Prepare to send your rent check to a Wall Street address.
After buying tens of thousands of single-family homes in beaten-down markets, major investment firms have quickly become major landlords — and they’re in it for the long haul.
New research from Morgan Stanley predicts that the buy-to-rent sector will grow from $17 billion now to $100 billion in the next several years. These companies have proved the business model viable and will be able to get debt financing to grow their stake in the suburbs, the analysts wrote.
Blackstone Group, the biggest player in the emerging industry, has already spent $5 billion through a subsidiary on 30,000 homes, according to the Morgan Stanley report. American Homes 4 Rent, created by Public Storage billionaire B. Wayne Hughes, has spent $3.1billion on a portfolio of nearly 18,000 homes.
The foreclosure crisis enabled the firms to buy distressed properties en masse, often at bargain prices. Meanwhile, individual home shoppers have often struggled to get approved for mortgages and compete with investors’ cash offers.
The net effect is a surge in home prices — and predictions that more Americans will turn to renting.
“We expect homeownership to continue to decline for the next few years,” the Morgan Stanley analysts wrote. “While the stock of distressed housing has declined noticeably, it is still sizable enough to meet this growing demand for rentals.”
Now on solid footing, the investment groups should be able to tap new sources of financing — including packaging rental income streams into securities, similar to the way mortgages were bundled during the housing boom.
Many of those mortgage bonds went belly-up in the subsequent crash. But analysts see securitization as crucial for the nascent buy-to-rent industry.
In what would be the first such security, Blackstone Group is reportedly planning to bundle monthly rental payments on about 1,500 to 1,700 of the homes it owns in a deal valued at between $240million and $275 million, the Wall Street Journal reported last week, citing anonymous sources. Deutsche Bank, a major packager of risky subprime loans during the housing bubble, would structure and market the bonds to investors.
American Homes 4 Rent, meanwhile, on Thursday released the largest public stock offering of a company leasing single-family homes. It is the third and largest leasing company to become publicly traded, with the first two Silver Bay Realty Trust Corp. and American Residential Properties.