By Courtney Darby
Growing up, talk around Samuel A. Lieber's dinner table wasn't always about a day at school; often the conversation was filled with snippets on particular stocks. Lieber, fund manager for Alpine U.S. Real Estate Equity Fund, often discussed stocks and REITs with his father, who was a mutual fund analyst. While Lieber never thought he'd be interested in the stock market, particularly after a short-lived stint working at his father's office, his love for architecture and real estate served as the vehicle that brought him to stocks later in life.
Lieber graduated from Wesleyan University with a concentration in architecture. Right after graduation, he landed a job at an urban planning firm. While there, Lieber realized that as an architect or urban planner, you can create and design several ideas, but the owner ultimately has the prerogative to change those. After several of his ideas were rebuffed, Lieber decided he'd rather be the one who made those final calls. He initially planned on pursing his M.B.A. at New York University's business school. However, after an opportunity arose to be a real estate broker in 1982, pursuing his M.B.A. was put on hold.
"There weren't many real estate companies hiring and the only way to get in the door was to start in leasing," Lieber recalls. "I started there and hated it, managed to switch over to property sales (I was basically a sales broker working with syndicators) and enjoyed that. I didn't go back to finish my M.B.A. because I was having such a good time."
When tax laws were on the cusp of a major change, Lieber realized that the syndicators he was working with were going to have a tougher time with business. In late 1985, Lieber went to Evergreen Investments as an analyst. In early 1989, Evergreen launched a global fund and that marked the beginning of Lieber's portfolio management career. Evergreen was then sold to Wachovia and once Lieber's employment contract ran out in 1998, he decided it was time to start his own business. It was then that Alpine Mutual Funds was formed.
"When I left planning, I wanted to be the guy on the other side of the table who owned real estate," Lieber says. "I don't need that now, but I do go by certain buildings and say ‘we've got 5 percent of that,' and that is enough for me."
Lieber's real estate background has served the Alpine U.S. Real Estate Equity fund well by helping him evaluate companies and management, as well as understand real estate and its trends. That knowledge assists this dedicated real estate fund in fulfilling its objective of being a long-term capital appreciation vehicle, with a secondary emphasis on income. The fund's objective has paid off, based on Lipper's 2003 real estate mutual fund rankings. The Alpine U.S. Real Estate Equity Fund was ranked second in 2003 with a one-year annualized return of 81.97 percent and ranked first with a three-year return of 32.94 percent. Over a five-year period, the fund's 18.84 percent return earned it a third-place ranking.
"Our approach is that different types of property perform in different ways at different points along the real estate cycle," Lieber says. "In the case of property, we like to try and buy it at a discount through the public market, as opposed to what we'd have to pay retail or direct."
Lieber adds that the fund emphasizes buying companies early on in the cycle, before the value is realized. However, other parts of the portfolio focus on the near term and steady appreciation.
"We are willing to segment the portfolio into several different baskets and that is part of our approach," Lieber says. "For example, we seek rapid capital appreciation, say, over a 12-month period, while looking for undervalued property or a company that is not fully appreciated."
One of those segmented baskets is REITs, which can range from 20 percent to 85 percent of Lieber's portfolio at any given time. Over the past decade, Lieber says REITs have typically comprised 45 percent to 60 percent of the portfolio. Usually REITs are a majority component because Alpine values the income and appreciation potential.
"We think REITs are a great format for efficiently capturing real estate cash flow," Lieber says.
In February, Alpine's portfolio had 22 percent in REITs, mainly because Lieber didn't believe market conditions were favorable for REITs.
"Our rationale is that, frankly, the stocks are no longer cheap," Lieber says. "We don't think they offer great value at the moment because we think there are certain kinds of properties that offer better plays than others at different points of the cycle."
Lieber's current concern is that the cycle won't be very strong over the next two years and doesn't think there will be a tremendous amount of growth for many sectors.
"Jobs haven't been created at a rapid rate yet and our view is that the rate of growth isn't going to be strong for most sectors," Lieber says. "Apartments should come out early, but again the overhang of supply and slow job growth is hurting that. Industrial has pockets that are doing well and will do better over the next year or two. The larger sectors, like office, we're concerned about because the rest of the country is in a difficult patch where there could be continued declines in rent for the next year or so and net operating income (NOI) for these companies won't pick up until 2006 or 2007."
Lieber does feel that the retail sector should continue to do well, as the consumer has kept the economy afloat over the last three to four years and retail sales have been solid. While solid sales are important, it is more important to have solid companies—ones that are unique and strong in management, Lieber says.
"We want companies that have a niche operating business where they are dominant in that niche, whether it is on a regional or local market basis, or in terms of property type," Lieber says. "In a time when the markets are soft, it is difficult for even the best management to overcome basically generic property, or generic anything. If it is a distinctive and separate market segment that the company caters to or controls, that is really the best way to ride through a soft market."
Currently, the fund has a high exposure to lodging and the homebuilders sector.
Lieber also notes that as of the first quarter some companies had become overvalued, which made it hard to gauge that company's performance in a lingering soft market.
"Our problem is that a rising tide lifted all boats…there are some companies that have maybe been lifted higher than they deserve in terms of the quality and potential of their portfolio and the capabilities of management," Lieber says. "We think that as the tide goes out you're going to find out who's not wearing clothes, as Warren Buffet would say. That's when we are going find out which companies have been per forming well and which ones haven't."
