As home prices rebound, Wall Street landlords are turning renters into homeowners

Financial landlords look to profit from renters with dreams to buy There is “skepticism … regarding Wall Street’s motivations”

Melissa Suniga had been renting a threebedroom Phoenix house for less than a year when her landlord gave her the opportunity to buy it. As an incentive, Invitation Homes, which is owned by private equity giant Blackstone Group, offered the 40-year-old child-care

worker a $5,000 credit, which was put toward her closing costs. Finance of America Mortgage, another Blackstone affiliate, provided the mortgage.

“When I started renting, I thought, I wish I could buy this home,” says Suniga, who expects to complete the purchase of the $150,000 home, where she lives with her mother. “My mom is 74 years old. I didn’t want to move her again.”

U.S. investors used the housing bust to build their rental businesses by buying cheap homes en masse. Now some are paring their inventories. Blackstone, one of the world’s largest asset managers, has amassed about 50,000 rental houses in the past four years, making it the largest owner of single-family homes in the U.S. While Invitation Homes is still buying selectively, spending about $5 million a week, it expects to cull about 5 percent of its properties each year for the foreseeable future, says Chief Executive Officer John Bartling. Selling some of its rentals to tenants is a way to help people stay put, keep their kids in the same schools, and stabilize neighborhoods, according to Bartling. It also saves landlords the cost and hassle of sprucing up, listing, and carrying the properties until they sell. “This is an important part of the maturation of the industry,” Bartling says.

American Homes 4 Rent, the

No. 2 single-family landlord, with

48,000 houses, didn’t respond to requests for comment about whether it would be selling homes to tenants. Colony Starwood Homes, the thirdlargest, with 31,100 homes, declined to comment. Smaller investors, such as Axonic Capital, have offered renters the chance to buy their homes for years. “We definitely see it as one of the best ways to sell because there’s no downtime or rehab cost between tenants,” says Jonathan Shechtman, portfolio manager for residential strategies at

the $2.7 billion investment firm. Renters such as Suniga may have better luck buying a home from their landlords than venturing into the open market. Nationwide, home prices are up 32 percent from their 2012 lows— and they’ve risen even more in areas hit hard by the housing crash, such as Phoenix and Miami. But rents also are soaring in many markets, causing some tenants to view homeownership as the more economically attractive option. Invitation Homes started selling houses to tenants in Phoenix and Sacramento this year through a program it plans to introduce in other cities in the next few months. The company bought Suniga’s house for $83,000 in 2013, according to property records. Home values in Phoenix have since risen about 25 percent; rents are up 15 percent over the same period. Suniga says her monthly mortgage payment will be $920, about $65 less than her rent.

Suniga wouldn’t have had enough to close on the house without the credit from her landlord. She says she feels fortunate to have clinched a loan from Finance of America, because some of her credit history—including a personal bankruptcy filing more than a decade ago—raised red flags for other prospective lenders. Invitation Homes says its renters-turned-homebuyers are free to use any lender they want. It’s also working with a small number of other mortgage providers that are more familiar with the new buying program. Blackstone doesn’t have a financial stake in any of those lenders.

This type of arrangement, however, may draw questions from lawmakers and regulators in Washington, according to Isaac Boltansky, an analyst in Washington with Compass Point Research & Trading. “There’s inherent skepticism in D.C. regarding Wall Street’s motivations in the mortgage finance market,” he says. “Novel forms of credit access are going to be scrutinized closely even though they purport to increase homeownership.”

Some housing advocates have pressed rental companies to give renters the chance to buy their homes before properties are sold to investors. That could help lower-income families get on the road toward building equity, “as long as the renter can afford the home and purchases it on fair terms,” says Sarah Edelman, director of housing policy at the Center for American Progress in Washington. “It’s important, though, that they shop around for a mortgage,” she says.

Suniga is planning to replace some carpeting and upgrade the kitchen cabinets once she officially owns the rental home she had thought was unattainable. “I’m thankful for the opportunity,” she says. “It’ll be a shock until I know it’s mine.”

The bottom line Blackstone is paring its inventory of rentals in some markets to take advantage of rising property prices.

“When I started renting, I thought, I wish I could buy this home. My mom is 74 years old. I didn’t want to move her again.”

——Melissa Suniga