Real estate is a hot commodity these days, as consumers nationwide find themselves drawn into bidding wars that are pushing the price of limited single-family housing inventory ever higher. Betting that the market will continue on that hallowed hot streak, Blackstone Group Inc. announced today (June 22) that it has agreed to buy Home Partners of America, a company that buys distressed single-family homes, restores them and then rents them out again to tenants. The price of that deal will be $6 billion and is expected to close later this year.
And while the Blackstone deal is notable for its size, it is not unique in the high-action real estate segment, which of late is drawing interest from established investors and ambitious entrepreneurs looking to cash in on a hot market. Home may be where the heart is, but it is also increasingly looking like where the opportunity is to widen the field of players.
The Why Of The Blackstone Buy
Blackstone is not new to the real estate market. After the subprime financial crisis, the investment firm became known for buying up distressed single-family homes and renting them out through a firm called Invitation Homes. Blackstone has since phased out of the market and it no longer holds any shares in Invitation Homes, which has become the largest U.S. firm in this industry with 80,000 single-family homes for lease.
And as the market has increasingly caught fire over the last year, Blackstone has been wading back into the wild world of real estate. First, by investing $240 million in 2020 to buy a preferred equity stake in Toronto’s Tricon Residential Inc., which specializes in single-family rentals in North America; now with its newly announced Home Partners acquisition which hands Blackstone Home Partners’ inventory of more than 17,000 houses throughout the U.S.
Blackstone also inherits the start-up’s unique twist on the home purchase and conversion to rental model — unlike other players who hold on to the properties as landlords indefinitely — Home Partners offers its tenants an opportunity to buy their rental home after a certain period at a predetermined price. A feature that Blackstone’s Kathleen McCarthy told The Wall Street Journal seems set to become more popular over time. Today about 20 percent of Home Partners’ renters have ended up exercising their options to buy their homes. However, given the dramatic acceleration of home prices in several markets, Blackstone expects to see that percentage climb as renters take advantage of an opportunity to purchase their rental homes at a preset price below the current market value.
An Increasingly Crowded Market
Blackstone is not alone among big-name players attracted to the growing housing market opportunity. Canadian property giant Brookfield Asset Management Inc. recently acquired a stake in a landlord that owns more than 10,000 U.S. homes, while J.P. Morgan Asset Management and Rockpoint Group LLC have both made big investments in single-family rental operators, according to the Journal.
And that doesn’t account for the veritable army of FinTech pushing into the space with a whole host of host connected products aimed at a variety of ends — looking to speed up and automate the mortgage underwriting process (Blend), making it easier for investors to buy shares in rental properties instead of having to rent them out and serve as landlords (Cadre) or allowing the customer to rent while they qualify to buy (Divvy).
“We are a fractional ownership platform that gives customers the option of [working] with us to put down less, and then work within a specialized rental product that allows them to embark on the path to homeownership via a mortgage,” Divvy Co-founder Bria Ma told Karen Webster in a podcast conversation earlier this year. “Our focus now, and very much going forward, is making sure people are on track to buy houses.”
Something that is getting trickier and trickier for buyers, particularly young ones, as prices continue to climb; the S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 13.2 percent in the year that ended in March, up from a 12 percent annual rate the prior month.
But where there is a problem, here is clearly also an interesting opportunity — and one looking increasingly attractive to a wider range of both investors and innovators across the board.
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