Blackstone Pays $10B For Multifamily REIT Highlighting Value Opportunity

Due to the rapid ascension of interest rates over the past two years, commercial real estate has seen a considerable decline in prices.  Different sectors of the commercial real estate market such as Office, are clearly more troubled.  However, areas such as multifamily, industrial, and retail are performing much better at an underlying business level.  Today it was announced, that Blackstone is paying $10B including the assumption of debt to buy the multifamily real estate investment trust AIRC, which owns multifamily units in mostly coastal cities in the USA.  I really liked this quote from Blackstone President Jonathan Gray from a few weeks ago. 

“We can see the pillars of a real-estate recovery coming into place.  We are, of course, not waiting the all-clear sign and believe the best investments are made during times of uncertainty.”

This is the time-tested lesson about investing in that the best opportunities emerge when the near-term outlook is cloudy at best.  This is because it is during those times when valuations often have declined beyond the intrinsic value of the business.  This is exactly why at TTCM, we have been aggressively increasing our investments in real estate related businesses.  These businesses offer excellent cash flow and dividend yields, with strong balance sheets and growth prospects, at very reasonable prices.     

Now, just because these businesses are clearly undervalued, that doesn’t mean the stocks will automatically go up.  There is a reason they have gotten cheap, mostly due to the higher interest rate environment that we are currently in.  Recently, due to higher for longer inflation expectations, and on the surface, strong jobs numbers, bond yields have increased yet again.  There is a real chance we won’t see many rate cuts this year if any, unless something changes.  However, these real estate assets will be producing cash flows for many decades, across a variety of real estate cycles.  Things can also change very quickly as forecasters are so often wrong, just like they were with saying inflation would be transitory, and once again by predicting so many interest rate cuts this year.  

What is nice about these investments is that we get rewarded very handsomely with huge dividends, often 6-8%, which will mostly grow over the next few years.  We also can supplement them with covered calls, which often puts our yield at 10% or more, even if the stocks are flat for a year.  Over time, we should also see very strong appreciation with potential from 40-100% over a 3–5-year period.  

Lastly, the radio show has now been extended to Los Angeles and Southern California and can be heard Saturday’s at 8am PST on KRLA for those residing in the area.  The show can also be heard streamed online at the link below.

Article on Blackstone’s Acquisition

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