Blackstone is preparing a record $50 billion vehicle to scoop up real estate bargains during the downturn — here's how to lock in higher yields than the big money

Blackstone is preparing a record-breaking $50 billion vehicle to find real estate deals during the downturn - here's how to outperform the big bucks
Residential real estate is arguably the most valuable and accessible segment of the real estate asset class. Its popularity has driven a disproportionate amount of capital into residential real estate - particularly from institutional funds - which has pushed up valuations and pushed down yields.
Real estate giants continue to buy up houses - something that is likely to continue even with higher mortgage rates. In fact, according to The Wall Street Journal, Blackstone is on the verge of completing what may be the largest traditional private-equity real estate investment fund in history.
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In a regulatory filing last month, Blackstone announced it had received $24.1 billion in commitments for its latest real estate fund, Blackstone Real Estate Partners X. Combined with Blackstone's real estate funds in Asia and Europe, the company will have over $50 billion available for opportunistic investments.
In the event of a market downturn, Blackstone will have plenty of capital to snag some attractive real estate deals.
But making a good return in today's economic climate isn't easy. The gross rental yield for a typical New York apartment is only 2.9%. Residential REITs' dividend yields are also mediocre.
Low single-digit yields are hard to bear in an environment of rising interest rates and 9.1% inflation.
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Investors need to look beyond residential real estate. Here are some niche REITs that offer better yields.
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healthcare real estate
Healthcare is the most defensive sector. Recessions and credit cycles don't have a major impact on emergency medical care, making hospitals and clinics ideal real estate destinations.
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Omega Healthcare Investors (OHI) focuses on nursing homes and assisted living facilities in the US and UK. The company focuses on triple-net leases with 64 operators in these two countries.
The rapidly aging population throughout the western world is a significant tailwind for Omega. The company expects market consolidation and organic growth in the foreseeable future.
This niche REIT offers an 8.6% dividend yield and trades at 1.9 times book value per share.
cannabis storage
Legal cannabis has been a volatile sector. It is still a highly regulated and highly competitive industry. Overall, cannabis stocks have disappointed investors. In comparison, renting out storage space to cannabis growers was a better business model.
Innovative Industrial Properties (IIPR) owns and operates one of the largest networks of cannabis storage facilities in the United States. As of June 2022, the Company had 111 properties totaling approximately 8.4 million rentable square feet that are 100% leased to federally licensed cannabis operators.
The REIT offers a 7.1% dividend yield and trades at 1.7 times book value.
Mortgage REITs
Most REITs focus on the equity portion of the properties they buy. In other words, they invest money to buy real estate, pay interest on the mortgage, and collect rent—a traditional landlord model.
However, some REITs focus on acquiring mortgages and collecting rents. This is a capital-poor model that could lead to better returns if managed properly.
Starwood Property Trust (STWD) is the country's largest mortgage REIT. Located in Greenwich, Connecticut, the company specializes in commercial mortgages. Since its inception, it has provided over $83 billion to multifamily investors, oil and gas producers, hotel managers, retail stores and corporations for their real estate purchases.
Mortgage REITs like Starwood are more vulnerable to rising interest rates. Because the business model depends on the net interest margin - the gap between borrowing money and borrowing money. As interest rates rise in 2022, Starwood's net margin could fall. The portfolio of outstanding loans could also see lower valuations.
Currently, the REIT offers an 8.1% dividend yield and trades at just 1.15 times book value per share. It's clearly out of favor now, but could deliver exceptional returns if interest rates stagnate next year.
Starwood is an ideal destination for investors with an appetite for high-risk, high-reward bets.
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This article is informational only and should not be construed as advice. It is provided without any guarantee.

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