisher Tribune Co. out of bankruptcy, put together a $625 million fund to buy distressed securities backed by assets including commercial real estate. The 67-year-old billionaire filed a private-placement notice last month for Zell Credit Opportunities Fund LP, described as a private-equity fund that received its initial backing from a pair of unidentified investors. ... Zell expressed interest in May in mortgages secured by commercial real estate, a category that includes land, hotels, office buildings, and apartment and condominium complexes. By purchasing mortgages at a discount, vulture investors can foreclose on the ...

Commercial real estate in America is nowhere as bubblicious ;) as residential real estate—or Japan circa 1989. Nevertheless, it is an area that will likely face stresses and probably end up with the biggest bust since 1990. The Globe & Mail picks up Reuters story that illustrates some of the fire-sales that have occured on prestigious buildings : The 40-storey skyscraper sits on a prime corner in the country's wealthiest commercial market, steps from the Museum of Modern Art and a few blocks from Rockefeller Center and Central Park. It recently sold for $100,000 (U.S.). The 1330 Avenue of the Americas building - which sold for close to $500-million three years ago - was auctioned last month for the minimum to a unit of the Caisse de depot et placement du Quebec after owner Harry Macklowe defaulted on a $130-million loan. A month before that, the John Hancock Tower - Boston's tallest skyscraper - sold at auction for just over $20-million. The 33-storey Equitable Building in ...

Relying on predictions about the future can be harmful to your financial health so you shouldn't read this :) But for those, like me, that like to listen to some speculations about the future, here are some thoughts from Sam Zell, Jim Rogers and Marc Faber. Needless to say, all three contradict each other and hedge their bets by implying that these are just possibilities. Sam Zell Sam Zell, who is having a rough time with his Tribune ownership, sees a potential bottom in real estate early next year. He thinks real estate is priced fairly right now and thinks debt is more attractive than equity for the distress situations. Billionaire Sam Zell said the housing market could start recovering as early as next year and he's focusing on investing in debt rather than equity. ``We believe that the opportunities, particularly in difficult situations, are in the debt,'' said Zell, who made his fortune building the largest publicly traded office and apartment companies in the U.S...

"It's the deal from hell... And it will continue to be the deal from hell until we turn it around." -- Sam Zell, On his Tribune Takeover Businessweek is one of those publications that has a habit of striking out quite often--at least in my view. I much prefer reading The Economist, even though most value investors tend to avoid clouding their minds with too much macroeconomics. That's why I'm not a value investor :) But BusinessWeek does hit home runs once in a while, and their coverage of Sam Zell's trials and tribulations at Tribue is very good. If you are not interested in the struggles faced by newspapers, you may find the topic a bit bland; but if you are thinking of investing in media companies (like I am,) it is well worth reading one or more of the articles. It is also worth reading to get a sense of what can go wrong with contrarian bets. Zell says that the biggest surprise was how much advertising revenue has fallen off. He was expecting single digit...

"It's a little like a brick coming through your window..." -- Marshall Morton, Media General CEO, on Phil Falcone's Move (source: April 2008 BusinessWeek) When it comes to vulture investors, Wilbur Ross is arguably one of the best of all time. Well, this BusinessWeek article makes me think that Phil Falcone of Harbinger Capital Partners is going to be the next Wilbur Ross. The article makes for a good casul read (thanks to DaveinHackensack for the original mention in a gurufocus.com message board post.) Here is an excerpt: (source: The Midas of Misery , by Emily Thornton. April 24, 2008. BusinessWeek) Falcone is a Midas of Misery. With $19 billion—nearly 760 times the grubstake he started out with seven years ago—he is snapping up troubled assets in bankruptcy, shorting distressed bonds, and using huge stock positions to agitate for change at underperforming companies. His holdings read like a who's who of market castoffs: media companies, utilities, and steelma...

