briefcase | invest smarter | Issue #149

Let’s talk about billionaires for a minute. At Briefcase, we feel like billionaires aren’t getting enough love these days. Forbes has to publish a yearly list of them to remind us who they even are!

Ever heard of Klaus-Michael Kuehne??? Nope, us neither, but he’s worth $60B.

Or what about Bankly Stashwell? Well, we made that one up, but it would be a cool name for a billionaire. Runner-ups were Cashius King, Minty McMoneybags, Buckminster Fullwallet, and Moneybags Montgomery

It's hard these days for billionaires; every time they try to buy something that's not for sale, people get all uppity.

So let’s take a moment to talk about this class of investors, why many have hoarded their cash as dry powder, and what we can learn from their current investment thesis.

The truth of the matter is that given the economic headwinds, smart money at this moment in time is dry money. Per Colliers, there is a record amount of money on the sidelines waiting on real estate assets. $270.6 billion, to be exact.

Why is this? Given rising rates and ongoing economic uncertainty, dry capital allows Mr. McMoneybags to be opportunistic. The presumption is that markets will see price corrections, presenting buying opportunities for those with capital on the sidelines.

With a record number of loan maturities hitting in 2023-2024, higher rates for longer suggest there is significant distress in the pipeline, and smart money will be able to scoop up assets for pennies on the dollar.

Billionaires love real estate, and they’re dramatically increasing their share of it. The attractiveness of real estate goes back to its inherent stability in generating consistent cash flows and the potential for tax advantages.

In fact, recent research conducted by UBS Group AG found that family offices allocated approximately 13% of their portfolios to real estate in 2022. Over a third of these firms expressed their intentions to further increase their allocation to this sector within the next five years.

According to Bloomberg, “Over the past decade, ultra-wealthy individuals and their firms have more than doubled their investments in apartments, largely in the sector known in the US as multifamily housing.”

Today, many billionaire investors believe they can get a good deal on commercial real estate assets because prices have dropped during the recent decline. CBRE reports that global commercial property investment volume in Q2 2023 was 57% lower year-over-year.

Also, there is a shortage of housing in big cities, so rents and values are expected to rise in the future. Liam Bailey, who works at Knight Frank and studies the market, says this will be a good time to invest if you have dry powder and deep pockets.

The mob is coming for the billionaires, though. A recent call for a global billionaire tax is gaining momentum, particularly in Europe.

The EU Tax Observatory recently called on governments to create a global minimum tax on the super-rich to boost revenues. Applying a 2% rate to the world’s 2,750 billionaires would raise about $250B a year.

Poor billionaires. It seems like they’re always under the spotlight but never under enough tax brackets. What is certain, though, is that this group of investors love real estate, and they are sitting on a Scrooge McDuck pile of capital, watching, waiting, ready to pounce.

So What? Smart money is dry money. With a wave of mortgage renewals coming due at dramatically higher rates, there is more opportunity than ever for those with cash on the sidelines.