The Blackstone Group L.P. (BX): Housing Is Back…Observe Thy Leader!

TWO isn’t new to lending – it’s the largest hybrid mortgage REIT focused on investing in residential mortgage assets with a $4.5 billion market capitalization. As investors and home buyers acquire low priced “distressed” homes, TWO’s non-agency assets increase in value. The combination of easy monetary policy fueling low mortgage rates, strong demand from institutional rent-to-own money managers coupled with low inventory has led to price appreciation on a nationwide basis. And that’s why Two Harbors Investment Corp (NYSE:TWO) had net income of $291 million in 2012, up from only $35 million in 2010. Shares are trading at a cheap price-to-earnings of only 7.5x, while 40% of the price per share is pure cash.

Silver Bay, TWO’s spin-off,  has a real estate portfolio comprised of 3,100 single family homes, with an average rent of $1,170 per house. The company buys properties en masse, fixes them up, and then rents them out to stable tenants with high credit scores. Silver Bay has the potential to become a great long-term value play. The company’s balance sheet offers significant value in the form of $2.35 in cash per common share, and NAV (Net Asset Value) of $17.65 per share. Recently, Silver Bay announced a new 4 cent-per-year annual dividend, and the repurchase of up to 2.5 million shares of its common stock. This equates to 7.5% of the company’s current share float, and is a very positive sign.

Looking ahead

When the largest private equity firm in the world begins to act as a lender, it’s time to pay attention. I believe all signs point to an imminent strong rebound in the housing market. Play it as you wish, as long as you play it. Invest accordingly.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Housing Is Back…Observe Thy Leader! originally appeared on Fool.com and is written by Shmulik Karpf.

Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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