SRG - Seritage Growth Properties

[Parsad]

This is interesting as it certainly clears up some uncertainty around SRG. But a few questions:

- why debt and not equity? Too small for BRK to own equity?
- Buffett has to disclose this right?
- does this make it more or less likely Buffett still owns in his PA?

What do you imagine would happen if Seritage went under and Berkshire owned the equity or debt?  This way, Berkshire gets a good rate on the loan, and a small possibility it ends up as one of the largest creditors in a bankruptcy.  Buffett knows those properties are worth three times what they are carried for.  Chances are slim that anything goes wrong with Seritage, but just in case...Cheers!

[frugalchief]

On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.

[bci23]

On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.

An incredibly weak reasoning for exit.

[beaufort]

The reality is Bruce wants to get away from anything to do with EL.

[TBW]

I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.

[Parsad]

I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.  That being said, it's probably best to wait for any comment from Buffett regarding the investment before jumping to any conclusions.  This may be capital that the double T's (Todd and Ted) are managing and the decision is independent...again, not sure how this would be any different than the Lubrizol issue.  I'm sure Buffett will comment shortly.  Cheers!

[johnny]

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.

I think the key factor working against Sokol was that he played his conflict a bit too close to the vest a little too long for everybody's comfort.

Buffett's position in Seritage was disclosed years ago and is pretty much known by 100% of the people on this planet who know what"Seritage" and "Warren Buffett" are. Something being done in broad daylight like this, with almost maximum transparency doesn't trigger any concerns for me.

I'm sure that won't stop Sokol from stomping around about it though.

[Parsad]

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.

I think the key factor working against Sokol was that he played his conflict a bit too close to the vest a little too long for everybody's comfort.

Buffett's position in Seritage was disclosed years ago and is pretty much known by 100% of the people on this planet who know what"Seritage" and "Warren Buffett" are. Something being done in broad daylight like this, with almost maximum transparency doesn't trigger any concerns for me.

I'm sure that won't stop Sokol from stomping around about it though.

I run a small holding company and an investment fund...I can tell you with 100% certainty that I would not invest in debt or equity in something personally, and then finance it through the holding company or fund, unless they already held such debt or equity and were benefiting equally to me. 

Buffett's my hero, so I'm giving him the benefit of the doubt on this, but if this is the scenario of what occurred...then it is a bit close to that line.  I have not seen any EDGAR filing saying Buffett disposed of Seritage shares, nor have I seen any EDGAR filings indicating Berkshire has bought Seritage shares.  Let's see how they explain it at some point.  Cheers!

[Spekulatius]

I am surprised no one has brought up the strange situation here with Buffett.  Isn't it a bit weird to have BRK fund SRG while he personally owns the equity?

I am all for strategies where you make your own luck, buy equity and then help provide stable funding.  But when the ownership is personal, but funding is from company...  Perhaps I am wrong, but seems like very close to the line for someone like Buffett.

Interested to hear if people disagree and why.

I'm not sure how this scenario would be that different than what David Sokol was doing at Berkshire before Buffett parted ways under the guise that this was unethical behavior with Lubrizol.  That being said, it's probably best to wait for any comment from Buffett regarding the investment before jumping to any conclusions.  This may be capital that the double T's (Todd and Ted) are managing and the decision is independent...again, not sure how this would be any different than the Lubrizol issue.  I'm sure Buffett will comment shortly.  Cheers!

The issue with Sokol was that he didn’t disclose his personal holding in Lubrizol when he proposed BRK to buy the company. With WEB, the position is disclosed and was purchased years ag and one could also argue that the gain from WEB personal holding in SRG is virtually immaterialfor him anyways. I am fairly sure they have considered the optics of this related party transaction and made sure, it is beneficial for BRK as well, based on the loan terms. With a 7% interest rate for a 5 year loan term, they look pretty reasonable for BRK to me.

I am also curious on the disclosure of this transaction.

[Gregmal]

On another note, Bruce Berkowitz sold all three funds out of SRG.

http://www.fairholmefundsinc.com/Reports/Funds2018SemiAnnual.pdf

The Fund exited its position in Seritage Growth Properties as we became concerned that the cash flows from developed properties no longer covered a below-industry average dividend in a raising rate environment.

Meanwhile he continues to hold the investing equivalent of quicksand in St. Joe as 1/3 of his fund... I generally give managers more leeway than most, but Bruce IMO, has lost it and is letting issues at his fund dictate his investment decisions.