Arbor Realty Trust (NYSE:) stock has had a very good year. But then again, so have most real estate investment trusts (REITs).
The MSCI US REIT Index is up 17% year to date and 22% for the past year. That’s pretty strong performance for a relatively conservative sector. Much of the reason is interest rates.
Slower interest rate growth means that developers can find cheaper capital, which makes it more profitable to build at competitive prices. And whether it’s commercial space or residential, that makes rents lower, which helps fuel a virtuous circle of growth.
The reason why ABR has taken off in this market — up over 55% in the last 12 months — is the fact that it specializes in financing multifamily, senior and other commercial properties, including healthcare. As a specialist lender, it is now the top small multifamily lender for properties between $1 million and $5 million. And it has been focusing on the multifamily sector for the past 30 years.
What’s more, Arbor Realty Trust will also service many of the loans that it originates, which can create long-term relationships with developers. That helps over the long term, as stronger developers turn to ABR for their growing amount of projects.
Having a strong brand in a specialized segment is important. And it’s especially beneficial when economic conditions swing in your favor. That’s where ABR is now.
Looking Forward With ABR Stock
You have two important demographics that are coming together to offer great opportunities to multifamily builders. First, you have Gen Xers, Millennials and soon Gen Zers who have slogged through a decade of slow-to-no economic growth carrying huge college debt loads on their backs. What in past generations would have been the time to start a career and build up savings for a house or condo has been sucked up by student loan debt.
Also, many of them watched their parents’ most valuable asset — their house — lose some or most of its value during the recession. This has created a generation or more of would-be homeowners that are taking a different path toward what was once, “the American dream” of homeownership.
Renting is now a more attractive option.
On the other side of the coin, you have the graying baby boomers. This was the sector of the economy most impacted by the collapse of the housing market a decade ago. Many saw their houses as a store of wealth that was going to be the big chip they cashed in to fund their retirement years. Instead, they lost that store of value while likely taking care of aging parents and funding their children’s college.
That meant it was time to downsize. And given the fact that most of their savings were stripped, there isn’t much interest in buying a property that needs regular upkeep that can cost thousands of dollars a year.
Both these trends will continue to grow.
Add to that the current low-interest-rate environment and more specialized housing options for young couples, families and graying boomers, and you have a huge trend in housing for decades to come. And ABR, as a leading finance company in this booming sector, has a lot of opportunity.
So, to answer the question in the headline — yes ABR stock is still a buy. As a matter of fact, my Portfolio Grader continues to give Arbor Realty Trust an A rating.
is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, , Accelerated Profits and . His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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