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| Why I own this unloved property share From Tom Bulford  Dear Golden Jann, “To be honest, I don’t know how we got here…” says a reflective Paul Bassi. Bassi is Birmingham’s best known property investor. I spoke to him recently at his elegant head office in the heart of the city’s financial district. Bassi was referring to the snowball success of his company, REAL ESTATE INVESTORS (RLE). He is modest – he says that RLE has grown by simply matching thick 11% yields on Birmingham property to 4% borrowing costs. That’s an incredible proposition. Think about it – even if Bassi’s properties were half empty he could easily cover his interest bill. This is a far cry from the early 80’s. Back then, he had to borrow at 7%-8% to buy properties yielding 5%-6%. But even so, Bassi was able to make his fortune through a combination of rising property values and an eye for a good deal. Bassi had plenty of competitors then. Now he has none. “ST MODWEN (SMP) goes for regeneration projects and MUCKLOW (MKLW) wants industrial sheds”, he explained. RLE is the only buyer in town and he is still doing the deals to prove it. Provincial property makes London seem like a real rip-off Last week Bassi snapped up a retail park in Derby, a modern office block in Leicester and a retail and office block in Birmingham. He paid £13m for an annual rent roll of £1.55m (a yield of 11.8%), and sees plenty of opportunities to improve the latter. Real Estate Investors now owns some £75m of property and has the financial firepower to boost this to £100m. The City, though, is showing no interest. Perhaps in one respect Real Estate Investors is a victim of its own smart purchasing. With few deals taking place in the local market, valuers are struggling to find yardsticks. “So when I buy a property on 11% yields,” says Bassi, “that sets the standard. The valuer then assesses all of my other properties on the same yield basis, which trims their asset values”. Such are the inadequacies of comparative valuation techniques, but Bassi perceives a second problem – London. “Nobody wants to invest in UK property today unless it’s in London”, he reckons. He is dismissive of big institutional property investors, such as the insurance companies. He accuses them of selling out of dirt cheap Midlands properties “which they have probably never even visited” in order to plunge their money into London properties that yield not 11% but 3.5%. And he has little time for City financiers either. “They think that Birmingham property is nothing more than derelict factories,” he told me. “But”, he said, “we are not buying rubbish.” With that, he showed me glossy photographs of his recent property purchases and said: “You could eat your breakfast off the floor, Tom!” Recommended The countdown has started… You have until 4pm today to see one of MoneyWeek's most sought after investment ideas first hand. Right now could be the perfect time to put this strategy in place. But you're already running out of time! Click here right away to discover how this could help your wealth grow – in 2011 and beyond. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. MoneyWeek Ltd. Customer Services: 0207 633 3780. Birmingham is on the rise Bassi is buying properties with good tenants, with scope to boost rental income, and at prices below building costs. He is also buying them at prices far below those paid in the past. We took a brief stroll to look at two of Real Estate Investors’ other buildings. “We paid £4.5m for that one,” he said pointing at an elegant facade in Colmore Row, “but the guy we bought it off paid £6m for it in 2002.” Like any good property developer, Bassi has all the numbers at his fingertips, and knows exactly what is going on in Birmingham’s property scene. But his optimism is not founded solely on a grasp of the numbers. He senses that Birmingham is on the rise. “We had our crisis long before Lehman went bust,’ he explained. ‘We have been looking after ourselves ever since the closure of the Longbridge car plant in 2005.” And there is a second factor that Bassi, himself of Sikh Asian origin, understands well. Birmingham, he told me, will be the first UK city to see its immigrant population outnumber its “home grown.” These immigrants are hard-working, entrepreneurial and they support their families. With their impetus Birmingham’s residential market is active and, contrary to popular belief, the local banks are lending again. I have met Paul Bassi three times and have been a shareholder in Real Estate Investors since our first meeting in 2007. I rate him as a smart operator and, although he will not admit it, he is ambitious too. Having featured in the Sunday Times Rich List, Bassi can already take his place among Britain’s most successful property tycoons. So far my shares have not done me much good and I am certainly no great bull of UK property. But when eventually the sector hauls its way out of the trough, Birmingham and Bassi could be a winning combination. Just hours left for you to get in on this It’s a pretty contrarian idea, owning a UK property share. But I like the company. Even if it doesn’t look smart, I’m prepared to hold for the long term. It’s a similar rationale that Simon Caufield takes: buy hated investments… and then get rid of them when the crowd catches on. Simon’s a true contrarian – and one who’s got some great ideas. You’ve seen me highlighting Simon quite a bit this week. He rarely takes on new readers to his True Value services and when he does, there’s a rush to get a place. So I wanted to make sure you saw it. And since I first mentioned this on Tuesday, lots of investors have signed up. If you’ve not heard Simon’s incredible story yet, you’ll need to be quick. It goes off line at 4pm this afternoon. My advice is: get your name down. It doesn’t commit you to a subscription. You can just review his portfolio and analysis for two months. If it’s not for you, let Simon know – and you can walk away without paying a penny. But I reckon you’ll like what you see. He’s a true contrarian investor and the way he’s made money in the past four years is most impressive. You can find out more here. But be quick! Good investing. Tom Bulford The Penny Sleuth P.S. By the way, if you haven’t got time to listen to Simon’s full presentation, here’s a link to the text version. You can get the details of his strategy here. Click to read the text version. True Value is a regulated product issued by MoneyWeek Ltd. Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. 0207 633 3780. P.P.S. Got a comment on this article? Want to see what other Penny Sleuth readers thought? Leave a comment on the website, here. And If you are enjoying The Penny Sleuth... your friends, family and colleagues might too. If you know someone who might like to receive The Penny Sleuth direct to their inbox, simply forward to them this email and tell them to follow this link to sign up for free. And they could start to benefit, just like you. Share this article today:         |
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