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We Should All Strive to Be "Grave Dancers"
By Chris at www.CapitalistExploits.at
In the investment world he's known as the Grave Dancer. Like many successful and outspoken men, he is loathed by some and loved by others. Whatever you may think of him, it's valuable to keep an open mind to both success and failure in order to seek the former and avoid the latter. He is undoubtedly one of the smartest investors of all time.
I've never met Sam Zell, though friends of mine have. They tell me he's as intense as one would expect from a guy who entered the real estate world with all the finesse of a wrecking ball and today is widely considered to be the grandfather of institutional real estate.
Sam is probably best known for identifying early on the market cycle and peak of the US housing boom in the 80s. Before the market fell apart, Zell combined forces with Wall Street and created a war chest of capital - a $400 million fund, which at the time was a lot of money.
During the 90s, Zell was then putting that war chest to work accumulating high quality commercial and residential properties at significant discounts where he was often the only bidder. This process of buying deeply undervalued assets at times of distress garnered him the name "the Grave Dancer".
One of my favourite quotes from Sam sums up his philosophy well:
Between ‘73 and ‘77, I acquired $3 billion worth of real estate. The banks had a problem carrying a large amount of distressed real estate with so many proper-ties in foreclosure. They weren‘t looking to make money. They were just trying to mitigate the losses their real estate loan portfolios were expected to generate.
In those days, institutions didn‘t have to mark-to-market, so I tried to figure out ways to preserve the principal of the asset for the seller and still make the deal work. It basically amounted to lowering interest rates on the debt to the point where you could almost carry it or you had a defined carry. We realized that if we could accumulate assets - particularly in an inflationary time - with cheap fixed rate debt, it was hard not to make a fortune.
When people looked at our performance during the ‘70s, they always asked, ?How did you pick all those ripe projects? But the truth of the matter was that I created $3 billion worth of 5% fixed rate debt in an inflationary environment of 10, 12 or 13%. In this situation, it was hard for it not to work. And yet, like many others in my career, most people thought I was crazy. I‘ve spent my whole life listening to people explain to me that I just don‘t under-stand, but it didn‘t change my view. Many times, how-ever, having a totally independent view of conventional wisdom is a very lonely game.
It's a classic tale of buying low and creating massive value in the process.
What brings me to thinking about "the Grave Dancer" is his interest in Colombian real estate. Sam may well be correct. He believes that Colombia is one of the best places to be investing right now. Our research indicates this to be the case.
Before you get high on the idea of walking in and buying an inexpensive apartment to hang out in Medellin's lovely climate and culture, let me be clear: this is not our intention.

Buying an apartment to live in is not an investment in my mind. It's just a place to live and I don't think it makes sense confusing the two. Sure, you can do that and have a nice little vacation home if that's your thing. You will probably make some money out of it upon sale, too.
Investments you liquidate when it makes sense and have nothing to do with where you may be hanging out for lifestyle or even business. A home you live in and use. The two are very different! People get emotional about any place they live in and getting emotional about investments is not a good strategy.
Though one of our team members loves Medellin so much he's looking to relocate there on a more permanent basis, we're more interested in placing capital in a long term strategy and are after profit, pure and simple. I'll let others go buying retirement homes there.
I was recently asked what macro aspects to look for when considering buying real estate. Here are some for Medellin, though you'll notice that this is not applicable solely for real estate.
- GDP growth: Colombian economy is expected to grow at around 4% over the next 5 years;
- Middle class growth: According to the World Bank, the percentage of the Colombian population in the middle class has risen to 28% from 15% over the past 10 years.
- Young population: While Colombia is not comparable with some African or Southeast Asian countries, it is still relatively young.
- Medellin is becoming an innovation hub: This ranges from a vibrant start-up ecosystem to multinationals, such as HP, setting up their headquarters there. To an extent, this falls into the GDP growth and rising middle class aspects, but is actually unique. Not all cities experiencing a rising middle class become innovation hubs!
