Commercial Real Estate (CRE) loans are financing for property used solely for business purposes, such as office buildings, hotels, shopping centers, and the like.
While the basic principles of commercial lending work much like residential mortgages that loan money to individuals, CRE loans are typically made to business entities.
And commercial real estate lending experienced a banner year in 2018.
With the additional tax benefits from the Tax Cuts and Jobs Act of 2017 - as well as low interest rates and the widely held belief that the Fed would continue to raise interest rates in 2019 - loans for commercial real estate and multifamily spaces reached new highs in 2018.
Lenders in the commercial and multifamily space closed well over half a trillion dollars - a record $573.9 billion - in loans in 2018, with an average loan size of $19 million, according to the Mortgage Bankers Association (MBA).
That represents an 8% increase from 2017's reported volume.
The MBA also noted that 74% of lenders expect that lending activity this year will be the same, if not higher, than in 2018.
Commercial and multifamily space loans have also performed incredibly well in 2018, with delinquency rates near all-time lows - meaning very few borrowers are behind on their loan payments - which should only serve to increase lenders' desire to grow that portfolio going forward.
All of this makes now a great time to get in on the recommendation I've got for you today...
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Ladder Capital Corp. (NYSE: LADR) writes mortgages for commercial properties and invests in commercial mortgage-backed securities (or bonds that are backed by a bunch of these loans).
Ladder also invests in real estate itself. Ladder isn't a bank, so the CEO and his team are free to pursue different opportunities as they see fit, depending on market conditions.
But no doubt the firm's main strength is the expertise of its senior management team, with an average of 28 years of industry experience.
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And critically, management also eats its own cooking: Insiders own $239 million in equity - about 12% of the firm's $1.9 billion market cap. That's a real vote of confidence in future prospects, and robust insider ownership is something you want to see in any investment like this.
So a REIT like LADR is something rarely seen: a combination of a high dividend and significant growth.
Similar to the broader CRE market, Ladder has experienced valuable growth in the number of outstanding loans since 2013.
Ladder's dividend payments, since they began in 2015, have remained high on the proverbial "ladder" and have climbed ever higher. Payments have increased a considerable 36% in the last three years. The company has even paid out three special dividends in that time!
With an 8.0% current yield and good dividend growth, it's easy to be concerned about the safety of the dividend. But the company has a modest payout ratio: The dividend is about 60% of free cash flow, more than reasonable for a solid earner like Ladder. This gives management room to grow the payout and protect it during any pullbacks.
Even in a rough year like 2018, LADR outperformed the S&P 500 - making it a nearly recession-proof pick.
But perhaps the thing I love most about Ladder is the loyalty of its customers, as shown by recurring business. More than 50% of Ladder's loan volume today belongs to repeat borrowers. This implies that the company can continue to grow and defend its dividend and attract more investment capital to keep Ladder's share price growing as well.
The bottom line is simple as can be: Add LADR to your income portfolio today, and watch your wealth grow.
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