Load up More Third Avenue Real Estate Value (TAREX)

One of the two funds in my mutual fund portfolio that I don’t buy regularly is Third Avenue Estate Value Fund (TAREX), though I have owned this fund for years (the other one is Tocqueville Gold (TGLDX), but I bought TGLDX more often). When I first bought TAREX, the initial minimum investment was something like $1,000, but now the bar is set at $10,000, plus $1,000 required minimum for any subsequent investment. That actually is the only reason that prevents me from buying the fund on a regular basis, not that investing in TAREX every month like I do with other funds could do me any good now given how bad the fund performed in 2008. From the Year-End statement I received early this year, I had a total of $2,789.93 in the fund on January 1, 2008. On December 31, 2008, the account value dropped to $1,543.29. That’s not pretty as you can see. According to Morningstar, TAREX returned -44.7% last year and is down another 21.9% so far this year.

Despite the dismal performance, I sent a check of $1,000 yesterday to buy more TAREX shares. I don’t know exactly when the housing market will recover, some say not until the second half of this year, other say 2010 the earliest, but it will eventually bounce back, so I want to prepare myself now.

TAREX is the only real estate fund in my taxable investments, but it isn’t really a REIT fund. It’s rather a fund that focus on REOCs (real estate operation company). Therefore, unlike a REIT company that passes along its earnings are dividend, REOC reinvests the money it makes. As an result, TAREX doesn’t pay a hefty dividend as other REIT funds do, making it a good choice in an taxable account.

Third Avenue Estate Value Fund is an analyst pick at Morningstar.com, which has the comment about the fund (the full report is available to Morningstar Premium members)

This Analyst Pick has been buying the bonds of real estate firms. While there are now real estate income funds that buy bonds as a matter of routine, this fund is unique in its ability to make those purchases opportunistically, when manager Michael Winer and his talented team think they’re cheap enough to offer equity like returns.

Now is arguably such a moment in the real estate markets, and Winer has pounced. First, Winer owns the bankrupt bonds of LandSource, which sought to develop homes in Southern California. Winer expects to own the valuable land at a price significantly less than a recent appraisal. Additionally, Winer has purchased senior loans of the embattled retail landlord General Growth Properties GGP and of the suburban office landlord Brandywine BDN. Winer figures that if General Growth enters bankruptcy, there will be excellent recovery value. Brandywine is in low-barrier-to-entry markets, but it has maintained decent cash flows.

To be sure, there are dicey situations in this portfolio, too, where Winer doesn’t have the protection of being a bondholder. For example, Forest City is a multiuse development company that has taken on a lot of debt, but Winer and his team continue to think shares are undervalued. Also, the market has been skeptical of industrial landlord ProLogis’ PLD development-oriented business model. Still, the firm has been able to sell property and shore up its balance sheet. On the positive side, many of the fund’s Asian development firms, such as Hang Lung and Henderson Land Development, are well-financed.

Overall, we think few real estate managers match Winer’s experience and ability to navigate the current market, with all its distress. This fund’s emphasis on development won’t necessarily provide for a smooth ride in the immediate future, but it should provide long-term investors with healthy returns.

Now that the fund has lost so much of its value, the new investment could give my position in the fund a significant boost :)

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4 Responses to “Load up More Third Avenue Real Estate Value (TAREX)”

  1. makati condo |  May 10, 2009 at 9:08 pm

    I have read your article.It was so informative.Such a good article what you have written.Thanks for sharing your information with us.


  2. Dave Norris |  Sep 02, 2010 at 4:26 am

    I’m a small investor and have owned this fund since 2005. I purchase the fund through Fidelity and until recently it was an NTF purchase. Now it costs me $75 to add to my shares! Why? How can I get around this? That is an outrageous amount to pay for adding to this fund. Hence, I only add to it once a year now, and then with reluctance. I have a little over 1,200 shares of it. Can anyone tell me why it is no longer an NTF fund and also how I can purchase additional shares without paying this $75 fee?