Columbia University Libraries Digital Collections: The Real Estate Record

Real estate record and builders' guide: v. 84, no. 2162: August 21, 1909

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August 21, 1909 RECORD AND GTTTDE 339 ^ ESTABUSHED-^iW^H2L«JVl868. Busk/ess Ali)Themes OF Ge^er^I Ir/tER^ESi.. PRICE PER YEAR IN ADVANCE EIGHT DOLLARS Communications should be addressed to C. W. SWEET Published Every Saturday By THE RECORD AND GUIDE CO. President, CLINTON W. SWEET Treasurer, P. W. DODGE Vlce-Pres. & Genl. Mgr., H, W. DESMOND Secretary, F. T. MILLER N08. 11 to 15 East 24th Street. Nevr Yort City (Telephoue. Madison Square, 4430 to 4433.) "Entered at the Post Office at New York. N. Y.. as second-class matter.' Copyrighted, 1000. by The Record & Guide Co, Vol. LXXXIV. AUGUST 21, J909. No. 2162 THERE are a great many owners of railroad and industrial securities in-the United States who are feeling very complacent over the recent rise in the price of stocks and bonds. The great majority of them can iM-obably figure that their investments would sell in cash for one-third more than they would a year ago, and in most cases their current value would total a substantially larger amount than they did during the closing months of 1906. Such calculations are very pleasing, but before taking too much satisfaction in them the investor would do well to look a little deeper and inquire wherein he will really profit by these increased prices. What can he buy with fhem that will bring him an increased income? Manifestly he cannot very -well ex¬ pect to beneflt by the transfer of his holdings from one railroad or industrial stock to another, because they are all selling at substantially the same level. Insiders may know that the securities of any particulau company are still sell¬ ing below their probable future value, but there is no rea¬ son at the present time why an investor with only public information at his disposal should expect to gain anything by shifting his. investments. It will be very diffioult for him to convert the increased capital represented by his se¬ curities into inereB,sed income. During the coming winter a certain number of railroad and industrial corporations will increase the rate of distribution on their common stocks, bul the prices at which these stocks arc now selling already pretty well discount every probable occurrence of this kind, and an investor, well acquainted with the general financial situation will realize that the chance for substantially larger dividends than those now enjoyed by tlie owners of stocks is very remote. Even if the country is entering upon an¬ other few years of business prosperity, the increased net earnings of the great corporations will for the most part be absorbed in paying for necessary capital expenditures. AM of them still have many millions of dollars to spend upon the improvements that are absolutely necessary for the quick and economical transaction of a considerably increased business; and there is small chance for the present at least that the share-holders will obtain any substantial portion of'the increased earnings. Those share-holders will indeed be lucky in case the money market does not become con¬ gested with the mass of new flolations and in case even the increased capital value of their securilies docs not shrink a'; fast as it has swollen. THERE is, however, one way in which a wise investor may convert his increased capital value into increased in¬ come, and that is by using it to purchasp improved urban real estate. During the past year and a half there has been no general increase in realty prices corresponding to the increase in the prices of stocks and bonds. One hun¬ dred thousand dollars will buy just about as much improved real estate now as it would in the spring of 1908. Of course there are not so many bargains to be picked up now as there were then, but on the whole the statement that the investment value of real estate has not substantially altered during the intervening period is unquestionably true. It is also true, no doubt„that real estate did not suffer in ItlOT any depreciation in price corresponding to the fall in the price of securities, and it may look, consequently, as if the rise in security values were merely a recovery which places them once more on a parity with real estate. But while Ihere is some Iruth in this qualiflcalion ol our general state¬ ment, it is not fhe whole truth. As we have already seen, the values of securities have gone substantially higher than they were early in 1907, and one cannot understand how they can be pushed to a still higher level except at the cost of severe'subsequent reaction. On the other hand, the turn of real estate is slill to come. It is still selling at about the same level as it was iate in 1906, when call money was very high, and when the very best industrial preferred stocks could be bought so as to yield almost seven per cent,. As¬ suming, then, that better times are coming and that there will be an imperative trade demand for land, real estate cer¬ tainly looks like an extremely good investment purchase. An investor who sells stocks or bonds that are bringing him in less than flve per cent, should be able to buy improved real estate which would bring him in a decidedly larger net income, and a much more probable increase in cajiital value. The real estate would be more trouble lo fake care of, but it would pay for the labor spent upon il. There seems to be no other sure way in which an investor can take advantage of the recent increase in value of his securities and make it equivalent to more spending money without as¬ suming any unbusinesslike and merely speculative risks. IT is only a question of time when the reasons contained in the foregoing paragraph will appeal to a great many security-holders; and the man who will make money out. of the situation will be he who will anticipate the inevitable rise in the price of real estate to a parity with other sources of income; that is, tlie man who buys his real estate next fall. It always takes the majority of investors a long' time to understand that a radical change has taken place in the comparative value of different classes of property. Most of them will not begin to buy real estate until they see the first plain indication of a movement towards a higher level of prices in that class of property. But we believe that the first signs of such a movement will be very much in evidence during next winter and spring. It can be ])revented by only two possible obstacles. One would be a sudden halt in the ex¬ isting impulse towards business activity and prosperity, and that is wholly improbable. The other would be the gradual coining of another season of tight money. If the rates for money are allowed Lo become as high as they were late in 1906 and early in 11)07, there will not be much room for an' increased investment demand for real estate. In fliat case the prices of securities will probably work towards a lower level, and the parity between the price of stocks and the price of realty will be reached, not by an increase in the value of the latter, but by a diminution in the value of the former. It is evident:, liowever, that in either event the man who sells stocks at present flgures and invests in real estate will make money. He wil! get a better price for his stocks now than he would later and his real esfale, if wisely purchased, would not have diminished in value, Bul we do not believe that any excessive rates for mone-y will prevail during the coming- year. It is absolutely necessary for the railroads that money should remain cheap, because their coming capital requirements will be very large; and while they and their agents, the bankers, may not be able to prevent it from becoming dear, it is probable that, if necessary, an abundance of foreign capital will be available to keep rates down. An American investor can hardly go wrong, in case he takes a certain proportion of his capital now invested in stocks and puis it into improved city real estate. THE statement issued by the Public Service Commission during the past week again shows very plainly thai, it wili not approve the plaus submitted to it by the Inter¬ borough Company; and il is a great pity that public opinion is not fully alive to the damage which the commission is thereby doing to the cause of a well-balanced and economi¬ cal rapid transit system. The "Times" is the only daily .lournal that understands what the city will lose because of the stubborn persistence of the commission in sticking lo its plan of building a subway which compeles with the ex¬ isting subway, instead of supplementing it; and the attitude of the commission is all the more singular because it has in several of its pievioua decisions distinctly favored the crea¬ tion of monopolies in providing local public services. Yet in the most esseniial public service of all it abandons all the advantages which might result from a single rapid iran.'-il system, all under one management, and transferring at many different connecting points. So far as the Record and Guide can see, there are only two ways whereby the advantages to the city of a single coherent ancl well-articulated rapid Iran-