Blackstone to Market First Multiborrower Rental-Home Bonds
Blackstone’s B2R Finance LP unit will sell about $230 million of securities tied to 144 mortgages secured by U.S. single-family homes and other residential properties, the firm said Friday in a statement. The transaction is expected to close in April and be rated by at least two rating companies.
Lenders including B2R, Cerberus Capital Management’s FirstKey Lending LLC and Colony American Finance LLC, a unit of Thomas Barrack Jr.’s Colony Capital, have been providing financing to landlords of the more than 14 million rental houses in the U.S. who have few other options for loans. There is the potential for $30 billion of debt backed by single-family rentals to be originated annually, with the majority coming from multiborrower deals, Jade Rahmani, a Keefe Bruyette & Woods Inc. analyst, said in a report last year.
“We remain in the early stages of the recapitalization of the housing market,” said Carl Bell, deputy chief investment officer at Amundi Smith Breeden, the U.S. subsidiary of global asset manager Amundi, which oversees about $1 trillion. “Multiborrower deals have the potential to substantially lower the cost of capital for smaller investors. If this sector grows as expected, it would be a significant positive for the continued housing recovery.”
Institutional investors began buying single-family homes after the housing crash led to deeply discounted prices at foreclosure auctions and higher demand for rentals. Large buyers — those who purchase at least 10 properties a year — have amassed about 528,000 single-family rental homes for about $68 billion since 2011, creating a new asset class in what was once a mom and pop industry, according to a report this month by Haendel St. Juste, a Morgan Stanley analyst.
The biggest rental-home buyers have been able to use equity sales, bank-arranged credit lines or debt markets to finance purchases.
Since November 2013, Wall Street has sold about $8.8 billion in securities issued by corporate landlords in single- borrower deals. The debt provides firms with capital to buy more properties and increase returns through leverage. Blackstone’s Invitation Homes, with about 47,000 properties, was the first to sell bonds. The company is said to be marketing about $605 million in debt next week.
Most landlords of single-family rental homes are small investors and have had few options to finance their properties. Regional lenders, the primary source of financing before the housing crash, have pulled back, and government-backed mortgage companies Fannie Mae and Freddie Mac offer a limited number of loans to non-resident homebuyers.
“Developing this market continues to make more attractive capital available to smaller investors around the country,” Beth O’Brien, chief executive officer of Colony American Finance, said in a telephone interview. “A deal at this time should be positive for the whole space.”
Demand for rentals will increase for at least two years as job growth allows more people to form new households, according to a report this week by Andres Carbacho-Burgos, an economist with Moody’s Analytics in West Chester, Pennsylvania. Many of those people are unable or reluctant to buy a home,
The U.S. homeownership rate fell in the fourth quarter to a 20-year low, and the rental vacancy-rate declined to the lowest level in 21 years, the Census Bureau reported, after more than 5 million homes were lost to foreclosure since the real estate collapse.
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