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Why Dallas’ Kyle Bass is buying thousands of acres of undeveloped Texas land

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Kyle Bass likes to bet big. So what Dallas-based hedge his fund his manager made famous for shorting mortgage debt before the global financial crisis is now the richest commodity in his home state Sticking to the land is appropriate.

Bass said the Texas dirt market is “big and it’s real.”

Bass, 53, is no stranger to bold macro bets. Over the past 15 years, he has ventured into the European sovereign bond markets, the Chinese economy and the Hong Kong dollar, usually making risky investments using esoteric financial instruments.

Recently, he took a swath of largely undeveloped land in Texas as a way to attract some of the trillions of dollars allocated for ESG-related investments that are assessed for their environmental, social and governance impact. I’m putting This is a much more basic, tangible asset. cause.

Conservation Equity Management, an investment firm Bass founded last year, spent $90 million to acquire six properties totaling 37,000 acres. His haul includes a ranch in West Texas featuring the remains of Frontier Fort. wooded timberlands of eastern Texasa wildlife corridor near the border with Louisiana, and holding It’s at the heart of a $240 million high-tech development just outside Austin.

In an interview with Bloomberg, Bass said, “We used all of our decades of expertise to analyze the global macro and geopolitical landscape and produce a paper on Texas land as an asset class. I am using it,” he said.

Land is attractive because the demand for it is almost limitless, according to Bass, and the abundance of land in Texas helps.

Conservation Equity Management acquired the Chocolate Bay Conservation lot on Texas’ Gulf Coast in June. (Conservation asset management)

there is 142 million acres The number and value of privately owned ranches, farms, and forests in the state have skyrocketed.The median per acre of rural land is $4,286 As of the second quarter, it’s up 123% over the past decade, according to Texas A&M University’s Texas Real Estate Research Center.Based on recent average land valuethe state’s original land is worth more than $600 billion, before factoring in potential revenues from sources such as renewable energy leases, conservation easements and carbon credit sales.

Demographics are key to increasing the value of land, and so is Bass’ claim.

Texas’ population grew 42% from the turn of the century to 2020, to nearly 30 million. Texas Demographic CenterA state-level agency affiliated with the U.S. Census Bureau, predicts that by 2050 there will be 47 million inhabitants.

“We are at the forefront of a migration that has been going on for at least a decade,” said Bass, who was born in Florida and raised in Texas. “People in the Northeast, people on the West Coast will constantly move to Texas, Tennessee and Florida.”

What could threaten growth is Republican Governor Greg Abbott’s focus on issues such as gun rights and restrictions on access to abortions, and the quintessentially liberal population in places like New York and San Francisco. A slowdown in the US economy and signals that the Federal Reserve will continue to tighten interest rates to combat inflation could also deter inflows. I have.

“Over the longer term, recently enacted non-inclusive and restrictive policies will reduce There is a risk that workers may be discouraged from relocating to Texas.” His base scenario is for growth to continue, but such a slowdown “could spill over to the economy”.

But for now, population is booming and open space is shrinking. Bass says a study by Texas A&M shows the state is losing a square mile of open space to development every day. As a result, Texas is losing rural land at a faster pace than any other state, losing about 2.2 million acres in the two decades to 2017.

Bass said he saw an opportunity as Warpspeed’s development refocused the state’s remaining open lands.

There is about $17 trillion in pensions, endowments and other institutions with an obligation to deploy it in investments deemed sustainable or socially responsible. That amount could increase by another $40 trillion over the next decade, he said.

Opportunities to invest these ESG dollars are scarce due to factors ranging from the ice age of federal permits to the nascent development of the ecosystem services industry. Undeveloped land with potential for wildlife habitat, mitigation of habitat destruction, hosting carbon storage facilities, and renewable energy development fits this criteria.

CEM aims to generate a profit on its assets by generating revenue from strategies such as environmentally friendly regenerated cattle grazing and ultimately selling them.

