Foreclosure Crisis Comes Full Circle? Biggest Buy-to-Rent Landlord Plans IPO (Despite Red Ink Everywhere)

The financialization of rents.

In the Fed-engineered asset price inflation since the Financial Crisis, the value of the US housing stock has ballooned to $35 trillion, as large private equity firms have muscled into the single-family housing market, long the domain of mom-and-pop investors. They have acquired about 160,000 single-family houses out of foreclosure for least $32 billion. In the process, the homeownership rate has dropped to the lowest since 1965. And now comes the time to sell it to the public.

The largest player in the field, Blackstone’s Invitation Homes, which spent about $10 billion since the Financial Crisis, or about $150 million a week during the heyday, on about 50,000 homes in 14 metropolitan areas, has confidentially filed for an IPO, according to The Wall Street Journal. But it will face some, let’s say, challenges.

Other players in the buy-to-rent scheme include American Homes 4 Rent, which got started in 2012 and now owns about 48,000 rental houses in 22 states. It went public in August 2013 at $16 a share. It produced a net loss every year since, sports negative EPS of -25 cents and and a whopping negative PE ratio of -84. But its stock closed today at $21.09 a share.

Starwood Waypoint Residential Trust, spun off from Starwood Property Trust Inc., a commercial-property investment and finance REIT, started trading in February 2014. It has merged this year with the portfolio of houses owned by real estate mogul Thomas Barrack, changed its name to Colony Starwood Homes, and is now the third-largest landlord in the US. It too has lost money every year, has negative EPS of -47 cents and a negative PE ratio of -64. And its stock too is up and today closed at $30.02 a share.

Both of these companies, in this wondrous stock market of the modern era, have multi-billion dollar market capitalizations and trade near their 52-week highs. So Blackstone’s Invitation Homes would be in good company.

In Wall Street’s never-ending passion to financialize absolutely everything, they created a new asset class: rent-backed securities. Renters are notoriously fickle, but no problem. There are now about $16.7 billion of rent-backed securities outstanding, of which Blackstone created over $5 billion. That’s a big part of how this business levered up.

While mortgage lending may have become tighter over the past few years, making it tougher for people with less than perfect credit to obtain a mortgage, institutional borrowers, long favored by the Fed’s policies have no such issues. They’re highly leveraged at the institutional level. They can borrow cheaply from banks and in the overnight markets. They issue bonds and even rent-backed securities without breaking a sweat.

House prices are set at the margins, and this onslaught of institutional buying in the single-family home market changed the dynamics and helped create Housing Bubble 2  – now even more magnificent than the one that blew up with such fanfare. In some of the markets where Blackstone et al. were the most active, prices soared the most, according to the Wall Street Journal:

In Phoenix, where Blackstone bought its first house in 2012, prices have risen 57.5% since its homebuying binge began, according to Weiss Analytics. In Las Vegas, prices are up 60.3% since 2012.

But it isn’t easy to make these spread-out rental empires work profitably on a daily basis, according to the thick red ink oozing from the financial statements of those buy-to-rent companies that have gone public, including our two heroes above. They have to fix up, rent out, and manage tens of thousands of individual houses that are, though concentrated in certain cities, still far apart and have to be dealt with one by one.

And even though interest costs are still low for institutions, interest rates are rising, and interest expense, already a big item on the income statement, is bound to balloon.

So these companies need to grow their revenues. Alas, there are only two ways to grow revenues:

  1. Buy more homes, one by one, at the high prices now prevailing in Housing Bubble 2, now that foreclosure rates have fallen back to normal;
  2. Raise rents when many renters are already pushed to the limit after years of rent increases, and in competition with apartments, where rents in many big metros are already under pressure.

So acquisition costs are going to rise. And interest expenses are going to rise, not only because rates are rising, but also because debts are ballooning on higher acquisition costs. So a double whammy. And this whole thing must be managed with far-flung staff and contractors.

Many of their properties, acquired between 2011 and 2013, have appreciated substantially. So the hope is, when push comes to shove as operating and interest expenses are generating losses, that the properties could be sold at a profit to make up for the pain. But dumping these units on the market would create entirely new dynamics, with the reverse effect of what happened when these companies bought the properties.

Whatever the realities for those battling it out on the ground, and whatever the red ink for shareholders to admire, for Wall Street, there is a big sweetener: the fees to be made off the securitization of rents.

But the rental market is already sagging in San Francisco, New York, Boston, Chicago, Washington DC, and perhaps a city near you. Read…  The Great Unwind Unravels Hottest Rental Markets in the US




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  78 comments for “Foreclosure Crisis Comes Full Circle? Biggest Buy-to-Rent Landlord Plans IPO (Despite Red Ink Everywhere)

  1. DCR
    Dec 6, 2016 at 9:03 pm

    Sounds like by going public Balckstone reaps its rewards and the public investors in the shares will have an investment with increasing red ink especially if prices go down of the homes. Beware…

    • Frederick
      Dec 7, 2016 at 2:03 am

      Not IF prices go down on the homes rather WHEN? At least in gold terms anyway its ineviteable

  2. Greatful again
    Dec 6, 2016 at 9:38 pm

    Going public is essentially selling the houses, especially if they can sell all the outstanding shares. Actually putting the houses on the market would kill the price and be a real hassle to close. These guys are pretty damn clever and devious. Great scam. …along with securitizing the rents. AMAZING!
    I’ve sold over half my rental homes this summer and the rest are on the market. The end seems near.

