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Pat McAlister Takes Us to the Edge City

By Stansberry Research Interview Series
Thursday, January 4, 2007

“There is no housing bubble. At least not one that’s nationwide.”
Pat McAlister, despite his modesty, is used to stirring up controversy. The above quote is one of the first things he told me when I mentioned I was researching real estate around the U.S.
Personally, I agree with Pat. But I’m sure there are plenty of people who think we’re crazy. The recent numbers say housing is going down the toilet. Playing devil’s advocate, I mentioned this to him.
“Oh, I’ve got numbers,” he said. “But they go back to the early ’70s, not just the last five years. The point of resistance for housing nationwide is between an 8.125% and 8.375% interest rate for 30-year mortgages. Whenever 30-year mortgages hit this level, then the number of housing starts tanks nationally. Right now, we’re around 6%. Nowhere close.
“Don’t get me wrong,” he continued. “There are some areas that will crash. But nationwide there are plenty of places where housing is boom, not bust. In fact, I know of at least two places in Nashville alone where land prices will rise fivefold sometime in the next 10 years. And there are many others, nationwide.”
Pat explained both potential investments to me in detail. However, I know not all of you are interested in buying land in Nashville. So, rather than go into the specifics of that region, I’ll keep things general. Over the next week or so, I’ll detail how you can make five to 10 times your money in land. All credit for this analysis and insight belongs to Pat.
The primary consideration is:
Cities develop along highways or interstates, not from their cores.
This theory was first published by Joel Garreau in his book: Edge City: Life on the New Frontier. In it, Garreau explains that the days of downtown city development are over for most major cities. Rather, the places where economic boom and land appreciation will soar are edge cities: formerly residential suburbs or semirural areas where people will want to move.
In a sense, an edge city is a suburban region that will convert to an urban region. This move is marked by a massive influx of residents and subsequent skyrocketing of property values. Garreau states that to become an edge city, a region must:
1) Have over 5 million square feet of office space
2) Have 600,000 sq. ft. of retail space (a decent-sized mall)
3) Have more jobs than bedrooms
4) Be considered a single place, or region
5) Have been fairly undeveloped for the previous 30 years
Again, edge cities develop along major highways or interstates – what Pat calls “arteries.” He comments, “A lot of this is due to economic migration. When businesses move, they almost always move closer to where a CEO or other high-level executives live, aka the suburbs.
“These guys like to shorten their commutes. So they move their office out to the suburbs. Shortly thereafter, you’ll notice that a lot of the employees start moving to the region as well, trying to shorten their commutes.
“Eventually enough people move that retail space starts to pop up, because no one wants to drive 30 minutes to buy food or shop. When the region hits 5 million square feet of office space and 600,000 square feet of retail space, then BOOM, that’s when property values erupt. Developments will spring up left and right. You’ll see areas where land was going for $5,000 an acre a few years ago selling for $50,000 or even $60,000 an acre.”
There are places like this all over the U.S. By now, you know I think Nashville’s a steal. Other places to consider are Austin, TX; Charlotte, NC; and Milwaukee, WI.
Want to find the next edge city near you? Look for:
1) Areas of land near an interstate or highway
2) Areas where shopping centers or office space are planned or under construction
More to come on land investing...
Good trading,

Market Notes
Brazilian large caps rising: Banco Itau (banking), Aracruz Celulose (wood products), Companhia Vale do Rio Doce (iron ore), and Companhia de Bebidas (beer) at new highs.
New highs in Asian telecom: PT Telekomunikasi (Indonesia), China Mobile (China), Philippine Long Distance (Philippines).
What retail slump? Retail HOLDRs ETF hits a new 52-week high. Holdings include Wal-Mart, Home Depot, Target, Best Buy, and Lowe’s.
Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
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Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
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Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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