Blackstone has paid a hefty price to buy back into the single-family rental space, acquiring Home Partners of America for $6 billion last week.
The New York-based mega manager was a pioneer in the institutionalization of the rental home business after the global financial crisis, acquiring roughly 30,000 foreclosed homes and spinning them out into Invitation Homes, the largest SFR company in the world. But it is taking an entirely different tack this time around.
Unlike Invitation Homes, which seeks to continually own and manage its rental properties, Chicago-based HPA pursues a rent-to-own model.
“One of the things that attracted us to this business is its unique sourcing model, where it partners with individuals that want to have a home and gives them annual options to purchase it,” Blackstone Real Estate senior managing director Jacob Werner told PERE. “As a result, we’re helping more Americans obtain housing. That’s the reason why this business has grown quickly, because it provides a tremendous service to its customers.”
For qualifying tenants, HPA seeks to purchase homes at prices that fit with pre-determined rental rates. Residents choose homes in pre-approved neighborhoods with the help of a real estate agent. Once HPA acquires a property, it provides the tenant with a lease and the right to purchase their homes within five years. The company has acquired more than 17,000 homes across 74 metropolitan areas.
Werner said this approach to SFR runs counter to the deepest concerns about the strategy that have proliferated during the past year as more and more private equity managers pile into the space. Institutional owners of rental homes have been accused of inflating home prices, elbowing out first-time buyers and aggressively pursuing evictions.
Blackstone is no stranger to these charges. In fact, in a blog post dated November 2019 – around the time it exited Invitation Homes – the company addresses each of those issues to “correct the record,” on its activity in the space.
Werner said part of the reason Blackstone prevailed in the competitive bidding process for HPA is because of its track record as a responsible owner in the space. “We intend to continue that,” he said. “Our goal is to be a terrific owner and deliver excellent customer service to our residents.”
Another point of distinction between Blackstone’s latest investment in SFR and its first is the capital behind it, Werner said. The firm drew on closed-end, opportunistic funds to build Invitation Homes and has tapped BREIT, its open-end core-plus vehicle, for HPA, which it expects to be a long-term hold investment.
Blackstone took its original SFR platform, Invitation Homes, public in 2017 and gradually divested from it over the following two years. It began scaling up its exposure to the property type again last year with a $300 million minority equity stake in Toronto-based Tricon Residential.
With so many groups attempting to add SFR exposure, Werner said the auction for HPA was competitive. While pricing for these platforms have been on the rise, he expects the continued growth in demand in this space will justify those elevated values over time.
“The single-family for rent business has some of the best supply-demand dynamics we’ve seen, which helps validate the prices people are paying,” he said. “And having the benefit of perpetual life capital is a real positive.”