    • nhz
      Dec 7, 2016 at 6:07 am

      I wonder … are these companies going to start a European offshoot so the ECB can transfer all the downsize price risk to the EU taxpayer, while paying these US moguls for the privilege of financing their debt? With Goldman Sachs banksters on every corner of the EU bankster world, sounds like a done deal …

      Otherwise, I bet some pension funds are salivating to get in on this solid long term ‘investment’ ;-(

      • MC
        Dec 7, 2016 at 6:55 am

        I don’t know how things are working out this year, but at the end of 2014 Blackstone entered the Spanish “buy-to-rent” market, contributing in no small part to price explosion in property prices we saw down there.
        Problem is, however, the rent market in Spain is brutal to say the least. Vacancies are high and owners, especially local corporations, are eager to cut good deals to at least recoup part of their costs.

        I bet a part of that red ink originates from Triste Espana…

      • economicminor
        Dec 7, 2016 at 9:43 am

        Ever hear of the word Fiduciary? Any pension fund or in fact any body purchasing the shares of these (put any derogatory word you like here) for the benefit of someone else is breaking their fiduciary duty to their client(s) and should go to prison. It seems to me that this basic duty to legally protect each other is being totally ignored.

        It is not illegal to sell a pile of C but for some entity that represents your interests to purchase that pile without full disclosure that it is a pile of C… well, where are the attorneys?

        Has the law changed in the US so that fiduciary is no longer a valid concept?

        • Jungle Jim
          Dec 7, 2016 at 11:38 am

          The short answer to your question is YES.

          The politicians are not going to enforce the law if it gets in the way of holding this leaky ship of ours up. Believe me, the lobbyists will be out in full force. Between “campaign contributions” and apocalyptic stories they will get the Pols to save their butts. Not yours or mine, just theirs.

        • d
          Dec 8, 2016 at 2:25 am

          “Has the law changed in the US so that fiduciary is no longer a valid concept?”

          In the US like much of Europe Fiduciary Duty, has never been an enforced legal concept.

          POTUS Elect 45 is threatening to overturn recent regulations that forced various US adviser to conform to Fiduciary duty, to clients.

          This is the main reason why the US and much of Europe is such a fradulent mess.

          Dont event think about china.

          The only Fiduciary duty there, is to the CPP.

  3. Mattis
    Dec 6, 2016 at 9:48 pm

    So the business model was to acquire homes and rental properties using cheap financing to drive revenue growth.

    But there is no way to continue this model once rates begin to rise and renters are obviously tapped out.

    Strangely I think institutional buyers will buy these stocks for the purpose of diversification and kissing Blackrock’s ass. Just wave a magic wand and pull some proforma black magic and anything can sell. No one suffers from bad deals it seems.

    Hey, lets securitize the organs of the tenants against possible defaults. That might work.

    • walter map
      Dec 7, 2016 at 8:18 am

      “Hey, lets securitize the organs of the tenants against possible defaults.”

      Don’t give them any ideas. You don’t want to be renting your own kidneys from these guys.

      • Frederick
        Dec 7, 2016 at 9:38 am

        Walter if they call looking for pizza hangup lol

  4. Ben
    Dec 6, 2016 at 10:51 pm

    Hope to see these guys go belly up. Maybe then our family can get a house. Been sitting on cash since 2013, after getting outbid twice we threw in the towel. I’ve got more patience than them, and if prices never go down I plan to take some nice vacations before I die.

    • jerry
      Dec 7, 2016 at 4:09 am

      You will be rewarded for your patience. Try buying near a water and food source

    • Frederick
      Dec 7, 2016 at 9:41 am

      Ive been in cash since 2014 also waiting for the long overdue correction/collapse Do yourself a favor and diversify some cash out of USDs after the 14th FOMC meeting

      • nhz
        Dec 7, 2016 at 10:08 am

        I’ve been waiting in my country since 2001, when prices were already totally crazy (around 1000% up compared to 10 years before). But many homes increased another 50-200% since then. Only an epic collapse would put prices into attractive territory for cash buyers. Who knows what they will do next, sometimes it seems the whole world economy depends on selling each other homes at ever rising prices :-(

    • interesting
      Dec 7, 2016 at 1:16 pm

      “Hope to see these guys go belly up”

      keep dreaming, these guys don’t go belly up, they get bailed out.

  5. MaxDakota
    Dec 6, 2016 at 11:11 pm

    When Blackstone Group first went public at $31/share, all the finance guys I know went nuts and bought a ton of shares. I seriously thought about investing, but had a queasy feeling, I couldn’t reason through how they added value to the companies they were involved with (or rather, pillaged) – just looked it up, BX has hardly ever cracked its initial share price since 2007, currently at $26.55, so dodged that bullet.

