Blackstone bets $ 6 billion on buying and leasing homes
Blackstone Group Inc.
has agreed to buy a company that buys and rents single-family homes under a $ 6 billion deal, a sign that Wall Street believes the U.S. real estate market will stay warm.
The investment firm confirmed on Tuesday that it has reached an agreement to acquire Home Partners of America Inc., which owns more than 17,000 homes in the United States. Home Partners buys houses, rents them out and offers its tenants the option of buying eventually. The deal was reported earlier by the Wall Street Journal.
Home sales in the United States skyrocketed last year at their fastest pace in 14 years, when low mortgage rates and the rise in remote working during the pandemic prompted buyers to scramble for find larger living spaces.
The shortage of homes for sale relative to demand and record home prices have slowed the pace of home sales in recent months. But on a historical basis, the market remains hot, and analysts say demand from millennials entering their early years of home buying is expected to fuel demand for years to come.
The median price of existing homes exceeded $ 350,000 for the first time in May, the National Association of Realtors said on Tuesday. “This supply-demand imbalance will not be corrected overnight,” said Kathleen McCarthy, Global Co-Director of Blackstone Real Estate.
Blackstone was among the large investment firms to buy homes wholesale in the aftermath of the subprime mortgage crisis, when lenders sold foreclosed homes at discounted prices. The New York-based firm built a portfolio of tens of thousands of single-family homes and then rented them out through a company called Invitation Homes. Inc.
In 2019, Blackstone pulled out of the single-family rental business by selling its remaining shares in Invitation Homes, which had become the largest U.S. company in the industry with 80,000 units to rent. The company re-entered the market in 2020 by investing $ 240 million to purchase a preferred stake in Tricon Residential in Toronto. Inc.,
who buys single-family rentals in North America.
Blackstone’s deal with Chicago-based Home Partners shows the investment firm is becoming even more optimistic about housing in the United States.
The company joins a growing list of Wall Street powers that have acquired single-family home rental companies. Canadian real estate giant Brookfield Asset Management Inc.
recently acquired a stake in an owner who owns more than 10,000 homes in the United States. JP Morgan Asset Management and Rockpoint Group LLC have also made significant investments in single-family home rental operators.
The business is attractive to investors because growth can come from both rising house prices and rising rents. The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas nationwide, rose 13.2% in the year ending March, against 12% the previous month.
The rental market has shown signs of softness during the pandemic, especially in city centers which have seen an exodus of residents. But lately, rents have also started to rise.
Median asking rents rose 1.1% per year in March to $ 1,463 per month in the nation’s 50 largest markets, according to a report from Realtor.com.
Many analysts say that with house price increases showing little sign of slowing, rents may continue to rise in the United States as potential buyers are shut out of the sales market and are forced to continue renting.
For all of their recent activity, large institutional investors own about 300,000 homes in the United States, or just 2% of single-family rental homes, according to a report by New York-based financial firm Amherst Pierpont Securities LLC. About 85% of the single-family home rental market is owned by investors with 10 or fewer properties, the company said.
Home Partners, founded in 2012, has a different business model than Invitation Homes and some of the other large companies in the single-family rental industry. It gives tenants the option to buy at any time at a predetermined price with 30 days notice.
To this end, Home Partners limits its acquisition of new homes to homes identified by people as those they would eventually wish to purchase after leasing.
Ms McCarthy said about 20% of Home Partners renters ended up exercising their options to buy their home. She said she expects that rate to rise because, given the recent appreciation in home prices, many Home Partners renters buying today would likely pay below current market value.
Blackstone buys Home Partners through an investment fund named Blackstone Real Estate Income Trust, which primarily raises funds from small investors and tends to hold assets longer than the company’s opportunistic funds. This strategy is a sign that Blackstone believes the real estate market rally could last for many years.
According to Blackstone, Home Partners selected Blackstone’s cash offering after a competitive bidding process. The deal is expected to be concluded later this year.
Write to Peter Grant at [email protected]
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