In the past couple of weeks, single family home institutional owner Blackstone, has accomplished two major coups that are almost certain to set the tone for the single family home rental market for the foreseeable future. Under its brand name Invitation Homes, Blackstone’s SEC filings reported $9.7 billion in property and $7.7 billion in debt. Invitations Homes controls 50,000 properties and through other Blackstone holdings controls a total of about 100,000 rental properties.
The last week in January, Blackstone took Invitation Homes public (Wall Street IPO) to raise $1.54 billion in new capital. Almost simultaneously, Fannie Mae announced it will back $1 billion in debt collateralized by rental homes owned by Blackstone.
The public offering was for 77 million shares at $20 each. Following the IPO, the stock price opened slightly higher the next day. Blackstone retains 70 percent of its shares in Invitation Homes and board control. Blackstone bet big on rental properties during the height of the foreclosure market by scooping up about $10 billion in distressed properties.
As the biggest institutional owner of rental homes, Blackstone is driving rental rates in the 13 major metropolitan markets that it is most active. For the nine months ended Sept. 30, 2016, Invitation Homes brought in rental revenue of $654.7 million, up 11 percent from the same period in 2015, according to its IPO filing.
According to John Bartling, president and CEO of Invitation Homes, "I think it's a little bit about lifestyle choice, and the average of our renter, and we like to say those who lease with us, are about 39 years old. They tend to be both working family and they tend to want to live near where they work and they typically are looking for a good school., so they are just at that stage where they have moved apartment to suburbs." The relevance of that for small time investors is it comes from the head of the nation’s largest home rental company.
Fannie Mae (still under government conservatorship) has agreed to back $1 billion in debt collateralized by rental homes owned by Blackstone. It may seem to be well in the past but we continue seeing fallout from the foreclosure crisis.
The single family rental market has steadily grown following the foreclosure crisis. Today, single family homes account for more than 50 percent of the national rental market. This is likely why Fannie Mae is testing this market with this first deal.
With Fannie Mae under government conservatorship there should be concern that this deal again puts taxpayers at risk as the two industry giants team up to further dominate the residential market. No doubt, rental demand is high and rents are climbing higher. These are only a couple of the reasons that homeownership demand is also very strong. However, a rental market ‘bubble’ is likely to form as a perfect storm for homeownership gathers momentum. Unemployment is down, which means wages and salaries are bound to increase. Savings for down payments will follow. Credit ratings will improve as we continue passing through the seven-year window that these foreclosures remain on people’s credit reports. There is also constant pressure to ease college loan debt that the millennium generation is saddled with. The millennium generations is also showing a much stronger desire for homeownership as they reach their prime income earning years. The residential real estate market always has a way of rebalancing itself.
Or is this the beginning of a new era…
Andrew Roalstad, senior analyst at TIS Group wrote, "We predict the increase in these type of government-guaranteed securities will grow exponentially in the coming four years, and the impact on the rental property market will be extraordinary. We suspect these are the types of changes that the market is pricing in with its 'Trump Rally.' Shifting corporate risk to taxpayers has been a profitable business over the past few decades, and throughout history. We expect we will see more of this shift in the coming years."
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Photo Credit: Blackstone Realty
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.