Go Buy a House
Calla is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Five years after the subprime mortgage fiasco, the housing market has finally bottomed out. Accordingly, business news has been a-buzz with individuals and companies buying up houses to hold, flip, and, increasingly, rent. Warren Buffett was quoted wishing he could buy up hundreds of thousands of single family homes. For those of us without enough cash, expertise, or the oodles of time required for house flipping or becoming a landlord, there are limited options for getting in on housing growth. Publicly-traded private equity firms with growing housing portfolios are the most accessible option for individual investors.
Bloomberg estimates that existing housing sales will jump 7.2% in 2013 to nearly five million, the highest rate since 2007. Bloomberg reports that prices rose 4.5% in 2012, finally signaling a rally in the market, and expectations hover around a 3% price increase over 2013. The news company reported that new home sales may jump a whopping 24% in 2013 after expanding over 20% in 2012. The chart below illustrates these trends over the last five years:
Firms with Real Estate Holdings
Blackstone (NYSE: BX) is the largest private equity firm in the world and already a big player in real estate, with roughly $50 billion in high-end buildings. The company has recently made a huge push into distressed single family homes; Bloomberg reported the company was buying as much as $100 million a week worth of distressed homes in 2012. Blackstone plans to fix up and rent out the houses, and possibly sell them if prices reach new highs.
Blackstone has seen a lot of real estate related news coverage recently, but houses are only a small part of its massive operations. Furthermore, its financial ratios are mixed. Its P/E is twice the industry average at 50, but P/E is not a standalone valuation for a company built on making big investments and reaping them at irregular intervals. Blackstone’s book value is more reassuring: price to book comes in at 1.20. Shares have shot up 22% this year, but the company’s beta is 2.25. Blackstone looks like a good recovery stock to watch and buy on the inevitable dips.
For individual investors looking to bet on real estate through the stock market, Kohlberg, Kravis, Roberts & Co. (NYSE: KKR) also has a growing single family homes portfolio. The company formed a real estate investment trust in May with Beazer Homes. By some metrics, KKR is cheaper than Blackstone: it has a low P/E of 8 and it comes with a 4.8% dividend yield, compared to Blackstone’s 2%. However, KKR’s book value is 2.2, quite a hefty premium over Blackstone’s 1.2 or even Blackstone’s tangible book value of 1.7. Furthermore, in KKR’s 2011 annual report, real estate made up only .1% of KKR’s investments. KKR reportedly boosted real estate investments in the last year but to see hard figures, prospective shareholders will have to wait until the company’s annual report is released later this month.
In conclusion, investors looking to capitalize on a housing recovery should look into the growing real estate portfolios of publicly-traded private equity firms – and soon. Blackstone and KKR are the two largest private equity firms with investments in single family homes and the best places to start your research. However, investing in the stock of either company means investing in dozens of other businesses.
CallaMarie has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!