Target Corporation (NYSE: TGT) may not seem like a bright spot in today’s market after shares were cut in half in 2008, but at least one activist investor is confident that value can be extracted from the retailer. William Ackman’s Pershing Square owns nearly 10% of the retailer and even created a separate fund to make a leveraged bet on a sharp turnaround.

Ackman’s theory relies on the fact that, unlike many other retailers, Target owns the land under its stores. Currently, this land is not valued at all in the retailer’s market capitalization. The activist investor believes that the true value of this land could be $40 billion or more given the location and tenant (Target). The problem is: How can we unlock that value?

Ackman proposed that Target spin-off its land into a real estate investment trust (REIT) that would then lease the land back to Target. Since the entity would be publicly traded on its own, it would have to come to its true value while Target would retain its value. Meanwhile, since the REIT would have Target as its tenant on its land with its buildings as collateral – a very safe bet.

The problem now is that Target seems hesitant to go through with the plan. Despite the fact that all major concerns were addressed, the retailer still believes that its credit rating and stock price may be adversely affected by the transaction. However, Ackman and Target are still likely in talks to smooth things over while investors wait for further comments from the company.

In the meantime, Pershing Square is hurting from Target’s demise. Pershing Square IV, which invests exclusively in the retailer with 2x leverage, lost 68% last year after Target’s stock slid 31% on the year. This adds to the fund’s losses of 43% in 2007 to make for a less-than-spectacular track-record. Investors are now questioning whether the plan will work.

However, Ackman is no stranger to being ahead of the game and remains confident. His short investment in bond insurers like MBIA took years to materialize and resulted in similar losses ahead of their big pay days. Target may turn out to be a similar story...

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Kona Grill (NDAQ: KONA) management is raking investors over the coals and they aren’t happy. Clarke Bennitt LLC was the first to uncover some questionable regulatory filings that clearly demonstrate a conflict of interest with shareholders. Now, many shareholders like Clarke Bennitt are demanding changes be made in order to restore confidence in the company, according to a Schedule 13D filing with the SEC.

A recent 8-K filing made with the SEC on December 29, 2008 was a shocking read to the shareholder. In the regulatory filing Marcus Jundt, chief executive of Kona Grill, quietly disclosed a large stock sale to his father at the ridiculously low price of $1.19 per share. Incredibly, this sale accounted for nearly 5% of the company’s outstanding shares!

Clarke Bennitt was also surprised by a Schedule 13D filing made by the second largest shareholder in the company. Mill Road Capital noted its opposition to a loan that violated the Sarbanes-Oxley amendments to the Act of 1943 prohibiting the company from directly or indirectly arranging loans to management. Further, the proposal wasn’t even part of a competitive bidding process.

It has become clear to these two shareholders that the Kona Grill is not operating in their best interest. Not only is it against the law to make personal loans to management, but the proceeds ended up coming from an under-market sale to an executive’s father for just $1.19 per share. The proposal hurts shareholders in two ways and they demanded it be rescinded immediately to ensure that a fair price is being achieved for both Kona Grill and its shareholders.

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Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) shares may be living up to their stock symbol after Sam Zell’s Equity Group Investments signed a confidentiality agreement with the hotel chain. Zell already owns approximately 8 percent of the firm, but the agreement could signal the famous investor’s appetite for boosting his stake in the firm. The move may also prove to be bullish for the hotel sector as any confidence in Starwood may also mean confidence in a larger recovery in the sector.

Sam Zell made his fortune in the real estate business by setting up Equity Group Investments, which spawned three public companies, including Equity Residential, the largest apartment owner in the United States, Equity Office Properties, the largest office owner in the country, and Manufactured Home Communities, a mobile home company. These were among the first public REITs and took advantage of shareholder money to buy up properties when debt wasn’t available due to terrible market conditions.

Sam Zell has lost at least a bit of his cache, however, with his acquisition of Tribune Company. The real estate billionaire’s entry into the media business turned out to be ill-timed with the news agency now suffering under $13 billion in debt that was used to take it private in 2007. Eventually, this led to the firm’s Chapter 11 bankruptcy earlier last month – or late last year. However, these events do not mean that Sam Zell has lost any of his ability to predict the real estate market through his investments!

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