Land Ownership

“All a man has to do to get rich in America is find out where people are going, get there first and buy land.”

— Gen. Douglas MacArthur

Bob Hope, the great American comedian and Hollywood star, was actually born in England. He once quipped, “I left England at the age of 4 when I found out I couldn’t be king.”

He struggled early to make it in showbiz. “Before long, I was in debt. I had holes in my shoes, and I was eating doughnuts and coffee,” Hope recalled. “And when I met a friend who bought me a meal, I had forgotten whether to cut a steak with a knife or drink it out of a spoon.”

Hope, as we all know, eventually made it big-time, becoming a cherished part of Hollywood’s roster of stars. Unlike many of his peers, though, Bob Hope was a savvy investor. His favorite investment was land.

“Every time I found a piece of land, it turned out Bob Hope owned it,” former Palm Springs Mayor Frank Bogert once joked. “He knew the value of every damn piece of land he owned. He was smart as a whip.”

The exact amount of Hope’s real estate holdings is a matter of dispute. Depending on who’s doing the estimate, it ranged anywhere from $100-500 million. Whatever the exact amount, we know he owned plenty. His 1978 property tax bill was over $1 million.

Hope understood something that has made many people rich before and since. He understood the idea of land banking. You buy raw land ahead of development. As development moves to your land, you sell it and make a killing.

One example of land banking comes from Professional Land Corp. In 1967, you could have bought an acre of land in the San Fernando Valley in Los Angeles County for $38,000. Only 12 years later, as L.A. sprawled out, your acre of land would have fetched $380,000. If you held it another 12 years, that same acre would have gone for about $2.1 million. That’s some massive wealth creation from the revaluing of land over time.

Howard Hughes was another successful land banker. According to Professional Land Corp.: “Hughes was a visionary who bought and held land in Southern California and the Las Vegas Valley.” He bought his Las Vegas Valley land well outside of the city of Las Vegas at cheap prices. That land would eventually become Summerlin, one of the most desirable planned communities in Nevada. “Howard Hughes’ landholdings made him vast fortunes during his lifetime,” PLC notes.

One other intriguing example: Roy Sakioka arrived in the U.S. from Japan as a poor immigrant and father of six children. Yet he had vision when it came to real estate development. He saw the potential of Orange County and began buying rural parcels shortly after World War II. He also seemed to have a sense for where future freeways and shopping centers would pop up next. He was, as PLC notes, “a master at buying land along development’s path, then waiting until the last possible moment before selling.”

He eventually amassed some $325 million in landholdings. In 1991, Forbes included Sakioka on its list of America’s 400 richest individuals.

In researching this story, I found many examples of successful land banking. It seems like one of those truly timeless ways to get rich over time.

Land Banking in the Stock Market

In the stock market, there are many examples of successful land banking. I have always had a soft spot for companies that own lots of land. Maybe it comes from my banking days. I loved those deals in which I made a company a loan and had the company on the hook for collateral in the form of land or real estate. That way, even if things didn’t work out with the business, the value in the land could still make us whole.

It doesn’t work quite the same way with stocks, but in broad outlines, it is awfully similar. If we can buy a company that owns a lot of land, that land can provide a ballast of value that gets us out of a deal gone bad. In the best-case scenario, it becomes a springboard to big gains.

Sincerely,
Chris Mayer
August 25, 2008