    Flash forward to 2016 – who will buy shares of Invitation Homes? Probably not any readers of this blog. But seriously, do they offer crazy dividends or something? What am I missing? I’m sure someone will buy this stock, and I am actually interested in understanding who and why.

    • NotSoSure
      Dec 7, 2016 at 12:35 am

      Your pension fund will buy it. Or some other sucker’s pension fund.

      • Frederick
        Dec 7, 2016 at 2:07 am

        It sure wont be the Chinese theyre too smart Maybe one of our “allies” will be buyers

        • interesting
          Dec 7, 2016 at 1:19 pm

          “Chinese theyre [sic] too”

          is that why they keep papering over bad debt at an alarming rate?

          what they are “smart” at is laundering money all over the world I’ll give them that.

    • Petunia
      Dec 7, 2016 at 2:32 pm

      The companies price the homes over market and then sell an entire portfolio at a time. That clustering hides a lot of problems. Those houses may need new roofs, paving, pool resurfacing, or other expensive repairs but you can’t see it unless you look at each house and price it against comparable homes in an area. They probably don’t tell you about the code and HOA assessments against properties either.

      They make more selling the entire portfolio at once, no commissions, no inspections, no due diligence, ans no negotiations.

      • nhz
        Dec 8, 2016 at 3:51 am

        maybe they can do the same as our housing corporations:

        Put very old rental homes (build for EUR 2-4K 60 years ago) on the market for 180-250K (just below the median home price = way overvalued, but they can do their own appraisals), tell the renters that they can buy their own home and get a 25% discount on price, a no-money-down mortgage at ultra-low rate (thanks to Mario and his mob) and a guarantee from the government against losses when selling the home. The mortgage is cheaper than renting, so what could go wrong?

        Even then the mortgage amount is often a problem, so they also have the option to buy HALF of the home with similar conditions (probably even affordable for those on social security), with the right to buy the other half if they find the money. The gains in value on the second half are split with the housing corporation, sounds great isn’t it? Of course the fine print makes sure that any losses will also be shared, but who thinks about losses in the housing market…

        Result: the housing corporations make out like bandits (most of them are former government organizations with simple political hacks at the helm, who now have the lifestyle of playboys). The former renters get a debtors prison which only matters if they have some money left, otherwise the taxpayers are stuck with the bill. Great business if you can get it.

        I have read similar tricks from the UK rental market, where government and big landlords conspired to stick their renters with all the downside risk.

  6. Ishkabibble
    Dec 6, 2016 at 11:16 pm

    Nice analysis, Wolf!

  7. Dec 7, 2016 at 12:15 am

    I am unfamiliar with this idea, completely. I began life in college owning a small 1950s era “mobile home” . . . . and then bought a house just out of college, a circa 1880 fixer-upper.

    Never been a renter, but rather a VERY cash-poor homeowner. Always.

    Would sane people choose to rent from these behemoth corporations ?Rather, why would they rent from them ?

    Are the rents offered by these behemoth corporations lower than, about the same, or higher than the rents offered by smaller landlords – – meaning the people that saved and invested well so they could have a few or several rental units to serve them during their retirement? And then be inherited by the kids.

    I apologize for my rather simple-minded questions – – as I said, I always feared the inconveniences of being a renter and having a landlord control part of my destiny. Being a cash-poor homeowner, doing my own repairs to save money, always seemed preferable to me. Hard as it is.

    SnowieGeorgie

    • Dcr
      Dec 7, 2016 at 6:41 am

      People rent because they do not have the down payment especially in NYC where most buildings and banks want to see at least 10% down and mist cooperative buildings 39 to 25 % down with at least 24 months coverage of debt and a debt to income ratio of 25 – 30%.

      • nhz
        Dec 7, 2016 at 10:10 am

        that’s funny … in my country people buy because they don’t have a down payment (103% mortgage is standard), the monthly payments are far lower then when renting and paying off the mortgage is something for the far future that no one should worry about ;-)
        In addition, some landlords demand more certainty from renters than banks ask from home buyers ;-(

      • David in Texas
        Dec 7, 2016 at 10:25 am

        People also rent if they are unsure how long they will remain in a particular area. If you know, or believe it to be likely, that you will move to another location in a couple of years, it makes more sense to rent than to buy given the transaction costs of buying and selling a home.

        • nhz
          Dec 7, 2016 at 12:41 pm

          Yes, that used to be true and the general advice was that you rent if you are not sure you want to stay there for at least 5 years or so.

          But nowadays people figure that with ever rising homeprices there is no transaction cost for owners (prices always go up …) and the cost (just a few % in my country) can be recouped with 1-2 years of owning, or even a few months in hotspots like Amsterdam ;-(

          And that is without including buyer incentives; we are not yet back to the proverbial free Porsche with every upscale apartment, but we are getting close again :-( Wake me up when they start offering free Porsches for good renters, with the much higher monthly payments they deserve it ;-)

          The local housing corporation doesn’t even want to rent me a home as I’m considered a liability even though I could buy a dozen of their homes cash: I don’t have fixed income. “You could go to the casino, lose all your savings and stop paying rent”. On the other side, I don’t qualify for most of their rentals anyway because I have too much capital, sigh…

          They’d rather have a deadbeat on social security as a renter, because whatever happens the money from the government will always arrive. “Why don’t you buy, it is so much cheaper than renting?!” (they also sell new homes, in addition to renting)

    • Petunia
      Dec 8, 2016 at 1:13 pm

      I rented from one of these companies because they owned all the better houses in my area after the foreclosure crisis. The rents are at market or above. They only give one year leases which can rise to any amount. They charge extra for pets too.

