Atlanta Fed blames the Fed & Bernanke; the dark side of “healing” the housing market.
By Wolf Richter of WOLF STREET
The housing collapse during the Financial Crisis keeps on giving. On Friday, Invitation Homes, a creature of private-equity firm Blackstone, and largest landlord of single-family rental homes in the US, filed with the SEC to raise up to $1.5 billion in an IPO. Deutsche Bank, JP Morgan, BofA Merrill Lynch, Goldman Sachs, Wells Fargo, Credit Suisse, Morgan Stanley, and RBC Capital Markets are the joint bookrunners and get to cash in on the fees.
Invitation Homes, founded in 2012, now owns 48,431 single-family homes, according to the filing. It bought them out of foreclosure and turned them into rental properties, concentrated in 12 urban areas. Revenues for the nine months through September 30 rose 11.4% to $655 million, producing a net loss of $52 million. It lists $9.7 billion in single-family properties and $7.7 billion in debt.
Blackstone was a pioneer in the post-Financial Crisis buy-to-rent scheme, including issuing the first rent-backed structured securities in November 2013. The collateral for the $479-million deal was rental income from 3,207 homes. Blackstone paid rating agencies Moody’s, Kroll, and Morningstar to rate the bonds; so nearly 60% of the debt was rated AAA. Other tranches carried lower ratings. The overall cost of capital to Blackstone from the securitization of these rents was about 2.01%. Cheap money! Thank you hallelujah QE and ZIRP.
Rent-backed securities have since become a common funding mechanism.
Other players in the buy-to-rent scheme have already gone public. American Homes 4 Rent, which owns about 48,000 rental houses in 22 states, went public in August 2013. It has produced a net loss every year since, sports negative EPS of -25 cents and a negative PE ratio of -84.
Starwood Waypoint Residential Trust was spun off from Starwood Property Trust Inc. and started trading in February 2014. In 2016, it merged with Thomas Barrack’s Colony Capital and changed its name to Colony Starwood Homes. Colony is now the third-largest single-family landlord. It too has lost money every year since going public, has negative EPS of -47 cents and a negative PE ratio of -62. Colony founder Barrack is now chairman of Trump’s inauguration committee.
But there’s a drawback: 32% of Colony’s properties in Atlanta and adjacent suburbs have eviction filings, by far the highest rate among the Wall Street landlords, according to a study by the Atlanta Fed on the impact of Wall Street landlords on surging “housing instability”…
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