Tom Barrack over at Colony Capital put up a nice presentation of where he sees the opportunities for real estate investment in the current market. While Colony is geared to serving their large institutional investors, those of us operating on a smaller scale can benefit from Tom’s insights as well.
My Exec Sum of the opportunities he sees that I think will impact smaller investors in North America (and my comments in parentheses):
Commercial and residential real estate are great investments today because equities and debt are mispriced and the economy is regaining its feet. (There will be competition however).
Distressed debt in the US is diminishing but they are continuing to resolve non-performing assets (which can create deals for long term holders as these turned around assets come back to the market).
Single family residential for rent housing is stabilizing and becoming a institutional asset class (which can provide exits for those who have built portfolios of these properties).
Mezzanine debt and what he calls ‘stretched senior debt’ is becoming more available for value add & opportunistic deals because institutional investors such as pension funds need the extra yield (it will be easier to finance turnaround commercial properties at higher LTVs).
According to the ASU W.P. Carey School of Business’ Phoenix Housing Market Explained presentation, PHX will have to add housing equal to the current size of the Denver metro area over the next two or three decades to hold all the people who will move there. This presentation was done in March of this year but the demographics are powerful and still operating. Watch minutes 5 to 25 for the market demographics, after that they dive into the specifics of the single family sector recovery.
Tom Barrack of Colony Capital on what’s really happening in US real estate from an investor’s perspective. The clearest, most cogent look at the state of commercial, multifamily and single family markets today and where the opportunities are. The first five and a half minutes is about Europe and the bottom line there is don’t but after that it is all gold. If Tom wanted to be one of those real estate ‘gurus’ he could package this video with a big notebook and some advertising and sell it for $10,000- and it would be better than any of the other stuff out there. And you get it for free. I’ve watched three times and get an extra little nugget each time.
An interesting piece from Bloomberg entitled: Private Equity Has Too Much Money to Spend on Homes talking about how hard it is for large funds to buy foreclosed homes in bulk and turn them into rentals reminded me of a conversation I had with one of my private equity clients who was consulted by Tom Barrack’s Colony Capital about doing just that (and he said don’t).
“Funds planning to invest more than $6 billion to buy and rent foreclosed homes are finding it easy to raise money. The difficulty is spending it… The folks that raised capital are worried about under- accumulating properties and how to get capital out in an efficient way, Richard Ford, a managing director in the real estate investment banking group at Jefferies Group Inc., said in a telephone interview. A lot’s being raised. Less than $2 billion of institutional capital has been spent.”
My friend and fellow real estate investor Mei was asking about competition for single family REOs from big institutional players buying them at the courthouse as in the Bloomberg article here. The article profiles Waypoint, a Southern California real estate investing outfit that has developed some great technology to facilitate buying and leasing REOs. Check out Waypoint’s website, it’s the best example I’ve seen of the lease/option, credit repair, rent-to-own strategy for real estate investors.
It is a great question and one that I’d been wondering about too. Just so happens I was meeting with one of my private equity clients last week and we had a long conversation about that very subject. My client is the real estate/mortgage specialist at a 50B firm and they’ve been trying to crack this market profitably for about a year. Here’s the bottom line: Private equity needs to earn Continue reading Clash of housing bottom fairy tales: Big Bad Wolves v. Robin Hood Investors.