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Major investment firm Blackstone is becoming a king-pin in the real estate industry. In a recent interview from WSJ, the firm indicated the real estate market may be hitting bottom— a unique opportunity for investors.
Surge in Commercial Mortgage-Backed Securities
Commercial mortgage-backed securities (aka 'CMBS') are investments that let investors to purchase shares in commercial property, just like a REIT.
In the 1st quarter of 2024, there has been a notable increase in the issuance of CMBS. This surge tells us investor confidence is growing and that commercial real estate is stabilizing.
Increased CMBS issuance means that lenders and investors are more willing to finance commercial properties → which supports prices.
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Investors Are Vibing with Commercial Real Estate Again: In Q1 2024, CMBS issuance totaled $17.8 billion, a whopping 198% increase from the same quarter last year.
Slower Construction Activity
Construction on many properties has slowed, which is a crucial factor in easing the pressure on rents. With fewer new buildings entering the market, the existing supply becomes more valuable, helping us stabilize and potentially increase rental rates.
This slowdown in construction is particularly helpful in markets, like commercial real estate, that were experiencing oversupply.
US Building Permits, an indicator of new housing construction, haven't grown since the start of 2023, in part because of increased mortgage rates slowing new home sales.
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Builders Are Tired of Building: For April, US building permits were 1.4 million, slightly below our forecasts of 1.48 million, highlighting how interest rates are dampening demand.
Secret Acquisitions by Blackstone
Despite today's negative sentiment, Blackstone has been the most active buyer in the real estate this year 🤫
Through its Blackstone Real Estate Income Trust (BREIT), aimed for individual investors, the firm snapped up $10 billion in assets from Apartments Income REIT, which owns 76 rental housing communities.
Also, Blackstone acquired Tricon Residential for $3.5 billion, which focuses on single-family rental homes. These acquisitions demonstrate Blackstone's confidence in the long-term value of the real estate market.
Shifting Investor Sentiment
During 2022 and 2023, the real estate market was hit hard as mortgage rates spiked. Many real estate funds, including those managed by Blackstone, had to limit redemptions (aka 'withdrawals') to prevent forced sales of real estate at discounted prices.
But there's good news: this trend is starting to reverse. Fundraising for BREIT has been reaching higher highs, and redemptions are decreasing, showing a shift in investor sentiment.
Less money is flowing out of real estate investment trusts (REITs), suggesting investors are becoming more optimistic.
Blackstone's perspective on the real estate market is useful to know. The combination of increased CMBS issuance, slowing construction, growing acquisitions, and improving investor sentiment all point to a potential market bottom.