Jim Chanos is raising more than $200 million for a fund that will bet against US-listed real estate investment trusts (REITs), the Financial Times reported this week.
The famed short seller is deeply bearish on REITs that own legacy data centers, as he expects them to be disrupted by their biggest tenants: Amazon, Alphabet, and Microsoft. Those three technology giants dominate cloud computing, an industry powered by vast arrays of computers and servers stored in sprawling warehouses.
Chanos, best known for predicting and profiting from the collapse of Enron in the early 2000s, expects the tech trio will shift to designing and building their own data centers, instead of leasing or buying existing ones, he told the FT.
The cloud titans also aren’t the most lucrative tenants, and REITs strike him as overvalued and poised for slower revenue and profit growth, he added.
“This is our big short right now,” Chanos told the newspaper. “Their three biggest customers are becoming their biggest competitors. And when your biggest competitors are three of the most vicious competitors in the world then you have a problem.”
Chanos teased his thesis during a recent episode of Bloomberg’s “Odd Lots” podcast. “The whole cross section of REITs just seems absurd to us,” he said, asserting the industry makes bets that earn a paltry 3% rate of return before capital spending and taxes. He predicted they would struggle as cheap financing dries up, interest rates climb to 4% or 5%, and the economy weakens, as many experts expect.
The veteran fund manager also told the FT that stocks are hugely overvalued, and many public companies have faulty business models, yet few investors have taken steps to protect their portfolios.
“One of the things that amazes me is how sanguine investors are,” he said.
Chanos, who recently rebranded his Kynikos Associates firm as Chanos & Company, disclosed that his short-only Ursus fund has gained about 30% this year — a sharp contrast to the tech-heavy Nasdaq’s 30% decline. Ursus has benefited from short positions in Coinbase and Carvana, he noted.
The investor told the FT he expects the fund’s success to continue. “We’ll be feasting on the returns of these stock ideas for years — very similar to the post-dotcom era,” he said.
Chanos didn’t immediately respond to a request for comment from Insider.