Editor's note: This is a guest post from Ramsey Su.
Wall Street Enters the Scene
A headline from Reuters last week: "Blackstone eyes first-ever REO-to-rental securitization". I believe this marks the official arrival of Wall Street in the single family real estate market.
To recap, lets go back to June of 2012 when I thought about The New and Improved Real Estate Investment Model.
The new and improved model is simple. Just like a subprime pool of loans, buy up as many properties as possible, put some lipstick on the pig (aka glossy brochures) and let Wall Street sell it as REITs. They can also securitize the income and voilà, a new round of derivatives is born. Once the fees are made and the syndicators collect their share of the profits, Wall Street can now prosper off the derivatives with no regards to the underlying properties.
This bubble is only in its infancy. The first part has been completed, by that I mean the pipeline has been set up to purchase as many properties as possible. It involves only a little capital from a few fat cats and a few of their back-pocket clients. Blackstone has been receiving the most attention. I understand they are now buying properties for $100 million per month and their property count is close to 20,000.
Next comes putting lipstick on the pig. What does this lipstick-on-the-pig look like? Take a look at this short two minutes promotional video on the Blackstone real estate website. The video is for amateur real estate investors, strictly for promotional purposes. Pros would be wondering what the costs are for all that sod, the fancy kitchens and the thousands of workers which they are hiring. Behind the scenes, a gaggle of MBAs are busy putting on the finishing touches with creative pro forma calculations on how much these portfolios will yield, readying the upcoming offerings. The pig is just about ready for the prom.
