Mortgage REITs are known for their high dividend yields, but they aren't right for all investors, and some are a little too risky for most. However, Blackstone Mortgage Trust (BXMT 4.65%) might be worth a closer look for income-seekers. In this Fool Live video clip, recorded on Dec. 10, Fool.com contributor Matt Frankel, CFP®, discusses why this commercial mortgage lender could be a good combination of income and safety.
Matt Frankel: Here's another one that I find really interesting, It's called Blackstone Mortgage Trust, ticker symbol B-X-M-T. You probably heard the name Blackstone (BX 1.39%). They are one with the biggest asset managers in the world. Ticker symbol is B-K [Matt misspoke. The ticker is actually BX.] for Blackstone. Blackstone Mortgage Trust is a subsidiary of theirs. It's designed to buy their mortgages,. their loans that they make.
So, the company investing commercial mortgage loans, most of which are originated by Blackstone, specifically those backed by office hospitality and multifamily properties. Office is the biggest concentration. It's a little over 50% of the loan portfolio last I checked. So far, we've had Annaly (NLY +1.33%), which is residential, guaranteed, Fannie and Freddie mortgages. We've had Broadmark (BRMK +0.00%), which is hard money short-term loans; and Blackstone, which is long-term commercial mortgage loans. So it's a third basket, if you will.
Blackstone uses leverage, but it uses a little bit lower leverage than Annaly. Because commercial loans are generally high credit quality. But they're not guaranteed by the government, so they pay a little bit more. They have higher interest rates than the typical residential loan. Plus their portfolio is made up of floating-rate loans, which are much more common in the commercial mortgage world than in residential. That helps offset that rising-interest-rate risk. If market interest rates rise from 3% to 5%, Blackstone's portfolio makes more money. So that offsets the rising-rate risk.
It doesn't offset the falling-rate risk of prepayments and things like that. It doesn't do anything with default risk. Commercial mortgages do have default risk because they're not guaranteed. But it doesn't offset the rising-rate risk, which I like. Blackstone is a great asset management firm. That's the partner you want to have when you're going into something like this. They yield a little over 8%. In my opinion, it's a little bit of a more stable 8%. Just because these are commercial mortgages backed by high-quality tenants, tenants that Blackstone's willing to put their capital to work with. A little bit lower leverage than Annaly, and I like the floating-rate loans, especially because right now we're in a very low-interest environment. If rates do rise, they're protected against that much more than other mortgage REITs.