      They are terrible landlords and I would never rent from them again. Also I got to see the condition of the “nice houses” closely and it was not good at all. Their management is also terrible, all crooks and liars. I doubt that anybody renting from these people would enter into a contract to buy from them.

  8. Bob
    Dec 7, 2016 at 2:30 am

    Who in their right mind would buy a securitized rents at this point in the cycle? Can you imagine the fees they charge to maintain and manage the properties? All the profits go to the maintenance company, which is probably another Blackstone entity.

    I don’t even have to read the prospectus. It’s a dumb investment.

    • Dave
      Dec 7, 2016 at 6:37 am

      A former Goldman Sachs guy or gal that is running a pension fund would buy securitized rents. Its other peoples money they are playing around with!

  9. d
    Dec 7, 2016 at 4:08 am

    The money in stand alone unit renting, is in the capital gain’s. Or as a minimal return, for small investors.

    For corporate’s, their overhead’s are to high, to make stand alone units work. For them.

    There has to be a financial engineering twist, or some tax dodge. I am not seeing, or there is not, and never has been, any money in this for them.

    • economicminor
      Dec 7, 2016 at 9:59 am

      buy low sell high is their business plan
      or in this case, form a separate corporate entity that you can IPO and sell it at the high to index funds etc.

      They got the money cheap, go in and purchase direct from the banks doing foreclosures, then when the price goes up from lack of inventory because they were purchasing everything they could get direct… sell the inventory or sell the business..

      The costs in the middle are irrelevant. It is the big profit in the end that counts.

      • d
        Dec 8, 2016 at 2:32 am

        Except at the moment there does not appear to be any profit, let alone a big one.

        Which was the basis of my .

        “What have I missed where is it.”

        My suspicion is huge debts, racked up against the profit (capital gain) on the assets assets, with the cash already extracted, but there is so far no proof of this.

        It is obviously a sick skinny pig, or Blackstone Would not be trying to unload it.

    • Greatful again
      Dec 7, 2016 at 10:16 am

      Even for mom and pops, the rental cash flow is a trickle arrangement when all real costs are included….I know from experience. …The real pay off is in the sale of the property.

      • nhz
        Dec 7, 2016 at 12:43 pm

        That is now; 25 years ago it was exactly the opposite in my country.

      • d
        Dec 8, 2016 at 2:38 am

        This is correct.

        Now as Blackstone brought at foreclosure rates, and prices have increased, their should be a big CG profit on the book’s.

        but it seems their isnt, so where did it (the Capital Gain Profit ) go.

    • Petunia
      Dec 8, 2016 at 1:20 pm

      They bought the houses with borrowed money and kept them up with borrowed money too. Now the only way to pay back the borrowed money is by selling for top dollar. The market bubble is the only thing that can save them because the houses don’t have a real return.

      I rented a renovated house for one year from one of these companies and a back of the envelope calculation is that they spent more than half the rent I paid them on repairs. I am being conservative on my estimate, it could have been closer to 100%. This is why they are losing money.

      • d
        Dec 8, 2016 at 6:47 pm

        They brought at foreclosure rates.

        They should have a huge capital gain, On book’s.

        They dont, where did it go ???.

        I understand all the ins and outs of foreclosure stand alone renting.

        As a qualified real Estate trader and manager.

        So I understand why they are not making money, and would never make money PA.

        BUT somewhere there, should be a big chunk of capital gain.

        it looks to have been extracted, as it is not on book’s.

        If they have already extracted that CG then not only is the IPO a pig, its a skinny sick and dying pig.

        As we are in a cyclic market top, Topped of by huge finance industry and chines flight generated bubbles. Small Interest rate rises alone, will make it so. Before all the other factors are considered.

        People who sat out since 2000 Have not done well, as there were obvious bottoms/Dips.

        Those who brought after 08 and sold late last year or this year have done well.

        • Petunia
          Dec 8, 2016 at 9:55 pm

          One contractor that came to the house told me he did a lot of work for one of these companies and was suing them to get paid. He did entire renovations for them. I can tell you that all the work is cosmetic in nature and when you actually live in the house it starts to fall apart.

          The house I rented had a small pool that had bad electrical problems and had to be rewired and resurfaced. The house also had termites which were fumigated but the damage in the attic was never addressed. These houses are money pits even after their so called improvements.

  10. mike
    Dec 7, 2016 at 6:35 am

    The stock price is not totally irrational. Earnings look low due to depreciation when actually the houses are appreciating if they largely picked the right neighborhoods. Massively appreciating in some areas.

    • d
      Dec 7, 2016 at 6:50 am

      If it was even half good ,why would Blackstone be wanting to cash out???

