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Major Private Equity and Hedge Funds taking over Rental Market!!!
In this new era of real estate investing many are cautious about buying rehabs or flips. The tide has shifted towards rentals. As a result many private equity funds have shifted their focus from commercial real estate to residential.
By: Union Equity, Blackstone Group
Traditionally investors that made millions did so in times when risk was the highest. Previously there has been several claims that the end of real estate investing was near. Many ignored and got rich. those that listened didn't. However, there may be some reason the buy in to this claim.
Blackstone Group a very well known private equity group worth more than 69 billion has recently taken out new initiatives. More known for their presence in commercial real estate Blackstone just crossed over in residential Blackstone Group recognizes that the future of real estate investing will be in the rental market. They have developed a large multi billion dollar hedge fund aimed at buying thousands of houses at a time throughout the country. Their plans are so strong that "if we like it we will buy it, no questions asked" says ceo Stephen Schwarzman.
Steve Schwarzman’s Blackstone Group LP (BX) has spent $7.5 billion acquiring 40,000 houses in the past two years to create the largest single-family rental business in the U.S. The private-equity firm is now planning to sell bonds backed by lease payments, the latest step in turning a small business into a mature industry. http://www.cashhomesva.com/
Blackstone has led hedge funds, private-equity firms and real estate investment trusts raising about $20 billion to purchase as many as 200,000 homes to rent after prices plunged 35 percent from the 2006 peak. The largest investors, seeking to profit from rebounding prices and rising demand for rentals among millions of Americans who went through foreclosure or can’t qualify for a mortgage, are looking to the bond market for capital to buy more properties and increase returns with borrowed money.
“Securitization is the next step in the evolution of the single-family rental business,” said Rob Bloemker, chief executive officer of investment firm Five Ten Capital LLC, which got a $100 million credit facility from Deutsche Bank in April to buy homes. “It brings consistent and conforming standards to lending, which will help bring larger pools of capital in and get comfortable investing in these types of loans.”
JPMorgan Chase & Co. and Credit Suisse Group AG also are arranging the debt, which will be tied to properties in most of the 14 markets where Blackstone owns homes, said one of the people. Moody’s Investors Service, Kroll Bond Rating Agency and Morningstar Inc. are grading the debt.
The person with knowledge of the transaction wouldn’t specify which rating company has assigned its top rating to the bonds. That grade is higher than Standard & Poor’s rating of U.S. government debt. The Financial Times reported earlier today that the deal would get a AAA grade.
Amanda Williams, a Deutsche Bank spokeswoman, declined to comment as did Oriane Schwartzman for New York-based Blackstone, JPMorgan spokesman Justin Perras and Credit Suisse spokesman Jack Grone.
Blackstone, which started its Invitation Homes division in April 2012 to buy and renovate properties to lease, is double the size of American Homes 4 Rent (AMH), the second-largest single-family home landlord.
The world’s largest private-equity firm has been spending about $100 million a week on properties in states such as California, Arizona, Florida and Nevada since the start of this year, when Wall Street increased lending to the sector. Deutsche Bank, based in Frankfurt, has arranged at least $3.6 billion of credit lines for Blackstone’s home-buying unit.
This is very alarming for many smaller independent investors who operate on the traditional formula of purchasing homes at 35-45 cents on the dollar. Blackstone is buying deeds and foreclosures fast often before anybody else gets to place a bid. This has to be illegal right?...wrong!
Some investors don't see this as a major problem yet because the effect is not as apparent as they will be in the next year to come.
Good news is that these major private equity and hedge funds are not so intrigued with buying houses to flip. There is still many "We Buy Houses" type of businesses that will remain. However their existence will be solely based on buying directly from the homeowner. There will be no more bidding wars on bank owned properties because no small time investor will be able to outbid a multi billion dollar hedge fund.