While the stock market has been abysmal in 2022, billionaires are quietly pouring cash into the real estate sector. It's no secret the housing market has cooled off as a result of repeated interest rate hikes by the Federal Reserve, so why are the ultra-rich so interested in real estate right now?
The truth is they're not buying up residential properties but rather two specific types of real estate: resorts and farmland.
Image source: Getty images.
Billionaires are scooping up scarce assets
In the wise words of Will Rogers, land is an attractive investment because "They ain't making more of the stuff."
This is particularly true for resort properties and farmland. Urban expansion is continually putting pressure on our country's arable land, and the resort industry is often built around natural beauty such as pristine coastlines and regal mountains, which you can't manufacture.
This is likely the driving force behind the money that's being poured into these areas of the real estate market.
Resort investments could indicate optimism from smart money
Oracle founder Larry Ellison recently spent over $400 million on two separate resort properties in the Lake Tahoe area of California.
And the billionaire owner of the Houston Rockets, Tilman Fertitta, is reportedly closing a deal to buy a luxury resort in Laguna Beach, California, for nearly $650 million, which will set a record for the highest per-room resort sale in the state. Fertitta also acquired a 6% stake in Wynn Resorts (WYNN 0.95%) in October.
These resort investments by billionaires were initially a head-scratcher for me, as they seem awfully risky given the current macroeconomic conditions.
But these bold investments could indicate some optimism from the country's wealthiest individuals.
Despite the pessimistic commentary from market pundits, the Bureau of Labor Statistics released an extremely positive Consumer Price Index report last week indicating a year-over-year inflation decline from 8.2% to 7.7%.
So high-profile investments into the resort space could signal an economic turnaround.
Individual investors interested in exposure to this industry might consider Vail Resorts (MTN 3.13%). The company owns 40 mountain resorts across three countries, and has become a household name for alpine adventuring in the United States.
While the stock has struggled in 2022, it is currently trading at a fairly reasonable 26 times earnings, and offers an attractive 3.32% dividend yield.
NYSE: MTN
Key Data Points
Billionaire investments in farmland are anything but cryptic
While investments into luxury resorts are a bit perplexing, the wealthy elite buying farmland is anything but that.
There are plenty of conspiracy theories floating around the internet about why the likes of Bill Gates and Jeff Bezos are scooping up hundreds of thousands of acres of U.S. farmland, but I tend to think the explanation is much simpler. Consider the value of U.S. farmland dating back to the 1970s:
Data source: Statista.
There are few asset classes that have a better up-and-to-the-right appreciation chart. Even in the worst economies in recent history, the value of farmland only nominally declined. That's because farmland is both scarce and a necessity. Even in recessions, people still need to eat.
Gates is now the single largest private owner of farmland in the U.S. with over 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.
Image source: Getty Images.
If you're interested in exposure to this lucrative asset class but less excited about owning and operating an actual farm, you might consider Farmland Partners (FPI +0.00%).
This real estate investment trust (REIT) owns nearly 200,000 acres of farmland that it leases to over 100 tenants that grow 26 different crops. Talk about diversification. Farmland Partners also generates income from renewable energy such as wind and solar.
In a year where the stock market has been beaten down, this REIT is up 15% and generates a 1.71% dividend yield.
It's worth a nibble
Its important to note these jaw-dropping investments into real estate are often a drop in the bucket for billionaires. That being said, I really like the scarcity and relative simplicity of land investments, and think it's worth gaining some exposure, especially to agricultural property.