      They have Assets in management globally they are always looking for earners.

      • Meme Imfurst
        Dec 7, 2016 at 8:45 am

        Blackstone wants out because there is no more milk in the cow.

        You can thank the FED for giving free money to Deutche Bank, who in turn financed, on the cheap, Blackstone’s buying spree.

        “The red ink everywhere” has more to do with tax payers than bankers and their favored customers.

        The doom and gloom predictions for the next few years ( no matter if Trump get in or Hillery magically becomes the President) are very poor for the average American…the renters and their paychecks.

        Look at the future and the loss of jobs is no longer creeping along, it is a bobsled. Who wants to own rental property which is facing the same problems that the guy faced when HE LOST that home to begin with?

        In Florida, it can take a year to get someone out of a property when they stop paying rent. One payment stops the eviction, and the renter can start all over again. Yes, buy rental property in Florida, the tide is low.

    • Petunia
      Dec 8, 2016 at 10:27 pm

      Depreciation makes your bottom line bigger not smaller. If they are losing money after depreciation than the interest and up keep is eating their bottom line.

  11. Me
    Dec 7, 2016 at 9:29 am

    I own commercial property, which is bad enough,but I swore when I was 22, after graduating with my first degree, that I would NEVER buy residential rental property. The headaches I have avoided!!!!!

    And yes, dealing with dead-beat residential tenants is horror. I saw my dad try it and he owned a few homes in the wealthiest area of the State. Don’t do it.

    Now, why are the big-boys selling? Well if Trump does ship out the 3 million criminal illegals, and up to the 20 million “non-criminal” illegals, there will be a MASSIVE oversupply of housing. These companies don’t want to be stuck with inventory when the vacancies start.

    • Ion
      Dec 7, 2016 at 11:28 pm

      ‘Now, why are the big-boys selling? Well if Trump does ship out the 3 million criminal illegals, and up to the 20 million “non-criminal” illegals, there will be a MASSIVE oversupply of housing’

      Yes that’s true but it won’t happen. States do not have to enforce federal laws so NYC, LA and most others will thumb their noses at the hated Trump.

      I see NYC restaraunts as slave-ships with the exploited illegals working in the galleys below working the oars.

      Where there should be one business providing real wages there are three all living off the sweat of the downtrodden.
      Our whole economy is built on this faulty business model.

      https://www.cato.org/publications/commentary/yes-states-can-nullify-some-federal-laws-not-all

      • Petunia
        Dec 8, 2016 at 1:32 pm

        There won’t be a massive over supply of houses, on the contrary you have no idea how many families are doubled and tripled up. Almost every family on my street in Florida was multi generational adults.

        • d
          Dec 8, 2016 at 7:01 pm

          Thats not going to change, as they get richer they will simply buy bigger Multi generation property’s. Unless they get fooled and trapped by the wealth extractors

          All these single generation, single family dwelling’s, are an unnatural creation of rent seekers and financial extractors.

          Make them pay to put old people in care prisons, and have each single unit family, pay us, interest on a mortgage, and tax on a property.

          And America brought it as a concept, foisting it on much of the west as well.

          It is in fact, an unnatural way for humans to live. Just as multiple large city’s are. The only large city’s required are major administration centers.

          The rest are simply Jails full of Corporate Consumers. They serve no other purpose than that.

          Detroit. Flint.

          Now.

          A city, with out a reason to exist. There are many more.

  12. David in Texas
    Dec 7, 2016 at 9:42 am

    Nice analysis, Wolf. Along with other readers, I, too, have wondered how Wall Street has been able to peddle this sort of radioactive canine excrement for so long. But alas, here we go again. The Dallas Police and Fire pension fund is probably lining up to be the first buyer.

  13. Brian Richards
    Dec 7, 2016 at 10:06 am

    What puzzles me is that these large companies who bought single family residences, at a relatively low point in the cycle, are losing money on these investments. I know here in Sacramento of two homes that were purchased by Blackstone, at around $100K each, now worth double that. They should positive cash flow fairly easily. And with a centralized management company, management costs are minimized. And then we have low interest rates. In addition, rental properties provide enormous tax advantages, so something isn’t making sense. These major rental companies should be making 8% to 10% every year.

    • Dec 7, 2016 at 10:47 am

      A couple of things:

      We don’t know if Blackstone’s entity is losing money. The only data we have is from its publicly traded competitors.

      These companies are not losing money on ALL their properties. So taking a specific property and extrapolating from there can be misleading.

      They might not lose money on any property that is rented out. But they’re fixing up properties (at a substantial expense) during which time the property produces no revenues, and they have vacant properties which continue to cost money, and they have renters that come and go and some don’t pay their rents and are evicted, which is costly, and they have a complex management structure that needs to be paid, and they have maintenance expenses, and they have a HUGE amount of interest expense. So on a net basis, under GAAP, they’re losing money.

      • interesting
        Dec 7, 2016 at 1:25 pm

        GAAP!!!

        LOL, sorry that’s funny these days….didn’t you do an article on that farce?

