Blackstone is prepping a record $50 billion vehicle to scoop up cheap homes during the downturn - here's how to lock in higher yields than the big money




Blackstone is prepping a record $50 billion vehicle to scoop up cheap homes during the downturn — here
Blackstone is prepping a record $50 billion vehicle to scoop up cheap homes during the downturn — here's how to lock in higher yields than the big money  

Residential real estate is arguably the most valuable and accessible segment of real estate asset class. Its popularity has driven a disproportionate amount of capital into residential real estate - particularly from institutional funds - pushing up valuations and pushing yields lower.

Real estate investment giants continue to buy up homes - something that is likely here to stay, even with higher mortgage rates. In fact, Blackstone is close to finalizing what could be the biggest traditional private-equity real estate investment fund in history, according to the Wall Street Journal.

In a regulatory filing last month, Blackstone said that it has secured $24.1 billion of commitments for its latest real estate fund called Blackstone Real Estate Partners X. Combined with Blackstone's real estate funds in Asia and Europe, the company will have over $50 billion available for opportunistic investments.

In the event of a market downturn, Blackstone will have plenty of capital to scoop up some attractive real estate bargains.

Earning decent returns isn't easy when you have to compete with Blackstone's big guns. Low single-digit yields are tough to swallow in an environment where interest rates are rising and inflation is at 8.5%.

Real estate investors need to look beyond residential properties. Here are some niche REITs that offer better returns.

  • Mitt Romney says a billionaire tax will trigger demand for these two physical assets - get in now before the super-rich swarm

  • You could be the landlord of Walmart, Whole Foods and Kroger (and collect fat grocery store-anchored income on a quarterly basis)

  • Warren Buffett likes these 2 investment opportunities outside of the stock market

Healthcare properties

Healthcare is the most defensive sector. Recessions and credit cycles don't have much impact on emergency healthcare services, which makes hospitals and clinics ideal real estate targets.

Omega Healthcare Investors (OHI) focuses on nursing homes and assisted-living facilities across the US and UK. The company focuses on triple-net leases with 64 operators across these two countries.

The rapidly aging population across the Western world is a significant tailwind for Omega. The company expects consolidation in the market and organic growth for the foreseeable future.

This niche REIT offers an 8.1% dividend yield and trades at 2.1 times book value per share.

Cannabis Warehouses

Legal cannabis has been a volatile sector. It's still a highly regulated and intensely competitive industry. In aggregate, cannabis stocks have disappointed investors. By comparison, leasing warehouse space to cannabis producers has been a better business model.

Innovative Industrial Properties (IIPR) owns and operates one of the largest networks of cannabis warehouses across the US. As of June 2022, the company had 111 properties comprising an aggregate of approximately 8.4 million rentable square feet with 100% leased out to state-licensed cannabis operators.

The REIT offers a 6.8% dividend yield and trades at 1.4 times book value.

Mortgage REITs

Most REITs focus on the equity portion of the properties they acquire. In other words, they put money down to buy properties, pay interest on the mortgage and collect rents - a traditional landlord model.

However, some REITs focus on acquiring mortgages and collecting rents. This is a capital-light model that could lead to better yields if managed properly.

Starwood Property Trust (STWD) is the largest mortgage REIT in the country. The Greenwich, Conn. company specializes in commercial mortgages. Since its inception, it has deployed over $83 billion to multifamily investors, oil and gas producers, hotel managers, retail stores, and enterprises for their property purchases.

Mortgage REITs like Starwood are more vulnerable to rising interest rates. That's because the business model hinges on the net interest margin - the gap between borrowing and lending money. As interest rates rise in 2022, Starwood could see its net margin compress. Its portfolio of outstanding loans could also see lower valuations.

At the moment, the REIT offers an 7.9% dividend yield and trades at just 1.2 times book value per share.

Starwood is an ideal target for investors with an appetite for high-risk, high-reward wagers.

What to read next

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

COMMENTS

More Related News

U.S. banks
U.S. banks' Q3 profits set to shrink on economic risks, deal slump
  • US
  • 2022-10-07 10:12:38Z

The biggest U.S. banks are expected to report weaker third-quarter profits as the economy slowed and volatile markets put the brakes on dealmaking. Four of ...

Mortgage rate rises set to put pressure on house prices, says Halifax
Mortgage rate rises set to put pressure on house prices, says Halifax

The Halifax says higher mortgage costs could put "significant downward pressure" on the market.

Homeowners
Homeowners 'tearing their hair out' over rising rates and rents

Whether letting or living in their homes, mortgages are pushing up the cost for many people.

Bank of Korea to go for second big hike on Wednesday: Reuters Poll
Bank of Korea to go for second big hike on Wednesday: Reuters Poll

South Korea's central bank will opt to go big again and hike rates by another half-point next week, pushing borrowing costs higher than earlier predicted to ...

Average five-year mortgage rate hits 12-year high
Average five-year mortgage rate hits 12-year high

Rates continue to rise as the chancellor meets the bosses of major UK banks and building societies.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Economy