How Direct Real Estate Investments Compare to PE Investments
Various surveys in 2015 suggest that approximately 45% of PE funds active in real estate currently invest less than 5% of their total assets in the asset class.
In the world of asset allocation, there are three forms of publicly traded private equity business firms.
With a low cost operating structure and differentiated strategy within the lower middle market, Main Street is considered one of the strongest companies in the BDC sector.
BDCs are a form of publicly traded private equity fund that provide investors liquidity due to being listed on the public stock exchanges.
A special-purpose acquisition company (or SPAC) is a corporation formed by private individuals to facilitate investment through an initial public offering (or IPO).
Investors can purchase shares of ETFs that track an index of publicly traded companies that invest in PE funds.
We have some very important economic data for real estate investors this week, particularly for homebuilders.
The job openings report is a good forward indicator of the labor market. In March, there were 5.0 million job openings, up 19% year-over-year but below Wall Street estimates of 5.1 million.
Aside from employment, the most important indicator of economic well-being is wages. Over the past decade, wages have kept pace with inflation, but they haven’t increased.
Construction jobs rose by 45,000 in April, and the sector has added a total of 280,000 jobs over the past year. The growth may indicate that builders are adding some inventory.
New home sales were a big disappointment. It’s hard to reconcile builder optimism—measured by the NAHB Housing Market Index—with depressed housing starts and new home sales.
PulteGroup (PHM) saw “very solid” demand on the East Coast. Florida and the Southeast had the strongest demand. The Mid-Atlantic and Northeast saw improvement.
PulteGroup (PHM) reported net income of $55 million, or $0.15 per share, which missed the Wall Street estimate of $0.20 per share.
PulteGroup’s gross margins have gone from the bottom to the top quartile of the industry. Its gross margins for the quarter came in at 22.7%.
PulteGroup’s (PHM) first quarter revenues of $1.13 billion missed Wall Street’s estimate of $1.25 billion. Homebuilding revenues were flat with a year ago, while land sales and financial services revenues increased.
D.R. Horton (DHI) sounded optimistic on its conference call. It said conditions were “healthy” and “relatively stable” for the spring selling season.
D.R. Horton (DHI) had net income of $147.9 million, or $0.40 per share, in 2Q15. Wall Street estimates were about $0.38, so the number was better than expected.
D.R. Horton (DHI) has been reporting lower gross margins. This has been due to sticker shock. Home prices have been increasing, but wage growth has been stagnant.
D.R. Horton (DHI) reported 2Q15 revenues of $2.3 billion, a 38% increase year-over-year, and higher than Wall Street expectations of $2.2 billion.
Housing starts missed in a major way, coming in at ~926,000, while Wall Street was looking for 1.04 million. Building permits dropped to 1.04 million.
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