One week ago, The Blackstone Group officially announced the launch of B2R Finance, a lending platform that will target smaller buy-to-rent single-family property owners. With the launch, the New York-based alternative asset manager has come full circle in the niche property strategy, which had its roots with mom-and-pop investors before the private equity giants piled in.
Since buying its first single-family rental assets in 2012, Blackstone has become the largest owner of such properties in the US, having invested more than $7 billion to buy 40,000 homes to date. Now, the New York-based firm is looking to become active on the lending side of the business as well, with plans to originate up to $1 billion of mortgages over the next several years. The loans, typically ranging from $500,000 to $50 million in size, will be geared toward investors with portfolios of five to 500 homes nationwide.
What’s worth noting about the formation of B2R Finance is that the business is intended to address the lack of available debt for smaller investors to finance their single-family home portfolios. Small mom-and-pop businesses, after all, were the first to invest in buy-to-rent properties and have been doing so for decades.
Private equity firms, on the other hand, didn’t come onto the scene until a few years ago, but they have been able to quickly amass hefty amounts to capital to invest in buy-to-rent homes on a large scale. Blackstone, for example, has acquired single-family rentals primarily through its Blackstone Real Estate Partners VII fund, which at $13.3 billion is the largest commingled real estate vehicle ever raised. Colony Capital, meanwhile, raised more than $1 billion for its single-family rental vehicle last year and had purchased approximately 14,100 homes as of the end of September.
What is evident, however, is that small- to medium-sized investors don’t have the same access to investment capital as the private equity giants. This is especially true since many regional banks, which previously served as the primary lenders to these businesses, shuttered during the financial crisis. Moreover, institutional buyers have been bidding up the prices for single-family rentals, making it harder for smaller investors to compete.
Interestingly, for some private equity real estate firms, the debt side of the buy-to-rent business may prove to be a longer-term opportunity than the equity side. Indeed, Colony has begun originating loans to other owners of single-family homes for rent, reportedly focusing on borrowers seeking $5 million to $10 million in financing. Meanwhile, Cerberus Capital Management has avoided the equity side of the buy-to-rent business entirely, opting instead to launch a lending platform earlier this year. Like Blackstone and Colony, the firm is targeting the smaller borrower with its new business, providing loans between $1 million and $100 million.
In the meantime, a number of large private equity players, such as Och-Ziff Capital Management, already have exited or are in the process of exiting their equity investments in the single-family rental space through private sales or initial public offerings. Over the next few years, Blackstone and others are expected to follow suit. However, private equity firms could maintain their presence in the buy-to-rent business for some time to come as lenders, which is a more viable strategy over the longer term. After all, the smaller investors that they will be servicing are in it for the long haul.
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