Recently I informed my newsletter subscribers that I had decided to sell out of United Development Funding (NASDAQ:UDF) and replace that position with shares in Starwood Property Trust (NYSE:STWD).
Ultimately my decision to drop the higher-yielding mREIT was based on multiple reasons, all directly related to the lack of clarity related to UDF’s externally-advised platform.
While I was able to make a modest profit on the “in-and-out” deal, my intentions were simply to build a powerful model of predictable income and I became increasingly concerned that UDF’s sources of repeatability were not sustainable.
As you know, I generally stay focused on safer REIT investments but on occasion, “in my quest for durable income I seek to maintain a tactically balanced portfolio that includes a combination of safe income sprinkled with higher yielding components”.
Ladder Capital: Another Alternative
Ladder Capital (NYSE:LADR) is a diversified commercial real estate company that was formed in 2008 and went public in 2014 (as a C-Corp). The company’s primary business strategy is to originate and securitize first mortgage loans on stabilized, income-producing commercial real estate properties. LADR is one of the largest non-bank contributors of loans to CMBS securitizations in the U.S.
However, LADR has a unique model in which the company does not rely exclusively on securitization for its revenue and has other diversified sources of revenue, including earning a significant portion of its revenue from first mortgage balance sheet loans and property rentals as well as expanding its market share in the commercial mortgage loan origination market.
In 2014 LADR commenced the necessary steps to convert from a C-Corp into a REIT structure, and during the first quarter of 2015 the company received shareholder approval to convert to a REIT. (On March 2nd LADR said that shareholders had approved the plan to restructure as a REIT).
LADR’s senior management team averages 26 years of industry experience and insiders (management and directors) own $239 million of LADR equity or around 13.3% of the company’s $1.8 billion total market capitalization. Here’s how LDR compares with the direct peer group:
