Private Equity Firms Are Buying Up Real Estate In These Areas

“The once-in-a-decade opportunity for real estate equity investors is complex but also exciting. It’s time to start thinking of fear as a friend.”

As much as I wish I had said this, I did not. This came from the pen (and mind) of KKR‘s Ralph Rosenberg, the global head of real estate, in a report he released in April.

It mirrors what Jon Gray of Blackstone said earlier this year. Gray is the CEO of Blackstone but, prior to this, was the head of global real estate for the firm. He oversaw real estate dealmaking all over the world and helped Blackstone become one of the largest owners of real estate in the world today.

On the year-end earnings call, Gray told analysts, “We believe values in commercial real estate are bottoming.” He added, “We are, of course, not waiting for the all-clear sign and believe the best investments are made during times of uncertainty.”

Torsten Slok, the chief economist at Apollo Global, expressed similar thoughts last week, writing: “Even though valuations have reset across property types, operating fundamentals in many sectors remain sound. Additionally, secular growth trends continue to persist for sectors including industrial, multifamily, as well as specialty areas such as data centers, cold storage, self-storage, and student housing.”

Finally, Ares Management, founded by former partners at Apollo, is also getting interested in real estate. The research team wrote last month, “While there is likely still more pain to play out in the office sector, which Ares has long been underweight, we believe there are signals that the CRE market may be turning a corner as a clearer interest rate picture emerges. While rates may stay higher for longer, attractive supply/demand dynamics in certain sectors and significant dry powder waiting to be deployed are driving an improvement in overall market sentiment.”

Why Private Equity Matters: Why do we care what the private equity people are saying about jobs? After all, they are a pack of evil hyenas feeding off the carcass of American business and destroying jobs.

The clickbait hunters and instant experts will tell you this is the gospel truth.

Unfortunately, when it comes to making money in the market, most people cannot spell gospel if you spot them G, O, S and P.

Since the 1970s, private equity investors have been the top performers on all of Wall Street.

When you talk to the most successful private equity folks, you realize that they are basically value investors who use enormous amounts of leverage.

If you do not pay attention to what the best private equity firms are doing, you are missing opportunities.

When a sector is out of favor, as real estate has been over the last few years, one of the first things I look for is private equity and distressed investors to show up.

I ran across an article from 2013 in my archives that I wrote for RealMoney.com talking about the shipping industry. The distressed debt players had been active in the space for some time, and the improved equity folks were starting to buy stock in many of the global shipping companies.

Most of the stocks in the sector doubled or tripled over the next couple of years.

When the Fed changed the rules so PE firms could own large stakes in banks back in 2009, it was the best indicator that the worst was over for the industry.

The stocks all soared in value.

It has been the same with other industries like health care, infrastructure, technology and others.

The Next Sector To Watch: If everyone hates an industry, geographic region or asset class, and private equity is starting to buy it, you need to get interested.

Since the beginning of 2024, we have seen the leading private equity firms buy apartments, data centers and industrial properties.

European properties are also attracting the attention of these best-in-class, patient, aggressive investors.

We have also seen Blackstone taking over large REITs both in the United States and Europe.

All these strategies can be recreated using real estate investment trusts, which invest in the same segments of the real estate market.

Most of the Big 4 private equity firms have also been active buyers of real estate-related debt. Institutional investors would be wise to consider discounted closed-end funds like Brookfield Real Assets Income Fund and Principal Real Estate Income Fund that are doing the same.

You can also create debt-like opportunities in the preferred stocks of the larger high-grade office REITs.

Last week on the Benzinga Live Trading Show, I suggested the preferred shares of Vornado, one of the largest owners of class-A office space in Manhattan.

The shares have a yield of over 8% and trade at a steep discount to par value. In addition to the yield, we could see price gains from Fed actions or improvements in the New York office market.

Let the clickbait crew try to figure out what the market may or may not do tomorrow. If you are looking to make money, pay attention to what the smartest money is doing.

Photo via Shutterstock.