This was on the bubbleinfo twitter a couple of days ago, but this excerpt deserves specific attention for those who are wondering who is creating the floor in the market:
Blackstone, the world’s largest private-equity firm, has spent about $1.5 billion on 10,000 foreclosed properties in the U.S. this year, making it the biggest buyer of single-family homes in the country, Gray said. Blackstone has been buying $100 million of houses a week, Stephen Schwarzman, chairman of the New York-based firm, said during an Oct. 18 earnings call.
“This is the kind of thing that happens once — every once in a while, where you see something that’s a market-turning trend and we are loading the boat,” Schwarzman said.
Blackstone fell 2.7 percent to $13.98 today in New York. It’s returned 0.5 percent, including dividends, during the past year, compared with 11 percent for the Standard & Poor’s 500 Index.
Thomas Barrack’s Colony Capital LLC, a private-equity firm, has bought about 5,500 homes since April, spending more than $500 million, and expects to reach $1.5 billion invested by the end of next year. Closely held Waypoint Homes has said it has bought about 2,500 homes and expects to have 10,000 homes by the end of next year.
Blackstone, Colony and other investors buying homes in bulk to rent have said they could create real estate investment trusts out of the properties to take public, paying dividends from the rental income on the homes, similar to the wave of apartment REITs such as Equity Residential that went public in the early 1990s.
“There are differing opinions about whether the opportunity will continue beyond 2-3 years to buy houses at yields that make sense to institutional investors,” said Colin Wiel, co-founder and managing director of Waypoint Homes. “I believe this is an evergreen opportunity.”
While investment yields “will come down,” from about 7 percent today, excluding debt, to a level more in line with apartment-property yields, or about 5.5 percent, Wiel said, “I think institutional investors will be comfortable with that because the asset class will be ‘established’ by then.”
Blackstone paid less than $150,000 on average for homes that were valued during the 2006 peak at more than $300,000, Gray said. Blackstone has formed a company called Invitation Homes to focus on about 10 metropolitan areas that were particularly hard hit by the credit crisis. It has partnered with closely held Riverstone Residential Group based in Dallas to manage the properties.
“It’s grown to be a sizable investment for us,” Gray said. “One of the key questions is, can you make this work?”
Blackstone plans to attract tenants by renovating the homes and providing better property management, Gray said. Because it’s buying homes after lenders have foreclosed, the properties generally are in poor condition and require investment to make them more livable.
“We’re coming in and deploying significant capital,” Gray said. “We’ve got to make this as efficient as possible,” he said. “I think it’s one of the barriers to entry. You have to make a huge infrastructure investment in order to execute.”
Owning 400 single-family homes spread out by geography, as opposed to one apartment building with 400 units, presents challenges for investors, Gray said. Blackstone is focused on about 10 markets, including Northern and Southern California, Phoenix, Tampa and Orlando in Florida, Atlanta, Chicago, Charlotte in North Carolina, Las Vegas and Seattle, he said.
One exit strategy for the firm is to sell stock to the public in the management company when the time is right, Gray said. “We can create a business investors will want on an income basis,” he said. “I think we can create a real company that can be taken public.”