Blackstone, which has loaded up on strip malls, warehouses and suburban office buildings in the past two years, is turning to residential real estate after a 34 percent plunge in prices since the 2006 peak. The New York-based company is the biggest investor seeking to enter the single-family leasing market as rents climb and the U.S. homeownership rate sits at a 15-year low, joining rivals including KK and Colony Capital.
“It’s turning into a $10 billion industry,” said Colin Wiel, managing director and co-founder of Waypoint Homes, a company that has bought about 1,800 distressed homes for rent with backing from investors including GI Partners and Columbia University. “There’s a lot of competition.”
Blackstone’s real estate group has teamed with principals of Treehouse and Riverstone Residential Group to buy and fix up the homes, find tenants and maintain the rentals. Riverstone is an apartment management company founded by brothers Nick and Peter Gould, owners of British firm Regis Group.
Blackstone has acquired more than 1,500 houses around Phoenix and Southern California. It plans to buy in markets with the greatest supply of distressed properties, including Florida, Northern California and Georgia.
Peter Rose, a spokesman for Blackstone, declined to comment. Treehouse and Riverstone executives did not return phone calls seeking comment.
About 6 million U.S. borrowers will lose their homes in the next five years because of their inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management. Tom Shapiro, chairman of GTIS Partners, estimates a $1 trillion market for single-family rentals. His New York-based real estate investment firm expects to invest $1 billion in the area by 2016.
Capitalizing on the distress requires solving a puzzle — how to buy enough homes and manage the properties in a way that’s economical. Bulk sales of repossessed homes by banks and Fannie Mae have been relatively rare.
Buyers have been chosen for the largest group sale, about 2,500 homes repossessed by Fannie Mae, the Federal Housing Finance Agency said. Winning bidders for the homes — in Atlanta, Chicago, Florida, Las Vegas, Los Angeles and Phoenix — will not be named until the transactions are completed.
“We are pleased with the response from the market,” said Edward J. De Marco, acting director of the FHFA.
Home seizures are close to a four-year low as lenders are slow to resume processing foreclosures after a February settlement by the five biggest loan servicers over improper practices.
“While a lot of people are talking about it, very few have actually built significant portfolios and even fewer, if any, have achieved significant economies of scale,” said Stephen Coyle, chief investment officer of Cohen & Steers Global Realty Partners. “The people who have made the most money at it are the guys who have, like, 20 houses or so.”
The venture marks Blackstone’s first major foray into the U.S. residential market. The company was the top buyer of commercial real estate in 2010 and 2011, spending about $16.7 billion, according to Real Capital Analytics.
Blackstone has an advantage over competitors in the rental market in terms of available capital. The firm is raising $13 billion for what will be the largest-ever private equity real estate fund.
A publicly traded REIT that owns and manages single-family homes would be a new twist on a familiar structure that enables stock investors to take part in the real estate market. The REIT industry has an aggregate market value of about $525 billion, according to the National Association of Real Estate Investment Trusts, a Washington-based trade group.
— Bloomberg News