Yngve Slyngstad and Peter Ballon aren't well-known names in the
U.S. investment community, but their decisions are
having a multi-billion dollar effect on a key asset class .
These men head up organizations that manage Sovereign
Wealth Funds in Norway and Canada, respectively, and
each one is now scouring the United States for premium real
Norway's Slyngstad, for example,will invest up to $11
billion in high-quality U.S. office buildings.
Canadian investors already have a head start. They've deployed
$9 billion in U.S. funds during the past few years, much of it at
the behest of the Canada Pension Plan Investment Board,
with plans to keep investing aggressively in U.S. real
estate in the next few years. Like Norway, Canadian government
investors also prefer high-end office buildings.
Follow the money trail, and you can see that it's a
great time to be an investor in this kind of real estate. This is
actually what Carla Pasternak, chief strategist ofturnaround in
[See also "
The Easiest Way to Become a Landlord in 2013
With this clear trend in mind, here are three U.S. real estate
investment funds that should greatly benefit from this foreign flow
of funds into the country.
1. The Blackstone Group (
My colleague Michael Vodicka
this firm for its aggressive move into distressed residential real
estate. But did you know that Blackstone also owns more than $50
billion in traditional real estate, including high-end office
At a recent conference, Blackstone's Jonathan Gray, global head
of real estate and a board of directors member, recently
said the company intends to take advantage of the ripe market
conditions, aiming to fetch high prices for some trophy properties.
"The other trend that will be helpful for us to exit some of the
larger things we own, particularly the higher-quality assets in the
gateway cities, is the rise of the sovereign wealth fund
Having major buyers lined up is in keeping with Blackstone's
long-term "strategy of 'buy it, fix it, sell it,' in which the firm
looks to acquire good assets that need improvement at low
replacement costs," according to Morningstar. This approach has led
to 27% annualized long-term returns in Blackstone's real estate
portfolio, according to Morningstar.
Analysts at Citigroup say the stage is set for Blackstone to
boost its dividend . They look for the payout to rise from 54
cents a share in 2012 to 81 cents in 2013, to 95 cents in 2014.
That 2014 payout would represent a dividend yield of
2. Cohen & Steers (
This firm is sitting in the proverbial "Catbird Seat," as it
provides real estate advisory services, and operates a range
of mutual funds and exchange-traded funds (
) focused on real estate. Though individual investors have long
relied upon this firm's mutual funds, the past three years have
seen a huge surge of institutional clients as well.
Still, the retail (individual) investor side of the business
remains quite healthy as well. Merrill Lynch notes that
Cohen & Steers' various mutual funds have seen a net inflow of
assets for 14 straight months, bucking the broader trend of fund
outflows for many other fund firms. The increased book of business
is helping to fuel steady profit growth: earnings
per share (
) is on track to rise from $1.23 in 2011 to more than $2 by 2014,
according to consensus forecasts. This should help the dividend to
continue growing. The payout has risen from 40 cents a share in
2010 to 72 cents a share in 2012, and could approach $1 by
3. iStar Financial (
Back in November 2010,lender in tandem with three other small
caps and here's how those trades worked out:
Three out of four winners, but that
pick surely hurts. Of the group, I still see the
best upside for iStar Financial. Management
has taken a range of steps in recent years to shore up a
once-scary balance sheet .
Though shares have moved up to a recent $8.75,
they're still well below the $50 trading level seen in 2006, when
the real estate market was last on solid ground.
I'm not anticipating a move back to those levels, but shares
could rise up into the low teens as iStar takes advantage
of the current fertile environment by selling off loans that are
quickly moving back to par (they had been deeply
underwater after the 2008 economic crisis). Management has written
down the value of many of its loans and other assets, but should be
in a position to write them back up in coming years.
That should help boost book value -- and the share
Risks to Consider:
This is still an economical-sensitive industry, so a slumping
U.S. economy in 2013 would take much of the newfound
luster off of real estate.
Action to Take -->
As a number of my colleagues have noted in
recent quarters , real estate is proving to be an attractive
asset class as we head into 2013. While many investors are focused
on residential real estate, global Sovereign wealth funds are more
attracted to high-end commercial real estate , especially
If none of these stocks hold appeal, then there are
also more than a dozen ETFs focused on real estate, though I'm
partial to the
because of its ultra-low 0.1% expense ratio and
solid 8.4% annualized return during the past five years.
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