When I graduated college in 1980, we were in the midst of another Economic slump. That recession had double digit inflation, double digit interest rates, and double digit unemployment. We were also dealing with an energy crisis which had led to a surge in oil and gas exploration throughout the country and really the world. Oil prices were rapidly rising in response which was causing more problems with the economy. As these prices rose and exploration became even more in demand, the cost of exploration and drilling also soared.
In this environment in the early 1980s, was the first time I ever heard of T Boone Pickens. As far as I could tell, no one outside of Texas and perhaps Oklahoma had heard of him. Mr. Pickens made the scene when his Oil and Gas Company, Mesa Petroleum began to make offers to buy much larger Oil and Gas Companies, including Citgo, Gulf, Phillips, and Unocal.
At the time, people thought he was crazy. But T Boone Pickens realized something that seemed to have escaped the market at large. The value of the oil reserves of these companies at market oil prices exceeded the stock value of their companies. In other words, as Mr. Pickens explained, it would cheaper to buy these oil companies than it would to actually drill for the oil.
Mr. Pickens successfully bought the assets of some oil companies but in most of the cases, his stakes in the companies was bought out at a large profit instead. It also led to many mergers and acquistions between oil and gas companies for these same reasons.
That has always stuck with me. It was a very astute and yet simple observation. I can't help but wonder if when things turn around for real estate, and commercial real estate in particular if we could have something similar occur. At some point in time, the value of the underlying real estate in Real Estate Investment Trusts could exceed the trading prices for the REITs. If those prices vary significantly, we could see a similar market upheaval to the Oil and Gas Companies in the 1980s.
AND when and if we see this type of activity, it probably is a pretty good sign that the market has passed its bottom.
Just a thought. Hope you have a great day.
BTW - If you want some help with any Real Estate needs, give me a call. I would love to help. I specialize in Commercial Real Estate and work with Buyers, Sellers, Landlords, Tenants and Investors. I handle Office, Industrial, Land, Investment and Retail Properties. Heck, I can even hook you up for residential needs.
ALSO - I am sure that my broker would appreciate me clarifying that these views are my own and are not necessarily those of Commonwealth Commercial Real Estate, its brokers, agents, or employees. (other than me, of course) AND I probably should note that I am not a stock broker or investment counselor. Those are questions for other professionals. These are simply my opinions.
David
David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY 40299
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