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October 23, 2017

Largest Institutional Landlord Merger Proposed

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Largest Institutional Landlord Merger Proposed

Two of the largest institutional landlords announced Thursday that they plan to merge in a $4.3 billion deal. Invitation Homes, the rental home wing of private equity firm Blackstone Group, and Starwood Waypoint Homes will own about 82,000 single-family properties in more than a dozen major markets under the merger, which still needs to be approved by stockholders. The combined company will operate as Invitation Homes.

Other institutional investors may follow suit. The trend to merge may look more appealing given the current housing market. The New York Times reports: “With fewer opportunities to buy homes at a discount, the keys to growth will be reducing operating costs, gaining market share, and potentially increasing rent. With consolidation, Wall Street–backed firms’ once-bold strategy of cleaning up the mess created by the crisis by going to foreclosure auctions and snapping up hundreds of cheap homes has ended.” 

Investors seized opportunity in the housing market during the housing crisis as Americans turned to renting in greater numbers. Last year, the number of new renters outpaced the number of new homeowners, according to Harvard University’s Joint Center for Housing Studies. But buying foreclosed homes has become more challenging in recent months. Institutional investors are increasingly competing with home buyers, who are also shopping for foreclosed homes amid tighter inventory. 

“As home prices rise, most of the institutional investors are dramatically slowing the rate at which they buy new homes,” said Laurie Goodman, director of the Urban Institute’s Housing Finance Policy Center. “And with the easy money days behind them, they need a more efficient cost structure.”

Blackstone was one of the first private equity firms to start snapping up foreclosures after the financial crisis. It would buy properties, fix them up, and then rent them out. It is estimated to have spent $10 billion on such properties since 2011. Invitation Homes, which emerged from Blackstone, has receded from the market since 2013, with its acquisitions down more than 90 percent since then. 

Institutional investors nationwide have purchased an estimated 200,000 single-family homes to operate as rentals. However, there are about 17 million single-family rentals nationwide. Many of those are owned by mom-and-pop landlords or firms that operate fewer than 100 homes. 

Other institutional investor giants have consolidated in recent years. American Homes 4 Rent, which owns 49,000 rentals, bought Beazer Pre-Owned Rental Homes. Soon after, Starwood Waypoint purchased Colony American Homes. The Invitation Homes and Starwood Waypoint merger would be the largest in the industry, the Times reports. 

Source: “Major Rental-Home Companies Set to Merge as U.S. House Prices Recover,” The New York Times (Aug. 10, 2017)