Stock Focus

Ground-Floor Investing

Forbes.com
02.02.05

By Andy Stone

Back when tech stocks were all the rage, Samuel Lieber had a field day
snapping up real estate stocks that nobody wanted.

Lieber, 48, who runs the $380 million (assets) Alpine U.S. Real Estate
Equity Fund (EUEYX) , bought shares of Washington Homes, a sleepy
builder of single-family houses in the nation’s capital, for $6 per
share in 2000. Less than a year later, Hovnanian Enterprises offered $10
per share for Washington.

Lieber took stock in exchange for his Washington shares, and then went
out and bought more Hovnanian. Smart move: Hovnanian expanded its reach
by purchasing private builders as far away as Texas and California, and
generated annualized-earnings growth of 69% over the last three years.
The stock is now worth $54.

As the largest publicly-traded builders buy up smaller competitors,
Lieber expects Hovnanian to deliver a more modest earnings growth of 15%
over the next couple of years. But Lieber still hasn’t cashed out.

Picks like Hovnanian have helped Lieber’s fund post an annualized return
of 34% over the past five years. Over the same period, the S&P 500 shows
a -1.8% return.

Lieber insists there is no nationwide housing bubble. “In selective
markets, there certainly has been overheating,” he says. Case in point:
Southern California, where heady price appreciation for homes over $2
million has recently lost steam. He feels that wage and population
growth, particularly in coastal areas, in conjunction with
historically-low interest rates, accounts for the appreciation of home
prices over the past few years.

The heyday of skyrocketing valuations has passed, but there’s no need to
worry about a crash, Lieber says. He believes that weak job creation in
major coastal cities will allow housing prices to rise just 3% to 5%
over the next couple of years, down from 10% in 2004.

If there is a sharp downturn in housing, it wouldn’t be great news for
Lieber’s fund. He hopes to avoid some of the pain by selecting companies
that have consistent earnings growth and are poised to expand beyond
their home region.

One example is Gaylord Entertainment, which turned the hotel at the
Grand Old Opry in Nashville into a 2,800-guestroom hotel, with
conference facilities and restaurants. Now trading at $39, Lieber thinks
Gaylord, which has built additional complexes in Orlando and Dallas and
has another one on the way in Washington, D.C., has the potential to
rise as much as 50% in two-to-three years.

“Value” probably isn’t the best word to describe Lieber’s investing
style. He doesn’t look for stocks that are simply cheap, and doesn’t
automatically sell them once fair-market value is reached. Instead, he
holds on long after companies begin to grow again.

Lieber bought La Quinta for $2.50 in 2000, when the company was owned by
Meditrust, an overextended health care real estate investment trust
(REIT). La Quinta, which is stealing market share from older competitors
in the Southwestern U.S., is now worth $9 per share, but Lieber believes
the company’s earnings can increase 26% this year.

“We’re entering an extended period where supply versus demand will favor
hotel stock,” says Lieber. He points out that room occupancy is rising
by 3% per year industrywide, while the number of rooms available is only
growing at 0.4%.

Alpine also invests in REITs. Lieber likes Alexander’s, a New York-based
retailer that closed shop in 1993, leaving behind an entire city block
across the street from Bloomingdale’s department store in Manhattan.

Lieber wasn’t sure exactly what would become of the New York City
property, but he knew that parcels like that don’t come along very
often. He started buying shares in the $40-to-$60 range, purely on the
appeal of such prime real estate.

Alexander’s is now finishing the half-billion dollar, 73-story Beacon
Court building on the site that will house Bloomberg LLP’s new
headquarters as well as 35 floors of luxury condos. The REIT is trading
at $219 per share, giving it a value that is now close to that of its
underlying properties (it has additional retail properties in the New
York area), while other REITs typically trade at a 20% premium to
property value. Alexander’s plans to start paying dividends later this year.

The Alpine family consists of seven mutual funds, including Alpine
International Real Estate Fund with holdings such as Diamond City, a
Japanese developer of commercial real estate, Midland Realty, a property
brokerage in Hong Kong and French resort-outfit Club Mediterranee.
Alpine U.S. Real Estate is a no-load fund with annual expenses of $1.31
for every $100 invested. The average real estate fund surveyed by Forbes
charges $1.61. The accompanying table lists some of Lieber’s current picks.