In the single-family rental sector, Pretium Partners is something of a rarity: a firm that has stayed private despite consolidation pressures – and kept fundraising at a strong clip.
Earlier this month, the New York-based alternative asset manager raised a total of $1 billion for the strategy from its Pretium Residential Real Estate Fund II and two separate accounts.
The firm’s second fund, which attracted $700 million from institutional investors and high-net-worth individuals, targets homes in areas of high employment and population growth in Atlanta, Tampa, Charlotte, Orlando, Memphis, Nashville, Miami, Jacksonville, Raleigh, south-west Florida, Phoenix, Houston, Dallas, Las Vegas and Indianapolis. The firm has acquired 5,000 homes so far through the fund.
Pretium is now the largest private owner of single-family rental homes in the US, with more than 26,000 homes across 15 markets. By comparison, Invitation Homes – the world’s largest landlord for single-family units – has more than 80,000 homes for lease in 17 markets, according to its website.
Private institutional capital has become increasingly scarce in this space, which has seen significant consolidation in recent years. Following the global financial crisis and subsequent housing market downturn, private equity real estate firms such as Blackstone, Starwood Capital and Colony Capital established businesses to invest in single-family homes for rent, amassing large portfolios in the process. Many of those platforms subsequently went public then combined to form ever-larger companies.
Starwood Capital acquired Waypoint Real Estate Group in 2013 and subsequently spun out its single-family rental business as the publicly traded Starwood Waypoint Residential Trust the following year. In 2016, Starwood Waypoint and Colony American Homes merged to create a single entity named Colony Starwood Homes. By November 2017, the newly created real estate investment trust was bought by Invitation Homes. Similarly, American Homes 4 Rent acquired Beazer Pre-Owned Rental Homes in 2014 and followed up with the acquisition of American Residential Properties two years later.
But as Pretium demonstrates, not all private institutional investors in the single-family rental space are pursuing the public route. Though the firm faces competition from larger public firms like Invitation Homes, the firm’s head of real estate Dana Hamilton isn’t worried, since the market is highly fragmented.
“As a private firm, Pretium has flexibility to utilize different levels of leverage, according to investor preference, whereas the public markets generally favor REITs that maintain lower leverage,” she said.
Hamilton said she appreciates the firm being private at the moment as it can focus both on operations and growth rather than worry about the distractions that public firms face. Unlike private firms, public companies must report quarterly earnings, and shareholders may expect quarterly dividends.
Managing toward quarterly earnings can make it more difficult to pivot as market conditions change, added GTIS Partners senior managing director and head of US investments Rob Vahradian. But private firms have fewer capital options, he noted.
Headquartered in New York, GTIS currently manages 2,300 single rental family homes in six markets across the US. When it comes to its platform in the sector, “the firm prefers the flexibility of being private,” said founder and CEO Tom Shapiro.
Today, four publicly traded REITs exist in the single-family rental sector. These include mid-cap American Homes 4 Rent and Invitation Homes, and small-cap Front Yard Residential (formerly Altisource Residential) and Reven Housing. However, as the sector matures and public market interest in the space grows, John Pawlowski, analyst at Green Street Advisors, believes more companies will try to go public in the long run. For the sake of long term growth, the public REIT wrapper remains the best vehicle to access capital, he said.
In the near term, Pawlowski believes the current environment may lend itself better to mergers and acquisitions of smaller less efficient private companies since there are many firms willing to buy, and pricing in the public REIT market is fairly soft.
“The sector broadly may see more consolidation,” he said.