I would guessthe builders you are talking to are the ones building the product your clients are buying, i.e. builders of 1 to 4 unit properties in places like Texas, where the employment picture is still relatively healthy. I don’t know any major builder out optioning dirt anywhere nor can I think of anyone I know on the commercial/industrial side who thinks it’s a great time to buy and build.

Of course, Buffett and his people did their homework before buying the company. However, one of their secrets to success is letting the people who ran the business before they bought it continue to run the business, with the backing of Berkshire’s capital. Peltier is out buying deeply discounted brokerage businesses. These businesses work today because of the low acquisition prices and the capital support Berkshire can provide. When the market recovers, the lack of debt will turn them into cash flow cows.

With regard to David’s comments, capitalization rates and yield rates have been at historic lows for several years now. Pension funds, insurance companies, REITs, private equity, and all the other players David mentions accept the lower yields because there is no alternative investment with a better yield. As soon as excess capital is removed, inflation increases, greater risk is perceived, or some combination of these and other factors occurs, investors will demand a higher rate of return.

In addition, the smart money isn’t always smart. I still remember Prudential Insurance selling off all their land out in Pleasanton for around $2.00 per square foot at the bottom of the last cycle. And I don’t see the sovereign wealth funds making more large investments in Citigroup or the like.

I think we all agree real estate is cyclical. Long term, especially with prudent leverage, it’s a good investment. I’m just not ready to agree with the bulls that the tangent to the value curve at this point is positive.

The rest of us are working at at much lower level trying to maximize our returns with leverage. I don’t really see the current credit environment hurting folks that know what they are doing. If rents decrease as they have in Florida, then property that was barely cash flowing could turn negative, but one should have enough reserves to cover it until it reverses itself. And if you can’t find properties that make financial sense, then you don’t buy. Up until now, there has been pockets of places in which the numbers do make sense, so why worry?

When it comes to Buffett, before he makes the first move towards acquiring any business, real estate brokerages or not, he and his team have researched, analyzed, projected, and made their decisions on that industry. When Berkshire makes an acquisition, they’re confident it’s gonna be a long term producer.

I know you can’t possibly mean to imply Buffett asked a broker what he thought, then said, “Sounds good to me, give me six!” I’m guessin’ he didn’t ask NAR for advice on the future of real estate and brokerages as part of his research, and if he did, it was for comic relief. Does anyone really think Warren took a broker’s opinion as fact and acted upon it?

Builders will once again build when they flush their current inventories, take a breath, and are able to move forward. This time isn’t gonna be any different on that topic, than past corrections.

The builders I’m talking with are tellin’ me they’re finding all kinds of dirt making sense. It’s just not for huge projects, or high priced projects. In other words, they’re payin’ attention to the market. What a concept.

The hundreds of millions pouring into markets which are employment magnets are not coming from ill informed rookies. They simply see a different picture emerging than those agreeing with your outlook.

They are plenty of folks in both camps. They’re both legitimate views. I prefer the Buffett outlook.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aswAkIWAiJtk&refer=home

The fellow that runs this company believes the downturn is slowing. Never known a broker who wasn’t an optimist, but this one has to answer to Buffett if his optimism does not turn into profits. However, Berkshire Hathaway takes a very long term view when they buy businesses, so years may be the time frame used to judge.

The interesting thing about the developer from Phoenix is that the company invests in all kinds of real estate projects and other businesses in the very same markets that The Hairless One prefers. They do not restrict themselves to Phoenix – they like Texas, Boise, and North Carolina (www.cardon.com). And they still are not finding much that pencils out.

I think the risk of a liquidity squeeze for real estate as debt capital goes away and unemployment rises is just too high to take. It’s not like prices are going to suddenly rebound tomorrow even if the squeeze is avoided. I will wait until the excess capital that is overpaying for property is gone and I have confidence my capital will be effectively deployed.

Adding/subtracting from it would only diminish its value.