Blackstone raises $20.5 billion for largest ever real estate fund - Canadanewsmedia
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Blackstone raises $20.5 billion for largest ever real estate fund

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U.S. private equity firm Blackstone Group Inc said on Wednesday it has raised the largest ever real estate fund, amassing $20.5 billion to be invested in property assets around the world.

Large buyout firms such as Blackstone have been attracting a lot of capital from investors seeking higher returns not available in public markets.

The capital ready to be deployed has swollen to over $2 trillion, according to data provider Prequin, driving up asset prices and deal making activity.

Blackstone said in a statement the fund, named Blackstone Real Estate Partners IX (BREP IX), has already made its first investment: the purchase of U.S. industrial warehouse properties from Singapore-based logistics provider GLP for $18.7 billion.

The deal, in which BREP IX co-invested with other Blackstone funds, was announced in June and is expected to close in coming weeks, the company said.

Blackstone is the world’s largest alternative asset manager and one of the biggest property investors, with $154 billion in real estate assets under management. (Reporting by Chibuike Oguh; Editing by Sandra Maler)

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Real estate lessons to live by Pattie Lovett-Reid

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Real estate lessons

Disclaimer: I’m not a real estate expert but I am a real estate junkie.

I’ve often thought about the many ways there are to make money – and there are many. Throughout the years, we have created side hustles, worked hard at our jobs, built an investment portfolio and we have bought and sold a lot of real estate.

We love real estate, and over the past 25 years, we have bought and sold six principle residents and six recreational properties. The majority of our housing transactions made money, and we broke even on a couple. There have also been lessons learned along the way.

Here are a few.

1. Listen to the experts. They are qualified in their field so believe them when they say location sells. Try not to be the most expensive house on the street and don’t let your emotions drive your buying or selling decisions.

2. Don’t fall in love with your assets, or in this case, your home. Sometimes you need to make tough decisions financially and that may mean selling the family home. Your assets will never love you back but your family will.

3. When selling, don’t be greedy. If your home isn’t selling, it is priced too high. Listen to what prospective buyers are silently telling you as they move on and check out the next listing.

4. Get your home ready to sell as soon as you move in. Life has a funny way of throwing you a curve ball when you least expect it. Curb appeal matters but the inside likely matters more. This is where you live. Keep it neutral and up to date. Look at your home as a prospective buyer would.  Small changes can yield big financial results.

5. Avoid concentration risk. Don’t put all your money in the real estate basket.

6. Take the time to save up the down payment. Consider all-in and all-out costs such as insurance, appraisals, real estate, moving, land transfer costs and the dreaded unknown repairs. There will always be something that requires your financial attention.

7. Don’t buy beyond your means. I’ve been there and it isn’t fun. No one wants to be 100 per cent house poor. You aren’t expected to be flush with cash when you are new homeowner but you also don’t want to live life worrying about the next mortgage payment each month.

8. Buy low and sell high. Even if you love real estate you are always scouting out new opportunities, this investment mantra still must hold true.

9. Focus on your stage of life. Do you really want to be building your dream home for your family as your children head off to university or are beginning to build their own lives under their own roof? Just because you want your family there doesn’t mean they will be. Buy for reality not dreams.

10. Put in offers earlier in the week. You are more likely to have less competition and more likely to get a deal if you do. Everyone is out   looking on the weekends. Don’t follow the herd mentality.

11. Take advantage of the capital gains exemption on your principle residence. This is one of the best tax-savings opportunities to create wealth I know.

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B.C. Real Estate Association forecasts lower mortgage rates in 2019

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The cost of borrowing for a home is predicted to get a little cheaper this year.

That’s according to the latest mortgage rate forecast from the B.C. Real Estate Association.

“The average contract rate for 5-year mortgages has declined about 30 basis points from its peak in 2018, reaching 3.44 per cent in March,” the BCREA states in a two-page report. “Unfortunately, this still means a stress test rate of 5.44 per cent, even for the highest quality borrowers.”

However, the association points out that if five-year bond yields remain at the current level, “a 5-year qualifying rate of under 5 per cent should follow suit.”

The contract rate refers to the interest percentage listed on the face of a note or a bond.

