Berkshire Hathaway Invests In Real Estate And Retailing

Within the past week, Warren Buffett’s Berkshire Hathaway has made two real estate equity investments of about equal size.  On June 21, it was announced that Berkshire agreed to purchase 38% of Canadian mortgage lender Home Capital Group for $300 million as well as providing a $1.8 billion line of credit at a rate of 9.5% as well as a 1.75% standby fee on undrawn funds.  Berkshire is paying an average price of C$10 a share, which is 33% less than the company’s closing price on June 21.

Extensive Notes From Berkshire Hathaway Annual Meeting – May 6, 2017

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Berkshire Hathaway B shares Warren Buffett

By Mark Hirschey (Work of Mark Hirschey) [CC BY-SA 2.0], via Wikimedia Commons

On June 26, Store Capital Corp, a real estate investment trust, disclosed that Berkshire has purchased a 9.8% stake in the firm for $377 million.  Berkshire’s purchase price of $20.25 per share represents a 2% discount to the stock’s closing price on June 23.  Store Capital focuses on service-sector investments where there is little or no competition on the internet.  The company’s biggest customers include a Midwestern furniture retailer, a large movie theater chain (AMC), and a chain of preschools.  Warren Buffett stated at Berkshire’s annual meeting on May 6, 2017, that its furniture businesses, including Nebraska Furniture Mart, have seen little effect from online shopping.

Both of these investments are relatively small for Warren Buffett, but they represent large stakes in these companies.

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About the Author

Dr. David Kass
David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: dkass@rhsmith.umd.edu (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.