America’s No. 1 homeowner is not an owner-occupant, but one of the world’s largest and most successful private equity companies — Blackstone Group. With almost 50,000 homes acquired since 2012, it is fair to say that no single entity in history has placed a bigger bet on the U.S. housing market. In the past couple of years, as the pace of Blackstone’s acquisitions has slowed, some have speculated that the trend is winding down, but it’s not. It’s just shifting form.
Breaking down barriers
Enter the creation of Blackstone’s second major play in the single family housing market — B2R Finance (stands for Buy To Rent). B2R Finance is a mortgage company that lends to single-family rental property investors, a category of borrower that has long been a secondary consideration of the mortgage-banking industry.
Blackstone spent several billion dollars buying and renting out homes, and then set out to invest another several billion in mortgage loans to smaller investors. In this way, they are enabling the fluidity of the single-family rental market.
Through B2R, Blackstone achieved another first when B2R announced a $230M loan securitization deal. Bonds will soon be issued, and no doubt gobbled up by Wall Street investors, which are backed by 144 mortgage loans tied to single-family rental properties. B2R doesn’t own the properties. Small and mid-sized property investors own them across the US, which is a constructive development for our industry.
Beneficial to everyone
Here’s why:
First, capital = demand = upward pressure on values. Every aspect of the institutionalization of single-family investing, including B2R’s bond deal, has something in common — they represent new capital coming into our asset class. New capital means more demand, which means support for stable and appreciating prices.
We all witnessed the power of this in 2011, when home prices hit bottom, and the drumbeat of a “housing free fall” was finally over. That year, investor sales soared 67 percent from the previous year, whereas owner occupant sales fell 16 percent. Investors provided the needed confidence, and capital, to kick-start the recovery. Capital from investors has the same positive effect as capital from home buyers.
B2R’s successful issuance of securities backed by rental property loans establishes a permanent flow of capital to smaller rental investors. It allows the lenders to lend, replenish their funds and then lend again. More capital then flows through the hands of more investors in perpetuity.
Second, there are over 14 million single-family rentals in America today. Until recently, mortgage options for smaller rental property investors were very limited. Available financing, such as the kind established by B2R, lubricates the market and will break inventory loose. Those of us who make our living when properties change hands can capitalize on that opportunity.
Third, the more ways everyday people can take positions in the housing market, the better. Our asset class is a splendid wealth-creating phenomenon. Its value is tied to one of the most fundamentally strong drivers on the planet — population growth in the US.
As a result, single-family rentals generate a predictable, stable return on investment. Precisely the kind of return that fits into the investment plans of pension funds, 401(k)s, university endowment funds and all other means of long-term nest egg investment funds. Until very recently, the only way to take advantage of this was to buy a home or buy rental property.
In just the last few years, we’ve seen the creation of a host of new ways for everyday people to invest in housing, from publicly traded REITs (real estate investment trusts), bonds backed by rental properties. And now the addition of bonds backed by mortgages held by individual rental property investors. Access has been dramatically increased. The bar has been lowered. Housing investment is being democratized. It’s about time.
Greg Rand is CEO of OwnAmerica, a national network of real estate brokerage companies that represent housing as an asset class. OwnAmerica provides the technology, training and marketing systems to real estate brokerages that pursue the single-family investment sector.