The qualifying rate refers to a lender’s determination of what a borrower can afford. This takes into account a person’s income, debt obligations, utility, and living costs, as well as the amortization period and mortgage rate.

The qualifying rate is forecast to fall to 4.99 percent in the second quarter and 4.84 percent in the third quarter, before rising to 4.99 percent in the fourth quarter.

“While there is an outside chance of a rate cut from the Bank of Canada, our baseline is for the Bank to remain on hold for 2019,” the BCREA states. “Therefore, we are forecasting no change in the prime rate, from which variable rates are discounted.”

The BCREA predicts that the qualifying rate will rise to between 5.14 percent and 5.34 percent in 2020.

Metro Vancouverites carry large debt loads

According to the Canada Mortgage and Housing Corporation, Metro Vancouver leads the country in the ratio of liabilities to annual income at 242 percent.

The mortgage debt-to-interest ratio in this region is 178 percent, which is three times the figure in St. John, New Brunswick, which has the lowest rate in the country.

CMHC released this chart in December, showing that Metro Vancouver residents, on average, have the highest debt-to-income ratio in the country.
Canada Mortgage and Housing Corporation

In October 2017, the Office of the Superintendent of Financial Institutions announced that the minimum qualifying rate for uninsured mortgages to be the greater of two figures:

* the five-year benchmark rate published by the Bank of Canada;

* or the contractual mortgage rate plus two percent.

This meant that many homebuyers could not take out as large a mortgage, reducing the value of what they could afford to purchase.

That, in turn, is one of the factors cited in the monumental slowdown in the Metro Vancouver housing market in 2018.

The BCREA report questions whether these new mortgage stress-test rules can continue to apply to Canadians with more than 20 percent in home equity.

That’s because the association maintains that they “will be stress tested at a rate much higher than what we estimate as a long-run equilibrium mortgage rate”.

“Given the disruption caused in Canadian housing markets by the stress test at the presently lower rates, the stress test is not likely to be sustainable in the long-run as currently constituted,” the BCREA declares.

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Residential Real Estate industry prepares for its day of reckoning

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Residential Real Estate

I rarely write about bearish trends or companies that I believe are destined to fail, but not because I’m anti-short selling. It’s just more fun to be bullish, and, in my experience, it’s a lot easier to make money on the long side than the short side.

However, earlier this month I stumbled onto a story about a group of exceptionally successful class-action litigators that want to disrupt the residential real estate industry by ending the decades-old practice of requiring home sellers to pay for the broker representing the buyer of their home. Suffice it to say if this class-action lawsuit goes the plaintiff’s way, the residential real estate industry will be turned upside down. And better yet, the next time you decide to sell your house, you could walk away with a whole lot more money in your pocket.

Now, if you’ve ever sold a home, you know how big a figure 6% can be. Between the 3% you pay your agent for representing you on the sell side, and the 3% you’re obligated to pay the buyer’s agent, you’re likely shelling out around $30,000 in commission fees if your home sells for around $500,000.

I, for one, would rather not have to pay thousands of dollars to the guy that’s negotiating against me and trying to get me to sell my house for less than I’m asking. And, if you’re buying a home but only need help filling out the home purchase agreement, is it necessary to pay a buyer’s agent $5,000, $10,000, or even $15,000?

The bottom line is we could be on the cusp of a radical shift in the costs associated with selling a home. And while this would likely benefit every American selling a home, it could take a painful bite out of the profits of public companies like Realogy Holdings Corp (NYSE: RLGY) and Re/Max Holdings (NYSE: RMAX), and radically change the ways homebuyers go about buying their next home.

The Lawsuit

On March 6, 2019 a class action lawsuit was filed with the US District Court for The Northern District of Illinois that lists Christopher Moehrl, and all others similarly situated as plaintiffs, and The National Association of Realtors (NAR), Realogy Holdings Corp (NYSE: RLGY), HomeServices of America — a Berkshire Hathaway (NYSE:BRK.A, BRK.B) Affiliate — Re/Max Holdings (NYSE: RMAX), and Keller Williams Realty as defendants.

The lawsuit, which is being spearheaded by Cohen Milstein Sellers & Toll PLLC and Hagens Berman Sobol Shapiro LLP, claims that the defendants conspired “to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount in violation of federal antitrust law.”