TheStreet.com has a good summary of Sam Zell's comments during a luncheon in Chicago. I hate quoting almost the whole article but all the points in the article are worth considering. Sam Zell thinks the situation won't be as bad as the general consensus seems to think. He told those in attendance that "we're not in a liquidity crunch," but instead that the economy is going through "a significant repricing of risk." Zell has said this before and I find it interesting that he sticks with that view (i.e. market repricing risk, and not a liquidity risk) when the consensus is the opposite. As for me, I'm not sure what to make of all this. I definitely believe the market is re-pricing risk but am not sure if that is all there is to it. And he had harsh words for the way some asset holders are treating their mortgage assets, saying "accounting is taking over for reality." Pointing out that the mark-to-market process has produced huge writeoffs, n...

Here are some random thoughts running through my head... Housing Stuff There is a lengthy 5-page article on Countrywide Financial (CFC) at New York Times. I glanced at it and it runs over the history of CFC and some of what happened in the lending industry recently. Pretty good article for anyone that is thinking of investing in CFC or learning about what the lenders were doing in the last couple of years. One of the big risks for anyone like me dumb enough ;) to consider investing in debt insurers is the chaos that may be unleashed if some mortgage insurers fail. I am still working through my examination of Ambac (ABK) and it seems that it should survive, but I am not so sure about the smaller companies that insure mortgages. News articles like this makes me think that there could be further sell-offs in the debt insurers if one or more of the mortgage insurers collapse. Although value investors generally don't try to time stuff, I'm not a value investor and I don't want...

Sam Zell did an interview with WSJ on the weekend. I'll quote things I found worthwhile. Mr. Zell says, while insisting that he's told everyone he didn't try to deliberately pick a market top so much as weigh the offer against what his own instincts told him was the right price. "Somebody made an offer that was wide by a significant margin of my own valuation. So I'm looking in the mirror, and any day you don't sell, you buy, and I wasn't willing to buy at the price they were willing to pay, so I sold it." Interesting way of looking at a selling price: if you won't buy something at a certain price, it may be worth selling. "An adequate description of me would certainly be a professional opportunist," he smiles, "I've always had my own perceptions of value, and I've always been willing to go forward and risk my own capital on whatever basis I believed. And on many of those occasions, it was really lonely. You turn around and ...

Moody's just cut some homebuilder bonds to junk. Moody's Investors Service on Thursday cut its ratings on home builders Centex Corp (CTX.N: Quote, Profile, Research) Lennar Corp (LEN.N: Quote, Profile, Research) and Pulte Homes (PHM.N: Quote, Profile, Research) to junk status, saying it expects bleak housing industry conditions to linger at least until 2009 . Moody's lowered...Pulte's senior unsecured rating by one notch to "Ba1" from "Baa3"... The outlook on all three companies is negative, meaning another rating cut is likely over the next 12 to 18 months. This was something I was expecting and PHA is down around 4% today. I was expecting a bigger drop in PHA's price but I guess the market already priced in a lot of negativity (this may be true given that CDS on the bonds are trading at values that imply even worse ratings). It is also surprising to see PHA, as well as the stocks of homebuilders, rallying in the last few weeks. Pulte's ea...

Forbes has a lengthy article on Sam Zell's recent lecture at Wharton. It is a very good article and I recommend it to anyone interested in real estate investing or contrarian strategies. Sam Zell, the Gravedancer (cool nickname; he also looks like one :) ), is a contrarian-type investor who made his fortune by buying real estate investments. He has owned large amounts of real estate but isn't a developer (refer to one of the quotes below to see why he isn't). I never heard of Sam Zell until I looked into the Tribune merger. I have a position in TRB (wish I had more money to invest in that) and expect the deal to close. I think contrarians may want to read some of the stuff Sam Zell has done because he is a textbook example of a successful contrarian. I am going to be heavily quoting the article because I find a lot of useful information in Zell's words and thoughts. I have bolded concepts that I find insightful. ...the Chicago-based investor said current markets are sp...