Effect of High Inflation on Real Estate Investments | 2min snip from We Study Billionaires

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Effect of High Inflation on Real Estate Investments

High inflation leads to increasing land and construction costs, causing the replacement cost of properties to rise significantly. This results in older properties being undervalued compared to the current replacement cost, leading to a substantial increase in rents. Additionally, in a low-interest rate environment with high inflation, businesses with minimal debt can thrive despite borrowing at high rates, as long as their revenue growth surpasses inflation and borrowing costs. While high inflation can make many businesses in Turkey unattractive for investment, some businesses can benefit significantly from the economic conditions.

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buy fruits and all of that to make into juices, those are not keeping up with inflation or not keeping up with the euro revenue. We limited ourselves to businesses in Turkey that have this weird tailwind. There are businesses in Turkey where all revenue is in euros and large portions of the expenses are in lira. And because the baby got thrown out with the bathwater, investors don't care about those businesses. They just look at that it's Turkey. And some manager in New York just picks up the phone and tells us his people exit Turkey completely. And that's why you get this weird mispricing. In the case of Resas, what I've found is that there was an asset base, which was worth like a billion dollars, these 12 million square feet of warehouses. Those warehouses are land, cement, concrete, steel, et cetera. Those are all inflation indexed. So when you have 50% inflation, the land price is going up, the steel price is going up. The replacement cost of these warehouses is going up. Resas, as a company, sees its rents go up pretty dramatically, but the capex was done in yesterday's lira. They're not doing much capex anymore. Their billion-dollar asset base is not becoming worth less than a billion because there's an international price for steel and cement and concrete. And the replacement cost is going to adjust and the rent is adjusting. So if I own an apartment building in Austin, and I bought that apartment building for $1 million, and after five years,

On today’s show, Stig Brodersen talks with legend value investor Mohnish Pabrai. In the interview, Mohnish Pabrai shares his thoughts on Alibaba, Tencent, a personal letter from Warren Buffett, and much more.

IN THIS EPISODE, YOU'LL LEARN:

01:18 - What Warren Buffett’s letter to Mohnish Pabrai said.
04:53 - What is Mohnish Pabrai’s driver for being an asset manager?
07:47 - What is Mohnish Pabrai’s role with Dakshana Foundation.
13:47 - Is it an advantage to spend money on research tools.
14:44 - Mohnish Pabrai’s natural biases.
24:16 - What to look for in an asset manager.
38:47 - How and why invest in a country with secular inflation and the investment case for Reysas Logistics.
48:45 - Thoughts on Alibaba and why there is no concern with the VIE structure.
50:33 - Thoughts on Tencent and why it might be a better business than Alibaba.

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Learn more about Mohnish Pabrai’s Dakshana Foundation.
Mohnish Pabrai’s website.
Listen to our interview with Mohnish Pabrai about value investing and philanthropy or watch the video.
Tune in to our interview with Mohnish Pabrai about value investing or watch the video.
Listen to our interview with Mohnish Pabrai about value investing in 2021 or watch the video.
Tune in to our interview with William Green about Mohnish Pabrai or watch the video.

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