Contrarian Investment or Dumb Idea? You Decide! Seaport Entertainment Group $SEG

This next idea comes from

Siyu LI

at Under The Hood substack. It has also been written about by

Raging Bull Investments

. I had mentioned yesterday that Consumer Discretionary, Healthcare, and Real Estate were the lagging sectors and places to go fishing. Well Siyu has been bullish on Seaport Entertainment Group (SEG).

You can find his writeup here:

NYC Premium RE assets at a 80% Fire Sale

But first, since we are talking about land, a few subscribers had asked me for an update on Medical Properties Trust (MPW). It is taking a lot longer than I had anticipated for revenues to come in from their hospitals after the Steward bankruptcy. MPW gave the new hospital operators slowly escalating rents so that they would have time to get on top of their receivables, which in the hospital business can extend a good long while, both insurance companies and governments are slow to pay bills. Full rent won’t be achieved until around September of 2027, which is quite a ways out. In the meantime, MPW would obviously benefit if Trump really does appoint a Fed Chair in May of 2026 who brings the benchmark rate down to 2.5%. There are debt maturities that will need to be refinanced, and that big of an interest rate cut would make a difference. I am still long, and most of what the shorts say on Twitter is still demonstrably false, but I am also frustrated that the story is taking much longer to reach the finish line than I had ever anticipated. MPW turned out to be a slower and more volatile story than I would have predicted, but I do believe that there is still cheese at the end of the maze.

Now back on to Seaport Entertainment Group, Siyu’s argument starts: “Never bet against premium New York Real Estate assets.” I have to admit, I am out of my depth when researching the high-end of the K-shaped economy, but I do know I want exposure to it. I suppose the first elephant in the room is the recent Democratic primary winner, Zohran Mamdani, who wants New York City to operate public grocery stores, and wants to use city funds to acquire real estate and build communes. I don’t have a crystal ball for how New York politics will transpire, but a communist government is a risk to real estate, and this is probably one reason why the stock price of SEG did not participate in the recent market rally.

Can a communist mayor do so much harm to the city of New York that investors should avoid premium luxury New York real estate that is selling for less than twenty cents on the dollar? While I don’t want to underestimate the damage that communist policies can cause, I also don’t want to underestimate the legions of vested interests and their lawyers who will be suing to enjoin the implementation of many of these policies. Maybe the best way to put this bogeyman to rest is to look at the Case Shiller condo indices for Chicago and San Francisco.

I think the big takeaway is that bad governance is a huge threat, but what government taketh away with one hand, it often giveth back with the other. The same policies that might cause an increase in discarded heroin needles and sidewalk feces also prevents a lot of new construction, restricting supply and making the existing assets more valuable. So I think the prudent thing to do here is to look past politics, even though this current drama is pretty salacious.

The nomination of Mamdani is so terrifying to vested interests in New York that Bill Ackman is even floating the idea of funding a write-in candidate. Write-in candidates are a terrible idea, it is very difficult to get a large number of voters serious about it, but it does show how interested Ackman is in trying to fix the situation. This is relevant to SEG because Bill Ackman’s Pershing Square is a 40% shareholder, they bought in at $31.50 a share, it traded at $19.23 at the close of the market yesterday.

So what does Ackman see in Seaport Entertainment Group? The keystone asset is the Seaport in New York, on the East River, and under the Brooklyn Bridge. It has 13 restaurants, 3 bars, a concert venue, 478,000 rentable square feet. It has one acre of developable land, zoned for 547,000 square feet. SEG currently trades at an enterprise value of $270 million, and AI is trying to convince me that the Seaport properties are worth at least double that.

The rest of the assets include a minor league baseball team in Las Vegas, The Aviators, and the 10,000 seat stadium where they play. The stadium cost $150 million to build, but they received $80 million for twenty year naming rights. SEG has a 25% ownership of the Jean-Georges restaurant group which they purchased for $45 million. And most of the air rights above the Las Vegas Fashion Show Mall, just in case it ever becomes a new major casino. Air rights are typically worth 20% to 40% of the land value, and the land is 40 acres of Las Vegas strip, across the street from Trump Tower. The Las Vegas strip has sold previously for between $12 million and $34 million an acre.

Spending a little time with Artificial Intelligence putting very conservative values on all of those assets, SEG is probably trading at somewhere between twenty cents on the dollar and fifty cents on the dollar.

But, the thing about trophy assets is that they are expensive to operate. Last quarter SEG burned through about $30 million of cash, and at that burn rate they have enough cash to last one year. The debt situation isn’t terrible, the nearest maturity is 2029, and the total long term debt is around $100 million. But what are they going to do about that cash burn?

SEG is making steps in a positive direction, occupancy is currently 66%, but they have tenants moving in that should bring that number up to 83%. Most of that space is being taken by Meow Wolf, an immersive art and interactive experience creator who is leasing about 75,000 square feet. Don’t ask me if Meow Wolf is a great tenant, I am so far out of my depth that I can’t catch the AI if it hallucinates.

Meow Wolf interactive immersive art sample:

Next quarter should show increased revenue from the new tenant, as well as increased revenue from The Aviators as the minor league baseball season begins. But I don’t see a clear path toward closing that gap of cash burn. I would expect the properties to be at least a little profitable overall during the next boom, but until then, I do expect the cash burn to continue. However, I am not too terribly worried if the cash burn gap doesn’t close completely in short order, as New York real estate appreciates in value by about 10% per annum.

That should give an appreciation of between $50 million and $100 million annually to offset the cash burn, which hopefully can come down somewhat over the next couple of years. It’s not a fantastic position to be in, but it isn’t terrible either. I don’t think Bill Ackman was stupid for buying in at $31.50 a share, and don’t think I would be stupid for buying in at $19.23.

Something that does concern me a bit about overall direction is that they list acquiring new assets as a major priority in order to reach economies of scale. SEG is relatively debt light, with only $100 million on what is probably over $1 billion of assets, so they could lever up to make more acquisitions. It’s not my favorite strategy at these interest rates, but it is true that a significant portion of costs are fixed. I would prefer that they slash headcount at the corporate office, but Bill Ackman is no Carl Icahn.

I have to admit that I am out of my depth with trophy real estate, event venues, baseball teams, air rights, and interactive immersive art experiences. But odds are good that we are entering a rate cutting environment next year, and under those circumstances, Manhattan should be booming. I might not be convinced that Seaport Entertainment Group is a buy and hold forever company. But I am intrigued that over the next two years, it might be a huge beneficiary of several tailwinds. I wouldn’t marry SEG, but I don’t think it’s a terrible real estate company for a tryst.

Putting some ranges on the values of the SEG assets gives us:

The Las Vegas Aviators and the The Las Vegas Ballpark combined: $80 million to $150 million

25% of Jean-Georges Restaurant Group: $45 to $55 million

80% Air Rights for the Las Vegas Fashion Show Mall: $150 million to $1 billion

South Street Seaport:

Pier 17: $80 to $90 million

Fulton Market Building: $25 to $30 million

Tin Building: $12 to $15 million

250 Water Street: $140 to $150 million

Implied Value of SEG Portfolio: $532 million to $1.5 billion

Of course that value relies on both Manhattan and Las Vegas staying robust, which isn’t a terrible risk for a small portion of a portfolio.

Seaport Entertainment Group (SEG) $19.23: $41.89 within two or three years.