Hous­ing-ren­tal gi­ant formed by bil­lion­aires

Austin American-Statesman - - MONEY & MARKETS - By Heather Perl­berg Bloomberg

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.

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