MELBOURNE property veteran Michael Drapac is a long-time reader of the market, and is confident he has identified a new frontier: the United States.
Behind the screaming headlines about the dire US housing market and economy, Mr Drapac sees something eerily familiar.
"America is a very segmented, fragmented market, a bit like Australia in the late 1990s," he told The Age. After the early 1990s "recession", all Australia recovered, but not uniformly.
Regional Victoria, for example, got back on its feet five to seven years after Melbourne. "When I see America, notwithstanding the differentials, I see I'm back in Australia in the 1990s," he said.
Mr Drapac has spent the past 18 months in the US. The first year consisted of desktop research, "trying in a limited way" to understand the market.
"I looked at the obvious areas hammered Las Vegas, Florida and California and also came to understand some areas had gone up post-GFC," he said. "Other areas are so heterogeneous, some values had not even gone up before the GFC, and are extremely affordable by any comparison. Some post-GFC areas continue to go up slowly. There are sensational spots . . . Florida and Las Vegas."
Mr Drapac sticks to his golden rule. "Always gravitate to unloved markets," he said. "The unloved market will give you greater probability of buying the right asset and being able to optimise your risk/reward equation . . . that's how I find America."
Of the assets investigated, the average price was 90 per cent reduction off their peak. "There are many examples of 98 and 99 per cent off," he said.
Broadacre land in Las Vegas that had been $US50,000-$60,000 ($A49,000-$59,000) before the GFC, was pumped by subprime to $US800,000 an acre, and was now between $5000-$10,000 an acre. "In California, we looked at property that peaked at $US800,000 an acre, and is now $US20,000 an acre. In parts of Florida you can buy any blocks you want for $US15,000."
Mr Drapac said these were relatively central bits of land, rezoned and "ready to rock". "It's probably unthinkable for Melburnians to remember this, but in 1998 you could have bought a block of land in Ocean Grove for $15,000, in Rye for $30,000, and any amount of blocks in the country for $30,000. They would have gone up by five-to-tenfold."
Mr Drapac has been joined by his son Sebastian, a former CBRE agent in Melbourne, who will be based in Los Angeles. The family company has bought land in various parts of the US. "In Phoenix, we have a block downtown in a suburb comparable to North Melbourne, just near the university," he said.
Demographically, Phoenix was a retirement spot, but also a major stopping point for east-west truck traffic. The company has bought blocks in Washington state, and is about to buy two more. "In Seattle, commercially robust due to Boeing and Microsoft, we are negotiating for land now," he said. "There are some really good blocks that we are able to buy below cost, close to town. We are also buying in Florida."
What's the perfect property? "Buy for land value, a place where there will be demand for product, an attractive yield."
Mr Drapac is using Australian capital, with equity partners. "It's difficult to borrow money, so we are not going to borrow money there," he said.
The high value of the Australian dollar up 40-50 per cent on what it had been in the past also gave them extra bargaining power.
"The Australian dollar is a blessing, the cream on the cake," he said.
The investments are predominantly residential, where the market has been "brutalised".
"Commercial is not as badly affected, but opportunities are still there," he said. "Americans are still the most dynamic and entrepreneurial people you will meet."
Mr Drapac's approach to the American challenge is to "have a formula and do the work".
"Know the market as well as you can," he said. "For the US, look at Australia in the '90s and work out why values rose . . . take that historical prism and look at the US market. That's the closest you will get to a crystal ball."