While the stock market was abysmal in 2022, billionaires are quietly pouring cash into the real estate sector. It’s no secret that the housing market has cooled due to repeated interest rate hikes by the Federal Reserve, so why are the ultra-rich so interested in real estate right now?
The truth is that they are not buying residential properties, but rather two specific types of real estate: resorts and farmland.
Billionaires accumulate scarce assets
In the wise words of Will Rogers, land is an attractive investment because “They don’t make any more of the stuff.”
This is especially true for resort properties and farmland. Urban sprawl is constantly putting pressure on our country’s arable land, and the resort industry is often built around natural beauty like pristine coastlines and majestic mountains, which you can’t manufacture.
This is probably the driving force behind the money being poured into these areas of the property market.
Resort investments can indicate optimism from smart money
Oracle founder Larry Ellison recently spent more than $400 million on two separate resort properties in the Lake Tahoe area of California.
And Houston Rockets billionaire owner Tilman Fertitta is reportedly closing in on a deal to buy a luxury resort in Laguna Beach, Calif., for nearly $650 million, which would set a record for the highest per -room resort sale in the state. Fertitta also has a 6% stake in it Wynn Resorts (WINE 0.11%) In October.
These resort investments by billionaires were a headache to me at first because they seem awfully risky given the current macroeconomic conditions.
But these bold investments may indicate some optimism on the part of the country’s wealthiest individuals.
Despite the pessimistic comments from market experts, the Bureau of Labor Statistics released an extremely positive consumer price index report last week indicating a year-over-year inflation drop from 8.2% to 7.7%.
High-profile investments in the resort space can therefore signal an economic turnaround.
Individual investors interested in exposure to this industry may consider it Vail Resorts (MTN -2.04%). The company owns 40 mountain resorts in three countries, and has become a household name for alpine adventure in the United States.
While the stock has struggled in 2022, it currently trades at a fairly reasonable 26 times earnings, and offers an attractive dividend yield of 3.32%.
Billionaire investments in farmland are anything but cryptic
While investing in luxury resorts is a bit confusing, the wealthy elite buying farmland is anything but.
There are many conspiracy theories floating around the internet as to why people like Bill Gates and Jeff Bezos are hoarding hundreds of thousands of acres of American farmland, but I tend to think the explanation is much simpler. Consider the value of U.S. farmland dating back to the 1970s:
There are few asset classes that have a better up-and-coming valuation chart. Even in the worst economies in recent history, the value of farmland has fallen only nominally. This is because farmland is both scarce and essential. Even in recessions, people still need to eat.
Gates is now the single largest private owner of agricultural land in the US with more than 240,000 acres. Other notable wealthy individuals such as Ted Turner, founder of CNN, and Taylor Sheridan, producer of hit shows such as Sons of Anarchy and Yellowstone, have scooped up hundreds of thousands of agrarian acres in recent years.
If you are interested in exposure to this lucrative asset class but are less excited about owning and operating an actual farm, you may want to consider Agricultural land partners (FPI -0.51%).
This real estate investment trust (REIT) owns nearly 200,000 acres of farmland that it leases to more than 100 tenants who grow 26 different crops. Talk about diversification. Farmland Partners also generates income from renewable energy such as wind and solar power.
In a year where the stock market crashed, this REIT is up 15% and has a dividend yield of 1.71%.
It’s worth a bite
It is important to note that these charming real estate investments are often a drop in the bucket for billionaires. That said, I really like the rarity and relative simplicity of land investments, and think it’s worth getting exposure, especially to agricultural real estate.