What 50 Years in the Game Taught Luis Belmonte
Seven Hills Properties partner Luis Belmonte has spent five decades in the real estate game, and he's got quite the opinion on today's market. Bisnow joined Luis as he spilled some advice to execs yesterday at the Wayfare Tavern.
1. Now Is The Time To Be A Seller
Luis is a seller not a borrower. "Damn straight—you bet your ass. Sell, sell, sell," he says. He's also attempting to gather cash sources to get ready for the next time things are bad again. In the middle of the last recession he tried to put together a fund because you could buy units close in to San Mateo and Marin County and get a 6% return.
2. Beware of Good Times
Luis says recessions and valuations are related. "The fact is a gorilla could make money in this market," he says. "Good times tell us nothing about anyone operating in the real estate business." Luis says what happens in bad times is what really counts, and we should all be devoting 10% of our time getting ready for the next turn.
4. Look At Valuations
He showed a chart from Greenstreet, which he calls the "Rolls-Royce of REIT analysis." Valuations in 2002 assumed a cap rate of 9.4% and have since gone to 5.7%. In his 50 years in the business, if you have a decent asset, a decent location with decent occupancy, he says the right number is 35 basis points. He is not buying anything right now because cap rates out there now are unrealistic.
5. When to Bet on REITS
Luis says REITS are a great investment at the right price. He exemplifies that with 40 Wall Street, which was the tallest building on earth when it opened the day the stock market crashed in 1929. It was financed with a bond issue, which traded between 10 cents and $2. If there is a good spread between the dividends and adjusted funds from operations, it's a good investment, he says.
6. The Importance of Liquidity
He read Peter Lindemann’s quarterly newsletter section on liquidity and what it should be; he said it all depends on time frame. When he got out of the Navy he traded the duplex as a down payment for three flats in the Mission for $45k. He fixed them up and raised rents and still owns them today, with a flow of $90k a year. If he sold the units today he could get $1.5M. It shows if you are a long-term indefinite time frame investor you have a whole different calculation, as opposed to quick seller.