Wednesday, June 11, 2008

LandMark Properties, Rich Foreigners, and American Know How

Rumors are circulating that Abu Dhabi Investment Council is looking to buy the Chrysler building, and they are not alone, as rumors have circulated the Macklowe purchase of the GM building included silent partners from Kuwait and Qatar wealth funds. I have but one piece of advice to ADIC….learn your history before you go shopping in America. Landmark American properties and foreign owners mix like oil and water. These investments have a record of bleeding foreigners dry before they end up back in American hands.

I can’t help but recall Mitsubishi estate’s disastrous purchase of the Rockefeller center in October of 1989. At the time it seemed like a great idea, but after 2 billion dollar in losses and a bankruptcy filling the property found its way back into American hands…all the while enriching the Rockefellers in the process. Moreover, let’s not forget another Japanese disaster…namely the 1990 acquisition of pebble beach by Minoro Isutani for $841 million. A decade later the property was sold to a group led by Peter Ueberroth and Clint Eastwood for slightly less than that amount.(Isutani was long gone as he filed for bankruptcy almost immediately after the purchase)

And for those keeping track the Japanese stock market peaked at 38,915.87 points on December 29, 1989. It still has not recovered. Now, I am not predicting the same fate for Arab markets, but I do firmly believe that those who don’t know their history are often destined to repeat it. If I had to wager, I’d guess that these acquisitions will end up doing more harm than good for these Arab countries.

See, capitalism is an American game. They have it down to a science. The rest of the world just doesn’t have what it takes to compete. I compare it to a retail investor trying to trade the US equity markets who naively thinks he’s going to outsmart the professionals. It’s just not going to happen. You may get lucky a few times, but in the long run the pros will clean you out. This may eventually change, but judging by what’s been transpiring of late….I doubt it. Whether you are buying internet stocks, real estate backed securities, us investment banks, American automakers, private equity funds, homebuilders, or landmark properties….the Americans seem to always end up on top. The Arabs, Chinese, Japanese, and to a lesser extent the Europeans all make the same mistakes. Don’t these people ever wonder why American investment arms are not snapping up their landmark properties?

At the end of the day, this is good news for America as the rest of the world looks like it has no intention of wising up anytime soon. In my opinion, these people need to get a good financial planner…and start thinking about more creative ways to spend their money. Trying to outsmart Steve Schwartzman or the Rockefeller Family is a sure fire way to go broke. My advice…stick to what you know…David Ricardo knew what he was talking about when he came up with the law of comparative advantage. And if you have concluded you don’t know much, keep your money under your mattress . There is no shame in that.

No comments: