Do any Real Estate shops (REPE in particular) use leveraged buyouts? It looks like the big names such as Blackstone and Apollo have done LBO’s to buy and takeover a company (Caesar’s for example).
Does this strategy work on a single asset?
Is this the same as a value-add strategy and just a nomenclature difference in the RE world?
I guess you could say every real estate acquisition that gets a 70%+ LTV loan is a leveraged buyout?
I don’t think the term is used very often in real estate, although the concept is the same. In both REPE (even at the single asset level) and Corp LBOs you use a bunch of leverage to buy an asset and use the cash flow from the asset to pay the loan’s interest
Yes, real estate investing is all about using leverage as well, but the terminology is different. No one calls a mortgage a leveraged loan, but they naturally are. Think about it, you buy a home with 20-30% equity (pretty standard for residential and commercial), which is equivalent to levering up 3-5x. If down the road you can sell the property for more than you paid for it, you pocket the difference. Could be from valuation appreciation (bull market) or value creation (e.g. renovations).
From a lender's underwriting perspective, real estate loans are more "secure" because there's tangible assets for collateral. With a typical leveraged loan, it's predominantly cash flow, which not only fluctuates, but can get impaired or cease to exist altogether. As a result, actual leveraged loans cost more since their risk profiles are higher. Despite the risks, banks desire leveraged loans because of more interest income, lucrative fees, and ancillary revenue. Leveraged loans maximize borrowings, and banks gain from lending as much as possible...at least in the short-term.
Yet regulators scrutinize leveraged loans a lot more because they not only lack sufficient collateral, but are more sensitive to economic downturns. Many prominent economists and policy makers like Janet Yellen are warning that corporate debt (which includes leveraged loans and high yield bonds) will be the cause of the next financial crisis/recession.
Sorry if I stated a lot of obvious stuff, but I work in LevFin, so I happen to know a thing or two about this topic.