‘Further easing’

The Texas boom has spawned many projects to offset. The state’s economy is fueled by hubs such as the Permian Basin (the most prodigious oil region in the United States) and sprawling petrochemical manufacturing facilities along the Gulf Coast, as well as its own power grid and the longest interstate highways. Supported.

All industrial expansions “will require more mitigation,” Bass said. He believes companies that are able to meet his ESG demands will benefit from the never-ending flow of investment.

“Why don’t we institutionalize this business now?” he said. “We charge whoever does the most infringement, and they are happy to pay it.”

ESG is on the rise fire Regarding misleading claims and poor returns. Bass himself recently blamed high energy prices in part on world leaders “taking policy cues from NGOs and teenagers.” He admits there is little regulatory oversight, but says the “bespoke” nature of the market is part of what makes it so attractive.

Texas A&M economist Charles Gilliland says Bass’ vision is premised on an ESG mandate taking hold. real estate centerBut this idea is becoming increasingly politicized, both in principle and in practice. Texas itself has spearheaded the backlash, threatening to blacklist asset managers that exit fossil fuels.

Bass made a name for himself with aggressive bets on an epic scale, shaped through tireless and sometimes controversial research. His bet on a subprime mortgage in 2008 brought him luck and instant credibility, attracting big sums to his fund Hayman Capital and an invitation to testify before Congress as an expert witness.

He then turned to China by shorting the yuan and the European Union by betting that sovereign debt would collapse. A crusade to challenge drug patents, which he said led to rising drug prices, was largely unsuccessful. In his five years to 2019, Hayman’s fortune has shrunk by more than 80% of his.

Just west of Galveston, the Chocolate Bay Nature Preserve is 5,403 acres of...
Just west of Galveston, the Chocolate Bay Preserve is a 5,403-acre area that serves as an ecological bridge between the Chocolate Bay Preserve to the east and the 44,413-acre Brazoria National Wildlife Refuge to the west.(Conservation asset management)

Logical extension

Bass’s interests so far have been global, but he argues that his new venture is a logical extension of the skills he honed on Wall Street.

“Buying farms and ranches is not as efficient a market as buying Microsoft stock,” he said. “It’s not like there are millions and billions of eyes and analyzes going on. You can probably count the number of analysts looking at stuff like this on one hand.”

He, Chocolate Bay Conservation Area acquired by CEM in June As an example, for undisclosed prices. Located on the Gulf Coast just west of Galveston, the 5,403-acre area is a mix of upland and wetland habitats and serves as a haven for the endangered black rail bird, with a There is the 4,714-acre Chocolate Bay Preserve and to the west is the 44,413-acre Brazoria National Wildlife Refuge.

Toyota Motor North America, Tesla Inc., most recently Caterpillar Inc. In recent years, I moved to Lone Star State, attracted by the low tax rates and relaxed regulations. Texas had 170,307 net residents through internal migration last year, more than any state except Florida, according to Census data.

In a strange twist, one of the Chocolate Bay Lot’s main assets is actually man-made. That’s he four natural gas wells. Each is a candidate for a carbon capture and storage facility, a process that injects carbon dioxide emissions deep into rock formations to reduce CO2 emissions into the atmosphere. Bass said projections show that each well can sequester as much as 2 million tons of carbon per year for up to 15 years without altering the aesthetics of the landscape.

The parcels, which have never been put up for sale, were scouted by CEM’s bus partners. Terry AndersonA trained forester specializing in wildlife management and owner of seven ranches, he has spent the past 30 years working with landowners, regulators and investors to promote conservation or wetland mitigation. I’ve been working on a project. Most of CEM’s acquisitions were off-market and occurred due to personal connections by Anderson and others at the company.

“If you were a Connecticut company, you couldn’t have bought this property,” Bass said. “A group of guys at Harvard with a billion dollars couldn’t do it.”

Eric O’Keeffe and Devon Pendleton, Bloomberg

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