Offbeat Wall Street Is Raising More Cash Than Ever for Its Rental-Home Gambit

17:42  09 july  2018
17:42  09 july  2018 Source:   online.wsj.com

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Wall Street Is Raising More Cash Than Ever for Its Rental - Home Gambit . Heard on the Street . Don’t Worry About the Earnings Slowdown Yet. Business-Loan Drought Ends for Banks. Municipal Bonds Are Scarce.

Her landlord, the Wall Street rental behemoth Invitation Homes, was raising her rent to ,000 a month, an increase of more than 0 all at once. Barbee had shared the three-bedroom Los Angeles rental home with her mother, husband, and daughter.

a small town © Marcio Jose Sanchez/Associated Press

Wall Street is betting that more well-off Americans will want to be renters.

Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more—despite home prices in many markets being at all-time highs.

Their wager: High prices, higher mortgage rates and skimpy inventory are making homeownership harder. Well-to-do families who might have bought a single-family home in another era are willing to rent a house now, especially if it means access to a good school system.

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Four years and roughly 50,000 homes later, he will find out if his gambit will pay off as Invitation Homes, the company formed to rent those homes But if Blackstone and its rivals in the rental - home business succeed, they will have created a huge new field in which Wall Street can invest.

More than that, however, agricultural goods and manufactured products ARE TRANSPORTED across the And that is only one of many problems that an ever -increasing human population creates. It has hardly any streets for cars; homes are linked by walkways and buses provide a regular

The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC, a real-estate investment firm that made nearly 5,000 of those purchases.

That marked the first time since 2013—when investors like Blackstone Group LP’s Stephen Schwarzman and Barry Sternlicht of Starwood Capital Group gobbled up foreclosed homes—that investors bought more houses year-over-year. Single-family homes have become far more attractive to investors than apartments, where a nationwide glut has driven down rental yields.

This year, investors have raised billions of dollars from bond buyers, pension funds and even wealthy Chinese individuals to purchase more homes. They have been particularly aggressive buyers in places like Atlanta, Phoenix, and other metro areas with good schools and faster-growing economies.

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Cash to acquire and renovate homes has become so abundant lately that some rental investors can’t spend it fast enough. Without enough homes to buy, some investors are now building their own in popular residential markets like Miami and Nashville, Tenn.—upending a traditional pattern of Americans buying starter homes and moving up.

“The American dream no longer includes homeownership,” said Jordan Kavana, chief executive of Transcendent Investment Management LLC, a south Florida firm that has been a big acquirer of rental homes. “You will earn your equity in other ways, not your home.”

Transcendant says it has secured more than $250 million, mostly from wealthy Chinese individuals, that it will use to build thousands of rental homes in the Southeast. A Canadian investment firm said it is teaming with a U.S. pension fund and a sovereign-wealth fund to enlarge its home-purchasing program over the next three years by about $2 billion, enough for perhaps 12,000 houses.

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Big companies such as Blackstone are a new force in the single-family home market, offering more ready cash than ordinary buyers and helping push up prices. As homeowners from coast to coast wake up to learn they have a Wall Street fund as their neighbor

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“We’re seeing a wider variety of investors coming into this asset class: sovereign-wealth funds, insurance companies, hedge funds, pensions, asset managers,” said Sandeep Bordia, Amherst’s head of Research and Analytics.

Managing far-flung clusters of homes—much harder than running an apartment building—has long been a hurdle for investors. But analysts and rental executives say investors are gaining confidence it can be done profitably. Also, wealthier tenants in the single-family-home market typically have children and need more bedrooms than most apartments offer. They’re also willing to accept rent increases to stay in good school districts.

These investors’ war chests have been swelled by rising home prices, which give them more valuable collateral to borrow against to buy more. Transcendent’s fund will add about $750 million of debt on top of investors’ $250 million or so, giving the firm spending power of about $1 billion over the next three years. Mr. Kavana expects to develop as many as 3,000 homes for his predominantly Chinese clients, each of whom will hold title to specific properties.

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The rental income for these bonds comes from the more than 200,000 homes these companies have flipped into rentals . The market for the new bonds MORE : Rental Backed Bonds Wall Street Rental Empire Institutional Investors Institutional Investors Single Family Homes Single Family Rentals .

Wall Street 's hottest new investment: rental homes bundled into derivatives. ( Its many investments include Hilton Hotels, the Weather Channel, and SeaWorld. In Charlotte, North Carolina, Invitation Homes raised rents by as much as a third and filed eviction proceedings against nearly 10 percent

“They get that this is a linchpin of the American economy,” he said.

Toronto’s Tricon Capital Group Inc. said that $750 million of the roughly $2 billion it plans to spend will be committed in equal portions by its California home-rental unit, a U.S. pension and a sovereign-wealth fund. The rest will be borrowed.

Invitation Homes, the industry’s 83,000-home heavyweight created by the combination of Messrs. Schwarzman’s and Sternlicht’s rental ventures, last month sold the largest ever rent-backed bond. The houses that Invitation borrowed $1.3 billion against were valued at 26% more than when they were used as collateral in earlier bond deals, according to Kroll Bond Rating Agency.

American Homes 4 Rent, the country’s second largest single-family rental owner, has been adding houses with proceeds from $500 million of unsecured debt the Agoura Hills, Calif. company sold in January. That was the sector’s first such deal.

Demand from the industry’s biggest players has sparked a rush to emulate and feed them houses. Bruce McNeilage, who sold 42 houses in suburban Nashville to American Homes in 2015, has since flipped another 400 or so in middle Tennessee and around Atlanta to larger landlords. He’s building dozens of houses in both regions and buying in the Carolinas, some to sell and some to rent out himself.

Mr. McNeilage had planned to slow down, but local lenders offered financing that was too favorable to pass up, particularly when rents are rising and he’s being hounded by institutional investors looking for houses to buy.

Quantum National Bank, for instance, recently sent Atlanta-area landlords and flippers a memo advertising $10 million that it hoped to lend at promotional rates against rental homes, in chunks ranging from $150,000 to $1.5 million. Quantum CEO Bryan Cohen said the Suwanee, Ga. lender ran a similar special on rental-home loans this spring and the $10 million it offered was snatched up quickly.

“Right now there’s more money than deals,” Mr. McNeilage said. “I’ve got to find houses.”

Write to Ryan Dezember at ryan.dezember@wsj.com and Laura Kusisto at laura.kusisto@wsj.com

Why so many families are renting instead of buying homes .
Skyrocketing home prices appear to be a primary force, but not the only one, pushing families to rentRENTCafe analyst Nadia Balint cited the housing market's "airtight lending rules, an alarming shortage of entry-level homes and skyrocketing home prices." As a result, "fewer and fewer young families have a home to their name.

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