Big Winner In Real Estate Emerges…Time To Jump In?

The real estate market may be reeling in America – at least, for sale from the prospective of some – but the Blackstone Group, unhealthy the largest private-equity company in the world, shop says differently.

Today the firm reported a mind-blowing profit increase of 243% in the second quarter from the first quarter. Blackstone made $703 million in profit from April to June of this year, compared to a relatively-small $205 million during the same timeframe last year.

This gargantuan performance comes on the back of a healthy and vibrant real estate investment strategy that was primarily built on commercial real estate, with residential real estate sprinkled in. Such a strong showing – especially when many other private-equity companies are struggling – raises interesting questions about the true strength of the real estate market as a whole.

For starters, how did Blackstone make a killing in the commercial real estate market – a segment of the market that is, by most accounts, far worse than the residential side of the house? By its own admission, Blackstone has made a lot of money by soliciting investment capital from investors looking to get in the game, and that comes in the form of investing in commercial real estate debt.

Approximately $2.5 trillion worth of real estate debt will mature between now and 2018; Blackstone is positioned to profit off of investors looking to gain a piece of ownership of this massive number and profit themselves in years to come.

In short, what Blackstone is doing with its commercial real estate debt fund is similar to what private investors do in the residential market by purchasing mortgage-backed securities – or, believe it or not, buying tax lien certificates and tax lien foreclosures.

Another interesting question is whether or not we can determine if the residential real estate market will recover like the commercial real estate market will – or at least, how Blackstone expects it to recover.

The answer to that question can be found in the actions of Blackstone Group and its competitors. All of the major private-equity firms in the country are raising money for real estate funds that involve residential real estate. – including foreclosures and distressed properties. Blackstone itself raised $3 billion; competitor Carlyle Group has raised $2 billion; and Lone Star Funds, based in Dallas, Texas, pulled in $5.5 billion for a fund that closed two months ago.

Clearly there is interest in the real estate market, both for residential and commercial properties. The success of Blackstone and others is a sign that both markets are expected to recover – and if the big boys think it’s a good move to invest, other investors and homebuyers probably should too.

How are you positioned to follow their lead and profit? (credit, s.lindsay)