On Wall Street, many people look at big investors as "smart money." Basically, the idea is that whales like Blackstone (BX -2.29%), which has over $900 billion in assets under management, have the financial resources to make extremely educated investment decisions. Right now, one of the big moves that $120 billion market cap Blackstone is making is to buy real estate. But, notably, a lot of its investments are in real estate investment trusts (REITs). Here's why you should care.
The list is long
In the first five months or so of 2022, Blackstone or its affiliates have agreed to buy publicly traded REITs PS Business Parks (PSB), Preferred Apartment Communities (APTS), and American Campus Communities (ACC). It also agreed to acquire non-public REIT Resource REIT.
The assets of these four REITs span from student housing to traditional apartments to industrial properties. Although living space is a key feature here, the bigger picture is that Blackstone is buying sizable portfolios of properties. For example, American Campus owns 166 student housing assets, while PS Business Parks owns 96 industrial properties, which also happen to include 800 residential units. This shouldn't be a shock to anyone, given that REITs are specifically designed to own collections of properties so they can offer investors a diversified portfolio of income-producing institutional-level assets.
The thing is, investment properties are illiquid and can be hard to price. That often leads to a disparity between what a REIT is trading for on Wall Street and what the underlying portfolio is actually worth. It can be hard to get a good handle on that underlying value, though some REITs report what they think they are worth (usually when their market price is notably below that number). The point is that, sometimes, investors can get $1 worth of assets for less than $1.
Take the hint
That's why all investors, though particularly those who like REITs, should be very interested in Blackstone's real estate investment spree. The company has thousands of employees dedicated to finding the best investment opportunities. It clearly believes there are pockets of value in the real estate sector because it is putting its money in the space.
Apartments in particular look like they are a major focus and could be a good place to start. Notably, the sector has seen demand increase materially since the early days of the pandemic, with occupancy rates generally heading higher and rent rates going up dramatically.
Only the shares of some of the most renowned REITs in the space have been falling. For example, AvalonBay, UDR, and Equity Residential are all off by around 17% so far this year. Even Mid-America Apartment, which was well positioned during the early days of the pandemic when people moved out of big cities and into the more rural locations it tends to own, is off by 19%.
Granted, the apartment REIT downturn is likely at least partly tied to the broader market sell-off, with the S&P 500 Index down around 13% or so for the year. It can be hard to put money into a market that's falling. However, if Blackstone is seeing value here, perhaps it is worth taking a risk, too. Even if you don't end up pulling the trigger on an apartment REIT, you might still want to dig into the value of other REITs' portfolios and the prices they are fetching on Wall Street.
For example, tiny net lease REIT (which means it owns properties, but its tenants are responsible for most property-level operating costs) Alpine Income Property Trust (PINE 0.18%) believes it is trading below what it would cost to replace its portfolio of properties. Investors who buy it can collect a fat 5.6% yield while they wait for the discount to close or a large investor or REIT peer to buy it. There are more examples like this out there, and Blackstone's moves are the sign it's still worth looking for them.
Do your own homework
You should never just follow any investor, even a giant like Blackstone. Indeed, you care more about your financial success than anyone else ever will. However, that doesn't mean you can't watch and learn from what others are doing. With Blackstone on a buying spree, it isn't unreasonable to think that there are some hidden gems in the REIT sector today. If you take the time to look for them, perhaps in apartments or in other areas (like small REITs), you might end up adding a few new names to your portfolio, too.