- Infrastructure development: For instance, EPM, a municipal utility company, is investing roughly US$2.9 billion in infrastructure projects during the 2015 – 2018 period. These investments are being made in energy and water infrastructure including investment into "new spaces for recreation, culture, and celebration of life in Medellin".
I’m all for celebrating life and it’s easier to celebrate it with profits in your pocket.
However, reading the above you may think its all rainbows and unicorns. It is not! Colombia is an emerging market and emerging markets always pose challenges.
Poor banking infrastructure, corruption, a culture which often is happy to overcharge gringos wherever possible, etc. None of this is anything new for an emerging market. These same problems can be found with ease throughout Southeast Asia, Africa and in between.
Inefficient markets exist everywhere but they're typically more inefficient in emerging market economies. This isn't good or bad. It just pays to understand what you're working with and quantifying the risk/reward and only acting when rewards are outsized to the level of risk taken.
In that spirit of capitalism, we're hosting a get together in Medellin shortly, and we invite you to come and join us.
- Chris
"My own formula is very simple. It starts and ends with replacement cost because that is the ultimate game. In the late 1980s and early 1990s, I was the only buyer of real estate in America. People asked me, ‘How could you buy it?’ How could I project yields? Rents? For me, it came down to these issues: Is the building well built? Is it in a good location? How much less than the cost of replacement is its price? I bought stuff for 30 cents on the dollar and 40 cents on the dollar." - Sam Zell
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Lived there for 15 years, Colombian wife and I speak Spanid like they do.
They will eat those gringo up. Stay away for Colombia.
Die if you must but you have been warned.......
So the key is to have your banker and tribe buddies peddle shitty loans to the Goy, raise up realestate prices, then crash the market, call in the loans...then have your daddy's money, banker friends and fellow tribesmen give you a ridiculous amount of leverage and loans at a rate 1/3 that of inflation (which no one else would get), never call in those loans then proceed to re-inflate the market through monetary manipulation, basic monetary cycle and propaganda to the idiotic masses to buy/rent/etc your product....
Voila...."genius". I'm sure the guy is smart, there are plenty of smart people who are broke....
This is at least the second "shill" article for Columbian real estate. Probably getting grouchy in my old age, but I don't like this crap. Wanna make a point about Zell and real estate....fine...but spare me the many paragraphs urging me to "join" you in Columbia (and buy whatever you plan to try to sell me).
Zell seems to be a guy who puts companies in their grave.
Replacement cost is useful if the market has future demand.
In the 80's a lot of Midwestern housing went offline and has never returned.
Didn't matter what the replacement cost was, it's the demand.
the midwest is dying simple enough
A house is a place to live.
Damn. The "replacement cost of gold and silver" card is all I had left to cling to.
Mind replacement costs.
Location, Location, Location.
Off on a short vacation!
I'm back!
Did I miss anything?
To me Donald Trump remains the master of real estate because he always believed in new construction.
His Dad thought he was a nut but look at the portfolio.
I'm a firm believer in those who build out as well as up too.
That does put "RasPutin" on the list.
Nothing like an old Soviet Dacha to "feel the spread."
America used to do land holdings like that back in the day.
One guy used to own the entire a Adirondack Park plus one third actually. Thirty plus million acres.
Now that's a spread.
Might still be able to do that in Mother Russia still...
Three million acres...my bad.
Alexander McComb. Thrown in debtors prison three months later.
Don't understand all this prikliness towards bankruptcy these days. Used to be called "the American Way" at one time...
"Special people" (banks) are holding toxic paper, so bankruptcy is evil and must not be allowed. Of course when all these big corporations start declaring because of massive bad debt things could get interesting.....
Colombian economy is expected to grow at around 4% over the next 5 years;
Looks like the drug trade is the only growth industry for the future. Join the CIA and US Customs in building the future Columbian economy.
most of the drug violence is rival gangs. once a cartel gets established they seek to be as invisible as possible, they want to be symbiotic, to live off the fat of the land.
another dup. good grief.
Grave dancers enjoy.
https://www.google.com/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF...
Dup.