Last Hurrah? Foreigners & Hedge Funds Buy Real Estate In Bulk

Dead-cat-bounce

Foreign investors are always the last to arrive. This should not come as a surprise to anyone. Just cycles repeating themselves.

Foreign Money Is Pouring Into U.S. Real Estate, and It’s Not Just Houses

As the pot of money set aside for U.S. commercial real estate grows, competition for the best properties is pushing investors to buy in bulk. Based on the pipeline, which includes the GE deal, the second quarter may be one of the biggest on record for property transactions, according to Real Capital. It’s so hard to get things on a single-asset basis,” said Janice Stanton, an executive managing director at commercial brokerage Cushman & Wakefield Inc. “You’re starting to see larger and larger transactions.

Blackstone is a prime example of the thinking above. Their investment thesis in real estate is very simple. 1. The bottom is in. 2. There is a massive housing shortage. 3. Real estate prices will continue to rise. That sounds great, except for one thing, it’s a bunch of nonsense that can easily be discredited.

Now, remember, while these guys have been somewhat correct thus far by being one of the largest real estate buyers/investors in the nation, the market hasn’t spoken yet. All they have done is bought a huge amount of illiquid real estate that they will be unable to unload when a bear market in real estate prices resumes. As often is the case, one minute you are a financial genius and a half an hour later you are a retarded idiot (after the market moves against you).

In another sign that the “Dead Cat Bounce” for the Real Estate market is now over, Blackstone Group has announced that it’s real estate acquisition pace has slowed 70% from last years pace due to higher prices. In fact, this is the trend seen across the industry. Investors, hedge funds, institutions are all slowing down their real estate acquisitions to the tune of 70-90%.

“The institutional wave has passed,” Gray, who oversees almost $80 billion in property investments, said in a telephone interview. “It’s at a much lower level than it was 12 or 24 months ago.”

What happens next?

Easy. The real estate market might hover here for some time. Not too long thought. As soon the Bear Market of 2015-2017 hits and the US falls back into a severe recession, you will see housing going down once again. Once investors realize where we are in the real estate cyclical composition (dead cat bounce and not expansion) you will see the likes of Blackstone trying to get rid of their properties as fast as possible. With investors heading for the doors, mass volume of real estate should hit the market. Collapsing existing values just as fast, if not faster, than their initial descend between 2006-2010.

Good luck selling your 43,000 rental properties Blackstone.