Warren Buffett and Seth Klarman Both Like Real Estate

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Warren Buffett and Seth Klarman Both Like Real Estate

We have been covering Warren Buffett’s extensive interview with CNBC this morning. Warren Buffett is the CEO of Berkshire Hathaway (NYSE:BRK.A ) (NYSE:BRK.B)

Buffett stated that he likes single family homes  (XHB) and he would buy millions of them if it was practical. He also stated that he was dead wrong about the housing recovery and believes we will see improvement in 2012.

Buffett has noted recently that he is bullish on the economy and thinks there will be inflation in the future.

Considering the two views of the Oracle of Omaha, it makes sense to buy real estate since the asset class should do well in a growing economy and inflationary environment.

Seth Klarman has also been snatching up real estate recently. Klarman’s Baupost hedge fund has been investing in distressed commercial real estate (CRE). Like Buffett, it is likely impractical to buy residential real estate, so Klarman is looking at a somewhat similar cheap sector; CRE.

Klarman too believes inflation is likely and mentioned that using older Federal Reserve methodology inflation is running closer to 10%. Klarman has been shorting treasuries and buying deep out of the money puts as a hedge against higher interest rates.

Klarman likes appartment properties due to the deep discounts in the sector and rapid rent growth being experienced. The cheap financing terms offered by Fannie Mae and Freddie Mac also make purchases in this sector cheaper to finance.

The fund has purchased over 20,000 units of apartment buildings.

Perhaps we will also see Berkshire Hathaway buy some CRE, which is a bit more practical then buying whole cities of houses.


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