JPMorgan (NYSE:JPM), the largest bank in the U.S., is indirectly offering its shareholders the benefits of investing in real estate. Its asset-management unit, JPMorgan Global Alternatives, has signed a deal with real estate investment company Haven Realty Capital to acquire and develop several single-family rental units for $415 million. The overall property value will be more than $1 billion and essentially make JPMorgan a long-term beneficiary as the landlord of thousands of single-family units. This also opens solid upside potential for equity investors.
JPMorgan’s Timely Real-Estate Ventures Can Benefit Shareholders
This joint venture comes at a time when the elixir of low mortgage rates and high demand for homes to accommodate a work-from-home lifestyle has finally dried up. U.S. housing prices have fallen considerably from dizzying heights earlier this year thanks to a demand drop due to high mortgage rates. Moreover, homebuilders are eager to offload excess inventory to avoid the rising costs of ownership.
The rental market, on the other hand, has slowed, but not quite. With mortgage rates at stratospheric levels, people are looking to rent rather than buy their own homes.
Developing build-to-rent properties at a time when property prices are low will give JPMorgan the benefit of having equity in several large communities at discounted prices now. When the market improves, demand improves, and property prices go up, the equity value will also rise. This implies that the financial behemoth’s assets under management will rise in value.
Without a doubt, this allows for upside potential for JPM stock.
Should You Invest in JPM Stock?
The purpose of this piece was to highlight one interesting avenue of JPMorgan’s business that might present a good reason for investors to add the stock to their portfolios now.
The valuation of the company is also reasonable, given the scale of its business, at a trailing 12-month P/E of 11.2x, which is only slightly higher than the sector median of 10.3x. Given the investments in real estate, which usually rise in value, and the benefits of high interest rates, the bank has the potential to rally in the next few months/years.
Analysts also seem to be bullish on JPM stock, with Oppenheimer analyst Chris Kotowski raising his price target to $174 from $154 while reiterating a Buy rating yesterday.
Also, last month Citi analyst Keith Horowitz maintained a Buy rating on JPMorgan stock with a $135 price target, believing the bank to be firing on all cylinders, as evident from its Q3 results.
Still, Wall Street is cautiously optimistic about the stock, with a Moderate Buy rating based on seven Buys, three Holds, and one Sell. The average price target of $140.36 indicates that shares can rise 5.6% over the next 12 months.
Parting Thoughts: Quality Franchise with Upside Potential
JPMorgan’s investment in the real estate market as landlords is a brilliant move. With the rising value of properties, the value of assets under JPMorgan’s management is also expected to increase, unlocking solid upside potential.
