Can a once-in-a-lifetime trade be replicated a decade later? After the last global financial crisis, Blackstone scooped up single family houses, often bought out of foreclosure. Tens of thousands of homes eventually provided the foundation for Invitation Homes, a landlord of single-family homes across America. Blackstone has long since sold its shares. Listed Invitation soldiers on with an enterprise valuation of $25bn.
Invitation hopes to strike gold again. On Wednesday it announced a joint venture with property investor, Rockpoint Group. The vehicle will be capitalised by $375m in total from both, and with added debt, will have buying power exceeding $1bn. It will target single family homes to buy, refurbish and rent in the west and sunbelt states. As a new company ten years ago, Blackstone and Invitation lacked an incumbent’s challenges, such as dealing with existing renters. House prices have also jumped since then.
In its most recent disclosures, Invitation said that 92 per cent of his current occupants paid rent in the month it was due. Its typical customer is in the late 30s, in a household with a low six-figure salary. Before the pandemic, Invitation believed that even solidly employed young Americans would struggle to afford down payments. That thesis still holds. But the work-from-home ethic has pushed city dwellers to cheaper suburbs and regions. According to the Census Bureau, the rental vacancy rate is down to under 6 per cent, as low as it has been in 35 years.
House supply has diminished, demand is high and interest rates are low. To July, the S&P/Case-Shiller US home price index rose 4.4 per cent, more than double the pace of the same period in 2019.
Nevertheless, Invitation’s shares have nearly doubled since the March lows. The company sold $400m of equity over the summer. It has spent $200m per quarter buying new homes but has avoided building up further debt. This new joint venture may well accelerate Invitation’s expansion, but expect reduced returns on these purchases.
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