  14. Shawntay
    Dec 7, 2016 at 10:11 am

    Is Birkhire-Hathaway one of these companies? They have for sale signs all around my part ofSan Francisco.

    I’m always stunned by the homes I see listed on the MLS that when they’re sold end up on Craigslist for rent a few months later. This not only keeps home prices up but also keeps the rents high despite major pressure for decrease.

  15. Lars
    Dec 7, 2016 at 10:59 am

    Yes, another dynamite article !!!, covering an area that most of us would never know about. Thank you Mr. Richter for rolling over this massive rock and describing its underneath !!!

    Interestingly, this ‘Buy-to-Rent’ scheme of BlackRock dovetails into something I was speculating about in ’09 or ’10 shortly after the ‘Mortgage Crisis’ that began in 2008 and with the ‘Fraudulent Foreclosure’ episode by ‘robosigning’ bank employees attempting to institute Court proceedings to gain Title to residential property without producing any original documentation substantiating their claim to Title. The idea was: that there would be a massive ‘change in ownership’ of US residential real estate, in that a large percentage of US residential real estate would now be owned by The Fed, who would be buying up the ‘distressed assets’ of the ‘too big to fail banks’, consisting mainly of failed mortgages, once the banks got ‘clear Title’ to the properties. I was seeing this as a ‘conspiracy from the top down’. Their ‘end game’ was to change the way ‘Title’ was held for residential property in the US (as the US is the ‘last bastion’ of real property Rights). When The Fed later sold the properties, the ‘new property owner’ would now hold ‘Title’ in a way that seriously reduced their ‘Rights’. As example, in the British Empire, all property Title is primarily held by The Monarchy, and anyone who buys real estate holds a secondary ‘Title’ that has severe restrictions and is subservient to the primary Title held by The Monarchy. I made several postings about this back then. Now it looks like the ‘private sector’ is attempting this ‘coup’ rather than doing it thru The Fed. We will have to watch and see if the way new property owners buying from BlackRock and others, end up with a ‘reduced rights Title’. As example; in Canada (and everywhere in ‘The Empire’) “The Crown” owns all oil and gas rights, as well as all timber and mineral rights. And don’t get me started on how Title is held in Islamic countries !!! The book “Who Owns The World” goes into the way Title is held around the world, and which further enlightened me that this could well be the ‘hidden agenda’ here in the US as to why the banks were so ‘fast and loose’ in their lending, leading up to as well as causing the ‘mortgage crisis’ here. And that maybe this was their long term goal; lend to people who were sure to fail, get foreclosed on, and for the banks to then get title to 40% or more of US residential property, and then change the way Title was held subsequently by any new owners, and in the process skim off certain property ‘Rights’ and sell them or have them held by the Government.

    • Dan Romig
      Dec 7, 2016 at 1:22 pm

      Samuel Adams: “Among the natural rights of the Colonists are these: first, a right to life, second, to liberty, and thirdly, to property; together with the right to defend them in the best manner they can.”

      James Madison: “Where an excess of power prevails, property of no sort is duly respected. No man (or woman-I would add) is safe in his opinions, his person, his faculties, or his possessions.”

      Why the hell do European nations, and other countries as well, still have Kings, Queens and Monarchies? I can understand Monaco, but no where else should there be a ‘Royal Bloodline’ that entitles one to rule over others. Perhaps if I wrote this opinion in Saudi Arabia it might result in me losing my head-literally and figuratively.

      As Bruce Springsteen would say, “Born in the USA.”

      • nhz
        Dec 7, 2016 at 5:03 pm

        you mean royal bloodlines like the Bushes or the Clintons and their ilk? (all one big family really …)

        • Dan Romig
          Dec 8, 2016 at 7:08 am

          Good point! Senator Prescott Bush had quite the resume. He was a member of the Order of Skull and Bones at Yale, a director at Union Bank Corp where he worked with, among others, Fritz Thyssen. Before the Nazis invaded Poland, Bush and Union Bank helped finance the German military industrial machine. Other US corporations did as well though …

          The Clintons do not yet have the multi-generation pedigree, but watch for Chelsea Clinton to make a run a the Democratic power structure in the near future.

  16. Happyfamily
    Dec 7, 2016 at 11:44 am

    If either of these entitys goes BK, wouldnt there be a huge amount of inventory to hit the market?

  17. rich
    Dec 7, 2016 at 12:38 pm

    I have a friend who is a pretty savvy commercial RE broker. About five years ago, he bought two trailer parks replete with old trailers. He said that the poor tenants he rents to are getting even poorer. Recently, he hired a management company to collect the rents, at no small expense, because he can’t deal emotionally with the poverty he has to see. He also said that if he were to sell the parks, he’d take a huge beating financially. He is highly leveraged in them, and the higher than market rate mortgages are not assumable.

    He hates his life and wants to move to the Bahamas. With a non-working wife and four young kids, he ain’t moving anywhere. He doesn’t own those properties, those properties own him.

