Warren Buffett's Berkshire Hathaway Increases Real Estate Holdings

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Apr 09, 2010
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Warren Buffett ’s Berkshire Hathaway continues to look for opportunities in the beaten-down real estate sector.

Berkshire affiliate HomeServices of America Inc. announced Wednesday that it is purchasing Schiller Real Estate, which is described as the leading residential real estate firm in Elmhurst, Ill., a suburb of Chicago.

Schiller is being merged with Chicago-based Koenig & Strey Real Living, which HomeServices bought this past September. The combined operation will be the Chicago area’s third-largest.

Terms of the transaction were not disclosed.

The purchases follow Buffett’s long-standing practice of buying into sectors that most people aren’t touching.

Buffett has said that the worst of the country’s housing problems should be over by the end of the year, and that builders should stop putting up new houses until the existing inventory clears. He’s also encouraged young couples to speed up the number of household formations, with tongue only partially in cheek. Clearly he sees an eventual turnaround in real estate prices and activity.

Also, late last year Berkshire partnered with Leucadia National Corp. to buy Capmark Financial Group’s North American loan origination and servicing business through a new entity called Berkadia Commercial Mortgage.

Buffett said at the time that Berkadia would “take advantage of opportunities created by the ongoing dislocation in the commercial real estate industry.”

In that respect Berkshire is acting a lot like real estate investment trusts, which have been raising capital to fund opportunistic purchases of distressed real estate. Investors seem to approve, as the Vanguard REIT Index Fund has doubled in the past year and is up about 13 percent since March 1.

A developer told me that REITs are essentially taking over the role banks usually play. The REITs now raise the capital to buy income-producing properties that smaller investors can’t buy because they can’t get financing (though the bankers claim they’re eager to lend).

Buffett, of course, doesn’t need to raise money to fund Berkshire’s real estate transactions. But like the REITs, he’s putting Berkshire’s capital to work at a time when few have it to deploy and many fear wading into a troubled sector.
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