If you’re interested in finding out about real estate short squeeze candidates, look no further. Interest rates are soaring. The Federal Reserve is still worried about inflation and is keeping monetary policy tight. A potential recession looms. There’s a seemingly perfect storm out there for these real estate stocks to watch.
And yet, quite possibly, the bears have overstayed their welcome. Markets are forward-looking, after all, and can anticipate when a turn is coming.
Interest rates won’t keep going up forever. There are still strong demographic drivers to support the housing market. And the pandemic-driven impacts to commercial real estate won’t indefinitely linger either. All that to say that it’s a good time to be looking at these three real estate short squeeze candidates with high short interest today.
Vornado Realty Trust (VNO)
Vornado Realty Trust (NYSE:VNO) is an office real estate investment trust (REIT) focused on the New York City metropolitan market.
As has been widely discussed in the media, the office market is struggling in the post-pandemic landscape. Some firms have gone remote permanently. Many others are returning to the office, but for only three- or four-day workweeks. This reduces demand for office space and lowers the potential rents and value of existing office buildings.
VNO stock had already dipped from a peak of about $90 in 2015 to around $60 prior to the onset of COVID-19. Since then, the walls caved in, with Vornado crashing to as low as $12 per share earlier this year.
Vornado shares are now starting to recover, however. That could be because the company’s portfolio remains attractive. It owns more than 20 million square feet of prime office space in Manhattan. Key tenants include the likes of business media giant Bloomberg and Amazon’s (NASDAQ:AMZN) New York City headquarters. It owns properties in world-class districts such as Fifth Avenue and Times Square.
Not all office space is going to make it through the current disruption. However, Vornado’s holdings of top-tier properties in the nation’s largest city should insulate it from the bust.
UWM Holdings (UWMC)
UWM Holdings (NYSE:UWMC) is among the top real estate short squeeze candidates. It’s the nation’s largest mortgage lender. It took that title not too long ago thanks to its relentless growth, along with missteps by some of its rivals.
There has been plenty of room for shifts in the industry due to the abrupt change in housing demand and interest rates. The housing market skyrocketed in 2020, leading to record volumes of mortgages and profits for UWM and its peers. However, that boom turned to bust amid surging interest rates and a near complete absence of refinancing transactions.
However, UWM is seizing the moment. It is now investing in growth as its peers pull back. Meanwhile, thanks to prior cost discipline, UWM remains profitable and is even paying a dividend.
UWM’s CEO Mat Ishbia had some stark words for his competition in the firm’s quarterly earnings report writing, “Other management teams seem to have forgotten that during a mortgage boom, the majority of the opportunity is in the first six months. Companies that are not prepared for those events react late, hire late, train late and miss most of the opportunity.”
UWM is currently facing challenges due to the unsettled housing and interest rate environment. But the firm, as Ishbia suggested, is investing through the cycle and seems set to prosper when the macroeconomic winds improve. Meanwhile, the massive short interest in UWMC stock could run into trouble at any time.
Blackstone Mortgage Trust (BXMT)
Blackstone Mortgage Trust (NYSE:BXMT) is a REIT focused on commercial mortgages.
Given a great deal of consternation about the commercial real estate market, short sellers have been hounding BXMT stock over the past year.
But, perhaps things aren’t as bad as the market would suggest. For one thing, only 25% of Blackstone Mortgage Trust’s exposure is to U.S. office space. Blackstone Mortgage is diversified with exposure to apartments, life sciences buildings, and international properties among other things — in addition to its office loans.
96% of the company’s loans are currently performing as planned. And earnings remain high enough to cover the dividend; the trust generated distributable earnings of 79 cents last quarter versus its dividend of 62 cents per share.
Right now, bears have sold short more than 12% of the float of BXMT stock short. That’s a massive number for a sleepy mortgage REIT. As things stand today, Blackstone Mortgage’s 11% dividend yield appears to be safe, which could lead to a major short squeeze as bears tire of having to pay out that massive yield on their short positions.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
