Proof of Recovery: Blackstone to bet $13 Billion on SFD Housing

3 Jul


By Hui-yong Yu and John Gittelsohn – Jul 3, 2012

Blackstone Group LP (BX), the biggest buyer of U.S. commercial real estate since prices bottomed, is jumping into residential property as housing recovers.

A giant foreclosure auction sign is placed in front of a home in San Jose, California. Blackstone Group LP has acquired more than 1,500 houses around Phoenix and Southern California.

The private-equity firm has spent more than $250 million this year buying foreclosed single-family houses with the intention of renting them out, said two people with knowledge of the effort. The goal is to acquire enough assets to potentially take public as a real estate investment trust, or sell to another company or even to tenants, said the people, who asked not to be identified because the plans are private.

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 KKR & Co. (KKR) and Colony Capital LLC.

“It’s turning into a $10 billion industry,” said Colin Wiel, managing director and co-founder of Waypoint Homes, an Oakland, California-based 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 Group LLC of Tempe, Arizona, and Dallas-based Riverstone Residential Group to buy and fix up the homes, find tenants and maintain the rentals, said the people familiar with its strategy. Riverstone is an apartment-management company founded by brothers Nick and Peter Gould, owners of U.K. property-investment firm Regis Group Plc.

Distressed Properties

So far, Blackstone has acquired more than 1,500 houses around Phoenix and Southern California, the people said. It plans to buy in markets with the greatest supply of distressed properties, including Florida, Northern California and Georgia.

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 U.S.- owned Fannie Mae have been relatively small.

“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 private-equity fund unit of the New York-based real estate stock investor.  “The people who have made the most money at it are the guys who have, like, 20 houses or so.”

While mortgage rates are at record lows, rental demand has climbed because many Americans can’t buy homes because of insufficient income or bad credit, or because they prefer the flexibility of renting.  Monthly apartment rents in the U.S. have jumped almost 6 percent since the end of 2009, to an average $1,018 in the first quarter, according to Reis Inc.

Blackstone has an advantage over competitors in the housing rental market in terms of readily available capital. The firm is raising $13 billion for what will be the largest-ever private equity real estate fund. Others are using a series of small private funds.

2 Responses to “Proof of Recovery: Blackstone to bet $13 Billion on SFD Housing”

  1. RJ July 19, 2012 at 3:56 pm #

    These firms are bad for our housing market. We dont need institutional investors buying up all the inventory because the effect is a shortage of available homes that is pinching would be homeowners out of the market and the quality of neighborhoods declining as the ratio of rentals increases. The low end market was already stabilized before these funds jumped in to it.

  2. George Serel August 11, 2012 at 2:11 pm #

    I am doing the same thing on a smaller scale. My first year goal is to purchase 100 homes in the New York area for real estate funds and net them an annual return of 30 percent with a five year exit strategy. George Serel

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