Impressive concentration strategy on illiquid micro-caps. That zero correlation to the S&P while beating it by 700bps is the real edge here—most small-cap managers end up inadvertently replicating market beta because they chase similarsectors. The GWOX ESOP tender dynamic is especially interesting since ESOPs typically don't maximize shareholder value but here the historical pattern suggests otherwise. I've been burned before buying 'cheap' illiquid stuff that stayed cheap forever til I learned the catalyst matters more than the valuation.
See the pinned post on my philosophy. Basically I am looking for improved or exit liquidity in any form. Sometimes that includes a clear catalyst. Sometimes it does not.
Thanks for your posts and insights. Very helpful! Was curious what your background is and full time job?
Also, if there were a major markey pull back due to either AI bubble, economic wars, etc... Do you think these microcap positions will be affected (or mostly immune)? Have any backtests been done?
I am currently in school for my MBA + CFA. Mostly self taught up until this point.
As for the other point. I think its expected that most illiquid and special situation portfolios (like mine) tend to have a beta of zero and are uncorrelated to the market because they are idiosyncratic.
Havent seen research on it though. Basically all the research I read eliminates illiquid stocks because they are not "actionable"
Awesome, thanks for the reply! I was quite interested in CHCI, as I come from more of a RE PE background.
When I screened the stock, it didn’t seem particularly cheap or attractive, especially for a microcap / more illiquid name. Are there strong catalysts for future growth? I know you mentioned more SF under management and additional management fees coming in. Are there meaningful acquisition targets to drive additional AUM so they can scale fee income? In your mind, is this more of a ~20% IRR-type deal (i.e., you’d be happy if you earned returns in that range)?
Why not just buy NVR or GRBK (a long-time favorite of mine)? They seem to exhibit similar ROIC and EV/EBIT metrics. I do like that CHCI management owns a large stake, so incentives are clearly aligned. Also, in my experience, property management is usually a very low-margin business, so it’s interesting to see margins here that are meaningfully higher and healthier.
I think most of the upside/additional AUM will come as rates come down, real estate becomes a bit more investible. They will be positioned well for that.
I like NVR and GRBK as well. However, I think this is priced better today, and has a longer runway ahead of it (earlier in the company lifecycle). NVR/GRBK are more mature and NVR is certainly facing (now) stronger competitiors who are copying their model.
Basically, it's reasonably priced today, but they are guaranteed:
The doubling of square footage they are earning fees on in 5 years.
They are bringing online additional fees (parking, etc) as well.
Modest operating leverage that benefits from the above
Additional upside from bringing in additional (external) properties. Something that their scale should help attract.
Basically, it is not as much a real estate company as a servcies company in a very fragmented market.
I'm curious, from your experience in RE, PE have you seen a company like this with this approach? Any words of caution for things I am not considering there.
Thanks! I'll need to do more research on this company to provide more insightful feedback.
I work on the multifamily side exclusively. And we manage in-house. When we model performa management company margin it's usually around 13%. I remember past partner even wanting to get out of the property management business because it's not a high margin business. So I wonder if that margin is sustainable. If it is, thats great.
I'm not sure if AI is right but it says about 4.6mm sf now, and additional 690k sf coming. The future 4.2mm of "pipeline" is not under construction yet. I wonder how fast those can be delivered. From my experience it can take a while maybe 3-4 years to get land ready and for a project to get built and another year or two to get leased up.
Impressive concentration strategy on illiquid micro-caps. That zero correlation to the S&P while beating it by 700bps is the real edge here—most small-cap managers end up inadvertently replicating market beta because they chase similarsectors. The GWOX ESOP tender dynamic is especially interesting since ESOPs typically don't maximize shareholder value but here the historical pattern suggests otherwise. I've been burned before buying 'cheap' illiquid stuff that stayed cheap forever til I learned the catalyst matters more than the valuation.
Thanks for the comment.
See the pinned post on my philosophy. Basically I am looking for improved or exit liquidity in any form. Sometimes that includes a clear catalyst. Sometimes it does not.
Thanks for your posts and insights. Very helpful! Was curious what your background is and full time job?
Also, if there were a major markey pull back due to either AI bubble, economic wars, etc... Do you think these microcap positions will be affected (or mostly immune)? Have any backtests been done?
I am currently in school for my MBA + CFA. Mostly self taught up until this point.
As for the other point. I think its expected that most illiquid and special situation portfolios (like mine) tend to have a beta of zero and are uncorrelated to the market because they are idiosyncratic.
Havent seen research on it though. Basically all the research I read eliminates illiquid stocks because they are not "actionable"
Awesome, thanks for the reply! I was quite interested in CHCI, as I come from more of a RE PE background.
When I screened the stock, it didn’t seem particularly cheap or attractive, especially for a microcap / more illiquid name. Are there strong catalysts for future growth? I know you mentioned more SF under management and additional management fees coming in. Are there meaningful acquisition targets to drive additional AUM so they can scale fee income? In your mind, is this more of a ~20% IRR-type deal (i.e., you’d be happy if you earned returns in that range)?
Why not just buy NVR or GRBK (a long-time favorite of mine)? They seem to exhibit similar ROIC and EV/EBIT metrics. I do like that CHCI management owns a large stake, so incentives are clearly aligned. Also, in my experience, property management is usually a very low-margin business, so it’s interesting to see margins here that are meaningfully higher and healthier.
I think most of the upside/additional AUM will come as rates come down, real estate becomes a bit more investible. They will be positioned well for that.
I like NVR and GRBK as well. However, I think this is priced better today, and has a longer runway ahead of it (earlier in the company lifecycle). NVR/GRBK are more mature and NVR is certainly facing (now) stronger competitiors who are copying their model.
I could expand more in a future article. There a number of good write ups out there like Will's, you could start there: https://harveycapital1.substack.com/p/comstock-holding-companies-inc-chci
Basically, it's reasonably priced today, but they are guaranteed:
The doubling of square footage they are earning fees on in 5 years.
They are bringing online additional fees (parking, etc) as well.
Modest operating leverage that benefits from the above
Additional upside from bringing in additional (external) properties. Something that their scale should help attract.
Basically, it is not as much a real estate company as a servcies company in a very fragmented market.
I'm curious, from your experience in RE, PE have you seen a company like this with this approach? Any words of caution for things I am not considering there.
Thanks! I'll need to do more research on this company to provide more insightful feedback.
I work on the multifamily side exclusively. And we manage in-house. When we model performa management company margin it's usually around 13%. I remember past partner even wanting to get out of the property management business because it's not a high margin business. So I wonder if that margin is sustainable. If it is, thats great.
I'm not sure if AI is right but it says about 4.6mm sf now, and additional 690k sf coming. The future 4.2mm of "pipeline" is not under construction yet. I wonder how fast those can be delivered. From my experience it can take a while maybe 3-4 years to get land ready and for a project to get built and another year or two to get leased up.