    However, there are folks that have made multi millions in the trailer park business, but it takes a real prick to do so. Here’s an article about one of the more famous pricks:

    “Warren Buffett’s mobile home empire preys on the poor
    Billionaire profits at every step, from building to selling to high cost”

    https://www.publicintegrity.org/2015/04/03/17024/warren-buffetts-mobile-home-empire-preys-poor

    • nhz
      Dec 7, 2016 at 12:49 pm

      For sure the 0.1% didn’t get rich by preying on the rich; just ask Bernie Madoff, not a clever strategy. Preying on the poor (indirectly often on the taxpayers) on the other hand is entirely accepted and encouraged in these circles.

    • interesting
      Dec 7, 2016 at 1:30 pm

      there was an article at the peak of the last bubble where there was a trailer that sold for $1,000,000…..this might not be the “one” i’m remembering but still…..it’s by the beach so…..and it’s a double wide.

      http://articles.latimes.com/2005/feb/13/realestate/re-mobile13

  18. Tom Kauser
    Dec 7, 2016 at 1:28 pm

    took a president two weeks and five housing bailouts to stabilize real estate and banks (shadow and Japanese house wife’s) before they stabilized 2008.
    This time it will be one big bailout and the spreads will be wider and juicer as weak players get crushed? I expect the people around president trump to be waxing poetically about 10% interest rates since they are bankers?

    Commercial was the Maginot line last time and there is too many commercial players and the derivatives market needs a shinny new can to fill?
    No matter how they try next year commercial will be going down more than just temporary and I would guess for several Innings?
    The second part of the collapse of ’08 was personal between hank Paulson and dick fauld and became a defacto building seven event?
    Housing will be left to reprice on its own and the fed will lose its mandate to govern?

  19. Petunia
    Dec 7, 2016 at 1:37 pm

    I rented from one of the companies listed, in Florida. It was one year of hell. The first week I got a knock on the door from a code enforcement officer who told me the property had over $60K in fines assessed against it. That was only the beginning.

    The nice house I signed a lease on had an empty pool and a dug up back yard a week later. It took them 2 months to re-sod the yard and 3 months to fix the pool. This was with me calling them several times a week and dozens of people coming to look at the problems. All the work they did on the renovation had mostly not been permitted. There were also outlets that didn’t work, a leak from the outside rain, a kitchen flood due to an improperly installed dishwasher, and an improperly installed garage door. Then there was the termite infestation which required tenting and fumigation.

    Then they had the nerve to raise the rent 7% on the renewal. They kept my entire deposit even though I moved out a week before my lease expired, and they sent me a bill for 3 months rent for moving out. Even the people that work for them told me all this was typical.

    I have never seen any company more vulnerable to a well deserved class action lawsuit. Any lawyers out there?

  20. Maximus Minimus
    Dec 7, 2016 at 3:02 pm

    When you live in your own house, you do the management and generate no employment, or GDP. Rental properties need management, which creates jobs, and adds to GDP.
    So these companies are selflessly doing gods work.

    • Petunia
      Dec 7, 2016 at 3:22 pm

      Actually I disagree. I spent more on household items when I owned than I do now. Now every time I see something I want to buy, I think about how I am going to move it and then I don’t buy it.

      • junior_kai
        Dec 11, 2016 at 6:20 pm

        Very good point. You want to stay “light” and mobile.

        I’m not clear on the relationship with blackstone and blackrock, but my 401k with fidelity contains almost no fidelity funds, but a number of blackrock (as well as vanguard) funds. WTF? Needless to say, I’m taking the brokerlink option so I can avoid that nonsense.

  21. Sporkfed
    Dec 7, 2016 at 3:45 pm

    I’ve got to believe Blackstone is calling the top
    of the market. They must fully believe rates are
    going up and the appreciation of their housing stock has dropped.

    • chris Hauser
      Dec 7, 2016 at 9:50 pm

      not the top, just time to sell.

      two different animals.

      pop quiz: why?

  22. franz
    Dec 7, 2016 at 5:51 pm

    Renting out real estate is a good way of getting rich slowly. Thinks of it as a bond which pays out at 3% a year. If you manage your cost very well, it works out because of the depreciation. When I was young, my father did well renting out house (less than 10) for a period of time but he had cheap labor (his kids) and is good at fixing things (no electrical, plumbing, or yard work needed). That being said, he was able to earn money on the back end but the real benefit came from the depreciation.
    My brother is currently doing the same with 15 houses which he purchase during 2008-2009 and which are all cash flow positive. If you set it up correctly, you can make decent money. However, he has to collect the rent on the 1st for all individuals with rent’s assistance. If he does not, he may not get it. Also, you can not carry people who do not pay your rent. However, you have to always talk to a bank as the loans are only 5 year and you have to find a new back every once in a while as they dial back their real estate risk. At this point, he should be selling out but ht only has a few years till they are all paid off. Hopefully, he will make it.

    • chris Hauser
      Dec 7, 2016 at 9:52 pm

      keep some, sell some, have money. keep all, sell none, have no money.

      it’s a fine business if it pays to be in business.

    • economicminor
      Dec 8, 2016 at 11:11 am

      what I do not like about real estate investing is the illiquidity. Just when you need the money, the markets can dry up, prices fall and you can find that there is no one to purchase.

