Housing-rental giant formed by billionaires

It was a simple phone call between two real estate billionaires that led to the formation of a behemoth in the house-rental industry.

Property investor Barry Sternlicht called Jon Gray, head of real estate for Blackstone Group, in the spring proposing a combination of Starwood Waypoint Homes, of which Sternlicht is chairman, and Invitation Homes, majority-owned by Blackstone. The companies announced the $4.3 billion merger Thursday after creating a company that will be the largest U.S. single-family landlord, with 82,000 homes.

The move further consolidates the still-young industry for corporate ownership of house rentals, leaving two large public firms. Private equity firms and hedge funds, led by Blackstone, spent hundreds of millions of dollars in the aftermath of the housing crisis to buy homes at distressed prices, building businesses that eventually were big enough to go public. Now, with property values soaring and foreclosures slowing to a trickle, landlords are combining to gain scale and hone their operations.

“This merger gives the industry more credibility now that there’s a more than $10 billion company, bigger than some apartment real estate investment trusts,” said Jade Rahmani, an analyst at Keefe, Bruyette & Woods Inc.

Blackstone’s 70 percent stake in Invitation Homes will be reduced to 41 percent of the combined company, according to the firm.

In forming the new real estate asset class, Wall Street was betting on demand for rentals from people who lost residences to foreclosure or were unable to get mortgages as banks tightened lending standards. Private equity firms and hedge funds institutionalized a business traditionally run by mom-andpop investors and gave America a new way to think about rental housing, with standardized renovations, call centers and technology that simplifies processes for tenants.

So far, their bets have paid off. Invitation Homes, already the largest company in the industry, had a $1.8 billion initial public offering in January, and its shares are up more than 8 percent since. American Homes 4 Rent, the second-biggest houserental landlord, has gained almost 40 percent since its 2013 IPO.

Invitation Homes and Starwood Waypoint say their transaction is expected to create annual savings of $45 million to $50 million. The new company will keep the Invitation Homes name and be based in Dallas.