As a committed, passionate, and experienced REIT analyst, part of my steadfast research includes observing principles I can rely on time after time, to deliver alpha and deliver results – and then, share my findings. That’s part of why I present these columns in The Property Chronicle.
Today, I want to illuminate a principle of competitive advantage. One way of saying this, is knowing how to “play the system.” But that’s too ordinary for me, and borders on a lack of integrity. I much prefer “using the system.”
Here’s an excellent example in the REIT marketplace of such a competitive advantage. It’s one that can provide readers with a valuable investing insight – and highly sustainable dividends.
Blackstone Mortgage Trust (NYSE: BXMT) is a REIT that primarily originates and purchases senior mortgage loans collateralized by properties in the U.S. and Europe. The New York-based REIT is managed by “big brother” Blackstone (BX), a world leader in alternative investments with nearly $440 billion of assets under management (AUM).
“Big brother” BX operates with significant scale in each of the four key alternative categories: Real Estate ($119.4B AUM), Private Equity ($119.5B AUM), Credit ($123.1B AUM), and Hedge Fund Solutions ($77.4B AUM). And that $119.4B number makes BX one of the world’s largest commercial real estate investors.
Around three years ago, “Little Brother” BXMT completed an equity offering, raising $660 million in growth proceeds – a strong indication of the growth potential of the simple floating rate senior mortgage business plan. Limited new commercial real estate construction, coupled with modest growth, has led to a more favorable investment environment for senior commercial real estate debt.
BXMT’s relationship with the “big brother” (Blackstone Real Estate) offers a huge advantage in which the former’s access to proprietary deal flow and property and market information is a valuable differentiator, given the scale of BX’s real estate business.
As part of Blackstone Real Estate, “little brother” BXMT is uniquely positioned to obtain market-leading credit opportunities. The low cost and superior structure of financing enhance the returns on the REIT’s loans.
Simply said, BXMT’s connection to Blackstone Real Estate allows the company to benefit on both sides of the balance sheet. Blackstone Real Estate is a premier debt and equity investment and asset management platform.
BXMT is externally managed (most commercial mortgage REITs are, except Ladder Capital Corp. (NYSE: LADR)), and so, BXMT and BX are essentially the same management team. BXMT’s real estate debt people are the originators and asset managers for both BX and BXMT.
BXMT is the senior vehicle, but there are other vehicles at BX, managed by the same team, for different strategies which are not public. BX has access to deal flow, attractive financing terms (where the companies leverage the entire BX relationship with the banks), underwriting/asset knowledge, reputation and brand, etc.
As many readers know, I’m normally not a proponent of externally-managed REITs, but I pay close attention to the commercial mortgage REITs (“mREITs”) because I believe that they provide a valuable place setting for retail investors.
