The much-predicted deluge of delinquent loans in the commercial real estate market is not bad news for everyone, as billions are being raised by the industry to take advantage of the distressed assets that will be hitting the market. Some think this is another sign of the end of the recession and financial crisis.

IN PICTURES: 7 Tips On Buying A Home In A Down Market

There have been three recent initial public offerings by companies looking to buy distressed Commercial Mortgage Backed Securities (CMBS) and related securities. Some will also dabble in the Residential Mortgage Backed Securities (RMBS) market.

Invesco Mortgage Capital Inc (NYSE:IVR) raised $201 million in July 2009 in a combination of a public and private offering. The company invests in agency RMBS, as well as non-agency RMBS, CMBS and residential and commercial mortgage loans. Invesco Mortgage Capital has been busy since then, and has already purchased $829 million in securities as of mid July 2009. The company is externally managed and advised by Invesco Ltd. (NYSE:IVZ), an asset management firm.

Starwood Property Trust, Inc. (NYSE:STWD) just raised $952 million in gross proceeds in its initial offering, also a combination of public and private equity. This makes the deal the largest in 2009 to this point.

PennyMac Mortgage Investment Trust (NYSE:PMT), known by the name of PennyMac, raised $320 million in its initial public offering, and this company will invest primarily in RMBS. The market didn't like this deal that much as PennyMac had originally tried to raise $750 million, but had to reduce its appetite in response to the market.

All three are organized as Real Estate Investment Trusts (REIT) and must pay out 90% of its earnings as dividends to investors.

Others in the Running
Two other companies also recently filed for IPOs but have not come to market yet. Marathon Real Estate Mortgage Trust and Brookfield Capital Corp are looking to raise $300 million and $500 million, respectively. Brookfield Realty Capital Corp will be externally managed by Brookfield Asset Management (NYSE:BAM).

Investing in mortgage securities is not a new business, and Capstead Mortgage (NYSE:CMO) is one that has been doing it for years. Capstead Mortgage uses leverage to buy adjustable residential mortgage pass-through securities that are guaranteed by Fannie Mae (NYSE:FNM), Freddie Mac (NYSE:FRE) or Ginnie Mae.

The Bottom Line
While this sounds like a sure fire way to get your head handed to you in this market environment, the company has made it through the financial crisis relatively unscathed. The company reported $42.5 million in net income, or 58 cents in the second quarter of 2009.

Many are heralding the recent spate of Mortgage REIT IPOs as a clue to the end of the recession and financial crisis. This may be premature, as all it might be is some investors seeing an opportunity to make money in the market. (To learn more, read The REIT Way.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  7. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  8. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  9. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  10. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center