      If any one choose to go into rental properties, make sure that you own in an area where the jobs are pretty certain and there is solid law enforcement. The poorer and more unstable areas are a money pit. Also own in your own neighborhood so you can manage and do the repairs. If you are not handy, don’t bother. Costs can wipe out your investment unless you control them yourself. It is a job and certainly not for everyone.

  23. DDD
    Dec 7, 2016 at 10:37 pm

    The numbers don’t make a lot of sense. 200K per home seems much too high for acquisition costs. I would think their average cost per purchase should be lower.

    • nhz
      Dec 8, 2016 at 3:37 am

      That’s the main point IMHO, RE can be a good investment but not at today’s prices in most of the West, unless you assume the central banks will print into oblivion and ignore the risk that asset values could plunge.

      In my country with current home prices (275K euro median), the gross income for a landlord is 2-5%; if you take into account the property taxes, upkeep, vacancies etc. there is very little gain left – but there certainly is a risk that the property value will decline strongly, now that we are at the end of a 30 year downtrend in rates (and after a 1000-1500% runup in prices, in my area). And given the paltry yield at today’s RE prices, it might take a lifetime to recoup the losses from a housing crash ;-(

      I sometimes hear about people who become a landlord just because their money doesn’t yield anything in a savings account; for them any yield from RE sounds nice. With a savings account you have bail-in risk but IMHO that risk is a lot smaller in most countries than the risk of a housing crash within the next few years; at least money in a savings account is more liquid than RE, especially in crisis time.

  24. ML
    Dec 8, 2016 at 3:13 am

    Becoming a landlord is a status thing. Let’s assume you aspire to owning a property to let out but you cannot afford to buy anything and you don’t want to borrow. The alternative is to buy a slice of a property but you do not know anyone who’d be interested in a joint venture. Another possibility is to buy a share of a property which when the price of the share is within your means makes the investment possible. It also offers the advantage of spreading the risk because a share in a portfolio of properties is surely less risky that buying a single property which through inexperience on your part is in the wrong place. Buying a share relieves you of the hassle of management; you simply buy the share and let others do the work.

    The return on your investment comes in the form,of two dividends. One dividend is from the rental and anymother income net of expenses, the other from capital appreciation. Whether you get any capital appreciation depends upon the purchase price of rhe share in relation to what happens to the price of the property in the portfolio over a period of time.

    Property has a reputation as a long-term hedge against inflation and according to Mark Twain one shouod buy land because they don’t make it any more. Those two factors make it hard for any inexperienced person to resist the logic in property. And since you haven’t needed to borrow to buy a share and Blackstone would surely have bought wisely what can possibly go wrong!

  25. Justme
    Dec 8, 2016 at 4:11 am

    >>(Blackstone’s Invitation Homes) has confidentially filed for an IPO, according to The Wall Street Journal.

    WTF???? How can you CONFIDENTIALLY file for an IPO? Is not the whole point of the S-1 registration statement to be *public* knowledge when a company goes, well, *public*? Lo and behold, I was unable to find the S-1 registration for Invitation Homes in the EDGAR database of the SEC. If anyone else has better luck finding the S-1 I’d certainly like to hear about it–that document should contain some juicy details about the real estate holdings of Blackstone/Invitation.

    • Dec 8, 2016 at 8:32 am

      “Confidential IPO filings” are part of the recent changes in regulations. It forbids the SEC from publicly releasing the names of the filing company and other data. It becomes known anyway, and purposefully stirs up a lot of interest. Here’s a good article on it:

      http://www.wsj.com/articles/secret-ipo-filings-feed-deal-frenzy-1438039559

      If you don’t subscribe to the WSJ, Google the article’s title, and you should be able to read it.

      • Justme
        Dec 8, 2016 at 11:34 am

        I read the article. The new law was Jumpstart Our Business Startups Act, signed into law in April 2012. The option to file in secret applies to companies with revenue less than 1B.

        As is almost always the case with our laws, the real purpose is something else than the stated purpose. It is about keeping the public and competitors in the dark about the real performance of HUGE startups that have up to 1B sales (which is a lot for a “startup”) but may nevertheless have valuations in the multi-billion dollar range. My guess is that this law was made-to-order for venture capitalists that are shitting their pants about filing a *public* S-1 for their internet bubble 3.0 San Francisco “unicorn” startups such as Uber, AirBnB, and the like. The VCs do not want the public to see the capital structure of these unicorns, because it will reveal that way t o much money got invested in something that is not profitable. Also it gives retail investors much less time to read and study the S-1 one when (if) iit eventually is made public.

        JOBSA is clearly very sleazy law. What happened to the goal of transparency? It got thrown under the bus.

  26. Dec 10, 2016 at 11:52 am

    American Homes has a rental listed a block from my house, and they haven’t been able to find a renter after roughly six months on the market, even after they reduced the price by 18 percent from original list! They waited 3 months to put the property into the local listing service because they were apparently confident of their own portal peddling their 48,000 properties across the U.S.
    Our rental market is still softening, so they will likely watch their bottom line get squeezed even more…
    http://aaronlayman.com/2016/12/average-rents-cinco-ranch-decline/

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