The 30-page lawsuit filed by Cohen Milstein and Hagens Berman allege that the conspiracy “has centered around NAR’s adoption and implementation of a [1996] rule that requires all brokers to make a blanket, non-negotiable offer of buyer broker compensation (the “Buyer Broker Commission Rule”) when listing a property on a Multiple Listing Service (MLS).”

Here’s what Steve Berman, managing partner of Hagens Berman had to say about the suit:

“When you compare commission rates in these affected housing markets to those in countries with competitive real-estate broker markets, the numbers tell a very clear story. We believe that NAR and Big Four have devised a series of checks on broker commission rates to all but guarantee their goal of price-fixing, costing home sellers thousands in excessive commissions paid on each sale.”

While most licensed real estate agents would have you believe that this lawsuit, like others before it, is without merit and destined to be thrown out of court, there’s something you need to know about the two lead law firms in this case.

Steve Berman, the managing partner of Hagens Berman, is considered one of the fiercest attorneys when it comes to class-action lawsuits. Berman served as special assistant attorney general for 13 states in the late-1990s when the tobacco industry was ordered to pay the states $206 billion – the largest civil settlement in history. Hagens Berman was also successful in securing a $1.6 billion settlement in the Toyota Unintended Acceleration Litigation in (originally filed on March 15, 2010 and settled on December 26, 2012).

Cohen Milstein’s laundry list of courtroom settlements include:

  1. A $400 million antitrust settlement in the 2014 eBooks price-fixing suit against Apple (NASDA:AAPL).
  2. $175 million stemming from a lawsuit that alleged British Petroleum (NYSE:BP) and two of its senior executives misled investors about the extent of the oil spill that resulted from the Deepwater Horizon explosion.
  3. An $835 million verdict against some of the largest chemical companies in the world for conspiring to fix the prices for certain chemicals used in the manufacturing of polyurethanes.

The takeaway here is neither Hagens Berman nor Cohen Milstein are poorly funded ambulance chasers.

These two firms have been awarded billions-of-dollars for their clients. And unlike many smaller class-action firms operating on a shoestring budget, Hagens Berman and Cohen Milstein aren’t strapped for cash. These two firms have the human resources and the money to see this lawsuit through to the bitter end.

Winners & Losers

While it’s difficult to say how this case ultimately plays out, there’s no denying that the buy-side of the real estate industry has been, and remains, ripe for disruption.

Think about the last time you were working with a real estate agent to buy a home. Your agent probably provided you with information on the current market conditions in your desired area, helped you figure out how much house you can afford, and researched homes for you using the MLS.

Well, thanks to the internet, sites like Redfin (NASDAQ:RDFN), Zillow (NASDAQ:Z), and Bankrate.com, you can do all that work on your own. And if you need to find information on school districts, tax rates, utility costs, and local zoning ordinances, that too is easily found on the internet.

All that’s left is price negotiation.

In my experience, buyers’ agents are great at relaying your offer price to the seller’s agent. Despite what you see on Property Brothers, House Hunters, and Million Dollar Listing, I don’t hear too many real-life stories of agents telling their buyers the exact price they should offer.

So, how much should a buyers’ agent expect to be paid for telling his clients to make an offer they’re comfortable with and is within their budget? I’d argue not much.

Now, while we are likely years away from receiving a verdict in this case, if Moehrl v. NAR, et al. goes the distance and a jury finds in favor of the plaintiffs, I’d expect the shares of RMAX and RLGY to take a substantial hit from what I believe will be a massive reduction in buyer-agent revenues.

Just as we saw when Amazon.com Inc (NASDAQ:AMZN)  disrupted bricks and mortar, Netflix (NASDAQ:NFLX) upended Blockbuster, and Uber took a bite out of the taxi industry, established business rarely welcome disruptive innovation. And while full-service real estate firms may view Moehrl v. NAR, et al. as nothing more than a frivolous lawsuit aimed at breaking up the old guard, the bottom line is Cohen Milstein, and Hagens Berman represent disruptive innovation. And I do not doubt that innovative entrepreneurs will be ready to pounce before the ink dries on this verdict.

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