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This is such a fascinating cycle. Large pensions & sovereign wealth funds are so desperate for yield vs. low treasuries that they have pushed income producing
by aresant 9y ago
This is such a fascinating cycle.
Large pensions & sovereign wealth funds are so desperate for yield vs. low treasuries that they have pushed income producing commercial real estate values to all time highs.
As a result these fund managers are then forced to take on larger risks to cover their liabilities by making larger portfolio allocations into public techs like Google, and privates like AirBNB & Uber.
And this dry powder has helped the technology companies get so insanely big and sophisticated that they are hiring away the best fund guys to manage their own treasury desks and drive commercial real estate transactions like this one!
Funds would have KILLED to get a deal with Google locked into a long term lease.
But because Google is taking themselves off the market as a tenant, the funds again have to go and chase riskier yield, like larger allocations in tech . . . the entire macroeconomy is just turning into a bizarre Möbius strip . . .
- metalliqaz 9y agoWhat do you mean by "Google is taking themselves off the market as a tenant"?
- bllguo 9y agoThey bought the building and thus don't need to rent. What's the confusion?
- metalliqaz 9y agoThey're only "in the market" if they are shopping for a new space. They just bought the same building they were in. That doesn't affect the commercial office space market.
- tomcam 9y agoInstead of renting office space they're making huge real estate purchases.
- pbhjpbhj 9y agoI'd be surprised if the company in the building is the one who owns it - yes all Google, of course - but surely there's some tax avoidance possible ...
- moftz 9y agoGoogle is just one of the tenants along with Food Network and Major League Baseball. They also own the building across the street, 111 Eighth Ave. Some other companies rent space in there too. Google has the cash, doesn't want to pay rent, and knows they are going to be there for a long time. Might as well buy the place. Not really a tax avoidance, although it certainly could be, but it's more like a cost avoidance. Estimated rent for 1.2m sqf is $6.1m/month for your typical office space in Chelsea. For a price of $2b, Google would get their money back in 30 years from collecting rent, assuming it never changes. I'm sure they are looking at closer to 15 years.
- mljoe 9y agoThere are some corporate structures that seem better suited for owning real estate, like a Real Estate Investment Trust (REIT). Maybe there is a proxy "Google REIT" that is 100% owned by Google. Or some other proxy entity accounting stuff going on, such that Google is not "technically" the owner of the building, but a subsidiary with a different tax structure. I think that's what the parent meant.
- vonmoltke 9y ago> Maybe there is a proxy "Google REIT" that is 100% owned by Google. There is no such thing under US law. A REIT must have at least 100 separate owners, and no group of 5 can own more than 50% in the second half of a given tax year.
- deleted 9y ago[deleted]
- RestlessMind 9y agoIt also means it is a great time to be able to produce value and be in control of its distribution (eg. start your startup and control the equity). People with lots of money are hungry for yields and will push your valuation higher and higher. See: cryptocurrencies (bitcoin etc) or sharing economy startups (uber, airbnb etc)
- godzillabrennus 9y agoYep. That’s the absolute truth.
- matt4077 9y agoYeah, Uber is perfect example of the superiority of startup founders to run later-stage companies. Can't wait to see where Kalanick takes it next. Edit: Now I'm wondering if I'm being downvoted by those who don't get the sarcasm, or by Kalanick himself.
- jackgolding 9y agoI've read about this a few time this year, do you think there will be some "tipping point" or crisis about these funds not being able to generate wealth?
- tim333 9y ago
- yueq 9y agoEconomic Moat -> Global Monopoly -> Positive Cashflow -> Higher Pay -> More Talents -> Create more value -> Higher Moat
- henrik_w 9y agomaybe deeper moat :-) (but I get the point)
- samstave 9y agoHere is a "higher moat" http://www.marinabaysands.com/content/dam/singapore/marinabaysands/master/main/home/sands-skypark/infinity-pool/infinity-pool-masthead-1920x595.jpg http://www.marinabaysands.com/content/dam/singapore/marinaba...
- samstave 9y agoOh, if that's your sentiment, then you will LOVE this article from 2012: https://www.zerohedge.com/news/2012-09-30/presenting-worlds-biggest-hedge-fund-you-have-never-heard https://www.zerohedge.com/news/2012-09-30/presenting-worlds-...
- matt4077 9y agoGoogle (ABC) doesn't actually derive much[0] value from investment in their shares: they have long been profitable and I'd be surprised if they issued new shares in the recent past. The investment just goes to some other investor who's selling stock to invest in real estate (or whatever). [0]: Their stock options do become vastly more useful as currency to attract employees, though.
- quickthrower2 9y ago... until the bubble pops, which seems like it might be happening now. I just sold most of my shares.
- crashoverdrive 9y agoI’m sorry you did this. Someday, you’ll be sorry you did this. Historically speaking, there is a correction every year. Corrections last on average no more than 54 days. After a correction, the stock market will go back to rising. Timing the market is near impossible, but leaving the market is just asking to lose money. With some reading and some fear management, you could be extremely successful in the stock market. But you have to learn to buy and hold.
- lsc 9y agoI personally think that all stock advice is bullshit; if anyone had a working strategy, they'd use it and it would get priced into the market, making it worthless for the next guy. but my favorite investment method is 're-balancing' between non-correlated asset classes. Set X percent of your money in equities and the rest in bond funds, for example, then if stock rises vs bonds, sell stock and buy bond funds until you are back to the same percentage. The idea here is to force yourself to (slowly) sell into bull markets, and (slowly) buy into bear markets. I think that's the closest you can come to "buy low, sell high"
- quickthrower2 9y agoThere are some other considerations such as having non tax-deductible mortgage debt. Should I buy later I can convert that to tax-deductible investment debt. (I'm not in the USA). Also had a lot in a single stock which was going a bit risky for me. (Although my greedy side said hold it, it could be worth a lot in the future). If I buy in again, maybe I will go for an Index or portfolio.