Sell Rental Properties, Buy REITs Instead

seekingalpha08-03

There is an arbitrage opportunity between private and public real estate.Savvy investors are selling private real estate and buying REITs.I explain why this makes sense today. Paul Bradbury ...

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Paul Bradbury ...</p>\n\n<a href=\"https://seekingalpha.com/article/4707759-sell-rental-properties-buy-reits-instead\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Sell Rental Properties, Buy REITs Instead</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSell Rental Properties, Buy REITs Instead\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-08-03 21:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4707759-sell-rental-properties-buy-reits-instead><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>There is an arbitrage opportunity between private and public real estate.Savvy investors are selling private real estate and buying REITs.I explain why this makes sense today.   Paul Bradbury ...</p>\n\n<a href=\"https://seekingalpha.com/article/4707759-sell-rental-properties-buy-reits-instead\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"AIRC","symbol_name":"Apartment Income REIT Corp","start_time":0,"source_url":"https://seekingalpha.com/article/4707759-sell-rental-properties-buy-reits-instead","article_id":"2456221837","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/109350430/image_109350430.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2456221837","pubTimestamp":1722690000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Blackstone is arguably the most sophisticated real estate investment firm in the world, and they are wil","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AIRC":"Apartment Income REIT Corp","CFA":"VictoryShares US 500 Volatility Wtd ETF","IE00BLSP4452.SGD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis SGD-H Plus","BK4588":"碎股","IE00BLSP4239.USD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis USD Plus","IE00BN8TJ469.HKD":"FTGF CLEARBRIDGE TACTICAL DIVIDEND INCOME \"A\" (HKD) INC","BK4135":"资产管理与托管银行","BX":"黑石","BK4215":"住宅房地产投资信托","IE0004445239.USD":"JANUS HENDERSON US FORTY \"A2\" (USD) ACC","IE00BBT3K403.USD":"LEGG MASON CLEARBRIDGE TACTICAL DIVIDEND INCOME \"A(USD) ACC","CFA.SI":"NikkoAM-STC Asia REIT","VNQ":"不动产信托指数ETF-Vanguard","BK4585":"ETF&股票定投概念"},"translate_title":"出售出租房产，购买房地产投资信托基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AIRC":1,"BX":1,"CFA":1,"CFA.SI":1,"VNQ":1},"content_text":"There is an arbitrage opportunity between private and public real estate.Savvy investors are selling private real estate and buying REITs.I explain why this makes sense today.   Paul Bradbury Currently, real estate investors are offered an exceptional opportunity to profit by arbitraging the difference in valuations between private real estate and publicly listed REITs (VNQ). Most times, REITs are priced at a premium relative to the value of the real estate they own, and this makes sense when you think about it. REITs are liquid, diversified, professionally managed, and enjoy significant economies of scale, a lower cost of capital, and other key advantages. But today, REITs are exceptionally priced at a large discount relative to the fair value of their real estate, net of debt. To give you an example, BSR REIT (HOM.U / OTCPK:BSRTF), which owns apartment communities in rapidly growing Texan markets, is today priced at a 35% discount relative to its net asset value. What this essentially means is that you have the opportunity to buy an interest in the equity of these apartment communities at just 65 cents on the dollar. And to be clear, they are performing very well, enjoying 2% same property NOI growth so far this year, and this growth is expected to accelerate in 2025. The REIT also has a strong balance sheet with a 40% LTV and the management is well-aligned with shareholders, owning a big chunk of the equity, and they are today buying back shares.   BSR REIT If you were offered such a deal in the private market, you would probably jump on the opportunity, but because REITs are publicly listed and out of favor, most investors are today passing up on this wonderful opportunity. But not everyone. Lately, Blackstone (BX), which is the biggest real estate investment firm in the world, has been selling private real estate and buying REITs instead.  They are doing exactly what the title suggests: selling private real estate and buying REITs instead. As an example, they sold $1 billion worth of properties at a 4.7% cap rate in a deal, and then shortly after that, they announced that they would acquire Apartment Income REIT (AIRC) in a $10 billion transaction. At the time of the deal, AIRC was trading at a 6.7% implied cap rate, which was so cheap that Blackstone was willing to pay a 23% premium relative to its latest share price to secure this deal. They also recently acquired another REIT called Tricon Residential (TCN) and paid a 30% premium for that one and again got a great deal, despite paying up for it.  And these two REITs are no exceptions. There are plenty of similar opportunities today, with REITs trading at their lowest valuations in over a decade, and often large discounts relative to their own real estate. Data by YCharts So with that in mind, why wouldn’t you follow Blackstone’s lead and sell your properties to invest in REITs instead? Blackstone is arguably the most sophisticated real estate investment firm in the world, and they are willing to pay big premiums to own REITs.  You can get even better deals than them because you are not managing $100s of billions, which lowers your flexibility. Blackstone can only invest in bigger REITs, and it must pay a large premium to deploy big chunks of capital at once.  But since you are allocating much smaller sums of capital, you don't need to pay a premium to acquire the entire REIT, and you can also invest in smaller REITs, which are typically even cheaper than the large REITs. To give you an example, BSR is quite a bit cheaper than what Blackstone paid for Apartment Income REIT (AIRC):     Implied cap rate   BSR REIT 6.5%   Apartment Income REIT 5.8%   Click to enlarge But don't take it just from me… or Blackstone.  Studies indicate that REITs have historically been very rewarding investments in periods following market crashes when they were discounted. According to Janus & Henderson, REITs earned far higher returns than private real estate in the 3 years after they were priced at a 20% or greater discount to their net asset value:   Janus & Henderson Will this time be different? I don’t know why it would be. REITs have gone through countless crises, many of which were a lot worse than today's, and yet, they have always recovered and richly rewarded investors who bought them following market crashes:    NAREIT Investors fear that the surge in interest rates will hurt REITs, but interestingly, they don't seem to worry nearly as much about private real estate investments. REITs actually use a lot less debt than most private equity real estate investors and yet, they are more impacted by fear, which makes no sense      Typical LTV   Public REIT 35%   Private equity real estate 65%   Click to enlarge I think that what's happening is that REITs are feared simply because stock investors are short-term oriented. On the other hand, private real estate investors don't worry nearly as much because they are typically long-term-oriented.  But if you think of REITs as real estate investments and buy them with a long-term outlook like Blackstone is doing, then they offer a remarkable deal. They are often trading at steep discounts to their net asset values, and I have little doubt that they will again outperform in the future.  For this reason, I have taken a break from buying real estate, and I am today exclusively buying REITs instead. It has not always been that way and will likely change again in the future. As an example, when REITs were fairly valued, I bought a private property in 2021.  But today, I just cannot make any sense of paying a premium to buy an illiquid, private, concentrated asset that's management-intensive and has greater liability risks. This, when I could buy a liquid, public, diversified, and professionally managed REIT with no liability risk at a much lower price.  I believe that this is a historic chance to buy REITs discounted, but the window of opportunity could be closing soon as interest rates return to lower levels.   Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.27.0","shortVersion":"4.27.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2456221837"}