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Published January 10, 2013， Bloomberg
Prices of homes rise faster than real estate firm has expected
Mr Gray: Says that housing is much stronger than anticipated, with the market moving much faster than thought possible. - PHOTO: BLOOMBERG
[LOS ANGELES] Blackstone Group LP, the largest US private real estate owner, accelerated purchases of single-family homes as prices jumped faster than it anticipated.
Blackstone has spent more than more than US$2.5 billion on 16,000 homes to manage as rentals, deploying capital from the US$13.3 billion fund that it raised last year, said Jonathan Gray, global head of real estate for the world's largest private equity firm.
That is up from US$1 billion of homes owned in October, when Blackstone chairman Stephen Schwarzman said that the company was spending US$100 million a week on houses.
"The market is moving much faster than anybody thought possible," Mr Gray said during an interview in Blackstone's New York headquarters. "Housing is much stronger than people anticipated."
Blackstone is the largest investor in single-family homes to manage as rentals, acquiring properties in nine cities, from Miami to Phoenix, where prices surged 22 per cent in the 12 months till October. The firm, along with Thomas Barrack's Colony Capital LLC and Two Harbors Investment Corp, is seeking to transform a market dominated by small investors into a new institutional asset class that JPMorgan Chase & Co estimates could be worth as much as US$1.5 trillion.
The market, which has been "dominated by 'Mom and Pop' owners" could total 12 million homes and be double the size of the institutional multi-family market, JPMorgan analysts led by Anthony Paolone, wrote in a note on Tuesday. "A corporate structure with institutional capital around the business makes sense."
Blackstone, which started buying the properties last year, has been racing against the real estate recovery as prices across the US rose more than economists forecast, with the areas hardest hit by the crash rebounding the most.
The S&P/Case-Shiller index of property values in 20 cities increased 4.3 per cent in the 12 months till October, the biggest 12-
month advance since May 2010, the group said last month in New York. Prices will gain 3.3 per cent in 2013 after an estimated 4.5 per cent jump last year, based on the median estimates of 15 economists and housing analysts surveyed by Bloomberg News.
Blackstone is buying in Atlanta, Chicago, Las Vegas, Phoenix, Northern and Southern California; and also in Miami, Orlando and Tampa, Florida - where prices fell so far that they "overshot", said David Roth, managing director at Blackstone overseeing single-family home rentals.
Blackstone has been purchasing through foreclosure auctions and short sales, in which banks agree to accept less than is owed on the mortgage, after more than five million homeowners lost their homes since the market's peak in 2006.
It has bought so quickly that it is "warehousing" more than half of the homes that it has acquired as it completes the purchase, and hires staff and contractors to renovate and rent the properties, Mr Gray said.
It takes about 30 days to fix each home and then as much as 30 days to lease the property, he said.
"Renovating the 16,000 homes is an enormous job," Mr Gray added.
By comparison, DR Horton Inc, the largest US homebuilder by volume, sold 18,890 homes and generated US$5.35 billion in revenue in fiscal 2012.
Colony Capital has bought about 5,500 homes since April, spending more than US$500 million, and expects to reach US$1.5 billion invested by the end of the year. Closely held Waypoint Homes said that it has bought about 2,500 homes and expects to have 10,000 homes by the end of 2013.
"We are seeing increased supply of rental homes as some of these big companies have moved into the space, but we're still seeing a strong appetite as well," said Colin Wiel, co-founder and managing director of Waypoint. "We always anticipated that prices were going to rise pretty quickly. They've risen quicker during the last 12 months than we would've guessed."
Blackstone currently buys all of its homes with cash and then finances pools of houses with up to 60 per cent debt. Conventional single-family home mortgages are financed with a 20 per cent down payment.
The firm got a US$600 million line of credit from Deutsche Bank AG in October. It is in talks with the Frankfurt-based lender to double the financing, according to two people with knowledge of the negotiations. Deutsche Bank will lead a group of banks that will contribute an additional US$600 million, according to the sources, who asked not to be identified because the talks are private.
Financial institutions have been slow to back single-family rental homes, because large investors have little history to demonstrate cash flows and cost of operations.
"While leverage is currently limited, potential financing options include secured credit lines, lending syndicates, high-yield debt, government sponsored enterprise-provided financing, and securitisation," Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc in New York, wrote in a note on Tuesday.
Citigroup Inc extended a US$245 million line of credit to Waypoint in October, enabling the investment firm to multiply its initial US$150 million in capital from GI Partners, a Menlo Park, California-based private equity fund. American Residential Properties, which has 1,500 homes in five states, received a line of credit from Wells Fargo & Co in June 2010. The company announced plans for an initial public offering of shares as early as the first quarter of this year, depending on market conditions.
Blackstone's strategy in real estate generally has been to "buy, fix and sell", said Mr Gray, who in 2007 engineered the largest real estate buyout ever when Blackstone acquired Sam Zell's Equity Office Properties Trust for US$39 billion including assumed debt. Mr Gray's real estate business brought in US$1 billion in profit for the firm in 2011.
In the case of the single-family business, Blackstone will rent and manage the homes through Invitation Homes, which it founded last year with Riverstone Residential Group, an apartment management company based in Dallas.
While Blackstone ultimately will benefit from the properties' price appreciation, in the meantime, the homes will generate revenue and cash flow, Mr Gray said. "We're building a real company," he said. - Bloomberg
Prices of homes rise faster than real estate firm has expected
Mr Gray: Says that housing is much stronger than anticipated, with the market moving much faster than thought possible. - PHOTO: BLOOMBERG
[LOS ANGELES] Blackstone Group LP, the largest US private real estate owner, accelerated purchases of single-family homes as prices jumped faster than it anticipated.
Blackstone has spent more than more than US$2.5 billion on 16,000 homes to manage as rentals, deploying capital from the US$13.3 billion fund that it raised last year, said Jonathan Gray, global head of real estate for the world's largest private equity firm.
That is up from US$1 billion of homes owned in October, when Blackstone chairman Stephen Schwarzman said that the company was spending US$100 million a week on houses.
"The market is moving much faster than anybody thought possible," Mr Gray said during an interview in Blackstone's New York headquarters. "Housing is much stronger than people anticipated."
Blackstone is the largest investor in single-family homes to manage as rentals, acquiring properties in nine cities, from Miami to Phoenix, where prices surged 22 per cent in the 12 months till October. The firm, along with Thomas Barrack's Colony Capital LLC and Two Harbors Investment Corp, is seeking to transform a market dominated by small investors into a new institutional asset class that JPMorgan Chase & Co estimates could be worth as much as US$1.5 trillion.
The market, which has been "dominated by 'Mom and Pop' owners" could total 12 million homes and be double the size of the institutional multi-family market, JPMorgan analysts led by Anthony Paolone, wrote in a note on Tuesday. "A corporate structure with institutional capital around the business makes sense."
Blackstone, which started buying the properties last year, has been racing against the real estate recovery as prices across the US rose more than economists forecast, with the areas hardest hit by the crash rebounding the most.
The S&P/Case-Shiller index of property values in 20 cities increased 4.3 per cent in the 12 months till October, the biggest 12-
month advance since May 2010, the group said last month in New York. Prices will gain 3.3 per cent in 2013 after an estimated 4.5 per cent jump last year, based on the median estimates of 15 economists and housing analysts surveyed by Bloomberg News.
Blackstone is buying in Atlanta, Chicago, Las Vegas, Phoenix, Northern and Southern California; and also in Miami, Orlando and Tampa, Florida - where prices fell so far that they "overshot", said David Roth, managing director at Blackstone overseeing single-family home rentals.
Blackstone has been purchasing through foreclosure auctions and short sales, in which banks agree to accept less than is owed on the mortgage, after more than five million homeowners lost their homes since the market's peak in 2006.
It has bought so quickly that it is "warehousing" more than half of the homes that it has acquired as it completes the purchase, and hires staff and contractors to renovate and rent the properties, Mr Gray said.
It takes about 30 days to fix each home and then as much as 30 days to lease the property, he said.
"Renovating the 16,000 homes is an enormous job," Mr Gray added.
By comparison, DR Horton Inc, the largest US homebuilder by volume, sold 18,890 homes and generated US$5.35 billion in revenue in fiscal 2012.
Colony Capital has bought about 5,500 homes since April, spending more than US$500 million, and expects to reach US$1.5 billion invested by the end of the year. Closely held Waypoint Homes said that it has bought about 2,500 homes and expects to have 10,000 homes by the end of 2013.
"We are seeing increased supply of rental homes as some of these big companies have moved into the space, but we're still seeing a strong appetite as well," said Colin Wiel, co-founder and managing director of Waypoint. "We always anticipated that prices were going to rise pretty quickly. They've risen quicker during the last 12 months than we would've guessed."
Blackstone currently buys all of its homes with cash and then finances pools of houses with up to 60 per cent debt. Conventional single-family home mortgages are financed with a 20 per cent down payment.
The firm got a US$600 million line of credit from Deutsche Bank AG in October. It is in talks with the Frankfurt-based lender to double the financing, according to two people with knowledge of the negotiations. Deutsche Bank will lead a group of banks that will contribute an additional US$600 million, according to the sources, who asked not to be identified because the talks are private.
Financial institutions have been slow to back single-family rental homes, because large investors have little history to demonstrate cash flows and cost of operations.
"While leverage is currently limited, potential financing options include secured credit lines, lending syndicates, high-yield debt, government sponsored enterprise-provided financing, and securitisation," Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc in New York, wrote in a note on Tuesday.
Citigroup Inc extended a US$245 million line of credit to Waypoint in October, enabling the investment firm to multiply its initial US$150 million in capital from GI Partners, a Menlo Park, California-based private equity fund. American Residential Properties, which has 1,500 homes in five states, received a line of credit from Wells Fargo & Co in June 2010. The company announced plans for an initial public offering of shares as early as the first quarter of this year, depending on market conditions.
Blackstone's strategy in real estate generally has been to "buy, fix and sell", said Mr Gray, who in 2007 engineered the largest real estate buyout ever when Blackstone acquired Sam Zell's Equity Office Properties Trust for US$39 billion including assumed debt. Mr Gray's real estate business brought in US$1 billion in profit for the firm in 2011.
In the case of the single-family business, Blackstone will rent and manage the homes through Invitation Homes, which it founded last year with Riverstone Residential Group, an apartment management company based in Dallas.
While Blackstone ultimately will benefit from the properties' price appreciation, in the meantime, the homes will generate revenue and cash flow, Mr Gray said. "We're building a real company," he said. - Bloomberg
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